Are we setting ourselves up for Early Retirement properly?

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Topic Author
BowlingForBabies2002
Posts: 16
Joined: Mon Jan 06, 2020 4:11 pm

Are we setting ourselves up for Early Retirement properly?

Post by BowlingForBabies2002 »

My wife and I (23 & 24 y/o) have been working full time for the past 1 & 2 years (plus worked through school). We have said we want to be able to retire early at age 50, so we are hoping some of you can double check our savings rates/plan, or recommend a resource we can use to check ourselves.



Incomes (gross): $35k wife / $75k me

Savings & Contribution Rates:
My 401k: $19k balance - 10% pretax (to get full 5% match) ~ $7500/yr contribution + $3750 match over course of year
Her 457: $5k balance - 6% pretax (to get full 9% match) ~ $2100/yr contribution + $3150 match over course of year
My "Pension": $5k balance - $0 contribution, employer deposits 4% of monthly pay each month into account that earns 4% guaranteed annual return compounded quarterly. It fully vests in January, and I can cash it out if I leave the company after vesting.
HSA: $4k balance - $7200/yr (max family spread over entire year, but we do use this for our med expenses too)
My Roth: $21k balance - $6000/yr (max spread over entire year)

Other Details:
Emergency Fund: $15k (about 5 months of essentials or 3 months of current spend including fun/luxuries)
Life Insurance in place for both of us
Disability Insurance in place for me

House: $275k
Mortgage: $235k (exp. end of 2050)

Cars combined value: $43k (conservatively)
Auto Loan: $31k




Our current Annual Spending is ~$65-70k in a L/MCOL area. We take trips, have hobbies, make donations and make home improvements included in the $70k estimate. We do plan on 2-4 kids in the next 5-10 years

In retirement, I figure spending will be about the same or a bit higher due to replacing the mortgage with more travel/wanting to give more. Let's swing high for $100k (in today's $) of annual spend.

Assuming a SWR between 3.25-4%, my estimates are between $2.5M and $3.1M needed

My thoughts on what we need to do:
1) Open a Roth IRA for my wife so the 5 year clock starts. Consider splitting the $6000/yr contribution to $3000/yr/each
2) As we earn pay increases, put half of the increase into a saving vehicle (either 401k or Roth IRA), eventually maxing out 401k/457/roth ira/hsa, then consider after-tax accounts





I did run FIRECalc using the following assumptions with 100% success rate:
$60k spending
$50k portfolio
65 years

0 Social Security
0 Pension

Retire in 2047
Add $26k/yr (in today's $)

3% CPI inflation
Constant spending power

0.18% expense ratios on funds
Total market 75/25 (even though we're in riskier 2065 target funds now)

No lump sum additions
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David Jay
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Re: Are we setting ourselves up for Early Retirement properly?

Post by David Jay »

You two are “killing it”! I didn’t make my first retirement account contribution until I was 30.

The most important part of retirement is controlling expenses. Every calculation for retirement is based on expenses (save 25x expenses, etc.). If you want to retire early, a key is to avoid inflating your lifestyle.

What I like to recommend to younger folks is to save 50% of every raise. I like that because it allows you to have a reward (half of the raise) while at the same time controlling your lifestyle. Your goal over time is to get to the point where 20% of income is going into retirement accounts.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
retiredjg
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Re: Are we setting ourselves up for Early Retirement properly?

Post by retiredjg »

I don't think there is any way to know if early retirement is possible. For example, if you decide to give 4 kids a full ride through private college, I'd guess early retirement may not happen unless some serious job promotions occur. :happy

However, you are doing all the right things. Keep up the good work.
Topic Author
BowlingForBabies2002
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Re: Are we setting ourselves up for Early Retirement properly?

Post by BowlingForBabies2002 »

David Jay wrote: Thu Jun 17, 2021 3:15 pm You two are “killing it”! I didn’t make my first retirement account contribution until I was 30.

The most important part of retirement is controlling expenses. Every calculation for retirement is based on expenses (save 25x expenses, etc.). If you want to retire early, a key is to avoid inflating your lifestyle.

What I like to recommend to younger folks is to save 50% of every raise. I like that because it allows you to have a reward (half of the raise) while at the same time controlling your lifestyle. Your goal over time is to get to the point where 20% of income is going into retirement accounts.
Thank you! We are very comfortable where we are at right now. We lucked out buying our house last year which will suit our needs for a long time to come. We find good balance in budgeting and spending on extras by giving ourselves ~$200/mo each that we can blow on coffee, clothes, etc. and not affect our household budget. She mainly saves hers, and I like to use mine to flip items, and use the flipping profits to buy stuff additional equipment for my hobbies.
retiredjg wrote: Thu Jun 17, 2021 3:15 pm I don't think there is any way to know if early retirement is possible. For example, if you decide to give 4 kids a full ride through private college, I'd guess early retirement may not happen unless some serious job promotions occur. :happy

However, you are doing all the right things. Keep up the good work.
True that. 4 kids through private school isn't happening, guaranteed. At most, I see 4 kids tuition at state school, which is still $200k today.

Promotions should happen. Wife is on a salary schedule (union job) that should see yearly increases, I am still young in my career and would expect to be around $120k in 10 years
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David Jay
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Location: Michigan

Re: Are we setting ourselves up for Early Retirement properly?

Post by David Jay »

When I said “raises”, I meant all salary increases including those from a salary schedule. Save a percenatage every time. If you get in that habit it will serve you well…
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
Topic Author
BowlingForBabies2002
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Joined: Mon Jan 06, 2020 4:11 pm

Re: Are we setting ourselves up for Early Retirement properly?

Post by BowlingForBabies2002 »

David Jay wrote: Thu Jun 17, 2021 3:28 pm When I said “raises”, I meant all salary increases including those from a salary schedule. Save a percenatage every time. If you get in that habit it will serve you well…
Good clarification. Since we are both contributing enough to get the maximum from our employer contributions, I believe our next step is to max those Roth's per the Prioritizing Investments wiki
young-ish
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Re: Are we setting ourselves up for Early Retirement properly?

Post by young-ish »

You are doing great!

Love the retirement account balances & contributions at your age. You are way ahead of the game there. Plus congrats on the EF, that can be very comforting during stressful financial times.

My only question is what is the interest rate on the car loans? If it's higher than expected returns of your portfolio it would be well worth it to pay those down quickly.
Bigt3142
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Re: Are we setting ourselves up for Early Retirement properly?

Post by Bigt3142 »

Based on your current investment percentages you should have just under $1.5 million at age 50. If you maintain your spending after retirement you will run out of money shortly after age 60. You are are doing great starting young but if you want to retire early, and maintain your lifestyle, you need to increase your savings rate substantially.

Source: https://www.bankrate.com/retirement/cal ... alculator/
britcoal
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Joined: Fri Mar 14, 2014 5:45 pm

Re: Are we setting ourselves up for Early Retirement properly?

Post by britcoal »

You're doing great! I started in 2001 out of college saving ~$5600 in my 401k and maxing the Roth IRA ($3000 at the time). I only made $40k so I couldn't max the 401k but I wish I could have. By 2008 I was making $80k and was able to max my 401k and Roth and have done so ever since. With raises came investing in taxable accounts. My only regrets:

1) Not investing more! At times I could have.. and I'd be that much closer now to early retirement if I had.
2) Not jumping on the HDHP / HSA wagon sooner than I did - I've only been at it for 3.5 years now.

If I were you I would make an effort to max both Roths and then put as much as you possibly can into your 401ks. Obviously get the match but try for even more. $1 invested now will be worth a whole lot more than the $1 you invest at age 48. Anything you can do to pump up your contributions now (especially before kids' expenses come into the picture) will be greatly appreciated by future you.
Cruise
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Joined: Mon Nov 21, 2016 7:17 pm

Re: Are we setting ourselves up for Early Retirement properly?

Post by Cruise »

I sincerely hope you enjoy your careers, and --as time goes by-- you are not focused on early retirement but the joy and challenges of your careers.

Personally, I am just amazed that someone in their early 20s with a year or two on the job is even thinking of retirement. Not a criticism of you, but wow...
LittleMaggieMae
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Joined: Mon Aug 12, 2019 9:06 pm

Re: Are we setting ourselves up for Early Retirement properly?

Post by LittleMaggieMae »

You are doing great! You've got a "financial foundation". Now you need to work on the "long haul" part of it.

Some Hindsight Advice:
at the beginning of my career I set my retirement contribution % at 8% and forgot about for 14 years. This was a mistake. I would recommend making it a habit that every time you get a raise - bump up your contribution % by 1% or maybe 2%. If you switch jobs and get a big bump in pay - consider a bigger bump in contribution %. The idea is - you get some extra in your pay check (yay!!) AND you save some extra for retirement (yay!!).

You guys have short term goals and long term financial goals. It's time to think about mid term goals (3 to 5 years from now). Put some $$ value on them and start saving for them now.

I would also recommend coming up with some scheme for "windfalls" or "found" money - x% to fun money, y% to saving for some mid term savings goal (or retirement) and, z% to debt reduction. For any windfall/found money over $50 (an unexpected bonus from work? sold something I no longer used? ) I use to have a 30/30/40 split. I always found it helpful to have this split in my head so I wasn't like "Yes! a 1k bonus!! I'm gonna fritter it on clothes I don't need, booze, and food!! woo hoo!!" I'd still get something out of it the 30% to fun money - but I'd also move ahead on some of my other goals.

If you guys find that you feel you are "frittering" money away (or can't agree on what fun things to buy for yourself) - think about giving yourselves an monthly "Allowance" that replenishes each month. You get to spend this on anything you want during the month - when it's gone you are done spending. If you want something that costs MORE than your allowance - you can save up your allowance to get it. I'm single and was really good at frittering money on stuff... I started the feast/famine method of "everyday money" and that just added more stress and drama to my life. I found that giving my self an "allowance" removed the drama and stress. I got "allowance" money with each paycheck so I only had to make it last 2 weeks. :)
I stopped raiding my EF, and other saved money once I gave myself an allowance.
SouthGAJacket
Posts: 8
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Re: Are we setting ourselves up for Early Retirement properly?

Post by SouthGAJacket »

You have a solid beginning but you gotta keep living frugally because kids will have a severe impact on whatever plans you have today. Kids are more expensive than you can even think about. All kids organized activities are out of control with costs. Baseball, softball, hoops, gymnastics, anything like that will cost you big time if your kids have athletic ability. And you say private school is out, but you never know what may push you there. My twins are entering college so the little kids expenses are complete and it’s a great feeling. It’s just nickel and dimed to death from about 6th grade until graduation. We were able to handle it because we invested a paycheck and a half in our 20’s. Then in our 30’s we invested a paycheck and lived on one of our salaries. Thank goodness we did otherwise we would not be where we are in our early 50’s. You can do it, but don’t let up and save while it’s just the two of you. It’s easy right now compared to what it will be. I’m not saying live like you are broke but Its the overall view of saving comes first. I drove my college car until I was 32 then paid cash for another “get me there car” that I drove another 12 years. And yes, we also had to pay for a mini-van along the way due to kids. And if you wake up when your 40 and say I’m crazy then worse case is you have some high balance accounts looking at. And we invested every raise we received along the way. We enjoyed a nice meal then I upped the direct deposits to Vanguard and enjoyed the process. We are set and you’ll be set but your 20’s and 30’s is where you’ll win your later decades due to compounding.
Topic Author
BowlingForBabies2002
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Joined: Mon Jan 06, 2020 4:11 pm

Re: Are we setting ourselves up for Early Retirement properly?

Post by BowlingForBabies2002 »

young-ish wrote: Thu Jun 17, 2021 3:45 pm You are doing great!

Love the retirement account balances & contributions at your age. You are way ahead of the game there. Plus congrats on the EF, that can be very comforting during stressful financial times.

My only question is what is the interest rate on the car loans? If it's higher than expected returns of your portfolio it would be well worth it to pay those down quickly.
Interest rate is 1.89%, so not bad. It's on the 1 vehicle (which Carvana/Vroom have offered $44k on). Our other cars have lasted us to 190k, 248k, and one is at 271k and climbing, so the plan is to keep the new vehicle and drive it until the wheels fall off.
Bigt3142 wrote: Thu Jun 17, 2021 3:52 pm Based on your current investment percentages you should have just under $1.5 million at age 50. If you maintain your spending after retirement you will run out of money shortly after age 60. You are are doing great starting young but if you want to retire early, and maintain your lifestyle, you need to increase your savings rate substantially.

Source: https://www.bankrate.com/retirement/cal ... alculator/
Thanks for the reality check. Personally I feel like my 10% contribution is low. We've been putting $1000/mo into savings for things like the wedding, then house downpayment, and now its being used for home improvements. Maybe we should reconsider how much we're putting into the sinking fund, since it's saving with a purpose of spending, and just take longer to do the home improvements.
britcoal wrote: Thu Jun 17, 2021 3:56 pm You're doing great! I started in 2001 out of college saving ~$5600 in my 401k and maxing the Roth IRA ($3000 at the time). I only made $40k so I couldn't max the 401k but I wish I could have. By 2008 I was making $80k and was able to max my 401k and Roth and have done so ever since. With raises came investing in taxable accounts. My only regrets:

1) Not investing more! At times I could have.. and I'd be that much closer now to early retirement if I had.
2) Not jumping on the HDHP / HSA wagon sooner than I did - I've only been at it for 3.5 years now.

If I were you I would make an effort to max both Roths and then put as much as you possibly can into your 401ks. Obviously get the match but try for even more. $1 invested now will be worth a whole lot more than the $1 you invest at age 48. Anything you can do to pump up your contributions now (especially before kids' expenses come into the picture) will be greatly appreciated by future you.
Thanks for the thoughts!
Cruise wrote: Thu Jun 17, 2021 4:07 pm I sincerely hope you enjoy your careers, and --as time goes by-- you are not focused on early retirement but the joy and challenges of your careers.

Personally, I am just amazed that someone in their early 20s with a year or two on the job is even thinking of retirement. Not a criticism of you, but wow...
Our jobs aren't too bad. I've been tuned into early retirement since before even starting working full time. It started when I saw the Dave Ramsey Roth IRA chart that showed the power of compound returns. Note, I don't tune into DR now, but it opened my eyes enough to lead myself here.
LittleMaggieMae wrote: Thu Jun 17, 2021 4:15 pm You are doing great! You've got a "financial foundation". Now you need to work on the "long haul" part of it.

Some Hindsight Advice:
at the beginning of my career I set my retirement contribution % at 8% and forgot about for 14 years. This was a mistake. I would recommend making it a habit that every time you get a raise - bump up your contribution % by 1% or maybe 2%. If you switch jobs and get a big bump in pay - consider a bigger bump in contribution %. The idea is - you get some extra in your pay check (yay!!) AND you save some extra for retirement (yay!!).

You guys have short term goals and long term financial goals. It's time to think about mid term goals (3 to 5 years from now). Put some $$ value on them and start saving for them now.

I would also recommend coming up with some scheme for "windfalls" or "found" money - x% to fun money, y% to saving for some mid term savings goal (or retirement) and, z% to debt reduction. For any windfall/found money over $50 (an unexpected bonus from work? sold something I no longer used? ) I use to have a 30/30/40 split. I always found it helpful to have this split in my head so I wasn't like "Yes! a 1k bonus!! I'm gonna fritter it on clothes I don't need, booze, and food!! woo hoo!!" I'd still get something out of it the 30% to fun money - but I'd also move ahead on some of my other goals.

If you guys find that you feel you are "frittering" money away (or can't agree on what fun things to buy for yourself) - think about giving yourselves an monthly "Allowance" that replenishes each month. You get to spend this on anything you want during the month - when it's gone you are done spending. If you want something that costs MORE than your allowance - you can save up your allowance to get it. I'm single and was really good at frittering money on stuff... I started the feast/famine method of "everyday money" and that just added more stress and drama to my life. I found that giving my self an "allowance" removed the drama and stress. I got "allowance" money with each paycheck so I only had to make it last 2 weeks. :)
I stopped raiding my EF, and other saved money once I gave myself an allowance.
I like that idea with windfalls! We used my bonus to pad our EF this year, and to provide a local scholarship to a senior graduating from our hometown high school.

We do use allowances, I think I mentioned it above. $200/mo each that the other party cannot say anything about. Wife saves hers mainly, I use mine as capital for flipping items and funding my hobbies. Our EF stays at a separate bank, so we don't even really think about it, except on payday when it's time to update the checkbook with the latest contribution.
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FiveK
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Re: Are we setting ourselves up for Early Retirement properly?

Post by FiveK »

Investment Order and Prioritizing investments have some suggestions applicable to many.
Wannaretireearly
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Re: Are we setting ourselves up for Early Retirement properly?

Post by Wannaretireearly »

SouthGAJacket wrote: Thu Jun 17, 2021 4:39 pm You have a solid beginning but you gotta keep living frugally because kids will have a severe impact on whatever plans you have today. Kids are more expensive than you can even think about. All kids organized activities are out of control with costs. Baseball, softball, hoops, gymnastics, anything like that will cost you big time if your kids have athletic ability. And you say private school is out, but you never know what may push you there. My twins are entering college so the little kids expenses are complete and it’s a great feeling. It’s just nickel and dimed to death from about 6th grade until graduation. We were able to handle it because we invested a paycheck and a half in our 20’s. Then in our 30’s we invested a paycheck and lived on one of our salaries. Thank goodness we did otherwise we would not be where we are in our early 50’s. You can do it, but don’t let up and save while it’s just the two of you. It’s easy right now compared to what it will be. I’m not saying live like you are broke but Its the overall view of saving comes first. I drove my college car until I was 32 then paid cash for another “get me there car” that I drove another 12 years. And yes, we also had to pay for a mini-van along the way due to kids. And if you wake up when your 40 and say I’m crazy then worse case is you have some high balance accounts looking at. And we invested every raise we received along the way. We enjoyed a nice meal then I upped the direct deposits to Vanguard and enjoyed the process. We are set and you’ll be set but your 20’s and 30’s is where you’ll win your later decades due to compounding.
+1 really good advice for DINKs
Death and taxes. Only one is under your control!
czr
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Re: Are we setting ourselves up for Early Retirement properly?

Post by czr »

You guys are doing good and being aware of the process towards FI and also executing it slowly is important. Good points on here. The kids will throw a wrench into the mix but it's not a bad thing and it's not only money but also time as life happens and you may find yourself or your spouse wanting to work less or change careers to spend time with them which could delay your FI but it will happen if you stick with the plan. Just keep at it especially with the automatic investing and increasing contributions through the years but don't obsess over it and don't forget to smell the roses along the way.
stoptothink
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Re: Are we setting ourselves up for Early Retirement properly?

Post by stoptothink »

Wannaretireearly wrote: Fri Jun 18, 2021 12:27 am
SouthGAJacket wrote: Thu Jun 17, 2021 4:39 pm You have a solid beginning but you gotta keep living frugally because kids will have a severe impact on whatever plans you have today. Kids are more expensive than you can even think about. All kids organized activities are out of control with costs. Baseball, softball, hoops, gymnastics, anything like that will cost you big time if your kids have athletic ability. And you say private school is out, but you never know what may push you there. My twins are entering college so the little kids expenses are complete and it’s a great feeling. It’s just nickel and dimed to death from about 6th grade until graduation. We were able to handle it because we invested a paycheck and a half in our 20’s. Then in our 30’s we invested a paycheck and lived on one of our salaries. Thank goodness we did otherwise we would not be where we are in our early 50’s. You can do it, but don’t let up and save while it’s just the two of you. It’s easy right now compared to what it will be. I’m not saying live like you are broke but Its the overall view of saving comes first. I drove my college car until I was 32 then paid cash for another “get me there car” that I drove another 12 years. And yes, we also had to pay for a mini-van along the way due to kids. And if you wake up when your 40 and say I’m crazy then worse case is you have some high balance accounts looking at. And we invested every raise we received along the way. We enjoyed a nice meal then I upped the direct deposits to Vanguard and enjoyed the process. We are set and you’ll be set but your 20’s and 30’s is where you’ll win your later decades due to compounding.
+1 really good advice for DINKs
There is no doubt that kids activities/sports can ruin the best financial plans. My kids train and compete in Brazilian jiu jitsu, muy thai, and wrestling and when we first signed them up it seemed expensive ($75/month for their gym pass/classes, plus a few hundreds dollars in gear upfront, and tournaments are ~$75 - and it's year around), but boy did we luck out when I found out how much some of my friends/peers were paying for their kids :shock: Just remember, your 7yr old who is extremely unlikely to get an athletic scholarship does not need a $400/month hitting coach and a personal trainer and your family vacations don't have to revolve around your 9yr old's travel basketball team tournaments (examples from friends who are literally broke).
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winterfan
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Re: Are we setting ourselves up for Early Retirement properly?

Post by winterfan »

OP- you guys are ahead of the curve I think. You have a big leg up in that you have two incomes and a house at such a young age. At 23, I was single, earning low wages and renting a dumpy apartment. On top of that, I left a job and cashed out my small 401K to go on a vacation! :oops: I managed to recover just fine from that mistake.

Life has lots of ebbs and flows. Kids do throw a wrench in things, but IMO, aren't as expensive as everyone makes it out to be. They are worth it to me anyway. The best advice I have is to put away as much as you can before you even see it. I'm amazed how much our saving has built up over 20 years of marriage. Good luck!
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winterfan
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Re: Are we setting ourselves up for Early Retirement properly?

Post by winterfan »

stoptothink wrote: Fri Jun 18, 2021 6:48 am There is no doubt that kids activities/sports can ruin the best financial plans. My kids train and compete in Brazilian jiu jitsu, muy thai, and wrestling and when we first signed them up it seemed expensive ($75/month for their gym pass/classes, plus a few hundreds dollars in gear upfront, and tournaments are ~$75 - and it's year around), but boy did we luck out when I found out how much some of my friends/peers were paying for their kids :shock: Just remember, your 7yr old who is extremely unlikely to get an athletic scholarship does not need a $400/month hitting coach and a personal trainer and your family vacations don't have to revolve around your 9yr old's travel basketball team tournaments (examples from friends who are literally broke).
We said upfront that we aren't doing travel sports, anything that consumes the weekend (occasional Saturday game is OK) or any kind of sport that requires expensive fees (i.e. ice time).
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BowlingForBabies2002
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Re: Are we setting ourselves up for Early Retirement properly?

Post by BowlingForBabies2002 »

winterfan wrote: Fri Jun 18, 2021 7:20 am
stoptothink wrote: Fri Jun 18, 2021 6:48 am There is no doubt that kids activities/sports can ruin the best financial plans. My kids train and compete in Brazilian jiu jitsu, muy thai, and wrestling and when we first signed them up it seemed expensive ($75/month for their gym pass/classes, plus a few hundreds dollars in gear upfront, and tournaments are ~$75 - and it's year around), but boy did we luck out when I found out how much some of my friends/peers were paying for their kids :shock: Just remember, your 7yr old who is extremely unlikely to get an athletic scholarship does not need a $400/month hitting coach and a personal trainer and your family vacations don't have to revolve around your 9yr old's travel basketball team tournaments (examples from friends who are literally broke).
We said upfront that we aren't doing travel sports, anything that consumes the weekend (occasional Saturday game is OK) or any kind of sport that requires expensive fees (i.e. ice time).
I am definitely aware of the potential pitfalls here, both from financial and personal aspects of life. I've seen parents drive their kids all over the country every weekend for 7 months at a time, putting huge amounts of pressure on 8yo kids, only for the kid to quit the sport once they reach high school from being burned out.

I think there is a healthy balance between both extremes, which I hope to find. I want the kids to be able to do what they like, but there are some lines that have to be drawn to not stray too far off the path
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BowlingForBabies2002
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Re: Are we setting ourselves up for Early Retirement properly?

Post by BowlingForBabies2002 »

czr wrote: Fri Jun 18, 2021 5:43 am You guys are doing good and being aware of the process towards FI and also executing it slowly is important. Good points on here. The kids will throw a wrench into the mix but it's not a bad thing and it's not only money but also time as life happens and you may find yourself or your spouse wanting to work less or change careers to spend time with them which could delay your FI but it will happen if you stick with the plan. Just keep at it especially with the automatic investing and increasing contributions through the years but don't obsess over it and don't forget to smell the roses along the way.
Thank you for the thoughts! I feel like at our income level right now, we have a decent balance between today and the future. I would like to bump up our saving a little bit more to get closer to the path we need to be on for FIRE at 50, but there has to be a balance. I wanted to do some work to our house, and my wife wanted to take a $4k vacation since we didn't get to go on a honeymoon. We've budgeted both of these into our annual spend plan, and while yes the $8k we spend this year could do a lot for us financially, it will do more for our lives being spent on experiences and things we think are worth doing now.
heyyou
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Re: Are we setting ourselves up for Early Retirement properly?

Post by heyyou »

OP, you are doing well for your age, and you are already on the right track. Your awareness of occasionally spending some now for good memories together, is adding value to your marriage.
Decide now that your daily life is good enough, so you do not need more money to live, just more savings for sooner retirement.

On pay raises, celebrate by spending the entire first amount (take-home, not pre-tax), then increase your retirement contributions to hide the rest of the after-tax pay raise from your take-home check. Thus you continue to see the same pay, and to live the same, but your savings increased. Yes, you may occasionally need an inflation adjustment but try to avoid spending every one of them.
Golf maniac
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Re: Are we setting ourselves up for Early Retirement properly?

Post by Golf maniac »

On kids, if one parent decides to stay home with the kids then obviously lifestyle has to change to accommodate. But right now, in your 20’s, plow as much money as possible into retirement accounts. That money you invest right now is the most valuable part of your portfolio at 50 because of compounding. Every extra or spare dollar push into a retirement account, your 50 year old self will appreciate it. I am 62 and retired at 56 and wished I put in more money earlier.
supalong52
Posts: 470
Joined: Tue Feb 09, 2010 1:51 pm

Re: Are we setting ourselves up for Early Retirement properly?

Post by supalong52 »

It's hard to predict how much (1) your earnings will grow and (2) how much kids will cost. In our case, our earnings grew much faster than any increase in expenses due to kids. When I look back at how much I earned 1-2 years out of school and how much I earn now, it is eye opening. When I was a new grad living in NYC, I was able to scrape by on $25k a year. 19 years later, I'm married and living in a relatively less expensive place (still HCOL) and we spend over 5 times that amount.
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BowlingForBabies2002
Posts: 16
Joined: Mon Jan 06, 2020 4:11 pm

Re: Are we setting ourselves up for Early Retirement properly?

Post by BowlingForBabies2002 »

heyyou wrote: Fri Jun 18, 2021 12:44 pm OP, you are doing well for your age, and you are already on the right track. Your awareness of occasionally spending some now for good memories together, is adding value to your marriage.
Decide now that your daily life is good enough, so you do not need more money to live, just more savings for sooner retirement.

On pay raises, celebrate by spending the entire first amount (take-home, not pre-tax), then increase your retirement contributions to hide the rest of the after-tax pay raise from your take-home check. Thus you continue to see the same pay, and to live the same, but your savings increased. Yes, you may occasionally need an inflation adjustment but try to avoid spending every one of them.
Thank you! We do live a good life, we have good health, and we are very grateful.
Golf maniac wrote: Fri Jun 18, 2021 2:45 pm On kids, if one parent decides to stay home with the kids then obviously lifestyle has to change to accommodate. But right now, in your 20’s, plow as much money as possible into retirement accounts. That money you invest right now is the most valuable part of your portfolio at 50 because of compounding. Every extra or spare dollar push into a retirement account, your 50 year old self will appreciate it. I am 62 and retired at 56 and wished I put in more money earlier.
That is very true. While we don't forsee one of us staying home now, I know of many people who changed their minds 6 weeks into parenthood. Thank you for the thoughts
supalong52 wrote: Fri Jun 18, 2021 2:50 pm It's hard to predict how much (1) your earnings will grow and (2) how much kids will cost. In our case, our earnings grew much faster than any increase in expenses due to kids. When I look back at how much I earned 1-2 years out of school and how much I earn now, it is eye opening. When I was a new grad living in NYC, I was able to scrape by on $25k a year. 19 years later, I'm married and living in a relatively less expensive place (still HCOL) and we spend over 5 times that amount.
Agreed, those are the two things that made me uncertain of our current trajectory. I'm hoping to increase my income to 85k by this time next year, but obviously I won't know what happens until then.

The kids expense also is a big unknown. When I went to college, I was hoping my parents would be able to kick over whatever they saved by not having me in the house anymore, and they promptly informed me that the only real changes were that leftover meals lasted an extra day: the house payment was the same and the utilities were not drastically different. Personally I plan to spend more on my kids relatively than my parents did on me, but it was a lesson learned at 18 for me.
cabould
Posts: 10
Joined: Wed Mar 17, 2021 8:12 am

Re: Are we setting ourselves up for Early Retirement properly?

Post by cabould »

supalong52 wrote: Fri Jun 18, 2021 2:50 pm 19 years later, I'm married and living in a relatively less expensive place (still HCOL) and we spend over 5 times that amount.
This is something I often wonder about. Outside of a home purchase and children's college fund(s), why does spending tend to increase as you get older? As someone who is not much older than OP, I worry about this as I grow older. Do you just get tired of living a young adult lifestyle? Do you need a better vehicle? What causes the drastic increase in spending?
supalong52
Posts: 470
Joined: Tue Feb 09, 2010 1:51 pm

Re: Are we setting ourselves up for Early Retirement properly?

Post by supalong52 »

cabould wrote: Fri Jun 18, 2021 3:16 pm
supalong52 wrote: Fri Jun 18, 2021 2:50 pm 19 years later, I'm married and living in a relatively less expensive place (still HCOL) and we spend over 5 times that amount.
This is something I often wonder about. Outside of a home purchase and children's college fund(s), why does spending tend to increase as you get older? As someone who is not much older than OP, I worry about this as I grow older. Do you just get tired of living a young adult lifestyle? Do you need a better vehicle? What causes the drastic increase in spending?
Everyone's spending habits are going to change over time. We were very aggressive in trying to reach financial independence in our 20s and 30s. I worked in a high stress, high paying job for many years, while living in a small 1 BR apartment. When I was living in NYC, I started out in Queens paying $1100 in rent. Years later, our rent in the heart of the Bay Area was only $2k a month . But by then, we were spending over $50k as a couple, which was twice what I was spending on my own in NYC. Then we hit our low end FI number and reassessed our situation. After taking a long sabbatical, we realized we could support ourselves without working. Then we decided to move and start a family.

I still work remotely in a reduced capacity. Everything I make is just gravy, and after taxes my income still more than covers what we spend. On top of that, FIRE calc still gives us a 100% success rate if I were to stop working. So there's a different mindset to our spending. We just don't think about it too much anymore.

To break it down a little more though, a lot of the increase does go to housing. We don't live in a 1 BR anymore and we have a 15 year mortgage instead of the standard 30 year. Even with a sizable down payment, our housing costs have gone up by 2.5x -- that includes principal on the mortgage. We had a nanny for a while, which cost us $25k a year. We've been going without any childcare for a few months, but that expense will soon come back in the form of preschool tuition. Plus college savings @ $6k a year per kid. We're also doing a lot around the house to get rid of builder grade stuff. Oh and we also cover our own health insurance to the tune of $14k a year.
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