Old and Started in a Big Hole

[RetirementOrDieTrying]

Greetings, all. This is kinda long, as I'm taking the advice of this forum's sticky post to be verbose in my introduction. Reckon what the buffer of this input window is?

I'll start by saying that my position is incongruent with the name of this site, but because of my (remaining) timeline, the sprint is about the same, so I look forward to absorbing ideas from the conversations here.

This is a story of how a gut-wrenching divorce had a silver lining, with a couple of requests for input following the intro.

3.5 years ago I found myself divorced at 50 and with a big ol' load of debt from the former spouse, with whom I was not in alignment from a fiscal posture standpoint. She believed that there was no such thing as debt-free, and so there was no point in worrying about it - simply spend what you want and let tomorrow take care of itself. YOLO, right?

That is very nearly a direct quote, by the way.

At the end of June 2019 I started life over with $25 in savings and $400 in checking (those are not typos); $115k in unsecured debt (read: credit cards completely maxed out). No home = no equity. No vehicle of any kind. Nothing to sell. An RV in which I was living, with an $1,800/mo. payment (plus insurance), and which was upside down, so I couldn't get out of it by selling. All debt had been put in my name, because her credit was worthless. This debt included obligations from her prior marriage, with which I was stuck.

My brother had a spare ancient, 25-year-old GMC Yukon which he gave me. It had almost 200k miles, the paint had been baked off and looked terrible, but it ran and was road-legal, so for it I was enormously appreciative in my hour of need.

I was at a job in which I'd been for almost 20 years. I made $117k/yr. Because of the enormous debt load and profligate spending of my former spouse, I had zip-all in retirement or any other kind of savings, and I lived absolutely hand-to-mouth.

About the only thing I had going for me was that I was unbendingly determined to never have missed or late pays on anything - EVER. My credit was better than you might think based upon the above description of my plight, because although my DTI ratio wasn't great, my credit history was absolutely stellar. I couldn't stomach the thought of default interest rates and late fees.

By living as far below my means as humanly possible (and with no spouse blowing every dime), I slowly began to claw back some of the debt. $115k spins off a lot of interest at credit card rates, and it was hella difficult to make progress at first because interest was swallowing me alive. It took a year to pay off the first $32k account, and I kept pounding away one by one.

Along the way a friend of mine counseled me to start my 401k and HSA, even if it meant adjusting my timeline for debt repayment.

The RV was refinanced from 8.99% to 3.69%. Same payment, but the length of the loan went down from 30 years to 10.

I changed jobs, going from $117k/yr. to now about $220k/yr.

I paid off every last cent of debt except for the RV. I'm not super keen on early repayment of 3.69%. That's cheap money.

Even with the awful current market keeping the numbers depressed, I have $8k in HSA (which I do not ever touch), $85k in 401(k), $22k in Roth IRA, $26k in emergency fund, and I'm still driving that now-28-year-old GMC.

Although I have no fixed living location (I wander around the U.S. with a fully-remote job), I am domiciled in Texas, so no state income tax nor personal property tax.

My RV loan is $160k/3.69%, with 8.5 years left at $1850/mo. payment.

My FIT, FICA, MC, etc. is about 18% of gross on average.

My living expenses, including RV payment, insurance, fuel, food, clothing, maintenance, etc., is running about 21% of gross on average.

This leaves me with a smidge over 60% of gross as my current savings rate.

I completely max out my HSA, my 401k (including catch-up), and my IRA-to-Roth conversion, so my tax-advantaged buckets are all getting topped off as early in the year as possible.

I'm just now at the point where I've gotten all that debt killed off, my buckets are full, and my emergency fund has a few bucks in it. Time to turn my attention toward where to put extra dollars now.

So, there's all of the background. Now to my strategy queries...

1) I'm still driving that GMC, and happy to do so. I got it painted, so it looks very nice, and I maintain it well. It's comfortable, quiet, and reliable. Repairs and maintenance are running about $110/mo. on average. I have not been evaluating the cost of repairs vs. resale value, as I'm not in the auto business. This is an expense, not an asset nor inventory item - I couldn't care less what the trade-in or resale value is or will ever be. Am I overlooking something with this line of thinking?

2) I am woefully ignorant of the ways to make money work for me. To begin with, it has been suggested that I keep it simple and start with e.g. Vanguard mutual funds while I work on my financial knowledge. Thoughts on this approach?

3) I'm not entirely sure what my retirement trajectory is. A lot of the tools start with "when do you want to retire?", and "before I die" isn't one of the options. I live very modestly, and don't anticipate that changing, but lately with inflation, the specter of SS insolvency, and so forth, I'm really struggling to come up with a data-driven date that I can work toward. What are some ways I can get a handle on my realistic timeline for retirement, by working the numbers backward?

If you've read this far, then I appreciate the time, and would welcome input.

 

[finnski1]

Welcome.
Seems to me you've made huge progress in such a short time frame. Having a $220k salary with 60% savings rate is huge. You are already of the right mindset and I would only suggest to keep on doing what you're doing.

 

[Taco]

Wow - what a few years you've had. Huge congrats on the progress you made in such a short time. That's very impressive.

1) Keeping that GMC as long it works makes great sense.

2). Not only does beginning with low cost index funds make sense, it can end there too.
There is no reason to get more complicated than that for the equity portion of your assets. You will need to consider how much you want in equities (stocks) vs fixed (cds, bonds) - i.e. your Asset Allocation. I have no personal experience with Vanguard, but I've read of customer service issues recently. Folks seem to be preferring Fidelity or Schwab.

3). Focus on expenses. When you can retire will be related to when you have enough to cover your expenses.

 

[Unpaintedhuffhines]

Keep driving the GMC. Repairs and maintenance for an old vehicle of $110/month is cheaper than any other option you have.

Maniacally track your expenses, as this is the key to knowing how much you need. We spend pretty freely at about $150K/year, but many others need way, way less (and I expect you are in that camp too). Don't forget to factor in the cost of healthcare & future one-time expenses.

Rough rule of thumb I use is my investments will pay out 4% over time. So, if I have $100K invested, then I can generally count on that for about $4,000/year. It's a rough rule of thumb, not an exact science by any means. But it should get you in the ballpark. So, if you can live on $40K/year, then $1M will put you close (not factoring in anything for SS).

Use Firecalc. It's a good tool to see how you're doing, and you can customize it a bunch of ways, and look at a lot of "what if" scenarios.

Not to get into a political debate, but I don't see a world where social security just goes away - too many people who vote depend on it, but it's possible that the retirement ages get adjusted (which has happened before). ssa.gov will give you your estimates that you can put into firecalc. It's the only data you have right now, so I use it (others may choose to take it out of their calculations, like my brother-in-law who is 56 and is certain that he will never see a penny. He also believes that his investments over time will only every pay out 1.5%). To each is own.

Oh, and a huge congratulations on digging out of that very ugly hole. Certainly not easy at all but will set yourself up for success down the line.

 

[aja8888]

It took me over 25 years after being in your position, but without that much prior debt, to get to here (retired, but not fabulously wealthy though). My second wife of 26 years (lovely lady) died in December so I am single now and have no real plan, yet. But I am 79 and just happy to be here (today).

Anyway, keep the truck as it's always fixable being GM. What cars cost nowadays is bordering on extortion. Besides, NO ONE CARES WHAT YOU DRIVE!!

Keeping investments simple is key, and loading up on Vanguard or other company ETFs is wise for the long run. You have many more years left.

Good luck, and if you decide to choose another "mate", consider not going into a marriage arrangement. Also, CHOOSE WISELY!

 

[Taco]

To add to the Focus on expenses thought...

I'll toss out some rough numbers, probably not accurate but the concept is there.
Out of your 220K income, you are
- saving 120K
- paying 15K FICA (Social Security / Medicare) tax.
- paying 40K income tax
In retirement, those first 2 are gone and the 3rd one would be way less, since your income is way less. A retirement income of 50-60K might fully fund the lifestyle you are living now. Tracking all your expenses can help determine that.

Say you need 60K. Social Security will cover part of that. There are online tools to help estimate what you will get. Say SS covers half of what you need - you will need an additional 30K of income in retirement.

So when you could retire would be when you could generate that $30K of retirement income. If that is coming completely from what you have saved / invested, a general rule of thumb is a 4% withdraw rate. So, $750K *.04 would be $30K a year you could withdraw.

 

[38Chevy454]

Welcome to the forum. Huge pat on the back for paying off all that debt in a relatively short period of time! While the RV loan seems like debt, you can also think of it as your rent for shelter over your head. You would probably spend close to that for place in any reasonable cost of living location. So it doesn't seem as bad thinking about it that way. Sure you need to pay lot rent for the RV park, that can be minimized with state or federal parks, boondocking, or even getting a favorable long term rent in an RV park.

Here are my thoughts on your questions:
1) Keep the GMC as long as it is reliable and working good for you. Being an only vehicle, if the repairs get too frequent and too much expenses, you might look at newer. But nothing wrong with an old Tahoe, those can go way past 200K miles with good PM.
2) Widely held diversified low cost funds are what many on the board here use themselves. Just stick around and read up all you can. Self-education on investing is one of the best things you can do. The forum here is a great resource to learn. Ask questions on specifics if you can't find in a search or someone else's post.
3) Retirement and being financially secure is all about the numbers. You are doing great keeping expenses down and saving huge amounts now. Keep that up. You will see a lot of discussion about the 4% rule, basically says you can withdraw 4% adjusted for inflation, for 30 years and be safe in not running out of money. Or using the numbers backward, you need 25x your expenses in savings. So if yearly expenses are $50K, you need $1.25M. BUt that's assuming no additional income. You should get SS, so if that is for example $36K/yr, you really only need to withdraw $14K from savings. $14K means needing $350K in savings. All numbers just showing how you can try to figure out your needs. You also need some additional for large unexpected expenses, but you can see the basic ideas.

My thought is you are 53.5 now, and saving approx $120K/year. With 8.5 years of RV loan, if you continue on current path of savings and have it invested in the market, you should have not only paid off RV in 8.5 years, but also a nice approx $1.3M or better in savings. That also puts you at 62, where you could start SS. Although waiting longer increases your SS if you can delay. Just read up on the forum here and you will understand better. You already have gotten out of the big hole. Now maximize that savings and increase you financial knowledge. You will make it.

 

[NgineER]

Welcome to the forum.

I like this simple calculator and some of the reasoning behind the simplicity for retiring early. I'm not a MMM follower, but it made sense to me on a simplistic level. Based on your provided income, savings rate etc. You can retire in 11-ish years. Including SS etc. would drop that timeline.


https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

Early Retirement Calculator

It is a high level estimator that doesn't include any SS, pensions etc., just looking at your income and your expenses and having to live off those savings.

 

[street]

I think you have done very well in just the few years of getting things in control. I Say keep doing what you are doing LBYM. Keep investing every penny you can and make a plan on what you will need to live on when you decide to ER.

My goal was 10 years out to have enough money in Cd's, MM, savings account or low risk money to live on and not to have to sell any investments. I wanted a bullet proof as possible plan as I could make. Now after being ER for just about 7 years, I know for sure I have won the game. A good plan and then work the plan you want to meet your goals.

Good Luck and welcome. There is a lot of great people here with a lot of knowledge that are willing to help and give options and guidance.

 

[Aerides]

Welcome!

So, you have a solid 220k income, you are 53, your expenses are minimal, and your debt is now pretty low? Not a bad place to start. If you can sock away about $100k per year, and the markets are kind, add SS and you should get a normal retirement timeline. You can look up your projected SS.

I'd rethink the RV for the longer term though. Once you are in your 60's that's gonna get old.

Yes to Vanguard (or Fido, or Schwab), look up the Bogle "lazy" portfolio for some ideas on funds to consider.

 

[ut2sua]

2) I am woefully ignorant of the ways to make money work for me. To begin with, it has been suggested that I keep it simple and start with e.g. Vanguard mutual funds while I work on my financial knowledge. Thoughts on this approach?

3) I'm not entirely sure what my retirement trajectory is. A lot of the tools start with "when do you want to retire?", and "before I die" isn't one of the options. I live very modestly, and don't anticipate that changing, but lately with inflation, the specter of SS insolvency, and so forth, I'm really struggling to come up with a data-driven date that I can work toward. What are some ways I can get a handle on my realistic timeline for retirement, by working the numbers backward?

OP, Congrats on getting to this point.
On #2, if I were you, I would go 100% equity. VTI or equivalent. No single company stock doesn't matter how good the company looks (Any company could go bankrupt; VTI won't). You are effectively starting to invest with potential more $ to add, so you can go aggressively with the AA (asset allocation). Don't follow this advice if you can't tolerate the market every day up and down, however.
For #3, you actually have lots on things on your side:
a- You have a relatively high income with a high rate of saving. This is great. This is why #2 above will work and give you the fastest NW growth.
b- You will have SS benefit. If your cost of living is relatively low, SS will be a big portion of that. So you don't need a lot of $ on top of that to retire.
c- You have been thru the toughest battles: LBYM and do everything else in the best ways to achieve debt free and having positive NW. The road from now on is easier since you don't have to pay much debt interest.
d- I bet you will be able to retire successfully and comfortably at some point mostly because of "c" above. "b" and "a" will help also.
Good luck and welcome to the forum

 

[SnowballCamper]

To answer #3, I like this calculator for a simplified look at things, because it visualizes mortality as well as asset drawdown.

https://engaging-data.com/will-money-last-retire-early/

Then as your nest egg grows and the financial picture gets more complicated, FIRECalc is quite good.

When you get to where you want a detailed look at how to strategize with respect to taxes and IRAs, take a look at i-orp. https://www.i-orp.com/Plans/extended.html

Keep the GMC, and buy and hold index stock funds as you learn the ropes of your brokerage account.

 

[kgtest]

Great job on the 9th inning progress you've made. Thankfully like baseball, you sometimes get extra innings. Keep the GMC, invest in Vanguard Total Market Index Funds (ETFs) and just keep socking every penny away as soon as you can. Getting that pay raise was the best thing you could do for yourself.

 

[RetirementOrDieTrying]

I really appreciate the feedback. I'm VERY reserved about discussing finances with most friends or family for a multitude of reasons, and it's a relief to be able to have conversations with a learned audience on the topic.

And now, in no particular order:

SSA calculator currently says (today's numbers) $41k/yr. retiring at 67 or $52k/yr. at 70. That's still a long time from now, and Congresscritters can always change things around with regard to COLA and retirement ages, but them's the numbers right now.

Excluding the RV payment (which will be paid off before retirement), my living expenses all in are in the $28k-$30k/yr. range right now. I'm sure inflation will have something to say about that, but that's the current nut.

GMC it is.

I have very little cost for RV lot rental, as I boondock extensively, am a member of the Elks and Freemasons (short-term camp at their lodges), and I also have family/friends around the nation who have installed full hookups to encourage me to visit. I probably don't exceed $500 in an entire year for RV spots. I more or less chase nice weather and pretty views.

I calculate my expenses and finances to the penny every single day, and have since I was 8 years old (no, really). I have very solid historical data. I can tell you on what day I spent $0.03 on a piece of bubble gum at Parkit Market in 1977.

Everything is on AutoPay; I know to the penny what my recurring bills are and when they hit. I project my balance between semi-monthly paychecks, and anything left over is put into savings on the same day the paycheck lands. Sometimes I stay up late to watch the direct deposit arrive so I can immediately move the funds.

I stay up until midnight Eastern Time on 01-Jan to max out my IRA (and thence to Roth) for the coming year because I want it working for me as quickly as possible. This is because...

...dollar cost averaging just makes my head hurt. I simply put every dime I have in the mix the moment I have it, and let it ride.

I have LOTS of tolerance for market fluctuations. I recognize that I'm behind the eight ball and have, realistically, only 15-ish years to make good. That gives me a healthy risk appetite for the moment. Not crypto kinda risk, but not CDs, either. I'm sure my allocations will garner more attention as the clock ticks down, but for now, with the market in suckage territory, I'm highly motivated to buy as much as possible while prices are low.

If I ever find myself evaluating another XX-chromosome candidate travel companion, I will look a LOT more carefully into certain things before proceeding. Doesn't have to be perfect, but I dang sure ain't lining up for a(nother) walking train wreck, either.

A picture of the free-to-me U.S.S. Guzzler is attached for general amusement. Yes, there are still a few vehicles this dadgum old still in daily use. It does seem to be uninteresting to thieves.

 

[Out-to-Lunch]

Welcome aboard, and congrats on your recent progress!

 

[tony1852]

Congratulations on your quick turn around! I'm fairly new to this game, so just keep that in mind.

With your low spending lifestyle, you should probably take a look at the Mr. Money Mustache site already recommended. I started there a few years ago by accident. With my annual spending of $55k/year, I didn't quite seem to fit in after a year or so. I get a kick out of the site and forums still, though, and I think you would too.

I've tracked my investments pretty closely over 25+ years, and I'd say keep it simple. I didn't know of the resources available back in the late 90s, so I did some DRIP investing as it was the lowest cost I found. I still have over 100 individual stocks today, although it's mostly been consolidated to Vanguard. Warren Buffet and the followers of the founder of Vanguard, John Bogle, will argue for a very simplistic portfolio. I tend to agree with this now and wish I started that way. Better to spend your time on other pursuits rather than try to educate on investing, when the simple approach is going to get you 95%+ of what you could do if you were a more active investor. Law of diminishing returns in this case. Learning more about taxes and which buckets (401k/IRA, Roth, etc.) to put your money is probably more important. You sound like you're good in this area. Then, the next thing you focus on his how to draw down and spend money. That, I've learned, is totally different from the accumulation game!

My continual question is, what make me happy? If your nomadic RV lifestyle suits you, and you see that continuing for years to come, then continue. Do you dislike your job? What would you do if you didn't work? Think about these things rather than just the $. I think you're going to be in really good shape in 10 years or less if you enjoy life by keeping your annual spending under $30k, even with adjusting for more moderate (4%) inflation.

Good luck my friend!!

 

[athena53]

Congratulations! I divorced a financial train wreck when I was 43 and retired at 61 but was in a much better position- had a 12-year old son but all my Ex's credit card debts went with him (he ran them up buying things for himself), my share of the equity in the house was $100K and I was allowed to keep investments in my name in exchange for no CS.

With your simple tastes, your massive savings rate and your investment strategies you should do fine.

SS may be more than you expect- as you keep working at that high income level, your average indexed monthly wage calculation will drop off the lowest of the most recent 30 years and add the new, higher year. I'm not sure how well SS calculators take that into account. It most likely will get taxed based on your income from other sources. Mine is.

Tony mentioned strategies for allocating before- and after-tax savings. If I had it to do over again I might have put less in 401(k)s- just enough to get the employer match. I'm moving to investments with lower capital-gain potential (more fixed-income) in the IRAs since anything coming out of an IRA is taxed as ordinary income even if it's a long-term gain. (Roths were an option only late in my career.)

I actually did have a very happy second marriage but we dated for 7 years first! We were on the same page financially-frugal on many things but loved travel and did as much as we could. He was 15 years older and died in 2016. Now dating another good man of VERY modest means with no plans to marry or cohabitate. So, you don't need to write off the pleasures of companionship if you're careful.

 

[Markola]

I'm really struggling to come up with a data-driven date that I can work toward. What are some ways I can get a handle on my realistic timeline for retirement, by working the numbers backward?

.

OP, First, you have an amazing story, positive attitude and you are a colorful writer. You could even write a book, start a blog, podcast or YouTube channel and help many other people like you. Congrats on digging out and getting this far.

Here’s one stupid simple retirement plan, which will work and which requires no investing know-how:

1). Plan to live on the SS at age 70 number you determined above, something like $52,000. You will get more than that, because SS is the one piece of retirement income that is inflation protected. Do not worry about Congress. We’re seeing real-time what happens to such politicians, which is to say their phone calls stop being returned while they are out on the ice floes, and they start begging to come back to the igloo, saying it was all a big misunderstanding. Also, your healthcare will mostly be covered at age 65.

2). Every time you can save $52,000 through the tax-deferred dollars in your retirement accounts, plus their compounding over next several years, is ONE LESS YEAR YOU HAVE TO WORK. So, obviously, finding ways to step on the gas now to save aggressively as soon as possible is to your benefit. Right now, financial assets are on sale, so stock up.

3). Investing need not be fancy. It’s actually best if it’s not. Look at your mutual fund choices and pick one single target retirement date fund for approximately when you turn 70, which is probably a 2040 fund. Put everything you can in that fund from now on and NEVER TOUCH IT FOR ANYTHING. Let it work through compounding.

Probably in your early 60s, you’ll divide the amount you have by the updated amount that SS will provide at age 70 and realize, “Meh, I’m done.”

Good luck and keep us posted!

 

[athena53]

You do need to plan for health insurance before age 65 if you ER. Does your employer offer retiree health insurance? If they do, you still need to consider the scenario where they end it or curtail it unless it's protected by a union contract. (My brother's former employer ended it with about 3 months' notice.)

ACA is a blessing compared to the options available before that, but it's no picnic. Some people can manage their income to get subsidies- I couldn't since mine was SS, a couple of small pensions and investment income, so I paid the full price. It doubled from $440/month when I retired in 2014 to $900/month when I hit 65. Deductible was $6,000 and the networks got skimpier with each renewal. Fortunately I never got near that $6,000 and stayed healthy.

 

[pacergal]

Welcome to the forum. You have accomplished much in the last few years.
Continue LBYM, plowing money into your retirement accounts and remember to have little fun along the way!

 

[Walt34]

A picture of the free-to-me U.S.S. Guzzler is attached for general amusement. Yes, there are still a few vehicles this dadgum old still in daily use. It does seem to be uninteresting to thieves.

I gotta love that name for it!

My 2003 GMC 4WD pickup is almost that old. On a good day it gets 18 mpg. Just think, in another five years I can get antique tags for it!

 

[ncbill]

OP is doing fine though I'd recommend Fidelity (what I use, local office) or Schwab given Vanguard's (thoroughly discussed over on Bogleheads) decline in customer service.

 

[RetiredAt49]

Way to stick with your goal/plan! Lots of good advice and regarding #2, after you have maxed out 401k match (if any), and IRA’s, open a free brokerage account with Fidelity and go 100% equities. Personally I would recommend what I own (VOO, VTI, and a little QQQ). All three of them are low cost index funds. VOO tracks the S&P 500. VTI tracks the US stock market. QQQ tracks the tech heavy Nasdaq 100.

 

[RetirementOrDieTrying]

I gotta love that name for it!

My 2003 GMC 4WD pickup is almost that old. On a good day it gets 18 mpg. Just think, in another five years I can get antique tags for it!

That's gorgeous!

 

[trumpeting_angel]

Wow! Not much to do except echo the sound advice of others here, and congratulate you on a fantastic recovery.

I will second those who suggest you don’t need to spend those late hours learning about investing. I have invested over the years in real estate, tax liens, other creative investments, and index funds. Hands down, index funds have been the best choice. One of my RE investments has been a wonderful choice, but the other one went sour and I sold at a significant loss. I’m still with Vanguard out of sheer laziness, but when you have minimal interactions (set it and forget it) there’s not as much opportunity to encounter the bad customer service!

Oh, and NO CRYPTO! ������

Keep up the awesome work!