I'm fairly young but done with saving money

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lecithar
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I'm fairly young but done with saving money

Post by lecithar »

At what point does it make sense to just say: screw it, I don't need to worry about saving money anymore. Is it a dangerous way of thinking?

My stats:
- age is mid 30s
- recently reached 1M in net worth (all stocks)
- making about 250K/yr in a high cost of living area
- half of my after-tax income goes to savings
- no house, no debt
- support a wife and young kids

To retire, we will need about 2M in net worth. I figured that even if I stopped saving money today, we'll reach 2M in net worth in about 15 years (assuming 6% growth.) At that time I'll be about 50 and could take early retirement. So, it seems like I don't need to save any more money and it should basically just be auto pilot from here on out. This would suggest two possibilities going forward:

1. First option is to switch to a less stressful job that pays half of my current salary and I can basically spend my entire salary every month. I will still be able to retire in 15 years.

2. Second option is to keep doing what I'm doing, and either retire much earlier than expected, or just continue to accumulate more money. The option to just accumulate more money doesn't really appeal to me.
avalpert
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Re: I'm fairly young but done with saving money

Post by avalpert »

Assuming 6% annual real growth over the next 15 years seems pretty ambitious given today's valuations and interest rates - I'm not sure you'd find much support for that forecast.

You also may be underestimating how your costs will increase as your kids age, don't seem to have taken college costs into account at all and as the sole breadwinner (at least that's what it sounds like) aren't accounting for any of the risk of you using your job/income prematurely.

What is the catalyst for you thinking about this now - are there ways to address that without reducing future flexibility? I also think the link between pay and job stress may be spurious - if your current job is stressful what is driving that stress and are there ways to reduce/manage it that don't require lower income? Maybe you just need to take a sabbatical for a few months.
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Re: I'm fairly young but done with saving money

Post by AlohaJoe »

If you're spending $100,000 a year right now then you'll need more than $2 million. That aside, the answer to your question is pretty straightforward:

You (probably) don't need to save more. But saving more gives you flexibility to deal with life's curveballs. The reality is that most of those curveballs never eventuate. But sometimes some of them do. So it comes down to your risk tolerances. Only you can decide that.
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CaliJim
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Re: I'm fairly young but done with saving money

Post by CaliJim »

a million bucks isnt what it use to be

jobs come and go

businesses thrive and then fail

inflation will eat away at the value of your nest egg and drive up your cost of living in retirement

6% return may be optimistic

not owning a home will leave you exposed to rent inflation in retirement. homeowners don't have that issue.

even if your $1m grew to $3.5m in 20 years... a safe withdrawal rate of 3.5% would only yield roughly $85k in annual withdrwals, in TODAYS dollars.

you are not there yet..not even that close...considering kids, and no home ownership.

have you funded your kids college accounts yet. that's another couple of hundred thousand.

keep saving, especially in tax advantaged space (401k, ira)

home ownership doesn't excite you? maybe save enough to buy a condo somewhere. rent it out. even with slightly negative cash flow. at least then you'll have a fully paid roof available in 20/30 years if you need it.

i have friends who like you thought they had it made 20 years ago. never bought a home. then got laid off at 40yo. struggled to find comperable new employment. now are hanging on by the skin of their teeth.

keep saving. keep investing. dont worry about keeping up with the jones. the jones are in debt up to their ears and have no savings to speak of, even though they do drive a bmw.
Last edited by CaliJim on Wed Nov 01, 2017 2:20 pm, edited 1 time in total.
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Sandtrap
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Re: I'm fairly young but done with saving money

Post by Sandtrap »

lecithar wrote: Tue Oct 31, 2017 11:49 pm At what point does it make sense to just say: screw it, I don't need to worry about saving money anymore. Is it a dangerous way of thinking?
Only if you can predict that you will not encounter personal and financial "black swans" in life.

My stats:
- age is mid 30s
- recently reached 1M in net worth (all stocks)
- making about 250K/yr in a high cost of living area
- half of my after-tax income goes to savings
- no house, no debt
- support a wife and young kids

To retire, we will need about 2M in net worth. I figured that even if I stopped saving money today, we'll reach 2M in net worth in about 15 years (assuming 6% growth.) Also assuming no job loss, no cutbacks, no financial setbacks, no personal setbacks. . .. etc) At that time I'll be about 50 and could take early retirement. So, it seems like I don't need to save any more money and it should basically just be auto pilot from here on out. This would suggest two possibilities going forward:

1. First option is to switch to a less stressful job that pays half of my current salary and I can basically spend my entire salary every month. I will still be able to retire in 15 years. At age mid 30, why would one cut one's earning power in half?

2. Second option is to keep doing what I'm doing, and either retire much earlier than expected, or just continue to accumulate more money. The option to just accumulate more money doesn't really appeal to me.Why? Is it the way you accumulate money. . . job environment, stress, etc. . . or accumulation of money for it's own sake given that there's personal gratification at work? Do folks commonly not want to grow a portfolio?
The more you have saved, the more options you have in the future. Save less, then less options.
Some random thoughts.
Hope it's helpful.
j :D
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eye.surgeon
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Re: I'm fairly young but done with saving money

Post by eye.surgeon »

First, congratulations.

Second, how many kids? How's your 529 accounts? you could easily spend half your current savings, or even all of it, on getting your kids through private school and college. And you don't own a home. Are you planning on renting throughout your retirement? A home in your high-cost area could cost more than your current savings.

If I were you I'd double your "number", keep saving, and enjoy the benefits of your very good start.
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Lynx310650
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Re: I'm fairly young but done with saving money

Post by Lynx310650 »

Seems like savings fatigue. I think not saving anything is too drastic, but how about a happy medium? At least take advantaged of tax-advantaged space? So maybe commit to saving in your 401k up to company match and maxing out IRAs. If that doesn't hurt too much, maybe max 401k as well, but also force yourself to NOT save beyond that and open up your spending a bit to reward yourself.

Again, I wouldn't stop saving altogether, but like you said you've done a great job of saving a nice chunk at a relatively young age, so I don't see anything wrong with slowing the savings down a bit if that means you can enjoy life more.
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Re: I'm fairly young but done with saving money

Post by TravelGeek »

So if you starting ramping up your expenses now, will your $2m retirement fund be enough to fund your increased budget once you pull the plug on your earnings stream?
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quantAndHold
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Re: I'm fairly young but done with saving money

Post by quantAndHold »

Bogleheads are always going to tell you to keep saving. I agree that there’s no point in continuing to save once you have “enough.” You’re doing fine, but the longer your timeline, the more risk you face. Make sure enough is actually enough before you just stop saving.

$2M probably gives you a safe withdrawal rate of $70-80k/year. Is that enough, especially when you figure in inflation? Even at 2%/year, inflation will take a huge chunk out of what that $80k will pay for 20, 30, or 40 years from now. Assuming 2% inflation, $80k now will be worth $35k in today’s dollars when you’re 75.

Like all so far have said, a 6% return is too optimistic. Given the current state of the market, 4% might actually be too optimistic.

You’ll have to figure on drawing down savings to pay for kids’ college. Need based financial aid is not kind to savers.

As far as options, you also have options 3 and 4.

3) stay the course, and reevaluate when you actually get to $2M. At that point, how old are you, what’s the state of the market? What’s your family situation? The good news is it usually takes a lot less time to hit the 2nd million than the 1st. Regardless, if I were 35, I’d feel a lot more comfortable stopping saving at $2M than $1M.

4) downshift the job, but also downshift the lifestyle. Learn to live on less, so that you can still save money and be prepared for retirement with less risk.
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Re: I'm fairly young but done with saving money

Post by msk »

The savings fatigue is a direct result of over-saving. Continue saving-and-investing 30% of after-tax income and your standard of living will be more appropriate to your income level. The savings include any payment on the principal on a mortgage on your home and also any investment income. You seem to be consuming about $100k in today's money. To fund that you need a $2.5 million portfolio in TODAY's money, not in money 10 or 20 years in the future. So, the bad news is that you need to continue saving but since YOLO, it's better to moderate the savings rate to 30%. Best wishes.
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slayed
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Re: I'm fairly young but done with saving money

Post by slayed »

quantAndHold wrote: Wed Nov 01, 2017 1:24 am
$2M probably gives you a safe withdrawal rate of $70-80k/year. Is that enough, especially when you figure in inflation? Even at 2%/year, inflation will take a huge chunk out of what that $80k will pay for 20, 30, or 40 years from now. Assuming 2% inflation, $80k now will be worth $35k in today’s dollars when you’re 75.
The 4% SWR that gets frequently discussed calls for increasing the withdrawal amount each year to account for inflation. I don't think anyone recommends a strategy that calls for a fixed withdrawal rate.
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ray.james
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Re: I'm fairly young but done with saving money

Post by ray.james »

I would just read calijim's post twice.

Life is full of uncertainties. I do not think you are there but you can slow the pace of saving.
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SmileyFace
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Re: I'm fairly young but done with saving money

Post by SmileyFace »

Kids college?
It doesn't have to be all or nothing - why isn't saving 10 to 15% of you pretax salary an option?
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Re: I'm fairly young but done with saving money

Post by Jack FFR1846 »

Net worth isn't going to matter unless you plan to sell your house and live in a refrigerator box. Invested assets is what you want to be looking at.

$1M gives you about $40k a year using 4%. In a HCOL area, certainly $80k is not unreasonable, so $2M would be needed. What are your plans for the kids? The only reason I'm still working (well over $2M in investments, live on $50k a year) is because one kid is in college with second in a private high school for a learning issue, then will be in some kind of post secondary school. So in 2 years, I'll "only" be paying $60k-ish for one college. What are your plans for the kids?
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Pajamas
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Re: I'm fairly young but done with saving money

Post by Pajamas »

You should differentiate between saving and investing.

https://vanguardblog.com/2015/02/20/sav ... ference-2/

Also consider taking advantage of your current high earning power to become completely financially independent as you never know what the future might hold.
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rob
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Re: I'm fairly young but done with saving money

Post by rob »

The future has a way of not working out like you expect..... at least save to get any company match, no point leaving money on the table.
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Re: I'm fairly young but done with saving money

Post by jlcnuke »

$2M in 15-20 years will not be worth what you seem to think it is. $1M today is worth ~$700k in 2000 dollars. So that $2M, extrapolating similar inflation data, would be the equivalent of ~$1.4M today. Giving you, with a SWR of 3.5% (since you're talking ER, not retiring for 30 years), the equivalent of $49k/year income from your investments. As you're spending half of your after tax income currently (based on saving half of it), your current spending is probably about double that. In other words, you'd have to cut your spending in half to live on that amount when you're 50.

However, with a 6% roi, for 15 years, if you put in $75k/year you'd have a bit over $4M at the end of those 15 years. That would give you a SWR of about $100k/year in today's dollar.
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Re: I'm fairly young but done with saving money

Post by rai »

I don’t know about you but $2M for early retirement seems very low to me.

I’d double that figure at least. Health care is expensive, don’t know if you get health care through work but we are self employed and it costs us like $18k per year and it goes up like 10% or more every year, plus deductibles.

FireCalc says starting with $2M you’d be able to spend $73K per year for 40 year retirement 95% success. That would put you at 90 years old if you live past 90.

Plus the money saved $2M is in a retirement account or taxable account so you may need to pay some income tax on it so $73k is not for sure after tax what if it’s really $60k post tax that’s $5-6K month to live on plus Social Security.

Also the earlier you retire the lower your SS earnings will be they count your 35 highest years earnings so anything less than 35 years is counted as zero.
Last edited by rai on Wed Nov 01, 2017 7:23 am, edited 2 times in total.
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Re: I'm fairly young but done with saving money

Post by Da5id »

quantAndHold wrote: Wed Nov 01, 2017 1:24 am Bogleheads are always going to tell you to keep saving.
Not all Bogleheads. I'm a fan of if you've won, you've won, and can act accordingly (though even if you've won not taking the 401k match at least is a crime). I'm not sure that OP can simply declare victory though.

1) Retiring young has more risks of bad things happening and having to live with them longer. Serious illness, disability, stock crash, prolonged unemployment, etc. So I'd go with a bigger cushion (4% rule is dodgy particularly for very early retirees). And college is a big unknown unless you are going to have kids do it on their own. At current growth rates it will cost you say 1 million to fund the kids if they go to private college :) But current growth rates can't go on forever...
2) Even other than college, kids aren't cheap. HCOL area kids may tend to have expensive hobbies too.
3) Bridging health care from 50 to 65 will likely be wicked expensive. Not sure where ACA will be by then, and for that matter if medicare age will be 65 by time you get there, it is far in the future.
4) Can go happy medium and save some and spend a bit more on vacations and such while keeping current job. Spend on timesavers (pay for yard care/house cleaning/whatever) if having less on your plate lowers your stress level.

I think lowering your stress level is a good goal. Enjoying life is important. That said, living in HCOL area where you are spending 100% of salary (downshifting option) sounds kind of on the edge to me. Wonder if you have some in between option?
Last edited by Da5id on Wed Nov 01, 2017 7:28 am, edited 1 time in total.
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Re: I'm fairly young but done with saving money

Post by The Wizard »

rai wrote: Wed Nov 01, 2017 7:14 am I don’t know about you but $2M for early retirement seems very low to me.

I’d double that figure at least. Health care is expensive, don’t know if you get health care through work but we are self employed and it costs us like $18 per year and it goes up like 10% or more every year, plus deductibles.
$18,000 per year, I think you mean...
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rai
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Re: I'm fairly young but done with saving money

Post by rai »

The Wizard wrote: Wed Nov 01, 2017 7:22 am
rai wrote: Wed Nov 01, 2017 7:14 am I don’t know about you but $2M for early retirement seems very low to me.

I’d double that figure at least. Health care is expensive, don’t know if you get health care through work but we are self employed and it costs us like $18 per year and it goes up like 10% or more every year, plus deductibles.
$18,000 per year, I think you mean...
I just fixed my post, I’m a lot older than OP I’m already 52 I’ve figured my number and it’s not even close to $2M.

I can’t estimate health care costs plus there can arise some health issues that could be very expensive even with insurance.

IMO this is a question where the best answer is to save too much rather than not enough.

It’s like you are going on a trip and you are packing underwear and such. If you don’t bring enough you can always buy some more or wash what you have.

But if you retire early it’d be like you are on a trip and you can’t buy anything or wash your clothes so whatever you pack is what you have to live with and it’s not like a one or two week trip it’s like 40 years.
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rai
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Re: I'm fairly young but done with saving money

Post by rai »

Good point 2M in 15 years is like $1.2M today it’s like nothing.
TravelGeek wrote: Wed Nov 01, 2017 1:22 am So if you starting ramping up your expenses now, will your $2m retirement fund be enough to fund your increased budget once you pull the plug on your earnings stream?
If OP starts living off his real earnings he will likely be used to spending twice as much as currently so at retirement it’s going to be hard to living off $70k a year.
Last edited by rai on Wed Nov 01, 2017 7:44 am, edited 1 time in total.
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Re: I'm fairly young but done with saving money

Post by p0nyboy »

Have your wife get a job...take some of the stress off of you.
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Re: I'm fairly young but done with saving money

Post by Da5id »

rai wrote: Wed Nov 01, 2017 7:41 am Good point 2M in 15 years is like $1.2M today it’s like nothing.
OP maybe meant 2M in today's dollars. He is going from 1M to 2M in 15 years. which is 4.7% return. If you assume that is nominal return your interpretation is correct. That would mean (if 2% inflation) only a real return of 2.7% for stocks over the next 15 years which is rather a pessimistic view of the future. But I think 4.7% is a fine guess at real return of stocks, even with the high CAPE these days.
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Re: I'm fairly young but done with saving money

Post by student »

I think you are doing great. Try to take a more balance approach. I wish I spent more money when I was younger to do things that are more difficult for me to do now. Perhaps dial back saving for a year, spend the money on things that you enjoy and revisit the issue in a year.
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Re: I'm fairly young but done with saving money

Post by sschoe2 »

I would loosen up on spending a bit but not stop saving. You are obviously ahead of the game right now on savings but getting complacent is how the tortoise beat the hare.

I'd say yea you can reduce your savings or take a less stressful job for less money and enjoy life more.

I'm about the same age as you but my net worth is about $350k and I make ~$82k per year. I feel much less secure. My profession (Chemist) is a race to the bottom with frequent offers to work for 1/2 my current pay and I live in a state (IL) that is drowning and trying to drag the citizens down with it, so I figure right now is the absolute best time I will ever have to accumulate wealth so I do so as much as I possibly can.
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Re: I'm fairly young but done with saving money

Post by Grt2bOutdoors »

Make hay while the sun shines. The weather is never fair ALL of the time. Done with savings? If you are then you willingly dig your own hole. Why?
Please tell us where you found "guaranteed 6% annual returns", emphasis on the guarantee. There are two things certain in life, guaranteed returns of 6% are not one of them. Keep saving!!!
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Re: I'm fairly young but done with saving money

Post by knpstr »

lecithar wrote: Tue Oct 31, 2017 11:49 pm At what point does it make sense to just say: screw it, I don't need to worry about saving money anymore.

To retire, we will need about 2M in net worth.
I'd say when you reach 2M.

I'm not a "bear" in the market, but it is possibly to have another 50% drop at any moment, in which case you would "only" have $500K.

I would personally keep actively saving until you reach your goal. That said, you could ease off the gas a little. Meaning you don't need to be saving 50% of your income given your numbers, unless you want to have the option to retire asap.
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Re: I'm fairly young but done with saving money

Post by jebmke »

lecithar wrote: Tue Oct 31, 2017 11:49 pm This would suggest two possibilities going forward:

1. First option is to switch to a less stressful job that pays half of my current salary and I can basically spend my entire salary every month. I will still be able to retire in 15 years.

2. Second option is to keep doing what I'm doing, and either retire much earlier than expected, or just continue to accumulate more money. The option to just accumulate more money doesn't really appeal to me.
I think you have created a false binary choice scenario here. There are plenty of alternatives. Moments of high stress are bad times to make binary decisions like this.

I agree with others that 6% real return is probably optimistic. Not saying it couldn't happen but I don't think it is the way to bet. It certainly won't be an even growth over the long term. And as it zigs and zags, the downward zig can come at the worst time.

In any case, you should look at your equity holdings and imagine that in the short to intermediate term, they could easily take a 30-40% haircut. Continuing to convert some of your human capital to investment capital can mitigate the effects of that.
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Re: I'm fairly young but done with saving money

Post by Jags4186 »

I'm always curious when people say they want a "less stressful job". Now I can't say I've worked everywhere or in a "high stress" industry, but I've felt equal amounts of stress when I was a delivery boy in high school and at my current job where I make 10x/hr what I made then.

Now if you're working 80 hrs a week and want to go down to 40, I can understand that. But if you're working 40 hrs a week I'd simply tell you to keep collecting that pay check and care a little less. If things go really south you can always switch jobs later.
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Re: I'm fairly young but done with saving money

Post by aristotelian »

You might post as well on https://www.reddit.com/r/financialindependence/

I think you will get very different answers there, and a reasonable plan will likely split the difference.

I too would be hesitant to declare "done with saving" when you haven't hit your number. I think it is dangerous to assume 6% growth over 15 years, particularly when stock valuations are high. Also do not forget inflation, health care costs, etc. That said, slowing down makes a lot of sense, particularly if doing so enhances your quality of life. It is possible that if you shift to a job you enjoy you may feel less impetus to get out of the rat race so quickly.
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Re: I'm fairly young but done with saving money

Post by lostdog »

p0nyboy wrote: Wed Nov 01, 2017 7:43 am Have your wife get a job...take some of the stress off of you.
+1, also find a way to reduce your living expenses and bit and you're set. It's all about lifestyle. You don't need to keep up with the jonses. They look good but most of them are broke. Once you hit financial independence, you have choices. The job stress melts off of you. You're no longer a slave to your employer and debt. Get to FI and maybe keep working but find something you enjoy.
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Re: I'm fairly young but done with saving money

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staythecourse
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Re: I'm fairly young but done with saving money

Post by staythecourse »

Congrats you did what I think is the hardest but best approach to investing. Save as much money as quickly as you can. Don't worry about asset allocation. Just get to 1 million as soon as possible. That gives you as many opportunities as you want. The next step, if I was you, is to discuss with spouse what major debts you will be incurring in the next 10 years, i.e. Bigger house, new cars, more kids, college education, private elemenatary/ high schools, etc... That will give you an idea where to go.

IF you don't plan for increasing debt in the next 10 years (no new house, more kids, private elementary/ high school, etc...) then take a look at your expenses going forward. If you are one's to want to travel and go to expensive restaurants every day that is different then watching tv and doing free outdoor stuff. If you are in the latter then I think you can reduce savings. Just set a target of still saving x amount per year. The reason is it still instills discipline thinking about your financial futures, keeps you LBYM, helps continue to grow the pot, etc...

Now the bigger hurdle may be can you actually take off more time from work even if you don't need the money. Will they allow you to go part time? That is the bigger issue I have seen from most folks in this situation. It isn't that they want to work full time, but the only option given is full or no work. Most don't want to just sit at home doing nothing. That is the harder part then even getting to 7 digits at an early age.

Good luck.
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Re: I'm fairly young but done with saving money

Post by michaeljc70 »

DaftInvestor wrote: Wed Nov 01, 2017 6:04 am Kids college?
It doesn't have to be all or nothing - why isn't saving 10 to 15% of you pretax salary an option?
+1. It doesn't have to be save 50% or none.
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Re: I'm fairly young but done with saving money

Post by lthenderson »

lecithar wrote: Tue Oct 31, 2017 11:49 pm 1. First option is to switch to a less stressful job that pays half of my current salary and I can basically spend my entire salary every month. I will still be able to retire in 15 years.

2. Second option is to keep doing what I'm doing, and either retire much earlier than expected, or just continue to accumulate more money. The option to just accumulate more money doesn't really appeal to me.
I would try to find an option three. Find a less stressful job or take more time off resulting in less money saved but less stress. However, I would never switch to actively trying to spend every cent I earn and still continue to save for all those unknowns that life throws at you. What worries me most is that due to the atrocious savings rate among my peers, what is going to happen when they all reach retirement age and more importantly, how will that affect me and my retirement nest egg through changes in tax laws, etc.

I was in your position years ago and quit my stressful but extremely lucrative job. I changed my entire life around and became a stay at home dad to my children. My spouse took the opportunity to focus on her career and is now very successful and enjoying it. We have enough money to retire and see our kids through college but since we both are enjoying what we do, we are continuing to save even though we probably won't require it unless tax laws change in the future. We've become more generous in our charitable donations which brings us great satisfaction and perhaps we can financially give our children a head start in life.
RosieQ
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Re: I'm fairly young but done with saving money

Post by RosieQ »

You are in a great spot and have pretty much set yourself up for a comfortable retirement. I suspect that with as high of a savings rate as you have right now that you won't totally stop saving. However you could likely save like the average American now and be totally fine. I would focus on tax breaks, maximizing pre tax deductions in 401k and match, max your Roth IRA vs backdoor Roth. You could potentially take even more risk that could have more reward. Go to part time and start your own business on the side with the extra time?

Having this early savings also allows you to cut back on insurance products, like decreasing disability insurance or life insurance as well- so other side benefits.
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BogHeadroom
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Re: I'm fairly young but done with saving money

Post by BogHeadroom »

lecithar wrote: Tue Oct 31, 2017 11:49 pm 1. First option is to switch to a less stressful job that pays half of my current salary and I can basically spend my entire salary every month. I will still be able to retire in 15 years.

2. Second option is to keep doing what I'm doing, and either retire much earlier than expected, or just continue to accumulate more money. The option to just accumulate more money doesn't really appeal to me.
I've been considering similar options, as I'm in a bit of a similar situation. I recommend trying to reduce your stress level to a more acceptable level while preserving as much of your human capital as possible as a hedge.

Would it be possible to work part-time at your current job? 32 hr weeks for 4/5ths the pay, something along those lines? If you're working lots of overtime, would there be a way to cut back? There's not as much need to outperform at your job if you're not angling for any more promotions or raises going forward.

Not sure what industry you're in, but is becoming a contractor an option? In that role, once you have a client base, you can possibly work full time for a while, but then take a month or two off to recharge.

You can always hedge by going with option 2 -- keep doing what you're doing -- but plan to go p/t or switch jobs in X years, when you'll know more about how the market has performed.

Good luck!
remomnyc
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Re: I'm fairly young but done with saving money

Post by remomnyc »

You've done a great job. I would switch to a less stressful job that allows you to continue saving 15-20% of your income and reassess when you reach $2 Mio.
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Abe
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Re: I'm fairly young but done with saving money

Post by Abe »

DaftInvestor wrote: Wed Nov 01, 2017 6:04 am Kids college?
It doesn't have to be all or nothing - why isn't saving 10 to 15% of you pretax salary an option?
I agree. I would save at least 10%.
Slow and steady wins the race.
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Watty
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Re: I'm fairly young but done with saving money

Post by Watty »

lecithar wrote: Tue Oct 31, 2017 11:49 pm At what point does it make sense to just say: screw it, I don't need to worry about saving money anymore. Is it a dangerous way of thinking?
You have two separate questions;

1) Should you cut back and "only" make $125K a year?

Even in a high cost of living area $125K a year is a good income and more than the vast majority of people there will be earning. There is nothing wrong with reevaluating your work/life balance and cutting back to that. It isn't like you are talking about dropping out and making pottery to sell at street fairs. (I know an engineer that did that.)

2) Should you stop saving for retirement?

A big risk is that you might not be able to work until your planned retirement. In addition to developing health problems, physical or mental, lots of people run into career problems even if they are in something like medicine that seems stable.

As others have said cutting the savings rate back a lot might make sense but until you can retire today it is too soon to cut back completely.

Contributing enough to a 401k to get any employers match always makes sense and that might be enough. About five years before I retired my numbers were to the point where I would have been OK if I was forced to retire but I was still trying to improve them. At that point I cut my 401k contributions down to 6% which was what I needed to get my employer's maximum 3% match so I was still putting a total of 9% into the 401k each year.

One other problem is that you don't have a paid off house or condo so renting a place that is large enough for a wife and kids is likely expensive. In some situations being a lifetime renter can make sense but that does mean that you need a lot more money to fund a comfortable retirement since there can be unpredictable future rent increases. A huge advantage of owning your house, or even a 30 year mortgage, is that you know what you will be paying for housing ten years from now.

Living in a high cost of living area makes buying a house harder but it is actually to your advantage since if your finances get tight later in life then as a fallback plan you can move to a less expensive area.

Depending on what field you are in, if you don't have strong family times to the area then moving to a less expensive area now would be an option to consider. In 80% of the country you can buy a nice house for $200K and then you would only need a modest income to be able to live well and save more until you are ready to retire. In a low cost area retiring having a paid off house and less than a million dollars can allow an above average lifestyle and that is pretty much my situation.
DVMResident
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Re: I'm fairly young but done with saving money

Post by DVMResident »

OP, let's try flipping the question: is there anything you want to spend more on?

If not, there's no reason to decrease your savings rate.
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Re: I'm fairly young but done with saving money

Post by quantAndHold »

slayed wrote: Wed Nov 01, 2017 2:13 am
quantAndHold wrote: Wed Nov 01, 2017 1:24 am
$2M probably gives you a safe withdrawal rate of $70-80k/year. Is that enough, especially when you figure in inflation? Even at 2%/year, inflation will take a huge chunk out of what that $80k will pay for 20, 30, or 40 years from now. Assuming 2% inflation, $80k now will be worth $35k in today’s dollars when you’re 75.
The 4% SWR that gets frequently discussed calls for increasing the withdrawal amount each year to account for inflation. I don't think anyone recommends a strategy that calls for a fixed withdrawal rate.
In order to get a SWR indexed for inflation, the investments have to beat inflation by at least 4%. Given the current state of the market, I'm not sure that's realistic, as I said, apparently unclearly, in the paragraph immediately after the one you quoted.
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Re: I'm fairly young but done with saving money

Post by EddyB »

DVMResident wrote: Wed Nov 01, 2017 11:38 am OP, let's try flipping the question: is there anything you want to spend more on?

If not, there's no reason to decrease your savings rate.
I presume that if he takes the "less stressful job" route, he'll make less money. Sounds like a reason to decrease his savings rate to me.
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Watty
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Re: I'm fairly young but done with saving money

Post by Watty »

One more thought.

Unless the lower paying job requires a lot less hours then you need to be cautious about assuming that it will really be less stressful.

The type of stress may be different but there will still likely be lots of customers, lower level employees and managers that have lots of expectations from you and you may have less control of your work planning and deadlines.

If the stress is the main problem then you might look into ways of managing the stress like getting counseling. Before I retired I saw lots of people at work that were really stressed out but it was often self inflicted by them not being willing to set boundaries and say "no" to unrealistic expectations.

If you are at the point of giving up the $250K job anyway you may have little to lose by sitting down with your management and trying to redefine your job to be less stressful. If you are in a position to delegate work that might also be an option even if it means getting more staff hired, some people have a lot of difficulty in delegating work even though they could. I've seen a number of situations where people got feed up and set limits on the number of hours or amount of travel and the company was usually able to adapt to that once the employee said "no". The worst thing that could happen would be that they would fire you or choose to lay you off the next time there are layoffs and you might even get a severance package if that happened.
Last edited by Watty on Wed Nov 01, 2017 12:00 pm, edited 2 times in total.
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Re: I'm fairly young but done with saving money

Post by Afty »

quantAndHold wrote: Wed Nov 01, 2017 11:47 am
slayed wrote: Wed Nov 01, 2017 2:13 am
quantAndHold wrote: Wed Nov 01, 2017 1:24 am
$2M probably gives you a safe withdrawal rate of $70-80k/year. Is that enough, especially when you figure in inflation? Even at 2%/year, inflation will take a huge chunk out of what that $80k will pay for 20, 30, or 40 years from now. Assuming 2% inflation, $80k now will be worth $35k in today’s dollars when you’re 75.
The 4% SWR that gets frequently discussed calls for increasing the withdrawal amount each year to account for inflation. I don't think anyone recommends a strategy that calls for a fixed withdrawal rate.
In order to get a SWR indexed for inflation, the investments have to beat inflation by at least 4%. Given the current state of the market, I'm not sure that's realistic, as I said, apparently unclearly, in the paragraph immediately after the one you quoted.
That's not strictly true, right? A SWR accounts for both growth of investment plus drawing down the principal. Investment growth does not have to actually exceed 4% to support a 4% SWR.
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Re: I'm fairly young but done with saving money

Post by Da5id »

quantAndHold wrote: Wed Nov 01, 2017 11:47 am
slayed wrote: Wed Nov 01, 2017 2:13 am
quantAndHold wrote: Wed Nov 01, 2017 1:24 am
$2M probably gives you a safe withdrawal rate of $70-80k/year. Is that enough, especially when you figure in inflation? Even at 2%/year, inflation will take a huge chunk out of what that $80k will pay for 20, 30, or 40 years from now. Assuming 2% inflation, $80k now will be worth $35k in today’s dollars when you’re 75.
The 4% SWR that gets frequently discussed calls for increasing the withdrawal amount each year to account for inflation. I don't think anyone recommends a strategy that calls for a fixed withdrawal rate.
In order to get a SWR indexed for inflation, the investments have to beat inflation by at least 4%. Given the current state of the market, I'm not sure that's realistic, as I said, apparently unclearly, in the paragraph immediately after the one you quoted.
While I'm not a fan of 4%, especially for early retirees, that isn't exactly true. The original 4% SWR considers you to have succeeded if you have exactly 0 dollars after 30 years, so you can in fact have a 4% SWR with less than 4% real returns. It will just result in partial depletion of your principle (or maybe running out of money depending on how much you fall short). And yes, the 4% is/was "real", which is to say indexed for inflation.

That said, inflation is a question. It has been tame for quite some time. But particularly inflation of medical costs in the individual/ACA market for those without subsidies might be rather more than the ~2% or less we've been seeing...
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bligh
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Re: I'm fairly young but done with saving money

Post by bligh »

lecithar wrote: Tue Oct 31, 2017 11:49 pm At what point does it make sense to just say: screw it, I don't need to worry about saving money anymore. Is it a dangerous way of thinking?

1. First option is to switch to a less stressful job that pays half of my current salary and I can basically spend my entire salary every month. I will still be able to retire in 15 years.

2. Second option is to keep doing what I'm doing, and either retire much earlier than expected, or just continue to accumulate more money. The option to just accumulate more money doesn't really appeal to me.
You have reached what I refer to as "Being done saving for retirement". I am getting pretty close to that goal myself. It turns out WCI (a very popular site among high income professionals) had a post talking about this a while back : https://www.whitecoatinvestor.com/the-c ... ne-saving/

I agree with you, I think you could say you are "done saving for retirement". However that may not mean you are done saving in general. Do you ever plan to own a home? Do you plan to let your kids pay for their own college education? Think these things over. You may need to save for goals that are NOT geared towards retirement.

1. Is an option for you if it makes you happy. If you halve your current salary to 125K you'll still be able to live pretty well, save a little and quite likely be able to cash flow your kids college at a public university. But will it really make you happy? I think what you are really looking for is the ability to walk away from any job you don't enjoy, and I think you've earned that already. It isn't about halving the salary then, it is about working where and how you WANT to be working.

2. This is the safer option isn't it? Keep saving at your maximum ability, until you are financially independent immediately, instead of some far of future date that rests on a bunch of assumptions.

I have one other options for you to consider:
3. Take a sabbatical. Take a few months, or even a year or two, to spend some quality time with the family and just clear your head, make awesome memories. Come back recharged.

Either way, Congratulations. You are in excellent financial shape by any measure.
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Re: I'm fairly young but done with saving money

Post by mptfan »

avalpert wrote: Wed Nov 01, 2017 12:01 am Assuming 6% annual real growth over the next 15 years seems pretty ambitious given today's valuations and interest rates - I'm not sure you'd find much support for that forecast.
The OP assumed 6% growth, but he did not assume 6% real growth.
Last edited by mptfan on Wed Nov 01, 2017 12:18 pm, edited 1 time in total.
avalpert
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Re: I'm fairly young but done with saving money

Post by avalpert »

mptfan wrote: Wed Nov 01, 2017 12:12 pm
avalpert wrote: Wed Nov 01, 2017 12:01 am Assuming 6% annual real growth over the next 15 years seems pretty ambitious given today's valuations and interest rates - I'm not sure you'd find much support for that forecast.
The OP assumed 6% growth, but he did not assume real growth.
You are right, I assumed he meant real growth (whether he knew it or not) because I assume his $2m target was based on what he would like to live on in today's dollars (I also ignored that the math was a bit off).
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