Will I be able to retire at 55?

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Topic Author
katnok
Posts: 171
Joined: Fri Nov 11, 2011 8:36 pm

Will I be able to retire at 55?

Post by katnok »

My wife and I are 34 and 37 respectively, and we would like to be able to retire when I am 55. We have 2 young kids (3&5).

Our financial goals:
1. Buy a house: Currently renting, will continue to do so for the next 3 yrs or so, when we would like to buy a house. Our budget for this is about 400K, but it could be a bit lower or higher depending on where we end up settling down. So, the range is 350-450K
2. Pay for kids education: We would like to set aside at least about 300K each in today's dollars = 600K for both
3. Our retirement: Would like to have about 1.5-2M in liquid assets, excluding SS

Current Assets:
1. 105K in 403b
2. 23K in Roths
3. 17.5K in 529
4. 22k in Emergency fund (checking)
5. 500K in Foreign RE

Total: approx 665K

Liabilities:
1. Car Loan: 17.5K at 1.99%
No other debt

Income:
200K/yr (wife is not working currently, but very likely she will start working in about 2-3 yrs. Likely to make about 80K/yr). My income is likely to drop to about 160-170K when we move in about 3 yrs time.

Current expenses:
50K/yr (including 13K for kids preschool and school)
-We anticipate that our expenses will go up when we move and buy a house, but we are hopeful that they will be offset by a decrease in preschool and pvt school expenses and car lon (420/mo) that we are currently paying. So, going forward we hope be able to keep expenses at about 50k/yr

Current savings rate:
Approx 100k/yr

-Please note that all the numbers are in today's dollars.
-We have been relatively frugal all these yrs, but would like to relax a bit and spend a bit more (mostly on travel) after another couple of yrs, when I anticipate that our savings will go down to about 80k/yr.
-If it matters, I have term life ins for 1.5M.

So, based on the above info, will we able be to reach our financial goals by the time I am 55? Can we afford to spend a bit more starting in about 3 yrs?

I would greatly appreciate your advice/thoughts/opinions.
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Hub
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Re: Will I be able to retire at 55?

Post by Hub »

Basically, you need $3,000,000, you have $668,000 and you want to save $80,000 per year. Assuming a 5% real return I have you cracking $3MM in 15 years. So yeah, 55 retirement seems very realistic as does your ability to lower savings to $80k per year.

I personally think your plans for educational expenses are extremely high but that's a seperate topic and opinions differ.
Beth*
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Re: Will I be able to retire at 55?

Post by Beth* »

There are a lot of unknowns between your current ages and age 55 so no one can accurately answer this question.

I think the best anyone can say is keep spending less than you earn and invest the difference, make sure that if your wife goes back to work and your income goes up you don't start having lifestyle creep, and calculate this when you get closer to age 55.

Doing all that makes sense no matter what age you plan to retire.
randomguy
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Re: Will I be able to retire at 55?

Post by randomguy »

Hub wrote:Basically, you need $3,000,000, you have $668,000 and you want to save $80,000 per year. Assuming a 5% real return I have you cracking $3MM in 15 years. So yeah, 55 retirement seems very realistic as does your ability to lower savings to $80k per year.

I personally think your plans for educational expenses are extremely high but that's a seperate topic and opinions differ.
The gotcha is I don't think they will have enough money. 2 million in 20 years will be like 1.5 million today and if their expenses are like 65-70k (that 20k of that went from savings to spending) they are right at the edge. Granted there are tons of unknowns projecting out 20 years and minor things (getting 4% vs 6%) will make the difference between success and failure. Right now keep on saving and plan on checking back in 10 years to see how your tracking. As far as spending the 20k vs saving, it comes down to how much of a failure you think it would be to have to work to 60 if you end up in the low return world. Personally i wouldn't put off living to avoid that risk but a lot of people feel differently
Independent
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Re: Will I be able to retire at 55?

Post by Independent »

randomguy wrote:
The gotcha is I don't think they will have enough money. 2 million in 20 years will be like 1.5 million today ...
The original post says:
-Please note that all the numbers are in today's dollars.
Independent
Posts: 551
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Re: Will I be able to retire at 55?

Post by Independent »

katnok wrote:
So, based on the above info, will we able be to reach our financial goals by the time I am 55? Can we afford to spend a bit more starting in about 3 yrs?

I would greatly appreciate your advice/thoughts/opinions.
I did similar math as Hub, but I assumed you would take $400,000 out of your "foreign real estate" to pay cash for the house. In that case, I get you hitting $2.6 million in 18 years if you save $80k per year and can earn inflation + 3.6%.

$100k of annual savings seems reasonable if you've been able to live on $50k per year while earning $200k. I doubt that your taxes are over $50k.
Assuming you get a net financial positive from your wife working (after expenses and taxes), it seems that you can shift to a lower paid job and still manage to save $80k while increasing your spending somewhat. I wouldn't assume the car loan will go away permanently - you will always need a car (more likely two).

I don't know what to say about $500k of foreign real estate, I won't speculate.

Taxes are a big deal in your income bracket. I don't see much for tax sheltered savings in your current assets. I don't know if that's by choice or if it's the nature of your income. It's one thing to get inflation + 3.6% before tax, a different thing to earn that if you need to pay taxes on your earnings.

You really have been somewhat "frugal". According to the Consumer Expenditure Survey, the average spending for a married couple with one or more children under age 6 is about $60,000 (that includes $2,300 of mortgage principal and excludes $7,900 of "pensions and Social Security"). That average couple spends about $4,200 on day care plus education, compared to your $13,000. So you're below them by $19,000 on everything else. That's interesting primarily because your income is far above average, so you're clearly focusing on saving.

If you're interested in talking to other people who may be similar to you, I'd suggest the "Young Dreamers" forum at Early-Retirement .org
rayson
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Re: Will I be able to retire at 55?

Post by rayson »

Independent wrote:
Taxes are a big deal in your income bracket. I don't see much for tax sheltered savings in your current assets. I don't know if that's by choice or if it's the nature of your income. It's one thing to get inflation + 3.6% before tax, a different thing to earn that if you need to pay taxes on your earnings.
This.

OP - You are certainly on track to hit your retirement number in 18 years. But, your biggest risks along the way are taxes, expenses, and lack of diversification (you are RE heavy today). Therefore, you may want to look into creating an Investment Policy Statement (see Wiki page for details - http://www.bogleheads.org/wiki/Investme ... _statement) to stay the course for next 18 years. Good luck!
Last edited by rayson on Mon Jan 19, 2015 7:08 pm, edited 1 time in total.
Topic Author
katnok
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Joined: Fri Nov 11, 2011 8:36 pm

Re: Will I be able to retire at 55?

Post by katnok »

Thank you all for the replies.

1. I agree that there are a lot of unknowns between now and my desired retirement age. However, we are ready to make some changes to our lifestyle if that's necessary. Fortunately, my wife is on the same page.
2. As far the kids expenses, though we would like to set aside 300K each, this number may change as we go along.
3. We invested in foreign RE when we were naive about investing, and I must admit we just followed the "herd". We are treating Foreign RE as our retirement money. In fact, that 500K should be enough for our retirement, if we chose to move back to home country where we own it. In case we can not meet the financial goals for whatever reason, we may have to do just that as COL is cheaper over there.
Runner01
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Re: Will I be able to retire at 55?

Post by Runner01 »

Can I ask how you decided on needing $300k per child for college? The average annual tuition cost at state universities is only $9k per year and $30k per year at private universities. I sure hope tuition costs don't dont increase that much beyond inflation...
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Watty
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Re: Will I be able to retire at 55?

Post by Watty »

You might try running your numbers in Firecalc or cfiresim to see how they are likely to work out.

katnok wrote: We are treating Foreign RE as our retirement money. In fact, that 500K should be enough for our retirement, if we chose to move back to home country where we own it.
I would think that there is a good chance that your adult kids would not want to leave the US after having lived in the US all their lives so that would be a hard move for some people.

If you do leave the US there will be all sorts of potential tax issues with your retirement accounts since that countries tax law may treat them very differently. If you are not a US citizen and you leave the country then the non-resident alien estate taxes can be very high.
virgingorda
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Re: Will I be able to retire at 55?

Post by virgingorda »

Runner01 wrote:Can I ask how you decided on needing $300k per child for college? The average annual tuition cost at state universities is only $9k per year and $30k per year at private universities. I sure hope tuition costs don't dont increase that much beyond inflation...
They will need at least $300,000 per kid with no financial aid for 4 years at a private university some years off. Right now it is $240,000 per kid for 4 years at a private university (tuition, room and board). I know because I am paying it! Take a look at some university financial aid websites. You will see the privates running $55K plus per year with tuition, room and board (tuition alone is over $30k per year.) Already their assets likely put them out of financial aid range, and as they accumulate wealth, it will be even less likely these kids will get financial aid. (Also, our state university is currently $25K for tuition, room and board for in-state students. THe tuition part is $13K) Tuition costs have risen much faster than inflation.
Grt2bOutdoors
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Re: Will I be able to retire at 55?

Post by Grt2bOutdoors »

Runner01 wrote:Can I ask how you decided on needing $300k per child for college? The average annual tuition cost at state universities is only $9k per year and $30k per year at private universities. I sure hope tuition costs don't dont increase that much beyond inflation...
Where is average tuition cost at state universities $9K? Even the Vanguard college planner tool shows a higher average figure, and when you lump in room and board, many state universities are costing $25K-$34K annually. I wish it was only $9K per year. (That's what it should cost, unfortunately, all this funny money loan business has sharply inflated the costs). That's the next bubble to be deflated.......education is worth something, but when the price tag exceeds the income by multiples of 5x we have a serious disconnect between fantasy and reality.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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Hub
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Re: Will I be able to retire at 55?

Post by Hub »

Regarding the educational expenses, it seems to me either OP will already be retired and thusly will be eligible for a solid amount of financial aid, or he won't and will be able to cash flow them for the most part and just forgo all other saving those years.
randomguy
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Re: Will I be able to retire at 55?

Post by randomguy »

Hub wrote:Regarding the educational expenses, it seems to me either OP will already be retired and thusly will be eligible for a solid amount of financial aid, or he won't and will be able to cash flow them for the most part and just forgo all other saving those years.
There is likely to have too much taxable assets. Having 1 million dollars means they expect something like 40k/yr of parental contribution (exact numbers depend on age and a few other factors). You could cash flow it but you are passing up some tax breaks (tax free growth, potential state income tax deduction) along the way. In reality you don't want to save it all (impossible to figure out your number and right now you need to pay some of it to get the tax credit) so you have to be ready to cash flow something like a 1/3 of it
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