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Turning an idea into a plan
Old 06-03-2017, 06:56 AM   #1
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Turning an idea into a plan

Hello all,

I have been interested in FIRE for some time but just recently was made aware of the more complex math modeling that potentially adjust the SWR from 4% down to 3.5% or 3%. I would appreciate some guidance or observations on my path as I am reaching a check point age of 30.

About me:

I am 30, married, 1 kid, one more in planning soon. I put ~20k in 529 for kid 1 at birth and assume to make up any difference out of free cash flow. Unsure who (I or SO) will contribute for kid #2. We live quite comfortably – good vacations, nice (not luxury) cars every ~10 years. We live in an upper cost area of a relatively low COL major city. We contribute a set amount for joint expenses but keep finances separate so she has her own numbers beyond this.

Since budgets vary I will just use % because I feel those are more universally applicable. My “Target” is current gross salary using 3.5% SWR @ age 45 (Target = 100%). My current SR is ~50% of total benefits or 66% of my gross salary (I save 100% of any bonus, etc.). Also because some risks make big differences to a small portfolio, I will say that shouldn't be an issue with the cushion I have built in.

The reason my Target = 2x current spend is: The current spend includes limited vacation compared to goal (due to small kids) and also assumes I have a SO to split expenses (You just never know and I won’t have time to readjust after FIRE). Also I feel a contributing reason we can make good financial decisions is we have a cash cushion to manage unexpected events rather than digging the hole deeper with financing.

Current allocation as a % of my Target is:

0.5% Roth

7.8% 401k

7.4% Taxable

1.9% cash (including E fund)

6.4% in rental property (would like to sell in a couple years to reduce time obligations)

Total = 24% of target (in 2017 dollars)

Assets (apart from cash) are pretty much 95% equity. I have no emotional issues with market crashes (tested 2008) and plan to move towards maybe 30% bonds by 45 through shifting contributions/dividends (big speedbump currently is the rising interest rates – plan to wait that out a bit before I buy in). I also have some stock bonus I did not include because of 3 year ‘ladder vest’ (each bonus vests 3 years later).

I recently requested a portfolio assessment from vanguard, waiting on that.

For projections I am using an annual contribution of 1.7%/yr of Target and a 5.5% interest rate on savings (after inflation). I assume my earnings will go up and my child care expenses will go down (current cost 0.4% of Target/yr) after kid #2 times out in 5 years but did not factor that in. I feel these numbers are somewhat conservative while remaining realistic. As for the SWR - I don’t really expect to spend the whole 3.5% every year and can easily cut back to ~2% in the event of a market crash. (The differential spend is projected as travel/helping out others type budget). Another variable I have seen mentioned a lot is health insurance: SO would have access to her nice plan for life around that time and otherwise ≤$1k/mo is easily affordable. Family history indicates minimal risk for health problems pre-medicare. Again, significant budget room.

I haven’t planned out if 45 is “The” date or if I want to keep working or change careers. I will probably do a deeper re-evaluation every 5 years to see how things have progressed.

I would appreciate comments around AA especially considering account type. Also curious about account balance risk with an adjustable SWR – I only see time based options in firecalc. To me, this allows me to feel comfortable with a higher failure rate because I only see peak spending 45-70 in bull markets and 70+ would easily be closer to the 2%. I was reading some comments earlier today (on here) about the pending market crash and the need to get more bond allocation.. I started to think maybe I should have bonds to allow rebalance... then noticed those comments were from 2014.

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Old 06-03-2017, 07:12 AM   #2
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My advice would have you set your asset allocation at 100% equities.

You have at least 15 years left... presumably plenty of time to recover from any down market. And you've proven you have the stones not to sell low. When it tanks, you simply get to buy shares that are on sale with money you earn from work.

When you are young and have humongous earning potential (given plenty of years ahead) there's no reason to be conservative or try to soften the blows....that's only for the weak who would panic out of the market at the crash.

Until your retirement date is closer than the expected market crash recovery duration, the actionable things are your savings rate and AA. Pedal to the metal now, and reevaluate when you're farther down the path.

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Old 06-03-2017, 02:46 PM   #3
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+1 on 100% equities. You are doing way more in planning than I ever did. Very impressive planning...just make sure you enjoy the journey
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Old 06-03-2017, 09:38 PM   #4
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Thanks, I have some uncertainties and limited time with work and family to review/plan. I'm enjoying the ride (mostly outside of work) but I won't say that on average I dislike work. I am currently feeling restless from the big change related to small children. I love it but it is has altered my life dramatically.
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Old 06-04-2017, 05:53 AM   #5
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Congratulations on having a plan, you are way ahead of others! I say go for 95% equities and have cash as a buffer in down turns and for buying opportunities.

You said you didn't sell in 2008, so you can handle the risk. Nine years ago you were in your early twenties and did probably not have much saved up. It is a different story to see your accumulated wealth of $1.5M drop down to $1M right before FIRE compared to $30k dropping to $20k early in the accumulation phase.
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