Our Approach to FIRE!!!

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Topic Author
PAonFIRE
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Our Approach to FIRE!!!

Post by PAonFIRE »

Greetings all!

Just thought I'd share my investment strategy for anyone who wants to review and/or comment. Appreciate any feedback.

I'm a 40 year old Physician Assistant who is also a member of the National Guard. My wife is also a PA, and she is 39. Our goal is to become finically independent by 50, but sooner certainly would be better. Not that we would necessarily leave the work force, but I crave financial security for our family, as well as the freedom to pursue the most meaningful occupation rather working primarily as a means to earn money.

-What We've Done So Far-

Since we have become PA's we have maxed out our pre-tax 403b/TSP contributions each year and also contributed the max to roth IRAs (backdoor). We have used any money beyond living expenses to pay down debts aggressively. We have paid off student loans, credit cards (never carried a balance that wasn't 0%), and cars. The only remaining debt is the mortgage, which has a balance of approx $240k.

So we have my TSP: $277k. Wife's 403b: $212k. My roth IRA: $84k. Wife's roth IRA $54k. $30k emergency fund in an online savings account.

We were pretty much 100% stocks, until recently. I wanted a somewhat less aggressive portfolio, so I basically went with something like the No-Brainer Portfolio, which is similar to the 3 fund portfolio, or what some would call a barbell strategy (keeping some assets minimally risky, so that you can take more risk with the remainder of your portfolio). Our portfolio isn't exactly this yet, but it's evolving into...

25% G fund
25% VOO/ C Fund
25% VXF / S Fund
25% VXUS (no I fund)

Alternatively, I'd consider going with more of a 3 fund portfolio approach:

25% G Fund
50% VTI
25% VXUS

In retirement, I predict a military pension starting in my late 50s, probably around $2k/mo at the age of 56 or 57. My wife is eligible for a pension as well due to her county hospital job, possibly around $1k/mo starting at the age of 65, could be more depending on how much longer she works there. Then of course there is social security, however, ours will be reduced due to government pension offset. The extent of this reduction is something I'm not clear on (if anyone wants to explain it, great!).

We have 2 young children and since the first was born, have put $3k/yr into a 529 plan. The balance is up to $28k. I also have military benefits of GI Bill and Hazelwood to help with their college expenses. I also believe that my children should be responsible for helping to support themselves in college, so this is not a high priority area of investing for me.

-The Plan Moving Forward-

The plan moving forward is to continue maxing out 403b/TSP and roth IRA's, use extra money beyond living expenses to pay down the mortgage, and contribute $3k/yr to the 529 (for a few more years at least). Once the mortgage is paid off, we will start making all roth contributions to 403b/TSP and save any extra in an ordinary brokerage account until we can accumulate several years worth of living expenses.

We don't living extravagantly, but comfortably, and don't feel deprived of anything. Once the mortgage is paid off and the kids are out of daycare, our projected living expenses are $75k/yr, living the exact same lifestyle we are already used to. So the plan is to accumulate at least $300k in an ordinary brokerage account. We will live on this money as needed (depending on how much we are working) and start doing roth conversions during the low income years of early retirement.

We haven't necessarily done everything optimally. My wife has a 457 that we have never contributed to. I also realize there is a strong argument for putting all of our 403b/TSP contributions into roth now, and funding an ordinary brokerage account, rather than paying off a mortgage at 2.25% interest. My feeling on this is that since we already have substantial funds in the market (and continue to contribute more), I'd rather diversify, plus I value the security of a paid off home.

-What Will the Bogleheads Say?-

This is our approach to FIRE, and I feel like we are on a good path, but I am open to any criticism or suggestions for improvement.

What would you do differently?

Thanks to anyone who takes the time to read and comment!
Last edited by PAonFIRE on Fri Sep 10, 2021 12:14 pm, edited 1 time in total.
tashnewbie
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Re: Our Approach to FIRE!!!

Post by tashnewbie »

It might be better for your wife to use the 457 (sounds like it's governmental) instead of the 403b because you're planning early retirement. With a governmental 457, after separation of employment, withdrawals are penalty-free at any age (still have to pay taxes).
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rob
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Re: Our Approach to FIRE!!!

Post by rob »

Have a look at the (granted) past returns with 100% stock vs 80/20 or 75/25... I know 100% stock sounds cool and all but in the end the returns have been at least as good (or better risk adjusted) for slightly lower stock.
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien
stan1
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Re: Our Approach to FIRE!!!

Post by stan1 »

PAonFIRE wrote: Fri Sep 10, 2021 9:54 am 25% G Fund
50% VTI
25% VXUS
Edited a little:
25% G Fund
50% VTI (equivalent to approx 80% C/20% S Fund, but VTI and VOO perform almost identically so just C fund is fine too)
25% VXUS (I Fund does not have emerging markets, I would use the new taxable account for VXUS and maybe your wife's accounts have a Total International fund instead of an EAFE developed markets fund)

I think this is a great, simple model to follow. I don't know of a research backed reason to overweight an S&P 500 Completion index (e.g. S fund). It is a mid cap blend fund with the outlier like TSLA of stocks that fail to meet the S&P 500 entry criteria. I expect outliers like TSLA will be very rare (about once per decade at most).

The taxable account is key if you want to withdraw assets before you are eligible to do so from retirement accounts with age requirements for withdrawal without penalty.

Personally I would start the taxable account now and start building it up concurrently with paying off your mortgage, especially with the 2.25% rate you have. But it is in the end a personal decision not just a financial decision.
ZMonet
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Re: Our Approach to FIRE!!!

Post by ZMonet »

I know this is a minor point, but why do you think your SS will be offset? Have you not been paying into SS? My understanding is that the offset applies to people who were not paying into SS, pre-FERS for feds.
Topic Author
PAonFIRE
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Re: Our Approach to FIRE!!!

Post by PAonFIRE »

stan1 wrote: Fri Sep 10, 2021 10:30 am
PAonFIRE wrote: Fri Sep 10, 2021 9:54 am 25% G Fund
50% VTI
25% VXUS
Edited a little:
25% G Fund
50% VTI (equivalent to approx 80% C/20% S Fund, but VTI and VOO perform almost identically so just C fund is fine too)
25% VXUS (I Fund does not have emerging markets, I would use the new taxable account for VXUS and maybe your wife's accounts have a Total International fund instead of an EAFE developed markets fund)

I think this is a great, simple model to follow. I don't know of a research backed reason to overweight an S&P 500 Completion index (e.g. S fund). It is a mid cap blend fund with the outlier like TSLA of stocks that fail to meet the S&P 500 entry criteria. I expect outliers like TSLA will be very rare (about once per decade at most).

The taxable account is key if you want to withdraw assets before you are eligible to do so from retirement accounts with age requirements for withdrawal without penalty.

Personally I would start the taxable account now and start building it up concurrently with paying off your mortgage, especially with the 2.25% rate you have. But it is in the end a personal decision not just a financial decision.
Overweighting VXF/S fund is a way of tilting the portfolio to mid/small caps, which might offer better long term performance.

Also, having the 3 buckets of VOO, VXF, VXUS allows you to withdraw from whichever is performing best, so you can hopefully avoid withdrawing at a loss. The 4th bucket of G fund means you can withdraw from that for years if the other 3 are down.

https://www.callan.com/periodic-table/

This period table shows years that the different the asset classes have performed differently year to year.

I'm not necessarily convinced that overweighting VXF is superior to just owing VTI, so I included both portfolio ideas for critique.
Last edited by PAonFIRE on Fri Sep 10, 2021 10:53 am, edited 1 time in total.
Topic Author
PAonFIRE
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Re: Our Approach to FIRE!!!

Post by PAonFIRE »

ZMonet wrote: Fri Sep 10, 2021 10:34 am I know this is a minor point, but why do you think your SS will be offset? Have you not been paying into SS? My understanding is that the offset applies to people who were not paying into SS, pre-FERS for feds.
My wife's pension is the reason SS will be offset; she does not pay into to SS at the moment.
stan1
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Re: Our Approach to FIRE!!!

Post by stan1 »

PAonFIRE wrote: Fri Sep 10, 2021 10:49 am Overweighting VXF/S fund is a way of tilting the portfolio to mid/small caps, which might offer better long term performance.
If you want to overweight small or small value there are better ways to do it with an S&P 600 Index, S&P 600 Value Index, or Avantis small cap value rather than the S Fund. Your call of course.
SanAntionetta
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Re: Our Approach to FIRE!!!

Post by SanAntionetta »

I'm your same age and in a similar situation, so I have a 10 year spreadsheet prepared and ran the numbers.

Assuming you max out your retirement funds and you have about $577K, in ten years you will have $1.6M. This early of a retirement you could feel safe withdrawing 2% per year which will give you income of $2,683/mo. Even if you withdraw 4% you've got about $5K. If you have paid off your mortgage you could eek by but you'll have to pay outright for medical care/insurance. You say you would still work so sounds like you will be ok, but you obviously wouldn't be maxing out your accounts anymore. You would be a lot more comfortable with more years of working.

Here are my suggestions:

**Do you have the ability to save in an HSA? If you choose to do this it could help a lot with healthcare premiums.

**Rather than pay down your mortgage which is at a ridiculously low rate, I would suggest investing in taxable, or doing a mix of both. We do $250/mo extra on mortgage, $500/mo in taxable, for instance. Then you can always use the taxable to pay off the mortgage if you choose to.

I think once our kids are a little older we will be able to concentrate more on hobbies outside of work and work won't seem so burdensome. So I'm just saving as much as we can and will see what options we have at 50 :)
livesoft
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Re: Our Approach to FIRE!!!

Post by livesoft »

PAonFIRE wrote: Fri Sep 10, 2021 9:54 am I'm a 40 year old Physician Assistant ....who is also a member of the National Guard. My wife is also a PA, and she is 39. Our goal is to become finically independent by 50, but sooner certainly would be better. Not that we would necessarily leave the work force, but I crave financial security for our family, as well as the freedom to pursue the most meaningful occupation rather working primarily as a means to earn money.
I just wonder if you have thought about what "the most meaningful occupation" might be? You already have jobs that should be all about alleviating human pain and suffering.
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Topic Author
PAonFIRE
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Re: Our Approach to FIRE!!!

Post by PAonFIRE »

livesoft wrote: Fri Sep 10, 2021 12:37 pm
PAonFIRE wrote: Fri Sep 10, 2021 9:54 am I'm a 40 year old Physician Assistant ....who is also a member of the National Guard. My wife is also a PA, and she is 39. Our goal is to become finically independent by 50, but sooner certainly would be better. Not that we would necessarily leave the work force, but I crave financial security for our family, as well as the freedom to pursue the most meaningful occupation rather working primarily as a means to earn money.
I just wonder if you have thought about what "the most meaningful occupation" might be? You already have jobs that should be all about alleviating human pain and suffering.
There are many meaningful occupations both within the PA profession and outside it that don't revolve around money.

Yes, I have thought about it a lot!

However, this is a financial forum, and I want to stay on that topic rather than veer off on philosophical tangents.
Last edited by PAonFIRE on Fri Sep 10, 2021 3:40 pm, edited 2 times in total.
Topic Author
PAonFIRE
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Joined: Fri Jun 25, 2021 12:16 pm

Re: Our Approach to FIRE!!!

Post by PAonFIRE »

SanAntionetta wrote: Fri Sep 10, 2021 12:31 pm I'm your same age and in a similar situation, so I have a 10 year spreadsheet prepared and ran the numbers.

Assuming you max out your retirement funds and you have about $577K, in ten years you will have $1.6M. This early of a retirement you could feel safe withdrawing 2% per year which will give you income of $2,683/mo. Even if you withdraw 4% you've got about $5K. If you have paid off your mortgage you could eek by but you'll have to pay outright for medical care/insurance. You say you would still work so sounds like you will be ok, but you obviously wouldn't be maxing out your accounts anymore. You would be a lot more comfortable with more years of working.

Here are my suggestions:

**Do you have the ability to save in an HSA? If you choose to do this it could help a lot with healthcare premiums.

**Rather than pay down your mortgage which is at a ridiculously low rate, I would suggest investing in taxable, or doing a mix of both. We do $250/mo extra on mortgage, $500/mo in taxable, for instance. Then you can always use the taxable to pay off the mortgage if you choose to.

I think once our kids are a little older we will be able to concentrate more on hobbies outside of work and work won't seem so burdensome. So I'm just saving as much as we can and will see what options we have at 50 :)
Glad to meet a kindred spirit!

I do not have HSA. I have Tricare. Healthcare options include staying in the military longer or switching to Tricare Retired Reserve.

More years of working isn't off the table, but $3-5k/mo plus pensions and SS is plenty for us to live on. After a certain point I don't think that more money means more happiness, so it becomes more about living your best life than becoming "a lot more comfortable." Of course, pensions and SS don't kick in until later in life so that's where the taxable account comes in to fill the gap (+/- additional income from work).

How do you invest the money in your taxable account?

I would be inclined to just keep it in an online savings account or money market, which is currently only getting 0.5%. The reason is that I would want to have flexibility to withdraw that money at any time for any reason regardless of market conditions.

I could reduce the G fund allocation in retirement accounts to buy more stocks to help offset this, but I'm pretty cynical about the markets right now. If there was a market correction, I would definitely consider swinging some of the from the G fund into the C and S funds. I did this during March of 2020, and it paid off big time. The markets have done so well since then! That's why I shaved the 25% off the top to lock in some of the gains. However, I didn't want to go with too much more conservative of an asset allocation because we still have a long time horizon. I realize this goes against the Boglehead notion of sticking with your AA regardless of market conditions.

Or I could just keep paying down the mortgage and guarantee a return of 2.25%. I think of having a paid off house as a form of security. If one of us were unable to continue working full time for whatever reason, it would make it possible to live comfortably off one income.

I've read quite a bit of the pros/cons of investing more vs. paying off the mortgage, and I always reach the conclusion that we should pay down the mortgage. This might not be right for everyone (especially for anyone that's not already maxing out tax advantaged accounts), but I welcome the discussion!
SanAntionetta
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Re: Our Approach to FIRE!!!

Post by SanAntionetta »

PAonFIRE wrote: Fri Sep 10, 2021 3:29 pm [
More years of working isn't off the table, but $3-5k/mo plus pensions and SS is plenty for us to live on. After a certain point I don't think that more money means more happiness, so it becomes more about living your best life than becoming "a lot more comfortable." Of course, pensions and SS don't kick in until later in life so that's where the taxable account comes in to fill the gap (+/- additional income from work).

How do you invest the money in your taxable account?

I would be inclined to just keep it in an online savings account or money market, which is currently only getting 0.5%. The reason is that I would want to have flexibility to withdraw that money at any time for any reason regardless of market conditions.

I could reduce the G fund allocation in retirement accounts to buy more stocks to help offset this, but I'm pretty cynical about the markets right now. If there was a market correction, I would definitely consider swinging some of the from the G fund into the C and S funds. I did this during March of 2020, and it paid off big time. The markets have done so well since then! That's why I shaved the 25% off the top to lock in some of the gains. However, I didn't want to go with too much more conservative of an asset allocation because we still have a long time horizon. I realize this goes against the Boglehead notion of sticking with your AA regardless of market conditions.

Or I could just keep paying down the mortgage and guarantee a return of 2.25%. I think of having a paid off house as a form of security. If one of us were unable to continue working full time for whatever reason, it would make it possible to live comfortably off one income.

I've read quite a bit of the pros/cons of investing more vs. paying off the mortgage, and I always reach the conclusion that we should pay down the mortgage. This might not be right for everyone (especially for anyone that's not already maxing out tax advantaged accounts), but I welcome the discussion!
Once you have your pensions/SS if the kids are out you are in good shape. But at 50 you still have 10-15 years before they come into play which is a long time and kids eat up SO much money.

I put my taxable in FSKAX which is Fidelity's Total Market Index. My thought process is that I will not need it for at least 10 years and the "HYSA" (in quotes because high yield??) are 0.5% which is much less than inflation, so you are losing money. I consider it my icing on my cake, and anything I NEED I have in emergency savings or one of my other ally accounts (home improvement, vacation, etc.) in cash.

I get your point about the mortgage which is why we do both. We do plan on being in our house for at least 20 years, or at least until kids are done with school, and frankly who knows what will happen with the house prices in that time. They are pretty stagnant in CT but maybe we are heading towards a CT renaissance. If the house doubles in value, the amount we've paid off extra won't really mean much. If you decide to retire in your home, which frankly, I couldn't imagine knowing for certain right now, you'll be happy to have that much less to pay off.
tj
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Re: Our Approach to FIRE!!!

Post by tj »

How are you able to put so much into the TSP as a National Guardsman? Do you also work year round for the government, in addition to your Guard duties?
Topic Author
PAonFIRE
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Re: Our Approach to FIRE!!!

Post by PAonFIRE »

tj wrote: Tue Sep 14, 2021 9:26 am How are you able to put so much into the TSP as a National Guardsman? Do you also work year round for the government, in addition to your Guard duties?
I do enough work with the NG to be able to max out the TSP. Right now I don't have a 401k or other retirement account with my civilian employer, so I contribute up to 92% of my NG paycheck into the TSP in order to get to the max, if needed.
aristotelian
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Re: Our Approach to FIRE!!!

Post by aristotelian »

With potential dual pensions you may be better off at some point switching a portion of new contributions to Roth 401k if that option is available.
bltn
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Re: Our Approach to FIRE!!!

Post by bltn »

I believe that having after tax investments are more valuable than pension plan investments.

In your position, I would split my house prepayment in half and put one part into you mortgage reduction, and one part into the taxable investment account. After the taxable account accumulates for a few years, you may decide to put additional funds from this account into retiring the mortgage .

Congratulations on retiring your other debt.
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PAonFIRE
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Re: Our Approach to FIRE!!!

Post by PAonFIRE »

bltn wrote: Tue Sep 14, 2021 11:18 am I believe that having after tax investments are more valuable than pension plan investments.

In your position, I would split my house prepayment in half and put one part into you mortgage reduction, and one part into the taxable investment account. After the taxable account accumulates for a few years, you may decide to put additional funds from this account into retiring the mortgage .

Congratulations on retiring your other debt.
Thanks, I'm definitely considering this option. How would you invest in the taxable account?
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Devil's Advocate
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Re: Our Approach to FIRE!!!

Post by Devil's Advocate »

I wonder what you actually spend. With dual income PAs I would expect your income to be fairly high. The asset side of your net worth is lighter than I would expect. Were you or the wife late starting your careers?

I don't have any specific recommendations other than really nailing down your expenses. The beautiful thing about your professions is that you and the wife have alot of flexibility with part time work and/or locums.

Thank you for your service and I wish you the best.

DA
Topic Author
PAonFIRE
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Re: Our Approach to FIRE!!!

Post by PAonFIRE »

Devil's Advocate wrote: Tue Sep 14, 2021 4:13 pm I wonder what you actually spend. With dual income PAs I would expect your income to be fairly high. The asset side of your net worth is lighter than I would expect. Were you or the wife late starting your careers?

I don't have any specific recommendations other than really nailing down your expenses. The beautiful thing about your professions is that you and the wife have alot of flexibility with part time work and/or locums.

Thank you for your service and I wish you the best.

DA
Thanks for the kind remarks. We both became PA's in our early 30s.
barberakb
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Re: Our Approach to FIRE!!!

Post by barberakb »

OP, I didn't think National Guard retired pay started until you were 60?
bltn
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Re: Our Approach to FIRE!!!

Post by bltn »

PAonFIRE wrote: Tue Sep 14, 2021 3:49 pm
bltn wrote: Tue Sep 14, 2021 11:18 am I believe that having after tax investments are more valuable than pension plan investments.

In your position, I would split my house prepayment in half and put one part into you mortgage reduction, and one part into the taxable investment account. After the taxable account accumulates for a few years, you may decide to put additional funds from this account into retiring the mortgage .

Congratulations on retiring your other debt.
Thanks, I'm definitely considering this option. How would you invest in the taxable account?
I d put 40% in into a total stock market fund, 30% into 5 year cds with early withdrawal penalties of 6 months interest or less, and 30% into ultra short term bond funds.
joverby
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Re: Our Approach to FIRE!!!

Post by joverby »

barberakb wrote: Thu Sep 16, 2021 5:46 am OP, I didn't think National Guard retired pay started until you were 60?
You can deduct time (from age 60) for previous active duty service performed after 1/28/08. That’s a fairly recent change.
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