I'm Finally Making Money and I Would Appreciate Your Retirement Advice

[audastic]

Hi there wonderful Reddit strangers. Thank you in advance for any assistance or guidance you can provide. First, what I would like to accomplish; second, my current life and financial situation; and third, my questions:

What I Want to Accomplish

I want to "soft retire" by 55. I'm currently 40. Upon retirement, I want to cut my work hours to 20 or so per week, and spend a good deal of time traveling.

My Current Life & Financial Situation

I'm married, my wife and I are both 40, and we have no children. We will not be having children. We live in Charlotte, NC. I own a law firm and I teach entrepreneurship at a local university, part-time. My wife has been unemployed for a bit, but she just graduated with her Masters in Social Work, and she is beginning a part-time job as a mental health counselor in the next month.

First, income. My 2023 employment-based income:

• $100,000 in salary from my law firm
• $360,000 in distributions from my law firm
• $5,000 or so from teaching

I expect my income to grow each year, possibly by 10-15% or so, year-over-year. My field is recession-proof, generally, and we're working on growing the firm by adding more lawyers each year. We have 6 now (after 2 years of operation) and we'd like to ultimately have 12. I have one law partner that I split all firm profits with, 50/50.

When my wife begins work in the next month (1099 independent contractor), she will make around $20,000 / year.

Other than my job, I own a rental property, but I rent it to friends of mine who are wonderful tenants. They pay me just a bit more than the $1,700 mortgage each month, although I could get around $2,300 / month if I were to rent it out at market rate to someone else. They've lived there for 3+ years and I've never had to do anything to maintain or repair the property--they take good care of it and pay rent. My rental property is a wash and I break about even.

Second, assets and liabilities. My current assets and liabilities are:

Description
Asset Value
Debt

Primary Residence
$715,000
$315,000 (3.63% APR, 30 year mortgage, with 26 years left)

Rental Property (across the street)
$550,000
$218,000 (3.75% APR, 30 year mortgage, with 22 years left)

2024 BMW
$60,000
$0 (purchased in cash)

Mutual Funds managed by Financial Advisor
$381,000
$0

SoFi Savings Account (4.75% APR)
$83,000
$0 (we were saving money to buy a second home in NYC, but now we're saving to add on to our current home, see below)

IRA (rolled over from 401k with my previous employer)
$97,000
$0

My 401k
$56,000
$0

Wife's 401k
$43,000
$0

Ally Savings Account (4.75% APR, and I'm using this money exclusively to assist my aging parents, who are in ill health)
$62,000
$0

Chase Bank checking and savings
$50,000
$0

Wife's student loan
N/A
$28,000 (unknown interest rate because she graduated recently, but the are federally subsidized loans)

TOTAL
$2,097,000
$561,000

Re: retirement savings, I started late in life. Because I don't have much knowledge re: retirement savings, I hired a financial advisor. The advisor charges 1% of all investments I have with him, each year, as a management fee. My wife and I are both employed by the firm, and we max out our 401k each year. I also deposit $10,000 into my brokerage account each month, for investment by my financial advisor. The money is invested in a mix of funds and has grown very well in the last couple of years.

Finally, we have a couple of expenditures I expect to incur in the next 2 years. Our home is relatively small and not well suited for 2 people working from home. Therefore, we intend to undertake a $500,000 renovation in the next year or so. Other than this, my wife and I moved to Charlotte from New York, so we'd like to spend more time in NYC. This may mean renting an apartment there in the next 2 years, or so. We would spend around $4,000/month renting a place (we looked at buying and it was insanely expensive, and more reasonable to rent because we can stop renting at the end of any lease term). If we rented a place in NYC, we would spend no more than 6 months there, to avoid paying state or city taxes in NY.

My Questions

When I met with my financial planner initially, they gave me some incredibly high and unobtainable amount of money that I would need to retire (something like $11,000,000). I don't agree with their number and I'm trying to dial in on what exactly I will need to retire. My plan is to "soft retire" at 55. That likely means working part-time as a lawyer and teacher. I would expect to make around $200,000 or so (net, today's dollars) working part-time, upon retirement at 55. So my first question: what amount of money will I need to "soft retire," at 55? Let's assume my wife and I, combined, will spend around $150,000 per year upon "soft retirement." So effectively, we can live off of my income and bank $50,000 or so for further retirement savings, each year, upon soft retirement at 55.

My rental house is another conundrum for me. I could sell my rental house upon "hard retirement" (when I actually stop working), if that makes financial sense. It would give me a big influx of cash for retirement, and the property will likely be worth much more in the future (it's in an incredibly desirable part of Charlotte with insane growth around it). But it could also be a good source of passive income in retirement. So my second question: should I sell my rental house or keep it, and if I should sell it, when?

Assuming all of the above, my third question: at what age could I comfortably "hard retire" (meaning, stop working entirely)? I'd like to do this around 65, if possible.

Finally, my last question: what retirement savings elements am I missing? I'm maxing out 401k and putting $10,000/month into brokerage accounts. Is there anything else I should be doing?

Thank you again, in advance, for any assistance or guidance you can provide me! I appreciate your time!

 

[polcat]

@audastic I would first recommend you join r/FIRE. (Financially Independent Retire Early subreddit for all the different nuggets) You also qualify to join the r/FATFIRE as well.

1. How much do you need to “soft” retire? They call this r/BaristaFire

At $150,000 per year in expenses and using the 4% rule, you will need $3.75M but to be safe assuming this money should last you for 30 years at least, you will need $4.5M.

1. When should you sell your rental? Keep it since it’s one property you can manage yourself. If it requires too much work and causes you a headache, then sell. Don’t sell right now or in the near future.
2. What are you missing? You can try a backdoor Roth IRA.
   Or

Individual Brokerage Account: ie Vanguard ETFs- VTI, VOO, VTSAX, VUG, SPY (r/bogleheads) or other ETFs JEPI

 

[nikkid]

@audastic Go to r/financialindependence and read the wiki there. Here are a few things I can touch on.

You can still contribute to a Roth IRA by a method colloquially called 'backdoor' Roth. It'll let you bypass the income restrictions.

If your 401K has an 'after tax' option, not to be confused w/ Roth, you can contribute after tax money up to the overall limit of 69K (for this year, I believe). You can convert these contributions to Roth, for what folks called a 'mega backdoor Roth'.

What amount of money you need to retire will be based on your spend and your risk tolerance. Folks often use something called the 4% rule- which at its most basic and incomplete description, means the amount you can draw initially, then adjusted for inflation, that'd give you a high (over 90%) chance of outliving your money. For instance, if your annual spend is 40K, you'll need a portfolio of 1M (40000 * 25). The first year, you'll draw 40K. The 2nd year, if inflation is 3%, you'll draw 40K+3%, or 41200. This will give you constant spending.

For your soft and hard retire, you still need to define enough so you can set a target. For soft retiring, which some folks call CoastFIRE, you just need to figure out what you need to have invested to let momentum take over. For me, for instance, I'm looking for 80K annual spend from my portfolio. I have 500K invested and need 2M (4% rule). How long would it take for that money to reach 2M if I save nothing? 24 years. If I'm happy retiring at 61, then I'm done saving and can just work for whatever instead of grinding for the future.

For hard retiring, you still need to define enough, then figure out how much you need to save to reach the goal by your desired date. Using the example above, if I have 500K and need another 1.5M to hard retire on 80K a year, and I wanted to retire by 50 (14 years from now), how much do I need to save? It's only about 3K a month. If I wanted to retire at 45? About 9K a month.

When you said a planner suggested 11M to retire, using the 4% rule, 11M nets you about 440K spend a year, which nearly replaces your 2023 income. If you think you'll only need 200K a year in retirement, you'll need half that.

Again, I recommend going to r/financialindependence and reading the wiki there. That crowd is focused on saving lots and knowing what enough looks like to retire early or at least be financially independent. For some, that means not needing to work for money, or that they can stay in the same job, making the same amount, but they can YOLO a bit.

 

[ixoye01]

@audastic you know, as an Advisor, I see it as a yellow flag in the Client-Advisor relationship (maybe a red flag), of why clients dont ask their advisor these questions. My clients know that they can come to me with any concerns or questions; these are things we flesh out inthe first meeting!

The fee thats charged is not paid to the advisor just for "making the client money"... it covers (in my opinion) the following:

Management of funds -- Education to the client -- Technology Tools -- Estate Planning -- Tax help -- Relationship Building -- a Financial Plan

It seems that in your situation one thing that was never ran was an ACTUAL financial plan. Rather a high end goal number that was never backed up by any reasoning. I say that because you state, "they gave me some incredibly high and unobtainable amount of money that I would need to retire (something like $11,000,000). I don't agree with their number and I'm trying to dial in on what exactly I will need to retire."

To be honest, this is something that I run with my clients before I ever invest assets or make recommendations.

I'd suggest speaking with another advisor and having them create a roadmap for you. In that roadmap, the quesitons you have (below) can all be answered with proper planning tools. If you have any questions, let me know!

What amount of money will I need to "soft retire," at 55?

Should I sell my rental house or keep it, and if I should sell it, when?

At what age could I comfortably "hard retire" (meaning, stop working entirely)?