Flying Pan's Journal

[flying_pan]

This is my introduction: viewtopic.php?f=1&t=10902

Right now I have about $20k saved, which should go to $40k at the end of the year. That will be the first goal. Next goal would be to add another $60k next year (and then every year).

So, here I will try to document (and hopefully get ideas):
- how to invest (right now I am just aware of basic things, like index funds)
- how I distribute my savings (I live in US, so IRA/401k/taxable accounts)
- how I am trying to minimize my savings
- what skill I've learned (trying to have more skills)

[flying_pan]

First, I'll write about skills. I work as a software developer, and it is an extremely narrow skill with incredible ROI (I believe web developers are getting paid incredible amount of money for complexity of work they are doing: basically, anybody after ~3 months can do it with basic math/physics foundation).

I am totally cool with earning largest chunk/all of FI money with this skill, and even freelance/consult after, if all will still be going. But I think that I should diversify, so that I can both minimize my costs and also do stuff with my hands, I find it very rewarding. So, this year I started to do some home projects, starting with complete basics: shelves, fixing old bookcases we picked from thrift stores, painting walls. I hope to pick up more complex jobs as they arise later.

Another skill I got into is maintaining cars. I never had a car before, and never maintained one as well. I did not even now what should been done. Well, this year I got an old Ford Ranger 1997, in which I replaced spark plugs, air filter and thermostat! Also, changed oil. Baby steps, but it felt rewarding when it ran properly after.

My next project will be to fix a canopy for it. I got one for cheap, but I'll need to fix fiberglass in couple places and repaint it, but I'll do it next year. I plan to camp out of it – I know, I can minimize costs here, but for now I am not willing to give it up; at very minimum I learn skills about camping (like fire, making firewood, etc). It should not cost very much, we have all the stuff for camping already, so I am looking mostly into gas and campground fees, although I'll try boondocking later.

I regularly exercise and run, but I honestly have no desire to track or achieve something here. I am pretty fit and always was (I was into cross-country skiing for 6 years), so I am pretty good at feeling where I am and I believe I can maintain it.

[flying_pan]

Distribution of my savings is tricky. I definitely plan to reach FI by 40, so keeping a lot in IRA/401k is not viable. In fact, I don't think 401k is worth it at all, because I'll just collect too much % there without any way to pull it if I need it without a penalty. Traditional IRA is not so bad, because next year I'll inevitably run into 22% federal income tax bracket, and I don't want to pay it. I work as a self-employed, so no 401k match for me (otherwise I'd probably use only 401k and roll to IRA later when switching jobs), and my tax deductions will be 24k (standard) + 10k (SE FICA) + 9k (health insurance premiums) = ~43k. 12% goes for 78k, so I can stash everything before 121k, and then put the rest into our IRA (up to 12k). If I earn more, then I'll probably just suck it up and stash after-tax, at least SS tax (12.4% in my case) will be gone.

TL;DR: I will keep everything in taxed accounts, if I earn more than $121k, I'll max our IRAs.

[2Birds1Stone]

You need to learn a lot more about US tax code. Getting money from 401k -> Rollover IRA -> Roth IRA will (should) be tax free as an early retiree, so by not maxing out the tax sheltered space you're doing yourself a huge disservice.

This way you can minimize taxes now, and in the future.

[flying_pan]

Now about my savings. We are not doing great here: while we are pretty frugal by default, I did not really think about FI before. We don't eat out (like almost never: I think I am a better cook... seriously, other people think I am just fine, but for myself I'll take my food instantly over the best restaurant meals I had), and we buy stuff mostly from the thrift stores, especially furniture. Surprisingly, after even amateur restoration (sanding and painting/staining, polishing) it looks really good and sometimes better quality than modern stuff they sell at Fred Meyers.

So this year we spent $10k for "hobbies". Namely trying different stuff, buying some gear, I got auto tools, my wife bought electronics. Well, we all know how it happens Next year we are downgrading to $6k, and then to $2k, after that I essentially think we'll be done with tools and we can just do our projects. Maybe we'll eliminate it afterwards, but for now I think it is okay to purchase things we feel are important for our projects.

Another thing is vehicles. We got two cars this year: I actually researched all about them, and I think both are good deals, aside from the fact that they are manuals and my wife hates driving them. But we don't drive very often, so not such a big problem. We got Ford Ranger for $2k and Subaru Legacy 2002 for $3k (it is at 100k mileage and head gaskets were services at 95k preventative! I feel it is a good deal). We haul a lot of furniture so truck (it is a regular cab with 7ft bed) is very helpful, and we also haul our kayaks with it. Although we are almost done with our house, so not sure how often we'll use it. I want to use it as a camper car and just drive it into the ground. Same with Subaru, given that the front-end of the engine was rebuilt, it should last a lot. We live in an area where you have to drive, so having at least one car is somewhat mandatory (I tried to walk along the highway, it is scary as shit).

Food: we are vegans, and we eat like super-luxurious. For example, my breakfast is steel cut oats + mixed nuts + a bit of agave (if season allows, berries). We also like processed burgers and can't figure out how to make our own properly. I guess we have to double down on this. And other processed vegan food, like hot dogs. We eat simpler food as well, like lentil soup, rice + salads, but it is probably less than half of our eating.

Housing: it is a long story, but we pay $0. We only pay for utilities, which run for $200/mo total for us.

Health insurance: total disaster, we pay full price, right now it is $600/mo premium + $6500 deductible (we'll meet it). So ~$13500 yearly... I have no idea how to bring it down. Not even sure there is a way except getting a regular job where employer will cover it.

Compiling a list:

Housing: $0
Transportation: $850 for insurance/yr + ~$30/mo gas
Food: ~$350/mo/person ($700 total)
Hobbies (next year): $500/mo
Utilities: $200/mo
Health Insurance: $1100/mo
Travelling: $250/mo

Total is about $36k per year. A lot, I know. Plan is:
- reduce hobbies
- reduce food (cook more from scratch)
- reduce travelling (probably just save longer for trips)

[flying_pan]

You need to learn a lot more about US tax code. Getting money from 401k -> Rollover IRA -> Roth IRA will (should) be tax free as an early retiree, so by not maxing out the tax sheltered space you're doing yourself a huge disservice.

This way you can minimize taxes now, and in the future.

I'll look into that, but that sounds weird. How one can roll from 401k (tax-deferred) into a Roth account (taxed)? I will still have to pay taxes on that income anyway, and I am not really planning on having breaks between jobs soon. Or is the plan to simply open a SEP 401k and keep money there and roll over when I am ready to reduce my income?

Another thing is that I don't feel savings are that huge before ~$121k income for me (we file taxes married jointly). Before that federal bracket is 12%, which I think is not that bad. After it becomes bad, yes, with 22% bracket, so I might benefit from that. I'm definitely a beginner regarding US tax code, but the good thing is that this year my income will be ~$100k, so I am safely in 12% bracket.

[Cheepnis]

2b1s can correct me if I'm mistaken, but here's how it works.

401k -> tIRA rollover = both are tax-deferred accounts, so no.

tIRA -> Roth IRA = you'll start your conversion ladder close to or at the time of ER while you're living off either prior Roth contributions or taxable savings. Since your taxable income will be very low or 0 at this point, you'll be able to convert, as married filing jointly, up to $24,000/y to Roth without paying tax on it because the mfj standard deduction is 24,000.

You can withdraw Roth contributions (but not any gains) tax and penalty free after 5 years, so your conversion ladder will take 5 years* to mature.

If you're savings 60k/y maxing your 401k and IRA won't even get you halfway there so I don't think there's any reason to worry about tying to much up in the 401k, you'll have a healthy taxable savings anyway.

*actually, IIRC, it's based on calendar year, not date of conversion, so if you convert on Dec. 1st you can withdraw that money tax/penalty free 4 years and 1 month later.

[flying_pan]

2b1s can correct me if I'm mistaken, but here's how it works.

401k -> tIRA rollover = both are tax-deferred accounts, so no.

tIRA -> Roth IRA = you'll start your conversion ladder close to or at the time of ER while you're living off either prior Roth contributions or taxable savings. Since your taxable income will be very low or 0 at this point, you'll be able to convert, as married filing jointly, up to $24,000/y to Roth without paying tax on it because the mfj standard deduction is 24,000.

You can withdraw Roth contributions (but not any gains) tax and penalty free after 5 years, so your conversion ladder will take 5 years* to mature.

If you're savings 60k/y maxing your 401k and IRA won't even get you halfway there so I don't think there's any reason to worry about tying to much up in the 401k, you'll have a healthy taxable savings anyway.

*actually, IIRC, it's based on calendar year, not date of conversion, so if you convert on Dec. 1st you can withdraw that money tax/penalty free 4 years and 1 month later.

Wow, just read about it. Given that I am based in Oregon with 10% state income tax and we were thinking about moving to New Hampshire in the future (0% income tax), that might work out great. I work as a self-employed, so I can probably contribute even more than $19k to my 401k, but information is hard to process. I haven't set up any company (yet), but it looks like I can contribute much more. I'll definitely meet with a tax advisor after I collect all my questions.

Thanks for the explanation!

[2Birds1Stone]

Yes, sorry for the delay in response, but Cheepnis is correct. I have read somewhere that as a self employed individual with a solo-401k you can contribute something like $45-56k/yr! So if your income gets high enough for a few years, it's an amazing benefit. I think you can contribute at the very least $19k limit and match 100% of that as the employer (of yourself), not sure where the remainder comes from, as I've been W-2 my whole life.

Once you downshift, your conversions can be used to manipulate MAGI for stuff like health insurance subsidies, and you can keep the conversions below whatever tax bracket level you would like. It's a game changer for the more frugal retirees, whereas people with typical $100k/yr retirement budgets don't benefit from this tax code nearly as much.

[flying_pan]

Yes, sorry for the delay in response, but Cheepnis is correct. I have read somewhere that as a self employed individual with a solo-401k you can contribute something like $45-56k/yr! So if your income gets high enough for a few years, it's an amazing benefit. I think you can contribute at the very least $19k limit and match 100% of that as the employer (of yourself), not sure where the remainder comes from, as I've been W-2 my whole life.

Once you downshift, your conversions can be used to manipulate MAGI for stuff like health insurance subsidies, and you can keep the conversions below whatever tax bracket level you would like. It's a game changer for the more frugal retirees, whereas people with typical $100k/yr retirement budgets don't benefit from this tax code nearly as much.

I read about up to $55k as well, or 25%. I definitely need to read more about it (I got a book on taxes which I will study and then will go to a tax advisor after to confirm/change my tax views), but thanks for the direction!

It is indeed a no-brainer to put everything above ~$120k (so 22% federal tax bracket) into IRA/401k, since I can pull it before 59. It might even make sense to max it, even full $60k, since I am down to move to NH if it brings me to FI couple years earlier.

[flying_pan]

As I said earlier, we spend a lot on food. We never eat out (maybe couple times per year, or some times during travelling, but it is negligible), so the price is mostly from costly ingredients. We are vegans, and we buy a lot of processed food, like vegan hotdogs, vegan burgers, jackfruit, soy/almond milk. Also, my typical breakfast is porridge with a lot of nuts and berries (when in season).

After reading the recipes thread (viewtopic.php?f=7&t=8201), I've decided to try to filter this. I like to do my own stuff, so I was mainly inspired rather than copying specific recipes, but so far I've made chickpeas burgers and asparagus/potato cream soup. Both turned out pretty good and I am very satisfied with the result. I made it a challenge for myself to not to eat any processed food anymore (and ditch nuts) and just basically cook everything from scratch. We'll see how it will go, first ~5 days are pretty good!

[SavingWithBabies]

Welcome! I opened a Solo 401k last year. If you're a sole proprietor (just you) in the company, the limits end up something like:

20% of company income + individual 401k allowance

So for $100,000, that would be 20% * $100,000 + $19,000 = $39,000. Don't take my word for it though (double check everything) but it is a handy thing.

I opened mine with Vanguard and I did have to read the directions carefully but it all went off without a hitch. I read something about a $20/year fee for each fund you invest in (not sure how other investments work like stock) but I think it was waived if you elect to electronic communication (as opposed to mailed).

[flying_pan]

Welcome! I opened a Solo 401k last year. If you're a sole proprietor (just you) in the company, the limits end up something like:

20% of company income + individual 401k allowance

So for $100,000, that would be 20% * $100,000 + $19,000 = $39,000. Don't take my word for it though (double check everything) but it is a handy thing.

I opened mine with Vanguard and I did have to read the directions carefully but it all went off without a hitch. I read something about a $20/year fee for each fund you invest in (not sure how other investments work like stock) but I think it was waived if you elect to electronic communication (as opposed to mailed).

Thanks! I am starting to read my book on taxes this weekend and plan to meet with a tax advisor in November. Looks like for this year I missed the [deadlines](https://www.irs.gov/publications/p560#e ... nk10008790) for opening tax-advantaged accounts, but I am fine with it. I am still not in 22% federal bracket, and don't mind to have cash on hand. Better to be slow but sure

[SavingWithBabies]

That makes sense about tax bracket but have you tried getting health insurance via Healthcare.gov? I believe the the ACA limits are on federal taxable income so this could help you get your taxable income down to increase your subsidy. Just a thought. I'm trying Healthcare.gov right now and it's very confusing with the interplay between it and the state programs (right now, I have to get proof that we don't qualify for a specific state program to ensure we can keep our ACA subsidy on a plan we bought from a regular insurance provider).

I too was struggling with pretax retirement investments versus post tax investments. But I found working in startups, often I didn't have a 401k option so I've ended up with a bit less than half of our net worth in tax sheltered accounts and the rest in post tax accounts. Maybe more like 2/5 and 3/5. Point being, as your income goes up, you'll probably have the same problem (even if you qualify for 401k, you'll probably want to save more if you're doing ERE/FI) and end up having plenty of money in post tax accounts to tide you over while you figure out all the complicated bits about how to get money out of the retirement accounts (or you might be able to avoid it completely and just have that as backup savings or savings for when you hit regular retirement age).

[flying_pan]

That makes sense about tax bracket but have you tried getting health insurance via Healthcare.gov? I believe the the ACA limits are on federal taxable income so this could help you get your taxable income down to increase your subsidy. Just a thought. I'm trying Healthcare.gov right now and it's very confusing with the interplay between it and the state programs (right now, I have to get proof that we don't qualify for a specific state program to ensure we can keep our ACA subsidy on a plan we bought from a regular insurance provider).

Yeah, we got our health insurance through the marketplace, but we pay full price. We don't qualify for anything, and even if we will in the future, I am not an american citizen and there was a thread that any public benefit for me can end up badly, so I just kind of accepted that we'd have to pay for the insurance out of the pocket for some time (unless I find a local FTE and get insurance through them).

Funny enough, health insurance is almost 40% of our expenses, but again, nothing we can do with it. Hopefully it will go down

Btw, I checked your journal, great job on moving towards your goals! You definitely have it cushier with goal of $1.2M, but at least it makes me feel better since my goal is around $700k (unlike extreme ~$200–$300k).

[flying_pan]

Latest report on my progress. I read ERE book (great read!), and was reading through many topics on this forum. I was especially enlightened with ERE Wheaton levels, since I was reading about the topic for some time, but was never comfortable in any crowd. I never had any debt and never was interested in spending more than I have, so Dave Ramsey was useless from the beginning. Books like "Millionaire next door" were helpful (and crucial in understanding of frugality + compounding interest), but only here I found people with really interesting ideas. Right now I am probably at accumulating phase, where I will be for at least couple of years (probably more).

On the savings side, I am continuing experimenting with food. My god, beans/chickpeas/lentils are so cheap! You can easily survive on $1 bag for a day. It will be boring, yes, but it is possible. I add spices and some vegetables, of course, but it is still crazy cheap. I make soups from potato/lentils/broccoli too, they are more pricey, but still really cheap. Since we are a household of 3 eating different stuff (whatever we prefer, everybody cooks mostly separately), it is hard to calculate what I am saving. And I am not that diligent to actually track my expenses separately

Got myself into a challenge to not to buy anything until the end of the year (except groceries/maintenance items). So far going well, already suppressed several impulses to buy stuff.

[flying_pan]

I was reading through SavingWithBabies's journal where he thinks about job, ambitions, skills' worth and so on. Looks like he is also a software developer. I am 28, so much shorter in this industry, but what is interesting to me is that I do not really want to be in this industry by 40 (at least not full-time). I like programming, but I'd be glad to turn it back into a hobby However, as I said (viewtopic.php?f=7&t=10915), it is just too powerful retirement accumulation machine to give it up.

So I basically fine with whatever I have without too much ambition. I work remotely and have a small side gig, and in total I should get ~$140k next year, which I assume won't get down in the future. If I move to some big city, probably my income might get up, but who knows? So, overall, if I can save enough in 10 years, I am more than happy to jump off from corporate industrial programming and do it only if a project is very interesting to me. In other words, I don't care about my career at all, and I am fine with it. Weird feeling!

[flying_pan]

Right now I am in the middle of my vacation (2 weeks). During the middle we had to go to another city with my wife for one procedure, so we killed the idea to go somewhere far. I am reading books, how to file taxes, everything on personal finance, and last 2 days I was working on my truck. I got it 6 months ago, used for $2k, and it needed work, which I was actually excited about. I never had a car, nor any of my friends, and I am not from the USA, so cars are kind of completely foreign territory for me. So I learned how to evaluate a used car, and bought this truck. So far I've done:

- changed sparked plugs & wires
- changed air filter
- changed oil
- changed thermostat and temperature sending unit
- changed O2 sensors
- cleaned MAF sensor

Unfortunately, it running rich turned out to be a faulty PCM, so I had to use a dealership for it. Today I finished changing shocks: originally I thought that floaty ride is just how trucks ride, but turned out that it is not the case I tried it for ~1 mile, feels much stiffer, but I have to test it more extensively.

[flying_pan]

Reading books is really interesting. Wheaton levels of ERE definitely is an interesting concept, as some books have close to 0 value to me (like Dave Ramsey – I have 0 debt, and only mortgage can force me to get one), some are okay, but nothing new (like most of the tips on frugality). I am going through YMOYL right now, and it is definitely a more interesting read. Overall, I enjoy reading about systemic approaches rather than collection of tips or some "getting out of debt 101". Interesting that majority of readers are actually in the category of how to get out of debt, and more sophisticated books are boring for them (since it is not applicable, and they never had time to reflect on such things).

[flying_pan]

Lately I was reading a retirement forum on city-data forums. Like "normal people" retirement forum, when early retirement is anything earlier than 65 (like 62), people arguing that 1.6% adjustment for Social Security is not enough, and that there is not enough respect for old people. It was really interesting because I realized that:

1. Health is not forever. Of course, many just neglected it, but some things you just don't control. So you might be saving for something just to realize you can't do it anymore at 65.
2. The older you are, the more comfort you need. For example, old people cruising north America in RVs mostly do that because they just can't do it in tents/vans – they _need_ all these amenities.
3. Long-term planning is hard. Your priorities can change – so you do not longer want to backpack the world, or you are not interested in boating anymore. When you waited 30 years to do it, it becomes hard to admit.

I guess the main outcome I got from reading was that I should actually crystallize all my "global plans" (like visit all national parks in USA – and not just visit, but actually explore!) and execute them in the next 2 decades.