Early Retirement Extreme Forums

So the purpose of this journal is to keep me honest and on track with early retirement. Our goal is liquid assets of $3-4 million. This would let us comfortably withdraw about $100,000/year indefinitely. When my fiancee and I reach our goal we will probably continue to work in some capacity. She enjoys her work and would continue at 60-80%, while I would probably do an occasional locums shift to keep my skill set up to par so our earned income wouldn't drop to zero initially. We are both in the medical field and in our early 30's. No kids (yet).

Income 2015: I'm going to list gross as well as net (post tax, SDI, medicare...) numbers. Net income is a lot less than might be expected just based on federal tax brackets (welcome to the real world, I guess). Also, I changed jobs in July so this fiscal year only reflects 6 months of my increased salary (MedSaver net earnings total for FY 2015 is about 70% of forecasted 2016 earnings). Fiancee's salary is predicted to be stable/minimally increase with inflation.

MedSaver gross annual: $176000
Net: $101456/year ($8455/month)

Fiancee gross annual: $151148
Net: $96326/year ($8027/month)

Liabilities:

Credit cards = $0

Fiancee loans
Car loan at fixed 1.9% = $6000)
Total student loans (5 year fixed 3.5%) = $70,000

MedSaver loans
Student loans blended (5 year ~3.5% fixed) = $209,000

Budget: We realize our budget is higher than what most people here post, but we currently have no desire to live in a microhome/hypermile/etc. That being said, I don't think these expenditures are exorbitant.

Car insurance: $200
MedSaver Disability insurance: $500
Fiancee Disability insurance: $80
Fiancee car loan: $350
Fiancee student loan: $1300
MedSaver student loan: $4030
Food $600
Rent $1750
Gas $225
Utilities $270
Internet/cable $110
Travel $1000 (current total travel account = $3200)
Cleaning service $80
Cell phone: $65

Total = $10560 (savings rate = 36%)

Assets:
IRA/Brokerage/403b/457/cash: $256796

Based on our current savings rate, our predicted retirement is about NEVER, but the numbers are a little deceiving because as stated above our predicted net income for 2016 will be about $40000 greater than 2015 due to the job switch. Additionally, our loans will be paid in about 4.5 years, which frees up over $5300/month.

I'll try to update about once per month...

Mate - you are not an ERE type. Still the same principles apply. I also wish we had your combined incomes. I would really start to hammer that debt because it's massive and there are no appreciating assets there.

When I look at your expenses though half of it is debt repayments and 10% is a travel budget. If you just smashed that debt down and got rid of that travel budget you can get yourself set-up really quickly.

Hi! Thanks for your response. In what way are we not ERE "types"? Also, we feel that fixed 3.5% loans are pretty low rates. As long as we invest the money and get at least 3.5% we are ahead, no? It's a gamble, but one that we are willing to take (our investment fees are less than 0.1%).

My fiancée and I have discussed the travel budget and it's the one thing we splurge on to make ourselves happy. We don't drive fancy/new cars and we don't have a large house. If our travel expense delays retirement by a few months then so be it.

Interesting to see that indeed people match their spending with their income. Going for 100k USD spending budget when (semi-) retired is of course nice, but my guess is that you have not read the book of ERE (Jacob). Nothing wrong, if you can afford 100k annually and willing to safe 3-4 Million to reach this, I would say, go for it, but the interesting question is, do you need 100k annually or what is the optimum level to be happy in life (which is different per person). If you have the time, read Jacob's book, it might give a different perspective.

Mate - you are not an ERE type.

If we categorize people by their income, yes, MedSaver should probably be hanging out with the Bogleheads (where they'll tell him he can't retire until 65 because he needs to have $15,000,000 in index funds to retire). I say welcome to ERE.

Once the student loans are paid off if you start investing that money you will have something like a 65% savings rate. This should produce financial independence in about 10 years. If you also invest the salary increase you can do even better.

Gilberto de Piento wrote:

Mate - you are not an ERE type.

If we categorize people by their income, yes, MedSaver should probably be hanging out with the Bogleheads (where they'll tell him he can't retire until 65 because he needs to have $15,000,000 in index funds to retire). I say welcome to ERE.

Once the student loans are paid off if you start investing that money you will have something like a 65% savings rate. This should produce financial independence in about 10 years. If you also invest the salary increase you can do even better.

That's the plan! Also, I didn't mention that I should be a partner with my group in 2 years, which would increase income by another 40%. FI by 45.

Welcome!

How old are you now? You are in a great position to achieve FI and ER or do whatever you wish in a few years. Keep your housing and transportation costs in check (avoid lifestyle inflation) and you're golden.

If I was in your shoes I'd make the minimum payments on the loans this year and take advantage of the stock market correction to load up on investments.

Depending on what part of medicine you practice I imagine it can be very easy to burn out from the hours and stress.

Hi Carlos! Thanks for the reply.

I'm 32. My fiancée is 33. Our plan is as you suggested: make minimum loan payments and keep plugging savings into low fee investments. My job can be stressful, but it is rewarding as well. Our main goal is to avoid the lifestyle inflation that many of our peers have been snagged by.

Cut some of your expenses, get rid of your debt ASAP and you will be free man very soon. Take this great opportunity. Good luck

Hi Medsaver.
Wow $4mill - you have your eye on a big prize.

Your income is really high which should help. I'm presuming your doctors so I imagine that your income can continually keep rising.
Your rent looks quite high. Not that I am one to talk. Whereabouts are you based?

Hello. Our rent is about average for the area. We are in California.

stayhigh wrote:Cut some of your expenses, get rid of your debt ASAP and you will be free man very soon. Take this great opportunity. Good luck

To be fair there are more paths to wealth and his idea of leaving the debt and investing should work as well. Personally I'm not a fan of debt and I would get rid of it first or at least cut it back significantly but the the op's approach should work.

MedSaver wrote:Hi! Thanks for your response. In what way are we not ERE "types"? Also, we feel that fixed 3.5% loans are pretty low rates. As long as we invest the money and get at least 3.5% we are ahead, no? It's a gamble, but one that we are willing to take (our investment fees are less than 0.1%).

My fiancée and I have discussed the travel budget and it's the one thing we splurge on to make ourselves happy. We don't drive fancy/new cars and we don't have a large house. If our travel expense delays retirement by a few months then so be it.

The only reason I stated that you are not an ERE type is that some guys on here live off say $10k per year so maybe $20 for you and your wife. As for expenses I always think if you feel you get value for money out of it then do it.

I just responded to the pay down debt over invest comment. Personally I don't like debt but your approach will work as much as any other approach.

Your path seems similar to ours. Avoid lifestyle creep and expensive toys and you'll do fine.

Make sure you take advantage of all legal tax avoidance shelters -- it will be your largest expense. I would guess when you become a partner in the practice there will be more that open up, including perhaps a Keogh plan.

Thanks for your insights steveo. We don't like debt either! We recently refi'd our loans. Previously they were at around 7% fixed. Had we not been able to get a refi rate lower than 4% we would definitely be throwing all of our money at paying down the debt first. Hopefully the investment gamble pays off, although the stock market is a fickle thing.

MedSaver wrote:Thanks for your insights steveo. We don't like debt either! We recently refi'd our loans. Previously they were at around 7% fixed. Had we not been able to get a refi rate lower than 4% we would definitely be throwing all of our money at paying down the debt first. Hopefully the investment gamble pays off, although the stock market is a fickle thing.

This is basically your call. I also agree with avoiding lifestyle inflation as Dragline states. We do the same thing. Do you intend to have kids ? I've got 3 and they do cost a chunk of money.

Dragline - After partnership there is a profit sharing retirement plan (tax deferred) of about $50k/year.

Steveo - I think one kid will be enough for us. Also, I don't think paying off nearly $300k in loans in less than 5 years is all THAT slow.

MedSaver wrote:Dragline - After partnership there is a profit sharing retirement plan (tax deferred) of about $50k/year.

Steveo - I think one kid will be enough for us. Also, I don't think paying off nearly $300k in loans in less than 5 years is all THAT slow.

$300k is a lot of money isn't it. My dad was a doctor he is retired now - he was a pathologist. Do you have a speciality ? My parents spend a tonne of money however compared to other doctors my dad didn't really succumb to lifestyle inflation. We never moved to a fancier are or bought fancy cars or went on fancy holidays. My parents though spend a lot now but I think just not being completely over the top means that you generate a tonne of wealth on those sort of incomes.

My parents go on fancy overseas holidays at least once per year, they pay an investment adviser I reckon at least 2% (I reckon they have at least $2 million in retirements funds so that is an additional $40k spending per year) and they pay for a gardener and outsource close to everything.

$300k seems like a lot to me. I'm in a specialty (hence why I just got out of training). We don't have an investment advisor. We met with some, but they were telling us things that seemed misleading (Vanguard has "hidden" fees beyond their stated expense ratios) and they expected to beat the market, etc. All for the low price of 1% of managed assets.

Like I said, I realize we spend a lot of money relative to a lot of people, but I think relative to our incomes we are reasonable. Our only real over the top budget item is travel, which is about 5% of our income.

MedSaver wrote: Our only real over the top budget item is travel, which is about 5% of our income.

I have never regretted any travel spending. With the exception of money on expensive hotels and rental cars in my more wasteful days. I recently had to endure a rather unpleasant experience for about 45 minutes and I took my mind off it by reflecting on all my amazing travel experiences. Reinforced just how worthwhile I feel they have been, and will continue to be.