Author Topic: How to get from here to retirement?  (Read 2096 times)

MsPeacock

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How to get from here to retirement?
« on: March 10, 2017, 09:36:18 AM »
Its taken me quite some time to work up to doing a case study. The good news - I'm doing better than I would have thought (because I tend to catastrophize) and doing better than I have in the past (took a huge hit in a divorce and lawyers bills 4 years ago). I want to make sure I am on track in general, and with an eye towards retirement in ~15 years (likely not ER sadly).  I struggle with tracking my spending, but know I spend a lot in some categories (I love to travel with my kids, as an example). Willing to make changes to get myself more in line with realistic retirement goals.

Anyhow - here it is - please be kind - and many thanks in advance for looking this over and any advice or guidance.

Topic Title: How to do better with retirement planning and investments?

Life Situation: 47 y/o single parent

IRS filing status: single head of household

number & ages of dependents: 13y/o. I also have a 10 y/o but ex claims him on taxes.

Gross Salary/Wages:             10,392
Before any deductions (per 2 pay periods – there are 26 pay periods per year)

Pre-tax deductions:
401K (TSP)                       1384
Non-taxable                       374

Paid by employer: (Not counted in income calculation)
401K matching                   377
Retirement Plan                  1294


Other Ordinary Income:
Child Support                     2450         



Rental Income, Actual Expenses, and Depreciation:
Monthly rental income:       750
Costs (approximate): accounted for under spending (approx. Ό utilities)


Adjusted Gross Income:            11,834

Taxes and other payroll deductions:
Health insurance                 175
FSA – HC                            200
Tax (state, federal, Medicaid, etc)   1991

NET INCOME                    9468 (pay, rent, child support)

.

Expenses
Mortgage                           2200
Principal and interest      1443   
   Extra on Principal    251
   Tax/Insurance         506

Car (insurance/fuel/repairs)         200
Groceries                               500
Eating out                       100
Movies/Netflix/Entertainment         100
Childcare                               135
Gym Membership                     80
Activities (sports, equipment, coaching, etc.)   300
Clothing                               150
Haircuts, pedicures, etc.                  60
Vacation                              1000
Healthcare                      350
Allowance                             100
Utilities                       341
   Gas   60.00
   Electric   105.00
   Phones   80.00 (3 phones)
   Internet   40.00
   Water   56.00

Household repairs/maintenance      800
large expenses typically – replaced all windows this year, roof a couple years ago, etc. Expected furnace/AC <5 years
Maid                                   400
Life Insurance                         80
Animals                                 100
Misc. Household                     350

Unaccounted/Misc.          ~            460
TOTAL EXPENSES         ~            7806



Additional Savings Contributions:      1650
Vanguard fund (“life strategy”)      450   
Savings Contribution         800
College Accounts Contribution      400   to state 1 investment fun
d

Anticipated large expenses:
1.   New furnace and A/C – < 5 years – 10000?
2.   Bathroom/bedroom remodel – next 5 years – 20000?



Expected ER expenses: Have not calculated. I will relocate if my children move out of the area and/or to a lower COL area.

Assets:
House      Market value approximately       575,000
Car      KBB                                15,000
Checking                                         5000 – 10,000
Emergency / cash savings                     22000
TSP                                            135,000 (6.8% avg annual return)
Vanguard Accounts
   Brokerage (life strategy moderate growth)      31,700
   Traditional IRA (500 index)                    9,100
   SEP IRA (Long-term treasury)                    30,685
   Roth IRA 1   500 index and Short-term bonds   83,600
   Roth IRA 2   Target retirement 2035         18,000
   
Total Assets:                                      930,085               


Additional Savings

Kid 1 College Savings (state 1)      4900
Kid 1 College Savings (state 2)      39,500
Kid 1 College Savings (Vanguard)      40,000
            Total Kid 1 (8th grade):   84,400
Kid 2 College Savings (state 1)      4900
Kid 2 College Savings (state 2)      24,300
Kid 2 College Savings (Vanguard)      19,000
            Total Kid 2 (4th grade):   48,200

Total additional savings (college):            132,600

Liabilities:
Mortgage:      268,000  @  3.5% 30 year note, 26 years remaining
No other loans, debts, or liabilities

Net worth (not including college savings):   662,085

Specific Question(s):
1.   What to do about other investing – I exceed income requirements for IRAs and need to park the money elsewhere.

2.   Will I be able to retire in ~15 years? What else can I do w/ my investments to improve upon what I am doing right now? Earliest possible (theoretical) retirement is in 7 years at age 55 (20 year pension), which I believe will not start paying out until age 62. If I wait to age 62 I will have 27 years in. I am not sure what will be feasible – I am likely to wait until age 62 just so my kids are through college.  There are sometimes early retirement incentives – so that may play a roll, but there is no way to know now when/if one will be offered.


3.   I really want to increase payments towards the mortgage because 26 years is too long to be paying it down. I would (emotionally) prefer to have the housing expense lower at time of retirement. Suggestions?

4.    I know spending is some categories is CRAZY and I am looking at ways to cut back. I have tried multiple times tracking my spending and I don’t manage to keep it up – this is what I could reconstruct from my bank statements. Some areas may be higher and others lower.

5.   Vanguard called me and offered to put together an investment plan – they took some details – and that for a fee of .03% per year (of the total managed funds) would manage the funds for me – including balancing and handling any changes to the plan based on changes in my circumstances. This would include whatever could be done about backdoor roths and such. I am overwhelmed by these financial details – and have great admiration for the people on this forum who master this stuff. I’m waiting to hear about what their plan proposes before I make any decision. I’d like to see what recommendations come from this case study as well.

« Last Edit: March 10, 2017, 09:41:13 AM by MsPeacock »

Vindicated

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Re: How to get from here to retirement?
« Reply #1 on: March 10, 2017, 10:00:45 AM »
First, the largest expense is your house.  Is the size/location necessary/efficient?  A smaller house would be easier to maintain & clean.

You have two little maids running around the house.  How do they earn their $100 allowance?  Maybe you could save $400 there? :)

Do you really take a $12,000 vacation every year?  That's pretty fancypants.

Misc Household seems high.  Can you elaborate on this cost?

Also, Unaccounted $450?  You can do better than that!

Is $350 for healthcare due to a medical expense outlier?  Or is this a HSA type of savings?

I like to use Prosper to track and categorize my spending.  It's super simple and easy to use.

You have rental income, but only one house listed in Assets.  Am I missing it?

Everything else seems reasonable to me.  Although I'm sure others will say you can cut groceries and kids activities a little.  Sure you can, but you're not in terrible shape there.

You have great income!  Put more of it to use in savings and you can easily beat that 15 year mark.
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Scortius

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Re: How to get from here to retirement?
« Reply #2 on: March 10, 2017, 10:09:14 AM »
Expenses
Mortgage                           2200
Principal and interest      1443   
   Extra on Principal    251
   Tax/Insurance         506

Car (insurance/fuel/repairs)         200
Groceries                               500
Eating out                       100
Movies/Netflix/Entertainment         100
Childcare                               135
Gym Membership                     80
Activities (sports, equipment, coaching, etc.)   300
Clothing                               150
Haircuts, pedicures, etc.                  60
Vacation                              1000
Healthcare                      350
Allowance                             100
Utilities                       341
   Gas   60.00
   Electric   105.00
   Phones   80.00 (3 phones)
   Internet   40.00
   Water   56.00

Household repairs/maintenance      800
large expenses typically – replaced all windows this year, roof a couple years ago, etc. Expected furnace/AC <5 years
Maid                                   400
Life Insurance                         80
Animals                                 100
Misc. Household                     350

Unaccounted/Misc.          ~            460
TOTAL EXPENSES         ~            7806

Wow, over 1,000 posts and this is your first case study?  That must be a record.

The expenses just jump out of the screen here, so I know everyone is going to want to talk about them.  Probably best to address them first.  Most of your other questions won't have nearly as much of an impact.

I realize it must be different with older kids, but holy moly.  Those entertainment expenses are really high.

$400/mo for a maid???

$80 for a gym membership?  Is that for a family plan?  Do you really need that?

$150/mo for clothing?  What do you do with all your current clothes?

You're now well into middle age and have a substantial estate.  Do you really need a life insurance plan at this point?

And your two miscellaneous categories add up to $800/mo!

As for the mortgage, you have a 3.5% interest rate.  I understand the desire to pay it off, but having such a low rate is a huge asset.  You can teach yourself to look at it as a government sponsored personal loan to YOU, that you get to take advantage of to build even more wealth towards an even earlier retirement.  You'll need to decide if you'd rather work longer and pay down your mortgage, or leverage it and retire years earlier.

The investment questions are not your priority.  Yes, you should be doing a backdoor Roth, but only after putting in 18k into your pre-tax 401k.  Yes you should diversify, but you can also simply buy a Vanguard Target Retirement Fund if you want.  Aside from not maxing your pre-tax 401k, these are not pressing issues.

RidetheRain

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Re: How to get from here to retirement?
« Reply #3 on: March 10, 2017, 10:17:20 AM »
How often do the children eat with you? Your grocery costs look like they eat with you all the time, but you mentioned splitting dependents for taxes with the ex? It looks like you don't eat out all that often, so a few different recipes that are still family-friendly might bump that down a little bit.

In general, you seem to be doing well, but if you want to go for the RE you probably already know what needs to go. Find cheaper vacation spots and kick out the maids. If you handle some of the heavier cleaning tasks then you may not need to go to the gym! Also, expenses will go down as your kids grow up. So what you need for retirement may look very different that what we see right now. Do you have any thoughts on your retirement plans/budget?

But really, your number 1 thing should be getting a handle on HOW you're spending your money. Bank statements are good if they leaving you feeling in control, but it doesn't sound like you're happy with that approach. What have you tried for tracking?

MDM

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Re: How to get from here to retirement?
« Reply #4 on: March 10, 2017, 11:29:18 AM »
Quick note: child support payments are not taxable income - hope you aren't including that amount when you file taxes.

For case study (and real life) purposes that goes under "Untaxed income".

Laura33

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Re: How to get from here to retirement?
« Reply #5 on: March 10, 2017, 12:22:51 PM »
So I will let others attack the details.  First, good for you for getting through the divorce and coming out with (still) such a solid foundation.  The part that worries me is that your monthly spend relies on a temporary income source (child support).  As I read it, your current monthly leftover is around $1650.  But that is based on $2450/mo child support.  So that means if it were just you footing the bills, you'd be $800 in the red every month.  Now, obviously, some of the costs will go down when the kids move out, like childcare and groceries -- but is that really $800 worth?

The other thing I noticed and want to make sure I am reading right is that you have 26 pay periods and calculated your monthly income based on 2 pay periods, right?  Which means you have two "extra" paychecks a year?  If so, this is awesome, because it gives you more built-in savings.

My advice to you is to do some mental gymnastics to think about your situation differently.  If I were you (and I'm not, so YMMV), I would base my lifestyle around what my two biweekly paychecks bring me every month.  The two "extra" paychecks are ignored -- they are built-in extra savings.  I would also ignore the childcare entirely.  However, if that is too drastic for you, I would allocate that childcare money solely to very specific expenses that are clearly associated with the kids and that will go away when the kids move out, or can be cut if your ex stops paying for any reason -- e.g., childcare, kid activities, allowance, kid clothes, life insurance,* 529s, etc. (*I put life insurance in this category, because I presume you need this only to take care of the kids if something happens to you).  Any of that $2450 that is left over after all of this goes directly into savings -- this makes sure that you are calibrating your "permanent" lifestyle to what *you* control, not to funding that goes away when your ex loses his job or your kids move out, etc.

Unfortunately, I don't think any of us can tell you whether you can retire in 15 years, because it's all about what proportion of your net income you save vs. spend.  This chart -- http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement -- suggests that if you are starting from zero and want to retire in 15 years, you need to save about 55% of your income.  That doesn't account for your current savings or the value of your pension or any SS, though, so you probably don't need quite that much.  Very back-of-envelope suggests you are around 40%, if you include college savings, pension, etc.  So that suggests that it is possible, but you will need to find additional cutbacks and sources of savings.  If you really want to know, though, the only way to tackle that is to throw together a proposed retirement budget, starting from what you spend now and dropping out the specific kid expenses.

I suspect that part of the reason you feel a little overwhelmed right now is that there are just so many decisions to be made.  The solution to that is to triage: focus all of your effort on the decisions you need to make right now, and put off the rest until the first set is cleared away.  E.g., I agree with others that *where* to invest is not your priority right now -- it is figuring out *how much* to invest to ensure you achieve your goal.  So for now, just max out your pretax retirement options at work, stick the rest of the money in a regular Vanguard index, and forget about it.  Then use your mental energy to understand your current expenses so you can set a reasonable target for your future needs, and then back-calculate what you need to put away now to get there.  Same answer on the house:  you do not need to decide to pre-pay now; if you throw as much as you can into Vanguard for the next 15 years and then, on retirement, decide you want to be mortgage-free, you can just pull some from your investments to pay off the remainder.  Etc.
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BlueHouse

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Re: How to get from here to retirement?
« Reply #6 on: March 10, 2017, 02:30:41 PM »
Congratulations on putting a case study together.  It's pretty overwhelming. 

Question for the experts:  Is there any issue with MsPeacock keeping both a traditional and a Roth IRA? 
MsPeacock:  are any of your traditional IRAs rollovers?  If so, you may want to see if you can roll those into your TSP.

Good to see you're setting money aside for the big household repairs, but how likely is it that you'll need to spend $10k EVERY year?  when you don't spend it, where is it going?  Does it get rerouted to savings?

I know you'll get some facepunches for the maid, but for a single working parent with two pre-teen boys, you get a pass from me on this.  If you could reduce it to every two weeks and give the boys some chores, that might help a little. 
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MDM

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Re: How to get from here to retirement?
« Reply #7 on: March 10, 2017, 02:34:00 PM »
Is there any issue with MsPeacock keeping both a traditional and a Roth IRA?
No problem at all, unless she wants to a Backdoor Roth IRA.  See that for why.

MsPeacock

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Re: How to get from here to retirement?
« Reply #8 on: March 10, 2017, 02:59:52 PM »
Thank you to all that replied -  A couple quick answer to various questions as I digest the rest of the replies:

First - whenever case studies wander into individual spending issues it comes down to what one person values and where others have differences of opinion. I get that some categories are high - there are areas to improve and worth doing so for me, and others that are simply unlikely to change because I am not in a "hair on fire emergency" and the expenditures are "worth it" to me at this point in time.

1. Kid expenses: The kids are with me the majority of the time - and I have to pay for the older one's school lunches (not a shared expense) 100% of the time - which goes into food costs. I also buy all their clothing. Clothing expenses are high because a 13 year old goes through new pants every couple months and destroys shoes and outgrows them at a shocking rate (and the 10 y/o is right behind). And both now wear "adult size" shoes and mostly clothing (10 year old is a GIANT - tallest kid at his school), so these are not $5 kid jeans any longer, sadly. I spend very little on personal clothing. New sneakers are $50, even the "basic" ones - not Nikes or whatever. It adds up so fast. A winter jacket here, shoes, shorts (summer is here are absolutely not a single pair of shorts from last year will fit either kid this year) (One kid is a rail and the other one is chunky - so hand-me downs don't work).

2. The maid - I know, I know. I get *very anxious* about the state of cleanliness of the house. VERY. I've done without when I couldn't afford to have someone come clean and it was ugly - lots of tears, many hours spent cleaning in my free time (and I am a single parent and work A LOT), not being able to sleep because I had to get things to a certain level of cleanliness. It's bad. Ultimately, it is a mental health decision to have someone come in and keep the house up for me. I just can't do it.  There is still plenty that I do myself (ALL the yard work - I'm putting down 8 yards of mulch this week), and that the kids take care of themselves.

3. The gym is a family membership - I go 3-4x a week. I do triathlons - so I use the gym a lot. It's my hobby - to its like someone who is into cars, or raising alpacas, or whatever. Changing to an individual plan saves about $10 per month and I'd prefer to have the option of taking my kids to the pool in the summer. I feel like I get a lot of "bang for my buck" in terms of physical and emotional well-being from the gym. Most of my social activities are built around the sports I do and the gym.

4. Travel - yes -  yes. I agree. Overseas relatives and trying to keep my kids in touch with their heritage. But YES. I agree. These expenses are for 3 people and overseas trips (so 3K per person, for multiple trips - I travel cheap, but travel a lot). I know it needs to be lower. Absolutely need to work on this. I was a bit shocked when I actually calculated how much I've spent in the past year and anticipated spending for this year when I got that number.

5. Health care - yeah - it costs that much. Braces on kid 1 - $165 per month, expensive medications and regular specialist appointments for me ($30 copay, they add up), etc. There have been years (without orthodontia) that have been lower, and others (with surgery) that have been higher. This is just where it is now.

6. How much the house costs - well, yeah, its expensive but it is a cheap tiny house (~1200 sq feet)  by this HCOL real estate costs of this area. I can't do better without making my commute from HELL - like way more than an hour each way and many many more miles and just general loss of quality of life. It is below the average cost of housing in this area - many houses 1M or more (and many of them nothing special). This is by no means a 3200 sq foot McMansion or anything.  Due to my job, and joint custody issues - a significant move is not an option.

7. the rental income is from renting out the bedroom in the finished basement. I do not own another property.

8. Entertainment - taking 3 kids to one movies is $50 here, plus netflix, and a couple magazines, one newspaper... $100. I don't have cable. We use the internet for "entertainment" at home.

9. Misc. - well, I don't know what all it goes to because I have been a failure at tracking. Some of it goes to charity (50-100 a month probably), unexpected expenses (washer just had to be repaired), and probably some of it belongs in other categories but I just wasn't sure. I did my best to be accurate and account for all the income - which left a 'gap' of the misc. category.

I will definitely check out Prosper. I've failed at Mint and YNAB. I am trying now to put *everything* on one credit card (which I always pay off, obvs.) to make it a bit easier to keep track.

Thank you for the notes on current expenses vs. kids vs. retirement. Many costs are expected to be much lower by the time they hit college/graduate from college. Their father won't communicate with me in regards to any savings he may have made for their college (he makes $400k+ a year  - so hopefully he is putting something away for them). So I am doing the best I can. I won't be buying them clothes or paying for their entertainment once they have fledged.

Also - thank you about the 26 pay periods - And yes, my annual incomes is a little more than 12x my monthly as listed in this case study, due to the one extra pay period per year. (Two week pay period - so only one 'extra' per 52 week year).

Laura33

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Re: How to get from here to retirement?
« Reply #9 on: March 10, 2017, 06:53:43 PM »

Also - thank you about the 26 pay periods - And yes, my annual incomes is a little more than 12x my monthly as listed in this case study, due to the one extra pay period per year. (Two week pay period - so only one 'extra' per 52 week year).

No, two, right?  I know I had some wine with dinner, but bi-monthly pay = 2 paychecks x 12 mos = 24 paychecks/yr; getting paid every two weeks = 52 weeks/yr x 1 paycheck/2 weeks = 26 paychecks/yr.  So you should have two extra paychecks/yr, right? 

FWIW, I am the last one to criticize specific choices (you will pry my maid service out of my cold, dead hands).  You make a very good living, you have the basics covered, so at this point it is up to you to figure out what proportion of your income should be appropriately allocated to Present You vs. Future You.  As long as you fully evaluate and make a conscious decision, it's all good. 

But I will say, if your ex makes $400k/yr, you can drop the life insurance -- your kids are sufficiently covered if anything should happen to you.  Also, what does your divorce decree say about college costs?  With that kind of income, he can easily cashflow college.  (I understand if you don't want to risk it given the relationship, but just pointing out that this is a choice, something that you may not actually need to save for but are doing so just in case your ex decides to be a doink.  Which, again, is a totally valid choice, but still a choice.  So along those lines, maybe save future college funds in regular post-tax accounts instead of 529s, so you can use that $ for retirement if he ends up pulling his weight on the college costs?).
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MsPeacock

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Re: How to get from here to retirement?
« Reply #10 on: March 10, 2017, 07:20:49 PM »

Also - thank you about the 26 pay periods - And yes, my annual incomes is a little more than 12x my monthly as listed in this case study, due to the one extra pay period per year. (Two week pay period - so only one 'extra' per 52 week year).

No, two, right?  I know I had some wine with dinner, but bi-monthly pay = 2 paychecks x 12 mos = 24 paychecks/yr; getting paid every two weeks = 52 weeks/yr x 1 paycheck/2 weeks = 26 paychecks/yr.  So you should have two extra paychecks/yr, right? 

FWIW, I am the last one to criticize specific choices (you will pry my maid service out of my cold, dead hands).  You make a very good living, you have the basics covered, so at this point it is up to you to figure out what proportion of your income should be appropriately allocated to Present You vs. Future You.  As long as you fully evaluate and make a conscious decision, it's all good. 

But I will say, if your ex makes $400k/yr, you can drop the life insurance -- your kids are sufficiently covered if anything should happen to you.  Also, what does your divorce decree say about college costs?  With that kind of income, he can easily cashflow college.  (I understand if you don't want to risk it given the relationship, but just pointing out that this is a choice, something that you may not actually need to save for but are doing so just in case your ex decides to be a doink.  Which, again, is a totally valid choice, but still a choice.  So along those lines, maybe save future college funds in regular post-tax accounts instead of 529s, so you can use that $ for retirement if he ends up pulling his weight on the college costs?).

I know there are 26 pay periods... but the how and why is alluding me at this point. I know because I had to calculate my TSP (401k) based on the number of pay periods.  Anyhow, your point Is taken  about live as if these extras are extras, and plan accordingly.

Life insurance is on the court order that we both maintain it. I could certainly "self insure" at this point, and would like to. However, I am not going back to court for anything that isn't life or death at this point. I spent 250k getting divorced and dealing with a challenge to custody.  No way am I opening a pandora's box of more legal stuff. In regards to to college, he has pretty much chosen to be an ass at every possible opportunity, particularly in regard to money - he is 3k in arrears on child support (not enough to risk going to court again or likely lawyers fees for 10x that amount). So, it would not surprise me if he isn't saving anything, or decides he is only paying half. There is no court order in regard to funding anything for the kids past age 18.

And yes on the maid. When times were very tight the maid was one of the last things to go (gym , eating out, new clothes, travel, cable, cell phone, sports, etc. all gone before the maid was let go.

Beach_Bound

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Re: How to get from here to retirement?
« Reply #11 on: March 12, 2017, 07:28:49 PM »
Delurking to say congrats! You're actually in really good shape, even if you choose not to change your spending.

Right now, you're spending 6112 per month, excluding mortgage principal and interest. Let's say that kid-related expenses account for at least 1600 of that (300 groceries/eating out + 50 entertainment + 135 childcare + 200 activities + 100 clothing + 500 vacation + 150 healthcare + 100 allowance + 80 life insurance = 1615). Then in retirement, you'll be spending 4500 per month. Assuming you still have 750 in rental income, you'll need 1125k in invested assets, according to the 4% rule. If you reduce your expenses to 4000 per month, you'll only need 975k in invested assets.

I think you'll find that you actually spend less than that in retirement. I'm sure kid stuff makes up a good part of your misc expenses. Your house maintenance costs are also crazy high right now due to some big projects. It sounds like most of those will be done in the next few years. You may also be more comfortable reducing the maid frequency once you don't have 2 boys in the house.

Now looking at savings: you currently have 308k in retirement savings. You and your employer are contributing a total of 3429 every 2 pay periods, or 3715 per month. In addition, you're saving 1250 per month in non-college accounts. That's a total of 4965, nearly 60k per year!

I'm a little confused by your mortgage. PI of 1443 at 3.5% implies an original balance around $320k, but your case study says $268k. I'm going to assume that's the current balance. If you make no more extra principal payments, it will be paid off in 23 years. If you continue to pay $251 extra, you'll be done in 18 years. To be done in 12 years, you'd have to pay $850 extra each month. You can play around with mortgage prepayment calculators online to see how different prepayment amounts affect your timeline.

I'd strongly encourage you to invest the money instead of paying down the mortgage, but I understand there's an emotional component to the decision. What I'm personally planning to do is to think of my investments in 2 buckets: 1 to cover my expenses according to the 4% rule, and 1 that has enough money to pay off my mortgage. So if I want to spend 40k per year and I'll have 100k remaining on my mortgage at that time, I need 1100k in investments.

Now let's tie all this together. In 12 years, your youngest son will be through college. If you change nothing about your spending and saving (4965 investments, 251 extra towards the mortgage), and your investments earn a conservative 5% rate of return, you'll have 1537k in investments and a 105k mortgage balance. Or you can save 4365 in investments and increase your extra principal payment to 850, and you'll have 1420k in investments and no mortgage. Either way, you'll be way past FI!

One more scenario. Let's say you find a way to cut your expenses and save an extra 500 per month, and that your retirement expenses are 4000 per month. With the 750 monthly rental income, you need 975k in investments to retire. Let's also assume a more optimistic (and historically realistic) 7% return from your investments. If you put 5465 towards investments and maintain your 251 extra towards the mortgage each month, then in 8 years, you'll have 1240k in investments and 170k remaining on your mortgage. You could be FI when your youngest starts college!

So relax! You have a solid start to your retirement savings, a healthy savings rate, and have tons of extras you can trim from your budget to accelerate your timeline if you choose. AND you'll have a pension and/or SS as gravy on top!

lhamo

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Re: How to get from here to retirement?
« Reply #12 on: March 12, 2017, 10:25:40 PM »
Re: college, I think you need to start having a conversation with your kids about what you can do to help them with the cost.   E.g., I can afford to pay your tuition at a state university if you live at home --anything over that is on you.    I know it may seem harsh, but if you set this kind of limit NOW then everyone knows where the boundaries are and expectations are not likely to get raised above what can be afforded.

If you are willing/able to set that kind of limit, then you probably have plenty for your oldest already, and don't need to save too much more for the younger one.
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MsPeacock

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Re: How to get from here to retirement?
« Reply #13 on: March 13, 2017, 11:30:47 AM »
Re: college, I think you need to start having a conversation with your kids about what you can do to help them with the cost.   E.g., I can afford to pay your tuition at a state university if you live at home --anything over that is on you.    I know it may seem harsh, but if you set this kind of limit NOW then everyone knows where the boundaries are and expectations are not likely to get raised above what can be afforded.

If you are willing/able to set that kind of limit, then you probably have plenty for your oldest already, and don't need to save too much more for the younger one.

Thank you - I have been doing that. Big message to not run up debt for college, to stay at home through college, do two years of community college, take college credit classes in high school. We look at schools online and talk about the tuition, I show them the account balances, etc. 

MsPeacock

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Re: How to get from here to retirement?
« Reply #14 on: March 13, 2017, 11:31:28 AM »
Delurking to say congrats! You're actually in really good shape, even if you choose not to change your spending.

Right now, you're spending 6112 per month, excluding mortgage principal and interest. Let's say that kid-related expenses account for at least 1600 of that (300 groceries/eating out + 50 entertainment + 135 childcare + 200 activities + 100 clothing + 500 vacation + 150 healthcare + 100 allowance + 80 life insurance = 1615). Then in retirement, you'll be spending 4500 per month. Assuming you still have 750 in rental income, you'll need 1125k in invested assets, according to the 4% rule. If you reduce your expenses to 4000 per month, you'll only need 975k in invested assets.

I think you'll find that you actually spend less than that in retirement. I'm sure kid stuff makes up a good part of your misc expenses. Your house maintenance costs are also crazy high right now due to some big projects. It sounds like most of those will be done in the next few years. You may also be more comfortable reducing the maid frequency once you don't have 2 boys in the house.

Now looking at savings: you currently have 308k in retirement savings. You and your employer are contributing a total of 3429 every 2 pay periods, or 3715 per month. In addition, you're saving 1250 per month in non-college accounts. That's a total of 4965, nearly 60k per year!

I'm a little confused by your mortgage. PI of 1443 at 3.5% implies an original balance around $320k, but your case study says $268k. I'm going to assume that's the current balance. If you make no more extra principal payments, it will be paid off in 23 years. If you continue to pay $251 extra, you'll be done in 18 years. To be done in 12 years, you'd have to pay $850 extra each month. You can play around with mortgage prepayment calculators online to see how different prepayment amounts affect your timeline.

I'd strongly encourage you to invest the money instead of paying down the mortgage, but I understand there's an emotional component to the decision. What I'm personally planning to do is to think of my investments in 2 buckets: 1 to cover my expenses according to the 4% rule, and 1 that has enough money to pay off my mortgage. So if I want to spend 40k per year and I'll have 100k remaining on my mortgage at that time, I need 1100k in investments.

Now let's tie all this together. In 12 years, your youngest son will be through college. If you change nothing about your spending and saving (4965 investments, 251 extra towards the mortgage), and your investments earn a conservative 5% rate of return, you'll have 1537k in investments and a 105k mortgage balance. Or you can save 4365 in investments and increase your extra principal payment to 850, and you'll have 1420k in investments and no mortgage. Either way, you'll be way past FI!

One more scenario. Let's say you find a way to cut your expenses and save an extra 500 per month, and that your retirement expenses are 4000 per month. With the 750 monthly rental income, you need 975k in investments to retire. Let's also assume a more optimistic (and historically realistic) 7% return from your investments. If you put 5465 towards investments and maintain your 251 extra towards the mortgage each month, then in 8 years, you'll have 1240k in investments and 170k remaining on your mortgage. You could be FI when your youngest starts college!

So relax! You have a solid start to your retirement savings, a healthy savings rate, and have tons of extras you can trim from your budget to accelerate your timeline if you choose. AND you'll have a pension and/or SS as gravy on top!

Thank you for  all this! I am going to dig around in the numbers some more and really get a grip on all that you've told me!

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Re: How to get from here to retirement?
« Reply #15 on: March 13, 2017, 11:55:41 AM »
In addition to managing your kids' college expectations, you may already have begun managing their work expectations.  My daughter knew in advance that the summer she was 16 she had to have a part time job and begin paying for her own social outings and extra clothing. (I covered all outings in which I was included and a bit of back to school clothing shopping).  I talked about it in positive terms (I liked being a waitress at 16) and referred to it as "our family's tradition." 

BlueHouse

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Re: How to get from here to retirement?
« Reply #16 on: March 13, 2017, 12:23:00 PM »
Quote
I'd strongly encourage you to invest the money instead of paying down the mortgage, but I understand there's an emotional component to the decision. What I'm personally planning to do is to think of my investments in 2 buckets: 1 to cover my expenses according to the 4% rule, and 1 that has enough money to pay off my mortgage. So if I want to spend 40k per year and I'll have 100k remaining on my mortgage at that time, I need 1100k in investments.
In a situation like this where the ex-H is using money for control, MsPeacock might be better off putting her assets into something that is protected from prying hands.  So definitely retirement vehicles first, but this may be a situation where socking more into the house might be better than having more in investments.  If they go back to court to determine who pays for college, MsPeacock might be able to shield her home equity easier than after-tax investments.  Any thoughts on this?
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MsPeacock

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Re: How to get from here to retirement?
« Reply #17 on: March 13, 2017, 05:20:20 PM »
Quote
I'd strongly encourage you to invest the money instead of paying down the mortgage, but I understand there's an emotional component to the decision. What I'm personally planning to do is to think of my investments in 2 buckets: 1 to cover my expenses according to the 4% rule, and 1 that has enough money to pay off my mortgage. So if I want to spend 40k per year and I'll have 100k remaining on my mortgage at that time, I need 1100k in investments.
In a situation like this where the ex-H is using money for control, MsPeacock might be better off putting her assets into something that is protected from prying hands.  So definitely retirement vehicles first, but this may be a situation where socking more into the house might be better than having more in investments.  If they go back to court to determine who pays for college, MsPeacock might be able to shield her home equity easier than after-tax investments.  Any thoughts on this?

My  lawyers have told me that the courts will not order any sort of support for children over the age of 18. We didn't address college costs at the time of divorce for this reason. He refused any sort of voluntary agreement about setting aside a percent of income (each of us 2% I think is what I proposed) towards college annually until graduation.   

This is an interesting thought though - that having the money "locked up" in the house would protect it. I'll have to check in more on the college costs issues w/ my lawyers.

 I hope to avoid court going forward because it is hugely expensive. Unfortunately he has been universally unwilling to work towards settlement outside of court - doesn't respond to proposals, doesn't respond to requests for supporting documents, etc. LIES. Unless he challenges custody again(which would be round 3) I don't think he will take anything else up again. The judge was pretty angry last time over us being back in court again, and he was the one who brought the petition. None of the judges have particularly liked him.

lhamo

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Re: How to get from here to retirement?
« Reply #18 on: March 13, 2017, 05:34:11 PM »
Your income will likely be too high to qualify for much, if any, financial aid, but for schools that use the FAFSA only for determining aid packages the value of the parent's primary residence and retirement accounts are NOT considered.   I believe most state schools use the FAFSA info only -- private colleges have a different supplemental form and I believe that one DOES count home equity.

There are a few schools that have pretty liberal cutoffs for full tuition grants -- I think many of the Ivies are currently at 60k, and Stanford is higher (100k or 120k?  They upped it recently). 

I would focus on maxing out your TSP and Roth before contributing more to kids college funds.   
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MsPeacock

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Re: How to get from here to retirement?
« Reply #19 on: March 13, 2017, 06:51:36 PM »
Your income will likely be too high to qualify for much, if any, financial aid, but for schools that use the FAFSA only for determining aid packages the value of the parent's primary residence and retirement accounts are NOT considered.   I believe most state schools use the FAFSA info only -- private colleges have a different supplemental form and I believe that one DOES count home equity.

There are a few schools that have pretty liberal cutoffs for full tuition grants -- I think many of the Ivies are currently at 60k, and Stanford is higher (100k or 120k?  They upped it recently). 

I would focus on maxing out your TSP and Roth before contributing more to kids college funds.

Thank you. My TSP is maxed out. I am over income for the Roth at this point. I plan to do whatever "make-up" contributions I can at age 50 until retirement. Vamguard is going to help me w/ some other investment planning for retirement.

I'm doing to have to look in more detail at college funding - it used to be so far off, but my oldest will be in 9th grade next year. Between my income and my ex's - likely he won't qualify, unless he gets scholarships. He does have a 4.0 and is in all advanced placement classes so far - so there is that.

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Re: How to get from here to retirement?
« Reply #20 on: March 13, 2017, 08:34:02 PM »
"How to get from here to retirement" - a question I ask myself almost daily. And the answer keeps changing.

Basically you have a range of choices between two extremes:
Extreme #1 - Literally retire today. Sell the house and move to a LCOL city. Net worth of 662K x 0.04 = about 26K per year (by the 4% rule), which (even before child support) will cover a 2BR apartment rental and basic living expenses in a lot of places in the US.
Extreme #2 - Don't change anything, just enjoy life, and retire in 15 years.

Which point you choose on the scale, between these 2 extremes, really comes down to one question. How much do you like your job? Each of those monthly expenses can be converted to an additional amount of time you have to work in order to afford it. $X per month on Netflix = Y additional months in your working career. Only you know whether that trade-off is worth it. I suggest doing these calculations and then making the decisions once each of those amounts of money is converted to an amount of time.

mary w

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Re: How to get from here to retirement?
« Reply #21 on: March 14, 2017, 02:19:52 PM »
I'll put in a pitch for credit card churning/travel hacking.  Just getting 1 or 2 credit cards a year could help with vacation costs.  It's harder to get 3 people a free vacation, but you can still save some.  If you stay with relatives (?) then airfare would be your target. For example, you could get 50,000 United points and 50,000 ultimate reward points (transfer to United) plus more points for spending for two credit cards.  This would get two people round trip to Europe.  You could do much more, of course, if you wanted to turn it into a bigger project.   

MsPeacock

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Re: How to get from here to retirement?
« Reply #22 on: March 14, 2017, 04:10:46 PM »
I'll put in a pitch for credit card churning/travel hacking.  Just getting 1 or 2 credit cards a year could help with vacation costs.  It's harder to get 3 people a free vacation, but you can still save some.  If you stay with relatives (?) then airfare would be your target. For example, you could get 50,000 United points and 50,000 ultimate reward points (transfer to United) plus more points for spending for two credit cards.  This would get two people round trip to Europe.  You could do much more, of course, if you wanted to turn it into a bigger project.

I need to get organized about this! I just recently got a Costco card with ash back and started putting absolutely everything on that - it pays 3% back on travel at least.

I put all my lawyers bills on a Hilton card and took my kids to NYC and stayed in a super fancy suite at the Waldorf Astoria for a week (a few years ago).

Saving on airline travel, particularly international would be the best.