Money Snapshot: A Biglaw Staff Manager Shares Her Thoughts on Early Retirement
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For today’s Money Snapshot, we’re talking salary, net worth, debt, and more with reader P in San Diego, CA, who works as a Biglaw staff manager. She noted, “I'd like to retire at the latest by the time I get to age 55 (in nine years), or earlier if the market cooperates. I need to get to a minimum $4M net worth to pull that trigger. If I continue on this path and my projections play out as I've planned, I should have more than that by age 55, so there is a strong chance I can pull the trigger even earlier.”
We got a few requests from readers to launch our own “money diary” series, so we’ve asked willing readers to fill out a form with lots of details about debt, spending, saving, and more! If you’d like to fill out the form and be considered for a future personal money snapshot, please click here to submit your response! You can see a PDF of the questions if you want to review them ahead of time. See others in the Personal Money Snapshot series.
Please remember that this is is a real person who has feelings and isn’t gaining anything from this, unlike your usual friendly (soul-deadened, thick-skinned, cold-hearted, money-grubbing) blogger — so please be kind with any comments. Thank you! — Kat
Name: P
Location: San Diego, CA
Age: 46
Occupation: Biglaw staff manager
Income: $185,000 plus bonus; bonus is usually around $15,000 and paid in December.
Net worth: $2M
Net worth when started working: I started working full time in 1999 at age 24. My net worth at the time was pretty much $0 as I didn't have much saved up, but thankfully I did not have any student loans.
Living situation: I live in a single family home (4BR/3BA) at 2,631 square feet, by myself.
Debt
What does your debt picture look like?
$613,000 in a mortgage, $25,000 in a personal loan, and $23,000 in a 401K loan. No car loans or credit card debt.
How much money are you spending each month to pay down debt?
I pay principal and interest of about $2,500 a month plus an additional $500 towards the principal. Aside from the mortgage extra payments, I just make the regular payments on the other two loans. I do have plans to pay down the personal loan in 1–2 years' time.
How did you pay for school?
I paid for school via scholarships, grants, and part-time work. I went to an in-state school (UC San Diego), where the costs were thankfully low at the time.
Do you own or rent? How much do you pay monthly?
Own. Principal and interest is $2,500/month. This is without property tax and insurance.
Home debt: Share your theories and strategies with us (including any that led you to rent rather than own).
My mortgage (principal + interest) is about $2,500. Property taxes and insurance add another $950/month to that. I do not have a jumbo loan for San Diego, CA, as the balance is $613,000. The home is worth $1.1M, so there's a quite a bit of equity there and the LTV [loan-to-value ratio] isn't bad. My loan is a fixed 30-year mortgage at 2.5%.
I opted for the 30-year mortgage as it gives me more flexibility with minimum required payments. The 15-year mortgage would have only saved me an additional 0.25% in the APR but I'd be locked into a much higher payment. As it is, I'm currently scheduled to pay off the mortgage in 21–22 years anyways and can accelerate it with extra principal payments if necessary. But it'll be my choice and the flexibility is valuable.
Have you paid off any major debt?
I paid off about $45,000 in credit card debt in two years (2019–2020).
Have you ever done anything noteworthy to avoid or lessen debt?
None, except to have a laser-like focus on paying off the credit card debt. That means saving where I can and applying the extra cash to pay it off. But that's not really noteworthy… more common sense I suppose.
Savings, Investments & Retirement
How much do you save each month or year in retirement vehicles like 401Ks, Roth IRAs, and others?
I max out my 401K and my Roth IRA within the first 2.5 months of the year. I have a healthy emergency fund so I can afford to front-load my savings, so it doesn't really work out to a neat monthly amount. My income is too high to save directly in a Roth IRA so I take the backdoor Roth approach (save in the non-deductible traditional IRA and then immediately transfer it to my Roth IRA).
How much money do you allocate to other tax-savvy investments/accounts like HSAs, 529s, FSAs, and others?
None
How much do you save outside of retirement accounts?
I'm currently saving $550/month in a taxable brokerage account. It's set up to transfer the amount automatically and buy my investments at the allocations I've set up.
Talk to us about investments. Do you use a financial adviser or planner?
No, I do not use a financial adviser or planner. I do everything myself. The bulk of my investments are in individual stocks that I've carefully selected. I gravitate towards value stocks on that front. I do have some funds in ETFs but it's only a small allocation of my portfolio (about 25%). That ETF is purely the XLE energy ETF as I believe energy stocks got badly beaten down during the pandemic and they're poised to rebound as we slowly get back to normal.
We asked P for her advice for readers who don't have experience in selecting stocks:
I would advise them not to select stocks. Rather, most individual investors are better served by selecting broad asset classes (stocks, bonds, commodities, REITs) and finding the right allocation that they can stick through thick and thin. Along that line, I would recommend the books The Little Book of Common Sense Investing by John C. Bogle and All About Asset Allocation, 2nd Edition, by Richard A. Ferri. If you'd still like to select individual stocks, there is no better book than Security Analysis by Benjamin Graham.
Do you have an end goal for saving or are you just saving for a rainy day?
I'd like to retire at the latest by the time I get to age 55 (nine years), or earlier if the market cooperates. I need to get to a minimum $4M net worth to pull that trigger. If I continue on this path and my projections play out as I've planned, I should have more than that by age 55, so there is a strong chance I can pull the trigger even earlier.
When did you start saving seriously? How has your savings strategy changed over the years?
I've been fortunate in this regard as I started saving pretty early in my career and just kept it through thick and thin. I didn't max out my savings immediately but by year three of full-time employment I did. That combination of doggedness and time worked out really well in my favor.
What’s the #1 thing you’re doing to save money, limit spending, or live frugally?
Not to buy stuff I truly do not need.
Do you have an estate plan in place? A trust?
I do have an estate plan in place, as my projections have me exceeding the federal estate tax exemption by age 61 or so. My main estate planning vehicle is a living trust. I learned through the process that I knew a lot more about estate planning than a lot of the attorneys I met. An informed client asking really probing questions really helps to guide towards a desired outcome.
How much do you have in cash that’s available today?
About $40,000
How much do you have in cash that’s available in a week?
Including the above, about $65,000 if I liquidate some after-tax investments as well as take out my Roth contributions.
How much is in your “emergency fund,” and did you include it in the previous question?
$40,000 — it's in the cash question I answered above. The cash is kept in a high-yield checking account earning 1% APY.
How much do you have in retirement savings?
About $1.5M
How much do you have in long-term investments and savings (CDs, index funds, stocks) that are not behind a retirement wall?
$6,000
If property values (home, car) are included in your net worth, how much are those worth?
My home is include in my net worth number. It's about worth about $487,000 in equity.
Spending
How much do you spend on the following categories on a monthly basis?
Groceries: $300
Restaurants, bars, takeout, and delivery: $40
Clothing and accessories: $0
Transportation: $100
Rent/living expenses: $2,500
Entertainment: $0
Other major expenses: $25/month towards my pet, a French bulldog. I probably spend another $100/month on hobbies but it's lumpy. This mean I may have months with $0 spend but then I spend $500 on a new camera lens.
Health care – premiums and other costs: I have employer-subsidized healthcare so I pay $200/month towards premiums and maybe another $10/month towards medications/co-pays.
What’s your spending range for these things? What’s your average?
Vacations – Range: $0–$15,000 per year
Vacations – Average: $7,500
Charity – Range of donations: $0–$500
Charity – Average donation or giving amount: $300
Individual items of clothing – Range: $0 — I rarely buy clothes anymore
Individual items of clothing – Average: $0
Apartment or house – Current main residence: $2,500 monthly minimum payment + $500 extra principal
Car or Other Vehicle – Last purchase/current main vehicle
Purchased a new 2012 Toyota Camry Hybrid in 2012 for $24,500 + taxes.
Fill in the blank on this question: I could save _____ if I stopped ______, but I don’t because _______.
I could save $1,200 a year if I stop spending on photography/electronics, but I don't because it makes me happy.
If you own, how much did your home (permanent residence) cost?
$825,000
At any point in your life to date, has inheritance played a role in your money situation?
No. I grew up poor so no one inherited anything. But this next generation coming up will have quite large inheritances from me and my brothers.
How has your family provided financial support in your adult life, if any? (Or, do you provide support to them?)
My family provided zero support. I support my family with little things that amounts to may $250/month (paying for mobile plans, my parents' landscaping needs, etc.)
Money Strategy
Do you have a general money strategy?
Spend a lot less than I bring in and wisely invest the rest.
Time vs. money — do you spend money to save time (e.g., cleaning service)? Do you donate your time instead of money? What else does this phrase mean to you?
Time is more important than money. You can always make more money; you can't make more time. I would spend money to save time (I have a landscaper and a pool person, for example). When I donate, I donate money rather than time. My time is very valuable and I do not squander it easily.
What are your favorite resources for personal finance?
Anything by John Bogle. The writings of Warren Buffett. Numerous YouTube channels… way too many to mention individually. I listen to the FIRE folks but tend to ignore most of them except the fatFIRE group since in my opinion they waste too much time to save a penny and that's just not appealing.
We were curious about P's thoughts on fatFIRE, so we asked her to elaborate:
The only drawback I see is that you do have to sacrifice a bit in the present to save for your future. It's all a balance and trying to find that balance may be difficult. Friends that are your age may not understand why you don't want to go out as often or splurge on material things. What works for me is to remind myself that I'd rather be rich than appear rich.
What advice would you give your younger self about personal finance?
Save more and start saving earlier. Take advantage of Roth plans (IRAs and 401Ks) when your income is low, as your taxes will be as well and it'll give your money even more time to grow tax free. Don't buy “stuff”… and it's all pretty much just stuff. Enjoy experiences but be judicious even with them.
Icons via Stencil.
This is great! Could you talk about your decision to front load your retirement savings in the year? I hadn’t thought of that and am curious about your approach.
I do this, too. I don’t know about OP’s motivation, but I just like it to be done. I get bonuses that pay in January so cash flow is heavier in the first 1-2 pay periods of the year anyhow so I do my IRA and 401k maxing out immediately so that I feel it less and have the benefit of higher cash flow as the year goes on. I suppose you could also argue because I fund it sooner, it has more time to compound/earn, but that’s not part of my calculus and the extra few months are probably negligible.
Also not the OP but I do this to get it over with. My bonus hits my account 12/31 so I’m cash heavy at the beginning of the year and like to set money aside so I don’t feel like it “needs” to be spent. I like to have an artificially lower “salary” at the beginning of the year as well when raises kick in to help with spending creep too. To the other poster’s point in theory I’m getting a bit more time invested but that’s not the motivation.
I would love to do this, but my benefits department acted like I was an alien when I asked about it. They just kept repeating really basic info at me, like the 401k yearly limit. I asked four different ways and still couldn’t make them understand that I wanted to know if they offered a true-up or not. I finally gave up since they were so incompetent.
If your company does matching funds, this approach may not work for you. I encountered this when learning I would max out my 401(k) contributions last year without making an adjustment to what I put in. I couldn’t just assume the mechanism would stop by contributions when I hit the max (which it would do) in like November or something, because then I would not receive the matching contributions from my employer in December. So I have to make sure I spread my contributions over the entire year (up to the max amount) to make sure that I get the employer match for the entire year. They won’t front-load the match since it’s x% but each pay period. Just in case anyone else has that situation.
I’m thankful you posted this. It prompted me look at my old paystubs to see what my company does once the 401K contribution is maxed for the year. Luckily, I see my company still contributes once I’ve hit the limit.
This may be the difference between “matching contributions” and “automatic contributions” (my company has both), but maybe yours just handles it differently. Glad it worked for you!
If I’m understanding correctly, you’re 46 and have $1.5M in retirement now and you’re expecting to have $4M when you’re 55. Assuming you max your contributions between now and then that’s still only ~$200k in new contributions, so you’re assuming your money will more than double in the market in less than a decade? That doesn’t seem realistic to me. This is not a criticism – you objectively have really good retirement savings (and obviously many people retire on a lot less than $4M or even $1.5M…) but I just don’t understand the math here. Can you explain how you did this calculation?
I’m not the OP, but using the Rule of 72 (https://www.calculatorsoup.com/calculators/financial/rule-of-72-calculator.php) you’d get a doubling of assets in 10 year if you have 7% annual interest. That might not be realistic across the upcoming next decade though.
Not OP, but she is also saving in a separate investment account and will be gaining equity on her home. Generally, market investments double every decade.
I also curious that she said she expected to exceed the federal estate tax exemption by age 61 or so (currently, $11.7 million). Going from $4 million at 55 to $11.7 at 61 also seems like a big jump, particularly if she actually retires at 55.
[Also, no judgment. More curiosity!]
I think you’re doing great, but get rid of that 401K loan!
Seriously… What am I missing here? Why is that still there?
I don’t get the recently eliminated credit card debt either. $45K??? Were the two loans (personal and 401(K)) used to pay off the credit cards? At her salary, couldn’t she have done that with regular income? Was there a recent change in habits (because she sounds very savvy and frugal)?
Yeah something is adding up… 185k salary nd yet you have 48k in debt between a 401k loan and a personal loan. AND just paid off 45k in debt over the past 2 years? I feel like the financial priorities and, to be honest, knowledge, is a bit misplaced.
Something is not adding up. She’s single, no kids, only making $185K before taxes with mortgage costs of ~$47,500, retirement contributions of ~$25K, debt payments on ~$50K and she still has money left over for vacations and savings. At her tax bracket how does this math work. Feels over leveraged to me.
And, keeps her food budget $300/mo in San Diego but mentions having a land scaper and pool person. The USDA “low cost” food plan for adult women is $227.80/mo. So, that is a pretty controlled food budget for someone of this salary. It would include very little eating out, prepared foods (frozen, prepped vegetables) or “expensive foods” like cheese or meat.
I’d love to hear her tips for keeping that budget in control in a HCOL area if she really is doing that and having a demanding job!
Where are you getting 1% interest on a checking account? My online high yield savings is down to .4% I think
I’m the OP. Last year, my AGI ended up around $182K. After itemized deductions, taxable income was $153K. Federal taxes due were $31K.
CA taxable income was $160K with about $12K due. Also paid $12.5 in Social Security/Medicare/CA OASDI.
Total cash comp was $206K. Take home about $120K after pre- and post- tax expenses of $10K for medical/insurance/group liability ins/etc. and 401K. That’s about $10K/month after all taxes and 401K.
Mortgage payments was exactly $36K as the normal payment was around $30K but I added in extra principal and pay exactly $3K/month. Property taxes about $800/month on top of that. After housing, I have $6K/month on everything else, including extra savings and traveling.
The two personal loans has payments of about $6K/year. One of the personal loan is a HELOC and the interest is deductible for me. They WERE NOT used to pay off credit card debts. Credit card debts used to be even higher as I inherited them as part of the divorce settlement. Ended up using other savings to pay them off. Better place now than I was 4 years ago post divorce for sure. Would like to pay off one of the personal loan in the next 18-24 months but am ambivalent about it and see no need to rush into it.
Should add that my firm currently contributes $20K/year to my 401K as profit sharing, not a match or anything. I didn’t count that in my savings as I didn’t consider it “my” savings but I guess it is as it’s 100% vested. My forecast is still holding… I should get near the $11.xM exemption level by age 61, though I will retire by 55 or earlier and plan to withdraw about 3% from the pot. I’m using my long term return from my portfolio to forecast the future returns (about 12% per annum), which includes reinvested dividends though it’s currently a measly 1%. The portfolio is roughly 50% QQQ, 25% long term treasuries, 15% gold, and 10% REIT. I guess the one thing that could be way off is that returns in the next 9 years or so won’t be what I saw over the last 20 years. Who knows what the future brings but even since this was submitted & published the retirement pot has grown from $1.5M to $1.78M. It’s been crazy and can all blow up I guess.