36 yo looking for early retirement
36 yo looking for early retirement
Hello everyone! I have been investing for my retirement for about 5-6 years now and I am lucky enough that my income has gradually increased to the point where I have been able to put about $150K/year combined in taxable/tax-deferred accounts. My goals is to be able to retire at age 45-50 although I will likely continue working for a bit longer. This may be a lofty goal but one I would like to aim for.
Here is my situation:
Emergency funds: 12 months of expenses
Debt:
$70,000 at 1.625% (school loans, fixed)
$69,000 at 0.39% (school loans, fixed)
$140,000 at 3.00% 15 year (mortgage)
No CC or car debt.
Tax Filing Status: Married, filing jointly
Tax Rate: 39.6% Federal 6.84% Nebraska
Age: 36, wife 35 No children yet, plan to have 2-3 if possible
Desired Asset allocation: 69/31
Intl allocation: 35% of stocks
Current Holdings:
Taxable: VG Total Stock Market
His/Her Roth (Backdoor): VG Total International
His Profit Sharing Plan: VG Total Stock Market, VG Total Bond Market, VG Total International
His Roth 401K: VG Total Stock Market
Her 401K: VG Tips
HSA used as stealth IRA: VG Total International
Total Investments: Mid to high 6 figures
New Annual Contributions:
Taxable: $60,000
Retirement Accounts: $90,000
Questions:
1. I have about $300,000 in cash that has been accumulated over the last 4 years outside of my retirement savings. I am at a loss of what to do with it. At such low interest rates on my debt I hate to pay that off right away. It would be paid off prior to retirement however.
Should I:
a. Look into alternative investments i.e. commercial real estate, residential real estate etc?
b. Add this to my AA in taxable? Lump sum or DCA?
c. Pay off all debt now?
d. Other thoughts?
2. I am starting to wonder if my taxable AA should mirror my retirement account AA? If I retire at 45-50 and have only taxable available until 59.5, I won't be in a very good position if TSM takes a 50% dump. Also WCI make a good case for bonds in taxable. Thoughts on this? I would also rather not use the SEPP rule or my Roth contributions as early withdraw strategies.
3. If I do put bonds in taxable, would I use VG Intermediate tax exempt? Is this risky in this low interest rate environment?
4. Should I be looking for ways to keep my income as low as possible so I can convert as much as possible from my 401k/Profit Sharing to Roth from 45 to 59.5? If all my money comes from the taxable account, the only "earned" income I would be taxed on would come from my conversions correct?
5. Any other early retirement strategies I should be aware of?
6. Other thoughts?
I welcome any comments! I am sorry this is a little long but I truly appreciate and respect the time people take in giving their answers.
Thank you very much!
Chad
Here is my situation:
Emergency funds: 12 months of expenses
Debt:
$70,000 at 1.625% (school loans, fixed)
$69,000 at 0.39% (school loans, fixed)
$140,000 at 3.00% 15 year (mortgage)
No CC or car debt.
Tax Filing Status: Married, filing jointly
Tax Rate: 39.6% Federal 6.84% Nebraska
Age: 36, wife 35 No children yet, plan to have 2-3 if possible
Desired Asset allocation: 69/31
Intl allocation: 35% of stocks
Current Holdings:
Taxable: VG Total Stock Market
His/Her Roth (Backdoor): VG Total International
His Profit Sharing Plan: VG Total Stock Market, VG Total Bond Market, VG Total International
His Roth 401K: VG Total Stock Market
Her 401K: VG Tips
HSA used as stealth IRA: VG Total International
Total Investments: Mid to high 6 figures
New Annual Contributions:
Taxable: $60,000
Retirement Accounts: $90,000
Questions:
1. I have about $300,000 in cash that has been accumulated over the last 4 years outside of my retirement savings. I am at a loss of what to do with it. At such low interest rates on my debt I hate to pay that off right away. It would be paid off prior to retirement however.
Should I:
a. Look into alternative investments i.e. commercial real estate, residential real estate etc?
b. Add this to my AA in taxable? Lump sum or DCA?
c. Pay off all debt now?
d. Other thoughts?
2. I am starting to wonder if my taxable AA should mirror my retirement account AA? If I retire at 45-50 and have only taxable available until 59.5, I won't be in a very good position if TSM takes a 50% dump. Also WCI make a good case for bonds in taxable. Thoughts on this? I would also rather not use the SEPP rule or my Roth contributions as early withdraw strategies.
3. If I do put bonds in taxable, would I use VG Intermediate tax exempt? Is this risky in this low interest rate environment?
4. Should I be looking for ways to keep my income as low as possible so I can convert as much as possible from my 401k/Profit Sharing to Roth from 45 to 59.5? If all my money comes from the taxable account, the only "earned" income I would be taxed on would come from my conversions correct?
5. Any other early retirement strategies I should be aware of?
6. Other thoughts?
I welcome any comments! I am sorry this is a little long but I truly appreciate and respect the time people take in giving their answers.
Thank you very much!
Chad
Re: 36 yo looking for early retirement
1) Invest it. The rest doesn't really matter. On average lump sum is more advantageous but there are always exceptions. Paying off debt at those rates makes no sense to me buy you might sleep better. I would have nightmares about the lost moneyradchad3 wrote:Hello everyone! I have been investing for my retirement for about 5-6 years now and I am lucky enough that my income has gradually increased to the point where I have been able to put about $150K/year combined in taxable/tax-deferred accounts. My goals is to be able to retire at age 45-50 although I will likely continue working for a bit longer. This may be a lofty goal but one I would like to aim for.
Here is my situation:
Emergency funds: 12 months of expenses
Debt:
$70,000 at 1.625% (school loans, fixed)
$69,000 at 0.39% (school loans, fixed)
$140,000 at 3.00% 15 year (mortgage)
No CC or car debt.
Tax Filing Status: Married, filing jointly
Tax Rate: 39.6% Federal 6.84% Nebraska
Age: 36, wife 35 No children yet, plan to have 2-3 if possible
Desired Asset allocation: 69/31
Intl allocation: 35% of stocks
Current Holdings:
Taxable: VG Total Stock Market
His/Her Roth (Backdoor): VG Total International
His Profit Sharing Plan: VG Total Stock Market, VG Total Bond Market, VG Total International
His Roth 401K: VG Total Stock Market
Her 401K: VG Tips
HSA used as stealth IRA: VG Total International
Total Investments: Mid to high 6 figures
New Annual Contributions:
Taxable: $60,000
Retirement Accounts: $90,000
Questions:
1. I have about $300,000 in cash that has been accumulated over the last 4 years outside of my retirement savings. I am at a loss of what to do with it. At such low interest rates on my debt I hate to pay that off right away. It would be paid off prior to retirement however.
Should I:
a. Look into alternative investments i.e. commercial real estate, residential real estate etc?
b. Add this to my AA in taxable? Lump sum or DCA?
c. Pay off all debt now?
d. Other thoughts?
2. I am starting to wonder if my taxable AA should mirror my retirement account AA? If I retire at 45-50 and have only taxable available until 59.5, I won't be in a very good position if TSM takes a 50% dump. Also WCI make a good case for bonds in taxable. Thoughts on this? I would also rather not use the SEPP rule or my Roth contributions as early withdraw strategies.
3. If I do put bonds in taxable, would I use VG Intermediate tax exempt? Is this risky in this low interest rate environment?
4. Should I be looking for ways to keep my income as low as possible so I can convert as much as possible from my 401k/Profit Sharing to Roth from 45 to 59.5? If all my money comes from the taxable account, the only "earned" income I would be taxed on would come from my conversions correct?
5. Any other early retirement strategies I should be aware of?
6. Other thoughts?
I welcome any comments! I am sorry this is a little long but I truly appreciate and respect the time people take in giving their answers.
Thank you very much!
Chad
2) There is no need to do this until 5 years before retirement. That would give you plenty of time to build up a big fixed income position. Short term being tax efficient probably matters more. And you can access tax deferred accounts before 59 through a roth pipeline or 72(t). Making suboptimal choices because of the name("Retirement") on an account is a poor idea.
3) I use it and yeah I don't love the risk. But that is true of any bond in this environment. The upside feels like breakin even and the downside is losing 10%.
4) Sure. The exact strategy depends on your money distribution and the value of qualifying for ACA subsidies. But in general converting ROTH money at 0-10% and taking LTGC at 0% up to the top of the 15% bracket gives you a very low tax burden. Your tax deferred balance will probably be too high (your talking like 2+ million bucks if you do 90k/year to 10 years and get any type of return) to keep the taxes that low but even paying 15% on IRA distrubitions and 15% of capital gains isn't too bad. at 25 you can run the math and make estimates of how much conversion to do to keep you from having super high RMDs at 70.
5) Expense control is the big one. Every 40k in expenses requires you to save another million.
Re: 36 yo looking for early retirement
Could we have a general idea of what your yearly expenses look like now and what you anticipate them to look like during retirement?
You mentioned that you're in the highest tax bracket, married filing jointly, meaning your income is at least $465k. If your income is exactly $465k, you're paying $130k in federal taxes, and another $30k in state taxes. You're putting aside $150k a year, which implies that of your original $465k, you're living on approximately $155k a year after-tax. But that's assuming you're making JUST enough to get in the 39.6% bracket. You may have annual income of $1mil per year. In which case, you are paying maybe around $400k in total federal and state taxes, saving $150k, and living on $450k per year.
If you're living on $155k a year right now, you're looking at a much better situation than if you're living on $450k a year. If you're used to living the $450k a year lifestyle, downgrading to $155k a year during retirement may be exceedingly difficult.
You mentioned that you're in the highest tax bracket, married filing jointly, meaning your income is at least $465k. If your income is exactly $465k, you're paying $130k in federal taxes, and another $30k in state taxes. You're putting aside $150k a year, which implies that of your original $465k, you're living on approximately $155k a year after-tax. But that's assuming you're making JUST enough to get in the 39.6% bracket. You may have annual income of $1mil per year. In which case, you are paying maybe around $400k in total federal and state taxes, saving $150k, and living on $450k per year.
If you're living on $155k a year right now, you're looking at a much better situation than if you're living on $450k a year. If you're used to living the $450k a year lifestyle, downgrading to $155k a year during retirement may be exceedingly difficult.
Re: 36 yo looking for early retirement
Thank you both for the responses! Our expenses are about $120K/year. I am hoping to be around $100k-$120K/year during retirement, probably closer to $100k depending on how much health care costs.
Thanks!
Chad
Thanks!
Chad
Re: 36 yo looking for early retirement
With that information in mind, I think your goal should be to save up at least $3mil, with $4mil being even better. You noted that current savings are mid to high 6 figures, so I'll estimate that at $750,000. Let's say your time frame is 14 years, since you said you'd be willing to retire at age 50. Starting at $750k, saving $150k a year for the next 14 years, you could be in a couple different situations at age 50. If your after-inflation (real) returns are 8%, you would have $5.8mil to retire on. Plenty enough. At a 2% real return you would have $3.4mil to retire on.radchad3 wrote:Thank you both for the responses! Our expenses are about $120K/year. I am hoping to be around $100k-$120K/year during retirement, probably closer to $100k depending on how much health care costs.
Thanks!
Chad
This is a pretty big difference. And both situation are certainly possible. It's even possible you'll have a 0% real return and end up with only $2.85mil in real terms.
This is assuming you're able to maintain that $150k savings per year. That may go down when you have 2-3 kids. Maybe you want to send them to private school, or have to send them to college. When your family doubles in size, the chances that at least one of you will develop an unexpected expensive health issue also increases.
Re: 36 yo looking for early retirement
I'm in a very similar situation so thanks for the post. My husband and I are in our 30s with upper mid 6 figures saved, aiming for early retirement. We make less than you guys and are not quite investing 6 figures a year though, and our mortgage is bigger. But we are also tentatively planning on 2-3 kids.
The more I think about it, the more I want to explore the idea of both of us "retiring early" or taking a mid-career sabbatical when we have the kids, then in 5-15 years going back to work. That way we could both actually enjoy and spend time with our family, rather than working like crazy while the kids are young to then retire early as soon as they are out of the house. My mom was a SAHM until the four of us hit high school, then she got her masters in Math and started teaching. She could easily retire now but doesn't really want to - with no kids at home and summers off her job is her outlet for social interaction, intelligent conversation and giving back to the community. It's really an ideal situation in hindsight. Of course I'd rather my husband be able to participate too, rather than just me getting that time with the family. And we just might be able to afford it...
My only hesitation is that both our careers would be hard/annoying to get back into after a years-long break, so I really want to max out our income potential now before quitting. Odds are I'd make a career shift and never earn quite as much again. And if we go that route we'll need a lot more money in taxable, but I find it hard to imagine directing money away from tax-advantaged accounts when we just got to the point where we can max them all out a couple of years ago...
Anyway, I wanted to comment in order to follow the responses. Good luck to you both!
The more I think about it, the more I want to explore the idea of both of us "retiring early" or taking a mid-career sabbatical when we have the kids, then in 5-15 years going back to work. That way we could both actually enjoy and spend time with our family, rather than working like crazy while the kids are young to then retire early as soon as they are out of the house. My mom was a SAHM until the four of us hit high school, then she got her masters in Math and started teaching. She could easily retire now but doesn't really want to - with no kids at home and summers off her job is her outlet for social interaction, intelligent conversation and giving back to the community. It's really an ideal situation in hindsight. Of course I'd rather my husband be able to participate too, rather than just me getting that time with the family. And we just might be able to afford it...
My only hesitation is that both our careers would be hard/annoying to get back into after a years-long break, so I really want to max out our income potential now before quitting. Odds are I'd make a career shift and never earn quite as much again. And if we go that route we'll need a lot more money in taxable, but I find it hard to imagine directing money away from tax-advantaged accounts when we just got to the point where we can max them all out a couple of years ago...
Anyway, I wanted to comment in order to follow the responses. Good luck to you both!
"An investment in knowledge pays the best interest." - Benjamin Franklin
Re: 36 yo looking for early retirement
Questions:
1. I have about $300,000 in cash that has been accumulated over the last 4 years outside of my retirement savings. I am at a loss of what to do with it. At such low interest rates on my debt I hate to pay that off right away. It would be paid off prior to retirement however.
Should I:
a. Look into alternative investments i.e. commercial real estate, residential real estate etc?
If you have a burning desire to have an additional part time job then try to find some extra work in your field. At your income level it makes no sense to spend your time worrying about a backed up toilet. If you want real estate, then buy a REIT.
b. Add this to my AA in taxable? Lump sum or DCA?
This decision is one of the reasons that you might want to pay off at least part of the debt. You could pay off the two higher interest rate loans for $210K then invest your "loan payment" each month. That would make the "Lump sum or DCA?" question for the remaining amount a lot less critical.
c. Pay off all debt now?
Yup, at least the two higher interest rate loans. If you had no debt you would not take out new loans at those rates just to invest the money. You have to be realistic about how much your could earn AFTER taxes on any moderately safe investments. Realistically you would be doing great to net a percent or two after taxes but you could lose a lot of any investment. That percent or two gain would make virtually no difference in your overall situation. It really is not a question of "if" you should pay it off, only when.
d. Other thoughts?
2. I am starting to wonder if my taxable AA should mirror my retirement account AA? If I retire at 45-50 and have only taxable available until 59.5, I won't be in a very good position if TSM takes a 50% dump. Also WCI make a good case for bonds in taxable. Thoughts on this? I would also rather not use the SEPP rule or my Roth contributions as early withdraw strategies.
I would look at is as two portfolios, one for supporting yourself until the kids are out on their own, and the other for after that. You probably don't need to set up this allocation until a few years before you are ready to stop working.
3. If I do put bonds in taxable, would I use VG Intermediate tax exempt? Is this risky in this low interest rate environment?
I would be more worried about the cities issuing those bonds running into trouble. The day you stop working and you tax rate drops you would likely no longer want these. Be sure to have an exit plan for that day.
4. Should I be looking for ways to keep my income as low as possible so I can convert as much as possible from my 401k/Profit Sharing to Roth from 45 to 59.5? If all my money comes from the taxable account, the only "earned" income I would be taxed on would come from my conversions correct?
None of that would be "earned", it would be capital gains or dividends. If you can stay in the 15% tax bracket the capital gains tax rate would be zero if the rates don't change by than.
5. Any other early retirement strategies I should be aware of?
Keeping your costs low. With the kids in school you will likely not be able to spend a lot on travel most of the year so if you have a paid off house then your budget would mainly be things like; insurance, utilities, food, and property tax. Write up a budget for these and you might be surprised at how little it takes to live well.
6. Other thoughts?
Plan on what you will do with your time. Once the kids are in middle school or so they will have their friends and activities so there may not be a lot of fulfilling time that you will spend with them each day. Most people your age will be working so there may not be a lot of people your age to do things with either.
1. I have about $300,000 in cash that has been accumulated over the last 4 years outside of my retirement savings. I am at a loss of what to do with it. At such low interest rates on my debt I hate to pay that off right away. It would be paid off prior to retirement however.
Should I:
a. Look into alternative investments i.e. commercial real estate, residential real estate etc?
If you have a burning desire to have an additional part time job then try to find some extra work in your field. At your income level it makes no sense to spend your time worrying about a backed up toilet. If you want real estate, then buy a REIT.
b. Add this to my AA in taxable? Lump sum or DCA?
This decision is one of the reasons that you might want to pay off at least part of the debt. You could pay off the two higher interest rate loans for $210K then invest your "loan payment" each month. That would make the "Lump sum or DCA?" question for the remaining amount a lot less critical.
c. Pay off all debt now?
Yup, at least the two higher interest rate loans. If you had no debt you would not take out new loans at those rates just to invest the money. You have to be realistic about how much your could earn AFTER taxes on any moderately safe investments. Realistically you would be doing great to net a percent or two after taxes but you could lose a lot of any investment. That percent or two gain would make virtually no difference in your overall situation. It really is not a question of "if" you should pay it off, only when.
d. Other thoughts?
2. I am starting to wonder if my taxable AA should mirror my retirement account AA? If I retire at 45-50 and have only taxable available until 59.5, I won't be in a very good position if TSM takes a 50% dump. Also WCI make a good case for bonds in taxable. Thoughts on this? I would also rather not use the SEPP rule or my Roth contributions as early withdraw strategies.
I would look at is as two portfolios, one for supporting yourself until the kids are out on their own, and the other for after that. You probably don't need to set up this allocation until a few years before you are ready to stop working.
3. If I do put bonds in taxable, would I use VG Intermediate tax exempt? Is this risky in this low interest rate environment?
I would be more worried about the cities issuing those bonds running into trouble. The day you stop working and you tax rate drops you would likely no longer want these. Be sure to have an exit plan for that day.
4. Should I be looking for ways to keep my income as low as possible so I can convert as much as possible from my 401k/Profit Sharing to Roth from 45 to 59.5? If all my money comes from the taxable account, the only "earned" income I would be taxed on would come from my conversions correct?
None of that would be "earned", it would be capital gains or dividends. If you can stay in the 15% tax bracket the capital gains tax rate would be zero if the rates don't change by than.
5. Any other early retirement strategies I should be aware of?
Keeping your costs low. With the kids in school you will likely not be able to spend a lot on travel most of the year so if you have a paid off house then your budget would mainly be things like; insurance, utilities, food, and property tax. Write up a budget for these and you might be surprised at how little it takes to live well.
6. Other thoughts?
Plan on what you will do with your time. Once the kids are in middle school or so they will have their friends and activities so there may not be a lot of fulfilling time that you will spend with them each day. Most people your age will be working so there may not be a lot of people your age to do things with either.
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Re: 36 yo looking for early retirement
I would say it is time to do some reading.
If one has 300k sitting in cash instead of AT LEAST paying of the higher returning negative bond, i.e. debt or not just putting more into taxable makes me wonder there is a deficit in financial acumen.
Don't get me wrong, you have done a great job saving and investing, but there is NO rational reason to have that much money around ESPECIALLY if your goal is early retirement (which is only 10-15 yrs. away).
Good luck.
If one has 300k sitting in cash instead of AT LEAST paying of the higher returning negative bond, i.e. debt or not just putting more into taxable makes me wonder there is a deficit in financial acumen.
Don't get me wrong, you have done a great job saving and investing, but there is NO rational reason to have that much money around ESPECIALLY if your goal is early retirement (which is only 10-15 yrs. away).
Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” |
-Jack Bogle
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Re: 36 yo looking for early retirement
I'll only add one thing, what about purchasing a home? If your planning to make sure you factor the down payment in your cash allocation.
Re: 36 yo looking for early retirement
Thank you all for your thoughtful responses. Keep them coming!
Staythecourse: I understand I can always do more reading. I have read quite a few of the boglehead-approved books and follow the forum closely along with WCI. The main reason I have so much cash right now is I have put 6 figures in the market yearly and I was thinking of alternative investments such as commercial real estate that would provide passive income with little maintenance especially with triple net leases. I realize there is risk involved but quite frankly the markets can lose 50%+ and I consider that pretty risky as well. I was just taking my time with this "extra" money and treating it as a windfall instead of just throwing it all in the market.
Staythecourse: I understand I can always do more reading. I have read quite a few of the boglehead-approved books and follow the forum closely along with WCI. The main reason I have so much cash right now is I have put 6 figures in the market yearly and I was thinking of alternative investments such as commercial real estate that would provide passive income with little maintenance especially with triple net leases. I realize there is risk involved but quite frankly the markets can lose 50%+ and I consider that pretty risky as well. I was just taking my time with this "extra" money and treating it as a windfall instead of just throwing it all in the market.
Re: 36 yo looking for early retirement
Radchad,
I assume you are a radiologist. Based on your name and your comment regarding WCI. I think you are doing very well with your goals. May I give you a slight alternative to your plans?
Have you considered part time instead of taking a 5-15 year sabbatical for your kids.
Here is my thinking: If many/most believe a 4% withdrawal rate will be sufficient and you would like to live on $120K/year then you need to have a nest egg of $3 million. Lets just assume you want to be a little safer and want $3.5 million. By saving up $1.75 Million and then going part time, you can make just enough money to live off of and allow the market to increase your 1.75 to 3.5 million over the next 10-15 years depending on returns. Maybe working part time will not only give you $120K/year living expenses but still allow you to invest $53K/year into a retirement account while working 2-3 days a week. By doing this you don't loose your skill, you don't get burned out, and still have plenty of time with family. This goal is much easier to achieve I believe than a very early retirement. Based on my calculations if you have $700K now, plus the extra $300K puts you at $1million. At your current rate you will hit 1.75 million in under 4 years at a 5% real return on investments. Which means you can go part time in 4 years.
Also, a $1.75 million gives you $70K/year at a 4% withdrawal rate If you and the misses continue to add into SS over the years, at Full Retirement Age you should get at least $30K/year giving you a living expense of $100K/year which is still not too shabby. And that is if your investments don't grow at all which is very unlikely.
Edit: Also, as a physician, your job is relatively secure. Having 12 months Emergency fund may be a little too high (but who is to argue with the price of piece of mind) Basically it takes about 6 months to credential for a new job if out of state and about 3 months if in state. Maybe an 8 month emergency fund is all that is necessary and still feel secure.
I assume you are a radiologist. Based on your name and your comment regarding WCI. I think you are doing very well with your goals. May I give you a slight alternative to your plans?
Have you considered part time instead of taking a 5-15 year sabbatical for your kids.
Here is my thinking: If many/most believe a 4% withdrawal rate will be sufficient and you would like to live on $120K/year then you need to have a nest egg of $3 million. Lets just assume you want to be a little safer and want $3.5 million. By saving up $1.75 Million and then going part time, you can make just enough money to live off of and allow the market to increase your 1.75 to 3.5 million over the next 10-15 years depending on returns. Maybe working part time will not only give you $120K/year living expenses but still allow you to invest $53K/year into a retirement account while working 2-3 days a week. By doing this you don't loose your skill, you don't get burned out, and still have plenty of time with family. This goal is much easier to achieve I believe than a very early retirement. Based on my calculations if you have $700K now, plus the extra $300K puts you at $1million. At your current rate you will hit 1.75 million in under 4 years at a 5% real return on investments. Which means you can go part time in 4 years.
Also, a $1.75 million gives you $70K/year at a 4% withdrawal rate If you and the misses continue to add into SS over the years, at Full Retirement Age you should get at least $30K/year giving you a living expense of $100K/year which is still not too shabby. And that is if your investments don't grow at all which is very unlikely.
Edit: Also, as a physician, your job is relatively secure. Having 12 months Emergency fund may be a little too high (but who is to argue with the price of piece of mind) Basically it takes about 6 months to credential for a new job if out of state and about 3 months if in state. Maybe an 8 month emergency fund is all that is necessary and still feel secure.
A time to EVALUATE your jitters: |
viewtopic.php?p=1139732#p1139732
Re: 36 yo looking for early retirement
In spite of your reluctance, I would consider paying off the 279k in debt with the cash Then take the payments you are making and invest that monthly, in addition to the extra you have leftover from the cash and ongoing investment funds. It will grow fast.
Considering you have been holding 300k in cash, I am concerned you may panic if you invest it all and the market tanks in the next months or even years when your $$ drops so dramatically.
It can be VERY satisfying and make for a good night's sleep to have no debt
You can make a good argument for investing in stocks and bonds rather than paying down your relatively low interest rate debt.
However you have been holding cash, which has been losing money at the rate of inflation. Paying off the debt stops that loss as well as the loan payments.
Honestly, you can either pay off all debt, or invest it all, or a combination of both. It just depends on what you and your family will sleep best with at night
I trust you will read responses, research, and reach the right conclusion for you.
Best wishes,
lafder
Considering you have been holding 300k in cash, I am concerned you may panic if you invest it all and the market tanks in the next months or even years when your $$ drops so dramatically.
It can be VERY satisfying and make for a good night's sleep to have no debt
You can make a good argument for investing in stocks and bonds rather than paying down your relatively low interest rate debt.
However you have been holding cash, which has been losing money at the rate of inflation. Paying off the debt stops that loss as well as the loan payments.
Honestly, you can either pay off all debt, or invest it all, or a combination of both. It just depends on what you and your family will sleep best with at night
I trust you will read responses, research, and reach the right conclusion for you.
Best wishes,
lafder
Re: 36 yo looking for early retirement
Many great replies thus far. For what it's worth, I've opted to pay down my student loans aggressively. My interest rates are higher than yours with half being at 6+%. I'll take the guaranteed 6% ROI for early repayment, but the feeling of security in knowing that I am nearly debt free and the options that being so affords me is priceless.
My wife and I are a couple of years younger but we already have two children at home with the oldest just having turned 4. I've opted to work 3, 12hr days a week in an effort to be home with the kids as much as possible. I might not be able to invest in excess of $100k/yr and I don't have nearly what you have in cash savings, but we can still easily max out my SEP IRA and my wife's 403b without a problem which should still give us a comfortable retirement if we continue to work until 59 and a half as we currently plan on doing. I feel much less burnt out and I spend more time at home with my young children than most professionals, especially in our field or work. Your goals may change drastically after your first child as did ours.
I'm not a medical malpractice lawyer, but having $300k plus lying around in cash doesn't sit well with me in terms of asset protection, which is also important to consider.
My wife and I are a couple of years younger but we already have two children at home with the oldest just having turned 4. I've opted to work 3, 12hr days a week in an effort to be home with the kids as much as possible. I might not be able to invest in excess of $100k/yr and I don't have nearly what you have in cash savings, but we can still easily max out my SEP IRA and my wife's 403b without a problem which should still give us a comfortable retirement if we continue to work until 59 and a half as we currently plan on doing. I feel much less burnt out and I spend more time at home with my young children than most professionals, especially in our field or work. Your goals may change drastically after your first child as did ours.
I'm not a medical malpractice lawyer, but having $300k plus lying around in cash doesn't sit well with me in terms of asset protection, which is also important to consider.
Re: 36 yo looking for early retirement
I think you are doing extraordinarily well.
'twere it I, I'd get rid of all the debt. Debt can be effectively manipulated as an "asset" by a company, but not by individuals.
'twere it I, I'd get rid of all the debt. Debt can be effectively manipulated as an "asset" by a company, but not by individuals.
Re: 36 yo looking for early retirement
Thank you all for the replies! I do agree that paying off the debt allows two things to happen; financial security and a way to DCA with the new money that won't be spent on the mortgage and student loans. Also I think working part time at 45 would be a real consideration. It would allow me to further pad my retirement account while still spending ample time at home. Keep the thoughts coming and thank you again!
Chad
Chad
Re: 36 yo looking for early retirement
Payoff:
$140,000 at 3.00% 15 year (mortgage)
Do NOT Payoff:
$70,000 at 1.625% (school loans, fixed)
$69,000 at 0.39% (school loans, fixed)
Consider Muni Bonds in Taxable but only up to 50% of total bonds to get to desired AA, I would consider a combination
of VWITX and VWAHX (or their Admiral equivalents depending on amount) for the Muni's.
Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX)
Vanguard High-Yield Tax-Exempt Fund Investor Shares (VWAHX)
Dollar Cost Average with the amount that was paying the 140K @ 3%
Keep up the great work!
$140,000 at 3.00% 15 year (mortgage)
Do NOT Payoff:
$70,000 at 1.625% (school loans, fixed)
$69,000 at 0.39% (school loans, fixed)
Consider Muni Bonds in Taxable but only up to 50% of total bonds to get to desired AA, I would consider a combination
of VWITX and VWAHX (or their Admiral equivalents depending on amount) for the Muni's.
Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX)
Vanguard High-Yield Tax-Exempt Fund Investor Shares (VWAHX)
Dollar Cost Average with the amount that was paying the 140K @ 3%
Keep up the great work!
Re: 36 yo looking for early retirement
Wife is 35....you want kids...you're medical...you know human physiology..better get cracking. Wifey was hammering me the day she got out of residency.
Re: 36 yo looking for early retirement
A couple of quick thoughts:
1) 4% withdrawal rate is typically mentioned in reference to a 30 year retirement, I'd plan for lower withdrawal rate if there is no fudge factor in your planned annual retirement expenses
2) I often see medical professionals discussing asset protection, and I think that debt repayment is an easy way to partially accomplish, so I would increase bias towards paying off at least the mortgage
1) 4% withdrawal rate is typically mentioned in reference to a 30 year retirement, I'd plan for lower withdrawal rate if there is no fudge factor in your planned annual retirement expenses
2) I often see medical professionals discussing asset protection, and I think that debt repayment is an easy way to partially accomplish, so I would increase bias towards paying off at least the mortgage
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Re: 36 yo looking for early retirement
If you save $150K a year, you will have a lot of money at 50. The good thing is that, if you can save a lot of money before retirement, you really do not need a lot of money in your retirement, because you will have been trained in frugality.
If I were you, I would pay off the debts. When you can save $150K a year, the style of investment (70/30 or 60/40) does not matter very much, as long as you do not try something unusual, IMO.
If I were you, I would pay off the debts. When you can save $150K a year, the style of investment (70/30 or 60/40) does not matter very much, as long as you do not try something unusual, IMO.
- White Coat Investor
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Re: 36 yo looking for early retirement
First off, you're going to be very wealthy if you continue along this trajectory. Seriously. Hardly any debt, huge income, the right financial knowledge, good savings etc. So any little mistakes you make aren't going to matter much in the grand scheme of things.1. I have about $300,000 in cash that has been accumulated over the last 4 years outside of my retirement savings. I am at a loss of what to do with it. At such low interest rates on my debt I hate to pay that off right away. It would be paid off prior to retirement however.
Should I:
a. Look into alternative investments i.e. commercial real estate, residential real estate etc?
b. Add this to my AA in taxable? Lump sum or DCA?
c. Pay off all debt now?
d. Other thoughts?
2. I am starting to wonder if my taxable AA should mirror my retirement account AA? If I retire at 45-50 and have only taxable available until 59.5, I won't be in a very good position if TSM takes a 50% dump. Also WCI make a good case for bonds in taxable. Thoughts on this? I would also rather not use the SEPP rule or my Roth contributions as early withdraw strategies.
3. If I do put bonds in taxable, would I use VG Intermediate tax exempt? Is this risky in this low interest rate environment?
4. Should I be looking for ways to keep my income as low as possible so I can convert as much as possible from my 401k/Profit Sharing to Roth from 45 to 59.5? If all my money comes from the taxable account, the only "earned" income I would be taxed on would come from my conversions correct?
5. Any other early retirement strategies I should be aware of?
6. Other thoughts?
I welcome any comments! I am sorry this is a little long but I truly appreciate and respect the time people take in giving their answers.
Thank you very much!
1) Split the difference. Pay off the debt but also start investing in taxable. Consider it a luxury to be able to not worry about the mathematical aspect of investing while having low interest debt. Just get rid of it.
2) I think mirroring your tax protected accounts is a terrible idea as a general rule, whether you decide to put munis in taxable or put your tax-efficient stock funds there. You're obviously going to need a big tax protected account, and it's okay to have stocks and bonds there. Since you refuse to raid retirement accounts before 59 1/2, you really have two separate retirement goals, so you might as well have a separate asset allocation for each of them.
3) I think that fund is fine. Is there a state fund you could use?
4) That's not earned income. It's taxable, but not earned. But yes, you should probably plan on some Roth conversions.
5) Sounds like you have a pretty good handle on this stuff to me. When you're to the point where you're debating bonds in taxable vs tax-deferred, you've already got all the high yield stuff.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy |
4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
- White Coat Investor
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Re: 36 yo looking for early retirement
Uhhhh......did you really just post that on Bogleheads?Flashes1 wrote: Wifey was hammering me the day she got out of residency.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy |
4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
- White Coat Investor
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Re: 36 yo looking for early retirement
And real estate is fine; just carve out a portion of your portfolio and keep it reasonably rebalanced with the rest. It's pretty easy to do it these days through the numerous crowdfunding sites. I'm getting 4 or 5 investments a week by email. I can't invest in even 10% of the ones that I think look good. Keep in mind the fees are orders of magnitude higher than index funds, but that's the price you pay if you don't want a second job doing real estate yourself.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy |
4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
Re: 36 yo looking for early retirement
Thank you for the replies!
Emergdoc: I have looked more into the SEPP option and I am not averse to using that at all. I just had always read to draw down from taxable first so I wondered if I needed to treat my AA in taxable differently than I had been. If not, should I simply just keep TSM in taxable and be done with it?
If I was interested in these RE crowd funding options in the future, have u posted on the good options for them?
Thank you again!
Emergdoc: I have looked more into the SEPP option and I am not averse to using that at all. I just had always read to draw down from taxable first so I wondered if I needed to treat my AA in taxable differently than I had been. If not, should I simply just keep TSM in taxable and be done with it?
If I was interested in these RE crowd funding options in the future, have u posted on the good options for them?
Thank you again!
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Re: 36 yo looking for early retirement
I was thinking the same thing.EmergDoc wrote:Uhhhh......did you really just post that on Bogleheads?Flashes1 wrote: Wifey was hammering me the day she got out of residency.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Re: 36 yo looking for early retirement
Thought I would update the thread with the direction I am headed.
1. Pay off the mortgage of $140,000
2. Pay off the student loan at 1.625%, keep the other loan at 0.39%
3. Use the remaining cash after debt payoff ($90K) and buy TSM in taxable.
4. Hold only TSM in taxable.
5. Plan to use SEPP option to partially fund retirement prior to 59.5
Any other thoughts or comments are welcomed/encouraged!
Thank you!
1. Pay off the mortgage of $140,000
2. Pay off the student loan at 1.625%, keep the other loan at 0.39%
3. Use the remaining cash after debt payoff ($90K) and buy TSM in taxable.
4. Hold only TSM in taxable.
5. Plan to use SEPP option to partially fund retirement prior to 59.5
Any other thoughts or comments are welcomed/encouraged!
Thank you!
Re: 36 yo looking for early retirement
didn't read the whole thread, but things that I may have missed being mentioned
529 - since you plan to have kids
I bonds as part of your fixed income?
529 - since you plan to have kids
I bonds as part of your fixed income?
Re: 36 yo looking for early retirement
It wouldn't be earned, but Roth Conversions would be taxed at ordinary income rates, which is what I think the OP meant. Cap gains would only apply to the money they withdraw from taxable for living expenses.Watty wrote:4. Should I be looking for ways to keep my income as low as possible so I can convert as much as possible from my 401k/Profit Sharing to Roth from 45 to 59.5? If all my money comes from the taxable account, the only "earned" income I would be taxed on would come from my conversions correct?
None of that would be "earned", it would be capital gains or dividends. If you can stay in the 15% tax bracket the capital gains tax rate would be zero if the rates don't change by than.
- PoeticalDeportment
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Re: 36 yo looking for early retirement
I have some doubts about your plan. Let me explain.
My assumptions: you went straight through and finished college at age 22, medical school at 26, and radiology residency at 31. This implies that you have 14 years of saving until you are 45 years old or 19 years of saving until you are 50. For a balanced portfolio, lets say a real return of 5% (and not worry about inflation in our math). We will also assume you will save $150,000 each of those 14 or 19 years. For an early retirement, I think most people here would recommend something around a 3% SWR.
Debt = $80k+$69k+$140k = $289,000
So, the math (in excel or other spreadsheet):
Age 45 =FV(5%, 14, -150000, 289000, 1) = $2,514,584 (3% SWR = $75,437/year)
Age 50 =FV(5%, 19, -150000, 289000, 1) = $4,079,604 (3% SWR = $122,388/year)
When you say your goal is to retire at age 45-50, you should know that there is a rather large difference for you between those two. The 39.6% federal tax bracket begins at $464,850 this year for married filing jointly. If you are saving $150K/year, that leaves about $300k for taxes and spending. It is difficult to work backwards to an exact number for your annual spending, but it seems like you might have to scale back to live on something between $75k-$122k per year. If you are driving an Audi - this plan will never work. If you could live on $100k/year right now, I bet you would be saving more than $150k/year. You aren't really that far off though, you should open up excel and play with the numbers to figure out how make your plan work.
My assumptions: you went straight through and finished college at age 22, medical school at 26, and radiology residency at 31. This implies that you have 14 years of saving until you are 45 years old or 19 years of saving until you are 50. For a balanced portfolio, lets say a real return of 5% (and not worry about inflation in our math). We will also assume you will save $150,000 each of those 14 or 19 years. For an early retirement, I think most people here would recommend something around a 3% SWR.
Debt = $80k+$69k+$140k = $289,000
So, the math (in excel or other spreadsheet):
Age 45 =FV(5%, 14, -150000, 289000, 1) = $2,514,584 (3% SWR = $75,437/year)
Age 50 =FV(5%, 19, -150000, 289000, 1) = $4,079,604 (3% SWR = $122,388/year)
When you say your goal is to retire at age 45-50, you should know that there is a rather large difference for you between those two. The 39.6% federal tax bracket begins at $464,850 this year for married filing jointly. If you are saving $150K/year, that leaves about $300k for taxes and spending. It is difficult to work backwards to an exact number for your annual spending, but it seems like you might have to scale back to live on something between $75k-$122k per year. If you are driving an Audi - this plan will never work. If you could live on $100k/year right now, I bet you would be saving more than $150k/year. You aren't really that far off though, you should open up excel and play with the numbers to figure out how make your plan work.