Looking for 2nd opinions on early retirement portfolio & plan

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leisure21
Posts: 4
Joined: Wed Nov 22, 2017 9:14 am

Looking for 2nd opinions on early retirement portfolio & plan

Post by leisure21 » Wed Nov 22, 2017 12:08 pm

Hello- I am a relative newbie into the investing world. Looking for some second opinions on our portfolio and plan. Here it is…

Emergency funds: ~7 months expenses in cash
Debt: Mortgage ~160,000 @ 2.625% fixed ~10yrs remaining (Zillow estimate 350,000)
Tax Filing Status: Married Filing Jointly 2 kids ages 1 & 3
Tax Rate: 28% Federal, 6.27% State
State of Residence: WI
Age: Him 33 Her 32
Desired Asset allocation: ~ 95-100% stocks / ~0-5% bonds- Plan is to gradually bring % of bonds up to 30-40% as we near retirement. I have never sold any holding. (besides transferring out of a high fee Wells Fargo retirement plan) I believe I won’t be tempted to buy/sell in market swings

Desired International allocation: ~40% of stocks (no real strong opinion on this)

Income: His (public school teacher) & Her(medical) combined income = $210,000-245,000/yr
Current monthly expenses ~4.5k-5k (includes childcare & mortgage)

Portfolio size: ~$500,000

His Roth ira- ~60K
6.5% VTSAX- Vanguard Total Stock Market Index- expense ratio .04
5.7% VTIAX- Vanguard Total International Stock Market Index- expense ratio .11

Her Roth ira ~60K
12.2% Vanguard Target Date 2050- expense ratio .16

His Roth 403b~90K
18.7% FSTVX Fidelity Total Market Index- expense ratio .035

Her 401K ~80K
16.3% Vanguard Target Date 2050 expense ratio- .09

Brokerage Account ~175K
20.8% VTSAX- Vanguard Total Stock Market Index expense ratio- .04
8.8% VTIAX- Vanguard Total International Stock Market Index- expense ratio .11
2.9% VPU- Vanguard Utilities ETF- expense ratio .1
1.3% CCL- Carnival Cruise Corp.
1.1% NCLH -Norwegian Cruise Line

529 college savings (kids age 1 & 3) ~30K
4.1% Large Cap Equity Index- expense ratio .13
1.6% International Equity Index- expense ratio .17

Additional
Him- Vested in the Wisconsin State Retirement program – will have pension available around age 55- roughly 2.5k/month.

Current and future Investment Plan per year
18k/max His Roth 403b 100% towards Fidelity Total stock market
18K/max Her 401K 100% Vanguard Target 2050
5.5K/max His Roth 60% towards Total stock market 40% towards Total International Stock
5.5K/max Her Roth 100% Vanguard Target 2050
25-35K brokerage account – 60% towards Total stock market 40% towards Total International Stock
6.2k 529 college savings account- 60/40 split towards US large cap index/international index

Thoughts and goals: Our hope is to both retire in ~ 15 yrs. (Would be ages 47 & 48) Would love to retire even earlier if possible. Our current plan would be to live off the brokerage account until age 59.5 when we could then access the retirement accounts penalty free.
Ideal retirement budget is 10K month. We hope to travel. Future Health insurance is a big question. If health insurance is very high, we would consider one of us working enough to get it.

Plan would be to stay in WI in current house or something comparable.
Would like to fund a significant portion (~75%) of college expenses for kids as long as it is a public in state school.
We both have 16yrs left of term life insurance- him 500K- her 1 million

Questions:
1) Does our plan seem to match our goals? Do our goals seem reasonable?
2) Do our asset allocations seem reasonable?
2) Should I continue to do Roth contributions to 403b? or change to pre-tax?
3) Should we do Roth ira’s (backdoor) or just put future investments in brokerage account?
4) I got my employer to look into offering a 457 plan in addition to 403b’s for next year. If it goes through, should we put some of our what would be brokerage account contributions in this? Pre-tax I assume, or Roth? The 457 investing options for WI seem very good. (Schwab and vanguard among them)
5) Any other thoughts, I am missing/not maximizing something, or could I be doing something better/different?
Thanks!!

RadAudit
Posts: 2680
Joined: Mon May 26, 2008 10:20 am
Location: Second star on the right and straight on 'til morning

Re: Looking for 2nd opinions on early retirement portfolio & plan

Post by RadAudit » Wed Nov 22, 2017 4:08 pm

leisure21 wrote:
Wed Nov 22, 2017 12:08 pm
Our current plan would be to live off the brokerage account until age 59.5 when we could then access the retirement accounts penalty free.
In case you get to the point of wanting an early retirement before 59.5, look at a 72(t)[?] so you can withdraw earlier from a retirement plan penalty free - if they still have it by then.
FI is the best revenge. LBYM. Invest the rest. Stay the course.

DKD
Posts: 29
Joined: Mon Feb 01, 2016 9:29 pm

Re: Looking for 2nd opinions on early retirement portfolio & plan

Post by DKD » Wed Nov 22, 2017 4:20 pm

Just fair warning that $10k per month won't be worth much 15, 30 or 45 years from now. Also healthcare will be a big chunk of that monthly income. Good luck!

krow36
Posts: 1436
Joined: Fri Jan 30, 2015 6:05 pm
Location: WA

Re: Looking for 2nd opinions on early retirement portfolio & plan

Post by krow36 » Wed Nov 22, 2017 8:40 pm

Congratulations on making significant progress towards FIRE (Financial Independence Retire Early). It’s great to have options, whether you decide to retire early or not. Are you aware that it’s possible to take distributions from your 403b and 401k plans after separation from your employers after age 55? https://www.irahelp.com/slottreport/age ... on-penalty I retired from teaching at 56 and took a small monthly distribution for about 5 years from my 403b. Of course you know that 457 plans have no early distribution penalty after separation from the plan’s sponsor regardless of age. So taxable, 457 at any age and 403b at age 55 are all possible income sources after early retirement. :D

I think continuing to do backdoor Roth IRAs is a good idea. If you are able to contribute (max?) to the 401k, 403b and to the new 457, I like the idea of one of them being a Roth account. After early retirement you should be able to convert some of the other two traditional employer plans to Roth IRAs in a much lower tax bracket.

DA200
Posts: 126
Joined: Fri Feb 06, 2015 3:47 pm

Re: Looking for 2nd opinions on early retirement portfolio & plan

Post by DA200 » Wed Nov 22, 2017 11:31 pm

My wife and I have a nearly identical situation with similar incomes (wife in medical with 401k and I am in education with a 403b and 457) and future pension. I would recommend maxing out ALL tax deferred accounts to reduce current taxes as much as possible and also doing backdoor Roth IRAs. There is less chance of being in as high of a tax bracket as you are now if you plan to retire early, so why pay extra tax now! When you retire you can live off of taxable and the 457 initially and also do Roth conversions in a lower tax bracket.
We just turned 50 and max the 403b ($24K), 457 ($24K), 401k ($24K+ $10K profit sharing), and $6.5K to both Roth IRAs. We started maxing tax deferred savings in our late 20s and just crossed $3.5M portfolio. With your high savings rate and low living expenses you are setting yourself up for a very nice early retirement. Keep up the great work.

leisure21
Posts: 4
Joined: Wed Nov 22, 2017 9:14 am

Re: Looking for 2nd opinions on early retirement portfolio & plan

Post by leisure21 » Fri Nov 24, 2017 1:30 pm

DA200 wrote:
Wed Nov 22, 2017 11:31 pm

We just turned 50 and max the 403b ($24K), 457 ($24K), 401k ($24K+ $10K profit sharing), and $6.5K to both Roth IRAs. We started maxing tax deferred savings in our late 20s and just crossed $3.5M portfolio. With your high savings rate and low living expenses you are setting yourself up for a very nice early retirement. Keep up the great work.
3.5 M awesome!... Do you believe this will be enough for you to call it quits and live the lifestyle you want? Do you have a target number?

leisure21
Posts: 4
Joined: Wed Nov 22, 2017 9:14 am

Re: Looking for 2nd opinions on early retirement portfolio & plan

Post by leisure21 » Fri Nov 24, 2017 1:32 pm

RadAudit wrote:
Wed Nov 22, 2017 4:08 pm
leisure21 wrote:
Wed Nov 22, 2017 12:08 pm
Our current plan would be to live off the brokerage account until age 59.5 when we could then access the retirement accounts penalty free.
In case you get to the point of wanting an early retirement before 59.5, look at a 72(t)[?] so you can withdraw earlier from a retirement plan penalty free - if they still have it by then.
Interesting... I will have to look more into the 72(t)... has there been any talk of it being done away with?

leisure21
Posts: 4
Joined: Wed Nov 22, 2017 9:14 am

Re: Looking for 2nd opinions on early retirement portfolio & plan

Post by leisure21 » Fri Nov 24, 2017 1:41 pm

krow36 wrote:
Wed Nov 22, 2017 8:40 pm

I think continuing to do backdoor Roth IRAs is a good idea. If you are able to contribute (max?) to the 401k, 403b and to the new 457, I like the idea of one of them being a Roth account. After early retirement you should be able to convert some of the other two traditional employer plans to Roth IRAs in a much lower tax bracket.
Just to clarify... would you suggest having one of the three (her 401K,his 403b, his457) be a roth in addition to two Roth IRAs? Thanks for your suggestions!

stagolee
Posts: 1
Joined: Mon Mar 14, 2016 8:42 pm

Re: Looking for 2nd opinions on early retirement portfolio & plan

Post by stagolee » Fri Nov 24, 2017 5:24 pm

I'm in the same boat. I found this article helpful:

https://www.caniretireyet.com/generatin ... re-age-59/

Also, this is my first hello to the Bogleheads community. Long time reader, first time poster. Thanks for all of the amazing advice over the last few years!

RadAudit
Posts: 2680
Joined: Mon May 26, 2008 10:20 am
Location: Second star on the right and straight on 'til morning

Re: Looking for 2nd opinions on early retirement portfolio & plan

Post by RadAudit » Fri Nov 24, 2017 6:42 pm

leisure21 wrote:
Fri Nov 24, 2017 1:32 pm
RadAudit wrote:
Wed Nov 22, 2017 4:08 pm
leisure21 wrote:
Wed Nov 22, 2017 12:08 pm
Our current plan would be to live off the brokerage account until age 59.5 when we could then access the retirement accounts penalty free.
In case you get to the point of wanting an early retirement before 59.5, look at a 72(t)[?] so you can withdraw earlier from a retirement plan penalty free - if they still have it by then.
Interesting... I will have to look more into the 72(t)... has there been any talk of it being done away with?

Not that I'm aware of.
FI is the best revenge. LBYM. Invest the rest. Stay the course.

krow36
Posts: 1436
Joined: Fri Jan 30, 2015 6:05 pm
Location: WA

Re: Looking for 2nd opinions on early retirement portfolio & plan

Post by krow36 » Fri Nov 24, 2017 11:59 pm

leisure21 wrote:
Fri Nov 24, 2017 1:41 pm
krow36 wrote:
Wed Nov 22, 2017 8:40 pm
I think continuing to do backdoor Roth IRAs is a good idea. If you are able to contribute (max?) to the 401k, 403b and to the new 457, I like the idea of one of them being a Roth account. After early retirement you should be able to convert some of the other two traditional employer plans to Roth IRAs in a much lower tax bracket.
Just to clarify... would you suggest having one of the three (her 401K,his 403b, his457) be a roth in addition to two Roth IRAs? Thanks for your suggestions!
I think it’s ideal to have a mixture of taxable, tax deferred and Roth accounts. The future is unknown and it makes sense to me to have various options. On taking another look at your numbers I see that you have a lot in Roth and taxable accounts and not that much in tax deferred. If he continues to max the Roth 403b and started maxing his soon to be tax deferred 457, and she continued to max her tax deferred 401k, and you both continued to max the Roth IRAs, you will have lots of options. Which you can change as time goes on.

Of course if all three employer accounts were tax deferred, you would pay the least income tax during your current high earning years. Have you checked out the MMM investing forum website? These folks are focused on early retirement and certainly know a lot more than I do about how to balance all the variables.

DA200
Posts: 126
Joined: Fri Feb 06, 2015 3:47 pm

Re: Looking for 2nd opinions on early retirement portfolio & plan

Post by DA200 » Fri Dec 01, 2017 9:42 am

leisure21 wrote:
Fri Nov 24, 2017 1:30 pm
DA200 wrote:
Wed Nov 22, 2017 11:31 pm

We just turned 50 and max the 403b ($24K), 457 ($24K), 401k ($24K+ $10K profit sharing), and $6.5K to both Roth IRAs. We started maxing tax deferred savings in our late 20s and just crossed $3.5M portfolio. With your high savings rate and low living expenses you are setting yourself up for a very nice early retirement. Keep up the great work.
3.5 M awesome!... Do you believe this will be enough for you to call it quits and live the lifestyle you want? Do you have a target number?
Sorry for the late response - 4M is target for both of us to retire now at age 50 with no pension. If I work 5 more years (30 yrs of sevice) I will be eligible for a ~$50K/yr pension. At that time we could both retire and will only need around 3M to cover expenses, travel, continue our somewhat expensive hobbies, get a kid through college, and feel very secure. Healthcare is still an unknown as well as the pension system....
I would caution you on counting on your pension and retirement benefits being the same as you expect 15 yrs from now. If my pension system was the same now as it was when I started I would already be retired.
Here is what changed in my pension system over the past ten years as I started to think about retirement:
1) 30 yrs of service required instead of 25.
2) COLA removed (and not grandfathered for current retirees)
3) reduced pension percentage per year of service
4) reduced health insurance subsidy (mainly for retirees that have not reached medicare age) - not good for early retirees
AND the pension system keeps talking about further reductions to stay healthy....

I am still thankful for having some pension benefits, but might have had more flexibility regarding retirement date with a defined contribution plan.
Just keep maxing all of your tax advantaged space and you will be in great shape 15 years from now. :moneybag

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