F.I.R.E. Thread

[Alex N]

I guess my definition of FIRE is a bit of combination of these things. I made bad decisions in my early 20's, lower income that was not steady, earned and burned for the most part. I would save but then got in trouble with credit cards......long story short I feel like I am out of the gate late but now in my mid 30s I have had steady, higher income and have been funding 401K, Roth IRA, savings etc as well as trying to generate passive income on the side and offset expenses by things like collecting points/miles. So when it comes to FIRE I see the benefit of retiring early, lets say 50 but at the same time if you are doing it on lower to moderate income with nothing on the side what type of life did you live 20-50? I guess my question boils down to what "ferocity" do you save, invest, and save some more at in order to retire early at the expense of enjoying/experiencing life (I am not saying that you need to spend money to have fun either, but it helps)? This is the balance act I have been trying to figure out, not to say you can't have fun or do stuff in your 50s but I want to live life and do things NOW!

Right now I am trying to the get that balancing act down but ideally my goal is to reduce our liabilities to the point that we are not dependent on our corporate salaries. It basically entails what means the most to us and makes us truly happy with life and then finding out what that looks like numerically month-to-month and then finding a way to take care of that and still look out for future (when maybe passive income might dry up or run out). To put some context around what I am saying; we live in a 1800 sq ft home in PHX currently, two new cars, no kids, lots of cats. We have recently decided that we could be happier in smaller home so why not do it (not the tiny home revolution small, but European small). We also want a change and out of PHX, the plan is to move to PDX and buy a home that has some rental potential tied around it. This means long term rental, VRBO/Airbnb rental via basement apartments and ADU's (in Portland what they call guest houses). We choose PDX because we really like it there and it has the right "environment" to hopefully execute these things (desirability for visitors but not the higher real estate costs that come with it, strong rental market, city codes to facilitate such dwellings). Even with a larger mortgage in PDX vs PHX we can essentially negate our mortgage payment and possibly even create some monthly cashflow from the numbers we have crunched - we just need to find the right place. We also plan on going down to one car, biking, walking more which should lead to reduced liability as well.

To us, its not having the liability which gives us some freedom and peace of mind. It might not always be the BEST financial decision but reducing stressors is sometimes more important. The 2nd part is creating flexible/passive income on top of this to continue to save and for other "life" expenses (food, clothing, entertainment, travel, etc). Travel is being taken care of with miles/points collecting.

Financial Independence from the bills and the freedom to leave corporate jobs for something we would rather do and provides more flexibility and Retire Early means really living the life we want NOW as opposed to when we are 60-70. When I turn 65 I won't automatically ditch the rental income, stop the passive income, etc - I see no reason I would not continue with that as long as I can and it suits me. The point being I want to start being semi-retired now and continue that until I am in the ground (whatever age that may be). Sorry for the longer post but this is what FIRE means to me, and advice, critiquing or questions are welcome.

Thanks for a great forum.

 

[redbirdsj]

I checked on this recently and am one of the lucky few so I'm contributing some to PostTax and will try this out. But until it works successfully I'm considering it a one-off.

You are set if this works out for you. You can funnel up to an additional $34.5k to a Roth IRA via this method.

 

[redbirdsj]

You raise an incredibly important point. There is something of a disconnect between the two notions on some levels. I do not think it is wise to fund the retirement account only to withdraw from it early, but there are some benefits to the tax treatment of such accounts that we should explore. On one hand, each dollar that you put away into an IRA is locked up, and not producing cash flows - but on the other, leaving tax dollars on the table probably isn't a wise decision either.

Personally think it something of a balancing act. The question being, if you put some into a retirement account and some into cash flow generating assets how much advantage do you see? On one hand we certainly have a case for the value of diversification within the efficient frontier, but on the other are we slowing down wealth generation by tieing it up to a future date that is too far in the future. A lot to think about (and write about)

It's always good to review your needs, but be careful about bypassing each year's opportunity to shelter more income via retirement vehicles. Keep in mind there are a few methods to use tax sheltered dollars prior to the 59.5 withdrawal date if you plan to retire much earlier:

1) You can withdraw Roth IRA contributions at any time tax- and penalty-free.
2) Post-FIRE, it could be advantageous to convert some tIRA or t401k assets to a Roth IRA depending on your income and tax situation. After 5 years, those conversions can be withdrawn tax- and penalty-free.
3) 72(t)(2) substantially equal periodic payments (this one requires substantial research and is highly dependent on your own situation).

 

[Matt]

It's always good to review your needs, but be careful about bypassing each year's opportunity to shelter more income via retirement vehicles. Keep in mind there are a few methods to use tax sheltered dollars prior to the 59.5 withdrawal date if you plan to retire much earlier:

1) You can withdraw Roth IRA contributions at any time tax- and penalty-free.
2) Post-FIRE, it could be advantageous to convert some tIRA or t401k assets to a Roth IRA depending on your income and tax situation. After 5 years, those conversions can be withdrawn tax- and penalty-free.
3) 72(t)(2) substantially equal periodic payments (this one requires substantial research and is highly dependent on your own situation).

Great points-

Where I was going (and I think you saw that) was that you could consider channelling away from tax advantaged savings now and instead build into cash flow investments, which could subsequently fuel tax advantaged savings- it's a philosophical approach.

Personally I am somewhere in between as I load up the advantaged accounts and then go for CF but I may from time to time consider turning up the tap on one or the other.

 

[Badassity]

A travel hacking AND personal finance forum! With a preference toward FIRE! Simply awesome.

In either of those two genres I've only seen a glimpse of the other. PF was my first passion. Travel hacking is a relatively new passion that I fell into to enhance early retirement.

I just turned 44 (sigh). And my husband is a year older most of the time. We have three young kids ages 13, 11 and 7 and we're set to retire permanently January 2017. Our plan was to travel around while the kids are young and still want to hang out with us. The miles and points obsession started just over a year ago when I was researching the nitty gritty details about getting the best bang for our buck.

And yes.... I feel great pain from my past ignorance of all things miles and points.

We're further on track than anticipated but are mostly sticking with our plan for slow travel all over with not much structure in terms of itinerary. I may bow out of work in the next few weeks/months...But we'd always planned to leave at the same time. So this is new territory for me. Who would have thought that a few years earlier would require such analysis. But then I know I have to beat things to death. Not often a good characteristic.

I'm the instigator in all this. My husband is happy to tag along but kind of laughs at my intensity. Sometimes he annoys me with his financial ineptness. Minor infractions like continually paying too much for things we use all the time. Again. And again. Or his irreverence to the miles and points strategy. Like using the wrong credit card. Or not whipping out the hotel points card and signing up for bonuses. Or Lord forbid, trying not to roll his eyes when I hand him a couple of new cards and tell him the minimum spend requirement. The questions that follow!?! It's not his first time. You'd think it would just kind of, you know, sink in at some point.

Ah well!

I'm happy to be here. This is an awesome combination!

 

[Fortension]

Finally read this thread, so here are a couple random hints.

Schwab let me set up a free solo 401K that was the best i found 10 years ago. Still have it, but i have not contributed for a while.

If you want to mix some 529 and MS, some plans can be paid via Evlve. Save 4% plus tax benefits...

 

[Badassity]

Boglehead here too...I don't know about you guys but I am loading up the truck when that Bitcoin ETF opens!

If you think this was a serious statement I am sorry for you

I guess I misread this the first time. I thought you were cracked!

 

[Badassity]

I guess my definition of FIRE is a bit of combination of these things. I made bad decisions in my early 20's, lower income that was not steady, earned and burned for the most part. I would save but then got in trouble with credit cards......long story short I feel like I am out of the gate late but now in my mid 30s I have had steady, higher income and have been funding 401K, Roth IRA, savings etc as well as trying to generate passive income on the side and offset expenses by things like collecting points/miles. So when it comes to FIRE I see the benefit of retiring early, lets say 50 but at the same time if you are doing it on lower to moderate income with nothing on the side what type of life did you live 20-50? I guess my question boils down to what "ferocity" do you save, invest, and save some more at in order to retire early at the expense of enjoying/experiencing life (I am not saying that you need to spend money to have fun either, but it helps)? This is the balance act I have been trying to figure out, not to say you can't have fun or do stuff in your 50s but I want to live life and do things NOW!

Right now I am trying to the get that balancing act down but ideally my goal is to reduce our liabilities to the point that we are not dependent on our corporate salaries. It basically entails what means the most to us and makes us truly happy with life and then finding out what that looks like numerically month-to-month and then finding a way to take care of that and still look out for future (when maybe passive income might dry up or run out). To put some context around what I am saying; we live in a 1800 sq ft home in PHX currently, two new cars, no kids, lots of cats. We have recently decided that we could be happier in smaller home so why not do it (not the tiny home revolution small, but European small). We also want a change and out of PHX, the plan is to move to PDX and buy a home that has some rental potential tied around it. This means long term rental, VRBO/Airbnb rental via basement apartments and ADU's (in Portland what they call guest houses). We choose PDX because we really like it there and it has the right "environment" to hopefully execute these things (desirability for visitors but not the higher real estate costs that come with it, strong rental market, city codes to facilitate such dwellings). Even with a larger mortgage in PDX vs PHX we can essentially negate our mortgage payment and possibly even create some monthly cashflow from the numbers we have crunched - we just need to find the right place. We also plan on going down to one car, biking, walking more which should lead to reduced liability as well.

To us, its not having the liability which gives us some freedom and peace of mind. It might not always be the BEST financial decision but reducing stressors is sometimes more important. The 2nd part is creating flexible/passive income on top of this to continue to save and for other "life" expenses (food, clothing, entertainment, travel, etc). Travel is being taken care of with miles/points collecting.

Financial Independence from the bills and the freedom to leave corporate jobs for something we would rather do and provides more flexibility and Retire Early means really living the life we want NOW as opposed to when we are 60-70. When I turn 65 I won't automatically ditch the rental income, stop the passive income, etc - I see no reason I would not continue with that as long as I can and it suits me. The point being I want to start being semi-retired now and continue that until I am in the ground (whatever age that may be). Sorry for the longer post but this is what FIRE means to me, and advice, critiquing or questions are welcome.

Thanks for a great forum.

I think you have half the battle beat right there. You know your choices. You know there is a trade off. You're seeking a balance between the two.

The majority of people are all about now. They don't even consider the future. If you're in the the process of finding the right combo of now and 'when' for you, then you're loads ahead of the pack.

 

[Badassity]

Okay... I thought there were a few new pages on this thread and was surprised I hadn't commented. I thought it was all new material!

Then I got towards the end and saw my first post. Then all the rest from today. WTF!?!

We need to get this FIRE section rolling. It's the most interesting part of anything financial.... The possibilities are endless.

I want FIRE because there are simply not enough hours in the day to stay on top of everything I want to read, do what I want to do, get immersed in projects, just hang out with the kids, take advantage of amazing travel hacks, relax enough that I actually feel relaxed, lose hours in forum......

I have three young kids and a kind of crazy job time wise. My husband is in the military.

We're geared to retire in 30 months. I'll be 46 and he'll be 47. It's mostly possible because he gets a kick ass pension for 30 years service. But we've been saving about half our income for a number of years despite the pension. I'm also a defined benefit member but will be deferring any pension income until age 60 once we both leave work.

We used to want to retire 'wealthy'. Maybe in our 60s with some crazy assed amount of income. With an equal amount of crazy assed spending. Then we had kids. And I've been struggling for balance ever since.

Because of the DBs, our personal savings started out at 20% fixed income and 80% equities... Since we were planning on working until our 60s and we thought we'd find a way to spend it all. Increasing fixed income was so far away.

Now it's just 100% equity. The fixed income is still there from earlier years but any new investments are equally dispersed across US index, Cdn index and International index. I balance each time I contribute.

I've got ten years of spending recorded. I know just his pension will cover it. We're not anywhere close to being as lavish spenders as I expected. And are not nearly as frugal as we should be. But because we have a (still) reliable source of pension income available to us, I'm comfortable with investing our savings in 100% equities. I'm not sure what we'll do with it exactly. Way back when it started out as a sailboat fund.

In 2017 we want to start traveling full time with the kids. Since we've got a fixed pension income that we want to stick to, it's certainly a limited budget. Hence the interest in travel hacking. My kids, 13, 11 and 7, are pretty excited about our plans for 2017.

My point, if I really have one, is it all started out as just saving to have some f*ck you money. Cash to do with whatever you want.... Take a year off to find yourself or quit a crappy job and have time to find a better one. Or buy a sailboat maybe. It morphed into this FIRE thing, where the possibilities are simply endless. I know we have the DBs, but except for my husband's, they are not as valuable for early retirement. And not very many of my colleagues are interested in living below their means. Or points for that matter!

In my defense it's my first day off after a very long week... Gin and tonics by the pool.

 

[bg85]

Okay... I thought there were a few new pages on this thread and was surprised I hadn't commented. I thought it was all new material!

Then I got towards the end and saw my first post. Then all the rest from today. WTF!?!

We need to get this FIRE section rolling. It's the most interesting part of anything financial.... The possibilities are endless.

I want FIRE because there are simply not enough hours in the day to stay on top of everything I want to read, do what I want to do, get immersed in projects, just hang out with the kids, take advantage of amazing travel hacks, relax enough that I actually feel relaxed, lose hours in forum......

I have three young kids and a kind of crazy job time wise. My husband is in the military.

We're geared to retire in 30 months. I'll be 46 and he'll be 47. It's mostly possible because he gets a kick ass pension for 30 years service. But we've been saving about half our income for a number of years despite the pension. I'm also a defined benefit member but will be deferring any pension income until age 60 once we both leave work.

We used to want to retire 'wealthy'. Maybe in our 60s with some crazy assed amount of income. With an equal amount of crazy assed spending. Then we had kids. And I've been struggling for balance ever since.

Because of the DBs, our personal savings started out at 20% fixed income and 80% equities... Since we were planning on working until our 60s and we thought we'd find a way to spend it all. Increasing fixed income was so far away.

Now it's just 100% equity. The fixed income is still there from earlier years but any new investments are equally dispersed across US index, Cdn index and International index. I balance each time I contribute.

I've got ten years of spending recorded. I know just his pension will cover it. We're not anywhere close to being as lavish spenders as I expected. And are not nearly as frugal as we should be. But because we have a (still) reliable source of pension income available to us, I'm comfortable with investing our savings in 100% equities. I'm not sure what we'll do with it exactly. Way back when it started out as a sailboat fund.

In 2017 we want to start traveling full time with the kids. Since we've got a fixed pension income that we want to stick to, it's certainly a limited budget. Hence the interest in travel hacking. My kids, 13, 11 and 7, are pretty excited about our plans for 2017.

My point, if I really have one, is it all started out as just saving to have some f*ck you money. Cash to do with whatever you want.... Take a year off to find yourself or quit a crappy job and have time to find a better one. Or buy a sailboat maybe. It morphed into this FIRE thing, where the possibilities are simply endless. I know we have the DBs, but except for my husband's, they are not as valuable for early retirement. And not very many of my colleagues are interested in living below their means. Or points for that matter!

In my defense it's my first day off after a very long week... Gin and tonics by the pool.

I'm with you on getting a FIRE discussion going here! Basically, the steps seem to be 1) Change your mindset 2) Consume less 3) Save a large % of income 4) Invest 5) Repeat for X years depending on your situation 6) FIRE. I'm early on, somewhere near the beginning of steps 3 & 4 (ratcheting up savings and beginning to look into how to invest it). On the one hand I don't want to invest poorly but on the other the goal is to get to FIRE quickly so investing early is better than investing later. I have a small account that is used for individual stocks but I don't think thats where I want to put a large portion of my money. Vanguard index funds get a lot of attention and I'm thinking about starting to put regular deposits into an account there.

Any thoughts for a somewhat new guy with a lot to learn?

PS - Fellow MMM reader here. Stumbling on that blog along with some others really opened my eyes to the possibilities.

 

[Matt]

I'm with you on getting a FIRE discussion going here! Basically, the steps seem to be 1) Change your mindset 2) Consume less 3) Save a large % of income 4) Invest 5) Repeat for X years depending on your situation 6) FIRE. I'm early on, somewhere near the beginning of steps 3 & 4 (ratcheting up savings and beginning to look into how to invest it). On the one hand I don't want to invest poorly but on the other the goal is to get to FIRE quickly so investing early is better than investing later. I have a small account that is used for individual stocks but I don't think thats where I want to put a large portion of my money. Vanguard index funds get a lot of attention and I'm thinking about starting to put regular deposits into an account there.

Any thoughts for a somewhat new guy with a lot to learn?

PS - Fellow MMM reader here. Stumbling on that blog along with some others really opened my eyes to the possibilities.

To simplify FIRE: Earn more, waste less.

I'm actually more keen on earning more and enjoying some things that aren't going to get me to quit work early, lifestyle sacrifices should meet your own criteria. There are ways to enjoy good things and pay in a smarter way. I believe the key to it is having a goal, your target number for your lifestyle of choice, and then ensure every decision works in someway towards that goal. It's a complex thing, because there will be times where you need to spend on stuff that doesn't provide an immediate ROI, but it should all be about generating, and keeping more wealth within the family.

• Index funds work because they waste less (silly management fees..)
• Stocks can work - but you are more likely to make emotional decisions and trade faster, incurring higher taxes and fees.

More importantly, if you have debt, you need to factor in should you pay it down, vs invest it, every time. And further to that, every time you make a purchase you should think of it as taking away from either debt service, or investments. It doesn't mean you can't buy that new toy, but you need to be very conscious of the impact to your goals with it.

For most folk, the first step does involve some frugality on spending (thinking about how much that coffee costs, or bringing your own lunch etc) and then it is about allocating the additional money you have into debt or investments. Tackling debt and investments in the correct order of priority is further refinement and makes you more efficient.

Don't let perfection get in the way of 'good enough'. You can start with a lot of mistakes, and refine them over time, for most younger people I would argue to focus on earning as much as you can, and getting that money to work for you.

 

[Badassity]

Hi bg85! Welcome to this forum.

If you're born in '85 you're off to a fine start.

Vanguard is the way to go for index investors. And apparently for Mustachians as well. Vanguard was very late to Canada and I haven't moved anything over yet. Though I was anticipating it. And poised to move when it hit the news. But Vanguard Canada is not comparable to the US as far as the MER.

So... Lacking momentum as I am... It's status quo for me. I'll get a bee in my bonnet soon, I'm sure.

But if I were starting out, knowing what I know now and all that blah blah, I'd go with Vanguard for sure. Canadian version and all.

It's funny you haven't moved there already, MMM and all .... .?!?

 

[Badassity]

To simplify FIRE: Earn more, waste less.

I'm actually more keen on earning more and enjoying some things that aren't going to get me to quit work early, lifestyle sacrifices should meet your own criteria. There are ways to enjoy good things and pay in a smarter way. I the key to it is having a goal, your target number for your lifestyle of choice, and then ensure every decision works in someway towards that goal. It's a complex thing, because there will be times where you need to spend on stuff that doesn't provide an immediate ROI, but it should all be about generating, and keeping more wealth within the family.

• Index funds work because they waste less (silly management fees..)
• Stocks can work - but you are more likely to make emotional decisions and trade faster, incurring higher taxes and fees.

More importantly, if you have debt, you need to factor in should you pay it down, vs invest it, every time. And further to that, every time you make a purchase you should think of it as taking away from either debt service, or investments. It doesn't mean you can't buy that new toy, but you need to be very conscious of the impact to your goals with it.

For most folk, the first step does involve some frugality on spending (thinking about how much that coffee costs, or bringing your own lunch etc) and then it is about allocating the additional money you have into debt or investments. Tackling debt and investments in the correct order of priority is further refinement and makes you more efficient.

Don't let perfection get in the way of 'good enough'. You can start with a lot of mistakes, and refine them over time, for most younger people I would argue to focus on earning as much as you can, and getting that money to work for you.

My kids have got this thing down pat.... IMHO.

You can have pretty much anything you want. You just can't have everything you want all at once.

We compare all kinds of things to how many loaves of the fresh white bread they love that we could buy in lieu... That was the most meaningful thing to them at the time since they were suffering from processed sugar carb withdrawal. Or how many halves of a vacation something more expensive would buy.

I don't have much problem buying them what they ask for. Or letting them spend their own cash. So long as they understand there is a trade off. And appreciate the value of what they are trading.

My experience is they take better care of things they trade off for and don't seem to think they are just entitled it.

 

[thepaul500]

I've read most of these posts, skimmed a few, but I think one point is missing or at least being glossed over; You need to enjoy life today, too. Saving every single penny, skipping vacations for 30 years, and then what, fall dead from a heart attack? There needs to be some balance here. Maybe my point of view is skewed because I am only in my late 20's, but right now, I have no real limitations. Without kids, I can travel every weekend if I want. I run marathons, race (and crash) expensive bicycles, and have one more drink than I should. Why? Because when I'm 50 those things might not be possible even with all the money in the world. To focus solely on saving money and being as frugal as possible would mean missing out on living a full life.

Now, I have a great income, live in a cheap part of the country, drive a crappy car, max out my 401k and roth every year, etc. So, I will have no problem retiring early anyways if I haven't found a job which I want to continue working by that point. But I also ran up 10k in cc debt in college, had more than my share of fun, and took an extra year to get it done. Not to mention student loans which I just finally paid off. But I would do it again if I had the chance, because it was FUN.

We only live once, and life is meant to be enjoyed. Carpe diem...

Maybe in 30 years I'll be kicking myself for buying that Starbucks this morning, and then everyone here can say I told you so.

 

[bg85]

I've read most of these posts, skimmed a few, but I think one point is missing or at least being glossed over; You need to enjoy life today, too. Saving every single penny, skipping vacations for 30 years, and then what, fall dead from a heart attack? There needs to be some balance here. Maybe my point of view is skewed because I am only in my late 20's, but right now, I have no real limitations. Without kids, I can travel every weekend if I want. I run marathons, race (and crash) expensive bicycles, and have one more drink than I should. Why? Because when I'm 50 those things might not be possible even with all the money in the world. To focus solely on saving money and being as frugal as possible would mean missing out on living a full life.

Now, I have a great income, live in a cheap part of the country, drive a crappy car, max out my 401k and roth every year, etc. So, I will have no problem retiring early anyways if I haven't found a job which I want to continue working by that point. But I also ran up 10k in cc debt in college, had more than my share of fun, and took an extra year to get it done. Not to mention student loans which I just finally paid off. But I would do it again if I had the chance, because it was FUN.

We only live once, and life is meant to be enjoyed. Carpe diem...

Maybe in 30 years I'll be kicking myself for buying that Starbucks this morning, and then everyone here can say I told you so.

As a person who is also in their late 20's I understand your point. Maybe it doesn't come out in this thread BUT this isn't about choosing to live now vs. later or live in misery vs. having fun. Each person is different but for me I'd rather cut out the things that don't really add anything to my life (new cars, big houses, fancy clothes, etc) while being smart about the things I do enjoy (good food, occasional travel) in order to get something I would really like (very early retirement AKA freedom). So to each his own but I just want to point out that FIRE does not equal no fun.

 

[Badassity]

Your point of view is not skewed at all. It's all about balance.

We go on at least three vacations a year. With three kids. International destinations. I shop around for those. We pay for those 'not marathons just 5k' times five with kids so they think (I hope) staying active is important. I'm going to have one more drink than I should (though I was really on my last one but since you suggested it I'll blame it on you). My kids take piano and violin lessons. They go to an awesome summer resort camp each year. Those are some of the things that are important to us. Well, I should exclude the drink but…

And I wasn't thinking of any of this 'live below your means' at your age. I spent everything I earned and a bit more unfortunately.

But I'm not spending everything I earn anymore. I'm saving 'some' of it for the future. I don't even notice.

Neither do you I suspect. You choose to live in a cheap part of the country. And you choose to drive a crappy car. You're making trade offs so you can do what is important to you right now. The piece of equipment that gets you from A to B doesn't matter to you so you don't spend money on it.

I guess I could buy a Lamborghini if I wanted to. I could buy the car outright. Pay the insurance and fill it with gas and drive it around. It wouldn't give me a ripple of pleasure because it doesn't matter to me. So why bother.

I love to travel and still have other goals so I traded my time to learn about the best way to earn and spend my miles to get the best bang for my buck.

It's just a tradeoff.

 

[Badassity]

Of course that Lamborghini would decimate my financial freedom. And would be a really stupid purchase in my income bracket. But that's beside the point.

 

[thepaul500]

Your point of view is not skewed at all. It's all about balance.

We go on at least three vacations a year. With three kids. International destinations. I shop around for those. We pay for those 'not marathons just 5k' times five with kids so they think (I hope) staying active is important. I'm going to have one more drink than I should (though I was really on my last one but since you suggested it I'll blame it on you). My kids take piano and violin lessons. They go to an awesome summer resort camp each year. Those are some of the things that are important to us. Well, I should exclude the drink but…

And I wasn't thinking of any of this 'live below your means' at your age. I spent everything I earned and a bit more unfortunately.

But I'm not spending everything I earn anymore. I'm saving 'some' of it for the future. I don't even notice.

Neither do you I suspect. You choose to live in a cheap part of the country. And you choose to drive a crappy car. You're making trade offs so you can do what is important to you right now. The piece of equipment that gets you from A to B doesn't matter to you so you don't spend money on it.

I guess I could buy a Lamborghini if I wanted to. I could buy the car outright. Pay the insurance and fill it with gas and drive it around. It wouldn't give me a ripple of pleasure because it doesn't matter to me. So why bother.

I love to travel and still have other goals so I traded my time to learn about the best way to earn and spend my miles to get the best bang for my buck.

It's just a tradeoff.

See, you're 100% correct, it is all about trade-offs. But earlier in the thread, that was missing. I was just trying to inject that "balance" that was needed here. Several of my friends currently, are doing everything they can to retire early, at the expense of doing anything resembling fun. Taking on second jobs for the weekends, not taking any vacation days, etc. On the flip side, my most fun friends are the ones who spend with reckless abandon, though they will likely never be able to retire...but it makes weekends in Vegas more fun!

 

[Badassity]

Personally, I'd never trade time off for extra work. Every minute of my accidental overtime goes toward time off as well.

But if your friends from the former category don't think they're missing out and are happy with the trade off maybe they're exactly where they want to be. Or maybe they're trying to find their own balance. Skew to the left too much and they'll inch back to their own centre.

I recall people I encountered who were too frugal for my kind of fun when I was younger. And had similar thoughts for sure. I used a different word back then … but I have a different perspective now.

 

[Mel]

Ok, I'm having another mid life crisis here. I have made a chart of my plan to retire and added challenges to it. When we were paying off the house, the chart was on the wall and I could see it every day. It was so motivating.

My plan is to retire in 6 years from now at 43. We are DENKs - Dual Engineers, No Kids (currently). We are looking to adopt and this could change the plan. So, time to get back to the grind stone and figure out how to save as much money as possible while generating it and growing my income. How fun!

 

[Matt]

Ok, I'm having another mid life crisis here. I have made a chart of my plan to retire and added challenges to it. When we were paying off the house, the chart was on the wall and I could see it every day. It was so motivating.

My plan is to retire in 6 years from now at 43. We are DENKs - Dual Engineers, No Kids (currently). We are looking to adopt and this could change the plan. So, time to get back to the grind stone and figure out how to save as much money as possible while generating it and growing my income. How fun!

Wheres the crisis? Sounds like a really exciting time! I found myself with the birth of my son that a lot of plans just changed... FIRE moved back a fair bit

 

[ElainePDX]

Read through this again in hopes of learning some info to pass along to my 20something son. Most of his income recently has been as a contractor. So he gets 1099s not W-2s.

F0rgive my ignorance, but if 401Ks are for employees and SEPs are for business owners, what does a contractor do besides an IRA? Does he have to actually form a business to do a SEP?

He has maxed out his Roth already - is there an easy way for him to stash more cash in a retirement fund after funding his Roth IRA?

Thanks!

 

[Matt]

Read through this again in hopes of learning some info to pass along to my 20something son. Most of his income recently has been as a contractor. So he gets 1099s not W-2s.

F0rgive my ignorance, but if 401Ks are for employees and SEPs are for business owners, what does a contractor do besides an IRA? Does he have to actually form a business to do a SEP?

He has maxed out his Roth already - is there an easy way for him to stash more cash in a retirement fund after funding his Roth IRA?

Thanks!

He doesn't need a business to form a SEP.

SEP is a bit easier to set up, and can put in 20% of net Schedule C income (you have to back out the self employment taxes)
Solo 401(k) are a bit harder to set up (not too scary though) and can put in more as a % for lower income contractors. Basically you can put in the annual amount ($17.5K/18K) from your own salary, and also match it up to 25% from company money. IRS example:

Example: Ben, age 51, earned $50,000 in W-2 wages from his S Corporation in 2014. He deferred $17,500 in regular elective deferrals plus $5,500 in catch-up contributions to the 401(k) plan. His business contributed 25% of his compensation to the plan, $12,500. Total contributions to the plan for 2014 were $35,500. This is the maximum that can be contributed to the plan for Ben for 2014.

I prefer SEPs because I can put 'enough' in them for my goals, but Solos can be better....

 

[ElainePDX]

Thanks, Matt, sounds like for now a SEP is the way to go. I will do further research - or better yet, tell him to! - on SEPs.

 

[Matt]

Thanks, Matt, sounds like for now a SEP is the way to go. I will do further research - or better yet, tell him to! - on SEPs.

Vanguard has an online form for it, very easy to get set up. Note that it must be done by tax time (including any extensions) I think the Solo has to be set up by Dec 31st of last year in order for last years contributions.

 

[ElainePDX]

Vanguard has an online form for it, very easy to get set up. Note that it must be done by tax time (including any extensions) I think the Solo has to be set up by Dec 31st of last year in order for last years contributions.

Yup, I saw both Fidelity and Vanguard have how to do it on their websites, including the info on if you extend your tax filing date.

BTW, my accountant tells me that we can extend the filing date but still must pay all taxes owed by 4/15, so anyone about to file for an extension should keep that in mind.

 

[Matt]

Yup, I saw both Fidelity and Vanguard have how to do it on their websites, including the info on if you extend your tax filing date.

BTW, my accountant tells me that we can extend the filing date but still must pay all taxes owed by 4/15, so anyone about to file for an extension should keep that in mind.

Yeah I'm having to do that... Maybe worth a post.

 

[ElainePDX]

Yeah I'm having to do that... Maybe worth a post.

I was actually thinking you might want to do one. In fact we have filed for extensions before and only worried that enough was withheld based on the last year's taxes, not what we would owe once the return was finally filed. We were lucky and never paid penalties, but now I am paying closer attention to it.

It may have happened during years when my husband was on sabbatical, meaning he earned less; something our accountant knew and so that may be why the issue did not come up. But this year we were warned and I sent her some rough calculations she'll use to see if we need to pay anything before 4/15.

 

[Annie H.]

Yeah I'm having to do that... Maybe worth a post.

Please do it and include the safe harbor rules esp: "Estimated tax safe harbor for higher income taxpayers. If your 2014 adjusted gross income was more than $150,000 ($75,000 if you are married filing a separate return), you must pay the smaller of 90% of your expected tax for 2015 or 110% of the tax shown on your 2014 return to avoid an estimated tax penalty."

and: underpayment penalty: http://www.irs.gov/taxtopics/tc306.html

 

[lpaca]

Just wanted to share a tax-related FIRE tip I've learned about just in the past year (most of it courtesy of Mad Fientist's blog - warning: it's fairly dense stuff). Essentially, if you are able to retire early and live on investment income (no real wage income), you can also convert your traditional 401k/ira to roth ira without paying a dime in taxes, which is truly ridiculous (it's the equivalent of turning pre-tax 401k dollars into post-tax roth ira $'s that get tax-free gains; and there's no income limitations).

Here's how it works (for a married couple):
1. Contribute 401k pre-FIRE
2. Year 1 of post-FIRE, with 0 wage income, convert 20.6k of traditional ira to roth, which is exactly the standard deduction (12.6k) plus 2x the personal exemption (4k each).
3. Continue to do convert up to the deduction + 2x exemption limit each year after that
*note that the converted amount (the 20.6k) becomes withdrawable with 0 penalty after 5 years for any reason; any gains post-conversions can't be withdrawn without penalty (same as roth ira rules)

Basically, if you convert a traditional to roth ira, it normally means you have to pay the taxes on that conversion. But if you convert only up to the deduction + exemption limit, your income is 0, thus no taxes. The other benefit is that this puts you in the bottom tax bracket (10%) and so your long term capital gains tax rate is also 0% for the first $74,900 in 2015. Essentially you can be living off of 95k+ of post-tax income during FIRE without paying a dime in taxes to the IRS. Big caveat is this is based on current tax laws.

Obviously this only works if you have enough post tax savings/investments to live on during FIRE, and also pre-tax ira that you can convert. But any time you can turn pre-tax $'s into post-tax, esp. post-tax roth ira $'s that are sheltered from tax even on growth? That's a win in my book.

In fact, before realizing this was possible, I was putting in only the minimum into my 401k to take advantage of the max company match (not maxing it for a slew of reasons, including high expense ratios, limited investment options, and I think the tax benefits of 401k's are overrated compared to capturing losses/gains in post-tax investments). After realizing this was possible, I started maxing my 401k. Plan is to convert it post-FIRE and pay no taxes.

Anyone else planning on this?

 

[Matt]

Just wanted to share a tax-related FIRE tip I've learned about just in the past year (most of it courtesy of Mad Fientist's blog - warning: it's fairly dense stuff). Essentially, if you are able to retire early and live on investment income (no real wage income), you can also convert your traditional 401k/ira to roth ira without paying a dime in taxes, which is truly ridiculous (it's the equivalent of turning pre-tax 401k dollars into post-tax roth ira $'s that get tax-free gains; and there's no income limitations).

Here's how it works (for a married couple):
1. Contribute 401k pre-FIRE
2. Year 1 of post-FIRE, with 0 wage income, convert 20.6k of traditional ira to roth, which is exactly the standard deduction (12.6k) plus 2x the personal exemption (4k each).
3. Continue to do convert up to the deduction + 2x exemption limit each year after that
*note that the converted amount (the 20.6k) becomes withdrawable with 0 penalty after 5 years for any reason; any gains post-conversions can't be withdrawn without penalty (same as roth ira rules)

Basically, if you convert a traditional to roth ira, it normally means you have to pay the taxes on that conversion. But if you convert only up to the deduction + exemption limit, your income is 0, thus no taxes. The other benefit is that this puts you in the bottom tax bracket (10%) and so your long term capital gains tax rate is also 0% for the first $74,900 in 2015. Essentially you can be living off of 95k+ of post-tax income during FIRE without paying a dime in taxes to the IRS. Big caveat is this is based on current tax laws.

Obviously this only works if you have enough post tax savings/investments to live on during FIRE, and also pre-tax ira that you can convert. But any time you can turn pre-tax $'s into post-tax, esp. post-tax roth ira $'s that are sheltered from tax even on growth? That's a win in my book.

In fact, before realizing this was possible, I was putting in only the minimum into my 401k to take advantage of the max company match (not maxing it for a slew of reasons, including high expense ratios, limited investment options, and I think the tax benefits of 401k's are overrated compared to capturing losses/gains in post-tax investments). After realizing this was possible, I started maxing my 401k. Plan is to convert it post-FIRE and pay no taxes.

Anyone else planning on this?

I do it annually. I defer in high income years and convert in low income years. It helps being self employed

While it means I may incur some taxes for doing so, I find that my overall rate is remarkably low still, and it means I get the conversion locked in now, rather than absorb the risk that it might not be available in the future.

Though in some ways I have FIRE characteristics, the only difference is that I plan to work and earn more money in the upcoming years (so I'll be deferring in those again)

 

[SC Trojan]

Just wanted to share a tax-related FIRE tip I've learned about just in the past year (most of it courtesy of Mad Fientist's blog - warning: it's fairly dense stuff). Essentially, if you are able to retire early and live on investment income (no real wage income), you can also convert your traditional 401k/ira to roth ira without paying a dime in taxes, which is truly ridiculous (it's the equivalent of turning pre-tax 401k dollars into post-tax roth ira $'s that get tax-free gains; and there's no income limitations).

Here's how it works (for a married couple):
1. Contribute 401k pre-FIRE
2. Year 1 of post-FIRE, with 0 wage income, convert 20.6k of traditional ira to roth, which is exactly the standard deduction (12.6k) plus 2x the personal exemption (4k each).
3. Continue to do convert up to the deduction + 2x exemption limit each year after that
*note that the converted amount (the 20.6k) becomes withdrawable with 0 penalty after 5 years for any reason; any gains post-conversions can't be withdrawn without penalty (same as roth ira rules)

Basically, if you convert a traditional to roth ira, it normally means you have to pay the taxes on that conversion. But if you convert only up to the deduction + exemption limit, your income is 0, thus no taxes. The other benefit is that this puts you in the bottom tax bracket (10%) and so your long term capital gains tax rate is also 0% for the first $74,900 in 2015. Essentially you can be living off of 95k+ of post-tax income during FIRE without paying a dime in taxes to the IRS. Big caveat is this is based on current tax laws.

Obviously this only works if you have enough post tax savings/investments to live on during FIRE, and also pre-tax ira that you can convert. But any time you can turn pre-tax $'s into post-tax, esp. post-tax roth ira $'s that are sheltered from tax even on growth? That's a win in my book.

In fact, before realizing this was possible, I was putting in only the minimum into my 401k to take advantage of the max company match (not maxing it for a slew of reasons, including high expense ratios, limited investment options, and I think the tax benefits of 401k's are overrated compared to capturing losses/gains in post-tax investments). After realizing this was possible, I started maxing my 401k. Plan is to convert it post-FIRE and pay no taxes.

Anyone else planning on this?

OMG this is so awesome, thank you!

I had been playing around with my retire early plan and had thought the best I could do was taking the non-401(k) gains up the limit (I think it's about $45,000 for a single person) then do a Substantially Equal Periodic Payment to get money out of the 401(k). Of course, with interest rates so low this didn't yield much money.

One thing I want to highlight for people here is that the magic of compound interest really helps if you start early. When I was just out of college I read a book by David Bach called "The Automatic Millionaire". He had a chart in it that compared a couple scenarios. I forget all the details, but essentially what it showed was if you put in a little money for a couple years in your teens, it would go up in value such that it was equivalent to putting in the same amount for the last 30 years of your career. That was very powerful to me, and I really focused on saving money when I was in my early 20's to duplicate it.

 

[Beltway Explorers]

I'm curious what FIRE strategies look like for those with children. I know it's possible, but much of the money we were saving is now going towards childcare. I don't really think we'll ever get that money back for savings since there will be other expenses in the future for activities, summer camps, after school care, etc.

 

[redbirdsj]

I'm curious what FIRE strategies look like for those with children. I know it's possible, but much of the money we were saving is now going towards childcare. I don't really think we'll ever get that money back for savings since there will be other expenses in the future for activities, summer camps, after school care, etc.

Childcare is an expense just like your other living expenses. Likewise for your projected future child-related expenses (activities, camps, college (should you choose to fund it), etc.). When analyzing FIRE, those should be budget items just like housing, transportation, food, etc.

If you're asking how, given your expenses, you can save more to progress toward FIRE, then the answer is to either increase your income or decrease your expenses.

 

[Beltway Explorers]

If you're asking how, given your expenses, you can save more to progress toward FIRE, then the answer is to either increase your income or decrease your expenses.

I'm probably overthinking it, but I was just curious if anyone had personal stories of how they stayed on track. It seems like most people increase their timeline when they add kids to the mix.