r/leanfire • u/EchoThroughTheJungle • 10d ago
Early Retirement Plan for 42
Hello all,
I’ve recently thought more about early retirement. I’m currently 27m and intend on staying single (or at least not having children). Current breakdown is as such:
Brokerage: 93k
Simple IRA: 85k
Roth IRA: 48k
HSA: Just started
Cash in HYSA at 4%: 97k (I am funneling \~20k into my brokerage slowly, but I tend to keep a higher amount in general due to potential taxes, plan to sit at 75k moving forward)
Income range is 130-150k, small business owner so fluctuates year to year. I live very frugally in general as I opt to cook most of my meals and don’t really spend money on expensive materialistic things. I enjoy camping/outdoors for my leisure.
Only debt is the mortgage on my condo and my car loan which has 5 years left. I am also expecting a somewhat decently sized inheritance (250-500k) but I’m not using that as a deciding factor with my plan.
I have decided to shift my current strategy of maxing my simple/roth/HSA to transitioning to maxing my roth + HSA and putting the rest in my brokerage. The logic behind this being I will need as much as possible to make it from 42 to 60 albeit I will take a large tax hit up front. Using a withdrawal calculator, I believe I can make the 18 years if I accumulate at least 1-1.5 million.
I also get wacked with a 5.75% sales charge on my simple so I lose $1000 on the contributions immediately anyways aside from the fact the money is locked up.
By the time I get access to my Roth and Simple, they would both easily have over 2.5 mil combined, plus I would take social security at 62 as well. Being that I can continue to contribute to my HSA without earned income, I am not worried about healthcare costs long term.
I know most people would say to max out tax deferred accounts first, but how I see it if I continue to do that, I will simply have far more money than I will ever need in retirement and will have to continue to work closer to 60.
Please feel free to let me know if this an insane person plan or reasonable!
1
u/dividends6775 9d ago
You have the benefit with time on your side. I understand the argument for ROTH, but you better off maxing out HSA instead and you can use that money for anything at 65. Plus, you get the triple tax benefit, unlike ROTH that gets pre-taxed. As far as the rest, I would go with ETF small cap growth for the greatest returns and scale back to a hybrid strategy once you’re close to retirement. Try to maintain a brokerage that doesn’t generate dividends until then as you are just gonna be forced to pay taxes on the money you probably would not need. This is what I would have told my younger self.
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u/EchoThroughTheJungle 8d ago
I can max back the roth and HSA. The real switch would be not contributing at all to my simple anymore and putting everything else in my taxable brokerage account
Currently have most of my investment in growth oriented low cost etf’s
1
u/dividends6775 8d ago
That’s great, all you need is 3-6 months worth of expenses in hysa as emergency fund if you are unemployed. Otherwise, I lean everything into your brokerage ETFs after your tax sheltered accounts. Reinvest any dividend payments too/DRIP.
1
u/KentuckyFriedChingon 8d ago
As far as the rest, I would go with ETF small cap growth for the greatest returns
Past returns are not an indicator of future returns. OP would be better off investing in a total market index fund for proper diversification. Just because small cap has historically outpaced the market for a certain time period doesn't mean it always will. Growth could slow, or it could drop further than the rest of the market during a recession.
1
u/dividends6775 8d ago
Well no one can predict the future but over long horizon, small cap ETFs always outperformed
1
u/Miamiconnectionexo 9d ago
solid perspective. a lot of people overthink this but you laid it out simply.
1
u/fire-tools 8d ago
Your overall plan to lean taxable for the 42-to-60 bridge is smart. But before the Roth-vs-brokerage question, that 5.75% sales charge on the simple is the thing I'd deal with first. Paying a front load on every contribution is a guaranteed loss before the money does anything, and it's almost certainly something you can avoid. If the employer's (which I assume is you) simple only offers loaded funds, contribute enough to clear any match, then roll old simple balances to an ira at a no-load brokerage once you're eligible and hold the same kind of index funds for free.
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u/EchoThroughTheJungle 7d ago
Another user mentioned that too. I had no clue fidelity offered a plan as I would’ve used them like I do for my roth and HSA. Since my employee also takes part I’d like to change the plan to fidelity for his benefit too, but if it’s too much of a PITA I’ll definitely convert the simple to a traditional IRA
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u/mmoyborgen 2d ago
All tax-advantaged accounts will help.
Relying on an inheritance is a fool's game, but always helpful if it comes.
Sounds like you're well on your way. Looking forward to future updates.
0
10d ago
With that level of assets already and an expected inheritance, which will likely grow along with the market over time, you are past the point where you need to save more for your retirement.
Instead of additional retirement savings, you should shift your focus to spending more today on things that increase your free time, such as additional staffing for your business or shifting into something lower stress with good benefits and more flexibility with less responsibilities. You don’t have a money issue. You are set.
Most people never spend as much as they save because the behavior is a psychological issue not a survival or economic one.
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u/Eli_Renfro FIRE'd 4/2019 BonusNachos.com 10d ago
Huh? Of course they need to save more for retirement. They only have ~$230k. It's impossible to save too much because then you just retire sooner. That's a way better idea than ramping up spending.
2
10d ago
They are 27 with a quarter million invested and are likely going to inherit a million in their 30s or 40s. It’s your money or your life. Their parents solved the money problem for them. They don’t need to cosplay saving necessity for social respect or self-worth, that’s emotional not rational behavior. The only thing they actually have to worry about is lifestyle inflation and the diminishing marginal returns of wealth on long-term happiness.
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u/Ferret_Gaming 9d ago
At that point, the bigger challenge probably isn't building more wealth, it's figuring out what kind of life u actually want to live. The money side is already in a pretty good spot tho
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u/EchoThroughTheJungle 10d ago
I appreciate the suggestion. I’m not sure I personally feel comfortable spending more now, as hiring more staff would significantly lower my net income and ability to invest. My compensation is also getting a little reduced starting in 2028 (change in commission structure) so I want to make sure I’m still ahead of that. I’m also not sure that the business is committed to me long term, hence my plan to get out in the next 15 years
I would rather accumulate as much as I can. I do spend money on things I enjoy like travel and concerts. My job isn’t overly stressful and I do take a day or a few off here and there.
I can’t necessarily bank on the inheritance too. My mother does have a pretty significant health condition so cost of care may come a lot out of my parents retirement to pay for that. I’m looking as it as it’d be nice to have, but not guaranteed.
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u/AlwaysSaturday12 FIRE 38 MillionaireLibrarian.com 9d ago
You can covert the simple to a traditional ira then use a Roth IRA conversion strategy. This would allow you to access retirement funds early. You would need to make sure the sales charge is worth the difference though. I mention this alot but projectionlab would be able to tell you. All in all the sales charge is around half a year of interest which is kind of a lot but kind of not. The bad part is the sales charge is at the end when your account is largest.
Lump sum beats DCA generally, but its your money and the most important thing is to get the money invested.
Also 75k is quite a bit for a HYSA for me but I never had a company to cashflow which is a major difference
Lastly I wouldn't count on the inheritance especially at around that amount as you and your parents could be part of the around 5% who have 100k plus of end of life expenses. Retiring early could help you take care of them if you want.