A Bird In Hand
Recycles dryer sheets
- Joined
- May 10, 2012
- Messages
- 137
Recently I was fiddling with FIRECalc and I discovered something that kind of blew my mind. Consider these two scenarios:
1) For the next ~20 years (until age 55) I max out my 401k, my wife and I max out our Roth IRA's, and we cut back on our living expenses somewhat in order to build up our taxable savings.
2) Immediately (and for the next ~20 years) I reduce my work hours and salary by 25% (work 30 hours a week vs 40), stop maxing out my 401k (contributing only a few thousand dollars in order to get the maximum company match), stop contributing to Roth IRA's for my wife and I, and save nothing in taxable accounts. The reduced salary is largely offset by reduced contributions to 401k, Roth IRA's and taxable accounts, so we wouldn't have to adjust our living expenses much.
With the assumptions I used in FIRECalc, the slacker approach still put me at 100% success rate. Granted, the aggressive savings approach resulted in a lot more $$ (average balance of $15 million vs $7 million at a $50k/year withdrawal rate; or the ability to withdraw $75k/year, still with 100% success rate).
There are plenty of other variations to my scenarios which also result in 100% success rates. For example, working 1/2 time starting tomorrow, but not starting withdrawals until age 62 (start of SS, for which I assumed 1/2 of what the SS calculator said our benefits would be); or saving at my current rate while working full time for 3 more years, then switching to half time; etc.
For those of you who have been in this situation -- that is, realizing you could imminently ease into your ER (by switching to part-time work), but only by drastically scaling back your savings rate -- were you able to pull the trigger? Maxing out my 401k seems so fundamental to my identity as a saver that the thought of abandoning it abruptly is giving me the willies. Especially while I'm still in my 30's, possibly with another 60 years of compounding interest ahead of me. Yet, the thought of working full-time just so I can afford to max out my 401k when neither are necessary for achieving my ER goals also gives me pause. I feel like I might be prematurely entering the "just one more year" phase.
1) For the next ~20 years (until age 55) I max out my 401k, my wife and I max out our Roth IRA's, and we cut back on our living expenses somewhat in order to build up our taxable savings.
2) Immediately (and for the next ~20 years) I reduce my work hours and salary by 25% (work 30 hours a week vs 40), stop maxing out my 401k (contributing only a few thousand dollars in order to get the maximum company match), stop contributing to Roth IRA's for my wife and I, and save nothing in taxable accounts. The reduced salary is largely offset by reduced contributions to 401k, Roth IRA's and taxable accounts, so we wouldn't have to adjust our living expenses much.
With the assumptions I used in FIRECalc, the slacker approach still put me at 100% success rate. Granted, the aggressive savings approach resulted in a lot more $$ (average balance of $15 million vs $7 million at a $50k/year withdrawal rate; or the ability to withdraw $75k/year, still with 100% success rate).
There are plenty of other variations to my scenarios which also result in 100% success rates. For example, working 1/2 time starting tomorrow, but not starting withdrawals until age 62 (start of SS, for which I assumed 1/2 of what the SS calculator said our benefits would be); or saving at my current rate while working full time for 3 more years, then switching to half time; etc.
For those of you who have been in this situation -- that is, realizing you could imminently ease into your ER (by switching to part-time work), but only by drastically scaling back your savings rate -- were you able to pull the trigger? Maxing out my 401k seems so fundamental to my identity as a saver that the thought of abandoning it abruptly is giving me the willies. Especially while I'm still in my 30's, possibly with another 60 years of compounding interest ahead of me. Yet, the thought of working full-time just so I can afford to max out my 401k when neither are necessary for achieving my ER goals also gives me pause. I feel like I might be prematurely entering the "just one more year" phase.