Hope you had nice holidays! I would like to hear your thoughts. A lot of people talk about long-term investing (I get it) to feel comfortable when you retire, have no stress. But how do you live comfortably now in your 30s and 40s? What do you live on when you don’t touch that investment until you retire? Does that mean struggling and living poorly until you’re 60? A lot of people don’t explain that concept - the same with stocks - ok you buy FB you’ll hold it for a long time - when is the right moment to sell it (it’s not just about FB but about holding stocks long term and index funds too) It’s almost like living your life as a student now until 60 or so and then turning into Jay-Z. What if you die when you’re 45. You haven’t enjoyed your life because you kept saving for later. How do you enjoy life a bit now - travel and do things that you enjoy? I.e. tennis lessons, gym, weekend trips etc. You say no? So you can enjoy more of that later? How do millionaires do it :)? Please explain.
There are a couple of advanced strategies of how to withdraw retirement funds early without penalty.
In most strategies, there is what is called the Roth conversion ladder. Ideally, you should have 5 years expenses saved (usually in a brokerage fund) when you first “retire early.”
Since you are spending either cash or long term capital gains you can spend more and your tax bracket is lower. This is when most people convert their 401k/traditional IRA to Roth. After 5 years from that conversion the money can be pulled out tax free. Along with any prior contributions.
Early retirees have different “tax buckets” where they pull their money from in order to pay as little tax as possible.
As far as living now in your 30s and 40s it depends on your personal preference. Some take a “SlowFI” approach and do things they want to do in retirement, while investing.
Others struggle and live poor until they hit their retirement numbers then spend more.
Being in a lower income personally and seeing how others live in retirement, personally, without a mortgage/high housing costs and with no debt $40k can be a nice life even in a high cost of living (HCOL) area. It depends on your preferences.
Did that answer your questions?
Not exactly. I have high income but I just moved back to the States after 8 years in London so I have some catching up to do when it comes to retirement accounts. But that’s ok, I’m contributing 15%, company matches 6%. I’m not eligible for Roth IRA but I can do backdoor Roth (need to figure that out) but that’s not my question. My question was more about understanding how to live off investments in the short term - let’s say 2-5 years (dividends?) to supplement your 9-5 job. I set to invest 40-50% of my monthly income outside of 401K in index funds in my brokerage account, and a few growth stocks. I think I’m struggling to see how you benefit (make money) from your investments, outside of your 9-5 in the nearer future. I don’t want to count every dollar and say no to a lot of things so I can be rich when I’m 60 and start living then! It was slight exaggeration but I’m sure you know what I mean. Jeremy - any wisdom / strategies from your side?
The question makes sense to me. You are trying envision an amount of ROI to ‘live off’. A couple things come to mind (a) What percentage return do you envision to give you the lifestyle you’re looking for? That might guide you to the type of investment - including possibly real estate (b) Why not spend the money instead of invest it, if you’re confident in your career.
I felt the same way when I first started reading this blog. I’m in my early 30s with a high income and totally understood the power of my investments snowballing to a huge amount by the time I’m 60 but the ultra frugal lifestyle for the next 30 years didn’t resonate with me! I believe in enjoying the now while building for the future.
I think theres one post here that describes someone who only puts away something like $200 a month for the next 30 years and still manages to be comfortable in retirement. That, coupled with punching my current numbers into the retirement calculator made me confident that if I just set aside and invest $1100 each month (less than 20% of my current take home), with my existing net worth, I could still retire around 45-50.
That’s below what I’ve saved each month in the past so its likely I can sock away even more (even with enjoying life, traveling the world, living in nyc etc.) so this gives me confidence that no matter what comes my way in the coming years - long term travel, house downpayment, kids etc. if I can just consistently put away $1k-ish a month, there’s plenty left to still enjoy my life in the present while putting away enough for retirement.
Personally I’m not looking for dividend income to supplement my lifestyle until I retire, but some of my stocks (I.e australian etfs) do pay out high dividends, I just reinvest. I highly recommend doing the calculator! It’s super comforting and really opened my eyes to how this could work for me.