Hello Mustachians,
My family lives in the expensive and taxed state of Connecticut. I have been taught like the masses that I need to work till I’m 67 and then I can retire. I DO NOT want to do this but not sure how being 47 years old. I actually really like my job as an Electrical/Controls Engineer (22 years) but would like to step back someday (retire) and just do part time CAD/drafting work (25 years of experience), from home. Is it possible for me and my family to be Mustachians?
Salary:
TOTAL: $93,380/year
Take Home:
Paid every 2 weeks after HSA ($150.0) and 401k ($175.00) + Medical, SS, Fed & State Taxes are taken out
TOTAL: $4800/month
Expenses:
1. Mortgage/Taxes/Insurance: $1570/month
2. Propane for heating/water heater/stove top $2500-$3000/year (This year is the worse!) $220/month
3. Electricity $150/month average
4. Water $200/quarter $66.7/month
5. Phone/Internet/Cable $127/month. My wife wants the land line.
6. Cell phone $76/month. I have a company cell (FREE!)
7. Food $700/month
8. Gas for Passat $60/month
9. Sewer $240/year - $20/month
10. Alarm system for house $260/year - $21/month
11. Restaurants $100/month
12. Car Insurance $78.00/month
TOTAL: $3188.7/month
Assets:
1. Rollover 401k from my previous job: $243,000.00
2. Roth 401k which is at $11,400 – (putting in $200/month)
3. We have two ESA accounts, one for each kid.
a. Account1 is at $7,500 – (putting in $50.0/month)
b. Account2 is at $4,500 – (putting in $50.0/month)
4. We have a tax exempt bond fund $10,700 – (putting in $50.0/month)
5. Saving account (Emergency) is at $26,000
TOTAL: $350/month
Liabilities
1. $147,000 left on the mortgage @ 3.875%
2. We have no other debt but the house (Yes!)
NOTES:
1. I am 47 and my wife is 40, and we have two children.
2. My wife is a full time stay at home mom.
3. We live in a 2500 sq.-ft. home on a ½ Arce with property taxes at $7,000/year (YUCK!)
4. Home purchase $335,000
5. We have 2 cars one 12 years old (my wife’s Passat) and one 8 years old (this was recently my company car but they had to stop that and gave me car for free AND they still pay for my gas NICE!)
6. So far I’ve been replacing all our light bulbs to LED and have lowered our car and home insurance.
Thanks
MustacheWantaBe
I'd say "yes!" you can reach FI in under 10 years. There's a lot of places you can cut your spending, but first let's just look at some of your savings
$243k in your 401(k) right now could grow to $485,000 in 10 years at 8% (an average return - could be higher or lower)
You purchased your home for $335k, and owe $147k. Has it increased in value? If it's flat you have $188k in equity. with $147k left at 3.875% you could make mortgage payments of $1,479.59 a month and have it paid off in 10 years. That does NOT include taxes and insurance, but those shouldn't change much. You stated you were paying $1570/mo with taxes, so my guess is increasing that slightly to pay off in full in 10 years.
You have an emergency fund and bond fund already, so no need to save more there. The college funds I'll leave to someone else - depends on so much (ages of children, private/public, and whether you want to fund them 100% or have them earn some of their tution).
You are currently saving $200/month ($2,400/yr) in your ROTH 401(k) - that's ok but probably should be increased.
Finally, it sounds more like you want to become FI than FIRE - you mentioned wanting to do part-time CAD work. If that's the case, you can likely become semi-retired on MUCH less. For example, if you pay off your house that will free up ~$18,000/year that you pay in interest (insurance and taxes will still be there). Then you might make $12,000/year working very part time (maybe more). At your current levels of savings ($243k in your old 401(k) + $11.4k now + $2,400/year investment), a 6% return would yield $457,000. An 8% return would yield $538,000. Assuming the more conservative 6% return, you could augment your part-time CAD work by withdrawing $13,000 a year, which would be a very conservative 3% withdraw rate. You would be living on MMM-style $25k/year and your principle would likely keep increasing.
So that's your base scenerio - what's likely to happen if you don't change anything right now. My worry is that you'll go from a very high spending rate to a much reduced one and that can be a shock to the system.
But, if you are willing to take some mustachian moves, you can have an even better experience, and maybe not even do part-time work at all.
Cutting Spending:
the propane heating seems extreme, especially on top of $150 for electricity. Find a way to become more energy efficient.
You have a landline and two cell phones, plus internet and cable. That's an area you can cut back on. Go internet only and you can do Netflix and have a phone line via VoIP or Skype.
$700/month for food is about $200-300 more than most people around here use for a family of four. You can eat very well for less.
Alarm system. My take on these is that they give you false "piece of mind". Just putting up "security system installed" stickers deters most almost as much theft as an actual system.
Finally, contributing more to your 401(k) or IRA will lower your tax bill, and effectively give you more money. Depending on your tax rate it will be like an instant ~20% return on your investment.
Just a few thoughts. You certainly don't have to do any of them to become FI, but each step you do take will get you there faster.
N