Reader --> Poster transition

[UVaOK]

Greetings all,

I figure that after reading approximately 1,231.5 RE posts in the last 8 days, I should probably take a minute to upgrade my status from silent mass-reader to full-fledged poster. And, with that, I will:

Considering that my final summer break (until FIRE sets in, anyways) came to its sad demise just last October, and that I was born into the world of full-time work just five months ago, it might seem a bit odd that I’m so intensely focused on retiring early. Add to this the fact that these five months have been spent with a highly esteemed firm characterized by wonderfully talented colleagues, excellent pay, perks, and benefits, and virtually unparalleled responsibility, and the primary motivations to achieve FI that I have come across time and time again on this board just about disappear.

However, I have always guarded fiercely my free time, and, quite frankly, always will. An hour spent working at anything I don’t genuinely love, no matter how appealing to a majority of others, will never be worth as much to me as an hour unencumbered; and so, despite my age (just shy of 23) and relatively attractive employment, I remain undeterred in my quest to REC (Retire Early, Comfortably).

To this end, I have been saving substantially for the last decade. With my first job came the realization that the government had a nasty penchant for taking away much of what I had sweated to earn. So, I did what nearly any reasonable 13-year-old would do: I resolved to stockpile as much money as possible in order to quietly remove myself from this “I-make-they-take” system. As my paychecks, and thus government donations, have increased in size over the years, the original resolve of that teenage caddy has grown increasingly stronger.

With a bit of good fortune, I have been able to distance myself from several of the money-sucking phenomena that most my age must overcome when trying to set aside some portion of their paychecks; that is to say, at least temporarily, my parents have graciously allowed me to live at home without paying rent. As my job often requires me to be out of town several days a week, the arrangement, although responsible for the seventy minute commute on days when I must visit my downtown office, is, overall, relatively painless. Operating under this current scheme, I am able to contribute my company’s 401k limit (25% in addition to an automatic 4.5% company addition), as well as set aside an additional $1,000 or so each month (net of taxes, medical/dental, etc).

Since this post has officially reached the point where it should be divided into chapters, I will quickly throw out some financial stats with the hope that I’ll receive the same level-headed, intelligent advice I have seen given to so many others on this board. The one caveat I will put to use: While I would love to manage my money more actively, my job generally keeps me extremely busy, and I don’t have the additional requisite time to devote at this point.


Roth IRA (Wells Fargo Common Stock-Z (formerly Strong)): $20,000 (Only concern I have here is that the expense ratio may be a bit high (1.4ish%, I believe))
Roth 401k (Vanguard target retirement 2045): $600
401k (Vanguard target retirement 2045): $4,000
Fidelity Contra: $35,000
T. Rowe prime reserve: $15,000 (used as a backup expense account for work and additional liquidity)
Citi Checking: $3,000 (balance here varies quite a bit; used for expense account at work)

 

[Nords]

Welcome to the board, UVaOK. Sounds like you have a clue & a plan.

At this point in your life you'll be socking it away aggressively for a while. Keep maxing out the tax-deferred/free accounts.

Any debts? Or are you the student that Business Week forgot to interview about college loans?

 

[MooreBonds]

Welcome UVaOK!

It's great to hear from a fellow teenage caddy (I started when I was 12, thanks to my big brother who helped me follow in his footsteps) who also has his financial act together. Like you, I also live at home currently (parents are semi-retired and go back and forth)...although I am going to start looking at possibly getting an apartment later this year.

As you have noticed in the 1,221 posts, everyone would love to offer suggestions to any question you have. Two questions I have so far:
1) 1.4% on a ROTH IRA fund! Ouch! I'd suggest one of the many Vanguard funds.

2) Given your young age, I hope you have excellent health. If that's the case, I'd strongly recommend looking into opening up a Health Savings Account and going with a High Deductible Health Insurance plan. If you have a few accident-free years, it will quickly become a third retirement account or a wonderful tax-free way to pay for health care.

While not all employers are flexible enough to do it, talk with your human resources department/boss to see if you can opt out of the Health Insurance plan and pick your own for the company to pay for...as well as see what other items your company can pay for to keep you from using post-tax dollars (cell phone, car, car insurance, gas, car maintenance, etc.)

--Peter

 

[UVaOK]

Thanks, Nords. I hope to continue to contribute the max to each of the 401k's, even after I have to start taking on rent payments for a place in the city.

With the introduction of the Roth 401k at the beginning of this year, I changed my distribution to 12% regular 401k and 13% Roth; do you think there is any inherent disadvantage to this allocation? I vacillated for quite a while as to whether to take the tax breaks now (401k), or later (Roth 401k). Ultimately, I couldn't decide and settled for a slight favoring of the Roth.

Also very fortunately, I do not currently carry any debt. Between scholarships, intelligent financial planning on the part of my parents and grandparents, and my decision to attend a state school, I was able to graduate sans student loans.

Thanks again.

 

[UVaOK]

Thanks for the response, Peter.

I am definitely looking to lower the expenses of the IRA, and Vanguard sounds like it has some excellent options; I just need to decide which one is best for me right now. I am certainly willing to take on a fair amount of risk at this point.

As far as health insurance goes, I am very lucky in that my employer offers an excellent and relatively inexpensive plan. This really is the best option for me. While I am indeed young, I am not in the best of health, and I would almost certainly end up paying the full amount of any high deductible plan every year. However, my employer does offer the option of setting aside pre-tax dollars to pay for any medical expenses incurred throughout the year (co-pays, prescriptions, meeting the $100 annual deductible, etc.), and I will take full advantage of this.

As I said before, I am extremely fortunate to have been offered a position by my current employer. The perks, including those designed to save employees money, abound. I pay for my commute and parking, when they are applicable, with pre-tax dollars. My cell phone and blackberry are covered to the fullest extent allowable under current IRS guidelines. My home internet is covered as well. Plenty of free food and drinks are available in the office. And, when traveling, I spend not a dime of my own money.

The work is incredibly demanding, but the benefits of the job have enabled me to set aside as much as I do each month.

Thanks again for the advice!

 

[MooreBonds]

With the introduction of the Roth 401k at the beginning of this year, I changed my distribution to 12% regular 401k and 13% Roth; do you think there is any inherent disadvantage to this allocation? I vacillated for quite a while as to whether to take the tax breaks now (401k), or later (Roth 401k). Ultimately, I couldn't decide and settled for a slight favoring of the Roth.

Diversification is the name of the game.

You have done well in divying up your 401(k) - however, just remember that (assuming you don't exceed the AGI thresholds for a ROTH IRA contribution) if you are making ROTH IRA contributions in addition to your 401(k), use those contributions when deciding on the split of 401(k)/ROTH 401(k). So, if you contribute to a ROTH IRA as well, I'd ever-so-slightly adjust the 401(k) mix to slightly favor your traditional 401(k). That way, you're perfectly set no matter what the future holds in terms of taxes.

With my employer's SEP IRA, the annual contributions are substantially more than my ROTH IRA contribution, so I'm hoping that the future "I've never saved so let's tax the hell out of the fiscally prudent that did save" generations go easy on me. My only option would be to retire early and do a SEPP starting at age 45 or so to start converting it to a ROTH to balance it out...however, I don't have high hopes that the ROTH IRA will still be around in 20 years, given our country's fiscal outlook.

 

[UVaOK]

With my employer's SEP IRA, the annual contributions are substantially more than my ROTH IRA contribution, so I'm hoping that the future "I've never saved so let's tax the hell out of the fiscally prudent that did save" generations go easy on me.

You and me both! This is largely why I decided to favor Roth over traditional in my current allocation; I decided it better to bite a larger portion of the tax bullet now, rather than risk getting hammered later on.

I do indeed contribute the max ($4,000) to my Roth IRA each year, and will continue to do so until I hit the AGI ceiling (this won't occur unless and until I decide to enroll in and complete business school, law school, or both...Of course, if/when that happens, I'll get to experience the joy of trying to overcome some hefty student loans in order to return to break-even status).