Income:
Wife - 75K (gross). Net after tax, health/dental ins and other deductions - $46K
Me - I'm self employed and my income changes from year to year, can range from 50K to 100K. On average, I have earned about 70K (gross) since starting going on my own.
Total: It's hard to put an exact amount. Our combined net income in 2012 was almost 120K. Last year, 80k (again, net after taxes and deductions). This makes planning a little difficult and the amount we save changes all the time.
Current expenses:
I track every expense using Mint. We currently spend about 70K per year. I think it's a little high and we can do better but it includes 1 time expenses, like braces for my son (4K this year).
I didn't include every expense since my questions are mostly focused on our future plans based on our current saving amounts. I continue to monitor our spending with the goal of shaving off where possible. I recently cut cable and installed solar panels (no more electric bill).
Our biggest expenses are food (@16K per year, I know we can do better here), RE taxes (@8K), travel (@8k, family of 4, we like to travel. some years this can be more if we take a bigger trip), bills/utilities (@8K, oil heat in the NE is a big part of that; now that we cut cable and have solar that will drop by about 2K).
Assets:
-Home - no mortgage - house value @ $450,000
-Retirement accounts (includes 401K, all IRAs, wife's 403B) - $560,000
-College savings (2 children) - $104,000. This includes 529 plans ($52K) and a Variable Life Ins policy ($52K) that I plan to cash out to pay for college.
-Cash (money market, emergency) - $91,000 (this is more than I need but with my fluctuating income I like to keep a bigger safety net. Once I'm brave enough to invest this, I plan to put about half into a Vanguard account)
Total - @ $1.1 mil (this is hard to believe!)
* This total does not include college savings since I consider that an expense and that money will not be used for retirement. It also does not include my wife's pension.
Liabilities: none. Other than monthly expenses, we have no debt. No credit card or car loans.
Specific Question(s):
I have 2 main questions:
Question 1
I'm wondering if my planning makes sense. My wife is a teacher and can retire with a pension in about 14 years (at age 55, we are 41 now). So, our plan has been to save for retirement and college, with the goal of retiring at 55 once the kids are out of college.
Based on our current saving amounts, the calculations I do say we should have about $1 mill in our retirement accounts in about 14 or 15 years (5% growth rate). At that point the kids will be out of college and we'd downsize our house (adding the home equity to our retirement portfolio).
Are my general calculations correct? Assuming our income just covers our expenses until then (i.e., worst case, 0% savings rate), and our $560K in investments really grow to about $1 mill in 14 years the plan would be to combine @4% withdrawal rate with my wife's pension (@30k per year) and SS for income during retirement. Of course, since I couldn't access the qualified retirement accounts until 59.5 (and SS even later) we would live off the pension and home equity for a few years to bridge that gap.
This doesn't take into account paying for college but I plan to save more and have as much of it covered as possible by the time they get there....and have my kids work to pay for the rest.
Question 2
Since I'm self employed and my wife is a teacher I don't work a lot in the summer. I tend to work when I can but spend a lot of time with my wife, kids and other family... it's like a temporary, summer long 'retirement'. I also take time off during school vacations. Part of me always feels guilty when I do this and I begin to worry about my income/savings and the money I'm NOT making. Simply put, I can't really believe I'm secure enough to have this much flexibility. Spending time with my family is a high priority for me and a big reason why I left a great job (that paid well) to work for myself.
Am I going to wake up one day and wish I had worked more (saved more) now? My 'temporary summer retirement' and other flexibly that comes with my employment situation is great, but it does cost me money. In some ways, I'm enjoying some of the benefits of FIRE now, but am I really financially prepared to be living this way? For years I worked long hours and took vacations here and there but as my kids have gotten older work and money have become less important. However, part of me can't shake the idea that a responsible adult/parent should be working 'full time'.
Thanks for reading and sharing your thoughts.
In the meantime, I continue to work to cut our spending in order to help me sleep better at night!