UPDATE BELOW
I just turned 30, my husband is the same age, no kids. I’ve read all the MMM posts over the past month or so, and although we’ve always been frugal we hadn’t seriously considered early retirement until now.
(All amounts are annual unless otherwise noted)
Income:
- Pre-tax combined income for me and my husband: $184,000
- Bonuses, ESPP gains, stock grants: $15,000 (varies; 2014 estimate)
- Dividends and interest: $15,000
- Total effective tax rate for 2013 was about 25%, so assume the same for 2014.
Total after tax income: $160,500
Current expenses:
- Mortgage: $14,112 / $1,176 monthly
- Property tax and insurance: $6,432 / $536 monthly
- Garbage, water, gas, electricity, internet: $1,560 / $130 monthly
- Cell phones: $276 / $23 monthly (mostly covered by work; expect this will increase in ER)
- Car insurance and gas: $1,476 / $123 monthly
- Public transit: $2,400 / $200 monthly
- Groceries: $4,500 / $375 monthly
- Restaurants: $3,600 / $300 monthly
- Everything else: $4,800 / $400 monthly (clothes, medical, electronics, home furnishings, services, gifts etc.)
- Travel: $6,000 (Includes all food, shopping, etc. We’re considering not traveling until we reach FI.)
I’m throwing in a $10,000 annual buffer for miscellaneous “one time” things like home repairs, car repairs and expensive medical procedures.
Total expenses: $55,156 ($3,263 monthly without travel/buffer)
Expected ER expenses:
Kids? Undecided
Assets:
- Cash: $28,000
- Bonds: $261,000 ($28K in old treasury bonds; $4k in a 401K fund; the rest are individual bonds, $28K of which are held through an IRA)
- Stock: $437,000 ($80K in index funds/401k; the rest is in about 20 individual stocks, $64K of which are held through an IRA)
Total investment assets: $726,000
Other assets:
- 1 car (no loan, I'm counting this as $0)
- Home in San Francisco: $550,000
Liabilities
- Mortgage: $225,000 (rate is 4.65%)
So total net worth is $1,051,000.
Specific Questions:
1. When can we reach FI?
2. How should we plan for taxes (now and in retirement)? We’ve always maxed out 401K contributions.
3. What should we budget for health insurance during retirement? This is the unknown amount I worry about, especially if we have a kid.
4. How much should we budget for 1 kid? We’re fine with public schools all the way but would want to contribute towards college.
5. We’re interested in taking long, slow trips in retirement – how long could we travel on, say, $10,000 if we stay in one place? Any suggestions for good locations for this?
6. How should we allocate our investments? Current non-housing allocation is 60% stocks, 36% bonds, 4% cash.
7. We plan to pay off the mortgage before retiring. (No plans to move in the next decade or so.) Should we pay off the mortgage all at once right before we retire, or gradually until we reach retirement?
8. Any suggested books/blogs to read?
Thanks in advance!
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2017 UPDATE
Over three years have passed since I found the MMM blog and posted my case study. I haven't posted much since then, but occasionally read the forums and like seeing updates so thought I'd do one. Since then, our net worth increased to $2 million (our portfolio is $1.2 million and our home is about $800k, no mortgage). It's unbelievable how our net worth took off due to raises/bonuses, the stock and housing markets, and continued frugality. Our non-mortgage spending has been:
2014: $34,123
2015: $35,901
2016: $35,902
2017 (projected): $35,266
We buy everything we want, so I'm confident we'll be happy with the same level of spending in retirement (although of course the cost of health insurance is out of our hands). We didn't postpone spending on travel until FI - I'm surprised I suggested that in the original case study. On the income side, our gross last year was over $300k. We're still working, in part because we don't have enough credits to qualify for social security, but we're planning to scale back significantly starting next year.
Finally, learning about financial independence and personal finance over the past few years has profoundly changed our lives. Our strong financial position gave us the confidence to move to more interesting but initially lower-paying work and make a bunch of demands about our work situation that, to our shock, we got. It's amazing to feel so free and in control of our choices.