Author Topic: Case Study: "Live Free or Die" in New Hampshire  (Read 1604 times)

mattydt20

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Case Study: "Live Free or Die" in New Hampshire
« on: June 14, 2017, 06:52:47 PM »
Life Situation: Married couple, single child (11m), NH resident, age 35 and 31, both RNs, work 3 days a week, child in daycare 2 days per week, looking to maximize flexibility and independence

Gross Salary/Wages: $10,000/month (varies with shift differentials)

Pre-tax deductions
    403b: $1600/month combined (20%)
    HSA: $562.50 (maximum)
    FSA: $416 (maximum)

Adjusted Gross Income: $5,400/month (varies)

Current expenses:
Mortgage $1460, 15 year original in 2015 at 2.875% (100k left to pay on a 190k house)
     Rough Breakdown:
             Taxes: $418
             Principle: $818
             Interest: $224
     Home Owner's Insurance: $33
     Internet: $36
     Heat: $120 (oil budget plan, we live in northern NH, offset heat with a wood burning fireplace)
     Electricity: $75
     Childcare: $650 (only 2 days per week) - this is reimbursable from pre tax FSA
     Food: $800 (currently working on decreasing this)
     Water/Sewer: $50
     Car Insurance: $56
     Life Insurance (combined for both of us)
          $80 for $500k for 30 years
          $40 for $500k for 15 years (thinking of getting rid of this one)
     Gas: $100
     Unaccounted for Miscellaneous: $100 (beer, recreational activities, rare dining out, etc)

Assets:
     2006 Kia Sportage, 2012 Toyota Corolla
     General Savings/Rainy Day Fund: $18,000
     Checking: $5,000 (we have personal accounts and a joint account. We tend to keep a minimum of 1,000 in each. The 529, IRAs, and travel savings pulled from personal accounts on a monthly basis)
     Travel Account: $5,000 (camping trip in September to Banff/Jasper planned)
     HSA: $10,500
     Roth IRA: 111,000 (combined, Vanguard robo-advisory services
     403b: $108,000 (combined-Age Based Portfolio)
     401a: $49,000 (combined-Age Based Portfolio)
     529 College Savings: $15,000 (for our 11 month old and 2nd baby in planning) - Vanguard, highest risk Age Based Portfolio
 
Other Savings
Travel/vacation budget: $400 (we're discussing getting rid of this)
529: $250/month
Roth IRA: $916 (combined max contributions)

Liabilities:
Mortgage $1460, 15 year original in 2015 at 2.875% (100k left to pay on a 190k house, 8 years left at minimum payment)
     Rough Breakdown: Taxes: $418, Principle: $818, Interest: $224, Home Owner's Insurance: $33


Specific Question(s): I realize that paying off the mortgage can be seen as silly, with such a low interest rate. I know that I'm apt to make more by investing in either a retirement or personal account. We're prioritizing maximum flexibility by paying off the mortgage rather than focusing on early retirement right now (allowing my wife to stay home after the second child). Current thoughts include: stop contributing to the HSA since we currently have $10,000 (2 years worth of deductibles), stop contributing to the 403b, cutting our general savings account in half ($18,000 to $9,000), and cutting our monthly travel budget in half ($400 to $200).

Any advice as to where we should take it from here?

Dee18

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Re: Case Study: "Live Free or Die" in New Hampshire
« Reply #1 on: June 14, 2017, 07:54:53 PM »
You could get rid of the 30 year life insurance policy since it looks like you will be FI in 15 years and have a paid off house.  Remember there are Social Security survivor benefits as well.  You noted the most obvious place to reduce expenses: food.  I would put whatever additional money you can into your 403(b) accounts up to the max allowed.  I would not reduce the 403(b) contribution to pay the house off earlier.  Remember you "make" money immediately with those contributions with the lower taxable income.

Hotstreak

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Re: Case Study: "Live Free or Die" in New Hampshire
« Reply #2 on: June 14, 2017, 09:58:47 PM »
I would contribute as much as possible to tax deferred accounts, including continuing to max your HSA.  Take advantage of the tax savings now while you are both working - you can invest that HSA money and use it for the rest of your life.  Paying off the house is not a great idea considering the rate... you say you are focused on flexibility instead of financial independence but do you really need to have the house paid off to be a 1 income household?  at $5k/month/person I would think you could continue to afford your lifestyle including mortgage.  Considering if we remove childcare you are under $3k/month, and if you trim a few expenses you could get closer to 2500.

slappy

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Re: Case Study: "Live Free or Die" in New Hampshire
« Reply #3 on: June 15, 2017, 06:30:45 AM »
Hi from southern NH! :) I was going to say something similar to what was said above.  If flexibility is important, you could refi to a 30 year. That lowers the mortgage, which you could still throw money at if you want. It also allows you to continue your HSA contributions.

Is there any way you could arrange your work schedules to eliminate daycare expenses?

slappy

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Re: Case Study: "Live Free or Die" in New Hampshire
« Reply #4 on: June 15, 2017, 06:32:02 AM »
Also, when your wife starts to stay at home, would you be able to increase your income by working extra hours? Or were you hoping to keep things the same?

2Birds1Stone

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Re: Case Study: "Live Free or Die" in New Hampshire
« Reply #5 on: June 15, 2017, 07:01:39 AM »
In your tax bracket I would definitely NOT stop contributing to the HSA or the 403B.


Even if the goal is to have one of you stop working after the second child, the tax benefit of maxing all of those accounts is tremendous. You are well on your way to pay off the house quickly. As income goes up you can accelerate the payoff, your cashflow is great, which means that if you max out tax advantaged accounts.....but have an emergency or loss of income, you have more than enough outside of retirement accounts to sleep well at night.

mattydt20

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Re: Case Study: "Live Free or Die" in New Hampshire
« Reply #6 on: June 15, 2017, 07:05:02 AM »
Thank you for your thoughts. I just stumbled upon the "Investment Order" post and recognize some erroneous priorities I had.

In response: Slappy, yes, I could work more, which could entail getting into overtime pay or double pay based on some options as an RN at my hospital. That's an option that could dramatically improve our ability to maintain some of our high priority saving options, while still paying off the mortgage at it's current rate. We could change around our work schedules to use less or even zero child care, but we've also seen some marriages disintegrate over this, so we are hesitant.

Hotstreak, I guess we already do have a great amount of flexibility which I'm not considering, so thank you for pointing that out. By eliminating child care and potentially working a bit more, I can offset a decent amount that we hadn't fully considered.

Dee18 and 2Birds1Stone, we have access to both Roth and a regular 403b at work and we currently maximize Roth IRA contributions. Should we completely forgo the Roth options for both? I understand that our future tax liability will be less than it currently is. I've always invested Roth knowing that the earnings are tax exempt in retirement, also knowing that Roth IRA contributions can be withdrawn penalty free as long as the earnings haven't been touched. I had recently considered the Roth IRA contributions something that can be withdrawn to help fund an earlier retirement, but maybe I'm getting ahead of myself, and according to the "Investment Order" list, get the house paid off before funding a taxable account for this purpose.

Thank you for the advice! Finding the Mustache community has been exciting after finding we were already naturally on a great trajectory.


Hotstreak

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Re: Case Study: "Live Free or Die" in New Hampshire
« Reply #7 on: June 15, 2017, 10:13:30 AM »
At your current income level a Traditional IRA is probably better than Roth IRA.  Usually the cutoff is, if you're in the 15% bracket or less, then Roth, if above that, then Traditional.  Here's a detailed explanation: https://www.bogleheads.org/wiki/Traditional_versus_Roth