28 with a wife and new baby

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UniversityEmployee9
Posts: 101
Joined: Wed Mar 18, 2015 10:01 am

28 with a wife and new baby

Post by UniversityEmployee9 » Thu Jun 14, 2018 9:48 pm

Hi all,

I've gotten great advice here in years past, so I thought I should check in and see what you all think of my current plan and situation.

I'm 28 but I'll be 29 in a few months. My wife just turned 29.

We just had a baby in February.

We've got about $37k saved for retirement, ~$10k of which is in Roth IRAs, the rest in traditional 403b, 457b (governmental, I work for the state), and IRAs. All of it invested in very low ER 2055 target date funds (90/10, with a 60/40 domestic/international equity split).

We have a 4-5 month emergency fund (we both have stable jobs at universities so I'm not terribly worried about having an especially large EF).

We currently make about $132k annually before taxes.

I opened up a 529 plan for my daughter about six months before she was born, it's now worth about $1500.

I decided to stop contributing to it regularly starting this month after reading some convincing advice on this forum that suggested it was a good idea to max out retirement accounts before worrying about a 529.

We have never maxed out anything other than our IRAs (although we have contributed to our 403bs, and most recently started contributing to the 457), and we really only have done that for two years now. My wife and I decided it's time to take advantage of all of our tax advantaged space (as much as we are able).

The current plan for 2018 (in order of importance):

Max out HSAs.

Max out my 457b plan.

Max out her 403b plan.

Contribute the full 5.14% of my salary that I'm allowed to voluntarily contribute to my University's ORP (I'm required to contribute another 3%, and the University contributes 5.14% regardless. The mandatary contributions from myself and the University don't count towards the $18,500 contribution limit for my 403b retirement savings for the year).

Max out Roth IRAs.

Next year, I will max out a separate 403b offered through the University that allows me to contribute the difference between my 5.14% voluntary contribution and the annual contribution limit. This will be a higher priority than the Roth IRAs, but we are still planning on maxing those out.

We also have a mortgage with about 173k still owed, 2.99% interest rate, 15 year term, ~24% equity in the house.

We have no other debt.

We both have adequate term life insurance. We have great health insurance and disability insurance through our employers.

We can live on about $3800/month. We had been saving a lot previously for the down payment on the house.

My biggest issue:

I'm not sure whether the excess savings beyond the above should go toward paying off the principal on our mortgage, a taxable account, or a 529.

My thinking on the 529 plan is that it's somewhat risky compared to just putting the money in a Roth and then using some Roth contributions later for qualified education expenses. We'll keep the account around for gifts from family and friends.

As for paying off the mortgage, the rate is super low, but I think paying it off would provide a huge psychological benefit.

My wife and I are also interested in having several more children (at least two more, maybe three), and we would rather she become a stay at home mom to do that eventually (but probably not for a few years, she currently works from home and we have access to a cheap-ish nanny).

We're also potentially interested in reaching financial independence by the time we're in our forties.

All that said, do you have any advice or wisdom you might be able to offer young people in our situation?

Are we saving too much, are we saving the right way, and do you think our goals are achievable given our current plan?

Thanks in advance!

sman09
Posts: 211
Joined: Fri Mar 23, 2018 12:02 am

Re: 28 with a wife and new baby

Post by sman09 » Thu Jun 14, 2018 10:41 pm

We just had a baby in February.
Congratulations and best wishes to your family!

Reading through your post, sounds like you are in perfect shape and on track for an excellent retirement.
[...] convincing advice on this forum that suggested it was a good idea to max out retirement accounts before worrying about a 529.
Would you be able to point me to the post that dealt with this point when you find the time?

Thank you.

mcraepat9
Posts: 967
Joined: Thu Jul 16, 2015 11:46 am

Re: 28 with a wife and new baby

Post by mcraepat9 » Thu Jun 14, 2018 10:54 pm

UniversityEmployee9 wrote:
Thu Jun 14, 2018 9:48 pm
Hi all,

I've gotten great advice here in years past, so I thought I should check in and see what you all think of my current plan and situation.

I'm 28 but I'll be 29 in a few months. My wife just turned 29.

We just had a baby in February.congrats!

We've got about $37k saved for retirement, ~$10k of which is in Roth IRAs, the rest in traditional 403b, 457b (governmental, I work for the state), and IRAs. All of it invested in very low ER 2055 target date funds (90/10, with a 60/40 domestic/international equity split).

We have a 4-5 month emergency fund (we both have stable jobs at universities so I'm not terribly worried about having an especially large EF).i don't think the fact that you have stable jobs means you shouldn't have a bigger emergency fund - you have two things that tend to have large unexpected expenses (house and baby). i would reconsider your stance on keeping this EF low.

We currently make about $132k annually before taxes.

I opened up a 529 plan for my daughter about six months before she was born, it's now worth about $1500.

I decided to stop contributing to it regularly starting this month after reading some convincing advice on this forum that suggested it was a good idea to max out retirement accounts before worrying about a 529.correct

We have never maxed out anything other than our IRAs (although we have contributed to our 403bs, and most recently started contributing to the 457), and we really only have done that for two years now. My wife and I decided it's time to take advantage of all of our tax advantaged space (as much as we are able).smart

The current plan for 2018 (in order of importance):

Max out HSAs.

Max out my 457b plan.

Max out her 403b plan.

Contribute the full 5.14% of my salary that I'm allowed to voluntarily contribute to my University's ORP (I'm required to contribute another 3%, and the University contributes 5.14% regardless. The mandatary contributions from myself and the University don't count towards the $18,500 contribution limit for my 403b retirement savings for the year).

Max out Roth IRAs.

Next year, I will max out a separate 403b offered through the University that allows me to contribute the difference between my 5.14% voluntary contribution and the annual contribution limit. This will be a higher priority than the Roth IRAs, but we are still planning on maxing those out.

We also have a mortgage with about 173k still owed, 2.99% interest rate, 15 year term, ~24% equity in the house.

We have no other debt.

We both have adequate term life insurance. We have great health insurance and disability insurance through our employers.

We can live on about $3800/month. We had been saving a lot previously for the down payment on the house. how much is left after the $3,800? after maxing all the tax advantaged accounts, how much do you have left after that? you do still want to live your life, of course.

My biggest issue:

I'm not sure whether the excess savings beyond the above should go toward paying off the principal on our mortgage, a taxable account, or a 529. personal finance is, by definition, quite personal. i think you should keep a bit larger EF and then you can spend the extra funds to any of those goals IMHO. if paying down mortgage helps you sleep better at night, then do it.

My thinking on the 529 plan is that it's somewhat risky compared to just putting the money in a Roth and then using some Roth contributions later for qualified education expenses. true but if your plan is to contribute to 529 only after you've maxed your other tax-advantaged accounts, isn't the better comparison to (i) taxable account investing and (ii) paying down your mortgage? the current scenario you outline is a bit of a strawman.We'll keep the account around for gifts from family and friends.

As for paying off the mortgage, the rate is super low, but I think paying it off would provide a huge psychological benefit.do it then, or split the difference and do half paydown and half taxable investing.

My wife and I are also interested in having several more children (at least two more, maybe three), and we would rather she become a stay at home mom to do that eventually (but probably not for a few years, she currently works from home and we have access to a cheap-ish nanny). all the more reason to save in tax-deferred accounts now, as you'll likely have some lower tax bracket years if she moves to SAHM.

We're also potentially interested in reaching financial independence by the time we're in our forties.

All that said, do you have any advice or wisdom you might be able to offer young people in our situation? think you have a good plan - LBYM, saving and investing in tax efficient low cost index investments puts you on a great path.

Are we saving too much hard to say exactly, obviously you don't want to live like a pauper but everything in life isn't saving for retirement. only you can decide whether the amount you're saving is right for your family, are we saving the right way with this plan you have, undeniably yes., and do you think our goals are achievable given our current plan? it's hard to say exactly what "reaching financial independence by the time [you're] in [y]our forties" means - i think that you are setting yourself up for a great future and i think maybe doing this for 4-5 years and then checking back in to see how it went will give you more color on your progress than anyone on the internet can.

Thanks in advance!
Amateur investors are not cool-headed logicians.

mcraepat9
Posts: 967
Joined: Thu Jul 16, 2015 11:46 am

Re: 28 with a wife and new baby

Post by mcraepat9 » Thu Jun 14, 2018 10:59 pm

sman09 wrote:
Thu Jun 14, 2018 10:41 pm
We just had a baby in February.
Congratulations and best wishes to your family!

Reading through your post, sounds like you are in perfect shape and on track for an excellent retirement.
[...] convincing advice on this forum that suggested it was a good idea to max out retirement accounts before worrying about a 529.
Would you be able to point me to the post that dealt with this point when you find the time?

Thank you.
sman09, you can find many many posts that delve into this. generally speaking, the analysis can be boiled down to: (i) tax-deferred investing is generally better than 529 or taxable investing, esp during your working years when you are in a high bracket, and (ii) some variant of the following: the "FAA" approach (take care of your own ship first before helping others); you can always get loans for college (and sometimes scholarships) but there are no retirement loans (also no retirement scholarships to my knowledge); worst case scenario, you can take money out of retirement to use for college if you wanted to, but 529 funds cannot be used for retirement expenses and tax-advantaged retirement investing each year is use or lose - you can always contribute to 529s and/or taxable investing later.
Amateur investors are not cool-headed logicians.

sman09
Posts: 211
Joined: Fri Mar 23, 2018 12:02 am

Re: 28 with a wife and new baby

Post by sman09 » Thu Jun 14, 2018 11:47 pm

mcraepat9 wrote:
Thu Jun 14, 2018 10:59 pm
sman09 wrote:
Thu Jun 14, 2018 10:41 pm
We just had a baby in February.
Congratulations and best wishes to your family!

Reading through your post, sounds like you are in perfect shape and on track for an excellent retirement.
[...] convincing advice on this forum that suggested it was a good idea to max out retirement accounts before worrying about a 529.
Would you be able to point me to the post that dealt with this point when you find the time?

Thank you.
sman09, you can find many many posts that delve into this. generally speaking, the analysis can be boiled down to: (i) tax-deferred investing is generally better than 529 or taxable investing, esp during your working years when you are in a high bracket, and (ii) some variant of the following: the "FAA" approach (take care of your own ship first before helping others); you can always get loans for college (and sometimes scholarships) but there are no retirement loans (also no retirement scholarships to my knowledge); worst case scenario, you can take money out of retirement to use for college if you wanted to, but 529 funds cannot be used for retirement expenses and tax-advantaged retirement investing each year is use or lose - you can always contribute to 529s and/or taxable investing later.
Excellent summary! thanks a lot @mcraepat9 for your time and help!

Nate79
Posts: 3494
Joined: Thu Aug 11, 2016 6:24 pm
Location: Portland, OR

Re: 28 with a wife and new baby

Post by Nate79 » Fri Jun 15, 2018 12:42 am

Does your University job not offer some sort of benefit to your child for free tuition?

student
Posts: 2534
Joined: Fri Apr 03, 2015 6:58 am

Re: 28 with a wife and new baby

Post by student » Fri Jun 15, 2018 5:15 am

Nate79 wrote:
Fri Jun 15, 2018 12:42 am
Does your University job not offer some sort of benefit to your child for free tuition?
+1. I was about to ask the same thing. Mine offers almost free tuition although only a few of my colleagues took advantage of it.

mortfree
Posts: 1278
Joined: Mon Sep 12, 2016 7:06 pm

Re: 28 with a wife and new baby

Post by mortfree » Fri Jun 15, 2018 5:22 am

Didn’t see it mentioned here.

Do you have term life insurance for each of you?

niceguy7376
Posts: 2123
Joined: Wed Jul 10, 2013 2:59 pm
Location: Metro ATL

Re: 28 with a wife and new baby

Post by niceguy7376 » Fri Jun 15, 2018 7:30 am

UniversityEmployee9 wrote:
Thu Jun 14, 2018 9:48 pm
My wife and I are also interested in having several more children (at least two more, maybe three), and we would rather she become a stay at home mom to do that eventually (but probably not for a few years, she currently works from home and we have access to a cheap-ish nanny).

We're also potentially interested in reaching financial independence by the time we're in our forties.
My opinion based on above two conflicting statements:
29 with one new born. By the time you have the remaining 2 or 3 more, you two would be 34 or more. Even gettting those kids till high school graduation would make your age 49. With single income, the FI reach might be a bit too difficult and out of reach.

Jack FFR1846
Posts: 7802
Joined: Tue Dec 31, 2013 7:05 am

Re: 28 with a wife and new baby

Post by Jack FFR1846 » Fri Jun 15, 2018 7:43 am

1) Having a number of kids.
2) Dropping income with SAHM
3) Possibly paying a nanny

FI in the next 10 years.


Sorry. Not sure why nobody has simply said that this is absolutely not possible. Unless you become head of a department at the college and consult at $1,000 an hour or inherit $5MM......
Bogle: Smart Beta is stupid

Grt2bOutdoors
Posts: 19175
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: 28 with a wife and new baby

Post by Grt2bOutdoors » Fri Jun 15, 2018 7:54 am

Jack FFR1846 wrote:
Fri Jun 15, 2018 7:43 am
1) Having a number of kids.
2) Dropping income with SAHM
3) Possibly paying a nanny

FI in the next 10 years.


Sorry. Not sure why nobody has simply said that this is absolutely not possible. Unless you become head of a department at the college and consult at $1,000 an hour or inherit $5MM......
+1, I thought it, didn't say it. OP - you can have some, you can not have it all. You will need to make choices, then those choices become your priority. Having kids are costly, oh sure, they can go to college where you teach for a small amount, but in the in-between years? the costs go up, they just do.... Forget about FI in the next 10 years, you will need to work for at least 20 years. Unless you have a $5 million dollar trust on the side you didn't disclose.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

UniversityEmployee9
Posts: 101
Joined: Wed Mar 18, 2015 10:01 am

Re: 28 with a wife and new baby

Post by UniversityEmployee9 » Fri Jun 15, 2018 8:13 am

mcraepat9 wrote:
Thu Jun 14, 2018 10:54 pm
UniversityEmployee9 wrote:
Thu Jun 14, 2018 9:48 pm
Hi all,

I've gotten great advice here in years past, so I thought I should check in and see what you all think of my current plan and situation.

I'm 28 but I'll be 29 in a few months. My wife just turned 29.

We just had a baby in February.congrats!

We've got about $37k saved for retirement, ~$10k of which is in Roth IRAs, the rest in traditional 403b, 457b (governmental, I work for the state), and IRAs. All of it invested in very low ER 2055 target date funds (90/10, with a 60/40 domestic/international equity split).

We have a 4-5 month emergency fund (we both have stable jobs at universities so I'm not terribly worried about having an especially large EF).i don't think the fact that you have stable jobs means you shouldn't have a bigger emergency fund - you have two things that tend to have large unexpected expenses (house and baby). i would reconsider your stance on keeping this EF low.

We currently make about $132k annually before taxes.

I opened up a 529 plan for my daughter about six months before she was born, it's now worth about $1500.

I decided to stop contributing to it regularly starting this month after reading some convincing advice on this forum that suggested it was a good idea to max out retirement accounts before worrying about a 529.correct

We have never maxed out anything other than our IRAs (although we have contributed to our 403bs, and most recently started contributing to the 457), and we really only have done that for two years now. My wife and I decided it's time to take advantage of all of our tax advantaged space (as much as we are able).smart

The current plan for 2018 (in order of importance):

Max out HSAs.

Max out my 457b plan.

Max out her 403b plan.

Contribute the full 5.14% of my salary that I'm allowed to voluntarily contribute to my University's ORP (I'm required to contribute another 3%, and the University contributes 5.14% regardless. The mandatary contributions from myself and the University don't count towards the $18,500 contribution limit for my 403b retirement savings for the year).

Max out Roth IRAs.

Next year, I will max out a separate 403b offered through the University that allows me to contribute the difference between my 5.14% voluntary contribution and the annual contribution limit. This will be a higher priority than the Roth IRAs, but we are still planning on maxing those out.

We also have a mortgage with about 173k still owed, 2.99% interest rate, 15 year term, ~24% equity in the house.

We have no other debt.

We both have adequate term life insurance. We have great health insurance and disability insurance through our employers.

We can live on about $3800/month. We had been saving a lot previously for the down payment on the house. how much is left after the $3,800? after maxing all the tax advantaged accounts, how much do you have left after that? you do still want to live your life, of course.

My biggest issue:

I'm not sure whether the excess savings beyond the above should go toward paying off the principal on our mortgage, a taxable account, or a 529. personal finance is, by definition, quite personal. i think you should keep a bit larger EF and then you can spend the extra funds to any of those goals IMHO. if paying down mortgage helps you sleep better at night, then do it.

My thinking on the 529 plan is that it's somewhat risky compared to just putting the money in a Roth and then using some Roth contributions later for qualified education expenses. true but if your plan is to contribute to 529 only after you've maxed your other tax-advantaged accounts, isn't the better comparison to (i) taxable account investing and (ii) paying down your mortgage? the current scenario you outline is a bit of a strawman.We'll keep the account around for gifts from family and friends.

As for paying off the mortgage, the rate is super low, but I think paying it off would provide a huge psychological benefit.do it then, or split the difference and do half paydown and half taxable investing.

My wife and I are also interested in having several more children (at least two more, maybe three), and we would rather she become a stay at home mom to do that eventually (but probably not for a few years, she currently works from home and we have access to a cheap-ish nanny). all the more reason to save in tax-deferred accounts now, as you'll likely have some lower tax bracket years if she moves to SAHM.

We're also potentially interested in reaching financial independence by the time we're in our forties.

All that said, do you have any advice or wisdom you might be able to offer young people in our situation? think you have a good plan - LBYM, saving and investing in tax efficient low cost index investments puts you on a great path.

Are we saving too much hard to say exactly, obviously you don't want to live like a pauper but everything in life isn't saving for retirement. only you can decide whether the amount you're saving is right for your family, are we saving the right way with this plan you have, undeniably yes., and do you think our goals are achievable given our current plan? it's hard to say exactly what "reaching financial independence by the time [you're] in [y]our forties" means - i think that you are setting yourself up for a great future and i think maybe doing this for 4-5 years and then checking back in to see how it went will give you more color on your progress than anyone on the internet can.

Thanks in advance!
Thank you for the detailed response!

I suppose we could contribute more to our EF and get it up to six months, but that's as far as I'd go with it I think.

After the $3800 is about $1000 after taxes if I max everything out, by my calculations.

For us, $3800 is plenty to live on, we don't need many luxuries.

Thank you so much for the detailed response and the encouragement!

mmmodem
Posts: 1421
Joined: Thu May 20, 2010 1:22 pm

Re: 28 with a wife and new baby

Post by mmmodem » Fri Jun 15, 2018 8:14 am

We're a few years older than you but I can remember when we had our first child and going through the same decisions you did. I don't consider 4-5 months EF small. That's $3800 x 4.5 = $17100. Seems like a good healthy EF for a family of 3.

Absolutely, HSA, 401k/403b, Roth IRA's were maxed out back then. It was the right decision as we had our third child recently and DW quit her job to be SAHM. We've had to stop maxing out our retirement accounts as we no longer make 6 figures combined. And you know what? That's not a problem because our previously maxed out retirement accounts are on track to allow us to retire by 59.5 if we don't contribute anymore to it. Since we are still contributing to it, it's only bringing us closer to financial Independence.

We did not start a 529 but my sister out the kindness of her heart started one for each of our children anyway. She contributes monthly to it but we do not. Every birthday, we include the link to it for family and friends to give in lieu of gifts. Most still choose to give toys but one fewer toy is one less stepped on by me and it helps out for their education.

Understand that the questions you are asking will only make a small difference in your financial future. You've already made the right decisions on the big things. For example, with our mortgage interest so low, we never paid extra. We instead purchased newer vehicles. They're safer to carry our children around and I qualified for solo HOV access because my car is a plug in. I get to spend more time at home to watch my children grow. We could've saved in taxable accounts. We could've saved it in a 529. We chose what made us feel comfortable. I get no psychological benefit from paying off the mortgage. DW might.

I don't know if you can retire in your 40's but I can tell you we lived in a high COLA making about the similar to you combined in our early 30's we are currently on track to retire in our mid 50's with 3 children. We chose to max tax advantaged accounts and not pay extra to the mortgage. Anything leftover, we spent. I can imagine if we had saved in taxable accounts, have only 2 children and DW continued to work, or retire in a lower COLA we could retire in our 40's but that's not our goal.

UniversityEmployee9
Posts: 101
Joined: Wed Mar 18, 2015 10:01 am

Re: 28 with a wife and new baby

Post by UniversityEmployee9 » Fri Jun 15, 2018 8:15 am

student wrote:
Fri Jun 15, 2018 5:15 am
Nate79 wrote:
Fri Jun 15, 2018 12:42 am
Does your University job not offer some sort of benefit to your child for free tuition?
+1. I was about to ask the same thing. Mine offers almost free tuition although only a few of my colleagues took advantage of it.
It does offer free tuition for up to six credit hours per semester for dependents, but I'm not sure if I'll still work there in 18 years. If I am, then great, I'll be glad that I didn't stash all of that money in a 529 and went the Roth route instead.

UniversityEmployee9
Posts: 101
Joined: Wed Mar 18, 2015 10:01 am

Re: 28 with a wife and new baby

Post by UniversityEmployee9 » Fri Jun 15, 2018 8:19 am

mortfree wrote:
Fri Jun 15, 2018 5:22 am
Didn’t see it mentioned here.

Do you have term life insurance for each of you?
Yes, including baby (through work, $25k). My wife and I each have $500k term life plans we bought on our own, I've got $345k through work (the max they'll do), and she has another $25k through work.

soccerrules
Posts: 803
Joined: Mon Nov 14, 2016 4:01 pm

Re: 28 with a wife and new baby

Post by soccerrules » Fri Jun 15, 2018 8:20 am

Grt2bOutdoors wrote:
Fri Jun 15, 2018 7:54 am
Jack FFR1846 wrote:
Fri Jun 15, 2018 7:43 am
1) Having a number of kids.
2) Dropping income with SAHM
3) Possibly paying a nanny

FI in the next 10 years.


Sorry. Not sure why nobody has simply said that this is absolutely not possible. Unless you become head of a department at the college and consult at $1,000 an hour or inherit $5MM......
+1, I thought it, didn't say it. OP - you can have some, you can not have it all. You will need to make choices, then those choices become your priority. Having kids are costly, oh sure, they can go to college where you teach for a small amount, but in the in-between years? the costs go up, they just do.... Forget about FI in the next 10 years, you will need to work for at least 20 years. Unless you have a $5 million dollar trust on the side you didn't disclose.
yeh unfortunately for you - I would agree with these comments. Unless you have a large inheritance, some other windfall or have created a side gig that will grow and then liquidate to provide a large sum. I don't see FI possible with the information and wants you have communicated.
The biggest challenge is the lack of time for compounding interest to do it's job. You really have to contribute as much as possible in your 20s/30s so that by your 40's those balances start to really climb for having "time in the market".
As other has posted contribute to all of your tax deferred and Roth prior to Taxable and then 529.
Once really big positive is that you guys are well ahead of the vast majority of young adults. When you get to your late 40's, you will be very thankful for the saving you are doing NOW.
Stay the course.
Having kids is awesome, but it is not cheap nor for the faint of heart. :shock:
Don't let your outflow exceed your income or your upkeep will be your downfall.

UniversityEmployee9
Posts: 101
Joined: Wed Mar 18, 2015 10:01 am

Re: 28 with a wife and new baby

Post by UniversityEmployee9 » Fri Jun 15, 2018 8:23 am

Jack FFR1846 wrote:
Fri Jun 15, 2018 7:43 am
1) Having a number of kids.
2) Dropping income with SAHM
3) Possibly paying a nanny

FI in the next 10 years.


Sorry. Not sure why nobody has simply said that this is absolutely not possible. Unless you become head of a department at the college and consult at $1,000 an hour or inherit $5MM......
The nanny costs about $12/hour at the moment, and we only hire her for three hours a day for four days out of the week. If we hire her for more than 20 hours her rate will go down to $10/hour, but we just don't need her that much with my wife working from home.

That cost is included in the $3800/month I mentioned above.

I'm actually a software developer so my earning potential is pretty decent, so hopefully between that, my wife working for a few more years, and our frugal lifestyle we could hit FI by the time we're in our late 40s.

Thanks for the response!

UniversityEmployee9
Posts: 101
Joined: Wed Mar 18, 2015 10:01 am

Re: 28 with a wife and new baby

Post by UniversityEmployee9 » Fri Jun 15, 2018 8:27 am

soccerrules wrote:
Fri Jun 15, 2018 8:20 am
Grt2bOutdoors wrote:
Fri Jun 15, 2018 7:54 am
Jack FFR1846 wrote:
Fri Jun 15, 2018 7:43 am
1) Having a number of kids.
2) Dropping income with SAHM
3) Possibly paying a nanny

FI in the next 10 years.


Sorry. Not sure why nobody has simply said that this is absolutely not possible. Unless you become head of a department at the college and consult at $1,000 an hour or inherit $5MM......
+1, I thought it, didn't say it. OP - you can have some, you can not have it all. You will need to make choices, then those choices become your priority. Having kids are costly, oh sure, they can go to college where you teach for a small amount, but in the in-between years? the costs go up, they just do.... Forget about FI in the next 10 years, you will need to work for at least 20 years. Unless you have a $5 million dollar trust on the side you didn't disclose.
yeh unfortunately for you - I would agree with these comments. Unless you have a large inheritance, some other windfall or have created a side gig that will grow and then liquidate to provide a large sum. I don't see FI possible with the information and wants you have communicated.
The biggest challenge is the lack of time for compounding interest to do it's job. You really have to contribute as much as possible in your 20s/30s so that by your 40's those balances start to really climb for having "time in the market".
As other has posted contribute to all of your tax deferred and Roth prior to Taxable and then 529.
Once really big positive is that you guys are well ahead of the vast majority of young adults. When you get to your late 40's, you will be very thankful for the saving you are doing NOW.
Stay the course.
Having kids is awesome, but it is not cheap nor for the faint of heart. :shock:
Do you mean that we won't reach FI by our 40s or that we won't reach FI ever?

nordsteve
Posts: 645
Joined: Sun Oct 05, 2008 9:23 am

Re: 28 with a wife and new baby

Post by nordsteve » Fri Jun 15, 2018 8:36 am

UniversityEmployee9 wrote:
Thu Jun 14, 2018 9:48 pm
I'm not sure whether the excess savings beyond the above should go toward paying off the principal on our mortgage, a taxable account, or a 529.

...snip...

As for paying off the mortgage, the rate is super low, but I think paying it off would provide a huge psychological benefit.

… snip …

My wife and I are also interested in having several more children (at least two more, maybe three), and we would rather she become a stay at home mom to do that eventually (but probably not for a few years, she currently works from home and we have access to a cheap-ish nanny).
I was in your situation when I was younger and just starting a family. There was a big psychological benefit to having more in investments, and keeping the mortgage. My wife and I liked the flexibility that this offered. Once the house is paid off, it's expensive to tap that asset for cash.

I agree with the other comments that "capturing the match" and "fill tax-deferred first" is the correct order for filling accounts.

UniversityEmployee9
Posts: 101
Joined: Wed Mar 18, 2015 10:01 am

Re: 28 with a wife and new baby

Post by UniversityEmployee9 » Fri Jun 15, 2018 8:41 am

mmmodem wrote:
Fri Jun 15, 2018 8:14 am
We're a few years older than you but I can remember when we had our first child and going through the same decisions you did. I don't consider 4-5 months EF small. That's $3800 x 4.5 = $17100. Seems like a good healthy EF for a family of 3.

Absolutely, HSA, 401k/403b, Roth IRA's were maxed out back then. It was the right decision as we had our third child recently and DW quit her job to be SAHM. We've had to stop maxing out our retirement accounts as we no longer make 6 figures combined. And you know what? That's not a problem because our previously maxed out retirement accounts are on track to allow us to retire by 59.5 if we don't contribute anymore to it. Since we are still contributing to it, it's only bringing us closer to financial Independence.

We did not start a 529 but my sister out the kindness of her heart started one for each of our children anyway. She contributes monthly to it but we do not. Every birthday, we include the link to it for family and friends to give in lieu of gifts. Most still choose to give toys but one fewer toy is one less stepped on by me and it helps out for their education.

Understand that the questions you are asking will only make a small difference in your financial future. You've already made the right decisions on the big things. For example, with our mortgage interest so low, we never paid extra. We instead purchased newer vehicles. They're safer to carry our children around and I qualified for solo HOV access because my car is a plug in. I get to spend more time at home to watch my children grow. We could've saved in taxable accounts. We could've saved it in a 529. We chose what made us feel comfortable. I get no psychological benefit from paying off the mortgage. DW might.

I don't know if you can retire in your 40's but I can tell you we lived in a high COLA making about the similar to you combined in our early 30's we are currently on track to retire in our mid 50's with 3 children. We chose to max tax advantaged accounts and not pay extra to the mortgage. Anything leftover, we spent. I can imagine if we had saved in taxable accounts, have only 2 children and DW continued to work, or retire in a lower COLA we could retire in our 40's but that's not our goal.
Thank you for such a thoughtful, detailed response!

Very reassuring to hear that you've been able to meet your retirement goals with a family.

I feel the same way about the EF. If an emergency came up that require more than $17k (not likely) then we could tap into Roth contributions, too.

We're not necessarily looking to retire by the time we're in our 40s, but we'd like to have the option. Knowing that we could stop contributing at some point and still be set to retire by 59.5, like you, would be great. We live in a LCOL area, so hopefully we can pull the same thing off.

Mom staying home at three kids sounds about right, hopefully that's how it works out for us.

soccerrules
Posts: 803
Joined: Mon Nov 14, 2016 4:01 pm

Re: 28 with a wife and new baby

Post by soccerrules » Fri Jun 15, 2018 8:42 am

UniversityEmployee9 wrote:
Fri Jun 15, 2018 8:27 am
soccerrules wrote:
Fri Jun 15, 2018 8:20 am
Grt2bOutdoors wrote:
Fri Jun 15, 2018 7:54 am
Jack FFR1846 wrote:
Fri Jun 15, 2018 7:43 am
1) Having a number of kids.
2) Dropping income with SAHM
3) Possibly paying a nanny

FI in the next 10 years.


Sorry. Not sure why nobody has simply said that this is absolutely not possible. Unless you become head of a department at the college and consult at $1,000 an hour or inherit $5MM......
+1, I thought it, didn't say it. OP - you can have some, you can not have it all. You will need to make choices, then those choices become your priority. Having kids are costly, oh sure, they can go to college where you teach for a small amount, but in the in-between years? the costs go up, they just do.... Forget about FI in the next 10 years, you will need to work for at least 20 years. Unless you have a $5 million dollar trust on the side you didn't disclose.
yeh unfortunately for you - I would agree with these comments. Unless you have a large inheritance, some other windfall or have created a side gig that will grow and then liquidate to provide a large sum. I don't see FI possible with the information and wants you have communicated.
The biggest challenge is the lack of time for compounding interest to do it's job. You really have to contribute as much as possible in your 20s/30s so that by your 40's those balances start to really climb for having "time in the market".
As other has posted contribute to all of your tax deferred and Roth prior to Taxable and then 529.
Once really big positive is that you guys are well ahead of the vast majority of young adults. When you get to your late 40's, you will be very thankful for the saving you are doing NOW.
Stay the course.
Having kids is awesome, but it is not cheap nor for the faint of heart. :shock:
Do you mean that we won't reach FI by our 40s or that we won't reach FI ever?
sorry -- not in your 40's.
If you are really serious about being FI by 40's (maybe late 40"s) you are going to have to be very diligent and save maximum amounts each year. Adjust your spending habits and expectations (more MM style). So nanny, expensive cars, big house, extravagant vacations are not going to get you to FIRE in 40's.
look at FIREcalc, cfiresim and others to help play with the numbers to see what is possible.
The biggest challenge is knowing what your expenses will be like in 20-25 years. Kids are expensive and there is no way to really know that until you get on the back side of raising them. You have probably read that it cost about $250K to raise a kid to age 18. If you have 3, that is $750K of your take home pay that went "poof".
I am not telling you that you CAN'T. I am saying that it is not reasonable to just say "FIRE in our 40's" and it will happen. Very very few people do it.
What I have noticed in my reading and on this forum, many of the people that FIRE in 40/50 - were high earning couples working at large company's with no kids.
I'd love for you to do it (prove me wrong :D )--just don't want you to set your sights on it and be disappointed in 15 years.
Don't let your outflow exceed your income or your upkeep will be your downfall.

Jack FFR1846
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Re: 28 with a wife and new baby

Post by Jack FFR1846 » Fri Jun 15, 2018 8:43 am

My view is probably clouded by my present situation with a paid off house (long ago), no debt, 2 comma retirement portfolio and between the 2 kids, more in tuition payments than my base salary (thanks to business for RSUs, ESPP and a bonus plan and a very LBYM lifestyle, I do still have money left over after taxes). I cannot imagine paying for college for 4 kids. Just doing simple math at today's prices (that I'm paying), that would be $260k a year if all 4 are in at the same time! I don't make that kind of money.
Bogle: Smart Beta is stupid

UniversityEmployee9
Posts: 101
Joined: Wed Mar 18, 2015 10:01 am

Re: 28 with a wife and new baby

Post by UniversityEmployee9 » Fri Jun 15, 2018 8:51 am

soccerrules wrote:
Fri Jun 15, 2018 8:42 am
UniversityEmployee9 wrote:
Fri Jun 15, 2018 8:27 am
soccerrules wrote:
Fri Jun 15, 2018 8:20 am
Grt2bOutdoors wrote:
Fri Jun 15, 2018 7:54 am
Jack FFR1846 wrote:
Fri Jun 15, 2018 7:43 am
1) Having a number of kids.
2) Dropping income with SAHM
3) Possibly paying a nanny

FI in the next 10 years.


Sorry. Not sure why nobody has simply said that this is absolutely not possible. Unless you become head of a department at the college and consult at $1,000 an hour or inherit $5MM......
+1, I thought it, didn't say it. OP - you can have some, you can not have it all. You will need to make choices, then those choices become your priority. Having kids are costly, oh sure, they can go to college where you teach for a small amount, but in the in-between years? the costs go up, they just do.... Forget about FI in the next 10 years, you will need to work for at least 20 years. Unless you have a $5 million dollar trust on the side you didn't disclose.
yeh unfortunately for you - I would agree with these comments. Unless you have a large inheritance, some other windfall or have created a side gig that will grow and then liquidate to provide a large sum. I don't see FI possible with the information and wants you have communicated.
The biggest challenge is the lack of time for compounding interest to do it's job. You really have to contribute as much as possible in your 20s/30s so that by your 40's those balances start to really climb for having "time in the market".
As other has posted contribute to all of your tax deferred and Roth prior to Taxable and then 529.
Once really big positive is that you guys are well ahead of the vast majority of young adults. When you get to your late 40's, you will be very thankful for the saving you are doing NOW.
Stay the course.
Having kids is awesome, but it is not cheap nor for the faint of heart. :shock:
Do you mean that we won't reach FI by our 40s or that we won't reach FI ever?
sorry -- not in your 40's.
If you are really serious about being FI by 40's (maybe late 40"s) you are going to have to be very diligent and save maximum amounts each year. Adjust your spending habits and expectations (more MM style). So nanny, expensive cars, big house, extravagant vacations are not going to get you to FIRE in 40's.
look at FIREcalc, cfiresim and others to help play with the numbers to see what is possible.
The biggest challenge is knowing what your expenses will be like in 20-25 years. Kids are expensive and there is no way to really know that until you get on the back side of raising them. You have probably read that it cost about $250K to raise a kid to age 18. If you have 3, that is $750K of your take home pay that went "poof".
I am not telling you that you CAN'T. I am saying that it is not reasonable to just say "FIRE in our 40's" and it will happen. Very very few people do it.
What I have noticed in my reading and on this forum, many of the people that FIRE in 40/50 - were high earning couples working at large company's with no kids.
I'd love for you to do it (prove me wrong :D )--just don't want you to set your sights on it and be disappointed in 15 years.
"So nanny, expensive cars, big house, extravagant vacations are not going to get you to FIRE in 40's."

I'm not sure why you think we do those things on $3800/month.

We only have one of these things, the nanny. The nanny costs about $576/month, and without her my wife would not be able to work. My wife makes ~$64k/year. Hiring a nanny so that we can keep that income coming in seems like a good idea.

We only own one car, a 2008 Honda Civic that I bought for $4300 three years ago. Still runs fine, will continue to run fine.

We don't have a big house, and we plan on staying in our current small house for at least the term of the mortgage (15 years).

We do not go on extravagant vacations and don't plan to.

I am familiar with MMM and their forums, I am a poster there.

Thanks for the response.

soccerrules
Posts: 803
Joined: Mon Nov 14, 2016 4:01 pm

Re: 28 with a wife and new baby

Post by soccerrules » Fri Jun 15, 2018 9:01 am

UniversityEmployee9 wrote:
Fri Jun 15, 2018 8:51 am
soccerrules wrote:
Fri Jun 15, 2018 8:42 am
UniversityEmployee9 wrote:
Fri Jun 15, 2018 8:27 am
soccerrules wrote:
Fri Jun 15, 2018 8:20 am
Grt2bOutdoors wrote:
Fri Jun 15, 2018 7:54 am


+1, I thought it, didn't say it. OP - you can have some, you can not have it all. You will need to make choices, then those choices become your priority. Having kids are costly, oh sure, they can go to college where you teach for a small amount, but in the in-between years? the costs go up, they just do.... Forget about FI in the next 10 years, you will need to work for at least 20 years. Unless you have a $5 million dollar trust on the side you didn't disclose.
yeh unfortunately for you - I would agree with these comments. Unless you have a large inheritance, some other windfall or have created a side gig that will grow and then liquidate to provide a large sum. I don't see FI possible with the information and wants you have communicated.
The biggest challenge is the lack of time for compounding interest to do it's job. You really have to contribute as much as possible in your 20s/30s so that by your 40's those balances start to really climb for having "time in the market".
As other has posted contribute to all of your tax deferred and Roth prior to Taxable and then 529.
Once really big positive is that you guys are well ahead of the vast majority of young adults. When you get to your late 40's, you will be very thankful for the saving you are doing NOW.
Stay the course.
Having kids is awesome, but it is not cheap nor for the faint of heart. :shock:
Do you mean that we won't reach FI by our 40s or that we won't reach FI ever?
sorry -- not in your 40's.
If you are really serious about being FI by 40's (maybe late 40"s) you are going to have to be very diligent and save maximum amounts each year. Adjust your spending habits and expectations (more MM style). So nanny, expensive cars, big house, extravagant vacations are not going to get you to FIRE in 40's.
look at FIREcalc, cfiresim and others to help play with the numbers to see what is possible.
The biggest challenge is knowing what your expenses will be like in 20-25 years. Kids are expensive and there is no way to really know that until you get on the back side of raising them. You have probably read that it cost about $250K to raise a kid to age 18. If you have 3, that is $750K of your take home pay that went "poof".
I am not telling you that you CAN'T. I am saying that it is not reasonable to just say "FIRE in our 40's" and it will happen. Very very few people do it.
What I have noticed in my reading and on this forum, many of the people that FIRE in 40/50 - were high earning couples working at large company's with no kids.
I'd love for you to do it (prove me wrong :D )--just don't want you to set your sights on it and be disappointed in 15 years.
"So nanny, expensive cars, big house, extravagant vacations are not going to get you to FIRE in 40's."

I'm not sure why you think we do those things on $3800/month.

We only have one of these things, the nanny. The nanny costs about $576/month, and without her my wife would not be able to work. My wife makes ~$64k/year. Hiring a nanny so that we can keep that income coming in seems like a good idea.

We only own one car, a 2008 Honda Civic that I bought for $4300 three years ago. Still runs fine, will continue to run fine.

We don't have a big house, and we plan on staying in our current small house for at least the term of the mortgage (15 years).

We do not go on extravagant vacations and don't plan to.

I am familiar with MMM and their forums, I am a poster there.

Thanks for the response.
cool.
Hey go do it. That would be awesome for you and your family to be FIRE'd in your 40's.
No way I can do it! (I'm past 50 :D )
Set your plan, save as much if not more than you think you can and then check your progress every year.
Best of luck to you and your family.
Don't forget to enjoy the ride along the way. Kids are a blast.
Don't let your outflow exceed your income or your upkeep will be your downfall.

UniversityEmployee9
Posts: 101
Joined: Wed Mar 18, 2015 10:01 am

Re: 28 with a wife and new baby

Post by UniversityEmployee9 » Fri Jun 15, 2018 9:18 am

soccerrules wrote:
Fri Jun 15, 2018 9:01 am
cool.
Hey go do it. That would be awesome for you and your family to be FIRE'd in your 40's.
No way I can do it! (I'm past 50 :D )
Set your plan, save as much if not more than you think you can and then check your progress every year.
Best of luck to you and your family.
Don't forget to enjoy the ride along the way. Kids are a blast.
Thanks, we will try our best!

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ReformedSpender
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Re: 28 with a wife and new baby

Post by ReformedSpender » Fri Jun 15, 2018 9:35 am

I'm one to disagree with the fact that you MUST max out for retirement accts before thinking about contributing to a 529...

In your situation, you will be ~47 when your child is graduating HS and entering college. Are you willing to take an early withdraw penalty from your retirement accts to fund secondary schooling?

Contribute to both...saving is saving

:beer
Market history shows that when there's economic blue sky, future returns are low, and when the economy is on the skids, future returns are high. The best fishing is done in the most stormy waters.

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Pajamas
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Re: 28 with a wife and new baby

Post by Pajamas » Fri Jun 15, 2018 9:59 am

UniversityEmployee9, if you are aiming for financial independence, then seriously consider not having more children or having only one more rather than two or three more.

The psychological benefit of paying off a 2.9% mortgage might easily be offset by having funds invested in a taxable account to pay it off instead. Knowing that you can pay it off at any time but choose not to because you are making more from your investments is almost as good as not having one.
ReformedSpender wrote:
Fri Jun 15, 2018 9:35 am
In your situation, you will be ~47 when your child is graduating HS and entering college. Are you willing to take an early withdraw penalty from your retirement accts to fund secondary schooling?
There is a penalty exception for withdrawals from IRAs for qualified higher education expenses. Generally, IRAs are more versatile than most people realize.

https://www.irs.gov/retirement-plans/pl ... tributions

Nate79
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Location: Portland, OR

Re: 28 with a wife and new baby

Post by Nate79 » Fri Jun 15, 2018 10:25 am

UniversityEmployee9 wrote:
Fri Jun 15, 2018 8:15 am
student wrote:
Fri Jun 15, 2018 5:15 am
Nate79 wrote:
Fri Jun 15, 2018 12:42 am
Does your University job not offer some sort of benefit to your child for free tuition?
+1. I was about to ask the same thing. Mine offers almost free tuition although only a few of my colleagues took advantage of it.
It does offer free tuition for up to six credit hours per semester for dependents, but I'm not sure if I'll still work there in 18 years. If I am, then great, I'll be glad that I didn't stash all of that money in a 529 and went the Roth route instead.
If I were in this situation I would not over fund a 529 but I would still put some minimum amount in (especially if you have a state tax deduction) and then put the remainder in taxable accounts. Certainly max out the Roth's but you are going to need that for retirement/FI.

cmr79
Posts: 41
Joined: Mon Dec 02, 2013 4:25 pm

Re: 28 with a wife and new baby

Post by cmr79 » Fri Jun 15, 2018 7:26 pm

I might have missed it somewhere, but how much do you expect to be able to save towards retirement next year? Assuming your income and costs stay relatively stable (a big assumption, and obviously not likely to be true if you have more kids or you wife stops working to stay at home), I don't see why FIRE in LATE 40s, 20 years from now, isn't feasible.

We were able to put close to $50k/year into 403b/Roth IRAs on similar incomes with 2 kids in full time daycare. If you expect to save similar amounts, then in 20 years even with conservative growth estimates you'll have >25x annual expenses.

UniversityEmployee9
Posts: 101
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Re: 28 with a wife and new baby

Post by UniversityEmployee9 » Fri Jun 15, 2018 7:30 pm

cmr79 wrote:
Fri Jun 15, 2018 7:26 pm
I might have missed it somewhere, but how much do you expect to be able to save towards retirement next year? Assuming your income and costs stay relatively stable (a big assumption, and obviously not likely to be true if you have more kids or you wife stops working to stay at home), I don't see why FIRE in LATE 40s, 20 years from now, isn't feasible.

We were able to put close to $50k/year into 403b/Roth IRAs on similar incomes with 2 kids in full time daycare. If you expect to save similar amounts, then in 20 years even with conservative growth estimates you'll have >25x annual expenses.
Yes, we plan on maxing out all available space, which for next year totals about $73400, plus the contribution from my employer and the mandatory contribution from my paycheck.

If/when my wife stops working we would still have $54900 in tax advantaged space.

Thanks for the encouragement! We think it's doable as well.

cmr79
Posts: 41
Joined: Mon Dec 02, 2013 4:25 pm

Re: 28 with a wife and new baby

Post by cmr79 » Fri Jun 15, 2018 7:46 pm

At your current rate of savings and spending, assuming a 4% real return on retirement investments and FI = investments of 25x annual spending, you'd be FI in about 12 years (= 37,000 + FV(0.04, 12, -73400). If you were to cut down to $54900 after this year, then it'd take about 15.5 years. Your ages would be 41 or 44.5.

Is it likely? Doesn't sound like it, and I doubt anyone around here would encourage attempting FIRE in early to mid 40s with a SWR of 4%, but obviously you'd be in great shape with a lot of options.

Plus, cloudy though my crystal ball may be, you're probably going to get the benefit of making large, early contributions to the market during the inevitable upcoming recession. Assuming you stay the course, that is. Future return rates will look a lot more enticing after some degree of correction in current valuations...or so I'll be telling myself when it happens.

BradJ
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Re: 28 with a wife and new baby

Post by BradJ » Fri Jun 15, 2018 8:30 pm

If you are even considering being a single family income, I plead with you to do a trial budget run for 3 months, pretending you are on one income.

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