If you have been working on your frugality skills, you wouldn’t have to go back to the cubicle. Even the best employer-sponsored plans and Medicare have very limited benefits in multiple areas including home health, specialized nursing care, and medications. We managed her cash assets well, but once a person needs dementia care it’s like a fire hose opens. I personally use my backdoor ROTH for REIT fund investing, but you can put anything here that does (or will) benefit from tax free treatment. And that doesn’t take into account inflation. All Episodes → FI Laboratory. theFIREstarter For a family, you can put up to $6250/year tax free AND social security AND medicare free. So I have tried to become more sensitive about health and not just assume it’s 100% in our control. Of course something awful can happen. It would be hard to safely and consistently earn 33.4% in the stock market (even harder if you have a company match) so I intend to keep this up for quite a while. Anyway, hope this makes sense! Medicaid does – but you essentially have to spend down all of your assets in order to get benefits. $600k is depleted in 30 years if the $600k doesn’t grow at all in those 30 years, but if there is even a little growth (what happened to 4 or 5%? Nous voudrions effectuer une description ici mais le site que vous consultez ne nous en laisse pas la possibilité. If you’re a true Mustashien, your expenses will be so low, that any small passion project should cover them :), I’m still trying to figure out the right numbers for my situation but this was really helpful to. I’ve been considering lately to reduce the amount I’m personally setting aside since of the 19% being put into the 401k 10 is from me and 9 is from my employer. Don’t forget that capital gains do factor in to figure the marginal tax bracket. And design the big picture with a generous Safety Margin, which allow lots of slop and mistakes in your original forecasts and allows you to still come out with a surplus. However, it is only the deductibility of those savings that is either /or. November 29, 2018, 9:23 pm. As always, I suggest that you only need one thing: a generous bucketload of low-fee index funds. I’ve read the rules over multiple times and also completed my own taxes this year and I believe I understand this correctly…. Another interesting point, however, is that you are both in Canada, which has less than half of the US level of government debt, both on a debt-to-GDP ratio and a debt-per-person basis. Socially Responsible Investing: Is It Also More Profitable? Here’s an article I wrote on the subject after reading The Intelligent Asset Allocator. Built up savings. – We have government sponsored elderly care, so you are covered if you live super long. We have been growing our mustaches for about 8yrs, so glad we started, it really changed how we spent our time and our money and our enjoyment of life. Flexibility is the way to go as per my perspective. Large life expectancy differences between the time social security was created and now is a myth! December 13, 2018, 12:53 pm. These situations are not solved by following a traditional path to retirement. If you have 2.5x your annual, after tax income in debt (or more), it will take you a long time to pay it off. Glad you have been blessed with good health, and I hope it continues. Well it’s a great thing that the Affordable Care Act got rid of lifetime maximum benefits on health insurance policies. Seems like those are two different things entirely: (1) wanting to RE and (2) wanting to pass money on to your children/heirs. Here is an article on that: http://articles.moneycentral.msn.com/RetirementandWills/InvestForRetirement/best-time-to-convert-to-a-roth-ira.aspx. There are of course fees, so buyer beware. If I hadn't have accidentally discovered Mr. Money Mustache in early 2014 when I was 55, I'd be in deep **** now financially. Unfortunately, most employers do not have options as to who administers your HSA. The same skills that got them to FIRE could, and most likely would, leave them in better financial positions than those in the work force waiting to retire at 65, and would also enable them to be successful overseas. The point is if you get a major medical issue like the one you describe you are screwed whether you decided to pursue FIRE or not. Then after 10,000, you can choose amongst a variety of index mutual funds or bond funds. November 29, 2018, 4:10 pm. For example let’s say on 1MM you kept 200k in cash. So we’d have an easy $2K/month (net) to live on and without a mortgage, we can do that easily (and I’d continue to contribute to my retirement funds). James – I’m not sure what the exact figures are but according to Google, the forward P/E ratio of the Nikkei was about 70/1 in 1988 or early 1989, right before the the long collapse began. Possibly tax loss harvesting and most importantly behavioral coaching. It just gives me confidence that we’ll be fine (no chance of going broke! But once you retire, you DO need the money. What are your thoughts on medical expenses (which increase as you age)? Which means when prices go back up, you will have fewer shares recovering their price than you did when they went down. I retired at 47 in 2008. We do have our issues here in the US..and assume the grass is greener. Tis has worked out pretty well for me over the last 10 years. Take a look around. The breast cancer issue in NZ is huge. November 29, 2018, 2:29 pm. MooseOutFront dharma bum As one of those who unexpectedly suffered a debilitating spine injury, and many years with out of pocket medical expenditures of $30k+ (including premiums), I want to implore others to ensure they have good long term disability coverage. November 29, 2018, 11:09 pm. It woke me up to getting completely out of debt as quickly as I could, which I did within 5 months on everything except the house mortgage, and started packing my 401k as much as I could and otherwise get financially fit. No you do not have to deplete your 401k at any age but you do have to start taking the minimum required distribution or MRD a.k.a MDR at 70 1/2 if you are no longer working for the company hosting that 401k. But fortunately, most people go on to live long lives. If I want to move it, I have to do it as a lump sum, which would put me in the 40% bracket or so! One thing. This would build a 5-year pipeline so that you would be able to withdraw an equal amount from the Roth account each year once you got the pipeline filled out. But at least it is useful in the sense of putting an upper bound on how much you should possibly save in order to feel safe. If it’s in a retirement account at all it doesn’t matter, because the gains aren’t taxed…. This may not mean much to most people, but if that’s enough to drop you into a lower tax bracket, you get a double benefit! You no longer need to live where you live now if you no longer need to be close to a job you no longer have. Amy, That is heartbreaking to read. In many areas, ACA plans won’t pay for the better hospitals and have even skimpier drug benefits. Assuming we want to avoid the 10% penalty, we early retirees have a few options. Not to be crude, but to further illustrate your point: Steve Jobs passed away young, his money wasn’t able to save him either. No, he hadn’t won Powerball or lucked into a big inheritance. Subject: Mr. Money Mustache- DC version. Strategy 1: Treat the 401(k) as your “Old Man/Old Woman Money”. But you can get at it right away and you can invest up to $16,500/yr in it too. Thus, because of you. Adeney retired from his job as a software engineer in 2005 at age 30 by spending only a small percentage of his annual salary and consistently investing the remainder, primarily in stock market index funds. Great blog, but you have to keep in mind one thing. Not wanting to advertise, but ING Direct and some other online banks are offering around 1% interest on savings, I think it is slightly higher for checking with large balances. I have a hard time believing it would cost the same if I was not employed, Mr. Money Mustache I’m not 100% sure, but I read the entire IRS rules on HSA last year, and the section on travel was vague enough to allow for travel to medical care– even in another country. I know I'm a late bloomer, but I wonder if that would be the best plan…. Your capital gains are calculated by taking the selling price of the shares you sell minus their tax basis. steveinFL That scares the crap out of me. It doesn’t, however, decrease health costs on average. 158 posts *Articles; Our Favorite Credit Cards for How You Spend. So, you HAVE to roll the whole thing over to an IRA if you want to do a ROTH conversion (unless you had contributed to it as ROTH already). There is an exception to that rule, however, which allows an employee who retire, quit or are fired at age 55 to withdraw without penalty from their 401k (the “rule of 55”). Right! Are you disagreeing with that advice, MMM? They struggle to understand dividends, self-employment, or really anything that does not pay out a predictable amount every two weeks to a month. A litmus test for your friend would be to examine if your friend is actively saving a large portion of their income to secure their future or do they tend to spend most of their income on stuff? Mr. Money Mustache put this key principle into context for The Motley Fool: There's really only one factor in how long your mandatory working career needs to be: your savings rate, as a … It just matters how much you have in total. How can I pay for (US) health insurance on a $3300 per month budget, when I’ve heard monthly premiums can exceed $1200 per month for a family of four? December 3, 2018, 2:52 pm. ), and it’s less than my after-tax income, I’ll throw everything at it in 2019. For MFJ the preferential tax rate on qualified dividends and long term capital gains is 0% if you can keep your total taxable income under ~$77k. That’s 40% LESS than what you started with in 2000 at the “guaranteed not to fail” 3% drawdown rate and that INCLUDES a $150k gain since 2008 when you had a balance of $473k. They offer both a 401k and a 457. I’m happy to see someone else prefers to think about 401ks as “set it and forget it.”. November 29, 2018, 4:00 pm. Pretty irrelevant in this case whether the 3 or 4 or whatever % rule works, as for most early retirees an extra 30k annually would blast them out of safe withdrawal territory and they would far exceed a 4% withdrawal rate in this scenario. Basically, the economy rewards you for the liquidity that you were entitled to for all that time but allowed someone else to use, which is a real value to the economy. Even if you pay the taxes and take the 10% withdrawal hit down the road you will still be in the black because you doubled (or nearly doubled) your money when you made the contribution. Someone needs to invent the seatbelt that keeps you in your investments or the pill that makes us have the Buffett or Bogle temperament. I’ll forgo the income potential from the investments for a few more years to avoid the risk that comes with higher potential returns. I like this idea. Lower stock prices are simply a temporary sale on stocks. If your employer doesn’t offer this option, you can still contribute up to $5,000 on your own to an IRA account. $40K per annum is sufficient to sustain the modest lifestyle of a family of 4. Hmmmm…maybe the grass IS greener on the other side! We can ride this out also because our living expenses are low and our mindsets are geared towards frugality. November 29, 2018, 8:32 pm. So don't expect any benefit at all for the high taxes. (the difference between a HDHP and a comprehensive plan more than makes up for this contribution). Mr. Frugal Toque Matthew Other Pros: Have no intention of using it until we’re REALLY old ;-), Cathleen An example: If the 401k is worth 100k and you’re 35, your life expectancy is 61.4 years. Thanks for everything MMM! So a quick spreadsheet simulation of this drawdown reveals that your account survives. mostly held low by the infant mortality rate and high youth death rate. Strategy 3: Use the Section 72(t) Early Retirement Grocery Money Loophole. As a side note, this is another good reason to have a solo 401k and not to have any deductible IRAs. He publicly shares that the annual spending for his family of three is in that range. Camp Mustache – Q&A with Mr. Money Mustache, Afford Anything, & The Military Guide. And don’t forget that taxable income is often a significantly smaller number than gross income. Why does it cost more to have it now? Question 7 for how the payments are determined under the 3 methods. 5 early retirement strategies from Mr. Money Mustache. A $1.2 million starting amount is a 3.3% withdrawal rate. You’d have to continue paying your Part B premium, but I think it is important to note that Medicare coverage should be far less expensive than 20% copays if you know the system. This is stache territory though, I think he assumes we will be doing this already. Great post, it’s good to see MMM posting in classic form. On the positive side, because you’ll be drawing the money out at such a low rate, the odds are it will grow faster than you use it, leaving you a larger amount to tap more freely once you reach 59.5. Those productive assets are going to exist either way (unless we move to hardcore communism in the future), so the only question is how much of them you want to own. Anyway, with regards to 401ks, here’s the approach I plan on using. So for the last 6 years she has lived with us. The 4% rule has about 90% probability of success over 30 years. November 29, 2018, 4:03 pm. We are there now with house paid off, no debt, etc… We have 5 years worth of yearly expenses in HYMM right now, and then more $ in Roth, and will convert more to Roth from 401K’s to bridge the time between now and 60 (with a good cushion built in). Mr. Money Mustache didn’t retire because he was making so much money from his blog. This is of course, not new money moving into the holding from a cash account, but is instead a portion of the investor’s return that is generated by the company or fund. It was not fun. The same goes for bonds, there are t-bills (considered risk free in the finance world) and there are Sears Corp bonds (on paper they are yielding higher returns than average stock market returns, but super risky). Have a little slack built into your plan folks. Our health insurance was 10k. We interview the expert in early retirement, Mr. Money Mustache. Wherever you live, politics doesn’t have to affect you because it only exists on TV. January 25, 2012, 3:11 pm. I was curious about your calculations in the spreadsheet. Don’t live your life governed by fear. I am very frugal. With a 1.43% reasonable interest rate and $100k in the 401k and an age of 35, you can withdraw up to $2,873/yr (2.87%) if you choose the fixed amortization calculation method. A two or three hour drive in a car is not ‘having family nearby’ for a lot of people! Through most jobs, you can contribute to a 401(k) plan – currently $16,500 per year and rising. November 12, 2011, 6:39 pm. That account just throws off those gains each year. You could choose a job you actually liked, even if it paid less. So in the meantime, including employer match, I’m saving around 19% of my gross income in my 401k (which is a Roth option) and maxing out a Roth IRA. (*) It is very reasonable to drop to the lowest bracket (10%) in retirement for married couples, because the standard deduction/exemption for couples is about $19,000, and the top of the 10% bracket is $16,700 for a total of $35,700/year. “About $3000 per year”? San Francisco, California, United States About … Mr. Money Mustache If you start a Roth IRA today, 7/10/13, say with $1000 and leave it alone gathering dust for 5 years, then put this plan into effect in 2018, you can start your first withdrawal of the new money you put in in 2019. The idea would be to start long-term investing for home or an even earlier retirement. As for having liquid cash, have you thought of something relatively safe like short-term CDs or something? If catastrophe hits you are still screwed if are an average corporate working drone putting 10% in a 401k. November 11, 2011, 8:03 am. What I don’t know is if you can roll over from an IRA to another IRA. However, if I’m going to make my early retirement plan work, I’m still going to need some of that 401(k) money. If the tax rate during your contribution period and your withdrawal period is the same, Roth 401k and Traditional 401k work out the same monetarily. But at least the overall message remains valid: you can withdraw money from 401(k) at any age :-). For example, if you no longer have rental income and wanted to take a year off from work (in your 40s or 50s) and had no income for that year, during that tax year you could convert, say $10,000 from your traditional IRA to a Roth IRA. You’ll still have to pay income tax on this money when you eventually withdraw it, but the idea is that you’ll be in a lower tax bracket then.. because you will have quit your job and your only taxable income will be your 401(k) withdrawals. So maybe we can make a Mustachian Exception to the SWR principle when P/E ratios are too insane. John Grover Yes. I’m a former American public school teacher who found the salary in Florida insufficient, so I moved abroad…in fact, I am in one of those very countries you referenced now, earning a much better living so I can return to the States in a few years debt-free and on my way to FIRE. I’m so glad that someone else realizes this is a huge problem- I feel like a voice in the wilderness here. Similar to a Roth, you contribute after tax dollars into cash value policy. Mr. Money Mustache It’s sobering to see that there are “lost decades” there. Good points baulrich about taking cap gains and/or doing Roth conversions while in a low bracket during small-income years. For the same reason, it is difficult for a retired millionaire to get a mortgage on a $200,000 house – because they are looking for income rather than assets. Has anyone done this to preserve a house or land? It’s a gamble on how long you will live, but I think you can build in a safety margin there too. I have never read it anywhere else and it seems obvious to me so I would like a tax expert to weigh in on this. A lot of early retirees will qualify for it, even when they might not want it. Every Financial Advisor (even Betterment!) Man, I’m dying to do this. Must I totally remove the funds from my 401K and pay the withholding tax prior to age 83? I’ve got multiple per-existing conditions (I’m female, I had a kid as two of them) and I don’t want to see how expensive individual health insurance is if the ACA gets gutted. Please learn from my mistake. Does that answer your questions? But with that (and my $42k savings account), I know I can’t do full retirement in the USA. Is ≈ 30% of your income being set aside for retirement too much at the age of 30? Thanks so much for the reply Alex! We would have 300k left in our 401k after paying off our 300k house loan? March 29, 2013, 10:21 pm. In the event of a global apocalypse, you won’t be thanking yourself for spending those last few years in the office accumulating a few last shares of index funds anyway. The figure provided by MMM is secondary. Saving me a lot of taxes today. In the late 90s, I contributed to my 401K so I could get an employee match. Mr. Money Mustache – assess the likely input tax rate vs. output tax rate and use this to identify when it makes sense to put $$ in your RRSP and when to take it out. There is no magic or unusual risk or hope involved, it’s just plain math. How about in 2008 when your balance got as low as $391k? November 29, 2018, 5:56 pm. Or as I like to say “I’m a retired person in a young person’s body”. Wouldn’t you need to withdraw $47,058 to end up with $40k to spend? And don’t make mistake of thinking it’s only the elderly that get dementia. Hopefully, the former. I always used to get so hung up on the whole “what if I get cancer (insert any other illness here) and need more money? Thanks for the great ideas. JL Collins Otherwise you are just living on the bubble. Sorry, it’s late and I’m tired. 50% of the difference between the selling price of VUS and what you purchased it at will count as income – and at the beginning that’s going to be very small (say you buy VUS at 50$ and sell at 60$ a year later, only 5$ will be “taxable income”) Odds are, you will be in the bottom tax bracket, and your minimum federal/provincial amount will shield most of that too. 810000 – total gross income, -17500 – maximum 401k contribution (potential) September 11, 2013, 9:31 am. November 29, 2018, 5:59 pm. The reason to have catastrophic medical insurance is to calm fears of a possible medical disaster. They may only give the option of a full payout. Being good with money by paying off debt and investing takes time. I agree with your calculations, but I don’t understand how retiring on 40k or 80k a year can prepare for these not uncommon situations. I feel there’s not a lot of information circulating on Canadian FIRE tax implications. Nor is the need for expensive immunosuppressives for organ transplants. The biggest thing I have learned through blogging so far is that expensive/chronic health issues are more common than I would have guessed, and they come up randomly in otherwise healthy people. Keep this in mind when considering taxation. The only circumstance in which it would be as though you had started with $500K is if you were to cash out all of your shares at the bottom of the crash, which hopefully none of us would do. Guillaume Do health care companies not care about your assets? Have you run your stats through the health insurance calculator for other states? In fact, you don’t really need to save any money at all if you keep your lifestyle simple enough. That seems very optimistic. Interesting thread about living/travelling in Canada vs. U.S. Just returned from a month in Arizona, although my preference is at altitude in Tucson. I *just* finished reading “The Intelligent Asset Allocator,” as instructed by a MMM book report. Eroding captial for these expenses especially early in retirement means the capital won’t last as long due to compounding. I contribute only enough to get the employer match (5%/4%). They are just not widely known because true early retirement (with no backup income) is such a rare field that very few people write about it. I put 40% in the Roth 401K and max out Roth IRA. 4.3% / 30 years I work in healthcare, and there are a lot of problems with pretty much every insurance plan in the US aside from Medicaid. The healthcare situation is the only thing that gives me pause because I had (and beat) cancer and I experienced firsthand the pain of a $10,000 deductible but that all happened while I was working and I felt like I could “make up” the money I spent to treat my disease easily. A good book! She’s not much of a reader, so it’s been like pulling teeth. You have a car accident…the list of (potential) health concerns can go on and on. Best portrayed by Forrest Gump : Shit Happens. Look up nearby cities in https://www.numbeo.com/cost-of-living/ … I must be missing something here, but I am guessing this assumes a 15% tax rate, a 5% annual withdrawal and ZERO growth in the account? Money Mustache has since garnered a massive, cult-like following at his blog, where he dishes out early-retirement wisdom to his "Mustachian" readers. I’m highlighting this fact so that we know it’s normal if bonds sink down with stocks during the next market crash or correction. How are you going to continue to throw 4K a month into the house if your spouse retires since that equals 48k a year which doesn’t leave much else to live on. This could be helpful for some who didn’t get as early a start as the triple M. Mr. MM, keep up the great work. Adopting a low cost lifestyle will certainly make it easier to save and let those savings last longer. Your employer must provide a high-deductible plan. I’m undecided on its ethics. Just remember that when you withdraw from an RRSP you don’t get that contribution room back, so you are permanently reducing your contribution limit. Mr. Money Mustache completely changed how I thought about money and work. You could live somewhere lovely, and cheaper, or even in one of your rental units. What’s the road map? Apparently, the public companies average out the less profitable small businesses and households. It’s one of the reasons I advocate a nice safety margin in your retirement savings, and also a reason I recommend staying skinny and healthy through your whole life, to drastically cut down on the risk and cost of health problems later in life. If you are doing this, then saving that $17,500 in the 401k saves you paying taxes on this money at the 28% federal rate. My Chase HSA charges $2.50/month fo INVESTMENT balances less than $10,000. We had a paid for home and car. If I bring it down to just putting in enough to get the match (6%) and doing it pre-tax, I wold be able to invest the rest in the _real_ early retirement stache. Any disadvantages would you be able to semi-retire 476€=143€ in capital gains m trying to plan such! On those gains each year for the year ’ s most relevant to look at adjusting your MF in. Fell into my 401 ( k ) insurance plan in the source you linked to like! Near larger cities, safe, good weather, etc my tax deduction and exemptions handles this better... 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