Reader Case: It’s Never Too Late to Start

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We are now one whole month in 2022 and I just realized: I haven’t done a reader case yet! Well, we can’t have that, now can we? Into the email bag we go!


Hi!

So I found out about your book in an interesting way.

I was on a Zoom call with my boss during our weekly meeting and he was screen-sharing. At one point I could see some personal files, one of which was called “How to Quit Like a Millionaire“. Hmmm, interesting! I immediately looked up what that was while we were still in our meeting and ordered the hell out of it. I manage the retirement accounts for my work and now it all makes sense why my boss recently started putting a shit ton of their paycheck into their IRA! Also, now I know my boss is trying to quit which is really amusing. 

Anyway, I’m a late starter. I’m almost 49 and didn’t get my financial shit together until like 3 years ago, and guess what- I’m an accountant (hanging head in shame). Director of Finance no less. Director of Bullshit at home obviously. I’m now obsessed with investing and saving but I have questions and I feel like my money is pulled in so many directions- I want to do everything at once! Here’s my financial sitch.

BTW, I’m single (boo hoo) so it’s just my income we’re working with here.

Attached is a spreadsheet with everything on it. Should I sell all the individual stocks and put the money into ETFs (I’m thinking yes)? Especially now when the market is tanking? 

Thanks so much!

LateBloomer


First of all, I rather enjoyed the fact that you found out about our book from you boss’ desktop on a Zoom call. To be honest, in terms of things you could accidentally reveal about yourself during a Zoom call, it could have been a lot worse. At least everyone’s pants were on! This time…

But regardless of how new people stumble on this FIRE stuff, whether it’s through a blog, the media, or their boss’ impeccable taste in books, our reader has been bitten by the FIRE bug and now wants to know whether they, too, can play. They admit that at 49, they’re not the ideal candidate for early retirement, but hey, you never know!

So without further ado, let’s MATH SHIT UP!

The Numbers

LateBloomer attached an Excel spreadsheet to their email with all their spending and earnings. Screenshot is below.

OK so where do we start? First of all, their spending as a single person of $2400 a month is actually pretty reasonable. Especially when you take into account that they live in Northern California, one of the higher cost locales in the US. They also earn $70,000 gross, or about $53,000 net.

But then as we go down the numbers, things start to look quite puzzling. At 49, our reader is still holding $36k worth of student loans. And, inexplicably, a credit card balance!

If we were to collect all these numbers into a net worth summary, it would look like this.

Summary Amount
Income $70k gross, $53k net
Expenses $2400 monthly, $28,800 annual
Assets $19,749.52 + $12,085 + $10,341 + $3,254 + $2,125 = $47,554.52
Debt $36,239 + $3,767.50 = $40,006.50

Add up LateBloomer’s total assets and their total debt, and you are left with just over $7500. Given that they’re taking home $53,000 a year against $28,800 of annual expense, our reader should be able to save $24,200 each year. Where did all that money go?

Lots of stuff can derail a financial plan, like a sudden illness, job loss or divorce. While it’s true that financial mistakes made in the past can have long-lasting impacts on your future financial health, it’s also true that dwelling on the past does nothing to help you dig yourself out of whatever hole you find yourself in.

We’ve all made financial mistakes, us included. We’ve missed out on years of market gains by leaving cash on the side lines and overspent on stupid Coach purses. But if there’s anything we’ve learned during our journey towards becoming a millionaire and retiring in our 30’s, it doesn’t matter what you did in the past, it only matters what you do going forward.

There’s a Chinese proverb that goes “The best time to plant a tree was 20 years ago. The second best time is now.”

So let’s plant a tree and see how tall it can grow, shall we?

Current Trajectory

OK so let’s take LateBloomer’s numbers at face value and assume that the $24,200 they should be able to save actually gets saved going forward.

We know that their current living expenses are $28,800 per year, so as per the 4% rule, their FI number is $28,800 x 25 = $720,000.

We also know that they have enough money in their savings and investments to completely pay off their loans. With their credit card balance currently compounding at ~20% interest, they should definitely kill that first.

Student loans are a little bit more complicated, because it’s not just the loan’s interest rate that determines what the best decision to do is. If the loan payments were set up on an income-driven repayment plan, they may be approaching eligibility for having their loans forgiven. If the company they work for is a registered charity or a government agency, they might be eligible to have their loans forgiven under the Public Service Loan Forgiveness (PSLF) program.

Unfortunately, our reader didn’t provide any of this information, so we have to assume the safest thing to do is to sell all their investments and pay their loan off. This may result in a more conservative-than-necessary analysis, but it’s better than guessing. Our reader can always look up this info later and update the forecast on their own time.

So if we assume that all loans get paid off now, we are left with a starting balance of $7,548.02.

And with that, we have enough to do our projection. At the current trajectory, they should be able to retire in…

Year Balance Savings ROI Total
1 $7,548.02 $24,200.00 $452.88 $32,200.90
2 $32,200.90 $24,200.00 $1,932.05 $58,332.96
3 $58,332.96 $24,200.00 $3,499.98 $86,032.93
4 $86,032.93 $24,200.00 $5,161.98 $115,394.91
5 $115,394.91 $24,200.00 $6,923.69 $146,518.60
6 $146,518.60 $24,200.00 $8,791.12 $179,509.72
7 $179,509.72 $24,200.00 $10,770.58 $214,480.30
8 $214,480.30 $24,200.00 $12,868.82 $251,549.12
9 $251,549.12 $24,200.00 $15,092.95 $290,842.07
10 $290,842.07 $24,200.00 $17,450.52 $332,492.59
11 $332,492.59 $24,200.00 $19,949.56 $376,642.15
12 $376,642.15 $24,200.00 $22,598.53 $423,440.68
13 $423,440.68 $24,200.00 $25,406.44 $473,047.12
14 $473,047.12 $24,200.00 $28,382.83 $525,629.94
15 $525,629.94 $24,200.00 $31,537.80 $581,367.74
16 $581,367.74 $24,200.00 $34,882.06 $640,449.80
17 $640,449.80 $24,200.00 $38,426.99 $703,076.79
18 $703,076.79 $24,200.00 $42,184.61 $769,461.40

…18 years.

18 years ain’t too shabby if you’re in your 20’s, but at 49 that means that your “early” retirement will occur at age 67, as known as regular retirement. Let’s see if we can do a little better, shall we?

Upping Your Salary

This was something that jumped out to both FIRECracker and I when we initially read this case, but $70,000 is way too low for a Director of Finance. According to Indeed, the average Director of Finance salary in Northern California is a little over $100,000. LateBloomer is definitely earning below their potential.

So let’s say they switch jobs and starts earning the average salary for their position. How does this affect their numbers?

A $100,000 salary in Northern California would normally result in after-tax earnings of about $71k, but in a Millennial Revolution first, this particular reader can take advantage of the “catch-up contribution” provision of 401(k) plans, which allows you to contribute an extra $6500 per year on top of your normal 401(k) contribution maximum at the age of 50 (LB’s 49 right now, so close enough).

If LB were to change their job and start contributing the maximum toward their 401(k) plan of $19,500, plus the catch-up amount of $6,500, that would mean total deductible contributions of $26,000 and an after-tax income of almost $80,000.

At that level of earnings, their savings rate would jump to $80,000 – $28,800 = $51,200. What does that do to their retirement projections?

1 $7,548.02 $51,200.00 $452.88 $59,200.90
2 $59,200.90 $51,200.00 $3,552.05 $113,952.96
3 $113,952.96 $51,200.00 $6,837.18 $171,990.13
4 $171,990.13 $51,200.00 $10,319.41 $233,509.54
5 $233,509.54 $51,200.00 $14,010.57 $298,720.11
6 $298,720.11 $51,200.00 $17,923.21 $367,843.32
7 $367,843.32 $51,200.00 $22,070.60 $441,113.92
8 $441,113.92 $51,200.00 $26,466.84 $518,780.75
9 $518,780.75 $51,200.00 $31,126.85 $601,107.60
10 $601,107.60 $51,200.00 $36,066.46 $688,374.06
11 $688,374.06 $51,200.00 $41,302.44 $780,876.50

LateBloomer hits FIRE in 11 years! That is nearly a 40% reduction from her previous time-to-retirement, and all that from switching jobs and start earning what you’re actually worth!

Geographic Arbitrage

There are basically two main knobs when it comes to your finances: Earnings and Spending. We’ve covered the effect of increasing our reader’s earnings, so normally this is where we would suggest ways for them to reduce their expenses, usually through a combination of waste-elimination and geographic arbitrage.

In this case, though, their spending levels aren’t really too bad, even with a leased car. Moving to a lower cost locale might reduce their expenses somewhat, but not enough to justify the move.

What might be more interesting, though, is to use Geographic Arbitrage in a slightly different way. Rather than relocating their home, they might be able to get most of the benefits by relocating their job.

The difference in salaries between Northern California and Southern California is easily 50%. The same job in San Jose pays $150,000 on average. If our reader’s going to look for a new job anyway, why not broaden their search and look south?

Based off the fact that they’re Zooming with their boss, it sounds like LB’s job is already work-from-home friendly. So if LB were to stay where they were and find a job in SoCal paying $150k, they’d be able to stay where they are, keep a low cost of living, and increase their salary!

Running the numbers through a tax calculator, if LB were to increase their salary to $150k and start maxing out their 401(k) (plus catch-up contributions), their after-tax earnings would jump to $110k.

That means LB’s new savings would be $110,000 – $28,800 = $81,200. I’m willing to bet that would have a BIG impact on their FI projections.

Year Balance Savings ROI Total
1 $7,548.02 $81,200.00 $452.88 $89,200.90
2 $89,200.90 $81,200.00 $5,352.05 $175,752.96
3 $175,752.96 $81,200.00 $10,545.18 $267,498.13
4 $267,498.13 $81,200.00 $16,049.89 $364,748.02
5 $364,748.02 $81,200.00 $21,884.88 $467,832.90
6 $467,832.90 $81,200.00 $28,069.97 $577,102.88
7 $577,102.88 $81,200.00 $34,626.17 $692,929.05
8 $692,929.05 $81,200.00 $41,575.74 $815,704.79

Now we’re talking. LB would be retired in just 8 years. That’s less time than it took for us to get to FIRE, which was about 9.5 years! Not too shabby!

Take Over For Your Boss

Normally, here’s where we would wrap this reader case up, but I just wanted to point out that LateBloomer is in a rather unique position that most people don’t find themselves.

They knows their boss is planning on retiring early.

If you know your boss is eyeing the exit, that means that they’re also thinking about a succession plan. Someone’s going to have to take over their job once they’re gone, and they’re probably looking to groom someone to be that person.

Hint: That person…can be you!

Now obviously, if LateBloomer hates their current job, then this idea’s a non-starter. But if they like their job, they like their boss, and they want to help their boss out, then it might be possible to up their salary while staying in the same company.

Now might be a good time to start taking on extra responsibilities. Volunteer to sit in with them on meetings. Take a visible interest in learning the skills you need to take your career to the next level.

Your goal should be to impress on your boss’ mind that you would be a natural shoe-in to take over when they leave. If you can do that, then you might be able to get that higher salary without having to change jobs.

At the very least, you’ll be able to upgrade your skills and make yourself more attractive as you search for a higher paying job.

Conclusion

So there you have it. Despite arriving at the FIRE party later, there are still paths LateBloomer can still take to get to FIRE in less just 8 years. Which just goes to show you that when it comes to finances, it doesn’t matter what you did in the past, it only matters that you start making the right moves going forward.

There’s always a way out. You just have to find it.


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