Found a home

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youngsaver
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Joined: Tue Dec 19, 2017 12:53 pm

Found a home

Post by youngsaver »

Hi everyone,

I've been reading the blog daily for the last few months and just recently picked up the book - excited to start reading it!

I sort of feel as if I was born to ERE. Why buy a new pair of shoes when I already have a pair that work perfectly fine? Why buy a $15 lunch when I can make the same thing for a fraction of the cost? Why go on a multi-thousand dollar vacation to stare at old buildings that are essentially meaningless to me when I haven't even explored the city that I'm currently in? These were questions that came naturally to me - it seems pretty obvious that pursuing new shoes, fancy lunches, and meaningless "vacations" (what are you vacationing from anyway?) really do nothing for you, except leave you wanting more. I hadn't really found any like minded individuals until I found this blog! Most of the time reading it I feel like someone has articulately expressed my feelings about, although not limited to, the things listed above. (thank you jacob and others!)

Currently am 24 years old, recently debt free (take that student loans!), and thinking about the best ways to pursue ERE. Two questions on the top of mind right now are (1) the best saving vehicles to utilize (I currently fully fund my roth ira. thinking a taxable brokerage account is next best option now that I have funds that were previously going to loans, though current taxation on dividends/cap gains scares me) and (2) how to talk to my SO about this lifestyle choice. She knows I'm frugal but I don't think she'll be receptive to the extent that I'd like to live at - her frequent response is "it's about balance." I was happy to see the forum chain on this topic, which I plan to read more thoroughly as I think more deeply about it.

Excited to join the community and share my journey with you all.

Best,
youngsaver

Riggerjack
Posts: 3182
Joined: Thu Jul 14, 2011 3:09 am

Re: Found a home

Post by Riggerjack »

Start with filling all the tax advantaged accounts. 401k, IRA, others for those with special advantages. Roth is awesome, but consider going pretax soon.

Google Roth conversion ladder. But the rules will change lots over the course of your life, so don't optimize too far.

Welcome.

youngsaver
Posts: 13
Joined: Tue Dec 19, 2017 12:53 pm

Re: Found a home

Post by youngsaver »

Just read up on the conversion ladders... interesting. Definitely makes 401k IRA more attractive.

Thank you for sharing!

jacob
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Re: Found a home

Post by jacob »

Just in case it wasn't clear, a 401k and an IRA are two separate vehicles and you can have both (for a total limit of 18500+5500 if your income is not too high, near six figs). If you got spare cash, you might want to consider opening one to get the tax deduction (you can contribute retroactively for all 2017).

youngsaver
Posts: 13
Joined: Tue Dec 19, 2017 12:53 pm

Re: Found a home

Post by youngsaver »

I'm fully funded on the IRA side through the Roth but I'll see whether or not it's too late to do a 401k contribution. I'll start next year if it is. In the interim, will have to think about whether to utilize the traditional option or the roth 401k option.

I'm not sure if this is the right place on the forum to bring this up (direct me if it is) but if you max both of those out and hypothetically can save an additional $10,000 in a taxable account, your total annual savings is $34k/yr. Using just a simple tvm calc with a 5% straight line return assumption (for illustrative purposes), in 7 years you grow the savings to about $275k. 3% of that would equate to a sustainable withdrawal of about $8k/yr. If you use 4%, you get to $11k. So call it $10k/yr. (please jump in if my math is off). Is this around the ballpark of what ERE'ers total annual spend is?
Last edited by youngsaver on Wed Dec 20, 2017 9:50 am, edited 1 time in total.

CS
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Joined: Sat Dec 29, 2012 10:24 pm

Re: Found a home

Post by CS »

@ys

Your math seems right. It's up to you to determine how much you need to live off... everyone has their own number. Your annual needs will determine what total dollar amount you need stashed for FI (if you don't plan on bringing in more money).

youngsaver
Posts: 13
Joined: Tue Dec 19, 2017 12:53 pm

Re: Found a home

Post by youngsaver »

Understood. Right, that number would be for someone living solely off of their portfolio.

youngsaver
Posts: 13
Joined: Tue Dec 19, 2017 12:53 pm

Re: Found a home

Post by youngsaver »

A bit of a deeper introduction...

I'm 24 currently working in NYC but still living at home in NJ. That doesn't leave me very far on the independence front but now that I'm debt free, I'll slowly begin to explore step 1 - finding a place to live! In the meantime, I'll enjoy the added savings =)

Personal finances: currently have $35k spread across Roth, company PSP, and checking account. I keep a pretty detailed budget - current savings rate is about 67%.

I am a CERTIFIED FINANCIAL PLANNER™ and I do like my job but having only one set of skills and being defined by a job does scare me. A lot of the people that I work with work their whole lives for retirement but then find they don't know what to do with their time - that scares me too. That probably explains a lot of my attraction to ERE.

I think a lot of the ways that my friends and family spend their money are schemes (for lack of a better word) to keep them in the system. I'd like to avoid being another person getting schemed - this blog/community gives me hope that it's possible

Will start a journal to share my thoughts and journey soon!

theanimal
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Re: Found a home

Post by theanimal »

Welcome!

If neither you nor your family has any problems with your current living situation there's no need to change it.

youngsaver
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Joined: Tue Dec 19, 2017 12:53 pm

Re: Found a home

Post by youngsaver »

Certainly not in a rush, won't happen for another 2 years at the minimum. My SO would like to see me move out sooner than later but she understands the importance of saving.

Curious, are there any ERE'ers out there living in Manhattan?

PA Hiker
Posts: 16
Joined: Thu Jan 05, 2017 10:26 am

Re: Found a home

Post by PA Hiker »

Hi youngsaver

Living in Manhattan seems pretty contraindicative to the ERE lifestyle! What would it take? 2-3M?
Now I'm curious as well.

A 67% savings rate is a great start and IS the key. Whether or not you avail yourself of tax-advantaged retirement accounts is secondary (though very helpful and recommended). I was extremely conservative while accumulating, I kept a lot of my savings in cash and had limited market exposure. I did, however, take advantage of my employer's 401k match, because you know, free money. If I had to do it all over again, I would have been more aggressive (hindsight - 20/20) and thrown more money into the markets through the last two recessions. But that is a tough thing to do when your workplace is going through multiple rounds of layoffs. All that being said, and almost in spite of myself, I still got to where I needed to be thanks to high savings rate.

Since you will likely end up FIRE at young age, I think near/post retirement yearly IRA to Roth IRA Conversions might be useful to you as a way to avoid the 10% early withdrawal penalty. But, as was mentioned above, be flexible because the rules may change.
Don't do anything with your investments that makes you lose sleep at night.

youngsaver
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Joined: Tue Dec 19, 2017 12:53 pm

Re: Found a home

Post by youngsaver »

Really appreciate the insight PA!

Any thoughts on the annual spend calculation I posed above?

PA Hiker
Posts: 16
Joined: Thu Jan 05, 2017 10:26 am

Re: Found a home

Post by PA Hiker »

I'm not sure how much useful insight I have, but here is my take.

I think 10k/yr spend rate off of a 275k stash is doable.
However this is very close to the limit and success will depend on market cycle.
Probably this could work if starting in 2009 but not in 2007.

Check out the Trinity Study on Wikipedia if you haven't already.

Also 10k is about as frugal as most people can comfortably do (~1 jacob) (at least in the US).
My personal spending is around 18k/yr. It's a level I'm comforable with, and sure, it includes some minor excesses/indulgences. I might be able to get to 10k, but I wouldn't be happy about. 18k/yr is a spending level that has high utility for me. I guess my point here is that a good spending rate is highly subjective and personal.

That being said, I think having a number like 275k to shoot for is very useful. Consider it a Lagrange point on your way to ERE.
Not your ultimate destination but a good place to stop and take stock, decide what you want, maybe alter your course before going on.

youngsaver
Posts: 13
Joined: Tue Dec 19, 2017 12:53 pm

Re: Found a home

Post by youngsaver »

Very useful! And thank you for those two references (Trinity Study and Lagrange point).

Let's use 20k as an annual spend. One would still need to accumulate about 500k to live off their portfolio without the need for any other additional source of income. I estimate one would need to live frugally and maintain a relatively high income for about 10-20 years to hit that mark. 10 years if very frugally, closer to 20 if not as much (with investment returns of course being an important variable as well).

Cutting the typical working tenure in half but still seems like a long time.

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