36yr old FIRE dreamer seeking help... Can a small business person pull it off?

[Tork]

I have been lurking on the forum for 6 months and I am hooked on the idea of at least having the ability of FIRE (maybe in 10-15yrs?)!! My problem is that I tend to analyze every decision to death and not get anything done when it comes to investments. I have been saving but I am not getting any returns because I can't decide which funds to be in.... Analysis Paralysis is my problem and I know it is costing me and my family big time! It makes me feel a bit foolish, honestly. We work hard for our money but I am not making it work hard for us Any advice is greatly appreciated!!

My situation: 36 married with a 1 year old
Both Self Employed live in rural Southern US
Last year our income was around 300K but we lived on about 120K (should be less this year...Remodeled and purchased a used car last year)
No 401K but just did set up a SIMPLE IRA in 2014
Considering a 401K but can't find a good low fee (yearly) option to get one set up.

Personal Savings (Wife's Included)
55K Emergency Fund (sitting in bank not gaining any interest (ugh))... Advice?
345K in a Taxable Vanguard Account (Sitting in VG Money Market)
75K in his/hers Roth Vanguard Accounts (Sitting in VG Money Market)
12K in a Vanguard SIMPLE IRA from 2014 (Sitting in VG Money Market)

Personal Debt
110,000 Mortgage at %5.37 (have debated paying it off)

Business Debt
475K at 4.5% but business has significantly more value than 475K so I tend to think of this as a wash. I have a personal 65K CD tied up as collateral to the business loan that I would like to get untied from this loan.

Questions for the folks of this awesome and inspiring forum..
What would you do if you were me??
At this point I am considering dumping everything into a Vanguard Retirement Date Fund... Bad Idea?
Any small business folks here open 401Ks to be able to sock away more cash? If so who did you use? Everywhere I look the fees are ridiculous and seem to take away much of the benefit.. Any advice on this one?

[Debinnov a]

I owned a small business for 25 plus years. Started out with SEP IRA and when I could afford the additional fees, I opened a corporate 401K along with yearly discretionary profit sharing. Was able to increase contributions substantially. Saved a lot of taxable as well. We are early and late 50s, with a long wait for social security and no pension, but we were able to retire this year.

Are you able to sell the business when you are ready to retire? That worked for us.

Sent from my KFJWI using Tapatalk

[Tork]

Quote:

Originally Posted by Debinnov a I owned a small business for 25 plus years. Started out with SEP IRA and when I could afford the additional fees, I opened a corporate 401K along with yearly discretionary profit sharing. Was able to increase contributions substantially. Saved a lot of taxable as well. We are early and late 50s, with a long wait for social security and no pension, but we were able to retire this year. Thank you for taking time to respond! I really appreciate it, I feel a bit out on an island with this stuff. Who did you use to set up your 401K? You feel it was worth the fees? Are you able to sell the business when you are ready to retire? That worked for us. Yes, I will sell my business but it will most likely never be worth more than 1 million due to it being a very limited focus business. The business does include the building real estate which we own so together (business and building) I might count on 1-1.2 million Sent from my KFJWI using Tapatalk

Thanks again for taking time to respond!

[DROPOUT]

I'm self employeed. I as well, for the longest time, was SUPER critical of all investment decisions. My parents lost a ton in mis managed funds in 2007/2008 and that scared me straight. I stayed 100% cash for a good 4-5 years. Had I known then what I know now, I'd have double or triple the net worth. With that said ... this is how I broke the ice.

Start with your IRA's. If you haven't taken advantage of backdooring ~ do so this year I picked the target fund of 2035 and 2045 for the wife respectively. Although we started with 5,000/each 2 years ago ... its just what I needed to gain traction.

From there ~ I started a monthly contributions in to our Taxable Vanguard account. The transfer would go to the VG MM and from there would be transferred to 1 of 3 funds.

Before I started on my path, I read "The Boglehead's Guide to Investing" ... Best few $$$ I have ever spent. I've settled on a 3 fund approach, with a mix of roughly 75% Stocks and 25% bonds.

To this day ~ I still have way more cash than I should, but I learned that I preferred the DCA approach over 1 lump sum Some will disagree with this move, but its what allows me to sleep at night.

So, that is my $.02 cents. Start small ~ Research a few of the target date funds, and move from there You could DCA (Dollar Cost Average) out of your MM funds if you want as well. Perhaps start with $5k/monthly. Learn along the way, and you'll do fine

Good luck!

[Del Q]

You sound like me 13 years ago. Today I'm almost 50 and will be selling my business next year. The sale of the business will cover living expense til I begin drawing from SEP & Roths (and likely SS) at age 62.


I've had a SEP for 28 years, I put in the max every year, this was 15% for many years and recently increased to 25%. I found this to be a generous amount and haven't looked into ways to increase it with a 401k. I have a diversified portfolio of equities, if I had it over again I'd get a VG target retirement account and forget it.


Next I fill my Roth for myself & wife. I'm not sure what your taxable income would allow this or possibly backdoor ? Again, it would go to a VG target retirement fund way out in the future.


Whatever is left would go:
- Fill HSA account (about $6,500)
- Start a 529 for children. I'm drawing on two of these now for my kids and it's great.
- anything left would go in a tax efficient VG portfolio, tilted towards equities.


Equities are your friend, I'd get your cash invested over the next year. Learn to take downturns with stride. I didn't open a statement for two years in 2008-2009. I just kept buying.


I've never had a large emergency fund. I have insurance that would cover most any unexpected accident and a couple thousand bucks would cover the deductible. I have a large balance in my HSA. I do have a free line of credit for about $50,000, I consider this my emergency fund. I also have a chunk in VG Balanced Fund which is not very volatile and just keeps on growing (great fund).


The mortgage could be argued all day, as long as you itemize and can deduct the interest I'd keep it, but I think you can do better on the interest rate.


On a final note, start getting your business ready to sell right now. Get an exit strategy and get it in place at least 3 years prior to your planned exit. Most business owners wait to long and find it hard to find a buyer that will let you walk away with a pile of cash. If you're a valuable part of the business you need to either train someone to buy it, or plan on staying on a while after you sell it. Don't forget the tax man either, uncle Sam is your business partner whether you know it or not and is going to share in your success.


Good luck.

[Del Q]

Forgot to mention on the SEP, if you have an employee for 36 months you're required to add them to the plan and contribute the same percentage as you do for yourself. I hired my wife and contributed the same for her and that worked well.

[clifp]

It is absolutely doable to retire with your income and expense and decent start in 15 years, 10 maybe a stretch but conceivable.

However as DelQ and you point out. In order to retire in this time frame, it is vitally important that your money works as hard for you as you work for it. Lazily hanging around in Vanguard money market is not working hard. You'd fire an employee who was a lazy as your money

Essentially, I'd use most of your emergency fund, all of you Vanguard taxable account money, the CD, and any money you can pull out of a refi to wipe out the business loan. 4.75% is not horrible rate for a business but when you have 400K sitting around earning 0%, you are spending $22,000 in interest that make no sense.

As I side note, I think it is easier to sell a business with no debt. Cause if you have debt there is always the suspicion that business isn't as profitable as the owner is saying.


I'd look at refinancing your house . I'd borrow as much as they let you without having to pay into of PMI or additional fees. Penfed has 15 year mortgage at <3% and since that matches your retirement date, it wouldn't hurt to retire mortgage free. You should be able to get a rate of around 3% from somebody like Penfed or Quicken loans.

Max out your SEP IRA, and any IRA or Roth the wife is eligible.
Vanguard retirement funds is reasonable option. Given that you retirement date would 2030, I suspect you'd be better off sticking most of the money in Vanguard Wellington. With some additional money in Vanguard Small Cap index fund, and Vanguard total international stock market, since Wellington doesn't cover those two areas. But the exact funds and AA, are secondary considerations to get the money out of money market funds.

Once you have some experience investing your retirement funds in equities, you'll have more confidence to do so in your taxable account.
I'd take any additional money and use it to pay down the business loan.

[calmloki]

If you gotta sit on cash it might as well make a bit. We have a Barclays bank account
https://www.banking.barclaysus.com/index.html that pays 1% and a couple TIAA-direct accounts that pay 0.8%.https://www.tiaadirect.com/public/banking/ TIAA is much easier to deal with and allows linking more accounts than Barclays for EFT money moving, but you are giving up $200/year if a $100k sits there all year. We use TIAA the most.

[Tork]

Thank you to everyone for taking the time to respond. I certainly have my work cut out for me. I am planning to get started putting the money into the funds this week. Should I do a little bit at a time? Why would I choose Wellington over a Retirement Date fund?

[clifp]

Quote:

Originally Posted by Tork Thank you to everyone for taking the time to respond. I certainly have my work cut out for me. I am planning to get started putting the money into the funds this week. Should I do a little bit at a time? Why would I choose Wellington over a Retirement Date fund?

On the retirement side I stick them all in at once. You aren't going to be need them for 10+ year might as well get the working now. In the case of the money in your taxable account it depends if you are planing on keeping the business loan, or paying off some or all of it. If you decide to invest then nothing too wrong with dollar cost averaging over the next 3-6 months.

There is nothing wrong with vanguard retirement funds. Wellington has just had slightly higher performance over the last five years, with a similar mix of bonds (slightly more bonds) and done so with lower risk. It also has an 85 year track record of superior performance, which I find comforting.

[Options]

If I had been as smart as you and Del Q and been thinking of these things when I was 36 I could have retired a decade ago with a much higher net worth. When I look back at the financial mistakes I made simply because I "didn't know" I cringe.

I highly recommend taking the time to educate yourself by reading books and websites recommended here and on the BH forum. Doing so will free you from making the same costly mistakes I did. Absolutely nothing substitutes for knowledge and doing it (financial management) yourself. I would take it as seriously as you do managing your business because not doing so has the same negative consequences.

[Tork]

A question about the Vanguard Ret Date funds... Are the ones further out "more aggressive" than the closer ones? If so and I feel like I want to be a bit more aggressive and wouldn't mind working longer if the bottom fell out, should I pick funds that are maybe 10 yrs later than my hopeful/dreaming date?

[samclem]

Quote:

Originally Posted by Tork A question about the Vanguard Ret Date funds... Are the ones further out "more aggressive" than the closer ones? If so and I feel like I want to be a bit more aggressive and wouldn't mind working longer if the bottom fell out, should I pick funds that are maybe 10 yrs later than my hopeful/dreaming date?

Yes, they are more aggressive the farther out you go. A lot of people do as you are considering-if they want to be more aggressive, they just choose a fund farther out.

A simple question: Do you have employees? If it's just you (or you and your wife), a Solo 401K can be set up at Vanguard or Fidelity at zero cost and the paperwork is very straightforward. It might offer you some options that you don't have with a SEP.

[Tork]

Quote:

Originally Posted by samclem Yes, they are more aggressive the farther out you go. A lot of people do as you are considering-if they want to be more aggressive, they just choose a fund farther out. A simple question: Do you have employees? If it's just you (or you and your wife), a Solo 401K can be set up at Vanguard or Fidelity at zero cost and the paperwork is very straightforward. It might offer you some options that you don't have with a SEP.

I do have employees so that makes things more complex. Thank you for taking the time to post though.

[UnrealizedPotential]

Quote:

Originally Posted by Tork I have been lurking on the forum for 6 months and I am hooked on the idea of at least having the ability of FIRE (maybe in 10-15yrs?)!! My problem is that I tend to analyze every decision to death and not get anything done when it comes to investments. I have been saving but I am not getting any returns because I can't decide which funds to be in.... Analysis Paralysis is my problem and I know it is costing me and my family big time! It makes me feel a bit foolish, honestly. We work hard for our money but I am not making it work hard for us Any advice is greatly appreciated!! My situation: 36 married with a 1 year old Both Self Employed live in rural Southern US Last year our income was around 300K but we lived on about 120K (should be less this year...Remodeled and purchased a used car last year) No 401K but just did set up a SIMPLE IRA in 2014 Considering a 401K but can't find a good low fee (yearly) option to get one set up. Personal Savings (Wife's Included) 55K Emergency Fund (sitting in bank not gaining any interest (ugh))... Advice? 345K in a Taxable Vanguard Account (Sitting in VG Money Market) 75K in his/hers Roth Vanguard Accounts (Sitting in VG Money Market) 12K in a Vanguard SIMPLE IRA from 2014 (Sitting in VG Money Market) Personal Debt 110,000 Mortgage at %5.37 (have debated paying it off) Business Debt 475K at 4.5% but business has significantly more value than 475K so I tend to think of this as a wash. I have a personal 65K CD tied up as collateral to the business loan that I would like to get untied from this loan. Questions for the folks of this awesome and inspiring forum.. What would you do if you were me?? At this point I am considering dumping everything into a Vanguard Retirement Date Fund... Bad Idea? Any small business folks here open 401Ks to be able to sock away more cash? If so who did you use? Everywhere I look the fees are ridiculous and seem to take away much of the benefit.. Any advice on this one?

Oftentimes I wonder if I would have been better off just investing in an SP 500 index fund and forget it. I did not do that, but the low fees and the market return make it a good option. This could be something for you to consider for the stock portion of your investments.

[Tork]

Anyone think I am making a mistake or selling myself short by dumping my taxable account into a VG retirement year fund?? Any different suggestions for the Roth money?

[samclem]

Quote:

Originally Posted by Tork Anyone think I am making a mistake or selling myself short by dumping my taxable account into a VG retirement year fund?? Any different suggestions for the Roth money?

First, the most important thing: If you put your money into a Vanguard retirement-date fund that is close to your desired asset allocation and leave it there, you'll probably do better than the VAST majority of investors. You won't be paying high fees, you won't be trying to time the market and selling high/buying low, and rebalancing will be handled for you (so you'll automatically be selling things that have gone up and buying things that are cheaper.) It's a fine way to go.

What you give up is this:
1) Some assets are better held in tax-deferred accounts, and if you do that, then other investments will wind up in your taxable accounts. To give one example: Bonds produce taxable interest, so many people choose to hold them in their tax-deferred accounts. Your overall allocation should stay the same (% stocks, bonds, etc), but where you hold each can be tailored a bit. Here's the best explanation I've seen. It's not a simple process, and even if you fine-tune things a lot and jump through all the hoops, a change in tax law or in the expected performance of various asset classes can mean that you would have been better off with a Target Date fund.
2) The ability to fine-tune your asset allocation. >In many cases this is not a good thing to do anyway!<

If you would be happy to outperform the vast majority of investors and want to spend less than an hour a year thinking about this, definitely go with the target date funds. If you want to read up on the various model portfolios and will enjoy (and actually do) the things needed to get that last .5% of efficiency (including tax efficiency) then consider choosing 3-7 individual mutual funds or ETFs and filling them yourself.

The Target Date funds (for your taxable and your Roth) is a fine spot to park the money while you decide what to do next. If you don't get around to doing anything, they could sit there and do very well. If you decide to tinker around a bit, you'll probably pay some CG taxes when you sell the Target date shares--but that's a good problem to have. Much better than leaving them in a MM fund (very little chance of needing to pay any appreciable taxes there--and you know why).

[someguy]

I don't think I saw you indicating whether you have employees other than you and possibly your wife. If you don't, or if you have a company structure with multiple entities where you pay yourself out of an entity that doesn't have employees (other than you and wife), I would consider an individual 401(k). You can set it up through Vanguard for free or a very low cost. You'll have access to lots of low-cost VG funds. The only exception is you won't have access to their Admiral shares, which are even lower cost in exchange for higher investment amounts.

Assuming your wife contributes to the business in a meaningful way, both of you could contribute the standard $18K/year each, plus profit sharing up to 20% of the business's net income up to around $52K/year each.

You didn't say if $300K/year was net income or what, but assuming it is, you could sock away around $95-$100K/year pre-tax in an individual 401(k) for you and your wife.

Also, what others have said -- sitting that much money in VG money market accounts is literally pissing away money to inflation. You've got to get most of that in higher yielding investments.

[TomH]

I just saw the post. Looking at a fund for a few years does not guarantee it's future success. Stick with a Vanguard S&P 500 to match the market. Most fund do NOT beat the market. Stick to this conservative fund and just let it ride. Many fund managers can NOT beat the market so why try anything else? I only learned this recently after investing for 18 years and going through several bull and bear markets.

[daylatedollarshort]

Quote:

Originally Posted by Tork Anyone think I am making a mistake or selling myself short by dumping my taxable account into a VG retirement year fund?? Any different suggestions for the Roth money?

It is not necessarily a mistake, but different investing styles suit different investors. Personally I take more of a Zvi Bodie / post 2008 Bill Bernstein, won the game, going to stop playing now type of approach with our retirement portfolio. I invest more for capital preservation than growth these days:

Home Page | Zvi Bodie

Bill Bernstein Article
http://whitecoatinvestor.com/bernste...ame/?print=pdf