Early Retirement Side Hustle Part 2

This post is about my Early Retirement Side Hustle Part 2 – Details and Decisions. In my earlier post I wrote that I consider this new gig as a side hustle instead of calling an end to my second early retirement. I think it fits perfectly in my “retire early and often lifestyle”. As I mentioned in the first post this is a sweet Systems Analyst contract. It is funded until the end of the year. That works out to be approximately 2.5 months with an option to extend. That is if all the stars align and we can both agree to it. After spending a couple of days on site and seeing the scope of the project I do consider this to be short-term.

Details

If you are not familiar with Leisure Freak Tommy’s story I retired the first time at age 51 from a long telecommunications engineer career. I had some passion bucket-list items about jobs I would like to learn and do. I was able to transition my earlier network operations engineer’s process and requirements documentation skills over to I.T. doing similar work as a Systems Analyst for a fortune 500 cable company in their video group. I retired a second time earlier this year from that career.

This new gig is for the same company but on a different team and segment of their business. It”s now back to my roots. Working in their voice telecommunication billing group on a special project. This project is all about Local Number Portability (LNP) and issues associated to correctly billing other telephone companies. For everyone but those who were involved in the development and deployment of being able to take your telephone number to any provider you want to, number portability it is just a fact of life. No big deal.

Believe me when this was ordered by the governing bodies in the late 90s it was a huge endeavor. It is still very technical. There are not many people who are aware of all the issues. I was knee-deep in this during my engineering career which feels like a previous life now. I even contributed at a national level with requirements so I do have a unique insight. What makes this gig rate super-high on my passion meter is that I am able to immediately contribute and do something again that I really enjoyed working on in the past. I definitely feel like I am on a path with purpose.

Decisions

I am in a place where all of my lifestyle costs are funded by my early retirement portfolio. Any money I earn is added to my net-worth. Of which I rant and rave as the power of retiring early and often to increase wealth. Reaching financial independence isn’t a destination. It opens the door to other opportunities both personal and financial. This gig does offer me both personal and financial opportunity. The financial opportunities require my making sound decisions on how to best leverage the money I will be paid. For most people their side hustle is to either do the same to increase their savings towards financial independence, pay off debt, or to pay for a focused target like a planned upcoming large cost. In each case we need to make smart decisions about what our best strategy will be.

401K

I have worked some months this year before retirement number 2 but I didn’t have a 401K for that time. This time I do have the ability to start a 401K (there is no match). So after looking at our taxable income for 2014 I feel this is where my primary focus should be. In looking at the federal tax rates and our 2014 income we should be in the 25% federal and the 5% state tax bracket. Anything I save in the 401K will save that combined 30% tax and keep it to work for me. I have to believe that once I am no longer working and need to add this to my income I will be better able to do so in a lower federal tax bracket.

My Savings Plan

I will be paid twice a month, on the 15th and the last working day of the month. There is a 2 week delay so my first check is expected November 15th. Then I will have the remaining checks for this year at the end of November and again in middle and the end of December. My 401K can be started any time after my first pay check.  So I should have 3 checks to have contributions directed to my 401K for 2014.

My plan is to set my 401K contribution percentage at 80% of earnings. This leaves enough to pay my Social Security and Medicare taxes. Also a little over 10% to cover my commuting costs with a little to add to cash savings. The first non-401K qualified check will more than back-fill my slush-fund that took some minor hits. We went over because of our vacation budget with our fantastic family beach and Disneyland trip. The cash should also cover our 2014 Christmas budget.

The Benefit of  a Short-Term Gig

I usually don’t like the idea of sharing specific details about my income and portfolio amounts. But I want to be open about this gig to show how even a short contract can really make a long-term financial impact. This contract pays me $9,300 a month. Which equates to $4,650 a paycheck. 80% of earnings puts my 401K contribution at $3,720 for the 3 qualifying paydays. Putting this year’s contribution at $11,160 or so tax-free to the 401K. That along with my earlier $6,500 Roth contribution I will have $17,660 saved in tax advantage accounts for 2014.

Not bad for someone who retired early on less than $40,000 a year. If there is an agreed contract extension I will just continue with this 80% 401K contribution plan. Of course if this turns into a longer contract I will soon reach the maximum 401K contribution limit for 2015 and will have some new decisions to make.

Tax Focused Strategy

My savings plan here is totally tax focused. Unfortunately this new 401K plan has nothing close to what I would consider low-cost investment choices. I am just looking at this as a place to park my income short-term. Then once the side hustle ends I will quickly move the money to an IRA where I will have a better fund selection.

I still have to pick what 401K fund I will park the money in but I have time to make that decision which will be very important given the short-term nature of this money and the current volatility of the markets now. I think my plan is sound as my only alternative is to just pay the 25% federal and 5% state taxes on it and invest in non-retirement type accounts. Since I don’t see needing this money in the next 5 years or longer (I am 56 so I will soon clear the 59 ½ age threshold) I think letting the 30% tax savings work for me is the best option.

So after reading my Early Retirement Side Hustle Part 2 – Details and Decisions, do you think my income saving and tax shielding strategy is the best one to take?

Do you have any suggestions that you believe I should consider?

2 thoughts on “Early Retirement Side Hustle Part 2

  1. That sounds like a good contract. Nice to see you share some details. Deciding to put all of it in a 401k is probably the popular choice but because you have retired you probably already have a lot of money in your IRAs so I would bite the tax bullet now. Pay the taxes and then save and invest it free of government retirement account rules. I also think the stock market is in for some rough swings. I say Just bank the cash and buy on the lows.

    1. Hi Franklin, thanks for the comment and suggestion. That is what I had to do before when I didn’t have a 401K. That is pay the taxes and direct everything to savings and then later investment accounts. I like the idea of getting at least the difference of 10% on the money due to my being in a lower tax bracket later. I also like the idea of buying on the lows but as we all hear its difficult to time the market. I do appreciate your thoughts on this.
      Tommy

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