Half way there (updates)

[EvrClrx311]

Net Wealth since Graduation (Assets minus Debts)

2005	$7,500
2006	$24,993
2007	$44,112
2008	$41,546
2009	$80,113
2010	$137,763
2011	$92,010
2012	$134,414
2013	$200,620
2014	$248,183
2015	$200,237
2016	$276,832
2017	$376,003
2018	$388,309
2019	$579,052
2020	$798,717
2021	$1,014,346
2022	$1,167,302
2023	$1,350,893
2024	$1,389,453

Current Assets:
$682,000 Retirement (Non-Taxable) Accounts (mostly IRA, smaller 403b)
$574,000 Equity In Primary House
$183,000 Equity In Rental (Investment Property)
$32,000 Cash
$22,000 Taxable Investments

Mortgage on Primary is 2.75%
Mortgage on Investment/Rental is 3.5%

Currently the equity in housing and Investments (mostly Retirement) are about equal weighted in Net Wealth.

Definitely feel we have way too little taxable investments and cash, primary due to my wife starting a small business at home recently and having two children. Our goal is to boost that to hopefully get to 1/3rd in each within 5-7 years. We could probably live off of $120,000 a year, so I think we're about half way there in value... the next half should come easier (we hope). Definitely see some risk in the housing market in the near term, but we're 33% equity to mortgage on our rental (and it's very rentable) and about 40% equity to mortgage on our primary... both locked in at very low interest rates. I think we're positioned to weather any storms ahead for the economy. With two young kids and just reaching my 40s... I will likely work a little longer than I had anticipated, but I'm think we're getting there...My target is 2036. Hence the post title.

For anyone who has read this far, I'm really interested in other avenues to diversify. We've been fortunate with our rental, and renters, that it's been fairly easy. Not sure we want to pick up a third home if/when housing prices become more attractive. The home business is starting to produce income, but small amount. It's basically paying for our property taxes every year which is nice, for now. I anticipate being able to set aside $3-5k a month moving forward... for now looking to just grow the cash reserve and taxable investment account. We have no other debts.

 

[LateToFIRE]

Congrats on your numbers. Your picture looks kinda familiar, looking back when I first crossed the million dollar mark - heavy in retirement accounts and real estate, short on cash and taxable, and still very reliant on a paycheck to keep all the balls in the air.

Agree, you've really got to get the cash and taxable numbers up to create what's commonly referred to as an emergency fund. I don't so much think you need to diversify as need to have more of a safety net.

To clarify, when you state "non-taxable" IRA, are you referring to a deductible tIRA or is this after-tax money? Als, what does equity to mortgage mean? I haven't come across that one before.

P.S. Meant to suggest that a HELOC or other potential access to credit could help provide some safety net if you don't already have those. That said, access is not necessarily guarantied when you need it the most - I'm a big believer in hedging against Murphy's Law.

 

[EvrClrx311]

Congrats on your numbers. Your picture looks kinda familiar, looking back when I first crossed the million dollar mark - heavy in retirement accounts and real estate, short on cash and taxable, and still very reliant on a paycheck to keep all the balls in the air.

Agree, you've really got to get the cash and taxable numbers up to create what's commonly referred to as an emergency fund. I don't so much think you need to diversify as need to have more of a safety net.

To clarify, when you state "non-taxable" IRA, are you referring to a deductible tIRA or is this after-tax money? Als, what does equity to mortgage mean? I haven't come across that one before.

P.S. Meant to suggest that a HELOC or other potential access to credit could help provide some safety net if you don't already have those. That said, access is not necessarily guarantied when you need it the most - I'm a big believer in hedging against Murphy's Law.

Thanks for the comments/thoughts!

by non-taxable, I just mean retirement (tax) free accounts... which is money that is building for retirement, but not accessible (without doing major damage, like early withdrawal fees and tax consequences on top of that in these high income earning years) in the short term. 85% of it is in a standard IRA, the rest in a 403b.

Equity to Mortgage is something I consider in the risk (or health) of our real estate value. It's basically the ratio of equity to what's left on the mortgage. For example, our primary house is valued at $1.2M and our mortgage balance is $597,000. A 50% drop in real estate values would make us more nervous there, but also, at an interest rate of 2.75% I'm not sure we would care that much... as long as income is secure. We have 26 years left... so in a decade we may start to pay that down faster with a goal of removing it entirely by the time we reach FIRE. That said... at 2.75%, maybe we don't... and direct those funds to other places.

If/when housing comes down... if we still have equity there and rates are low enough, we might choose to leverage into a 3rd investment property and then 4th... Although I think I'd prefer to find other (more diversified) methods of securing passive income. I can't shake this feeling that housing has had 5+ decades of above inflation returns... and is due for a very very rough decade or two moving forward. But no one really knows... I can say in 50 years I can't imagine housing will have continued that trend, or else younger generations would need to put 75% of their income into renting homes from those who have them as investments. I guess that's a debate for another thread... I know plenty here have built quite a bit of wealth in real estate would would argue it'll always continue up and onward like it has in our lifetimes... the leverage creates opportunity in itself, I just don't think it's sustainable for housing to outpace inflation for the foreseeable future

 

[Montecfo]

Hi EvrClrx311,

Excellent job on the numbers.

As far as the real estate, housing declines are rare and the market in your (and our) area has been especially resiliant. Historically RE has climbed in value at the rate of inflation plus 1-1.5%. With the large rises since the pandemic, I think you could see a pause for a while or consolidation without a large decline.

I am a few years ahead of you (retired) but I also had and have a small mortgage mentality. This definitely prevented overspending on housing and the foreclosures that some experienced during then downturns. I made extra payments during the times when rates were higher and wanted to pay that down/pay it off.
But with a loan from the cheap money era (rates below 3.5%) I stopped doing that. You really do not have to eliminate your mortgage to retire. I do not plan to do it unless we move or rates adjust much higher (been on ARMs for about 15 years).

It is just an expense to budget for like anything else and you can easily beat those rates via investing.

I will say you have achieved some critical mass and investment growth is easier from here. As you are able to save more investment growth will continue.

I would get a standby HELOC if you do not already have one.

All the best as you move forward from here.

 

[upupandaway]

Based on your net worth (not knowing your annual income) you are close to being an accredited investor. If you have the appetite for it you could look into syndication deals for diversification or other alternative investments. They can be risky and getting in the right circles to find them can be tricky but they do offer diversification without directly managing properties.

 

[LateToFIRE]

Thanks for the comments/thoughts!

by non-taxable, I just mean retirement (tax) free accounts... which is money that is building for retirement, but not accessible (without doing major damage, like early withdrawal fees and tax consequences on top of that in these high income earning years) in the short term. 85% of it is in a standard IRA, the rest in a 403b.

Equity to Mortgage is something I consider in the risk (or health) of our real estate value. It's basically the ratio of equity to what's left on the mortgage. For example, our primary house is valued at $1.2M and our mortgage balance is $597,000. A 50% drop in real estate values would make us more nervous there, but also, at an interest rate of 2.75% I'm not sure we would care that much... as long as income is secure. We have 26 years left... so in a decade we may start to pay that down faster with a goal of removing it entirely by the time we reach FIRE. That said... at 2.75%, maybe we don't... and direct those funds to other places.

If/when housing comes down... if we still have equity there and rates are low enough, we might choose to leverage into a 3rd investment property and then 4th... Although I think I'd prefer to find other (more diversified) methods of securing passive income. I can't shake this feeling that housing has had 5+ decades of above inflation returns... and is due for a very very rough decade or two moving forward. But no one really knows... I can say in 50 years I can't imagine housing will have continued that trend, or else younger generations would need to put 75% of their income into renting homes from those who have them as investments. I guess that's a debate for another thread... I know plenty here have built quite a bit of wealth in real estate would would argue it'll always continue up and onward like it has in our lifetimes... the leverage creates opportunity in itself, I just don't think it's sustainable for housing to outpace inflation for the foreseeable future

OK, so I think I get it. Your retirement money is largely in ERISA accounts where income taxes + potential early WD penalties would be due as you withdraw. So, my earlier point stands - you are way too low of emergency resources.

I've been very long on r.e. myself, and I've carried debt levels that would scare the heck outta most people, BUT it's added millions to my NW over time. To offset the considerable risks, my mantra has always been to err on having too much rather than too little cash (and other forms of ready liquidity), cause being forced to sell at the wrong time (and its always the wrong time if you're being forced to sell) is the killer of wealth (see Murphy's Law).

You need to be asking yourself how things would play out if you lost your job and it took 12-18 months to get a new job paying as well as the one you lost. I know some folks would say, "oh not worried I've got great job security" or "I'm in a hot in-demand career" but life happens in very unpredictable ways.

So, I guess your equity in mortgage ratio is ~1:1? Not sure what that really tells you. Most r.e. folks and banks use Loan-to-Value, which would be ~50% and that would be considered reasonably conservative - so looks good on that front.

Your 2.75% mortgage looks like a keeper to me. I would not prioritize precious after-tax savings to paying it down faster.

Notwithstanding the fact that real estate markets are very local in nature, my view is that a few macro forces will sustain values well into the next few years - tight zoning codes limiting ability to create new housing (slow to change), deep pocketed private investors now treating single-family homes as an investment class (not gonna change at this point), high cost of construction (labor and materials and regulation), difficulty in converting commercial space to resi, etc. I think will be the gift that keeps giving.

Just remember, r.e. is a long-term asset. You gotta be in a position to ride out the cycles.

 

[Surewhitey]

I would open a SEP 401K for the wife's biz & keep taxes lower. Def build up the post tax investments too. If you qualify, wife opening a HSA will assist with the eventual health items with the kiddos. Triple tax advantages there.

 

[DrRoy]

Very nice progress. Yes, to retire early you will want non-retirement account sources of funding. When doing this myself, I did not track the value of the primary residence, as I did not plan to sell it, and couldn't eat it either.

 

[LateToFIRE]

Very nice progress. Yes, to retire early you will want non-retirement account sources of funding. When doing this myself, I did not track the value of the primary residence, as I did not plan to sell it, and couldn't eat it either.

As a counter-point, I did track primary residence and will be pulling a 7-figure net gain out of it as I retire and relocate. Really depends on the market you're in, reasons for living there (in my case w*rk), etc. Can be a valuable source of FIRE funding.

 

[NgineER]

Net Wealth since Graduation (Assets minus Debts)

2012	$134,414
2024	$1,389,453

Current Assets:
$682,000 Retirement (Non-Taxable) Accounts (mostly IRA, smaller 403b)
$574,000 Equity In Primary House
$183,000 Equity In Rental (Investment Property)
$32,000 Cash
$22,000 Taxable Investments

Mortgage on Primary is 2.75%
Mortgage on Investment/Rental is 3.5%

Currently the equity in housing and Investments (mostly Retirement) are about equal weighted in Net Wealth.

Definitely feel we have way too little taxable investments and cash, primary due to my wife starting a small business at home recently and having two children.

Wow - nice progress in increasing your wealth tenfold in 12 years, let's hope for another tenfold increase in the next 12! Keep up the good work, the first million is the hardest, but the 10x is the easiest when your balance is low.

We have a similar trajectory and have also used rental properties to leverage/diversify/multiply our net worth. We are targeting 2030, when I turn 55. We are also struggling to boost the brokerage portion of our investments. We got a nice boost after we financed a property after fixing it up two years ago, but our investments are 44% Roth, 40% tIRA, 16% brokerage. Or 84% retirement and 16% brokerage.

The real estate investments are still a wonderous investment with some required work. We've invested sweat equity and the value has tripled in 8 years while also netting us 20% annually. We are at about 50% equity and have $800k in mortgages on the properties. We won't add to the five properties we have due to w@rk life balance, but syndication is something we are looking at just recently. We keep putting away cash but realize that we'll have more than enough in 6 years and can afford to spend more now.

As far as how to save/spend what your side hustle brings in, consider your tax bracket now vs. retirement and make that call.

 

[sergio]

Awesome job. I'm in a somewhat similar situation (37 y/o, $1.2m net worth, 3 kids). But I started in 2015-ish as I got a STEM PhD which delayed things... a lot.

With the small kids, I'd slow down for a year or two and just focus on hoarding cash and maybe putting some money in the taxable account. CD/savings rates are so good right now and if things ever did take a massive downturn, it's much easier to break a CD than take an early 401k withdrawal or pulling equity out of your home. Right now your cash levels are incredibly low.

On top of that if you want to retire in your early 50s, figure out how much liquid cash/investments you'll need to live off of, and multiply that by 6-8 to get you to 59.5y/o. So another reason to get started on boosting cash/taxable now.

I actually think pre-tax accounts like the 401k are kind of a distraction for early retirement to be honest and I think ER-minded people overcontribute to them relative to taxable accounts. Mathematically it's actually not guaranteed the 401k comes out ahead - what if income taxes skyrocket but capital gains and dividend rates stay put? You don't "save" taxes with the 401k, you just defer them hoping that you'll be in a lower income backet in retirement and/or tax rates fall. So you may want to figure out if it makes sense to reduce those contributions (perhaps just enough to get the match, or to stay under the X% fed/state tax bracket,etc.)

Good luck and let me know what you think.

 

[pacergal]

Congratulations, looks like you are doing well.

 

[EvrClrx311]

I would open a SEP 401K for the wife's biz & keep taxes lower. Def build up the post tax investments too. If you qualify, wife opening a HSA will assist with the eventual health items with the kiddos. Triple tax advantages there.

This is fantastic advice, that we hadn't even considered! Will look into it.

Very nice progress. Yes, to retire early you will want non-retirement account sources of funding. When doing this myself, I did not track the value of the primary residence, as I did not plan to sell it, and couldn't eat it either.

Certainly understand and agree with what you're saying. In my 20s and early 30s, I had numerous conversations with my father about how refinancing at lower rates and investing the money was smarter than paying off their house. My father would usually laugh and say, someday you'll realize that not having a mortgage payment is far more comfortable than a larger balance invested. At the time I always thought, my mind on this wouldn't change, but I can certainly see what he means now. That said, if Interest rates ever return to under 3%... I might be tempted to access a large park of the equity to grow income in other places. I guess we'll see.

Wow - nice progress in increasing your wealth tenfold in 12 years, let's hope for another tenfold increase in the next 12! Keep up the good work, the first million is the hardest, but the 10x is the easiest when your balance is low.

We have a similar trajectory and have also used rental properties to leverage/diversify/multiply our net worth. We are targeting 2030, when I turn 55. We are also struggling to boost the brokerage portion of our investments. We got a nice boost after we financed a property after fixing it up two years ago, but our investments are 44% Roth, 40% tIRA, 16% brokerage. Or 84% retirement and 16% brokerage.

The real estate investments are still a wonderous investment with some required work. We've invested sweat equity and the value has tripled in 8 years while also netting us 20% annually. We are at about 50% equity and have $800k in mortgages on the properties. We won't add to the five properties we have due to w@rk life balance, but syndication is something we are looking at just recently. We keep putting away cash but realize that we'll have more than enough in 6 years and can afford to spend more now.

As far as how to save/spend what your side hustle brings in, consider your tax bracket now vs. retirement and make that call.

I think the biggest reason I wanted to post this update was the capture this period where we are desiring (and needing) to grow the safety fund and taxable accounts, as those will dictate and provide the opportunities as we get closer to the FIRE part. I could certainly see our tax bracket being higher later than it is now, I hope I'm wrong about that.

Congratulations, looks like you are doing well.

Thanks, feels like we're on the right track.

 

[EvrClrx311]

Awesome job. I'm in a somewhat similar situation (37 y/o, $1.2m net worth, 3 kids). But I started in 2015-ish as I got a STEM PhD which delayed things... a lot.

With the small kids, I'd slow down for a year or two and just focus on hoarding cash and maybe putting some money in the taxable account. CD/savings rates are so good right now and if things ever did take a massive downturn, it's much easier to break a CD than take an early 401k withdrawal or pulling equity out of your home. Right now your cash levels are incredibly low.

On top of that if you want to retire in your early 50s, figure out how much liquid cash/investments you'll need to live off of, and multiply that by 6-8 to get you to 59.5y/o. So another reason to get started on boosting cash/taxable now.

I actually think pre-tax accounts like the 401k are kind of a distraction for early retirement to be honest and I think ER-minded people overcontribute to them relative to taxable accounts. Mathematically it's actually not guaranteed the 401k comes out ahead - what if income taxes skyrocket but capital gains and dividend rates stay put? You don't "save" taxes with the 401k, you just defer them hoping that you'll be in a lower income backet in retirement and/or tax rates fall. So you may want to figure out if it makes sense to reduce those contributions (perhaps just enough to get the match, or to stay under the X% fed/state tax bracket,etc.)

Good luck and let me know what you think.

I think you hit the nail on the head with slowing down. We have a 1 and 3 year old, so we're still very much homebound... but we love to travel, and want to give our children experiences. So we're in a good period to accumulate and make that a reality 10ish years from now.

Coincidentally I'm moving j*bs soon, and the new company has a less ideal 401k match, but I'm not bothered by that. I think I am going to opt for just getting the match, and may not continue to contribute the max as I have been my entire career till now. Direct those funds to other tax advantaged places (like the HSA mentioned above)... need to figure that out before the end of the year.