“Forget You” money, how much and at what age?

[nhbubba]

If you're planning to retire early, it might not be a good idea to max out your 401k/ira contributions because you'll incur a withdrawal penalty in addition to standard capital gains taxes on those withdrawals.

There are several ways around paying that penalty.

My plan is to roll the 401k to a "pre-tax"/traditional IRA the day I leave the corp. You may then start converting traditional IRA $ to ROTH IRA $. You pay income tax on this. Balance how much you convert by how much headspace you have between brackets, avoiding long-term gains taxes, etc. After 5 years you may withdraw those conversions penalty and tax free. Each year you should convert some more, building a pipeline where you may spend the conversions after 5 years. Once you hit 59.5 it stops mattering.
For the first 5 years you must have savings outside of the tax shelters to spend until the pipeline is full. Regular taxable accounts, other ROTH contributions, etc. Additionally if you have been using an HSA you can pay for health care expenses out of that account without tax or penalty.

There are several tools in this toolbox. Use each accordingly.

An added benefit of rolling out of the sponsored 401k program is it will open me up to more and better investment options. Right now my choices are limited. This is true for many of us. Most of us can cut fees too.

It is a non-trivial game to balance. IMO one real land-mine is keeping conversions + income under the amount needed to qualify for 0% long-term capital gains rate. Currently that is ~$78k year for a couple. Not too hard, but something to keep in mind.

Every time I have done this math I arrive at the same conclusion for my own situation; that deferring paying income tax by using pre-tax 401k/IRAs is definitely the way to go. My intent is to have lower taxable income in "retirement" than I do now. This is obviously another YMMV situation. But the pre-withdrawal penalty is avoidable and should not be a reason to pass up the benefits of traditional 401k/IRAs.

[JettaJayGLS]

CPI'd my 6/1984 18,5 salary

Attachment 53957

linky...

https://www.bls.gov/data/inflation_calculator.htm

For reference, starting rate at KPMG in 2012 in Boston was 56k. Right now I believe it is north of $60k.
Seems like you got a little bit hosed, but you were also pre SOX in a different time! I also don't think CPI is a perfect measure. Its more complicated than that.

[Bonk!]

If you're planning to retire early, it might not be a good idea to max out your 401k/ira contributions because you'll incur a withdrawal penalty in addition to standard capital gains taxes on those withdrawals.

Shouldn't be playing to retire young and withdraw early from your 401(K). It's counter productive.

[nhbubba]

Shouldn't be playing to retire young and withdraw early from your 401(K). It's counter productive.

Why? Seems like a great way to defer income tax, spread it out across your lifetime.

[SteveM]

The economics of hiring into CPA firms was very different then.

5 years later I was CFO of a $120M general contractor which we grew to $800M before I had enough in 2002.

It worked out pretty well.

[csmutty]

If you're planning to retire early, it might not be a good idea to max out your 401k/ira contributions because you'll incur a withdrawal penalty in addition to standard capital gains taxes on those withdrawals.

Can you convert to a Roth when under the age of dispersement?

[JettaJayGLS]

The economics of hiring into CPA firms was very different then.

5 years later I was CFO of a $120M general contractor which we grew to $800M before I had enough in 2002.

It worked out pretty well.

So I was going to say.... "I don't know anyone in this era that is going from CPA to CFO of an established company in 5 years, outside of their friends' startups, and they typically flounder. A banker seems to do better in that case."

That still holds true in the markets I know, but I have no clue about the general contractor market, of that size. Maybe that's still possible?

Anyway. The FIRE lifestyle is tricky. It mostly seems to be popular in the googles/facebooks where it is popular and you have a collective group going at it together. I know there are wealth forums within google that heavily discuss this topic along with retirement, the best way to take advantage of your HSA, etc.

My 30,000 foot view is that most careers that put you in this position to successfully obtain FIRE also subject you to a more flashy lifestyle. You would likely be sort of an outcast if you're working at Goldman Sachs or Ropes & Gray yet looking to save every penny. Also, $200k right out of school...$500k+ by the time you plan to retire...it would be really really really hard to drop to a $50k-100k a year life. Then again, I guess you would have been living that life for 10 years so maybe not so bad.

The shift to remote work definitely makes this more likely. Live out of the city. No relationship with your co-workers. No pressure to do anything but what you want to do in your spare time. No benchmark in your face. Etc.

[SteveM]

Can you convert to a Roth when under the age of dispersement?

I believe so, but I also believe the conversion triggers recognition of all the tax deferred income put into the 401(k) as ordinary income in the year of conversion. Normally, that would be a bad thing, because additional taxable income would be happening during a time period of relatively high earnings, therefore taxed at a higher bracket.

*** "I believe" does not mean I looked it up and am giving advice ***

[tucktuvak]

Apparently you can withdraw early from 401k/IRA without incurring penalties using a 72t exemption, learned that today! But it’s somewhat limited, e.g. if you’re 40 and have 400k you can withdraw around $12k and you have to do it for 5 years at least.

[Chippertheripper]

If you're planning to retire early, it might not be a good idea to max out your 401k/ira contributions because you'll incur a withdrawal penalty in addition to standard capital gains taxes on those withdrawals.

The only reason I referenced 4xx plans was because it’s the most common retirement vehicle. Maxing one out should be something we can relate to as participants, whether or not we can afford to make that happen.
It was not to start a pissing contest over early withdrawals or whether it’s appropriate for someone who wants to use it to retire early.

[SteveM]

Apparently you can withdraw early from 401k/IRA without incurring penalties using a 72t exemption, learned that today! But it’s somewhat limited, e.g. if you’re 40 and have 400k you can withdraw around $12k and you have to do it for 5 years at least.

https://www.dinkytown.net/java/72t-calculator.html

[nhbubba]

My 30,000 foot view is that most careers that put you in this position to successfully obtain FIRE also subject you to a more flashy lifestyle. You would likely be sort of an outcast if you're working at Goldman Sachs or Ropes & Gray yet looking to save every penny. Also, $200k right out of school...$500k+ by the time you plan to retire...it would be really really really hard to drop to a $50k-100k a year life. Then again, I guess you would have been living that life for 10 years so maybe not so bad.

Have you met a typical software engineer?! The beige camcord lifestyle is a source of pride in that occupation!
At one point there was an informal contest in my shop to see who could get their lunch expense down the most. Bulk canned soup from the internet was the hot ticket.

My perception is that finance is a different world. No argument.

That said, I read the a lot of social media sites about the FI/RE thing for a while. There seemed to be people of all walks of life in there. One that surprised me was pharmacist. Seems that pays way better than I realized and is in stupid high demand. Downside is it is almost always a retail job dealing directly with the public.
Fair representation from folks in the trades. Formula there seemed to be to cut teeth to a master license and then break out on your own. Build a business and hire apprentices and journeymen working their own way up. Often ending up with selling the business or at least the capital assets.
Saw a fair number of posts from career military too. TRICARE is a hell of a thing.

I really do believe that slow-and-steady can win this race. Avoiding lifestyle creep is the key.

I believe so, but I also believe the conversion triggers recognition of all the tax deferred income put into the 401(k) as ordinary income in the year of conversion.

I've yet to see anything backing that up. You are taxed only on what you convert. The rest stays tax deferred.

[JettaJayGLS]

Have you met a typical software engineer?! The beige camcord lifestyle is a source of pride in that occupation!
At one point there was an informal contest in my shop to see who could get their lunch expense down the most. Bulk canned soup from the internet was the hot ticket.

My perception is that finance is a different world. No argument.

That said, I read the a lot of social media sites about the FI/RE thing for a while. There seemed to be people of all walks of life in there. One that surprised me was pharmacist. Seems that pays way better than I realized and is in stupid high demand. Downside is it is almost always a retail job dealing directly with the public.
Fair representation from folks in the trades. Formula there seemed to be to cut teeth to a master license and then break out on your own. Build a business and hire apprentices and journeymen working their own way up. Often ending up with selling the business or at least the capital assets.
Saw a fair number of posts from career military too. TRICARE is a hell of a thing.

I really do believe that slow-and-steady can win this race. Avoiding lifestyle creep is the key.




I've yet to see anything backing that up. You are taxed only on what you convert. The rest stays tax deferred.

I agree with all you said. I'm not an engineer but know a decent bit about salaries in different professions. There are definitely great engineering jobs, but nothing is making you the money straight out of <=6 years of school, like banking or corporate law (I am happy to be corrected on this). They're also the most soul sucking jobs. This is why I went there. I exclude the PHD positions because of the cost of school and opportunity cost of the years lost while in school.

I guess that is why I digressed to FANG companies in the bay area. I've drawn the conclusion that they are equal to the I-banking/corporate law jobs. Big salary, shitty life, phenomenal resume builder - setting you up for a very successful and lucrative career whether you are a lifer or GTFO. However, the persona that goes along with it is way way way way way different. The hot ticket in the Valley is living "on-campus" and taking advantage of free food/gym/showers/etc. COVID has actually made this pretty interesting. These thoughts are brought to you from the stories I've heard from the internal google message boards.

There are exceptions everywhere, and I probably don't know enough about engineering other than software & bio. The latter of which really needs a PHD.

I'm also sticking with the "take a job" path. Not the "take a risk" path. FIRE is really built on safety and predictability. If you pull it off in hindsight by taking a major risk, that is different.

[tsorfas]

In most sales fields you can (could) make 100k or close to it without a degree at age 18 if you wanted to.
Things have changed. Most sales job now have reduced salaries and cut throat policies.
Retail and automotive sales have been hit the most in my opinion but they still don’t need degrees comparing to tech/b2b.
Outside sales (door to door) have high commissions but typically come with no salary or minimum wage.
Want to talk about soul draining? Talk to 95% of people in sales.
Finding the work-life balance while still making a living is the magic recipe.

[Chippertheripper]

Finding the work-life balance while still making a living is the magic recipe.

This is the only thing I feel confident in, with all my adult choices.
The house was a solid move too, even at the extra debt (which we already have recovered in equity), but it's in the same realm of quality of life type choices.

[gixxer72]

The economics of hiring into CPA firms was very different then.

5 years later I was CFO of a $120M general contractor which we grew to $800M before I had enough in 2002.

It worked out pretty well.

If I had to guess (based on timing and growth rate): Suffolk Construction?

[SteveM]

https://www.dinkytown.net/java/72t-calculator.html

Entirely possible,

[nhbubba]

The FANG stories are a trip. I didn't even know this until I started reading some of the forums and such, but the actual cap on 401k contributions is actually $58k. The limit for the employee is $19.5k, but the employer can fill out the rest. Apparently this is not uncommon in FANGs and the like. As you say, entire forums filled with how to best take advantage of the benefits packages from them.

I also hear stories of guys in their mid 30's about 10 years into their careers pulling down $300k/yr.

All that is with a bachelor's degree. Higher degrees are somewhat rare.

Another wild ride is the startup scene. Get in with the right one and $500k pay-days are on the table. In that realm degrees matter less too. One of the guys on my team has an art degree and worked startups for years. Truth told I am pretty sure he is "FI" at this point. There is downside on the startups though as there are just as many stories of startups going pop or getting the axe just before acquisition as they were slimming the books down.

[SteveM]

So I was going to say.... "I don't know anyone in this era that is going from CPA to CFO of an established company in 5 years, outside of their friends' startups, and they typically flounder. A banker seems to do better in that case."

That still holds true in the markets I know, but I have no clue about the general contractor market, of that size. Maybe that's still possible?

Anyway. The FIRE lifestyle is tricky. It mostly seems to be popular in the googles/facebooks where it is popular and you have a collective group going at it together. I know there are wealth forums within google that heavily discuss this topic along with retirement, the best way to take advantage of your HSA, etc.

My 30,000 foot view is that most careers that put you in this position to successfully obtain FIRE also subject you to a more flashy lifestyle. You would likely be sort of an outcast if you're working at Goldman Sachs or Ropes & Gray yet looking to save every penny. Also, $200k right out of school...$500k+ by the time you plan to retire...it would be really really really hard to drop to a $50k-100k a year life. Then again, I guess you would have been living that life for 10 years so maybe not so bad.

The shift to remote work definitely makes this more likely. Live out of the city. No relationship with your co-workers. No pressure to do anything but what you want to do in your spare time. No benchmark in your face. Etc.

There was nothing "usual" about what I did. I was the right guy in the right place at the right time. It was a "sort of" start up back in 83 when a dad (union contractor/developer) set his kid up in a merit shop (non-union) business and let him fend for himself at 23. I arrived in 84 as the lead on the audit of the company, then doing $3M. There was no functional accounting system, so I built a fully integrated job cost system on Lotus 1-2-3. By 86 he had grown to $20M, hired and fired 2 controllers and made an offer ($45K) I could not turn down. 18 months later we had a fully developed and installed system essentially running on autopilot and I was looking to get more involved in running operations. He was not. I left and went back to public, remaining the CPA. He was pissed, but went through 3 more guys in 18 months, and then called again, this time $80K (1989) and they were about to crack $100M.

The 80's & 90's were like the wild west and we were about as tough, and often disliked, as any firm, but we grew and made money every year. In one memorable week in 1999 we had been approach by a client who was putting together a portfolio of businesses under a publicly traded REIT and they expressed an interest in buying us. That week, we flew to NYC and spent Tuesday with our investment bankers, hashing out the valuation multiple and other things to consider, and then that Friday I pulled onto a job site in Beverly to pay the crew of an electrical contractor who had disappeared in cash to keep them going on the job. Not every kid who goes into public accounting is cut out for that "range."

It was 15 years of 6:00 AM meetings and yelling pretty much all day, again, not everyone's cup of tea. Construction is not a gentle business.

But it paid all the bills and at 42 we were doing $800M when I traded all that in to go teach and consult.

The company's now HUGE.

[JettaJayGLS]

The FANG stories are a trip. I didn't even know this until I started reading some of the forums and such, but the actual cap on 401k contributions is actually $58k. The limit for the employee is $19.5k, but the employer can fill out the rest. Apparently this is not uncommon in FANGs and the like. As you say, entire forums filled with how to best take advantage of the benefits packages from them.

I also hear stories of guys in their mid 30's about 10 years into their careers pulling down $300k/yr.

All that is with a bachelor's degree. Higher degrees are somewhat rare.

Another wild ride is the startup scene. Get in with the right one and $500k pay-days are on the table. In that realm degrees matter less too. One of the guys on my team has an art degree and worked startups for years. Truth told I am pretty sure he is "FI" at this point. There is downside on the startups though as there are just as many stories of startups going pop or getting the axe just before acquisition as they were slimming the books down.

Its a small sample size, and maybe my cycling community is aligned with it, but this seems pretty normal in the bay area.
On the flip-side: Definitely was not the case in Boston (again, in my small sample size) and I have a lot of friends in the start-up scene there too. My partner's father was/is a software engineer. Worked the start-up gigs his entire life, mostly failures. Didn't hit it until he was in his 60's and Google bought them. Hence, my insider google info comes from a nerdy guy that treats retirement savings as a hobby. Maybe I should introduce you guys

[BSR6]

I have embraced the fact that I will never have forget you money so I couldn't even put a number on it. Like others, I'm more working towards minimizing my financial burden. The wife and I will have the house paid off in 4 years, I will be 44. We also have rental properties which will pay themselves off well before we retire. We both contribute 10% to our 401Ks and have been since we were 18, but they are more of a back-up plan. The idea is to leverage the rental income through retirement. My grandparents did this. They had one building with 7 units. They got to a point where they were paying someone to manage it and still making enough a month to live a very comfortable lifestyle (drove nice cars, traveled several times a year, went out to eat several nights a week, etc.) through their retirement. We're on track to do better than they did as we have high end properties that bring in more cash relative to the market.

Paying the house off will be a huge milestone for us. While obviously I will have to continue working, it will put me in a position where I don't have to be so career focused and can start living a little. Some would argue I should still be striving to make as much as I can to build my retirement, but that's where the rental properties come in. To me that's all I could ask for. Not having to strive for a career is a great position to be in. I would love to settle back into a mid level job paying a decent salary without all of the stress of traveling, working long days to keep up with whatever challenges the organization is currently facing etc. I know a few people who are 5 - 10 years older than me and made this kind of step back and they are the happiest they have ever been. Their job gives them enough mental stimulation to keep them going, but they are home at 5 every day and can leave work at work.

It will be interesting to see where I end up in 5 years. A career change may be part of it.

[boosten lebaron]

You are the prime candidate to have fu money, you just arent thinking that its possible. You are well onto the path if you own your own house outright. Owning your own house is a big step towards fu money. I would say its the very corner stone of it.
Your still young enough to reach the fu goal. Certainly i would say that you can retire earlier than everyone else.
It seems like you are super focused on retirement though which isnt a bad thing but if you change your thinking a bit to fu money then you have more choices.

I was hyper focused on retirement for a short while, maybe 2 or 3 years. Then i shifted to what i had to do to get fu money and with a few years i had fu money covered and as a result my retirement was covered as well, just not as much. The changes i made to my now situation actually reduced my retirement needs though so it all evened out in a way. It will free up decades of my life though. Im thinking i am 20 years ahead of schedule.

[Chippertheripper]

Im thinking i am 20 years ahead of schedule.

That’s wild.
I’m thinking about guitars, bicycles, and motorcycles.

[boosten lebaron]

So am i except all my stuff would be used most likely. Thats just how i am now though.

[gumby]

But when the sun was shining I'd sure as hell not be at a keyboard from 9-5.