F.I.R.E. Talk Anyone?

[WhatsHisNuts]

Financial
Independence
Retire
Early

I've been deep in the research phase of the retirement planning process and figured I'd start a conversation about it. I joined a Reddit group dedicated to it (there are several) but there's just too much noise and too many 20 year olds chiming in with their plans. After talking with some of my friends, I realized none of us really had a grasp on how much we'd need to have saved or at what point you'd be in position to transition from saving via 401k/IRA accounts to saving in after tax accounts that you can use to bridge the time between retiring and accessing your money at age 59.5 or later.

There is an absolute shit ton of info out there on this, but I'll try to pare it down to the concepts and guidance I have found helpful.

Caveat: I'm not a financial planner. This is not financial advice, just a recap of the things I've been learning about. I have no personal or financial connection to any web sites, companies, or videos posted in this thread.

 

[WhatsHisNuts]

Track your spending
To figure out how much you're going to need, you'll have to figure out how much you will be spending. The only way to figure out how much you'll be spending in retirement is to understand how much you're spending now.

A couple years ago, I started a spending tracker (2 actually) to get an understanding of exactly where my money was going. 1 tracker is specifically tracking all my transactions and the other is tracking our household transactions. The amount of money spent (at least by category) in reality wasn't even close to what I guessed it would be, so if I had one piece of advice it would be to start tracking where your money goes. All of it.

Create a budget
Once I saw where money was going, I made some adjustments and then created a monthly and yearly budget. After a year of tracking, I feel pretty confident in the amount of money I would need in different circumstances. For example, if we both quit our jobs today and wanted to survive on the bare minimum, I know exactly how much we'd need. Also, I know what it would take to maintain our current lifetsyle which is kind of the point of the whole exercise.

 

[WhatsHisNuts]

Retirement Account(s) Goal
Now that my wife and I have a grip on our spending and have determined what our budget would be to maintain this lifestyle, we can start to apply the guidance that's out there to our own situation. The most common guideline I've seen provided is to take your current yearly expenses and multiply that by 25.

Establishing this number is critical because it can help drive other financial moves

• Spending/budget changes needed to get the number in line with reality
• increasing your 401k/IRA contributions to get on track to meet the number
• reducing your 401k/IRA contributions because you're actually saving too much for retirement

 

[WhatsHisNuts]

I found this video helpful with regard to the "Are you saving too much in your retirement accounts" question.

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[WhatsHisNuts]

In line with the "are you saving too much" question, I found this calculator helpful to estimate where our current IRAs will be when we are able to access those funds. I'm a couple years older than my wife and based everything off when I will turn 60.

https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator

The typical guideline is to assume equities will average 7-10% returns each year. They have an interest rate return variance field if you want to add some fluctuations to the equation but I don't think it's necessary if you just use an average return in the first place.

While I have been researching all this stuff, my wife has been holding firm on her belief that she'll retire somewhere into her 60's.......because that's what has been burned into her brain. She's ULTRA conservative with her personal finances so she's not willing to leave the workforce unless she feels she's covered. Going through these steps, she's now convinced that we'll be able to retire much sooner (the question is how much sooner).

• Yearly spending/budget (current)
• Estimated total $ amount needed to support above number in retirement
• Projection of where our current savings will be at when I turn 60 (rounding up from 59.5).

 

[WhatsHisNuts]

Safe Withdrawal Rate

There's some different advice out there on how to make sure you don't run out of money in retirement. As best I can tell, the simplest place to start is the 4% rule.

My interpretation: The 4% Rule is designed to provide a yearly income without having to touch the principal investment. Of course, the principal can be reduced by a poorly performing market but over time, market increases will make up for market declines (in theory).

That interpretation is mentioned in the following video

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[WhatsHisNuts]

Retirement Calculators

If you want to start running some numbers to see what your situation is, there are tons of free calculators out there. I tend to lean on the simpler ones, but I can see how others like the complex ones.

Simple calculator examples
https://www.bankrate.com/retirement/calculators/retirement-plan-calculator/
https://www.nerdwallet.com/investing/retirement-calculator

More complex example
http://fc.standardandpoors.com/ondemand/analytics/embedded/compute.vm?hnd=15&client=amp

 

[WhatsHisNuts]

Health Savings Account (HSA)

If you are eligible to participate in one of these, they have some great tax advantages. Money goes in pre-tax and you don't pay taxes on distributions. Unlike the FSA monies, they roll over if unused. Once you get at least $1,000 deposited, anything over and above that can be invested in a brokerage account. I didn't put the strategy into place until I learned it last year, but people are recommending that you max it out and don't take any distributions....just let it grow. Pay all medical expenses out of pocket and use this for medical costs down the road.

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[WhatsHisNuts]

Bridging the Gap

If you get to the point at which your retirement accounts are on track to reach your retirement goal, it is probably a good time to start adjusting the plan so that you can have access to money before age 59.5.

One move that seems to make a lot of sense is dialing back the pre-tax contributions to your 401k. In some cases, it might make sense to only contribute enough to ensure you keep getting your company match. Going too low and missing out on the match would be counterproductive.

If you are eligible to contribute to a Roth IRA, and aren't already doing so, that would be a good way to invest toward retirement while having access to the money before age 59.5. Since the money invested by you is after tax dollars, you should have access to the principal before 59.5, however, the gains on that money would be inaccessible until 59.5. I've heard that they can't split out the principal completely if you want an early withdrawal, so look into that before making any decisions.

If you don't have one already, you can open a brokerage account and set up automatic deposits. While you are losing out on the tax deferred benefit of shielding your money in a 401k, you will be investing and you will be able to access the money before 59.5 if you decide you want to work less or retire early. This is a popular topic with the FIRE crowd because you're laying the groundwork for a new income stream, should you choose to invest in dividend producing equities.

The tax implications to this are the obvious drawback. If anyone has suggestions on how to minimize your exposure while building a liquid investment portfolio, please chime in.

 

[WhatsHisNuts]

This guy puts out some solid videos explaining a wide range of financial topics.

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[darksoul]

I believe that financial literacy is very important. I wonder why there are so few discussions on this thread. Personally always consider my budget.

 

[WhatsHisNuts]

<iframe width="560" height="315" src="https://www.youtube.com/embed/B1R3POESCO8" title="YouTube video player" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe>

 

[DOGS THAT BARK]

Been years since any traffic here. Kudos to you Gary for starting it up again?and this thread has a lot of good content. This topic is probably the most important here. We used to have some great threads here.

Been here since the beginning and Seilkirk was always my most valuable poster. He was reincarnation of Ben Graham. I stay in contact with him and he is well.

Thanks for rejuvenating this topic. Hopefully some other investors join in. I,ll contribute a few posts in near future.

be safe

 

[WhatsHisNuts]

Been years since any traffic here. Kudos to you Gary for starting it up again?and this thread has a lot of good content. This topic is probably the most important here. We used to have some great threads here.

Been here since the beginning and Seilkirk was always my most valuable poster. He was reincarnation of Ben Graham. I stay in contact with him and he is well.

Thanks for rejuvenating this topic. Hopefully some other investors join in. I,ll contribute a few posts in near future.

be safe

Thanks for chiming in Wayne. I?m pretty deep into this topic, so hopefully it?ll generate some discussion.

I?m no Selkirk, but that?s not all bad. The type of stuff I?m focused on is probably more relatable for most people.


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[WhatsHisNuts]

I heard a great line today: Stocks are one of the only things people are more reluctant to buy when they go on sale.