Family with 4 little humans: chances of retiring/financial independence

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Topic Author
Texanbybirth
Posts: 1469
Joined: Tue Apr 14, 2015 12:07 pm

Family with 4 little humans: chances of retiring/financial independence

Post by Texanbybirth »

Hi everyone,

We just refinanced our mortgage to a 20y note, and I've got this idealized goal of retiring the day it's paid off. I'd like to get to financial independence at a relatively young age. Is that realistic?

Thank you!

Emergency funds: 6 mo exp, cash

Debt: mortgage, $197k, 20y, 2.375%, first pmt due 5/1/2021 (just refi'd); nothing else

Tax Filing Status: (MFJ)

Tax Rate: 12% Federal, 0% State

State of Residence: TX

Age: 35/34

Desired Asset allocation: >=80% stocks / =<20% bonds (I'm not comfortable with 100% equity, but nothing lower than 80%)
Desired International allocation: 30-40?% of stocks (not convicted, fine with whatever is in the funds we've chosen)

Current retirement assets: ~$250k (2.7x salary, 4x expenses)

His 401k
76% Vanguard Target Retirement 2050 Fund - Investor Class (VFIFX) (0.15%)

His Roth IRA at Vanguard
6.8% Vanguard Target Retirement 2050 Fund - Investor Class (VFIFX) (0.15%)

Her Roth IRA at Fidelity
1.1% DRX DLY 20+ YR TREAS BULL 3X (TMF) (1.06%) [Not actively contributing, part of HFEA "experiment" since 01/2020)
3.6% PROSHARES ULTRAPRO S&P500 (UPRO) (0.93%) [Not actively contributing, part of HFEA "experiment" since 01/2020)
3.0% FIDELITY FREEDOM INDEX 2045 INVESTOR (FIOFX) (0.12%) [ALL contributions go to this fund]

Her (OLD, no longer contributing) 403b (no real plans for this, just leave it for >=20 years)
9.5% Mutual of America Equity Index Fund (n/a, S&P 500 index fund equivalent) (0.13%)

Contributions

New annual Contributions
$13,875 his 401k (15% of salary); also separately discretionary 5% employer match: $4,625 (if awarded, deposited once/year in the Spring)
$6k his Roth IRA
$6k her Roth IRA

Available funds

Funds available in his 401(k)
All Vanguard Target Date Retirement Funds
Vanguard total market and int'l market
(Not really interested in managing investments beyond a TDF; I'm the person they're designed for :happy )

Questions:
I feel like this overall goal has a shot at being achieved, but I'd love to have my expectations/hypothesis validated by other smart people.

1. I'd like to retire near to when the new mortgage is paid off. How comfortable would you be with the above contributions and planning a retirement @ 55-60? What about not retiring, but at least "financial independence"? If the answer is a resounding no, what is a realistic goal? We're stretching to save at the rate we are.

2. We save $300/mo separately in a taxable brokerage account (Vanguard Life Strategy Growth, VASGX, 0.14%) for things like a new car (ha!) or home improvements. I'm just about ready to pull the trigger and dump our emergency fund into this account, combining them all into one fund. That would give us 6 months of expenses even with a 50% market decline. Is that ridiculous? (I haven't included this account in the above because I don't want it to make retirement assets look too rosy. We never touch this account, as we can cash flow everything, and it has some significant capital gains at this point.)

3. I've been reading the posts at Porfolio Charts about the Golden Butterfly portfolio. According to the Financial Independence calculator on that page, at a 27% savings rate (assuming no employer match again in my life) with 4 years expenses already saved, we could reach FI between 12 and 16 years. If I plug in the VASGX portfolio into the Financial Independence Calculator on the site, with the same savings settings, I get there between 12 and 23 years. Am I fool for consider changing my portfolio?

(4. College has already been generously provided for our 4 little humans by grandparents. It is an extraordinarily gracious blessing, and I only bring it up to point out that college savings doesn't need to factor into this convo.)
“The strong cannot be brave. Only the weak can be brave; and yet again, in practice, only those who can be brave can be trusted, in time of doubt, to be strong.“ - GK Chesterton
guitarguy
Posts: 1903
Joined: Mon Dec 20, 2010 4:10 pm

Re: Family with 4 little humans: chances of retiring/financial independence

Post by guitarguy »

Without (admittedly) reading through those threads, is that "experiment" worth paying 1% ER?

Are you tax gain harvesting in your taxable account?
aristotelian
Posts: 9090
Joined: Wed Jan 11, 2017 8:05 pm

Re: Family with 4 little humans: chances of retiring/financial independence

Post by aristotelian »

What is your spending? With $250K and $30k contributions, Portfoliovisualizer projects anywhere from $1m real to $5m real. If you assume slightly below the median, that might give about $2M for a budget around $80k.
User avatar
greg24
Posts: 4019
Joined: Tue Feb 20, 2007 10:34 am

Re: Family with 4 little humans: chances of retiring/financial independence

Post by greg24 »

I believe retirement at 55-60 is possible. But a lot can happen in 20 years. Your income probably won't continue at the same level for your entire life. Maybe you'll get some nice promotions and raises and make it to FI easier. Maybe you'll suffer a job loss or other setback.

I think a fuzzy mental plan to aim towards FI or retirement at that age is great. Trying to plan it out on paper is another thing.
User avatar
Watty
Posts: 22177
Joined: Wed Oct 10, 2007 3:55 pm

Re: Family with 4 little humans: chances of retiring/financial independence

Post by Watty »

There are some pieces to the puzzle missing.

It looks like your income is about $97K and year and your Retirement savings are about $26K a year.

I would guess that your mortgage payment is about $1,200 a month or a bit less than $15K a year.

FICA taxes are around $7K a year too.

Those and a lot of child raising expenses will end when the kids are launched and you are retired.

What do you expect your expenses will be when the mortgage is paid off and the kids are out of the house?

You also did not mention Social Security. You can get a suggested claiming strategy from this web site.

https://opensocialsecurity.com/

I did not try crunching the numbers but I would suspect that once you are empty nesters with a paid off house you will mainly need to bridge the gap between retirement and when you start Social Security then you may not need much investment income after that.
Mike Scott
Posts: 1651
Joined: Fri Jul 19, 2013 2:45 pm

Re: Family with 4 little humans: chances of retiring/financial independence

Post by Mike Scott »

Based on your stated expenses, you would need to get to about 1.5 million for 25X ignoring any social security etc. It would take about 2 million for 33X for early retirement ignoring any social security etc. A quick run of a compounding calculator says you should be able to get close to the 25X in 20 years. This is all rule of thumbs and it's pretty tight. A lot can change in 20 years. Everything tilts in your favor if you could save a little more and the market has a good run. One specific thing that I would do is put the brokerage account $ into all VTSAX rather than the balanced fund you have now. Tax efficiency may become more important down the road. I would call the 25X in 20 years a possible goal and the 33X a stretch goal if everything continues as is.
User avatar
Devil's Advocate
Posts: 397
Joined: Thu Feb 16, 2012 5:18 pm

Re: Family with 4 little humans: chances of retiring/financial independence

Post by Devil's Advocate »

Texanbybirth wrote: Wed Apr 07, 2021 2:52 pm Hi everyone,

We just refinanced our mortgage to a 20y note, and I've got this idealized goal of retiring the day it's paid off. I'd like to get to financial independence at a relatively young age. Is that realistic?

Thank you!

Emergency funds: 6 mo exp, cash

Debt: mortgage, $197k, 20y, 2.375%, first pmt due 5/1/2021 (just refi'd); nothing else

Tax Filing Status: (MFJ)

Tax Rate: 12% Federal, 0% State

State of Residence: TX

Age: 35/34

Desired Asset allocation: >=80% stocks / =<20% bonds (I'm not comfortable with 100% equity, but nothing lower than 80%)
Desired International allocation: 30-40?% of stocks (not convicted, fine with whatever is in the funds we've chosen)

Current retirement assets: ~$250k (2.7x salary, 4x expenses)

His 401k
76% Vanguard Target Retirement 2050 Fund - Investor Class (VFIFX) (0.15%)

His Roth IRA at Vanguard
6.8% Vanguard Target Retirement 2050 Fund - Investor Class (VFIFX) (0.15%)

Her Roth IRA at Fidelity
1.1% DRX DLY 20+ YR TREAS BULL 3X (TMF) (1.06%) [Not actively contributing, part of HFEA "experiment" since 01/2020)
3.6% PROSHARES ULTRAPRO S&P500 (UPRO) (0.93%) [Not actively contributing, part of HFEA "experiment" since 01/2020)
3.0% FIDELITY FREEDOM INDEX 2045 INVESTOR (FIOFX) (0.12%) [ALL contributions go to this fund]

Her (OLD, no longer contributing) 403b (no real plans for this, just leave it for >=20 years)
9.5% Mutual of America Equity Index Fund (n/a, S&P 500 index fund equivalent) (0.13%)

Contributions

New annual Contributions
$13,875 his 401k (15% of salary); also separately discretionary 5% employer match: $4,625 (if awarded, deposited once/year in the Spring)
$6k his Roth IRA
$6k her Roth IRA

Available funds

Funds available in his 401(k)
All Vanguard Target Date Retirement Funds
Vanguard total market and int'l market
(Not really interested in managing investments beyond a TDF; I'm the person they're designed for :happy )

Questions:
I feel like this overall goal has a shot at being achieved, but I'd love to have my expectations/hypothesis validated by other smart people.

1. I'd like to retire near to when the new mortgage is paid off. How comfortable would you be with the above contributions and planning a retirement @ 55-60? What about not retiring, but at least "financial independence"? If the answer is a resounding no, what is a realistic goal? We're stretching to save at the rate we are.

2. We save $300/mo separately in a taxable brokerage account (Vanguard Life Strategy Growth, VASGX, 0.14%) for things like a new car (ha!) or home improvements. I'm just about ready to pull the trigger and dump our emergency fund into this account, combining them all into one fund. That would give us 6 months of expenses even with a 50% market decline. Is that ridiculous? (I haven't included this account in the above because I don't want it to make retirement assets look too rosy. We never touch this account, as we can cash flow everything, and it has some significant capital gains at this point.)

3. I've been reading the posts at Porfolio Charts about the Golden Butterfly portfolio. According to the Financial Independence calculator on that page, at a 27% savings rate (assuming no employer match again in my life) with 4 years expenses already saved, we could reach FI between 12 and 16 years. If I plug in the VASGX portfolio into the Financial Independence Calculator on the site, with the same savings settings, I get there between 12 and 23 years. Am I fool for consider changing my portfolio?

(4. College has already been generously provided for our 4 little humans by grandparents. It is an extraordinarily gracious blessing, and I only bring it up to point out that college savings doesn't need to factor into this convo.)
One small thing to think about would be using total stock index in your Roth accounts. Conventional wisdom says to put highest risk funds in Roth and to use 401k space for bonds.

Otherwise I think you are doing well. Keep it up and I bet you can be retired at 55.

DA
livesoft
Posts: 75914
Joined: Thu Mar 01, 2007 8:00 pm

Re: Family with 4 little humans: chances of retiring/financial independence

Post by livesoft »

If you would like to retire early in 20 years and have financial independence, then I think you can simplify down to the following:

Save & invest 50% of your annual gross income every year.

That's it. Simple. And "gross" means before any taxes and expenses. That's before income taxes, FICA, medicare, property, and any other taxes. And before any deductions for health care premiums, 401(k), 403(b), HSA, pension, and anything else.

And I don't think I have to explain why that is the case either.
Wiki This signature message sponsored by sscritic: Learn to fish.
tashnewbie
Posts: 1520
Joined: Thu Apr 23, 2020 12:44 pm

Re: Family with 4 little humans: chances of retiring/financial independence

Post by tashnewbie »

As others above have said, I definitely think it's doable.

You can make small tweaks, such as only using stock in Roth IRAs and not using a blended fund in taxable. I don't know if any of that will matter much, and if using the TDF and LS fund allows you to avoid potential behavioral pitfalls or undesired work, then I'd say it's probably worth using them.

Sounds like you have a little space in the 0% long term capital gains tax bracket, so you could realize a certain amount of LTCG each year, if needed for spending or to tax gain harvest and reset your basis in the position(s) you hold in taxable.

Do you have life insurance for both of you? Private long term disability insurance for you?
marcopolo
Posts: 4149
Joined: Sat Dec 03, 2016 10:22 am

Re: Family with 4 little humans: chances of retiring/financial independence

Post by marcopolo »

livesoft wrote: Wed Apr 07, 2021 4:34 pm If you would like to retire early in 20 years and have financial independence, then I think you can simplify down to the following:

Save & invest 50% of your annual gross income every year.

That's it. Simple. And "gross" means before any taxes and expenses. That's before income taxes, FICA, medicare, property, and any other taxes. And before any deductions for health care premiums, 401(k), 403(b), HSA, pension, and anything else.

And I don't think I have to explain why that is the case either.
Please do explain, because it seems a bit draconian to me.
It is a great goal to have, but I am not sure it is necessary to retire in 20 years.

Since OP probably has to pay FICA, Medicare, and probably some income taxes, saving 50% of gross equates to something like roughly 1.5 years of spending saved per year. Do that for 20 years, and they have saved 30x expenses. They already have 4x, so now we are at 34x. Which is probably a comfortable target to retire early (less than 3% WR). But, that assume 0% real growth over the next 20 years. Even with just a little bit growth in their portfolio, they could hit an early retirement goal with a lower savings rate.
Once in a while you get shown the light, in the strangest of places if you look at it right.
User avatar
ruralavalon
Posts: 20934
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Family with 4 little humans: chances of retiring/financial independence

Post by ruralavalon »

Texanbybirth wrote: Wed Apr 07, 2021 2:52 pmEmergency funds: 6 mo exp, cash

. . . . .

Current retirement assets: ~$250k (2.7x salary, 4x expenses)

. . . . .

New annual Contributions
$13,875 his 401k (15% of salary); also separately discretionary 5% employer match: $4,625 (if awarded, deposited once/year in the Spring)
$6k his Roth IRA
$6k her Roth IRA

. . . . .

Questions:
I feel like this overall goal has a shot at being achieved, but I'd love to have my expectations/hypothesis validated by other smart people.

1. I'd like to retire near to when the new mortgage is paid off. How comfortable would you be with the above contributions and planning a retirement @ 55-60? What about not retiring, but at least "financial independence"? If the answer is a resounding no, what is a realistic goal? We're stretching to save at the rate we are.

2. We save $300/mo separately in a taxable brokerage account (Vanguard Life Strategy Growth, VASGX, 0.14%) for things like a new car (ha!) or home improvements. I'm just about ready to pull the trigger and dump our emergency fund into this account, combining them all into one fund. That would give us 6 months of expenses even with a 50% market decline. Is that ridiculous? (I haven't included this account in the above because I don't want it to make retirement assets look too rosy. We never touch this account, as we can cash flow everything, and it has some significant capital gains at this point.)
Instead of contributions to the taxable account I suggest using the $3.6k/year to increase your 401k contributions, increase contributions to the annual employee maximum of $19.5 if practical.

How much is currently in your taxable account? (in my opinion it's reasonable to dispense with the emergency fund if you have a large taxable account.)

How much is currently in your emergency fund?


Here are two calculators you can use to assess the range of possible outcomes at different levels of contributions:
2)www.firecalc.com; and
2)www.i-orp.com.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
User avatar
celia
Posts: 12394
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: Family with 4 little humans: chances of retiring/financial independence

Post by celia »

Being able to retire (or not) doesn't depend on any particular number. It is primarily dependent on what your living expenses will be in retirement. All I can tell at the moment is that you would likely have a paid-off house at that time, so you won't have to make mortgage payments.

We also don't know what your current living expenses are. Even if we knew, they won't stay the same for 20 years. Those "little humans" will eat more as they grow (watch out for teen males), want to wear unique clothes/shoes, have activities such as sports, music, birthday parties to attend, etc. Your family may want to travel or have experiences and unless you drive everywhere, you will have to pay 6 airfares and maybe more than one hotel room. You will need health care for 6 and occasional urgent care/ a surgery or two. If you let them drive, will you provide a car, insurance, and gas? Will you contribute to any future weddings?

This is not meant to scare you but show that your expenses will vary over time. Right now, you can't set budgets for the next 20 years. But you will know that to retire, that has to be one of your priority savings goals.
Triple digit golfer
Posts: 7251
Joined: Mon May 18, 2009 5:57 pm

Re: Family with 4 little humans: chances of retiring/financial independence

Post by Triple digit golfer »

You're saving about 28% of gross. Don't worry about it. Just keep saving. Good things will happen with that savings rate.
Vanguard Fan 1367
Posts: 2003
Joined: Wed Feb 08, 2017 3:09 pm

Re: Family with 4 little humans: chances of retiring/financial independence

Post by Vanguard Fan 1367 »

The wife and I also had 4 little humans. She used to complain that we had to scrimp and save. But she sucked it up and did it.

Dave Ramsey says that if you live like no one else later you get to live like no one else. Now that we are retired that has worked out just like that for us.
John Bogle: "It's amazing how difficult it is for a man to understand something if he's paid a small fortune not to understand it."
PHD-2
Posts: 24
Joined: Mon May 14, 2018 2:36 pm

Re: Family with 4 little humans: chances of retiring/financial independence

Post by PHD-2 »

Others have given you the actual advice you need. I'm just here to tell you that some others will tell you that with a family that size you are asking for alot to pull this off, but you can do it. I was your age 19 years ago and this year I hit my goal. The market over the next 20 years won't be identical to the last but it's a long horizon and you can adjust to what it throws at you. I've got 4 and my oldest is 19, my youngest 12 right now. My only hope is that they solve healthcare for you in the next 20 years. I was hoping it would be solved for me but its not and here I am. I'll just spend alot perhaps and attempt to keep my MAGI low and live life.

Good luck
BernardShakey
Posts: 210
Joined: Tue Jun 25, 2019 10:52 pm
Location: CA

Re: Family with 4 little humans: chances of retiring/financial independence

Post by BernardShakey »

livesoft wrote: Wed Apr 07, 2021 4:34 pm If you would like to retire early in 20 years and have financial independence, then I think you can simplify down to the following:

Save & invest 50% of your annual gross income every year.

That's it. Simple. And "gross" means before any taxes and expenses. That's before income taxes, FICA, medicare, property, and any other taxes. And before any deductions for health care premiums, 401(k), 403(b), HSA, pension, and anything else.

And I don't think I have to explain why that is the case either.
Hmm, save 50% of a gross income of ~$97k, while raising 4 kids with a mortgage. That's more than I would want to tackle and doesn't appear necessary for the OP to reach stated goal.
An important key to investing is having a well-calibrated sense of your future regret.
User avatar
JoeRetire
Posts: 7729
Joined: Tue Jan 16, 2018 2:44 pm

Re: Family with 4 little humans: chances of retiring/financial independence

Post by JoeRetire »

Texanbybirth wrote: Wed Apr 07, 2021 2:52 pm We just refinanced our mortgage to a 20y note, and I've got this idealized goal of retiring the day it's paid off. I'd like to get to financial independence at a relatively young age. Is that realistic?
Sure.

Work hard. Save as much as you can while still leading a comfortable lifestyle. Avoid lifestyle creep. Buy what you need, not necessarily what you want. Prepare to live on a modest income during retirement.

You can get there.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
crre
Posts: 64
Joined: Fri Apr 12, 2019 8:07 pm

Re: Family with 4 little humans: chances of retiring/financial independence

Post by crre »

You're saving about 28% of gross. Don't worry about it. Just keep saving. Good things will happen with that savings rate.

this. you'll be fine.
crre
Posts: 64
Joined: Fri Apr 12, 2019 8:07 pm

Re: Family with 4 little humans: chances of retiring/financial independence

Post by crre »

Save & invest 50% of your annual gross income every year.

That's it. Simple. And "gross" means before any taxes and expenses. That's before income taxes, FICA, medicare, property, and any other taxes. And before any deductions for health care premiums, 401(k), 403(b), HSA, pension, and anything else.


draconian indeed. before i retired last year, i was in the 50% bracket (don't live in the states) and 41% of my paycheck went to taxes. i made a good salary, but saving 50% and living on the remaining 9% would have put us well below the poverty line.

op, you will be fine.
Cigarman
Posts: 410
Joined: Fri Jul 12, 2013 5:12 am

Re: Family with 4 little humans: chances of retiring/financial independence

Post by Cigarman »

FWIW....

My parents were born just prior to the depression and married in 1950 after my father served in WWII and went to college on the GI Bill. They had 6 kids, put all of us through college and were still able to save for retirement on top of his county pension. He worked two jobs (the second as a real estate appraiser). My mother never worked outside of the house. They were very careful with their money. We didn't live a grand lifestyle but always had what we needed and a little more. He was able to retire in the mid 80's and travel after all the kids were gone.

It's very doable and you seem to be on the right track.
User avatar
JoeRetire
Posts: 7729
Joined: Tue Jan 16, 2018 2:44 pm

Re: Family with 4 little humans: chances of retiring/financial independence

Post by JoeRetire »

Cigarman wrote: Thu Apr 08, 2021 7:30 am He was able to retire in the mid 80's and travel after all the kids were gone.
Did he retire at 55?
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
Topic Author
Texanbybirth
Posts: 1469
Joined: Tue Apr 14, 2015 12:07 pm

Re: Family with 4 little humans: chances of retiring/financial independence

Post by Texanbybirth »

guitarguy wrote: Wed Apr 07, 2021 3:05 pm Without (admittedly) reading through those threads, is that "experiment" worth paying 1% ER?

Are you tax gain harvesting in your taxable account?
I don't actually know if the "experiment" is worth it, but it HAS taught me that I'm terrible at sticking to a re-balancing plan. We were supposed to re-balance on 01/15 and I haven't yet. I'm not sure if I will on 04/15 either. It has taught me that a fund of funds is good for me because I'm not cut out to manage investments beyond that. I hope that's a valuable lesson in itself, and if the HFEA actually does it's thing then it won't turn out to be a bad lesson anyway.

I haven't looked into "tax gain harvesting", only heard of TLH. I will look into it, thank you!
“The strong cannot be brave. Only the weak can be brave; and yet again, in practice, only those who can be brave can be trusted, in time of doubt, to be strong.“ - GK Chesterton
chassis
Posts: 345
Joined: Tue Mar 24, 2020 4:28 pm

Re: Family with 4 little humans: chances of retiring/financial independence

Post by chassis »

@Texanbybirth

You want to retire at age 55, correct? This is reasonable and doable. Very reasonable and doable.

Set a financial net worth target at age 55, in terms of dollars. Be specific and clear about it. The portfolio at age 55 needs to withstand your living expense withdrawals for your life expectancy, let's say to age 85. Build your own detailed financial model that accurately depicts your current financial position, and reasonably forecasts what could happen in the future given your assumptions. The very many online tools available help, but are only a tiny slice of the entire picture for an individual. No tool that I or others have found is a 100% solution for any one individual. You need to roll your own on this, but the building blocks are available from others. It's doable and reasonable.

I didn't see anything about your income. What is it?

What you must do to achieve your goal:

- save
- live below your means
- be aggressive in your choice of investments
Topic Author
Texanbybirth
Posts: 1469
Joined: Tue Apr 14, 2015 12:07 pm

Re: Family with 4 little humans: chances of retiring/financial independence

Post by Texanbybirth »

aristotelian wrote: Wed Apr 07, 2021 3:09 pm What is your spending? With $250K and $30k contributions, Portfoliovisualizer projects anywhere from $1m real to $5m real. If you assume slightly below the median, that might give about $2M for a budget around $80k.
greg24 wrote: Wed Apr 07, 2021 3:10 pm I believe retirement at 55-60 is possible. But a lot can happen in 20 years. Your income probably won't continue at the same level for your entire life. Maybe you'll get some nice promotions and raises and make it to FI easier. Maybe you'll suffer a job loss or other setback.

I think a fuzzy mental plan to aim towards FI or retirement at that age is great. Trying to plan it out on paper is another thing.
Thanks for the advice to accept the fuzziness. Currently expenses are $60k (mortgage, 10% tithe, and groceries are the biggest expenses), but I do really struggle with trying to "project" future expenses. Honestly, I usually just give up and go on to something more interesting. :-) It sounds like plowing away the savings is more important right now.
celia wrote: Wed Apr 07, 2021 7:30 pm Being able to retire (or not) doesn't depend on any particular number. It is primarily dependent on what your living expenses will be in retirement. All I can tell at the moment is that you would likely have a paid-off house at that time, so you won't have to make mortgage payments.

We also don't know what your current living expenses are. Even if we knew, they won't stay the same for 20 years. Those "little humans" will eat more as they grow (watch out for teen males), want to wear unique clothes/shoes, have activities such as sports, music, birthday parties to attend, etc. Your family may want to travel or have experiences and unless you drive everywhere, you will have to pay 6 airfares and maybe more than one hotel room. You will need health care for 6 and occasional urgent care/ a surgery or two. If you let them drive, will you provide a car, insurance, and gas? Will you contribute to any future weddings?

This is not meant to scare you but show that your expenses will vary over time. Right now, you can't set budgets for the next 20 years. But you will know that to retire, that has to be one of your priority savings goals.
I appreciate the caution on expenses now vs 20 years. 3 of the 4 are boys, so I have my eyes wide open about what our grocery bill will look like in 10 years. I have a very generous health plan at work. If that changes, then a lot of this will change, and we will adjust accordingly.

As far as airfare and hotel, we'll see what promotions and bonuses come in each year! 8-)
“The strong cannot be brave. Only the weak can be brave; and yet again, in practice, only those who can be brave can be trusted, in time of doubt, to be strong.“ - GK Chesterton
User avatar
David Jay
Posts: 10539
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Family with 4 little humans: chances of retiring/financial independence

Post by David Jay »

Watty wrote: Wed Apr 07, 2021 3:13 pm There are some pieces to the puzzle missing.

It looks like your income is about $97K and year and your Retirement savings are about $26K a year.

I would guess that your mortgage payment is about $1,200 a month or a bit less than $15K a year.

FICA taxes are around $7K a year too.

Those and a lot of child raising expenses will end when the kids are launched and you are retired.

What do you expect your expenses will be when the mortgage is paid off and the kids are out of the house?

You also did not mention Social Security. You can get a suggested claiming strategy from this web site.

https://opensocialsecurity.com/

I did not try crunching the numbers but I would suspect that once you are empty nesters with a paid off house you will mainly need to bridge the gap between retirement and when you start Social Security then you may not need much investment income after that.
I was thinking the same thing. What would your expenses be today if you quit working (income tax goes way down, FICA is zero, no retirement deductions), your mortgage was paid off and you had no kids at home? I say less than $50,000 a year.

If you retire at - say - age 60, you only need the assets to make it from 60 to Social Security ($50,000 a year), then after that the assests to makeup the difference of [$50,000 - SS] at a 3% withdrawal rate.
Last edited by David Jay on Thu Apr 08, 2021 9:20 am, edited 1 time in total.
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
Texanbybirth
Posts: 1469
Joined: Tue Apr 14, 2015 12:07 pm

Re: Family with 4 little humans: chances of retiring/financial independence

Post by Texanbybirth »

Watty wrote: Wed Apr 07, 2021 3:13 pm You also did not mention Social Security. You can get a suggested claiming strategy from this web site.

https://opensocialsecurity.com/
I would like to delay SS till 70 if possible. Unfortunately I don't think it's in my genes to live a super long life, but my wife's family has VERY long life on both sides. Since she is a SAHM, I'd like to protect her as much as possible in the likely event of my pre-deceasing her.

I really like to use this website: https://ssa.tools/calculator.html

If my salary stays the same, and I quit working at 55, then it shows (with my current earning record) to be $3,333.
“The strong cannot be brave. Only the weak can be brave; and yet again, in practice, only those who can be brave can be trusted, in time of doubt, to be strong.“ - GK Chesterton
Topic Author
Texanbybirth
Posts: 1469
Joined: Tue Apr 14, 2015 12:07 pm

Re: Family with 4 little humans: chances of retiring/financial independence

Post by Texanbybirth »

Triple digit golfer wrote: Wed Apr 07, 2021 7:37 pm You're saving about 28% of gross. Don't worry about it. Just keep saving. Good things will happen with that savings rate.
Vanguard Fan 1367 wrote: Wed Apr 07, 2021 10:49 pm The wife and I also had 4 little humans. She used to complain that we had to scrimp and save. But she sucked it up and did it.

Dave Ramsey says that if you live like no one else later you get to live like no one else. Now that we are retired that has worked out just like that for us.
crre wrote: Thu Apr 08, 2021 6:41 am You're saving about 28% of gross. Don't worry about it. Just keep saving. Good things will happen with that savings rate.

this. you'll be fine.
Cigarman wrote: Thu Apr 08, 2021 7:30 am FWIW....

My parents were born just prior to the depression and married in 1950 after my father served in WWII and went to college on the GI Bill. They had 6 kids, put all of us through college and were still able to save for retirement on top of his county pension. He worked two jobs (the second as a real estate appraiser). My mother never worked outside of the house. They were very careful with their money. We didn't live a grand lifestyle but always had what we needed and a little more. He was able to retire in the mid 80's and travel after all the kids were gone.

It's very doable and you seem to be on the right track.
Nice, thanks for the simple encouragement. :beer
PHD-2 wrote: Thu Apr 08, 2021 12:45 am Others have given you the actual advice you need. I'm just here to tell you that some others will tell you that with a family that size you are asking for alot to pull this off, but you can do it. I was your age 19 years ago and this year I hit my goal. The market over the next 20 years won't be identical to the last but it's a long horizon and you can adjust to what it throws at you. I've got 4 and my oldest is 19, my youngest 12 right now. My only hope is that they solve healthcare for you in the next 20 years. I was hoping it would be solved for me but its not and here I am. I'll just spend alot perhaps and attempt to keep my MAGI low and live life.

Good luck
I have a very generous health plan at work: $0 premium, almost full HSA employer contr. If that doesn't hold up, then this plan might have to change. I've stopped worrying about that, though, because I'm sure I'll find another job with at least some kind of healthcare.
“The strong cannot be brave. Only the weak can be brave; and yet again, in practice, only those who can be brave can be trusted, in time of doubt, to be strong.“ - GK Chesterton
User avatar
willthrill81
Posts: 24112
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Family with 4 little humans: chances of retiring/financial independence

Post by willthrill81 »

marcopolo wrote: Wed Apr 07, 2021 5:10 pm
livesoft wrote: Wed Apr 07, 2021 4:34 pm If you would like to retire early in 20 years and have financial independence, then I think you can simplify down to the following:

Save & invest 50% of your annual gross income every year.

That's it. Simple. And "gross" means before any taxes and expenses. That's before income taxes, FICA, medicare, property, and any other taxes. And before any deductions for health care premiums, 401(k), 403(b), HSA, pension, and anything else.

And I don't think I have to explain why that is the case either.
Please do explain, because it seems a bit draconian to me.
It is a great goal to have, but I am not sure it is necessary to retire in 20 years.

Since OP probably has to pay FICA, Medicare, and probably some income taxes, saving 50% of gross equates to something like roughly 1.5 years of spending saved per year. Do that for 20 years, and they have saved 30x expenses. They already have 4x, so now we are at 34x. Which is probably a comfortable target to retire early (less than 3% WR). But, that assume 0% real growth over the next 20 years. Even with just a little bit growth in their portfolio, they could hit an early retirement goal with a lower savings rate.
I agree. The OP needs roughly $1.5 million to be at 25x, which I'd say is fine considering how much of their spending SS benefits, even if reduced by ~25%, will cover when the OP claims them. They are contributing $2,156/month, and with the $250k they already have, they would hit their $1.5 million target in 20 years with a 5% real rate of return. That might be a little ambitious for an 80/20 AA though, so I would probably recommend using a 4% real return as an estimate. To hit $1.5 million in 20 years, that would mean that they would need to increase their contributions to $2,700/month, about $550 more than now.

So they have a good chance of reaching their goal in 20 years as is, and if they can increase their contributions by around 25%, I'd say that they have a high likelihood of doing so.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
quantAndHold
Posts: 5458
Joined: Thu Sep 17, 2015 10:39 pm

Re: Family with 4 little humans: chances of retiring/financial independence

Post by quantAndHold »

livesoft wrote: Wed Apr 07, 2021 4:34 pm If you would like to retire early in 20 years and have financial independence, then I think you can simplify down to the following:

Save & invest 50% of your annual gross income every year.
I don’t feel like doing math, but isn’t 50% what they usually recommend to people who want to FIRE in 10 years? 50% seems extreme for a stated goal of 20 years.

OP if you’re saving 28% of gross with four kids at home, you’re doing fine. There’s a lot of things that can happen, both positive and negative, between now and 2041, so nothing is a sure thing until it happens. But you’re on the right track.
Yes, I’m really that pedantic.
User avatar
willthrill81
Posts: 24112
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Family with 4 little humans: chances of retiring/financial independence

Post by willthrill81 »

quantAndHold wrote: Thu Apr 08, 2021 9:38 am
livesoft wrote: Wed Apr 07, 2021 4:34 pm If you would like to retire early in 20 years and have financial independence, then I think you can simplify down to the following:

Save & invest 50% of your annual gross income every year.
I don’t feel like doing math, but isn’t 50% what they usually recommend to people who want to FIRE in 10 years? 50% seems extreme for a stated goal of 20 years.
It is a bit extreme, but a 50% saving rate leads to FI in about 17 years with a 5% real return. The difference with the OP is that they already have 4x saved.

Reaching FI in 10 years with a 5% real return requires about a 67% saving rate.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
Katietsu
Posts: 4683
Joined: Sun Sep 22, 2013 1:48 am

Re: Family with 4 little humans: chances of retiring/financial independence

Post by Katietsu »

Forget about all the detailed projections that you do not like anyway. It sounds like you have found an excellent balance between current spending and saving for the future. Stick with it and reassess as necessary. Enjoy the family.
KlangFool
Posts: 20139
Joined: Sat Oct 11, 2008 12:35 pm

Re: Family with 4 little humans: chances of retiring/financial independence

Post by KlangFool »

Texanbybirth wrote: Wed Apr 07, 2021 2:52 pm Hi everyone,

We just refinanced our mortgage to a 20y note, and I've got this idealized goal of retiring the day it's paid off. I'd like to get to financial independence at a relatively young age. Is that realistic?

Thank you!
Texanbybirth,

1) 20 years mortgage -> How does this make any sense when you are not maxing up your 401K? You are essentially paying additional 12% taxes for your additional payment into the mortgage. You should go with 30 years mortgage. If you lowered your mortgage payment, you can save 12% taxes.

2) Let's say annual expense = 60K. 25X = 1.5 million.

Current portfolio size = 250K, annual savings = 13875 + 4625+ 12,000 = $30,500 ~ 30K

You can reach your number of 1.5 million at 18+ years with a 5% annual return

You can reach your number of 1.5 million at 16+ years with a 6% annual return

You can reach your number of 1.5 million at 15+ years with a 7% annual return

Starting Net Worth $250,000
Annual Savings $30,000
Years
Annual Return Rate 14 15 16 17 18 19
5.00% $1,082,942 $1,167,089 $1,255,443 $1,348,216 $1,445,626 $1,547,908
6.00% $1,195,678 $1,297,419 $1,405,264 $1,519,580 $1,640,754 $1,769,200
7.00% $1,321,148 $1,443,629 $1,574,683 $1,714,910 $1,864,954 $2,025,501
8.00% $1,460,746 $1,607,606 $1,766,214 $1,937,511 $2,122,512 $2,322,313

In summary, you can reach your goal in less than 20 years. You might get there faster if you do (1). By saving 12% taxes, you can pay off your mortgage in less than 20 years.

KlangFool
Last edited by KlangFool on Thu Apr 08, 2021 10:21 am, edited 1 time in total.
40% VWENX | 12.5% VFWAX/VTIAX | 11.5% VTSAX | 16% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 40% Wellington 40% 3-funds 20% Mini-Larry
quantAndHold
Posts: 5458
Joined: Thu Sep 17, 2015 10:39 pm

Re: Family with 4 little humans: chances of retiring/financial independence

Post by quantAndHold »

willthrill81 wrote: Thu Apr 08, 2021 9:40 am
quantAndHold wrote: Thu Apr 08, 2021 9:38 am
livesoft wrote: Wed Apr 07, 2021 4:34 pm If you would like to retire early in 20 years and have financial independence, then I think you can simplify down to the following:

Save & invest 50% of your annual gross income every year.
I don’t feel like doing math, but isn’t 50% what they usually recommend to people who want to FIRE in 10 years? 50% seems extreme for a stated goal of 20 years.
It is a bit extreme, but a 50% saving rate leads to FI in about 17 years with a 5% real return. The difference with the OP is that they already have 4x saved.

Reaching FI in 10 years with a 5% real return requires about a 67% saving rate.
Good to know. Our income and expenses were always lumpy enough that we lived sensibly, saved the rest, and when we had enough, we stopped working, which happened to be when I was 53. I never really knew how much I was saving in any given year until after the year was over. This idea that people can plan 20 years ahead and make it happen is kind of baffling to me.
Yes, I’m really that pedantic.
sailaway
Posts: 3017
Joined: Fri May 12, 2017 1:11 pm

Re: Family with 4 little humans: chances of retiring/financial independence

Post by sailaway »

quantAndHold wrote: Thu Apr 08, 2021 10:26 am
willthrill81 wrote: Thu Apr 08, 2021 9:40 am
quantAndHold wrote: Thu Apr 08, 2021 9:38 am
livesoft wrote: Wed Apr 07, 2021 4:34 pm If you would like to retire early in 20 years and have financial independence, then I think you can simplify down to the following:

Save & invest 50% of your annual gross income every year.
I don’t feel like doing math, but isn’t 50% what they usually recommend to people who want to FIRE in 10 years? 50% seems extreme for a stated goal of 20 years.
It is a bit extreme, but a 50% saving rate leads to FI in about 17 years with a 5% real return. The difference with the OP is that they already have 4x saved.

Reaching FI in 10 years with a 5% real return requires about a 67% saving rate.
Good to know. Our income and expenses were always lumpy enough that we lived sensibly, saved the rest, and when we had enough, we stopped working, which happened to be when I was 53. I never really knew how much I was saving in any given year until after the year was over. This idea that people can plan 20 years ahead and make it happen is kind of baffling to me.
Right? Our two and five year plans seem to be in constant flux. Luckily, for the most part, they seem to improve, either because the markets are in our favor or because once we have more knowledge, we realize that we prefer something different than we were aiming for.
Topic Author
Texanbybirth
Posts: 1469
Joined: Tue Apr 14, 2015 12:07 pm

Re: Family with 4 little humans: chances of retiring/financial independence

Post by Texanbybirth »

KlangFool wrote: Thu Apr 08, 2021 10:09 am
Texanbybirth wrote: Wed Apr 07, 2021 2:52 pm Hi everyone,

We just refinanced our mortgage to a 20y note, and I've got this idealized goal of retiring the day it's paid off. I'd like to get to financial independence at a relatively young age. Is that realistic?

Thank you!
Texanbybirth,

1) 20 years mortgage -> How does this make any sense when you are not maxing up your 401K? You are essentially paying additional 12% taxes for your additional payment into the mortgage. You should go with 30 years mortgage. If you lowered your mortgage payment, you can save 12% taxes.
...
In summary, you can reach your goal in 20 years. You might get there faster if you do (1). By saving 12% taxes, you can pay off your mortgage in less than 20 years.

KlangFool
Where were YOU in my refinance thread?? :happy

I really, really struggled with 20 vs 30 year. We had a 30 year mortgage originally, and we'd whittled it down to ~22y8mo left. The 20y still lowered our mo pmt about $80, and I couldn't bring myself to extend the mortgage back out to 30 years.
“The strong cannot be brave. Only the weak can be brave; and yet again, in practice, only those who can be brave can be trusted, in time of doubt, to be strong.“ - GK Chesterton
User avatar
ruralavalon
Posts: 20934
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Family with 4 little humans: chances of retiring/financial independence

Post by ruralavalon »

Texanbybirth wrote: Thu Apr 08, 2021 10:36 am
KlangFool wrote: Thu Apr 08, 2021 10:09 am
Texanbybirth wrote: Wed Apr 07, 2021 2:52 pm Hi everyone,

We just refinanced our mortgage to a 20y note, and I've got this idealized goal of retiring the day it's paid off. I'd like to get to financial independence at a relatively young age. Is that realistic?

Thank you!
Texanbybirth,

1) 20 years mortgage -> How does this make any sense when you are not maxing up your 401K? You are essentially paying additional 12% taxes for your additional payment into the mortgage. You should go with 30 years mortgage. If you lowered your mortgage payment, you can save 12% taxes.
...
In summary, you can reach your goal in 20 years. You might get there faster if you do (1). By saving 12% taxes, you can pay off your mortgage in less than 20 years.

KlangFool
Where were YOU in my refinance thread?? :happy

I really, really struggled with 20 vs 30 year. We had a 30 year mortgage originally, and we'd whittled it down to ~22y8mo left. The 20y still lowered our mo pmt about $80, and I couldn't bring myself to extend the mortgage back out to 30 years.
I think it is a good idea to be debt free in retirement, so think it's a good idea to have a mortgage term which gets the mortgage paid off by the time you plan to retire.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Topic Author
Texanbybirth
Posts: 1469
Joined: Tue Apr 14, 2015 12:07 pm

Re: Family with 4 little humans: chances of retiring/financial independence

Post by Texanbybirth »

quantAndHold wrote: Thu Apr 08, 2021 10:26 am
willthrill81 wrote: Thu Apr 08, 2021 9:40 am
quantAndHold wrote: Thu Apr 08, 2021 9:38 am
livesoft wrote: Wed Apr 07, 2021 4:34 pm If you would like to retire early in 20 years and have financial independence, then I think you can simplify down to the following:

Save & invest 50% of your annual gross income every year.
I don’t feel like doing math, but isn’t 50% what they usually recommend to people who want to FIRE in 10 years? 50% seems extreme for a stated goal of 20 years.
It is a bit extreme, but a 50% saving rate leads to FI in about 17 years with a 5% real return. The difference with the OP is that they already have 4x saved.

Reaching FI in 10 years with a 5% real return requires about a 67% saving rate.
Good to know. Our income and expenses were always lumpy enough that we lived sensibly, saved the rest, and when we had enough, we stopped working, which happened to be when I was 53. I never really knew how much I was saving in any given year until after the year was over. This idea that people can plan 20 years ahead and make it happen is kind of baffling to me.
Though I like numbers and data as much as the next guy, I try not to get fixated on "planning" for something 20 years from now. I understand your hesitancy to trust a "20 year plan", and I agree with it. About the only thing I can guarantee right now is that (a) a big chunk of tax credits will start falling off in 20 years, but (b) so will $12k in mortgage expenses. Who knows what new taxes/jobs/health events will happen in that time period?! However, I am at least old enough now to vividly remember much of 20 years AGO in my own life, so it'll be fun to revisit this thread in 20 years and see my past self. :happy

I think where I was coming from with this thread is to try to gather a general consensus from a financially savvy subset of the population as to whether, given current savings levels/opportunities, I could even get a fuzzy outline of a financial picture 2 decades from now.

More simply, I think around here it's called a "sanity check".
:beer
“The strong cannot be brave. Only the weak can be brave; and yet again, in practice, only those who can be brave can be trusted, in time of doubt, to be strong.“ - GK Chesterton
Topic Author
Texanbybirth
Posts: 1469
Joined: Tue Apr 14, 2015 12:07 pm

Re: Family with 4 little humans: chances of retiring/financial independence

Post by Texanbybirth »

ruralavalon wrote: Thu Apr 08, 2021 10:12 am
New Providence wrote: Thu Apr 08, 2021 9:33 am You have 4 kids and want to retire? You my friend can't retire.

More kids = more expenses = you working longer. Hopefully you won't go for a 5th if you are already planning on retirement.
Nonsense.

We had four children, one income family with stay at home mom, we put our four children through college on cash flow from income without any use of debt, and I retired.
Thank you. Though some days I do feel more like poster New Providence's attitude! I think it's good to be realistic.
“The strong cannot be brave. Only the weak can be brave; and yet again, in practice, only those who can be brave can be trusted, in time of doubt, to be strong.“ - GK Chesterton
KlangFool
Posts: 20139
Joined: Sat Oct 11, 2008 12:35 pm

Re: Family with 4 little humans: chances of retiring/financial independence

Post by KlangFool »

Texanbybirth wrote: Thu Apr 08, 2021 10:36 am
KlangFool wrote: Thu Apr 08, 2021 10:09 am
Texanbybirth wrote: Wed Apr 07, 2021 2:52 pm Hi everyone,

We just refinanced our mortgage to a 20y note, and I've got this idealized goal of retiring the day it's paid off. I'd like to get to financial independence at a relatively young age. Is that realistic?

Thank you!
Texanbybirth,

1) 20 years mortgage -> How does this make any sense when you are not maxing up your 401K? You are essentially paying additional 12% taxes for your additional payment into the mortgage. You should go with 30 years mortgage. If you lowered your mortgage payment, you can save 12% taxes.
...
In summary, you can reach your goal in 20 years. You might get there faster if you do (1). By saving 12% taxes, you can pay off your mortgage in less than 20 years.

KlangFool
Where were YOU in my refinance thread?? :happy

I really, really struggled with 20 vs 30 year. We had a 30 year mortgage originally, and we'd whittled it down to ~22y8mo left. The 20y still lowered our mo pmt about $80, and I couldn't bring myself to extend the mortgage back out to 30 years.
Texanbybirth,

Money is fungible. By saving 12% taxes, you could pay off your 30 years mortgage in less than 20 years. Emotionally, you may not like it. But, you cannot argue with the numbers. This is true even if you do not invest those additional money and just keep it as CASH inside your 401K.

KlangFool
40% VWENX | 12.5% VFWAX/VTIAX | 11.5% VTSAX | 16% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 40% Wellington 40% 3-funds 20% Mini-Larry
BernardShakey
Posts: 210
Joined: Tue Jun 25, 2019 10:52 pm
Location: CA

Re: Family with 4 little humans: chances of retiring/financial independence

Post by BernardShakey »

KlangFool wrote: Thu Apr 08, 2021 10:09 am
Texanbybirth wrote: Wed Apr 07, 2021 2:52 pm Hi everyone,

We just refinanced our mortgage to a 20y note, and I've got this idealized goal of retiring the day it's paid off. I'd like to get to financial independence at a relatively young age. Is that realistic?

Thank you!
Texanbybirth,

1) 20 years mortgage -> How does this make any sense when you are not maxing up your 401K? You are essentially paying additional 12% taxes for your additional payment into the mortgage. You should go with 30 years mortgage. If you lowered your mortgage payment, you can save 12% taxes.

2) Let's say annual expense = 60K. 25X = 1.5 million.

Current portfolio size = 250K, annual savings = 13875 + 4625+ 12,000 = $30,500 ~ 30K

You can reach your number of 1.5 million at 18+ years with a 5% annual return

You can reach your number of 1.5 million at 16+ years with a 6% annual return

You can reach your number of 1.5 million at 15+ years with a 7% annual return

Starting Net Worth $250,000
Annual Savings $30,000
Years
Annual Return Rate 14 15 16 17 18 19
5.00% $1,082,942 $1,167,089 $1,255,443 $1,348,216 $1,445,626 $1,547,908
6.00% $1,195,678 $1,297,419 $1,405,264 $1,519,580 $1,640,754 $1,769,200
7.00% $1,321,148 $1,443,629 $1,574,683 $1,714,910 $1,864,954 $2,025,501
8.00% $1,460,746 $1,607,606 $1,766,214 $1,937,511 $2,122,512 $2,322,313

In summary, you can reach your goal in less than 20 years. You might get there faster if you do (1). By saving 12% taxes, you can pay off your mortgage in less than 20 years.

KlangFool
Overthinking. OP should stick to 20 year mortgage and be debt free at the time he wishes to retire. Going into retirement with no mortgage is huge. He has an extraordinary interest rate, and his salary will likely increase so he can continue to ramp up savings.
An important key to investing is having a well-calibrated sense of your future regret.
BernardShakey
Posts: 210
Joined: Tue Jun 25, 2019 10:52 pm
Location: CA

Re: Family with 4 little humans: chances of retiring/financial independence

Post by BernardShakey »

KlangFool wrote: Thu Apr 08, 2021 10:59 am
Texanbybirth wrote: Thu Apr 08, 2021 10:36 am
KlangFool wrote: Thu Apr 08, 2021 10:09 am
Texanbybirth wrote: Wed Apr 07, 2021 2:52 pm Hi everyone,

We just refinanced our mortgage to a 20y note, and I've got this idealized goal of retiring the day it's paid off. I'd like to get to financial independence at a relatively young age. Is that realistic?

Thank you!
Texanbybirth,

1) 20 years mortgage -> How does this make any sense when you are not maxing up your 401K? You are essentially paying additional 12% taxes for your additional payment into the mortgage. You should go with 30 years mortgage. If you lowered your mortgage payment, you can save 12% taxes.
...
In summary, you can reach your goal in 20 years. You might get there faster if you do (1). By saving 12% taxes, you can pay off your mortgage in less than 20 years.

KlangFool
Where were YOU in my refinance thread?? :happy

I really, really struggled with 20 vs 30 year. We had a 30 year mortgage originally, and we'd whittled it down to ~22y8mo left. The 20y still lowered our mo pmt about $80, and I couldn't bring myself to extend the mortgage back out to 30 years.
Texanbybirth,

Money is fungible. By saving 12% taxes, you could pay off your 30 years mortgage in less than 20 years. Emotionally, you may not like it. But, you cannot argue with the numbers. This is true even if you do not invest those additional money and just keep it as CASH inside your 401K.

KlangFool
Yes, but only if OP has the continued discipline to pay off that new 30-year mortgage early, all while the cost pressures of raising 4 children increase. Decisions will be made to fund things now at the expense of paying the loan off early.
An important key to investing is having a well-calibrated sense of your future regret.
BernardShakey
Posts: 210
Joined: Tue Jun 25, 2019 10:52 pm
Location: CA

Re: Family with 4 little humans: chances of retiring/financial independence

Post by BernardShakey »

Texanbybirth wrote: Thu Apr 08, 2021 10:36 am
KlangFool wrote: Thu Apr 08, 2021 10:09 am
Texanbybirth wrote: Wed Apr 07, 2021 2:52 pm Hi everyone,

We just refinanced our mortgage to a 20y note, and I've got this idealized goal of retiring the day it's paid off. I'd like to get to financial independence at a relatively young age. Is that realistic?

Thank you!
Texanbybirth,

1) 20 years mortgage -> How does this make any sense when you are not maxing up your 401K? You are essentially paying additional 12% taxes for your additional payment into the mortgage. You should go with 30 years mortgage. If you lowered your mortgage payment, you can save 12% taxes.
...
In summary, you can reach your goal in 20 years. You might get there faster if you do (1). By saving 12% taxes, you can pay off your mortgage in less than 20 years.

KlangFool
Where were YOU in my refinance thread?? :happy

I really, really struggled with 20 vs 30 year. We had a 30 year mortgage originally, and we'd whittled it down to ~22y8mo left. The 20y still lowered our mo pmt about $80, and I couldn't bring myself to extend the mortgage back out to 30 years.
Maybe I missed it, but what are the ages of the four children (if you are willing to share) ?
An important key to investing is having a well-calibrated sense of your future regret.
User avatar
willthrill81
Posts: 24112
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Family with 4 little humans: chances of retiring/financial independence

Post by willthrill81 »

KlangFool wrote: Thu Apr 08, 2021 10:09 am 1) 20 years mortgage -> How does this make any sense when you are not maxing up your 401K? You are essentially paying additional 12% taxes for your additional payment into the mortgage. You should go with 30 years mortgage. If you lowered your mortgage payment, you can save 12% taxes.
Given that 80% of the OP's contributions are going toward stock, I agree that maxing out the 401(k) is likely to be the better move simply because stocks are likely to outperform the mortgage over the next 20 years. But you don't necessarily save 12% in taxes just because you contribute to a tax-deferred account. It's called tax-deferred for good reason. It's extremely likely that a sizable portion of the OP's tax-deferred balances will be taxed at at least 12% in retirement and very possibly more once SS benefits begin. A MFJ couple with $30k of SS benefits and $24k of additional income is in a 15% marginal tax rate, and $36k of additional income would put them in a 22.2% marginal tax rate, as discussed in the Wiki.

Given that the absence of a mortgage in retirement reduces sequence of returns risk and the assets needed to retire and that the OP is looking to retire in about 20 years, I think that a 20 year mortgage will work just fine.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
Topic Author
Texanbybirth
Posts: 1469
Joined: Tue Apr 14, 2015 12:07 pm

Re: Family with 4 little humans: chances of retiring/financial independence

Post by Texanbybirth »

BernardShakey wrote: Thu Apr 08, 2021 11:38 am
Texanbybirth wrote: Thu Apr 08, 2021 10:36 am
KlangFool wrote: Thu Apr 08, 2021 10:09 am
Texanbybirth wrote: Wed Apr 07, 2021 2:52 pm Hi everyone,

We just refinanced our mortgage to a 20y note, and I've got this idealized goal of retiring the day it's paid off. I'd like to get to financial independence at a relatively young age. Is that realistic?

Thank you!
Texanbybirth,

1) 20 years mortgage -> How does this make any sense when you are not maxing up your 401K? You are essentially paying additional 12% taxes for your additional payment into the mortgage. You should go with 30 years mortgage. If you lowered your mortgage payment, you can save 12% taxes.
...
In summary, you can reach your goal in 20 years. You might get there faster if you do (1). By saving 12% taxes, you can pay off your mortgage in less than 20 years.

KlangFool
Where were YOU in my refinance thread?? :happy

I really, really struggled with 20 vs 30 year. We had a 30 year mortgage originally, and we'd whittled it down to ~22y8mo left. The 20y still lowered our mo pmt about $80, and I couldn't bring myself to extend the mortgage back out to 30 years.
Maybe I missed it, but what are the ages of the four children (if you are willing to share) ?
They're all under 6, including a new one.
“The strong cannot be brave. Only the weak can be brave; and yet again, in practice, only those who can be brave can be trusted, in time of doubt, to be strong.“ - GK Chesterton
Topic Author
Texanbybirth
Posts: 1469
Joined: Tue Apr 14, 2015 12:07 pm

Re: Family with 4 little humans: chances of retiring/financial independence

Post by Texanbybirth »

willthrill81 wrote: Thu Apr 08, 2021 11:49 am
KlangFool wrote: Thu Apr 08, 2021 10:09 am 1) 20 years mortgage -> How does this make any sense when you are not maxing up your 401K? You are essentially paying additional 12% taxes for your additional payment into the mortgage. You should go with 30 years mortgage. If you lowered your mortgage payment, you can save 12% taxes.
Given that 80% of the OP's contributions are going toward stock, I agree that maxing out the 401(k) is likely to be the better move simply because stocks are likely to outperform the mortgage over the next 20 years. But you don't necessarily save 12% in taxes just because you contribute to a tax-deferred account. It's called tax-deferred for good reason. It's extremely likely that a sizable portion of the OP's tax-deferred balances will be taxed at at least 12% in retirement and very possibly more once SS benefits begin. A MFJ couple with $30k of SS benefits and $24k of additional income is in a 15% marginal tax rate, and $36k of additional income would put them in a 22.2% marginal tax rate, as discussed in the Wiki.

Given that the absence of a mortgage in retirement reduces sequence of returns risk and the assets needed to retire and that the OP is looking to retire in about 20 years, I think that a 20 year mortgage will work just fine.
This could be an entirely separate topic, but should we consider making at least some Roth 401k contributions? Right now we're just about 50/50 between 401k and the Roth IRA contributions.

(Thanks for the reasonableness assessment. I always appreciate your posts, and its cool to have them applied to my situation for once!)
“The strong cannot be brave. Only the weak can be brave; and yet again, in practice, only those who can be brave can be trusted, in time of doubt, to be strong.“ - GK Chesterton
User avatar
willthrill81
Posts: 24112
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Family with 4 little humans: chances of retiring/financial independence

Post by willthrill81 »

Texanbybirth wrote: Thu Apr 08, 2021 12:42 pm
willthrill81 wrote: Thu Apr 08, 2021 11:49 am
KlangFool wrote: Thu Apr 08, 2021 10:09 am 1) 20 years mortgage -> How does this make any sense when you are not maxing up your 401K? You are essentially paying additional 12% taxes for your additional payment into the mortgage. You should go with 30 years mortgage. If you lowered your mortgage payment, you can save 12% taxes.
Given that 80% of the OP's contributions are going toward stock, I agree that maxing out the 401(k) is likely to be the better move simply because stocks are likely to outperform the mortgage over the next 20 years. But you don't necessarily save 12% in taxes just because you contribute to a tax-deferred account. It's called tax-deferred for good reason. It's extremely likely that a sizable portion of the OP's tax-deferred balances will be taxed at at least 12% in retirement and very possibly more once SS benefits begin. A MFJ couple with $30k of SS benefits and $24k of additional income is in a 15% marginal tax rate, and $36k of additional income would put them in a 22.2% marginal tax rate, as discussed in the Wiki.

Given that the absence of a mortgage in retirement reduces sequence of returns risk and the assets needed to retire and that the OP is looking to retire in about 20 years, I think that a 20 year mortgage will work just fine.
This could be an entirely separate topic, but should we consider making at least some Roth 401k contributions? Right now we're just about 50/50 between 401k and the Roth IRA contributions.

(Thanks for the reasonableness assessment. I always appreciate your posts, and its cool to have them applied to my situation for once!)
At this point, your current split makes sense, but since you're maxing out your Roth IRAs already, any additional contributions should be made to the 401k. You're likely to have around 15 years to do Roth conversions of tax-deferred balances before starting SS benefits. I think that you're a ways off from a Roth 401k making sense.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
junior
Posts: 1120
Joined: Wed Sep 10, 2008 6:14 pm
Contact:

Re: Family with 4 little humans: chances of retiring/financial independence

Post by junior »

This is dependent on stock market returns, which are not known.

You seem to have a saver mentality, are you going to be comfortable not saving more money in 20 years? Or are you going to delay retirement anyway for greater security in case you need an expensive nursing home one day, or whatever?
mbasherp
Posts: 592
Joined: Mon Jun 26, 2017 8:48 am

Re: Family with 4 little humans: chances of retiring/financial independence

Post by mbasherp »

Barring catastrophe, I think you’ll be able to retire in 20 years as is your goal. The benefit of not paying a mortgage payment will be huge on your monthly expenses and you’ll probably go from thinking “we’re close but not there yet” to realizing you have more than you need, virtually overnight... because of that change.

Further, I bet that you will be able to retire in 18 years or less, possibly as soon as the last kid starts college. But who knows? It’s hard to plan two decades out.

You’re doing the most important thing - investing a large percentage of your paycheck. That will get you where you need to go.
KlangFool
Posts: 20139
Joined: Sat Oct 11, 2008 12:35 pm

Re: Family with 4 little humans: chances of retiring/financial independence

Post by KlangFool »

BernardShakey wrote: Thu Apr 08, 2021 11:35 am
KlangFool wrote: Thu Apr 08, 2021 10:59 am
Texanbybirth wrote: Thu Apr 08, 2021 10:36 am
KlangFool wrote: Thu Apr 08, 2021 10:09 am
Texanbybirth wrote: Wed Apr 07, 2021 2:52 pm Hi everyone,

We just refinanced our mortgage to a 20y note, and I've got this idealized goal of retiring the day it's paid off. I'd like to get to financial independence at a relatively young age. Is that realistic?

Thank you!
Texanbybirth,

1) 20 years mortgage -> How does this make any sense when you are not maxing up your 401K? You are essentially paying additional 12% taxes for your additional payment into the mortgage. You should go with 30 years mortgage. If you lowered your mortgage payment, you can save 12% taxes.
...
In summary, you can reach your goal in 20 years. You might get there faster if you do (1). By saving 12% taxes, you can pay off your mortgage in less than 20 years.

KlangFool
Where were YOU in my refinance thread?? :happy

I really, really struggled with 20 vs 30 year. We had a 30 year mortgage originally, and we'd whittled it down to ~22y8mo left. The 20y still lowered our mo pmt about $80, and I couldn't bring myself to extend the mortgage back out to 30 years.
Texanbybirth,

Money is fungible. By saving 12% taxes, you could pay off your 30 years mortgage in less than 20 years. Emotionally, you may not like it. But, you cannot argue with the numbers. This is true even if you do not invest those additional money and just keep it as CASH inside your 401K.

KlangFool
Yes, but only if OP has the continued discipline to pay off that new 30-year mortgage early, all while the cost pressures of raising 4 children increase. Decisions will be made to fund things now at the expense of paying the loan off early.
BernardShakey,

You missed my point. The reduction in mortgage payment go towards maxing up the 401K. Hence, the 12% tax reduction. By doing that, if and when he choose to retire in less than 20 years, he has the money to pay of the mortgage in one lump sum.

KlangFool
40% VWENX | 12.5% VFWAX/VTIAX | 11.5% VTSAX | 16% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 40% Wellington 40% 3-funds 20% Mini-Larry
KlangFool
Posts: 20139
Joined: Sat Oct 11, 2008 12:35 pm

Re: Family with 4 little humans: chances of retiring/financial independence

Post by KlangFool »

Texanbybirth wrote: Thu Apr 08, 2021 12:42 pm
This could be an entirely separate topic, but should we consider making at least some Roth 401k contributions? Right now we're just about 50/50 between 401k and the Roth IRA contributions.
Texanbybirth,

No.

1) If you cannot max up your Trad 401K, you would contribute and save less by paying taxes and contribute to Roth 401K.

2) At your current trajectory, you would retire early. Hence, plenty of time for Roth conversion of your Trad 401K at low income tax rate.

KlangFool
Last edited by KlangFool on Thu Apr 08, 2021 1:45 pm, edited 2 times in total.
40% VWENX | 12.5% VFWAX/VTIAX | 11.5% VTSAX | 16% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 40% Wellington 40% 3-funds 20% Mini-Larry
Post Reply