My savings goals
This is going to sound strange, but I haven’t actually fleshed out my savings goals and exactly how much I’m going to need to save in order to retire early. I just know a few things:
- I want a sizable emergency fund
- I want a “next car” fund to always have about $8k (my past used cars have costed about $8k)
- I’m going to max my 401k contributions
- I’m going to max my IRA contributions
- I want my house to be paid off
- The rest is going into taxable accounts
So, let’s start from top to bottom.
I want a sizable emergency fund
An emergency fund should be able to tide me over to the next job if I lose my job and it should do it even if the furnace breaks at the same time. For this, I want 6 months of expenses ready to go at nearly a moment’s notice. What is 6 months of expenses for me?
So, I’m looking at about $10.3k for my expenses in a typical 6-month window. However, I don’t want just a typical 6 months. What if that furnace goes? What if I want to go on a trip with my newly found free time? Let’s bump that up to a nice $12k, to spend $2k/mo in unemployment. It won’t just be sitting in my bank account gaining next to zero interest, though. I’m readying up another post to explain where I’ll be storing these funds, why, and how I’m going to save for them.
I want a “next car” fund
This is just $8000 set aside so that I can purchase a decent, used car without getting a loan. Thanks to my electric bike, I’ll be putting much less mileage on the ol’ Prius, so I don’t plan to have to use these funds for quite some time. However, I just want the money ready to go when I’m ready to purchase the next vehicle. I’ve had amazing luck with the used cars I’ve selected and I know almost nothing about buying cars or haggling. I just know that the last car I bought was $8k, and it’s awesome. Haven’t had a problem in years (knock on wood). Hell, maybe if it blows up completely, the electric bike will have to officially take over heavy duty transportation!
I’m maxing my 401k contributions
My company has a match, so I’m at least meeting that. However, I’m also putting in 36% of my paycheck in order to meet the maximum allowable contributions so that it lessens my taxes. It will be a long, long time before I can touch this money…but hopefully with some nicely timed conversions, it will be before the customary age. I’m not quite at that stage, I just know that I should be maxing this puppy out now and worrying about it later.
I’m maxing my IRA contributions
Right now I am maxing my Traditional IRA contributions, since when I imagine myself withdrawing the funds, it will be under a much lower tax-bracket…as I’ll be semi-retired. I plan on using the Roth conversion ladder over a long period of time so that I can deposit tax-free money now, and then withdraw tax-free money as it is converted to a Roth IRA. Just another way to gain tax-free investments!
Paid off house
I don’t think I’m going to pay this off very quickly, due to the tax benefits of having a duplex, but I would like this to be paid off before I retire…so I am still accelerating the payments. I have $83,792.15 left to go from a purchase price of $98k. This is going to be pretty easy to accelerate, since the rent is paying $650 of the mortgage/taxes/insurance every month. I just like the security that having a paid off house would bring. Also, not having to pay $493 in mortgage payments anymore would free me up to be a bit more lazy with my post-FIRE income generation.
For the rest of the money that I have left, I am dumping it into taxable investment accounts. The hope here is that I will have a sizable Eff You Fund that can sustain me until I can withdraw from my 401k and Roth IRA in the most efficient manner. If I spend about $1,717/month, I’m going to need $515,100 in a taxable account to withdraw from. But, this is only if I don’t want my taxable funds to deplete before I get to my 401k/IRAs. If I don’t mind them going to $0, due to other sizable investments, I could “retire” earlier.
How am I going to get there?
I’m going to save that for another post, since I plan on getting a bit more research done for it. I’d also like to keep this post just about goals, so that I can update and refer back to it without getting lost in the text. I can assure you, though, that the investment process is nicely automated, safe and out of my head every day.
You may be noticing a lack of an HSA account. This is because I get free healthcare from the VA for now, so I don’t need health insurance through the company I work for. I’m going to take that as the huge bonus that it is, and dump the savings into one of my other goals.
Until I get that post out the door, what do you think of my savings goals? Am I missing something obvious?