Can we retire by 40??

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Topic Author
petersagan
Posts: 4
Joined: Sun May 05, 2019 6:58 pm

Can we retire by 40??

Post by petersagan »

Hi all - First time poster, have found some of the advice here really insightful so wanted to get some advice specific to my situation. Thanks in advance for reading!

Debt: Zero personal debt, but have mortgages on rental properties
Tax Filing Status: Married filing Jointly
Tax Rate: 35% Federal, 9.3% State
State of Residence: California
Age:33
Desired Asset allocation: ?


Taxable Accounts
-$265K in taxable acct at VG, 100% in CA Muni MM fund – VCMXX.
-$75K in company stock
-$440k Equity (net of mortgages) in rental property portfolio. These properties generate on average an annual return after debt paydown/expenses/prop mgmt. fees to me of ~$42K.
-$100K in cryptocurrencies
-$220K after tax savings per year from W2 wage income - Wife and I both work, and from our w2 incomes we are able to save roughly 50% of our after-tax take home pay, so this money gets funneled into the VG account into muni’s or into real estate if something comes up. No kids yet, but maybe 1 on the horizon... How much do those cost again?? ;)


Retirement Funds
-$475K (60% Cash, 40% S&P Index)
-Wife and I both max out 401k contributions, w/ company match plus other benefits we are contributing ~$64K per year to retirement accounts. We are also doing the backdoor roth strategy every year.
-I am starting to put more of this cash to work, understanding I won’t be able to touch this until we are 60+, but am wary of current equity valuations in this era of QE. Any recommendations on how to go about this (lump sum seems most logical, given mkt tends to rise over time, but have just been slowly putting it to work a bit at a time)


Questions / Clarifying Points:
1. At some point in the next few years wife and I would like to step away from our HCOL / high stress jobs, move to a lower cost of living area and start a family. We would both continue to work in some fashion (for health coverage mainly, but not exactly certain at what). Ideally have enough in passive income coming in to cover most of our $5500 in monthly living expenses (ex housing). We want buy a house in the ~$850-900k range, figure PITI is ~4K/mo so not too much different from our current housing expense of 4500/mo. So in total monthly expenses are ~$10K, but probably higher once we have 1 or 2 kids.

2. I figure ~$3-4M in total assets as a # that would be enable us to live maintain our current lifestyle and have some buffer for lifestyle inflation. Current expenses $10K/4% SWR = $3M target. Based on current assets of $1.35M, and at our current annual savings of $326k ($220k after tax, $42K rental income, $64K retirement contributions) – that would get us there in about 5 years (assuming no big changes in health or jobs, big “if” I Know). This also assumes 0% rate of return on investments. Can we “retire” or downshift to a lower stress career before we are 40? Am I missing anything here?


3. Am I being unwise by being so heavy in cash/equivalents? Thinking I should be more aggressive in the retirement portfolio given time horizon there, but in the taxable accounts I like having a lot of cash on hand should real estate opportunities come up.


4. Building on the above – cash returns right now aren’t terrible; do I really NEED to take incremental market risks to achieve my goal? Seems that just with savings + contributions we can meet the goal in 5 years, and not need to take big market risks. I’d rather not have to work another 3 years if the S&P tanks.

5. Anything else to consider or focus on over the next 5 years?

THANKS, REALLY APPRECIATE ANY REPLIES!
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JoeRetire
Posts: 8001
Joined: Tue Jan 16, 2018 2:44 pm

Re: Can we retire by 40??

Post by JoeRetire »

petersagan wrote: Sun May 05, 2019 9:20 pm5. Anything else to consider or focus on over the next 5 years?
At your age, a lot can change in 5 years - particularly when moving to a new locale with new careers and even more particularly when children arrive.

Work hard, save as much as you can, don't try to overplan.

Down the road you'll have a better handle on what your actual expenses could be. I suspect right now it's just a WAG.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
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ChowYunPhat
Posts: 298
Joined: Mon Jun 02, 2014 7:49 pm
Location: Texas

Re: Can we retire by 40??

Post by ChowYunPhat »

JoeRetire wrote: Mon May 06, 2019 7:07 am At your age, a lot can change in 5 years - particularly when moving to a new locale with new careers and even more particularly when children arrive.

Work hard, save as much as you can, don't try to overplan.
As Eisenhower would say, "plans are useless, but planning is indispensable". I think this may apply in your case with a (i) move, (ii) rental homes in previous locale, (iii) a kid, and (iv) new careers on the table. These are not bad things, but will definitely make predicting outcomes tough...and so much can change in 5 years.

PeterSagan - you and your wife are well on your way and clearly working hard to plan for the future. You should very well be prepared to retire early given your progress thus far and wise moves. Keep working the plan, but also be open to life's good surprises....unexpected promotion or job offers, the surprise kid, etc... These things can greatly change your perspective and goals.
A wise man and his money are friends forever...
Living Free
Posts: 607
Joined: Thu Jul 19, 2018 7:31 pm

Re: Can we retire by 40??

Post by Living Free »

petersagan wrote: Sun May 05, 2019 9:20 pm
Desired Asset allocation: ?
...
3. Am I being unwise by being so heavy in cash/equivalents? Thinking I should be more aggressive in the retirement portfolio given time horizon there, but in the taxable accounts I like having a lot of cash on hand should real estate opportunities come up.
It does seem like a lot to me in the retirement accounts in particular. I think that you'll need to spend some time to determine an appropriate asset allocation strategy and written investment policy statement that you can follow in the future. see https://www.bogleheads.org/wiki/Investm ... _statement
petersagan wrote: Sun May 05, 2019 9:20 pm

5. Anything else to consider or focus on over the next 5 years?
I think that in general you won't find much love for cryptocurrencies on this forum. I'm not a fan of them myself. I'd consider investing in something else with that $100k.
carolinaman
Posts: 4565
Joined: Wed Dec 28, 2011 9:56 am
Location: North Carolina

Re: Can we retire by 40??

Post by carolinaman »

JoeRetire wrote: Mon May 06, 2019 7:07 am
petersagan wrote: Sun May 05, 2019 9:20 pm5. Anything else to consider or focus on over the next 5 years?
At your age, a lot can change in 5 years - particularly when moving to a new locale with new careers and even more particularly when children arrive.

Work hard, save as much as you can, don't try to overplan.

Down the road you'll have a better handle on what your actual expenses could be. I suspect right now it's just a WAG.
You are doing great right now but I would recommend putting some of your cash to work, either in equity (total US market index) or more real estate. Crypto currencies are very high risk, definitely not a Boglehead investment. You should consider putting that to work in US equity.

I suggest that you and spouse should begin looking at where you want to relocate to. Housing in many areas of the country are much cheaper than CA and you can get a really nice house in good area for half your budget or less. LCOL should not be your only criteria for relocation. Do some research and visit areas of interest. One other thing to consider when relocating is do you want to own rental real estate in CA when you may be living a long distance from there. You will need a plan that addresses these factors and others. Best wishes.
Topic Author
petersagan
Posts: 4
Joined: Sun May 05, 2019 6:58 pm

Re: Can we retire by 40??

Post by petersagan »

Thank you for the replies @carolinaman, @joeretire, @Living Free, @ChowYunPhat
EddyB
Posts: 1554
Joined: Fri May 24, 2013 3:43 pm

Re: Can we retire by 40??

Post by EddyB »

petersagan wrote: Sun May 05, 2019 9:20 pm Hi all - First time poster, have found some of the advice here really insightful so wanted to get some advice specific to my situation. Thanks in advance for reading!

Debt: Zero personal debt, but have mortgages on rental properties
Tax Filing Status: Married filing Jointly
Tax Rate: 35% Federal, 9.3% State
State of Residence: California
Age:33
Desired Asset allocation: ?


Taxable Accounts
-$265K in taxable acct at VG, 100% in CA Muni MM fund – VCMXX.
-$75K in company stock
-$440k Equity (net of mortgages) in rental property portfolio. These properties generate on average an annual return after debt paydown/expenses/prop mgmt. fees to me of ~$42K.
-$100K in cryptocurrencies
-$220K after tax savings per year from W2 wage income - Wife and I both work, and from our w2 incomes we are able to save roughly 50% of our after-tax take home pay, so this money gets funneled into the VG account into muni’s or into real estate if something comes up. No kids yet, but maybe 1 on the horizon... How much do those cost again?? ;)


Retirement Funds
-$475K (60% Cash, 40% S&P Index)
-Wife and I both max out 401k contributions, w/ company match plus other benefits we are contributing ~$64K per year to retirement accounts. We are also doing the backdoor roth strategy every year.
-I am starting to put more of this cash to work, understanding I won’t be able to touch this until we are 60+, but am wary of current equity valuations in this era of QE. Any recommendations on how to go about this (lump sum seems most logical, given mkt tends to rise over time, but have just been slowly putting it to work a bit at a time)


Questions / Clarifying Points:
1. At some point in the next few years wife and I would like to step away from our HCOL / high stress jobs, move to a lower cost of living area and start a family. We would both continue to work in some fashion (for health coverage mainly, but not exactly certain at what). Ideally have enough in passive income coming in to cover most of our $5500 in monthly living expenses (ex housing). We want buy a house in the ~$850-900k range, figure PITI is ~4K/mo so not too much different from our current housing expense of 4500/mo. So in total monthly expenses are ~$10K, but probably higher once we have 1 or 2 kids.

2. I figure ~$3-4M in total assets as a # that would be enable us to live maintain our current lifestyle and have some buffer for lifestyle inflation. Current expenses $10K/4% SWR = $3M target. Based on current assets of $1.35M, and at our current annual savings of $326k ($220k after tax, $42K rental income, $64K retirement contributions) – that would get us there in about 5 years (assuming no big changes in health or jobs, big “if” I Know). This also assumes 0% rate of return on investments. Can we “retire” or downshift to a lower stress career before we are 40? Am I missing anything here?


3. Am I being unwise by being so heavy in cash/equivalents? Thinking I should be more aggressive in the retirement portfolio given time horizon there, but in the taxable accounts I like having a lot of cash on hand should real estate opportunities come up.


4. Building on the above – cash returns right now aren’t terrible; do I really NEED to take incremental market risks to achieve my goal? Seems that just with savings + contributions we can meet the goal in 5 years, and not need to take big market risks. I’d rather not have to work another 3 years if the S&P tanks.

5. Anything else to consider or focus on over the next 5 years?

THANKS, REALLY APPRECIATE ANY REPLIES!
I don’t think one disappointing spring means you should retire. Maybe you’ll want to transition to the team car. At this point, just focus on the Green Jersey.
stan1
Posts: 10006
Joined: Mon Oct 08, 2007 4:35 pm

Re: Can we retire by 40??

Post by stan1 »

If you would move to a low cost of living area why would you want a $800-900K home? Unless you really want a 100-200 acre ranch or farm and are planning to monetize it for income I'd stick with keeping your housing costs low.
TallBoy29er
Posts: 1146
Joined: Thu Jul 18, 2013 9:06 pm

Re: Can we retire by 40??

Post by TallBoy29er »

EddyB wrote: Mon May 06, 2019 10:30 am I don’t think one disappointing spring means you should retire. Maybe you’ll want to transition to the team car. At this point, just focus on the Green Jersey.
:D
I was thinking that it was a heck of a name to try to live up to. I'd slant to a more domestique role player if it were me. Heck, maybe Hincapie (I think he retired at 39 yo).
Last edited by TallBoy29er on Mon May 06, 2019 11:06 am, edited 1 time in total.
aristotelian
Posts: 9130
Joined: Wed Jan 11, 2017 8:05 pm

Re: Can we retire by 40??

Post by aristotelian »

petersagan wrote: Sun May 05, 2019 9:20 pm
Retirement Funds
-$475K (60% Cash, 40% S&P Index)
-Wife and I both max out 401k contributions, w/ company match plus other benefits we are contributing ~$64K per year to retirement accounts. We are also doing the backdoor roth strategy every year.
-I am starting to put more of this cash to work, understanding I won’t be able to touch this until we are 60+, but am wary of current equity valuations in this era of QE. Any recommendations on how to go about this (lump sum seems most logical, given mkt tends to rise over time, but have just been slowly putting it to work a bit at a time)
That is not true. See a good explanation here. https://rootofgood.com/roth-ira-convers ... etirement/

I would not count crypto in your portfolio since nobody really knows what they are worth and they could go to 0.

50% savings rate should allow you to retire with about 17 years of working. Not sure if 7 years is enough from your current starting point. https://www.mrmoneymustache.com/2012/01 ... etirement/
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Watty
Posts: 22346
Joined: Wed Oct 10, 2007 3:55 pm

Re: Can we retire by 40??

Post by Watty »

petersagan wrote: Sun May 05, 2019 9:20 pm Age:33

.....
1. At some point in the next few years wife and I would like to step away from our HCOL / high stress jobs, move to a lower cost of living area and start a family.
I would not wait too long for the family part.

stan1 wrote: Mon May 06, 2019 10:42 am If you would move to a low cost of living area why would you want a $800-900K home? Unless you really want a 100-200 acre ranch or farm and are planning to monetize it for income I'd stick with keeping your housing costs low.
+1

Here is what an $800K home looks like in the suburbs of Atlanta.

Note: the 8,216 square feet is the size of the house, not the lot. :)

https://www.realtor.com/realestateandho ... 18&view=qv

Houses in the downtown area would cost a lot more but that would hardly be described as a low cost of living area.
petersagan wrote: Sun May 05, 2019 9:20 pm 3. Am I being unwise by being so heavy in cash/equivalents? Thinking I should be more aggressive in the retirement portfolio given time horizon there, but in the taxable accounts I like having a lot of cash on hand should real estate opportunities come up.


4. Building on the above – cash returns right now aren’t terrible; do I really NEED to take incremental market risks to achieve my goal? Seems that just with savings + contributions we can meet the goal in 5 years, and not need to take big market risks. I’d rather not have to work another 3 years if the S&P tanks.
I would look at the cash as your house fund and plan on paying cash for the house when you move. Given you are likely to need it in a few years then cash is a reasonable for that money.

In 80% of the country $300K or $400K will get you a McMansion so paying cash for it would be reasonable.
Topic Author
petersagan
Posts: 4
Joined: Sun May 05, 2019 6:58 pm

Re: Can we retire by 40??

Post by petersagan »

Fair points on $800K no really being LCOL, this was planned on staying in CA, but probably could widen out the search criteria to lower cost areas.

@aristotelian - does my math not make sense wrt current assets + savings over the next 5 years? This should get us to $3M+ which would cover 10k withdrawl rate at 4% rule. I think we probably save more than 50% with passive income/company match, etc..

Thanks all
Grt2bOutdoors
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Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Can we retire by 40??

Post by Grt2bOutdoors »

Start family now. Re-evaluate whether you can retire at 40 as you get closer. For a true safety buffer, you would want 1.25X savings at 4% rule to comfortably say you can retire. You are retiring at substantially younger ages, alot can happen in 25 years. If things go south in the markets you will want a safety net just in case your portfolio dives and now you are withdrawing at a rate of 5-6% for extended period of time. Imagine instead you were withdrawing at rate of 3% and portfolio dives, now you are withdrawing at 4%, still sustainable right?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
fullplay2024
Posts: 29
Joined: Tue Apr 23, 2019 3:07 pm

Re: Can we retire by 40??

Post by fullplay2024 »

If you reach your target of $3-4M over next 5 years, you can easily move to a LCOL or MCOL area and fully retire. However, here are some potential derailers you may want to keep in mind:

1. Speaking from experience, kids aren't inexpensive. You have to account for growing expenses for education, college savings, vacations, extracurriculars, etc.
2. Stability and growth of your salaries and rental income
3. A market recession can potentially slow your portfolio growth down
4. Health care expenses in an early retirement

We are 43/40 with 2 teens and live in a MCOL area. We are financially independent today but can't retire yet since we don't want to re-organize our assets or scale back our expenses. Our best years in terms of net worth & portfolio growth were last 7 years due to bull market and income growth.

Good luck
mall0c
Posts: 1050
Joined: Fri May 16, 2008 11:04 pm

Re: Can we retire by 40??

Post by mall0c »

Bottom line - 4% rule simply does not apply to someone retiring at 40.
lostdog
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Joined: Thu Feb 04, 2016 2:15 pm

Re: Can we retire by 40??

Post by lostdog »

dayzero wrote: Mon May 06, 2019 5:43 pm Bottom line - 4% rule simply does not apply to someone retiring at 40.
That is grossly untrue.


https://www.gocurrycracker.com/what-is- ... he-4-rule/
mall0c
Posts: 1050
Joined: Fri May 16, 2008 11:04 pm

Re: Can we retire by 40??

Post by mall0c »

lostdog wrote: Mon May 06, 2019 7:20 pm
dayzero wrote: Mon May 06, 2019 5:43 pm Bottom line - 4% rule simply does not apply to someone retiring at 40.
That is grossly untrue.


https://www.gocurrycracker.com/what-is- ... he-4-rule/
lol well if gocurrycracker says so...
lostdog
Posts: 4040
Joined: Thu Feb 04, 2016 2:15 pm

Re: Can we retire by 40??

Post by lostdog »

lostdog wrote: Mon May 06, 2019 7:20 pm
dayzero wrote: Mon May 06, 2019 5:43 pm Bottom line - 4% rule simply does not apply to someone retiring at 40.
That is grossly untrue.


https://www.gocurrycracker.com/what-is- ... he-4-rule/
I can say the same with your comment.
mall0c
Posts: 1050
Joined: Fri May 16, 2008 11:04 pm

Re: Can we retire by 40??

Post by mall0c »

lostdog wrote: Mon May 06, 2019 7:31 pm
lostdog wrote: Mon May 06, 2019 7:20 pm
dayzero wrote: Mon May 06, 2019 5:43 pm Bottom line - 4% rule simply does not apply to someone retiring at 40.
That is grossly untrue.


https://www.gocurrycracker.com/what-is- ... he-4-rule/
I can say the same with your comment.
You could. But you should probably read this first.

https://earlyretirementnow.com/2016/12/ ... t-1-intro/
sailaway
Posts: 3102
Joined: Fri May 12, 2017 1:11 pm

Re: Can we retire by 40??

Post by sailaway »

dayzero wrote: Mon May 06, 2019 5:43 pm Bottom line - 4% rule simply does not apply to someone retiring at 40.
It was designed for a 30 year retirement and may not extrapolate well. However, it also assumed 1% fees, which a boglehead would scoff at. A boglehead with low fees is already building in a safety factor.
HEDGEFUNDIE
Posts: 4801
Joined: Sun Oct 22, 2017 2:06 pm

Re: Can we retire by 40??

Post by HEDGEFUNDIE »

sailaway wrote: Mon May 06, 2019 7:43 pm
dayzero wrote: Mon May 06, 2019 5:43 pm Bottom line - 4% rule simply does not apply to someone retiring at 40.
It was designed for a 30 year retirement and may not extrapolate well. However, it also assumed 1% fees, which a boglehead would scoff at. A boglehead with low fees is already building in a safety factor.
By age 70 SS kicks in which provides an extra layer of security.
Topic Author
petersagan
Posts: 4
Joined: Sun May 05, 2019 6:58 pm

Re: Can we retire by 40??

Post by petersagan »

Thank you all for the insights. As I noted in the OP we would likely continue to work in our "semi-retirement" from fast paced life in a HCOL, but was just trying to get a sense of what sort of lifestyle could be feasible with out current assets. Sounds like we just keep grinding a few more years and re-asses down the line. Thanks all!
Thegame14
Posts: 1879
Joined: Mon May 07, 2018 11:53 am

Re: Can we retire by 40??

Post by Thegame14 »

My two cents, Id sell the crypto and put that into stocks. I am ok with the amounts in cash as you have enough risk in real estate, what would you do for health insurance if you don't work for someone? Can you downsize to a LCOL area and take a lower stress, less pay, but still have insurance and 401K?
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