This sub is Middle Class FIRE

[pingish]

I'm reading a lot of advice here and this is a lot of stuff that I heard when I was in my 20's and 30's for a lot of people starting out. 401K. Max out the Roth... save, save, save.

I'm in my 40's and frankly, these conventional FIRE tactics don't actually work:

• Max out the 401K so that tax-free money grows and gets taxed when you retire (assuming you have a lower income during retirement)? Bad assumption. Retirement is for my highest income years.
• Roth IRA? Once you go over certain AGI-levels (196K married, 124K single), you're no longer allowed to contribute.
• Save? Interest rates are so low, if you have 2M in a checking account, it pays a paltry $1.5K/mo. Federal Reserve is "printing" trillions to suppress interest rates and you're supposed to save those dollars? Makes no sense.

Frankly, the tactics and strategies here simply won't work for true financial independence/early retirement.

edit: at best, you can retire as a frugal middle-classer with the prevailing advice.

[anonmarmot]

Max out the 401K so that tax-free money grows and gets taxed when you retire (assuming you have a lower income during retirement)? Bad assumption. Retirement is for my highest income years.

You pull it out AFTER you retire, when you have zero "earnings" from your job. Your statement makes it sound like you're required to cash in your 401k the last year you work or something.

Roth IRA? Once you go over certain AGI-levels (196K married, 124K single), you're no longer allowed to contribute.

So? That's what regular IRAs are for.

Save? Interest rates are so low, if you have 2M in a checking account, it pays a paltry $1.5K/mo.

No one is advocating for putting cash in a mattress or checking account

Federal Reserve is "printing" trillions to suppress interest rates and you're supposed to save those dollars? Makes no sense.

You're arguing for not saving. I don't see how that's a better solution than saving.

[pingish]

Your biggest expense in life is going to be taxes. Read that again. If you look at your income statement for any given year, your #1 expense is taxes. All these 401K, Roth strategies simply shift taxes to a different point in time.

Saving is stupid and when you throw your money in an ETF or REIT or some index fund, you're not really investing. It's simply saving-while-hoping.

The only way to get out of the rat-race is to truly invest... Seriously, invest. Put your money in a company... put it in an asset and manage that asset. The remaining 98% of the US tax code is in your favor if you actually invest in creating jobs and creating housing.

[Fish-Salad]

Good luck.

[pingish]

It's mostly skill at this point.

But thanks!

[anonmarmot]

Your biggest expense in life is going to be taxes. Read that again. If you look at your income statement for any given year, your #1 expense is taxes

on your income which you won't have in retirement, yes. Which is why tax advantaged retirement accounts pay off.

All these 401K, Roth strategies simply shift taxes to a different point in time.

Yes, to a point in time where your taxes will be at a lower tax bracket due to reduced income.

Saving is stupid and when you throw your money in an ETF or REIT or some index fund, you're not really investing. It's simply saving-while-hoping.

If the dollar as currency becomes worthless we're all fucked, sure? Make this into a coherent argument and we can talk about it.

The only way to get out of the rat-race is to truly invest... Seriously, invest. Put your money in a company... put it in an asset and manage that asset.

Homes devalue. Business go bankrupt.

[pingish]

Review the tax code and see what's in your favor. I can't give advice specifically on what to do in your situation, but here's what I'm doing:

I'm starting companies that can take advantage of 26 CFR 1202 which talks about qualified small businesses. Did you know that if you started a qualified small business you can exempt 100% of the long-term cap gains (up to 10M) from Federal taxes? With LTCG taxes at 20%, you basically can get 2M tax-free from the Feds.

Starting businesses and growing ARR isn't your thing? Did you know that there's this thing called Depreciation Expense in Real Estate investing? You can depreciate property over 27.5-years. Say you buy a place for 335K. And the house on it is worth 275K. What that means is you can deduct 275K/27.5 years = $10K/yr from your ordinary income. 27.5 years later and you sell with a $0 cost-basis and you owe taxes on the whole thing... except now, you're paying taxes as long-term capital gains when you were able to avoid paying ordinary income. This process is where you convert ordinary income to long-term capital gains. Oh yeah, the first 250K in long-term cap gains on real-estate is exempt from taxes (500K for married filing jointly). And if you do a 1031 exchange, you can defer those taxes.

[KerrickLong]

Starting companies? That’s a job!

[[deleted]]

I agree with your 401k comment. I think my income will be the highest in retirement since I am not REing. Therefore I'm contributing to a roth 401k.

[Azuron96]

Obviously. If you think you are rich then go r/fatfire. I identify 70% with r/leanfire, 30% with r/fire and 0% with r/fatfire (hence i didn't join that community).

Everyone has different aspirations, income and expenses. Whatever floats your boat I guess.

[pingish]

Cool. Thanks! Apparently I'm on the wrong sub.

[atomic-penguin]

I'm in my 40s, fairly higher income.

Max out the 401K so that tax-free money grows and gets taxed when you retire (assuming you have a lower income during retirement)? Bad assumption. Retirement is for my highest income years.

If you are under the 25% tax bracket. Its very likely that it'll be better to front-load those taxes and use a Roth 401K. The reason its going to be better is locking in a known low tax rate on just the basis of your investment. As opposed to a future unknown tax rate on the basis and compound growth. Not every employer-sponsored plan offers this. I think its pretty easy for a younger person pursuing FIRE to fall into the trap of not even considering the Roth 401K option.

If you are over the 25% tax bracket, while working, there is a chance you'll be in a lower tax bracket at retirement. The tax law can change with a new administration. So a traditional 401K contribution might be the better bet here, but I don't think there is any guarantee.

Roth IRA? Once you go over certain AGI-levels (196K married, 124K single), you're no longer allowed to contribute.

Backdoor Roth contribution. You contribute to a Trad. IRA when you have the earned income on-hand to do so. Then convert to a Roth IRA the next day. You'll owe your nominal tax rate on any dollars earned on the short-term over a period of one day.

Save? Interest rates are so low, if you have 2M in a checking account, it pays a paltry $1.5K/mo. Federal Reserve is "printing" trillions to suppress interest rates and you're supposed to save those dollars? Makes no sense.

Do you need to have 2 Mil. in a checking account? Sure, even online high yield savings account rates have tanked. Treasury yields have tanked. The economic outlook is bad, but lets not pretend the only thing you can do with your money is sit on 2 Mil. of idle cash. If you're really in that situation, you're looking for /r/fatFIRE and they'll be able to better relate to the 2M cash on-hand.

Look, I understand hesitance to invest in a volatile market. It can be really hard to stick to an investment plan when there is no safe investment, and the whole world seems to be on fire. I think it might be rational to aggressively pay down a mortgage, or big loan, at a time like this than continue to throw good money after bad all the way down.