Investor insight please.

[SDHNTR]

I agree and a lot of financial advisors are simply placing people's money into the S&P500 and skimming their 1-2% right off the top. It sickens me.

25 years in this business and I’ve never seen such antics.

Yes, there are some who work hourly and some who charge a flat fee. That is uncommon though. If you want someone vested in your success and performing as a fiduciary, you pay a fee on assets under management. For good reason too, as interests are aligned.

 

[UtahJimmy]

Haven't seen it mentioned so I'll add it: if you want to get into real estate, you can do it with your tax advantaged accounts and not take a tax hit. Check out "self directed IRA real estate" on the ole Google machine.

Basically you can use your IRA to purchase the title of the property. All expenses need to be run through the IRA though because you need to be arms length. Doesn't qualify for your primary residence, only investment property. Neat little vehicle that let's you "unlock" the assets in a retirement account well before you hit 55 or 59.5 y/o

Might be difficult to get your 401k into an IRA if you stay with your employer or if you plan to work until 55 is not advised to convert because of the rule of 55, but at least you have another option to explore.

 

[Marshfly]

A note on r/fire, nearly everyone in that sub is planning around a retirement that is far more frugal than I would want. Forget that sitka jacket or new bow, like ever. The number of people on there who think its a good idea to retire in their 40s with only $1.5mm saved and a max draw of $60k using the 4% rule which is already risky at that age is just astounding and will result in lots of folks going back to work eventually. Concept is good but very little factoring in actually having any money to spend during retirement or a reasonable buffer for such an early exit. The chubbyfire sub is maybe slightly overshooting but closer to being realistic when it comes to numbers.

Totally agree. Who wants to live half their life playing broke?

Shoot for super excess. If you fall short you still are living pretty good.

 

[DangerRanger]

Totally agree. Who wants to live half their life playing broke?

Shoot for super excess. If you fall short you still are living pretty good.

Guess it depends on what you are used to and what you need. Personally wouldn’t consider 60k after retirement savings to be broke but I understand many are used to a lifestyle far exceeding that.


FWIW I think op should keep funding and excess is awesome

 

[svivian]

Health insurance is a BIG one. And one of the major factors with a wife and 2 kids. I have GREAT insurance through my work. So good it’d be terrible to give up and cost a fortune to replace.

Maybe they’ll let me take months off at a time unpaid as well, but remain employed. I don’t need to never work. I just want to be free all of August-December for scouting and hunting.

Really love all these thought provoking insights and questions!

if youre not already.... setting up an investable HSA and maxing out contributions each year might be worth doing to help bridge the gap of health insurance. Worst case at retirement age you can use those funds for anything without any penalty.

 

[Marshfly]

Guess it depends on what you are used to and what you need. Personally wouldn’t consider 60k after retirement savings to be broke but I understand many are used to a lifestyle far exceeding that.


FWIW I think op should keep funding and excess is awesome

The problem is that 60k/yr might work today but WILL be broke in 10 years. People HAVE to have a plan to increase earnings each year. There's no other way about it. The world gets more expensive every day.

 

[DangerRanger]

The problem is that 60k/yr might work today but WILL be broke in 10 years. People HAVE to have a plan to increase earnings each year. There's no other way about it. The world gets more expensive every day.

Isn’t that the point of the percent concept instead of a hard income concept?

I understand that the percent concept has its own issues if we have a true depression 4 may be too high if you don’t have a large enough nest egg

 

[pacoalcracker]

Save as much as you can and still have a life for the family. In 26 years that projected 3 million with be about 1.5 million in todays dollars. Inflation has a major impact, as we have recently experienced.

 

[CorbLand]

The problem is that 60k/yr might work today but WILL be broke in 10 years. People HAVE to have a plan to increase earnings each year. There's no other way about it. The world gets more expensive every day.

The other thing that I think a lot of people over look is if you have kids, where will they end up and do you want to see them? My brother sees this quite a bit with clients. They have two or three kids that all live in different states so you are flying 3-4 times a year to go see them/grandkids. Or you are shelling out money to get them home to you.

I have also seen retired people run out and downsize their house and then complain that their kids dont come home to see them. If you want your kids and grandkids to come to you, you gotta have places to put them.

 

[pacoalcracker]

No need to worry about market crashes at 36. I was fully into stocks right up until I turn 63, about 5 years after retirement, then started paring back quite a bit recently as this market is getting crazier. I have been thru a few of these before and they usually end up badly. As for investment advisors, ever case is different, and one must explore the benefits and see if it is worth it to you. It never hurts to sit down with one.

 

[Marshfly]

Isn’t that the point of the percent concept instead of a hard income concept?

I understand that the percent concept has its own issues if we have a true depression 4 may be too high if you don’t have a large enough nest egg

I think it's the "point" but personally I think people are way too conservative with their inflation figures. IMHO you need to be able to bump your "take home" by 10% annually minimum to stay ahead of inflation. You get a 5% bump and you are falling behind.

I know that's hard for a lot of people but that's because they don't make it a priority. They also listen to the BS inflation data rather than paying attention to what things actually cost them when they buy them. Pay attention to the actual costs of things year over year and you will see that 10% figure is pretty accurate. ESPECIALLY when you intend to retire and "cut costs" and your expenses are groceries, utilities, travel, etc. Those things appreciate considerably.

Also the problem isn't that 4% withdrawal is too high. The problem is that people are convinced that 6-8% is a good return and it's crap. But that's a whole separate issue.

 

[Throwin Darts]

I'm 43 now but was in a similar situation at your age. No way I would stop maxing out the 401k. I think of it like this.....if I work 40 years then I get 40 chances to contribute to these tax advantaged investments and gain the benefit of their tax treatment. If you miss a year, you miss a chance you never get back. Ever. If you don't like paying taxes, and who does, then don't let a year go by without getting as much benefit as possible.

I think of my investing money like buckets. Once one bucket is full, move on to the next bucket. Here is how I rank my buckets.
1. Emergency funds (6-12 months of expenses. Be honest with yourself here on what a months’ worth of expenses really amounts to)
2. 401k up to the match, if your employer provides a match (this is free money from your employer. Skipping it is like saying you’ll do the same amount of work for less pay. If your employer offers a match on 6% by God contribute 6%)
3. Roth IRA up to the IRS annual limit, if you are eligible based on income ($7,000/year. $8,000 if you are over 50)
4. 401k on top of the employer match, up to the IRS limit. $23,000/year, $30,500 if you’re over 50
5. Taxable investments (stocks, bonds, etc. outside of IRAs and 401k)

So get your emergency fund up to a comfortable balance. Then contribute to your 401k up to the Company match. Once you adjust to that then start contributing each paycheck to a Roth and make it automatic. Once you adjust to that then bump up your 401k contribution above and beyond your Company match and hopefully get it up to the IRS limit. Once you do that you can start contributing to taxable investments. IMO if you want to retire early it’s the taxable investment bucket (#5) that allows you to do so. Make it all automatic.

People talk about diversifying investments all the time but forget to diversify tax treatment. You should have a mix of both tax advantaged and taxable accounts. Investments that throw off income (bonds) should go in tax advantaged accounts. In retirement you can choose where to dip from based on the tax situation at the time (your income that year, current tax rates, etc).

With two small kids consider setting up college funds for them such as a 529.

Keep maxing out the 401k like you're doing. Focus on getting as much money as you can into the taxable account to meet your early retirement goals.

 

[The_Jim]

My wife is a CPA and I would not consult her for investment advice. CPA is for tax advice & and financial advisor is for investment advice. As @SDHNTR already mentioned, make sure your advisor is a fiduciary or you'll just get sold products with high commission rates...

 

[Speaks]

Isn’t that the point of the percent concept instead of a hard income concept?

I understand that the percent concept has its own issues if we have a true depression 4 may be too high if you don’t have a large enough nest egg

So what they are doing with this particular formula is saying annual withdrawal of 4% of initial amount invested adjusted annually for inflation you have something like a 95% chance of not going broke in 30 years assuming normal market ups and downs. Its a reasonable set of assumptions to use for normal mid 60s retirement though I think problematic to apply to someone much younger given the amount of time involved which increases the number of variables of things going wrong. Its also problematic to calculate from a market peak like we are in right now. Start pushing closer to 3% and things look safer over longer periods.

What people still are not accounting for is changing income needs. $60k might sound great as your perpetual income at 40 but your locked in more or less forever and what if you want to travel later, need an expensive monthly prescription, need to do a major repair on your house etc. Withdrawing extra or taking on dept throws future withdrawl off forever so anything pushing you out of that fixed income means your going back to work, so could a prolonged recession.

To pull the trigger in my 40s I would really want to look for a savings amount where I could draw 30-40% more than my actual target income using a 3% rule. At 65 actual target income at 4% would be fine. In between the numbers change in a curve vs linear.

 

[SDHNTR]

All this guess work and rules of thumb…Why!!!! There’s a better way. It’s called a Financial Plan! You don’t have to guess. You don’t have to use rules of thumb. You don’t have to just hope for the best. You can KNOW!

Does a home builder build a house without written plans telling him exactly where to put things?

 

[ianpadron]

Of the 5 wealthiest people I know, all of them think 401ks are a racket.

401ks are the result of a Congressionsal Revenue Act, and were designed for 2 purposes only:

1) rid American companies of the burden of pensions, and
2) ensure the IRS would maintain a tax base post-earning years.

Anyone arguing it was to incentivize saving for retirement is naive.

Having your hands tied on when you can use your own money (deposits AND earnings) should be illegal.

"BuT the TaX BeNeFiTs"...not even close.

The thought of over $700k tied up in investor jail for another 30 years makes me cringe. Having immediate access to YOUR funds to maximize liquidity and agility in the market and capitalizing on other opportunities will make a fella one helluva lot more money than anything "saved" in taxes with a 401k.

I wouldn't put a dime past your company match into another retirement account for the rest of your life.

Buy cash flowing assets like real estate and small businesses, and pump as much as humanly possible into an indexed brokerage account that has commodity exposure.

Heck, with $700k properly leveraged into mulitple investment properties, you could EASILY retire today.

Your cash flow would replace your income, you'd have depreciable property to lower your tax burden, and you could 1031-exchange into larger properties indefinitely.

I'm sure I'll get flamed by the Boglehead gang shortly but those are the facts.

 

[ianpadron]

I agree and a lot of financial advisors are simply placing people's money into the S&P500 and skimming their 1-2% right off the top. It sickens me.

90% of financial advisors could be replaced if consumers were willing to read a couple books.

 

[ianpadron]

Going to lay out a typical scenario I help high earning clients through in the real estate world:

Let's assume you're pumping $23k a year into a 401k like OP.

Instead of 401k jail, let's explore the world of real estate investing...and save that cash for a down-payment on some cash flowing property.

After 1 year, you've got $23k, 2 years, $46k, 3 years $69k, of earmarked down-payment money.

$23k will get you a run of the mill single fam in the Midwest that will cashflow a couple hundred bucks a month, but not appreciate much above inflation. Good long term play, the VTIX of the real estate world, set n forget.

$69k gets you into some pretty superb markets where DSCR loan products or conventional mortgages will work on a variety of small multi-fam, STRs, etc...with higher cash flow AND appreciation.

So you've parked some cash, spending a little to leverage a lot...and you've got someone else paying off your debt, while you enjoy the tax benefits and appreciation.

After a decade, or another big market jump, you decide you want to refinance a few of your properties and pull some cash from your equity position to buy more real estate, upgrade your primary, book that 50k sheep hunt, etc .

Guess what you pay in taxes on that cash out refi? Zero. Guess who pays the interest on that cash? Your tenants.

Or you have a big year at your W2 job and don't want your bonus check to go to Hunter Bidens hooker n blow addiction. Park some cash in a cheap property, claim bonus depreciation year one, and pay ZERO in taxes.

Down the road you've fully depreciated a property and need some more tax sheltering...so you locate a larger property with higher cash flow...and 1031 exchange into it.

Guess how much you pay in taxes? Zero. Guess how much your kids will pay when they inherit it? Zero.

I hope this basic illustration opens guys eyes.

Yes real estate involves occasionally costly repairs, humans being humans, etc....but the benefits are unrivaled in terms of combining cash flow and tax advantages that you can use today, and estate planning and wealth building for tomorrow.

Thanks for coming to my TED Talk.

For guys looking to buy real estate to make $$$, I've got connections all around the country that speak the language and can get you dialed in. A GOOD agent is just as valuable as a GOOD wealth manager, they'll make you way more than they'll cost you.

 

[SDHNTR]

The thought of over $700k tied up in investor jail for another 30 years makes me cringe. Having immediate access to YOUR funds to maximize liquidity and agility in the market and capitalizing on other opportunities will make a fella one helluva lot more money than anything "saved" in taxes with a 401k.

Except for the vast majority of Americans, not having immediate access to their retirement funds is actually a good thing.

It’s also hard to make an argument about the importance of liquidity, while at the same time advocating investing in leveraged properties and businesses.

I’m not saying your approach is wrong, as I don’t know you and apparently it works for you, but it’s absolutely not right for everyone. Most people’s idea of a comfortable and stress free retirement has nothing to do with managing businesses and multiple properties. There’s nothing passive about that lifestyle. Especially when you’re in your 80’s.

 

[SDHNTR]

90% of financial advisors could be replaced if consumers were willing to read a couple books.

For 25 years I’ve been told I would soon be out of a job due to the internet or some replacement for financial advice. Yet every year my business grows and grows. Weird.