This will be a short post — but just documenting as I figure out my family’s goals for Fat FIRE / Coast FIRE using a new buckets retirement strategy. I really like this model as it helps me understand how much money I need to earn and how much I need my existing savings to grow in order to live the life I want. Since these are “Fat FIRE” goals they are a bit aggressive, but I like aiming for aggressive goals. I know if I hit them, then I’ll be in a really good place. If I don’t, then we’ll still probably be ok!
I’m now including my husband’s savings in a total Fat FIRE goal–he’s note exactly on the Fat FIRE train, but he’s naturally frugal and has agreed to maxing out his solo 401k annually, so I’m looking at all our money together for our net worth goals. At the end of the day, it is “our” money since if either of us get sick and need care, our funds will go to that.
- Goal 1: 7M in retirement accounts by age 65 (by 2048 – to last 35 years)
- Current: 514,000 (est 2M in 28 years at 5% YoY)
- Gap: 5M (1.3M in today’s value before returns)
- (*at 10% YoY value is 7.4M and I don’t need to save a dime more today to hit goal!!!!)
- Goal 2: 3M in taxable accounts by age 50 (by 2033 – to last 15 years)
- Current: 757,076 (est 1.4M in 13 years at 5% YoY)
- Gap: 1.6M (750k in today’s value before returns)
- (*at 10% YoY value is 2.6M and I only need 125k more saved today to hit goal – riskier since 10% YoY over 13 years is shorter time horizon, but not impossible)
- Goal 3: 150k per child 529 before they turn 3
- Current Kid 1: 35k (Plan – superfund 75-150k next year)
- Current Kid 2: 35k (Plan – superfund 75-150k next year)
- Current (Future) Kid 3: 18k
Since I am unable to save more than allowed in tax-advantaged accounts for retirement, what is likely to happen in that some of my 7M retirement goal will be in taxable accounts once I save the 750k additional to hit 3M at age 50. And, of course, the above does not into consideration that my accounts may perform well about 5% YoY, especially with dividends reinvested! But for now, I think these are really good goals. Some may say they are crazy goals (do I really need that much) but at least they are clear goals I can aim for, to help guide spending choices over the coming years.
The above also does not include emergency fund, home equity (I would like to own house outright on top of the amounts above.)
I am doing this all pre tax because I’m too lazy to calculate it post tax and I think if I can get to 3M + 7M pre tax buckets I’m still in good shape!
What do you think? Is this strategy too aggressive?
I think it’s important to look at numbers after tax n all annual expenditure. Your after tax income for instance will significantly impact how much gets reinvested each yr which impacts compounding power.
What are some other major foreseeable expenses in the future n how much will those be? I’m thinking say a new roof, childcare when grandpa is no longer able to care, n an emergency cash fund that doesn’t go to work because it’s sitting on the sidelines for rainy days, economic contraction, short term unemployment, car or house immediate repair.
I also want to be prepared for minimal liabilities by age 50 (eg mortgage) as that is the age demographic at greatest risk of being “quietly packaged out” in the corporate work n struggle for the longest to land the next job due to discreet age discrimination esp in high paying tech.
Honestly, the numbers are a bit confusing for me when I read it tho I’m sure it’s clear in your head. Maybe a table would be a little easier for feedback.
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I’d love to make this table to get your feedback, but I’m not sure what you mean. My thought is that I need to figure out how to save a certain amount that goes into each bucket before I can stop saving (or stop making saving a priority.) The sooner I do this, the better — as with compound interest I have to save a lot less. This then tells me when I can change careers, vs how long I have to stay in current career (not necessarily this job) where I can plan for a certain income and savings amount.
I’m already keeping a significant chunk (not included in totals above) for emergency funds so I’m only looking at the money included here as money I will not touch at all until the bucket target date. It’s basically money I will forget about and hide from myself so I never am tempted to access it. Of course, if I can’t find another job at some point it’s there in the absolute worst case scenario–but the idea is I take the money and put it into these buckets and don’t touch them until the target dates. At that point, I may still not touch the money (maybe I’ll have a fulfilling and well-paid career at that point!) but I know I will have the money as backup, or to spend on luxuries in my later years.
I picked 3M and 7M to have the equivalent of 100k per year in spendable cash based on the idea that 2.5M at four percent withdrawal gets 100k per year today, so that 2.5M is = 3M and 7M in the year I would tap into those buckets. My math is probably off here, but it sounds like a pretty good place to start?
Oh ok I reread the numbers n I got confused between the PV and FV jumping back n forth.
A timeline showing PV and FV and # of yrs between present and future value would make it easier for readers but basically your goal is to save $750k this yr?
So with your stock opts lottery ticket this yr sounds like it’s happening . Not sure on the rest of your comps.
And since we won’t be doing anything or spending anything discretionally much for the next 6 mths, saving won’t be a problem.
Except for those house repairs. And permits.
Also u don’t know how much your house will appreciate in the future, n whether u will downsize once your kids leave the nest n your spouse moves onward. So there could be a liquidity event there sometime after 50 (like the downsizing plans for your mom to Florida), or at 40 depending on your stress level n mental health.
For sure bay area house will be worth more in 13 yrs than today. That will also help with $7M at 65.
But overall I think the scenarios r reasonable if I read it right. With no further annual contribution and 10% compound yoy:
$7M in 28 yrs at 65 if u accumulate $1.3M this yr
$5M in 13 yrs at 50 if u accumulate $750k this yr.
If I interpret this correctly .
Personally I use 7% ROI for time in the equity market to be a bit more conservative. I’m also getting a 2-3% dividend withdrawal rate right now that I use to live on while reinvesting most of my post tax salary .
I choose to withdraw on some of the dividend to forego some growth opportunity now in case I lose my job. I don’t have a spousal income to fall back on besides draining a modest 6 figure emergency fund that is also a 3 yr runway.
Also what if I die suddenly in a few yrs without ever lived off of my portfolio?! What a wealthy life wasted!
I may have used modest sarcastically to demonstrate my conservative estimations. With continuous dividends + emergency fund, my runway stretches to 5 years.
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Sort of. 🙂 I’m not going to save that much next year. I’m trying to figure out how much I need to save over the coming years to hit those numbers. Next year I’ll prob save $400k total—-which is a lot—-but not enough to stop saving. And that all depends on if I keep my job next year all year, also very TBD.
As far as the $7M goal, I’m not including the house because my plan is to not downsize or move. This may change but we purposely bought a ranch house and it’s just not that huge so I don’t see why we would want to leave unless our kids move away and we want to be closer to them (always a possibility, but not in the plan.) I want to age in place and have live in help for as long as possible.
I think it is aggressive but better to save aggressively then hope for the best. One comment is you are thinking about 10% YoY which is doable but will probably not occur. Therefore, I would be careful how much you think about it to try to keep you motivated to keep saving. Then if 10% YoY happens you are in a really great position and if not, you never planned for it to happen so you still reached your goal.
Best of luck!
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Agreed. The 10% is definitely a nice to have. Also the $3M / $7M goals are more dream goals. If I manage to hit those numbers (anywhere near them) I really will be in crazy good shape. Outside of my mortgage and ordering too much takeout (plus the cost of raising kids) I don’t spend that much. It is more a fun goal to have — which seems realistic enough with my current trajectory (depending on the next 5 years or so of my career) that I figure
I might as well try to try there. If I do, I can take a part time job or change careers. If I don’t, I can still do that, but I’ll be able to understand what that means in terms of a reduction in spending for those years. The $7M in retirement is $2.5M in today’s dollars, which isn’t a bad amount to retire with, and also not that insane. So I might as well aim for it. I am looking at 5% returns more likely— which just means I have to save a bit more. Luckily for bucket 2, time is still on my side!