Author Topic: Optimized Strategy for My Financial Goals and Profile  (Read 1690 times)

Gillian_Seed

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Optimized Strategy for My Financial Goals and Profile
« on: February 09, 2019, 04:31:07 PM »
Hey guys, would appreciate your opinion about ways I can maximize my financial potential. I have been following the FIRE lifestyle for about 2 years, currently paid off all debts and am saving very regularly. I consider myself a minimalist with a great disdain for wasteful spending so my personality matched up well with FIRE. I have applied most of the community recommendations, wanted to see if if there is something I am missing.

Goal: Escape rat race, hopefully stop working and geoarbitrage when I have enough to live on the rest of my life.

Age: 30's

Marital Status: Single (will never legally marry in US lol)

Monthly Expenses:
Apartment Rent 2300 + All Bills 1200 + Sustenance 700 = 4200 (HCOL US city)

Monthly Gross Income: 40000 to 46000 (STEM field contractor, stable 50 hours a week)

Savings so far:
Emergency Fund -  8 months of expenses
Roth IRA - 6000 (I only have one year where I was under the income limit)
Traditional IRA - 12000 (contribute max annually to Vanguard High Yield Dividend or REIT Index Funds)
SEP-IRA: 6000
Traditional Brokerage - 320000 with pretty much all of it VTSMAX
Previous 457b: 36000 (annual returns are horrible at ~1% but have not gotten around to rolling it over yet)
Previous Pension Account: 9000
Cryptocurrency: 3000 (stopped investing due to losses, will sell on the next golden bull run lol)
Total Credit Card Cash Back: 1300

I probably put away 17.5k into VTSMAX every month after all expenses per the Jcollinsnh advice. Been trying to optimize spending but I can't lower my burn rate anymore since where I work/live costs are pretty ridiculous. Been religiously using the credit card game, at the very least I save 2% off purchases. I love work, but I can only see going full throttle for about 15 years. Any opinion on how I can refine my strategy and current profile? I've entertained possibly buying a rental property but to be honest I don't want to deal with any headaches outside of work.

chitown-2020

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Re: Optimized Strategy for My Financial Goals and Profile
« Reply #1 on: February 09, 2019, 07:33:59 PM »
Hi Gillian,

I like your post, because it gives a nice case study for how to prepare for the next phase.   To summarize your post, it seems like you've got about $383K in net worth, give or take (presumably your high level of income is relatively new, or that number would be much higher).   Your expenses vs income is low (~50K), and your income is pretty great (~516 gross).   You should be able to save a lot, in a relatively short period, which will definitely help your plan.   The real risk is what the markets will do over the next 5-10 years or so that you'll need to work.

Two really important things to figure out:

1.  What is your desired income after FIRE?    Don't forget that you'll need to add in health insurance and 'fun money' for travel or however you'll want to spend your time.   This number will determine your 'escape number', or the level of net worth that will allow you to say goodbye to the workforce forever.

2.  Your income is high enough, that you might consider not taking much market risk.   You could literally save your way to a FIRE income, betting on yourself as the X-factor to get you there, with very little risk.   Most don't have this high of an income, so you have an opportunity to get there with very low risk.   It really comes down to how much market volatility you can handle -- and how flexible you are to working longer through any bumps.    This will largely be dependent on how quickly you want to FIRE.    If you've only got 5 years to go, then you might just want to save and invest in pretty safe investments.   If you've got 10 years, then you might want more risk with hopes of a larger nut in the end.

Just my two bits!   But seems like you're on your way.   Tell us what your timeline and level of FIRE expenses might be -- and we might be able to share some more thoughts.




Eric

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Re: Optimized Strategy for My Financial Goals and Profile
« Reply #2 on: February 09, 2019, 08:16:15 PM »
Do you have any tax deferred retirement savings? As a contractor are you self employed or do you work for a firm that contracts out? A solo401k could make sense.

Here's my rationale - you are high earning now and likely in a high tax state (given your HCOL city comment). Your tax rate in retirement will likely be lower than your current tax rate. So pay taxes later to save on that. Even with the fire movement, the locked up 401k funds would be the last funds you would touch (and ideally after the traditional retirement age to avoid penalities).

I would also suggest a larger low risk cash buffer. Interest rates on online savings accounts are higher and you do probably want to invest in some real estate (either to live in when you FIRE or as an investment property to hedge rising rents)

Gillian_Seed

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Re: Optimized Strategy for My Financial Goals and Profile
« Reply #3 on: February 11, 2019, 07:12:56 PM »
Thanks for the input guys. As a follow up:

1) My desired annual income in FIRE is $80k a year. Using a 3% SWR, I am assuming I need at least 33x that amount and save 2.7M. My goal allocation is 50% total bonds and 50% total stocks with a 10% range in retirement. I hope I can be there in 15 years.

2) Right now I am paying for health insurance out of pocket and this number could change if I decide to move out of the US where insurance is considerably cheaper.

3) I am currently self-employed as an independent contractor, thus I will plan on putting down at least 55k annually into a qualified solo 401k or SEP-IRA.

I keep my cash in a High Yield Savings which sorta tracks prevailing interest rates, right now its at 2.1%. Do you guys have a better recommendation to where this money should be allocated? I would like it relatively accessible. Right now since I see myself feeling comfortable with retirement after 15 years on this path, I will plan on gradually decreasing my stock allocation and buy more bonds until the ratio is about 50/50 to mitigate potential downturns.