Retirement advice

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Topic Author
bigcheddarcheesing
Posts: 5
Joined: Sat Apr 25, 2020 9:51 pm

Retirement advice

Post by bigcheddarcheesing »

Posting our info below, hoping for a few extra set of eyes to help correct any mistakes we may be making.

Income: Combined pay ranges from $150k - $200k depending on overtime

Emergency funds: Three months expenses

Debt: Car loan 10k @ 3.6%, Mortgage ~275k @ 3.75%, no CC debt

Tax Filing Status: Married w/ 3 children

Tax Rate: 22% Federal, 9.3% State (effective tax rate is 15% fed and 5% state)

State of Residence: California

Age: Both mid-thirties

Current retirement/savings assets:

Taxable - this is for our kids, debating whether or not to start a 529. Community college is free for residents in our city, and this money is also for them to use as they see fit (start a business, etc)
$27k, 60/40 mix will begin to withdrawal in 10 years
Contribute $4-5k per year, goal is $75k total ($25k per child) at time of withdrawal

457
$4k balance, contributing $900/month
100% in Target Date Fund

Roth IRA at Vanguard
$20k, contributing $3-5k per year
100% in Target Date fund

HSA
$20k invested, 70/30 allocation, $2k cash, this gets maxed each year

My pension
Formula is 3% @ 50 years old, based on highest year of income. Should receive 72% of my base income when I (hope to) retire at the age of 50.

Spouse's Pension
Formula is 2% @ 60 years old, based on highest three years of income. Could draw from pension as early as age 55 which is my current plan.

Goals:

I'd like to retire at age 50 and have my wife retire at age 55. My job gives full health coverage at retirement until medicare kicks in. Our combined pensions will provide us with 66% of our current income, and as of right now my napkin math tells me to save roughly $11k/year in order to safely draw enough from supplemental accounts to bring us to the 80% retirement number. This isn't including the HSA, which I plan on maxing and having as a 'safety net' of sorts when we turn 65, if it doesn't get used before then.

Should we start a 529? I don't like my money restricted and our state doesn't give tax benefits for them, but I'm open to the idea.

I've been feeling way too comfortable lately which usually means I'm possibly missing something. Hit me with some criticisms.
delamer
Posts: 10541
Joined: Tue Feb 08, 2011 6:13 pm

Re: Retirement advice

Post by delamer »

Why have you chosen 80% (I assume of current income) as your retirement income target?
LuckyGuy
Posts: 49
Joined: Fri May 15, 2020 6:41 am
Location: Kentucky

Re: Retirement advice

Post by LuckyGuy »

I would do a 529. All of the gains will be tax free if used for college. Our state doesn’t give an incentive either but it was still worth it for us.
Topic Author
bigcheddarcheesing
Posts: 5
Joined: Sat Apr 25, 2020 9:51 pm

Re: Retirement advice

Post by bigcheddarcheesing »

delamer wrote: Wed Aug 26, 2020 7:20 pm Why have you chosen 80% (I assume of current income) as your retirement income target?
Because pension contributions and supplemental retirement/taxable accounts equal roughly 20% of our current income, leaving us with a goal of 80% of current income in retirement to maintain our standard of living.

I'm currently paying extra on our mortgage with the plan to have it paid off by the time we both retire, but I'm not sure where we will be living at that time. 80% feels like a safe number with so many variables at play.
Topic Author
bigcheddarcheesing
Posts: 5
Joined: Sat Apr 25, 2020 9:51 pm

Re: Retirement advice

Post by bigcheddarcheesing »

LuckyGuy wrote: Wed Aug 26, 2020 7:27 pm I would do a 529. All of the gains will be tax free if used for college. Our state doesn’t give an incentive either but it was still worth it for us.
We have been leaning this direction, I feel like a combination of brokerage/529 might be the best decision. Between the three kids, odds are that we would see a benefit of having at least a portion in a 529.
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AlabamaPaul
Posts: 106
Joined: Sat Jul 18, 2020 2:45 pm

Re: Retirement advice

Post by AlabamaPaul »

bigcheddarcheesing wrote: Wed Aug 26, 2020 7:31 pm
delamer wrote: Wed Aug 26, 2020 7:20 pm Why have you chosen 80% (I assume of current income) as your retirement income target?
Because pension contributions and supplemental retirement/taxable accounts equal roughly 20% of our current income, leaving us with a goal of 80% of current income in retirement to maintain our standard of living.

I'm currently paying extra on our mortgage with the plan to have it paid off by the time we both retire, but I'm not sure where we will be living at that time. 80% feels like a safe number with so many variables at play.
I tried the extra payment on the mortgage route, but you'll quickly realize that there is not enough instant gratification. I ended up setting aside the extra payment funds in a separate account and enjoyed watching it grow until I had the payoff amount. This also protects against any unexpected cash flow interruptions if future years...
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WoodSpinner
Posts: 1673
Joined: Mon Feb 27, 2017 1:15 pm

Re: Retirement advice

Post by WoodSpinner »

OP,

Welcome aboard!

Can you provide some more insights into your expenses now and what you think they may be in Retirement?

Using. % of income to plan Retirement is not the best approach — too many variables!

Do both of you have a 457 and a Roth? Not quite sure from the info provided.

Do you have extra Cashflow now? If so I would definitely start trying to increase your savings and focus on the 457s and Roth IRAs. Pensions are wonderful (I retired with one) but having a bigger safety net in Retirement is really comforting.

WoodSpinner
Topic Author
bigcheddarcheesing
Posts: 5
Joined: Sat Apr 25, 2020 9:51 pm

Re: Retirement advice

Post by bigcheddarcheesing »

AlabamaPaul wrote: Wed Aug 26, 2020 7:39 pm
bigcheddarcheesing wrote: Wed Aug 26, 2020 7:31 pm
delamer wrote: Wed Aug 26, 2020 7:20 pm Why have you chosen 80% (I assume of current income) as your retirement income target?
Because pension contributions and supplemental retirement/taxable accounts equal roughly 20% of our current income, leaving us with a goal of 80% of current income in retirement to maintain our standard of living.

I'm currently paying extra on our mortgage with the plan to have it paid off by the time we both retire, but I'm not sure where we will be living at that time. 80% feels like a safe number with so many variables at play.
I tried the extra payment on the mortgage route, but you'll quickly realize that there is not enough instant gratification. I ended up setting aside the extra payment funds in a separate account and enjoyed watching it grow until I had the payoff amount. This also protects against any unexpected cash flow interruptions if future years...
This is a very interesting idea, did you put the funds into a taxable account? What was the allocation?
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AlabamaPaul
Posts: 106
Joined: Sat Jul 18, 2020 2:45 pm

Re: Retirement advice

Post by AlabamaPaul »

bigcheddarcheesing wrote: Wed Aug 26, 2020 7:53 pm This is a very interesting idea, did you put the funds into a taxable account? What was the allocation?
I used a taxable account, since that is where the extra payments would have come from anyway, and ironically, I invested it in GNMA, as it wasn't money with which I wanted to take a lot of risk...
Topic Author
bigcheddarcheesing
Posts: 5
Joined: Sat Apr 25, 2020 9:51 pm

Re: Retirement advice

Post by bigcheddarcheesing »

WoodSpinner wrote: Wed Aug 26, 2020 7:40 pm OP,

Welcome aboard!

Can you provide some more insights into your expenses now and what you think they may be in Retirement?

Using. % of income to plan Retirement is not the best approach — too many variables!

Do both of you have a 457 and a Roth? Not quite sure from the info provided.

Do you have extra Cashflow now? If so I would definitely start trying to increase your savings and focus on the 457s and Roth IRAs. Pensions are wonderful (I retired with one) but having a bigger safety net in Retirement is really comforting.

WoodSpinner
Our current expenses are ~$7k/month. We live in a HCOL area that is prime for outdoor activites, some being cheap (rock climbing) and some expensive with three kids (ice hockey / skiing).

We currently only contribute to one 457 and one Roth. I just started working full time (I was part-time to help raise the kids as of last year) which is why the account balances aren't very high at the moment. I have a spreadsheet with income/expenses made up and as of right now we should have an extra $2k/month to play with. Our income is variable in the sense that there are months that we bring home a combined $6k and months that are closer to $20k, so most of our extra income is shuffled into a savings account until the end of the year where I divvy it up into taxable/HSA/ROTH accounts.
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WoodSpinner
Posts: 1673
Joined: Mon Feb 27, 2017 1:15 pm

Re: Retirement advice

Post by WoodSpinner »

bigcheddarcheesing wrote: Wed Aug 26, 2020 8:02 pm
WoodSpinner wrote: Wed Aug 26, 2020 7:40 pm OP,

Welcome aboard!

Can you provide some more insights into your expenses now and what you think they may be in Retirement?

Using. % of income to plan Retirement is not the best approach — too many variables!

Do both of you have a 457 and a Roth? Not quite sure from the info provided.

Do you have extra Cashflow now? If so I would definitely start trying to increase your savings and focus on the 457s and Roth IRAs. Pensions are wonderful (I retired with one) but having a bigger safety net in Retirement is really comforting.

WoodSpinner
Our current expenses are ~$7k/month. We live in a HCOL area that is prime for outdoor activites, some being cheap (rock climbing) and some expensive with three kids (ice hockey / skiing).

We currently only contribute to one 457 and one Roth. I just started working full time (I was part-time to help raise the kids as of last year) which is why the account balances aren't very high at the moment. I have a spreadsheet with income/expenses made up and as of right now we should have an extra $2k/month to play with. Our income is variable in the sense that there are months that we bring home a combined $6k and months that are closer to $20k, so most of our extra income is shuffled into a savings account until the end of the year where I divvy it up into taxable/HSA/ROTH accounts.
Sounds like things are looking up! Congrats.

I would knock out the car loan and try to increase funding to the 457s. You might need to add some details on the expenses and investments available. One advantage is that you can tap 457s before 59 1/2 and you reduce your Taxable Income.

WoodSpinner
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Watty
Posts: 20709
Joined: Wed Oct 10, 2007 3:55 pm

Re: Retirement advice

Post by Watty »

bigcheddarcheesing wrote: Wed Aug 26, 2020 6:05 pm I've been feeling way too comfortable lately which usually means I'm possibly missing something. Hit me with some criticisms.
You said that you are in your mid 30's and want to start your pensions when you are maybe 50 or 55. That is 15 to 20 years and a lot can change by then. Right now your pensions are only worth what you would get if you left the jobs today and that likely is not a lot. It is too soon to be depending on your pensions.
bigcheddarcheesing wrote: Wed Aug 26, 2020 6:05 pm Mortgage ~275k @ 3.75%
You REALLY need to look at refinancing that ASAP. I have not been watching the rates closely but you might be able to get a new 30 year loan for less than 3% or a 15 year mortgage in the low 2% range. If you can handle the payments a 15 year mortgage would allow you to get the mortgage paid off by the time you want to retire and maybe before the kids start college.

You should do this ASAP because with all the weird stuff going on in the world right now rates can change quickly.

There is a long ongoing refinance mega thread that you can go to the end of to see what rates people are getting now.

viewtopic.php?f=2&t=289559&start=5600
HomeStretch
Posts: 4991
Joined: Thu Dec 27, 2018 3:06 pm

Re: Retirement advice

Post by HomeStretch »

Consider:

1) paying off the 3.6% car loan now

2) no-cost refinancing 3.75% mortgage to a lower rate. Regardless of the term you choose, consider making payments such that the mortgage is paid off by retirement.

3) increasing Roth IRA contributions from $3-$5k per year to $12k per year (2 Roth IRAs @ $6k each). Prioritize contributing to the Roth IRAs over a Taxable account (or 529 account) as the Roth accounts grow tax free. You can withdraw the contributions beginning in 10 years if you still need to do so without a penalty.
delamer
Posts: 10541
Joined: Tue Feb 08, 2011 6:13 pm

Re: Retirement advice

Post by delamer »

bigcheddarcheesing wrote: Wed Aug 26, 2020 7:31 pm
delamer wrote: Wed Aug 26, 2020 7:20 pm Why have you chosen 80% (I assume of current income) as your retirement income target?
Because pension contributions and supplemental retirement/taxable accounts equal roughly 20% of our current income, leaving us with a goal of 80% of current income in retirement to maintain our standard of living.

I'm currently paying extra on our mortgage with the plan to have it paid off by the time we both retire, but I'm not sure where we will be living at that time. 80% feels like a safe number with so many variables at play.
With current expenses for 3 kids and a mortgage, you’ll likely to need a lot less than 80% of your current income in retirement to cover your basic expenses.

If you plan on expensive travel or hobbies, then those would bump up your total retirement expenses of course.
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