Next Steps Help

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jbird11
Posts: 95
Joined: Tue Jun 02, 2015 1:24 pm

Next Steps Help

Post by jbird11 » Sun Apr 14, 2019 10:19 pm

Hi all-

Looking for next steps in planning. I think I'm on the right track... need help to make sure I'm not missing anything. I didn't get started getting serious about savings/retirement until about 7 years ago... wasted my 20's going into debt and not saving... so in case the income vs savings looks weird, that's why.

Me- $160K + 4% Match
Wife- $48K + 4% Match
Consulting side gig- $19k +3% match (100% to 401K).
Total combined Annual Income: *$227K + $8890 in matching*

Family-
Us (ages 39 & 39.5)
2 kids (11.5 & 6)

Tax Advantaged Savings rate: (our current annual contributions)
Me- $12.6K to 457(b) + 4% match ($6.4k). $6000 to Trad IRA. 100% of consulting ($19K) to 401K + 3% match ($570) *TOTAL $50,970*
Wife- $19K to 401K + 4% match ($1920). $6000 to Trad IRA. *TOTAL $26920*
DD1 - $2000 to ESA
DD2 - $2000 to ESA
Total Annual Tax-Advantage savings: $75,490

Debt:
House - $208K remaining on 15-year fixed (3.25%) mortgage. --> 9.5 years remain to payoff. Approx Value $500K.

Current Balances: TOTAL: 545k
401K's- $200K
457b - $20K
Trad IRA's - $165K
Roth IRA's - $10K
ESA's - $30K
Taxable - $80K
Cash- $40K

*Also I will have a smallish pension, don't really know how it works...something like 1.8% of highest salary * # of years worked. Potentially in 7 years, $180K * .018 * 7 = $23.1K/year if I understand correctly? Plus, whatever SS gives us potentially at age 62.

Expenses:
~$2500 mortgage
~$6000 / mo (everything else is put on cashback rewards cards 1.5%-5% and paid in full each month)

Note:
After taxes/health ins/401K - combined take home is $10.6k/mo, so approx $2.1K/mo is going to cash. This will probably shift to Taxable now that we have about 6 months expenses liquid.

Low COL (S.Dak). No state income tax.
2 reliable vehicles, paid off.


Goal: I really want to retire at the end of 3 years (if Mayor isn't re-elected) or 7 years (if re-elected). I'd like wife to be able to stop working anytime she wants. I'd keep hustling with random consulting/side gigs, but want to be FIRE asap.

Assuming we both stayed working/savings at this rate, assuming 6% return.
Flash Forward...approx balances
3years:
401K - $369K
403B - $85k
IRA's - $247
ESA's - $49k
Taxable - $173k (assuming $2.1k/mo extra goes to taxable vs cash)
Cash - $40K
Total- $963K

7years:
401K - $648K
403B - $192k
IRA's - $367k
ESA's - $80K
Taxable - $326k
Cash- $40K
Total- $1.64 M

10years:
401K - $900K
403B - $291k
IRA's - $477K
ESA's - $107K *note, 1 kid will be over 18, does this stop at 18? or when they're done with school?
Taxable - $467K
Cash - $40K
Total- $2.28 M

13years:
401K - 1.21M
403B - $409K
IRA's - $608k
ESA's - $141K *both kids 18+ at this point... if not allowed, would likely be transferred to Taxable.
Taxable - $635K
Cash - $40K
Total - $3.04 M


IS there anything I should be doing differently? I'm a little worried that we're putting too much into retirement stuff that we can't start accessing until we're 55+. Our income is just a little too high to contribute to ROTH, so everything is going into Traditional retirement. If we both kept working 7 years til age 47... the $326K projected taxable only gets us $3400/mo for the next 8 years. If we both did 10 more years... we'll have the house paid off and save SOME of the $2500/mo (still have tax/ins). We'd be 49 years old and have 467K to get us through to age 55 when we can start accessing the IRA's.

It's looking bleak on being able to FIRE in 3 or 7 years... :? Unless we figure out a way to trim the monthly spend. What am I missing?

JGoneRiding
Posts: 1563
Joined: Tue Jul 15, 2014 3:26 pm

Re: Next Steps Help

Post by JGoneRiding » Sun Apr 14, 2019 11:09 pm

What is making the monthly spend so high?

Will you down size In 7 years? When. The children leave?

I think in 10 years (barely 50) you will be fine but If you want earlier then that you will need to figure out a different budget

mortfree
Posts: 1521
Joined: Mon Sep 12, 2016 7:06 pm

Re: Next Steps Help

Post by mortfree » Sun Apr 14, 2019 11:20 pm

What is your adjusted gross income (AGI)?

That determines eligibility for Roth contributions.

Didn’t see anything mentioned about kids college.

Do you have adequate term life insurance for you and your spouse?

blackholescion
Posts: 28
Joined: Fri Mar 22, 2019 6:41 pm

Re: Next Steps Help

Post by blackholescion » Mon Apr 15, 2019 8:53 am

You likely aren't missing anything. Without knowing your exact budget, it's hard to tell where you have fat to trim. If you didn't have any fat to trim, didn't want to downsize, etc, then you need to figure out how you get to your totals that allow you to retire early. For example, you can figure out what the kids want to do for college that way you can contribute more or less to it. Pick up some extra hours in the side gig.

You're on track to retire at your 13 year mark with existing budget of 8500 a month at 3% withdrawal rate (you need a lower rate because you plan on being retired longer than 30 years). That may not give you enough extra money to travel and whatever else you want to do. With the kids gone, it's a good opportunity to downsize or not have the expenses of paying for 2 kids worth of stuff which would help.

ESA Stops at 18 but 4k a year isn't a life changing amount of money to help you retire earlier. I also wouldn't include them in your net worth since the plan is to spend them on education and not your retirement.

Once you retire, you have to pay for your own health insurance so a large portion of your paid off mortgage money will likely go toward that. I wouldn't count on magically having an extra 2k out per month since even if your plan is cheap, you will probably want a health fund for deductibles and copays.

The reality is, you don't have time on your side. You want to retire very early (mid 40s), but your savings rate/debt load for the first decade of your career was too low to allow for that. You're making steps to still retire early (53, after 13 years) and are 100% on the right track. You've cleared out bad debt, your remaining debt is low interest, you're maxing tax advantaged spaces (finish the max on the 457(b)), and you're now at the what do I do with the rest of my money stage (taxable accounts/pay mortgage faster/etc). Most people don't have that luxury. They are stuck until 65 or older even while being diligent about their savings.
Last edited by blackholescion on Mon Apr 15, 2019 5:19 pm, edited 2 times in total.

MattE
Posts: 132
Joined: Sun Mar 04, 2012 8:44 pm

Re: Next Steps Help

Post by MattE » Mon Apr 15, 2019 9:14 am

Seems like your tIRA contributions are non-deductible\after-tax and therefore should be looking at backdoor Roth conversions.

Grt2bOutdoors
Posts: 20251
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Next Steps Help

Post by Grt2bOutdoors » Mon Apr 15, 2019 9:21 am

What is your Plan B if annual returns are 4%?
How can you access IRA at age 55? Are you thinking about rule 72(t)? That applies to 401k's, not IRA's.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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