Financial Independence: Methods, Mindsets and Cloth Diapers

The Something Awful Forums > Discussion > Ask/Tell > Business, Finance, and Careers > Financial Independence: Methods, Mindsets and Cloth Diapers

CubicalSucrose: Jan 1, 2013; Phantom my Opera and call me South Park: Bigger, Longer, & Uncut

Alctel posted:

I've been reading through this thread and feel like a bit of an idiot, I've been keeping all my savings in a savings account, at a whopping 0.150% interest rate.

I took the last two years off and went sailing on my sailboat, but I am back and want to set up a nest egg so I can stop working entirely as soon as possible.

Currently I got lucky and have a very highly paid job while having very low living expenses, meaning I'm saving between 4k and 5k a month. I have 25k in my savings account, 60k in an RRSP and 2k in crypto (lol)

My living expenses are normally around 1 to 1.5k a month (closer to 1). My aim is to get a steady passive income of 1k a month.

I guess my question is - how do I even get started investing? I am good at a bunch of things but financial stuff isn't one of them. Someone told me to buy a house and rent it out at a rate that covers the mortgage.

I'm 37 and wish I'd started this a long time ago

This is the thread you're looking for. - https://forums.somethingawful.com/showthread.php?threadid=2892928

# ¿ Jul 11, 2020 03:35

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# ¿ May 4, 2024 00:47

CubicalSucrose: Jan 1, 2013; Phantom my Opera and call me South Park: Bigger, Longer, & Uncut

I care more about the retiring part than the FI part. Expecting to be just fine sitting around playing video games all day.

I appreciated the story to highlight that healthcare is still a big unknown, though that was a lot of words for not too many actionable takeaways.

Overall, "be thoughtful about your finances" seems like a good message. I've gotten a lot of value from things like ChooseFI around tactical nonsense at the margins, and love reading through the detailed modeling that EarlyRetirementNow has put together.

I've found the mental model of "Buying X luxury good (nicer car, hot tub, international vs domestic vacation, home renovation, etc) will extend my expected working timeline by Y days/weeks/years." to be pretty useful. Same thing the other way, "Busting rear end to get a better raise/promo/job change will cut down my expected working timeline by X." has helped me calibrate the effort I put in.

# ¿ Mar 18, 2021 17:45

CubicalSucrose: Jan 1, 2013; Phantom my Opera and call me South Park: Bigger, Longer, & Uncut

FateFree posted:

I don't know if this has already been discussed but I just read this lengthy article that focuses on the other side of the 4% rule, about how in many cases you will end up with many multiples of your starting principal as long as the first 10 years or so aren't bad. It brought up a lot of questions. First off here's the article:

https://www.kitces.com/blog/the-problem-with-fireing-at-4-and-the-need-for-flexible-spending-rules/

And for the sake of discussion just take full retirement out of the question here, because if you are never working again this is meaningless since you need the worst case scenario. But his take is that if you are flexible enough to work on or even before you hit your FI number, you can essentially bet on the high probability that your long retirement period will work to your benefit and get a headstart on withdrawals with the caveat that if the first decade is a downturn, you can supplement your income until it turns around.

One of his strategies for doing that is what he calls ratcheting, where you start at a fixed withdrawal rate and check back every 3 years, if your principal is a certain amount higher than you started you can ratchet up the withdrawals (% of the higher principal now). The interesting thing is you never have to ratchet down if you are using 3.5% because that should technically be safe for any length of time (so i've read).

Anyway this is all appealing to me because I never really planned on not working ever again, and I love the idea that you might luck out and not have to, rather than wait until you actually hit the 3.5%.

See the "flexibility" section with a bunch of posts here - https://earlyretirementnow.com/safe-withdrawal-rate-series/

# ¿ Mar 24, 2021 16:15

CubicalSucrose: Jan 1, 2013; Phantom my Opera and call me South Park: Bigger, Longer, & Uncut

FateFree posted:

Does anyone know of any good articles/information about a safe withdrawal rate that simply increases every time the portfolio balance hits a new high water mark? I can't think of any reason why that wouldn't work, since the 3.5/4% SWR should work at any given time for the rest of your retirement - shouldn't you be able to reset this every time you hit a new high, as if you were just starting your withdrawals all over again?

This one is probably close - https://earlyretirementnow.com/2020/07/15/when-can-we-stop-worrying-about-sequence-risk-swr-series-part-38/ - there's also a number of different posts on things like variable withdrawal strategies.

# ¿ Jun 11, 2021 02:41

CubicalSucrose: Jan 1, 2013; Phantom my Opera and call me South Park: Bigger, Longer, & Uncut

moana posted:

Me neither. I think I'll go back to work eventually, just because that's how I am. That said, if I paid off the mortgage right now it would be a 3.6% withdrawal rate so eh.

Can you explain this mortgage bit? The way I've been modeling it is:
FI # = (non-mortgage expenses but including taxes and insurance) / (withdrawal rate) + (current outstanding mortgage balance)

I'm planning on having my mortgage paid off before retiring because of this - https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/ - so counting that as a perpetual expense seems off to me.

If you're able to get down to 3.6% without a mortgage (and don't expect material increases in expenses over time - are you planning on homeschooling your kid or what, etc?), then I'd be much more comfortable pulling the trigger and taking a few years to see how you fare against sequence risk.

# ¿ Jun 13, 2021 15:41

CubicalSucrose: Jan 1, 2013; Phantom my Opera and call me South Park: Bigger, Longer, & Uncut

Ersatz posted:

Depending on location, I'm 3-5 years away from being able to retire comfortably based on a 3% rate of withdrawal, and I intend to fund years of early retirement primarily from my brokerage account (after purchasing a home outright).

That said, I'd feel more secure about it if I had access to Roth funds as a backup to the extent needed. In that regard, I've been regularly contributing to a Roth 401(k), and I've also been making backdoor contributions to a Roth IRA opened a few years back.

Do I understand correctly that if I were to roll my Roth 401(k) into my Roth IRA, that the 5 year rule for withdrawal of contributions would be calculated based on the age of the IRA (as opposed to the date of the rollover)?

It's not a critical point as I'm aiming to let the Roth accounts do their magic in terms of compounding as opposed to relying on them for cash flow, but I'd feel better knowing that I had to option to tap into the contributions if necessary.

As an additional related question, am I correct on thinking that if Congress doesn't eliminate the possibility of a Roth ladder, that conversions to Roth from a traditional 401(k) will be available 5 years from the conversion date?

This link is good too - https://fitaxguy.com/roth-ira-withdrawals/

# ¿ Nov 2, 2021 22:49

CubicalSucrose: Jan 1, 2013; Phantom my Opera and call me South Park: Bigger, Longer, & Uncut

SlyFrog posted:

...
The question I try to ask myself is, will I really get value from trading my money for this new thing? Like is the thing really worth the labor/effort/financial security I surrender in order to get it? Is the $60,000 truck worth a year of my life doing whatever I want? ...

Once I figured out how to frame things kinda like this "Buying this $2,000 toy means that I'll have to work for x more time before retiring. Or y more time if I'll want a similar toy every other year." decisions got easier. I really, really stopped caring about nonsense small things, and started putting a lot more thought into lifestyle-creep-ish structural expenses.

# ¿ Nov 28, 2021 23:24

CubicalSucrose: Jan 1, 2013; Phantom my Opera and call me South Park: Bigger, Longer, & Uncut

SA-Anon posted:

A few questions for the thread...

I am doing a few extra 401k contributions for the year.
Roth 401k is maxed, now doing After Tax contributions.

Apparently my plan allows for inplan After Tax -> Roth conversions.

How do I calculate the tax cost of doing this kind of conversion?
I am trying to get a rough estimate as to how much this will cost.

Different but related question.
Is there any advantaged to a Traditional 401k/IRA over a Roth?

I remember there was some graph chart somewhere where someone made some comparisons...
And somehow they were able to come up with a way where Traditional beats a Roth.

However, a Roth does not require minimum distributions, while a Traditional 401k/IRA does require it.

Trad vs Roth is a bet on current marginal tax rate vs. your best guess at your expected future marginal tax rate at time of distribution.

All of the below assumes no major changes going forward (note that there's some legislation that might make major changes).

For IRAs
- Trad tax benefits only apply up to a certain amount of income. That income level is (I think) a relatively low marginal tax bracket. If you're not near the high end of this, you likely will fare better doing a Roth IRA. If you ARE near the high end of this and expect your income to shoot up past the point where you might need to do the standard backdoor Roth, you might just do Roth anyway to avoid future pro rata rules.
- Roth IRAs have an income limit (higher than the trad limit) for contributing directly. If you're above that limit you need to do a standard backdoor Roth.

So the general idea for IRAs is "It's almost always likely going to be better to do the Roth, unless you're in a narrow income range. And even then, it might still be better to do the Roth."

For 401(k)s it's tougher: What's your best guess at your marginal tax rate when you are going to be using this money?
- If you're going to retire early (at least pre RMDs)
AND have some way of sustaining yourself with other funds (taxable account, Roth IRA contributions, etc)
AND you won't have some sort of pension or material other income
AND your current marginal tax rate is "relatively high"
AND the rules don't change (see above for the note re: legislation)
AND your company doesn't have a really silly employer contribution scheme
THEN you have a good chance of being able to do a Roth conversion ladder and so getting the trad tax break seems good.

If one or more of those things aren't true, then it's harder to tell.

Oh, key point. If tax rates are the same, then there's no difference between trad and Roth.

# ¿ Dec 7, 2021 06:39

CubicalSucrose: Jan 1, 2013; Phantom my Opera and call me South Park: Bigger, Longer, & Uncut

runawayturtles posted:

Is there any reason to access retirement funds before retirement age if our taxable account will dwarf our retirement accounts? I was planning on just living off the taxable for as long as possible.

I guess my main question really is... assuming tax efficient placement, how do you determine risk tolerance and the associated bond allocation when planning on such a long retirement? My wife and I lean slightly conservative and had planned on reaching roughly 40% bonds upon retirement, but when retirement lasts something like 45 years, that starts to make less sense to me. Maybe it's as simple as being slightly more aggressive and I'm just thinking about it in a convoluted way.

If your income is low, even if living off taxable, Roth conversions might be worthwhile from a lifetime tax perspective.

Read a bunch of the posts on EarlyRetirementNow (safe withdrawal rate series) for details on longer-term retirements for various asset allocations.

# ¿ Dec 31, 2021 21:28

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# ¿ May 4, 2024 00:47

CubicalSucrose: Jan 1, 2013; Phantom my Opera and call me South Park: Bigger, Longer, & Uncut

sweet_jones posted:

I've never understood the perception of risk with non-governmental 457 plans. Is the worst-case scenario you roll to an IRA or 403b/401k if you leave that employer and aren't yet ready to draw down?

(I have a governmental plan myself)

The risk is the company goes bankrupt and since it's not your money yet, you lose it all.

# ¿ Jan 27, 2022 01:56

The Something Awful Forums > Discussion > Ask/Tell > Business, Finance, and Careers > Financial Independence: Methods, Mindsets and Cloth Diapers