Author Topic: Do YOU think we can we FIRE in 5-7 years..prefer 5 :)  (Read 5619 times)

SDH

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Do YOU think we can we FIRE in 5-7 years..prefer 5 :)
« on: June 17, 2017, 07:25:07 PM »
So, my husband works midnights and has for 15 years...I'm done and ready for him to get to RETIRE.  He can technically retire now since he's had 20 yrs of service, but not sure where the living expenses money will come from if he did retire today.  He makes the bulk of the money in our house but I'm currently looking for something more full time to make more to speed this process along! 

Life Situation: MJF, 46 and 43 yo, O kids living in Austin, Tx (no state income tax but ridic property taxes to make up for it)
Gross Salary/Wages: 9700 (combined) the bulk of our inc is his w-2 job, I'm 1099'd
25% tax bracket

Individual amounts of each Pre-tax deductions
Med coverage:221.60/mo
Emp AD&D coverage: 8/mo
dental: 13/mo
spouse ad&d: 5.50/mo
vision: 9/mo

Other Ordinary Income: Provide sources and any relevant details, the more the better:
NONE 

Qualified Dividends & Long Term Capital Gains:
on our tax return we had a dividend of $109 (but embarrassingly, I'm not sure where it came from, I assume IRA )

Rental Income, Actual Expenses, and Depreciation:
We don't cash flow yet but have plenty of equity.  Here's the situation:

House 1: Rents 1700 
Home warranty ~550/yr
Haven't had any expenses really- maybe about ~$50


House 2: Rents 1400
HOA 41.50
NO home warranty
no real expenses this year but will need water heater so will say 1K

I'm not sure how to put depreciation on here...I'm looking at the tax form 4562 from last year taxes and not sure what to put here

Adjusted Gross Income:
Looking at last years tax return since nothing has really changed the AGI there is $123,321

Taxes: Federal, state/local, and FICA. 
Federal : from w2 wages ~1015/mo
SS: ~460/mo
Medicare: ~ 110/mo
I pay estimated quarterly, but so far I've not had to pay any in this year, however, last year I pd total of ~5500

Current expenses:
Monthly Average Expenses:   
Mortgage            $1,271
HOA                         $46 (primary home)
Property Tax          $600
Mortgage Insurance   $70
Home/Rent Insurance   $43
Beauty Shop           $30 (i do hair maybe 2-3x a yr so this is divided out for the year and is approximate)
Car Insurance           $107
Car Maintenance, Registration, etc.   $20
Charitable contributions    $30
Christmas/Holidays         $60
Clothing/Shoes                  $60    
Computer (paper/software/etc.)   $20
Dining (Lunch/Dinner/Etc.)   $400
Gifts (not charitable contributions) $10   
Gym                    $100
Electricity             $174 (includes water and trash)
Emergency Fund   $300 (plan to stop and put contributions elsewhere)
Entertainment           $100
Financial Fees           $25
Fuel                       $100
Gas/Oil for heating       $30
Groceries                    $700 (working on this one)
Internet                    $70
Life Insurance            $84 (cx this?)
Medical                     $100 
Medicine                     $20
Miscellaneous            $100
Phone (cell)            $120 
Travel/Vacation             $300
Umbrella Insurance     $0 (should look into this for rentals?)
Wine/Beer/Tobacco     $40
Work/Professional fees $50
Non-mortgage total   $3,909


For mortgage payments, separate the P&I (which stop when the mortgage is paid) from the T&I (and anything else) which continue as long as you own the property.

Original Loan amt 274500 starting oct 2016 at 3.75%- escrowed
Principle P&I PMT - 1271.25/mo
Taxes ~565/mo
Ins ~43/mo
PMI 68.63/mo
HOA ~46/mo

Expected ER expenses: I assume health ins but have no idea what to expect on this expense and hopefully travel expenses (but we get free/cheap flights due to airline job) 
HOA Fees if we keep both that have that fee ~100/mo
property taxes on 3 properties if we keep them all currently at approx ~16k a yr (1300/mo)
ins on 3 houses - ~2300 (190/mo)
auto ins on probably 2 cars ~100/mo



Assets: Amount & description
Roth 401K through work ~242K (currently max this out 18K plus company match of 5.5%)

2 Roth IRA's through American Funds combined value of ~95K  We recently (oct 2016)stopped putting the $400 a month that we were doing into each of our accounts because we bought another property and thought we could use that money for that

1 money market with American funds- ~18K (would you guys take this and max out both IRA's for the year and put the rest into taxable accounts?)
Saving account for emergency funds -~5k I deposit 150 a month to this act but think we can stop, 5K is probably enough cash to have on hand
Also I transfer an additional $300 a month to a separate act that has a balance of 1450.  I think I should  put this, plus that 150 that i put into emergency funds,  into the taxable acct instead...your thoughts?

Definition of assets:

Real Estate total equity of ~ 360K
2 old cars 2011 Honda fit and 2003 toyota camry which we will keep for now and later, maybe by 1 newer car before retirement ~ 8K

Liabilities: Description, original loan amount, rate, original length, and monthly payment (which should be consistent with a spreadsheet PMT calculation).  Add current balance and time remaining if close to final payment.

House 1 is pd for but has HELOC-43,640 at a 4% rate that doesn't hit the balance until 5 years pass so I'm anxious to pay this off- I pay this out of the rent check: 1400/mo, the other 300 set aside for taxes (~5k) and ins (~800), PLUS I set aside an additional $300 of our income to cover that T&I bill.  We hope to have this pd off in about 20 months with the 2 yr lease we currently have on this house
Current balance is 36,768.  Also, since the balance is low, we want to pay off in the event the tenant leaves either property, it will be easier to cover any payments due to vacancy with rent from the other house and we won't have to worry about coming up with any from our own pocket.

House 2 100K, 4.75% 30 yr $955/mo escrowed  Current balance is 86,970.  Rents 1400 that I send all to the mortgage

House 3 see above under MTG stuff

Specific Question(s): How realistic is my dream of us being FIRE'd in about 5-7 years?  I get confused on the detail of tax planning and where our passive money will come from, especially since we don't have any taxable accounts to just pull passive income from. I'm learning about t72 distributions, but don't feel like we have enough money in that 401k to feel comfortable pulling out principle money, nor do we have enough money to pull from the Roth.  I think I read you can pull principle money from ira's too...???  I kinda feel like our current house payment is a bit steep but it's close to spouse's job and he loves it, I love the house too and it's expensive to buy property here so I feel we should stay put or move into one of the rent houses after tenant leaves or sell one of them to pay this one off.  Or use the rents to just make this house payment and keep them all for the equity for a little later?  If we didn't have this payment on the house I think we could easily live off of about 25-30k a year, with traveling.  Spouse does have a small pension that i believe will pay out about 1K a month  that he can take a reduced rate (15%  less) at 55 or wait to 59 1/2.    I suppose SS will start around 62...

and finally, would you just do the VFINX fund? and put as much as we can there for now?


Geez, I think I got all my questions out there!  This is really hard to type up, I wish there was a person to pow wow with!! I feel like I'm forgetting something!  I'm so excited to hear your responses.    thanks for taking the time and I hope I'm being clear!
« Last Edit: June 18, 2017, 01:56:43 PM by SDH »

kpd905

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Re: Do YOU think we can we FIRE in 5-7 years..prefer 5 :)
« Reply #1 on: June 17, 2017, 08:33:08 PM »
What are the funds you are invested in within your American funds Roth IRAs?  American funds has some of the worst expense ratios in the business.
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SDH

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Re: Do YOU think we can we FIRE in 5-7 years..prefer 5 :)
« Reply #2 on: June 17, 2017, 10:21:19 PM »
What are the funds you are invested in within your American funds Roth IRAs?  American funds has some of the worst expense ratios in the business.

Yes, they are Roth's and I do plan to move them but I'm doing a little research to try to figure out where to move them.  I realize they are horrible!

kpd905

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Re: Do YOU think we can we FIRE in 5-7 years..prefer 5 :)
« Reply #3 on: June 18, 2017, 06:13:22 AM »
If you call Vanguard they will walk you through exactly what you need to do, with maybe a 15 minute phone call.  Otherwise Fidelity and Schwab both have very low fees as well.
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MDM

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Re: Do YOU think we can we FIRE in 5-7 years..prefer 5 :)
« Reply #4 on: June 18, 2017, 08:26:53 AM »
...
I feel like I'm forgetting something!
One way to double check is to use a 2016 version of the case study spreadsheet (see attachment in https://forum.mrmoneymustache.com/forum-information-faqs/case-study-spreadsheet-updates/msg1467418/#msg1467418) and match the federal tax shown on your 2016 Form 1040.

Unless you have an unusual situation, you should be able to match (say, within ~$10) the spreadsheet and 1040 results.  If you can do so, that should provide confidence in entries for 2017.

If the final numbers don't match, check intermediate numbers (e.g., AGI) to see where things deviate.  Ask questions here as needed.  Good luck!

SDH

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Re: Do YOU think we can we FIRE in 5-7 years..prefer 5 :)
« Reply #5 on: June 18, 2017, 10:00:04 AM »
...
I feel like I'm forgetting something!
One way to double check is to use a 2016 version of the case study spreadsheet (see attachment in https://forum.mrmoneymustache.com/forum-information-faqs/case-study-spreadsheet-updates/msg1467418/#msg1467418) and match the federal tax shown on your 2016 Form 1040.

Unless you have an unusual situation, you should be able to match (say, within ~$10) the spreadsheet and 1040 results.  If you can do so, that should provide confidence in entries for 2017.

If the final numbers don't match, check intermediate numbers (e.g., AGI) to see where things deviate.  Ask questions here as needed.  Good luck!

I have done the spreadsheet and it's pretty close.  I'm not sure what to put in the "other tax advantaged investments" section..is that how much we put in a month into the Roth IRA, Roth 401 K, etc) or what they are worth now? It looks like this and is just above the total expenses line:
Other tax-advantaged investments:
Roth IRA
Roth 401k/403b
529 plan/ other college

Total Expense


OR does that monthly amount go up more towards the top of the spreadsheet under the income categories section that looks like this:
Traditional IRA
401(k) / 403(b) / TSP / etc.
457 plans   
Personal HSA
Employer Match
Subtotal 1

ESPP/After-tax 401k
Pension contribution
Life/LTD Insurance
Subtotal 2
 Basically these to sections kinda confused me because it looks like its asking the same thing twice

Then again under the Summary section it has an "IRA+401K/403 b...etc" What do I put there?

Also under the TIME to FI, the first line is "extra income after RE"  I'm not sure what to include here.  There is a pension that we'll get someday but not if we try to retire in 5 years.  Also SS...someday...do I include those anyways?  that money doesn't help me in the beginning 

Under Current Savings on the "taxable" line item, would you include real estate equity, money market monies?  Tax deferred includes our balances in the 401K, then last line is our American funds roth balances?

Thanks again everyone!

MDM

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Re: Do YOU think we can we FIRE in 5-7 years..prefer 5 :)
« Reply #6 on: June 18, 2017, 11:30:43 AM »
I have done the spreadsheet and it's pretty close.  I'm not sure what to put in the "other tax advantaged investments" section..is that how much we put in a month into the Roth IRA, Roth 401 K, etc) or what they are worth now? It looks like this and is just above the total expenses line:
Other tax-advantaged investments:
Roth IRA
Roth 401k/403b
529 plan/ other college
Yes, those are "how much [you] put in a month into the Roth IRA, Roth 401 K, etc."

Quote
OR does that monthly amount go up more towards the top of the spreadsheet under the income categories section that looks like this:
Traditional IRA
401(k) / 403(b) / TSP / etc.
457 plans   
Personal HSA
...
ESPP/After-tax 401k
Pension contribution
Life/LTD Insurance
...
Basically these to sections kinda confused me because it looks like its asking the same thing twice
Similar but not the same.  There is a difference between 401k vs. Roth 401k, IRA vs. Roth IRA, etc.  Does that help?

Quote
Then again under the Summary section it has an "IRA+401K/403 b...etc" What do I put there?
For the most part, you don't need to (and shouldn't) enter anything except in a cell with a green background.  The summary section is calculated for you, based on entries above.

Quote
Also under the TIME to FI, the first line is "extra income after RE"  I'm not sure what to include here.  There is a pension that we'll get someday but not if we try to retire in 5 years.  Also SS...someday...do I include those anyways?  that money doesn't help me in the beginning
Yes, this is for guaranteed income other than what you will receive from your investments.  Pensions and SS are examples.  Your point that these amounts won't start immediately upon retirement is a good one, and an excellent example of why this is a simplified evaluation of "how long to Financial Independence?".

There are more complex tools, such as described in Best and/or Recommended Retirement Calculator - Bogleheads.org.  Any tool is at best as good as the inputs used, so take all answers with some skepticism (unless you know for sure what the markets will do throughout the future).

Quote
Under Current Savings on the "taxable" line item, would you include real estate equity, money market monies?
I'd include anything I expect to provide the "Real, after tax, return on taxable investments" you put for that cell (4 rows above the taxable line item).  E.g., unless you use ~0% I would not include money market funds.  Real estate is very location-dependent.

Quote
Tax deferred includes our balances in the 401K, then last line is our American funds roth balances?
Yes.

kpd905

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Re: Do YOU think we can we FIRE in 5-7 years..prefer 5 :)
« Reply #7 on: June 18, 2017, 12:06:23 PM »
How did you decide to invest in all Roth accounts?  In the 25% bracket, I would think about putting money into traditional accounts to try to cut down on your tax bill.  Maybe max out the traditional 401k and Roth IRAs.  You'd cut $4500/year from your federal tax by doing it that way.
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MDM

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Re: Do YOU think we can we FIRE in 5-7 years..prefer 5 :)
« Reply #8 on: June 18, 2017, 12:10:35 PM »
How did you decide to invest in all Roth accounts?  In the 25% bracket, I would think about putting money into traditional accounts to try to cut down on your tax bill.  Maybe max out the traditional 401k and Roth IRAs.  You'd cut $4500/year from your federal tax by doing it that way.
+1

Also, regarding:
Quote
Tax deferred includes our balances in the 401K, then last line is our American funds roth balances?
Yes.
To be clear, any Roth 401k balance goes on the Roth line, while any "normal" (aka traditional) 401k balance goes under tax deferred.

SDH

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Re: Do YOU think we can we FIRE in 5-7 years..prefer 5 :)
« Reply #9 on: June 18, 2017, 01:54:12 PM »
How did you decide to invest in all Roth accounts?  In the 25% bracket, I would think about putting money into traditional accounts to try to cut down on your tax bill.  Maybe max out the traditional 401k and Roth IRAs.  You'd cut $4500/year from your federal tax by doing it that way.

Husband maxes out a Roth 401K through his job and we both have separate Roth Ira's through Am funds...so now we move onto taxable accts?  or would you rec traditional Ira?

SDH

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Re: Do YOU think we can we FIRE in 5-7 years..prefer 5 :)
« Reply #10 on: June 18, 2017, 01:58:43 PM »
If you call Vanguard they will walk you through exactly what you need to do, with maybe a 15 minute phone call.  Otherwise Fidelity and Schwab both have very low fees as well.

It's on my list to do this week!

MDM

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Re: Do YOU think we can we FIRE in 5-7 years..prefer 5 :)
« Reply #11 on: June 18, 2017, 03:55:15 PM »
Husband maxes out a Roth 401K through his job and we both have separate Roth Ira's through Am funds...so now we move onto taxable accts?  or would you rec traditional Ira?
Main question is "why Roth 401k instead of traditional 401k?"

We can deal with t vs. R IRAs after that - if you can deduct tIRA contributions at all.

See Investment Order for general suggestions and links in there specific to the traditional vs. Roth choice.

Gin1984

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Re: Do YOU think we can we FIRE in 5-7 years..prefer 5 :)
« Reply #12 on: June 18, 2017, 04:01:23 PM »
You need to figure out where the dividend is coming from.  IRAs don't appear on your 1040 as dividends.

SDH

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Re: Do YOU think we can we FIRE in 5-7 years..prefer 5 :)
« Reply #13 on: June 18, 2017, 06:55:56 PM »
You need to figure out where the dividend is coming from.  IRAs don't appear on your 1040 as dividends.

I scoured the tax return again and found it:
1099 Div from Am funds as follows: New economy fund 23.05, American funds growth portfolio at 59.36 then and the spouse's job share retention of 26.80

Does this help?  Clearly it isn't enough to count on for those early retirement years before SS,pension, and ira $$ kicks in!  this is my dilemma..trying to figure out where to get the income stream from without paying a bunch of tax/penalty.  I'm still in the learning phase because it has never dawned on me that we didn't have to work until we are over 60!  My mind is blown and I'm racing to figure it out and make it happen! :)  Thanks!

MDM

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Re: Do YOU think we can we FIRE in 5-7 years..prefer 5 :)
« Reply #14 on: June 18, 2017, 07:35:56 PM »
this is my dilemma..trying to figure out where to get the income stream from without paying a bunch of tax/penalty.  I'm still in the learning phase because it has never dawned on me that we didn't have to work until we are over 60!
See How to withdraw funds from your IRA and 401k without penalty before age 59.5 for some thoughts.

Gin1984

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Re: Do YOU think we can we FIRE in 5-7 years..prefer 5 :)
« Reply #15 on: June 19, 2017, 06:30:29 AM »
You need to figure out where the dividend is coming from.  IRAs don't appear on your 1040 as dividends.

I scoured the tax return again and found it:
1099 Div from Am funds as follows: New economy fund 23.05, American funds growth portfolio at 59.36 then and the spouse's job share retention of 26.80

Does this help?  Clearly it isn't enough to count on for those early retirement years before SS,pension, and ira $$ kicks in!  this is my dilemma..trying to figure out where to get the income stream from without paying a bunch of tax/penalty.  I'm still in the learning phase because it has never dawned on me that we didn't have to work until we are over 60!  My mind is blown and I'm racing to figure it out and make it happen! :)  Thanks!
Do you have a taxable account at American funds?  Because if this is in your Roth, you should not have that on your 1040 so you may have been overtaxed. 
And honestly I have no idea what the job share retention is?  Does he have stock from his employer?

SDH

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Re: Do YOU think we can we FIRE in 5-7 years..prefer 5 :)
« Reply #16 on: June 19, 2017, 07:52:22 AM »
You need to figure out where the dividend is coming from.  IRAs don't appear on your 1040 as dividends.

I scoured the tax return again and found it:
1099 Div from Am funds as follows: New economy fund 23.05, American funds growth portfolio at 59.36 then and the spouse's job share retention of 26.80

Does this help?  Clearly it isn't enough to count on for those early retirement years before SS,pension, and ira $$ kicks in!  this is my dilemma..trying to figure out where to get the income stream from without paying a bunch of tax/penalty.  I'm still in the learning phase because it has never dawned on me that we didn't have to work until we are over 60!  My mind is blown and I'm racing to figure it out and make it happen! :)  Thanks!
Do you have a taxable account at American funds?  Because if this is in your Roth, you should not have that on your 1040 so you may have been overtaxed. 
And honestly I have no idea what the job share retention is?  Does he have stock from his employer?

I only have a Roth and a money market act with AM funds (I'm switching to vanguard this week, I hope I know what I'm doing!)  and yes the other is stock from work

SDH

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Re: Do YOU think we can we FIRE in 5-7 years..prefer 5 :)
« Reply #17 on: June 25, 2017, 08:56:17 PM »
Husband maxes out a Roth 401K through his job and we both have separate Roth Ira's through Am funds...so now we move onto taxable accts?  or would you rec traditional Ira?
Main question is "why Roth 401k instead of traditional 401k?"

We can deal with t vs. R IRAs after that - if you can deduct tIRA contributions at all.

See Investment Order for general suggestions and links in there specific to the traditional vs. Roth choice.


The more I'm learning the more I'm understanding this question.  So now I'm wondering, like you guys have implied, on whether I should have the hubs move the Roth 401 back to a traditional and continue to max it out, as well as max out the roth ira's for both of us.  then beyond that, open a vanguard taxable index fund account and put as much as possible there too.   Is it to late on the 401k, meaning would we have time to build it up to convert, if we think we want to try to RE in the next 5 years?  Does our situation even look doable in your opinion?  Thanks!

MDM

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Re: Do YOU think we can we FIRE in 5-7 years..prefer 5 :)
« Reply #18 on: June 25, 2017, 09:54:04 PM »
...have the hubs move the Roth 401 back to a traditional and continue to max it out, as well as max out the roth ira's for both of us.  then beyond that, open a vanguard taxable index fund account and put as much as possible there too.
Sure looks to be a fine plan.

Quote
Is it to late on the 401k, meaning would we have time to build it up to convert, if we think we want to try to RE in the next 5 years?
The less you have now in traditional accounts and guaranteed (e.g., pension, SS, net rental) income, the more likely traditional contributions will be good for you.

Quote
Does our situation even look doable in your opinion?  Thanks!
Don't know about others, but it would help me a lot if you copied and pasted cells G1:G226 from the 'Posting' tab of the spreadsheet into a post here.  That is, after you have the 'Calculations' tab to your liking.

SDH

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Re: Do YOU think we can we FIRE in 5-7 years..prefer 5 :)
« Reply #19 on: June 26, 2017, 12:38:30 PM »
...have the hubs move the Roth 401 back to a traditional and continue to max it out, as well as max out the roth ira's for both of us.  then beyond that, open a vanguard taxable index fund account and put as much as possible there too.
Sure looks to be a fine plan.

Quote
Is it to late on the 401k, meaning would we have time to build it up to convert, if we think we want to try to RE in the next 5 years?
The less you have now in traditional accounts and guaranteed (e.g., pension, SS, net rental) income, the more likely traditional contributions will be good for you.

Quote
Does our situation even look doable in your opinion?  Thanks!
Don't know about others, but it would help me a lot if you copied and pasted cells G1:G226 from the 'Posting' tab of the spreadsheet into a post here.  That is, after you have the 'Calculations' tab to your liking.
 The G column on mine doesn't look helpful, for ex: here's G1-
CategoryMonthly
Comments
Annual

Not sure what happened!

MDM

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Re: Do YOU think we can we FIRE in 5-7 years..prefer 5 :)
« Reply #20 on: June 26, 2017, 02:32:27 PM »
The G column on mine doesn't look helpful, for ex: here's G1-
CategoryMonthly
Comments
Annual

Not sure what happened!
At the very least you must have added the [/table] (without the nobbc tags I used for display) at the end, correct?

Below is a quick example:
CategoryMonthly
Comments
Annual
Salary/Wages for earner #1$4,000Test post$48,000
Pretax Health Ins.$200$2,400
Employer-sponsored HSA$283At maximum$3,400
FICA base salary/wages$3,517$42,200
Traditional IRA$458At maximum$5,500
401(k) / 403(b) / TSP / etc.$1,500At maximum$18,000
Subtotal 1$1,558$18,700
Federal Total Income (for IRS tax)$1,558$18,700
Federal tax$362017 rates, S, stand. ded., 1 exempt.$430
State/City tax$0Guess, using 0.00% * (AGI - Exempt'n)$0
Soc. Sec. tax$218Assumes 1 earner paying$2,616
Medicare tax$51$612
Total income taxes$305$3,658
Income before other expenses  $1,253$15,042
Monthly Average Expenses:
Rent$750$9,000
Groceries$300$3,600
Miscellaneous$200$2,400
Non-mortgage total$1,250$15,000
Total Expense$1,250$15,000
Total to invest$3$42
Summary:
"Gross" income$4,000$48,000
Income taxes$305$3,658
After-tax income$3,695$44,342
IRA+401k/403b/TSP/457$1,958$23,500
HSA$283$3,400
Living expenses$1,450$17,400
After-tax investable$3$42
Time to FI?:
Time to FIRE9.9years
Safe Withdrawal Rate4.00%percent
Real return on tax-deferred investments5.00%percent
Real, after tax, return on taxable investments4.25%percent
Current Savings
Projected Savings at Retirement
Taxable$500
Tax-deferred (e.g. trad. IRA/401k)$291,854
Roth + HSA$42,226
Total projected stash$334,580
Projected Expenses in Retirement
Non-loan, non-work expenses$15,000
Annual non-tax retirement expense$15,000
Income taxes$272
Total$15,272
Stash needed for retirement @4.0% SWR$381,810
Need $47,230 more.


Filing Status11=S, 2=MFJ, 3=HOH
# Exemptions1
Adult #1
Age35
# of earners1
Total Income$18,700
Std. Deduct.$6,350
Act. Deduct.$6,350
Exemption$4,050
AGI$18,700
MAGI$24,200
Taxable$8,300
1040 Tax$830
Saver's credit$400
Tax after n-r credit$430
Net Tax$430
Monthly$36
Item. Deduct.$0
VersionV9.1

SDH

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Re: Do YOU think we can we FIRE in 5-7 years..prefer 5 :)
« Reply #21 on: June 26, 2017, 08:03:41 PM »
Ok, I don't know how to make it pretty like your example, but here's the best I could do and my numbers are the best I can do.  Hubs works OT at least 1-3 x a mo so the income fluctuates a bit, also mine fluctuates a bit but overall it's close.  I 'm sure I've left some stuff out too but this is a very good general idea.




Category                                   Monthly          Comments   Annual   Used May 2017
Salary/Wages for earner #1   $9,872                       $118,464    
   
Pretax Health Ins.                       $222                       $2,664    
Pretax Vision/Dental Ins.                $22                          $264    
      
FICA base salary/wages           $9,628.00                $115,536    
         
Traditional IRA                                $0.00         At maximum      $0    
401(k) / 403(b) / TSP / etc.           $0         Available?           $0    
   
   
Employer Match                           $543.00                              $6,516    
Subtotal 1                                      $9,628                             $115,536    
             
ESPP/After-tax 401k                       $1,481                              $17,771    
   
Life/LTD Insurance                           $34                                $410    
Subtotal 2                                       $8,113                                $97,355    
            
Schedule C net profit                          $2,040                        $24,480    
   
Taxable Interest                                    $5                                  $60    


Rental income                                 $3,100                          $37,200    
Rental real expenses                         $1,700    deduct from rents to cover T&I    $20,400    
Rental depreciation expense   $0    not sure what to put here/I've Em'd tax acct   $0    
Rental taxable income          $1,400    our taxes show us at a loss, not income   $16,800    
            

             
Federal Total Income (for IRS tax)   $13,073.00                    $156,876    nope, 1040 shows 123K grosslast yr
             
Federal tax   $2,008    2017 rates, MFJ, item. ded., 2 exempt.   $24,101    
State/City tax   $0    Guess, using 0.00% * (AGI - Exempt'n)   $0    
Soc. Sec. tax   $596.94    Assumes 2 earners paying   $7,163    
Medicare tax   $139.61       $1,675    
Medicare premium   $0       $0    
Self-employment Tax   $288       $3,459    
Total income taxes   $3,033       $36,398.85    

Income before other expenses     $8,524.69       $102,296    
Monthly Average Expenses:            
Mortgage                     $1,271    Input to Itemized Deductions   $15,252    
   
HOA                              $46                                               $552    
Property Tax               $500    Input to Itemized Deductions   $6,000    
Mortgage Insurance       $70                                               $840    
Home/Rent Insurance       $43                                               $516    
Beauty Shop               $30                                               $360       
Car Insurance               $107                                               $1,284    
Car Maintenance, Registration, etc.   $20                               $240    
Charitable contributions   $30    Input to Itemized Deductions   $360       
Christmas/Holidays          $60                                               $720    
Clothing/Shoes                  $60                                               $720    
   
Computer stuff               $20                                               $240    
Dining (Lunch/Dinner/Etc.)   $400                                       $4,800    
Gifts (not charity)           $10                                                $120    
Gym                                   $100                                        $1,200    
Electricity                         $174      also water and trash           $2,088    
Emergency Fund           $450    Start putting this deposit into taxable acct   $5,400    
Entertainment                   $100                                       $1,200    
Financial Fees                   $25    Input to Itemized Deductions   $300    
Fuel/Public Transport          $100                                               $1,200    
Gas/Oil for heating          $30                                               $360    
Groceries                          $700    can trim some fat here           $8,400    
Hair Care                            $0                                                 $0       
Internet                           $70                                                $840       
Life Insurance                $84    can cx this                                    $1,008    
Medical (Doctor, Hospital,   $100    Input to Itemized Deductio   $1,200    
   
Medicine (OTC + Prescript)  $20    Input to Itemized Deductions   $240    
Miscellaneous               $100                                       $1,200    
   
Phone (cell)                   $120    find cheaper?                   $1,440    
Travel/Vacation                   $300                                       $3,600    
Umbrella Insurance        $0    look into this for rentals unless we sell   $0    
Wine/Beer/Tobacco           $40                                                 $480    
Work/Professional fees   $50                                               $600    
Non-mortgage total           $3,959                                     $47,508    
            
Loans:   $0       $0    
Bradley LN   $955    Not sure where to put rental mtg so put it here   $11,460    
0   $0       $0    
0   $0       $0    
0   $0       $0    
0   $0       $0    
            

            
Total Expense                      $6,185       $74,220    
            
Total to invest                       $2,340       $28,076    
Additional Mortgage Principal   $0       $0    
Additional Loan payments         $400    pd on bradley ln-higher rate and rents are 1400 so pay all on mtg   $4,800    
Available for taxable investment:   $1,940       $23,276    
             
Summary:             
"Gross" income   $13,317.00       $159,804    
Income taxes (this is about a 20% bracket?)   $3,033    tax return states 25% taxes   $36,399    
After-tax income   $10,284       $123,405    
            
   
ESPP+529/other   $1,481       $17,771    
Living expenses    $5,508       $66,098    
Non-mortgage loans(this is rental hs loan)   $955       $11,460    
            
After-tax investable   $2,340       $28,076    
            
            
Time to FI?:   $0         
Extra income after RE (pension, SS, etc.)   $3,500    /year- guesstimate      
Time to FIRE                                                   5   years      
Safe Withdrawal Rate                                     4.0%   percent      
Real return on tax-deferred investments     5.00%   percent      
Real, after tax, return on taxable investments4.25%   percent      
Expected retirement total tax rate   15%         
            
Current Savings   0%         
Taxable   $380,000    home(s) equity+some cash      
Tax-deferred (e.g. trad. IRA/401k)   $242,000          
Roth + HSA   $95,000          
            
Projected Savings at Retirement   0         
Taxable   691350.2         
Tax-deferred (e.g. trad. IRA/401k)   344865.2         
Roth + HSA   121246.7         
Total projected stash   1157462.1         
             
Projected Expenses in Retirement             
Non-loan, non-work expenses   $35,448          
Change in spending after RE   $0   is this an amount I think we'll spend?       
Annual non-tax retirement expense   $35,448          
Income taxes   $6,256          
Total   $41,704          
            
Total loan principal due at FI   $293,986          
             
Stash needed for retirement @4.0% SWR   $1,249,075          
            
   Need $91,612 more.         

MDM

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Re: Do YOU think we can we FIRE in 5-7 years..prefer 5 :)
« Reply #22 on: June 26, 2017, 08:31:05 PM »
Ok, I don't know how to make it pretty like your example, but here's the best I could do and my numbers are the best I can do.
Copying cells G1:G226 from the 'Posting' tab of the spreadsheet and pasting into a post here should work, but your numbers are very legible so on to them.

Quote
Rental income                                 $3,100                          $37,200    
Rental real expenses                         $1,700    deduct from rents to cover T&I    $20,400    
Rental depreciation expense   $0    not sure what to put here/I've Em'd tax acct   $0    
Rental taxable income          $1,400    our taxes show us at a loss, not income   $16,800    
...
Federal Total Income (for IRS tax)   $13,073.00                    $156,876    nope, 1040 shows 123K grosslast yr
Ok, "understanding why there is a difference, and changing the spreadsheet inputs so the difference in the calculated AGI and federal tax is less than $100" is your homework assignment.  Rental info should come from Schedule E, and getting the rental cash flow correct might fix the AGI also.

Quote
Bradley LN   $955    Not sure where to put rental mtg so put it here   $11,460
If the spreadsheet was very sophisticated, it might handle rental mortgage loans exactly.  But it's not that sophisticated, so the mortgage interest (and taxes and insurance) goes under your rental real expenses.  There really isn't a great slot for rental mortgage principal at this point - never noticed that and nobody else (IIRC) ever mentioned it.  For now, just consider whatever you are paying for rental mortgage principal as part of the amount "Available for taxable investment."

Quote
Income taxes (this is about a 20% bracket?)   $3,033    tax return states 25% taxes   $36,399
See Marginal Vs Effective Tax Rates And When To Use Each.  The 20% you calculated might be an effective rate, but that is irrelevant for something like a traditional vs. Roth choice.  Your marginal rate (which may be the same as your tax bracket, but not necessarily) is relevant for your financial choices.

Quote
Change in spending after RE   $0   is this an amount I think we'll spend?
It is the change from the amount you are spending now (as entered in all the spending categories) to what you expect to spend after retirement.  Positive number if you expect to spend more, negative number if you expect to spend less.

SDH

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Re: Do YOU think we can we FIRE in 5-7 years..prefer 5 :)
« Reply #23 on: June 27, 2017, 11:58:16 AM »
Ok, I don't know how to make it pretty like your example, but here's the best I could do and my numbers are the best I can do.
Copying cells G1:G226 from the 'Posting' tab of the spreadsheet and pasting into a post here should work, but your numbers are very legible so on to them.

Quote
Rental income                                 $3,100                          $37,200    
Rental real expenses                         $1,700    deduct from rents to cover T&I    $20,400    
Rental depreciation expense   $0    not sure what to put here/I've Em'd tax acct   $0    
Rental taxable income          $1,400    our taxes show us at a loss, not income   $16,800    
...
Federal Total Income (for IRS tax)   $13,073.00                    $156,876    nope, 1040 shows 123K grosslast yr
Ok, "understanding why there is a difference, and changing the spreadsheet inputs so the difference in the calculated AGI and federal tax is less than $100" is your homework assignment.  Rental info should come from Schedule E, and getting the rental cash flow correct might fix the AGI also.

Some of the changes will be dependent on overtime, but as of may 2017, this is how it calculated it out for the year..i suppose it would be nice if that ends up being our year end!

If I use the schedule E, it's only for last year and one of the houses wasn't rented the whole year so it will be quite different this year.  I entered the total amount of rents we get per month as if the houses will be rented for an entire year, as will be the case this year so that total amt is 3100/mo.  I'm just not sure how to account for these differences in the spreadsheet as I don't have a complete schedule E for this scenario.  Furthermore, how is it important to the overall goal of determining an FI possibility? I know that is probably a stupid question...Overall, it feels like to many variables.  I didn't put the heloc (35K) on here that we have on the one rent house that is paid off, so T&I get paid in one lump sum annually. That is where part of the 1700 amount in rental expenses come from, this is the amount I hold out each mo to cover T&I on the house that is pd for and other incidentals. In reality, I don't hold out that much, some of it just comes from our income so I was trying to be generous (worst case scenario) on expenses. I wish I knew someone local that was really good at the micro planning of this whole FI idea so I can discuss different options as it seems we have a few different irons in the fire that could be considered.  Again, I appreciate you taking the time to help me review!

Quote
Bradley LN   $955    Not sure where to put rental mtg so put it here   $11,460
If the spreadsheet was very sophisticated, it might handle rental mortgage loans exactly.  But it's not that sophisticated, so the mortgage interest (and taxes and insurance) goes under your rental real expenses.  There really isn't a great slot for rental mortgage principal at this point - never noticed that and nobody else (IIRC) ever mentioned it.  For now, just consider whatever you are paying for rental mortgage principal as part of the amount "Available for taxable investment."

Ok, I added the principle that I pay on the rent house to this line, which is only about 175$, but in addition, we pay extra ~400 to principle out of the rents that get paid, I put that amount in the "additional loan payments".  Part of the 1700 that I listed in the rental real expenses column would capture the mortgage interest.  Tax and Ins is covered in the escrowed payment of 955 so I didn't separate that out.   However, when I jot this out on paper I do include T&I on ALL properties and divide by 12 as part of our monthly expenses in the event we FIRE.  I'm still old school to some extent and use good ole paper and pencil with a calculator.  In my attempt to be as thorough as possible, I'm using spreadsheets to try to capture on things I may not think of on my own, such as tax rates, etc.  This is totally where I start to get lost.  Also, the different scenarios, so I'm trying to be as thorough as possible with all my different options.  It is certainly nice to have a sounding board.

Quote
Income taxes (this is about a 20% bracket?)   $3,033    tax return states 25% taxes   $36,399
See Marginal Vs Effective Tax Rates And When To Use Each.  The 20% you calculated might be an effective rate, but that is irrelevant for something like a traditional vs. Roth choice.  Your marginal rate (which may be the same as your tax bracket, but not necessarily) is relevant for your financial choices.

I was just reading up a bit on marginal tax rates...totally lost me so I'll need to email my tax lady for further clarification....Basically, this whole sentence your wrote has me in the corner with my tail between my legs. LOL  I don't feel smart enough!  I'll have to read and re read and re read before it starts to sink in.

Quote
Change in spending after RE   $0   is this an amount I think we'll spend?
It is the change from the amount you are spending now (as entered in all the spending categories) to what you expect to spend after retirement.  Positive number if you expect to spend more, negative number if you expect to spend less.

Ok, that is what I thought...

MDM

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Re: Do YOU think we can we FIRE in 5-7 years..prefer 5 :)
« Reply #24 on: June 27, 2017, 12:07:45 PM »
If I use the schedule E, it's only for last year and one of the houses wasn't rented the whole year so it will be quite different this year.
Understood. 

It would probably help you to use a 2016 version of the case study spreadsheet (see attachment in https://forum.mrmoneymustache.com/forum-information-faqs/case-study-spreadsheet-updates/msg1467418/#msg1467418), with which you should (unless I'm missing something - always possible) be able to match the federal tax (and AGI, etc.) shown on your 2016 Form 1040.

Once you understand that, you can use the 2017 version and more confidently make budget estimates and see the results.

SDH

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Re: Do YOU think we can we FIRE in 5-7 years..prefer 5 :)
« Reply #25 on: June 27, 2017, 01:10:50 PM »
If I use the schedule E, it's only for last year and one of the houses wasn't rented the whole year so it will be quite different this year.
Understood. 

It would probably help you to use a 2016 version of the case study spreadsheet (see attachment in https://forum.mrmoneymustache.com/forum-information-faqs/case-study-spreadsheet-updates/msg1467418/#msg1467418), with which you should (unless I'm missing something - always possible) be able to match the federal tax (and AGI, etc.) shown on your 2016 Form 1040.

Ok, I'll look.  Can you please help me understand why getting this so exact is the key to helping me understand our FI possibilities?  Sorry if this is a stupid question. 

Once you understand that, you can use the 2017 version and more confidently make budget estimates and see the results.

MDM

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Re: Do YOU think we can we FIRE in 5-7 years..prefer 5 :)
« Reply #26 on: June 27, 2017, 01:59:32 PM »
Ok, I'll look.  Can you please help me understand why getting this so exact is the key to helping me understand our FI possibilities?  Sorry if this is a stupid question. 
You are correct that exactness is not critical, because any FI projection relies on estimates of many things (future return on investment for one) not known precisely.

It's more an inference from your posts that some things (e.g., your rental cash flow and tax effects) are unclear to you, and figuring those out will help you make better decisions in the long run.

The math behind personal finance is much simpler than many financial advisors imply.  If you understand exponents, e.g., "n" in (1+i)^n, then your math skills are likely good enough to clarify taxes, FI projections, etc.  Some of the language makes things seem complex, but if you take a little time to work through examples it's likely you will have success.

Using your 2016 numbers should be helpful because (unless the tax preparer made a mistake) you have a worked example with the correct answer, to which you can compare your work.

SDH

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Re: Do YOU think we can we FIRE in 5-7 years..prefer 5 :)
« Reply #27 on: June 27, 2017, 08:17:15 PM »
Ok, I'll look.  Can you please help me understand why getting this so exact is the key to helping me understand our FI possibilities?  Sorry if this is a stupid question. 
You are correct that exactness is not critical, because any FI projection relies on estimates of many things (future return on investment for one) not known precisely.

It's more an inference from your posts that some things (e.g., your rental cash flow and tax effects) are unclear to you, and figuring those out will help you make better decisions in the long run.

The math behind personal finance is much simpler than many financial advisors imply.  If you understand exponents, e.g., "n" in (1+i)^n, then your math skills are likely good enough to clarify taxes, FI projections, etc.  Some of the language makes things seem complex, but if you take a little time to work through examples it's likely you will have success.

Using your 2016 numbers should be helpful because (unless the tax preparer made a mistake) you have a worked example with the correct answer, to which you can compare your work.

Thanks for that MDM.  I may come back with more questions! 

SDH

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Re: Do YOU think we can we FIRE in 5-7 years..prefer 5 :)
« Reply #28 on: July 02, 2017, 08:25:27 AM »
I have done the spreadsheet and it's pretty close.  I'm not sure what to put in the "other tax advantaged investments" section..is that how much we put in a month into the Roth IRA, Roth 401 K, etc) or what they are worth now? It looks like this and is just above the total expenses line:
Other tax-advantaged investments:
Roth IRA
Roth 401k/403b
529 plan/ other college
Yes, those are "how much [you] put in a month into the Roth IRA, Roth 401 K, etc."

Quote
OR does that monthly amount go up more towards the top of the spreadsheet under the income categories section that looks like this:
Traditional IRA
401(k) / 403(b) / TSP / etc.
457 plans   
Personal HSA
...
ESPP/After-tax 401k
Pension contribution
Life/LTD Insurance
...
Basically these to sections kinda confused me because it looks like its asking the same thing twice
Similar but not the same.  There is a difference between 401k vs. Roth 401k, IRA vs. Roth IRA, etc.  Does that help?

Quote
Then again under the Summary section it has an "IRA+401K/403 b...etc" What do I put there?
For the most part, you don't need to (and shouldn't) enter anything except in a cell with a green background.  The summary section is calculated for you, based on entries above.

Quote
Also under the TIME to FI, the first line is "extra income after RE"  I'm not sure what to include here.  There is a pension that we'll get someday but not if we try to retire in 5 years.  Also SS...someday...do I include those anyways?  that money doesn't help me in the beginning
Yes, this is for guaranteed income other than what you will receive from your investments.  Pensions and SS are examples.  Your point that these amounts won't start immediately upon retirement is a good one, and an excellent example of why this is a simplified evaluation of "how long to Financial Independence?".

There are more complex tools, such as described in Best and/or Recommended Retirement Calculator - Bogleheads.org.  Any tool is at best as good as the inputs used, so take all answers with some skepticism (unless you know for sure what the markets will do throughout the future).

Quote
Under Current Savings on the "taxable" line item, would you include real estate equity, money market monies?
I'd include anything I expect to provide the "Real, after tax, return on taxable investments" you put for that cell (4 rows above the taxable line item).  E.g., unless you use ~0% I would not include money market funds.  Real estate is very location-dependent.

MDM, I have another stupid question...give an example of "real, after tax, return on taxable investments"
Thanks!!

Quote
Tax deferred includes our balances in the 401K, then last line is our American funds roth balances?
Yes.

MDM

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Re: Do YOU think we can we FIRE in 5-7 years..prefer 5 :)
« Reply #29 on: July 02, 2017, 10:02:18 AM »
...give an example of "real, after tax, return on taxable investments"
4.25%

That would be case, for example, if the nominal return was ~7% with 2% inflation and 15% tax.

See Real versus nominal value (economics) - Wikipedia for excruciating details, or just use
Quote
...as a first-order (i.e. linear) approximation,
    real = nominal − inflation