Author Topic: Case Study: Embarrassment of riches??  (Read 3255 times)

Jimmy007

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Case Study: Embarrassment of riches??
« on: March 01, 2017, 09:10:46 PM »
Life Situation: Married with three kids (9, 10, 11). Live in PA. Both in our later 40s.

GROSS SALARY:

•   Me: 180K + ~20% bonus + ~20K stock + small pension
•   Wife stopped working about 5 years ago but was earning over 100K

SAVING:

BEFORE TAX


•   Just transferred the following from other places to Vanguard:

  o   421K from prior employers 401K sitting in money market for the last two weeks
  o   143K in SPY
  o   39K in Apple stock
  o   27K in pharma stock
  o   77K in prior employer pension (earning 3% this year) that is being transferred to Vanguard imminently

•   500K in wife’s 401k with Fidelity:
 
  o   205K in S&P500
  o   100K in Large Cap growth
  o   36K in Dodge & Cox Intl
  o   81K in Pfizer stock
  o   78K in Vanguard Target 2040

•   35K in TPOZ with current employer 401K with Fidelity

•   7K with Oppenheimer in Discovery Fund OPOCX

•   Total – 1.249M

AFTER TAX

•   Brokerage account at Vanguard with three stock worth 65K and 12k in money market

•   200K sitting in cash bank account earning 0.8%

•   60K saved for three kids’ college in cash bank account earning 0.8%

•   14K in Pfizer stock at Morgan Stanley

•   Total – 351K

CURRENTLY SAVING:

•   26K in 401K (incl. company match)/year

•   Anything not spent goes into savings account (about 20K/year)

SOCIAL SECURITY:

•   We have a yearly statements from 2010 that they used to send out that shows us each getting ~2.5K monthly if we start withdrawing at age 67

SPENDING:

HOUSING


•   210K left on mortgage at 3% with 9 years to go on house worth about 580K (~370K in equity)
  o   $2608/mo ($1,330 prin, $527 int, $751 escrow)

DEBT


•   Only our house; our cars are fairly new (Honda and VW) and paid off and kids go to public schools. No other properties or liabilities.
•   We put most spending on our green AmEx and pay off every month (have ~400,000 AmEx points - what to do??)
  o   Average 5k/month


My wife and I both started with pretty good salaries and saved the max in our 401Ks in relatively safe funds from the get go. I would put us in the “penny foolish, pound wise” club (at least until kids came along). We don’t tend to nickel and dime things, do spend quite a bit and don’t have a set budget that we stick to, but I also don’t think we frivolously spend just because we have it. My salary has luckily continued to allow us this freedom.

Our current plan is for me to stop working when our kids are in college – say 10 more years. I really enjoy the work I do; it gives me a lot of flexibility, fulfillment and money so no real desire to stop yet.

I think we’ve done okay since haphazardly following a seemingly mustacian path without knowing it. But I’ve found this and a few other websites and now my head is spinning from all the info. I know I can’t go back and change some of the mistakes we may have already made but I can change what happens going forward. I’ve been reading here about financial plans and FIRE, backdoor Roths and Jlcollinsnh and so much more. And I don’t know where to start beyond already moving my prior, expensive 401K monies over to Vanguard.

My goal is to retire in ten years with no worries about the kids’ education costs and enough FU money to live 4 months in my hometown in Canada, another 4 months where the rest of my family is in Florida, and the rest of the time travelling the world or whatever else we could possibly want.  With this in mind, any advice?
« Last Edit: March 01, 2017, 09:14:54 PM by Jimmy007 »

secondcor521

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Re: Case Study: Embarrassment of riches??
« Reply #1 on: March 01, 2017, 10:21:05 PM »
Advice:  Try to figure out if your 10 year plan is realistic.

I would do this by taking what I have, and projecting forward 10 years, taking into account mortgage payments will reduce that balance owed, additional $26K x 10 of savings, plus some reasonable market growth.

Then do the same for your kids' college savings - what you have, how much you'll add, plus some growth, to see what you'll have when they start.

Then figure out what you'll need - take your current spending (a conservative guess now would be your income minus your taxes minus your saving) and increase that by inflation for 10 years.  Take also what you'd pay for college today, and increase that by college inflation for 10 years.

Compare what you will have for college vs. what you will need for college.  Personally I monitor things and try to keep these two amounts roughly equal.  I also have multiple kids and can shift between their accounts, but I try to keep the amount needed for each kid roughly equal to what I have for each kid.

Finally, compare what you'll have for retirement with what you'll need for retirement.  As a rough first cut, you can compare against 25x spending.  So if you're spending, say $100K today, you might need $200K in 10 years after inflation, which would mean you would need $5M.  Unless you plan on downsizing or are interested in a HECM, many would advise (me included) to exclude the equity in your house.

Eyeballing your numbers, you're clearly doing better than the vast majority of people at your age.  But I think you will also discover as you learn more and run some of your numbers that your 10 year goal is not reasonable given your current spending level.  Some choices if that is the case are to change it to a 15 year plan, or earn more, or spend less.  Most people, myself included, would choose the "spend less" route.  You can probably still have the same standard of living, or even better, but you'll probably need to change how you spend to be more efficient and in alignment with what's important to you and your family.

Good luck!
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Dave1442397

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Re: Case Study: Embarrassment of riches??
« Reply #2 on: March 02, 2017, 06:00:04 AM »
I'm no expert, but these two items should be dealt with asap:

•   200K sitting in cash bank account earning 0.8%

•   60K saved for three kids’ college in cash bank account earning 0.8%

You could dump a lot of that cash into a 529 account for your kids' education, and perhaps also fund a Roth IRA depending on whether your income will allow it. For the 529 account, I see you can make a five-year contribution of $140,000 per beneficiary in a single year (see link below), or just do $28k per kid, so $84k could be invested right away.

https://www.blackrock.com/investing/literature/investor-education/contribution-limits-and-tax-reference-one-pager-va-us.pdf

PA has decent options for 529 plans - http://www.savingforcollege.com/529_plan_details/index.php?state_id=39&page=plans_by_state

primozaj

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Re: Case Study: Embarrassment of riches??
« Reply #3 on: March 02, 2017, 08:05:46 AM »

•   We put most spending on our green AmEx and pay off every month (have ~400,000 AmEx points - what to do??)


This might be a little off-topic but you put questions marks there so I'll add my comment anyway. :-)

I found that I could buy a large portion of my Christmas presents this year by using my AmEx points at Amazon.  They went surprisingly far and I usually only spend between $50-75 on presents per person (I bought for 5 or 6 people, depending on how you count a baby).  I think I had something on the order of 40k points-wise.  While I'm not in as a good a place financially as you, I am fairly close and that allows me to churn my AmEx with gas and groceries and stuff.  I usually earn a lot of points when I'm not splitting my expenses with my Hilton Amex to earn free nights.  Nonetheless, if the points allow you to trim fat somewhere else then you can put those dollars to use in savings.

GrandioseMustachio

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Re: Case Study: Embarrassment of riches??
« Reply #4 on: March 02, 2017, 09:51:35 AM »
I take that your take-home pay is of the order of 14k$/month (is that right?). You save 5k$/month (including principal repayment). Ergo, you spend about 9k$ per month.

1- Suppose that you pay off the mortgage with you free cash. You'll get a 3% return instead of a 0.8% return. Risk-free and tax-free (unless you itemize)! Your expenses just went down to 8.5k$. Your savings up to 5.5k$.

2- Using a conservative 3.5% withdrawal rate, you need 102k$/0.035 = 2.9M$. You should get there in 9 years! Congrats.

3- If you were truly mustachian, you would lower that spending to 3000$ a month. And you could be retired in negative 2 years (i.e. already be retired!).

zolotiyeruki

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Re: Case Study: Embarrassment of riches??
« Reply #5 on: March 02, 2017, 10:12:44 AM »
Wow, you certainly are in a very fortunate position!  There's only one criticism that comes to mind: you seem to spend a LOT of money, without being very aware of what it pays for.  I could be wrong--after all, I only have your one post on which to base that opinion.  But I think you'll find it worthwhile to track your expenses in detail for a month or two.  You may be surprised at how little effort it would take to cut your spending significantly, and therefore advance your retirement date dramatically.

Hargrove

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Re: Case Study: Embarrassment of riches??
« Reply #6 on: March 02, 2017, 02:02:52 PM »
You have enough by most standards to retire immediately.

By Mustachian standards, your spending is a tragicomedy all-day carnival feststravaganza of wasted money.

Since you didn't list any of it and don't keep a budget, it's not surprizing you seem unaware quite how much you're spending, so I wonder if you really feel like you need to do it. The lower your spend, the easier to retire by saving to spend that number. The only reason a retirement would be unreasonable for you is if you insisted on current spending. Doing NOTHING, you could retire in 10 years with over 100k/yr. Before Social Security.

thatluckydog

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Re: Case Study: Embarrassment of riches??
« Reply #7 on: March 03, 2017, 09:01:14 AM »
I am new to the forum. I would like to say that I love that this isn't a traditional retirement forum where the goal is to figure out how to save it for a lofty goal, but instead to figure out a lifestyle and bigger picture approach to the answer.

In truth, to the OP, my question is what is it that you want to find out of your pre and post retirement experiences? You are in the same boat as me with enjoying your job, so it seems like it would make sense to keep working.

Do you feel that your expenses are large or in line with what you want to see?

Also, what numbers are you looking for every year (or quarter or month or week) post retirement?

You list living in 3 places for about 4 months every year. What would the budget need to be to make that happen? Maybe think frugal numbers and also crunch the numbers with how you are living now.

ChpBstrd

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Re: Case Study: Embarrassment of riches??
« Reply #8 on: March 06, 2017, 10:29:26 AM »
You have a net worth of about $2 million dollars. Managed even semi-well, that should yield you $80k/year for life. The only reason I can think of to work even one more year - much less ten - would be to buy more stuff. Think about the years of your life that you are trading for more stuff.

Invest your idle assets.
   70% VTI
   10% REITs and preferred stock
   20% bonds
Liquidate the house.
Move into lower-cost housing, maybe in a lower-cost area.
Let go of stuff, frivilous luxuries, and the desire to show status.
Create a budget.
Find something meaningful to do with the next decade.

gettingtoyes

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Re: Case Study: Embarrassment of riches??
« Reply #9 on: March 07, 2017, 12:17:17 PM »
Congratulations on the great income! What field of work are you in?

Others that have chimed in here have given some good advice, so I'll just add that with social security, that estimated income you'll be getting is if you make the same income for the next 20+ years until you retire. So if you retire now, you'll have 0s placed on those years of income earning and won't get as much as you're thinking. Of course who knows what SS will look like in 20 years...

thatluckydog

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Re: Case Study: Embarrassment of riches??
« Reply #10 on: March 21, 2017, 10:22:50 AM »
You have a net worth of about $2 million dollars. Managed even semi-well, that should yield you $80k/year for life. The only reason I can think of to work even one more year - much less ten - would be to buy more stuff. Think about the years of your life that you are trading for more stuff.

Invest your idle assets.
   70% VTI
   10% REITs and preferred stock
   20% bonds
Liquidate the house.
Move into lower-cost housing, maybe in a lower-cost area.
Let go of stuff, frivilous luxuries, and the desire to show status.
Create a budget.
Find something meaningful to do with the next decade.

I can offer a second (that may or may not apply here)- He might enjoy his job. I really enjoy my job and I have to say that it combines many factors that my mind enjoys wrapping it's tentacles around. Plus every year I continue to work is more money in the bank. The aforementioned is in typing flow on conscious. It must factor in or I wouldn't have put it, but it isn't as relevant as the enjoyment I derive from my job. I would enjoy having more in the bank before retirement, but it is not perfectly necessary. That is probably the better way to state what I was seeking to say.

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Re: Case Study: Embarrassment of riches??
« Reply #11 on: March 21, 2017, 10:45:34 AM »
Don't be embarrassed by your riches, be embarrassed at your spending.

You are earning about $220k per annum, and other than your 401k you are saving only $20k a year. That's less than 10% on an income that puts you in the top 2% of earners in the richest country on earth.

I bet you could double that savings rate in a month just by stopping throwing money away.
Be frugal and industrious, and you will be free (Ben Franklin)

2Cent

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Re: Case Study: Embarrassment of riches??
« Reply #12 on: March 22, 2017, 06:30:40 AM »
I would say you have much more than enough to retire in 10 years. Since you could probably save so much on misspending and as you keep working anyway, maybe with you can take some more vacation time with your family. Soon your kids will be teenagers. Then they will be busy with their own lives. I don't think you'll regret spending more time with them.

Why wait to use the benefits of FI, when you could be practically FI now?