Author Topic: What more do I need to do/should I do?  (Read 1598 times)

s0198362

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What more do I need to do/should I do?
« on: July 25, 2020, 04:20:48 PM »
Firstly, I know I am in a very fortunate position right now financially.  There are people out there (and on this forum) in vastly different and difficult circumstances.  So this is not a sob story, just my personal situation that I am looking for guidance with.

Topic Title: What more should I do/do I need to do?

Life Situation: Married filing jointly (both late 30ís), 1 dependent (1 yr).  Live in Georgia, USA.  I am an expat immigrant from the UK.  Been here 7 years, donít expect full social security for myself, my wife should though. I am a chemist, she is an ICU nurse.

New to FIRE and only just took the plunge with going for a HSA (this year).  Maxing it out and paying out of pocket for health expenses.  Refinanced mortgage (see below) to allow us to max out Roth IRAs.

Want to retire early (obviously).  Aiming for 15 years time.

Gross Salary/Wages: $170,000 + bonus but not guaranteed

Individual amounts of each Pre-tax deductions
My 401k (16%):   19,200 50:50 spilt between Roth 401K and Trad 401k
Employer match (4 %):  4,800 (trad 401k)
Employer Pension Plan (8 %):  9,600
HSA:  $7,100 incl. $1,300 employer contribution
Dependent care FSA: $5,000
Roth IRA: $6,000 each p/a
Her 401K (12%): $6,000
Employer match (4%): $2,000

Taxes: 22% marginal rate federal, 5.75% marginal rate state.

Take Home Salary/Wages: $120,000

Current expenses:
We do spend quite a bit, but that is the lifestyle we want to have (expecting abuse hereÖ).  Obviously later on in life some expenses will go away (mortgage, roth IRA contributions etc.).  W
We make most food from scratch, but do prefer organic so spend more here (kroger is our store).  We enjoy going out for food and drinks (once per week).  After all, we should enjoy life now as well as plan for retirement.
We are contributing to a 529 plan and an UGMA for our child ($400 a month).
We save $200 every 2 weeks towards vacations and car replacement - these are known future expenses (flying back to the UK is expensive), so that is how we manage them.  They go into a 90% stock account at Betterment.
Childcare (when COVID-19 stabilizes) around $580 p/m (30 hours).

Assets:
2 x Cars (ford focus, honda CRV) - we have two different jobs.  In theory she could cycle to hers, but it is dark half the year when she goes and leaves.  She is too nervous and tired.  I could cycle and have done so when I moved here with no other means of transportation, but it is 12 miles of death trap by tractor trailers (backroads full of warehouses).

Emergency fund (with betterment at 85% Bonds):  $33,000 - this is truely for emergencies.  Replacing a car/hvac etc. is a predictable expense - it will happen!  Once we retire we wonít need an emergency fund.

Roth IRAs:     ~ $12,000 (Betterment)
Roth 401K:   ~ $97,000
Trad 401K:   ~ $152,000
Pension:   ~ $70,000
HSA:      ~ $4,000

House:      ~$240,000-$290,000 market value (we do have a mortgage)

Liabilities:
Wifeís student loans:  ~ $10,000.  Monthly payment of $175 + Employer $150 contribution.  Rate currently 0% but will go up (congress dependent) in November back to approx 3.2 %

Mortgage: ~ $220,000.  Just refinanced to 2.00% (15 year).  Previous was a 10/1 ARM at 3.25 %.  Would have been due a rate hike in 2026.  Was over paying and had aimed to pay off (rate hike dependent by 2029.  Added 5 years to that now, but can now pay minimum and put difference into Roth IRAs etc. without fear of the dreaded rate hike.  Looking at P&I of $1,433 p/m.  Taxes and insurance paid out of pocket (no escrow) around $4000 p/a (i think that is low but it is the estimate on my closing statement).

Credit cards:  Rolling credit cards, paid in full each month.  One CC with $13,000 on it for a new HVAC.  0% interest to mid 2021.  Looking to pay off in full at that point.  Will likely have regular such expenses, e,g, 2nd HVAC system, house repainting, roof repair etc. (the joy of home ownership).

Car Loan (Ford):  $2,000 at 2%


Specific Question(s):
Looking at my monthly expenses and budget numbers, we bring in approx 10K each month and do spend most of that, but some of that is savings.  I know the target is 60% savings.  Is that 60% of take home?  Can I count pre take home contributions to savings?  How far off are we?

Annual 401K and Pension totals (ourselves and employers) = $41,600
Annual HSA = $7,100
Roth IRAs = $12,000

So we are at around $60,000 p/a for retirement already, so 50% of take home.  Is that right?  Is 15 years too conservative/optimistic?  What more can we do or need to do?
With respect to expenses, my wife isnít quite onboard with cutting down all frivolous expenses, and I donít think that will change.

It is important psychologically for my wife to see a reasonable paycheck every two weeks, so we have not maxed out her 401K.  She works incredibly hard as a nurse with COVID patients.  Iím not going to make her paycheck be basically $600.

Thanks for any guidance.

EDIT 8/1/2020 - I've added my monthly average expenses for YTD.  Now expecting the abuse!

   Car Insurance      $167.06      Includes umbrella insurance - tried shopping around, but not found one yet that brings cost down significantly (discounted with home owners coverage too).  Will be cheaper for the next 6 months   
   Car Payment      $427.29      Paid off on car in feb, expect 2nd car to be paid off in feb 2021   
   Car Repair / Licenses      $92.78         
   Car Replacement Fund      $171.43      A new car will be needed at somepoint.   
   Child Care      $527.00      Using an FSA, expect 590 per month when back to daycare post covid   
   Clothing      $82.16         
   Debt      $166.60      Student loans - currentl 0% but still paying off right now   
   Doctor / Dentist      $197.79      Not using HSA savings   
   Fuel      $45.90         
   Groceries      $847.18      Seems high.  Was lower before Mach, but our dining expenses were higher then   
   Health Insurance      $0.00         
   Home Insurance      $0.00      WIll be 180 p/m from september   
   Home Supplies      $239.90      Been uprade various home needs (electircal etc.)   
   Life Insurance      $154.29      Expecting a $90 average p/m for the two of us over 12 months   
   Medicine      $86.35      Not using HSA savings   
   Miscellaneous      $88.59         
   Mortgage / Rent      $1,898.11      Will be down to $1433 p/m   
   Home Maintnance      $29.28         
   Pet expenses      $216.65      Have pet insurance at around $33 per pay period.  Pet food around $50 p/m, pet insurance keeping other costs down   
   Property Tax      $287.53      half way through the year, likely $340 p/m   
   Other_5      $103.57      One off, I just applied for US citizenship at a cost of $725   
   Personal Care      $32.22         
   Retirement Fund      $1,428.57      Ploughed $6000 into last year's ROTH in March (perfect timing so far), and now aiming to max out 2 x  roth IRA's this year.   
   Taxes      $121.43         
   Util. Electricity      $114.01         
   Util. Gas      $94.07         
   Util. Phone(s)      $124.62      Just switched to xfinity, expect to be down to $35 p/m for two phones.  Had to pay off a financed phone   
   Util. Water      $81.21         
   Util. Alarm      $31.85      Negotiated rate down from $45 to $30 p/m in January   
   FInance Fees      $93.85         
    -       $0.00         
   Charity      $16.57         
   Cleaning      $17.85      Every now and again we need help with a cleaner.  We are exhausted   
   Dining      $323.34         
   Discretionary      $1.19         
   Fun / Entertainment      $56.50         
   Furniture / Appliances      $72.57         
   Gifts Given      $142.36      American tradition of gifts for everything...  We did very well out of our baby shower, can't really complain, although I think it is so wasteful culturally.   
   Baby Education      $400.00         
   Util. TV / Internet      $64.36      COmcast ($40), netflix etc.   
   Travel      $166.18      parking, hotels, transit etc. Mainly a week vacation coming up   
   Subscriptions/Dues      $33.13         
   HSA      $362.96      Transfer from HSA cash account to investments   
   Vacation Fund      $171.43      Savings for future travel   
   Major Home      $1,866.97      I think this needs to be ignored.  Just spent 10K + on a new HVAC system   
« Last Edit: August 01, 2020, 07:58:37 AM by s0198362 »

firestarter2018

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Re: What more do I need to do/should I do?
« Reply #1 on: July 25, 2020, 06:15:17 PM »
I wouldn't worry too much about savings rates, they vary so much depending on how you calculate them. The real question is whether you're saving enough to meet your retirement goals. There isn't much in the way of specifics about your expenses and what you expect them to be when you retire. If your timeline is truly 15 years then I think you're in good shape; the house will be paid off and you're saving well for your kid's college (maybe even a tad too much, given that Georgia has pretty decent in-state scholarship programs). But it all depends on whether you expect to spend more or less in retirement than currently.

Is the pension defined benefit? If yes, then I generally wouldn't include the balance in your net worth calculations, but rather calculate your monthly/annual estimated amount when you retire and then factor that into your post-65 expenses (along with Social Security) -- cfirecalc and the other tools can help with this.  But if it's more like a cash balance plan or individual account that you can roll over into an IRA when you separate from the company, then it feels safer to include it in your stash.

And keep working on your wife about maxing the 401k. Maxing two 401k's is supercharging your FIRE quest.  Maybe see if she's willing to increase her contribution rate each year as she gets raises? And also show the tax savings in concrete dollars, that might help too.

bloodaxe

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Re: What more do I need to do/should I do?
« Reply #2 on: July 25, 2020, 07:57:08 PM »
It is important psychologically for my wife to see a reasonable paycheck every two weeks, so we have not maxed out her 401K.  She works incredibly hard as a nurse with COVID patients.  Iím not going to make her paycheck be basically $600.

It's a very hard job to be a nurse right now, and in general.

But this isn't a good reason not to max her 401k.  Especially since you can afford it.

If it helps, she can check her 401k balance every pay period, and see the number increase.

ysette9

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Re: What more do I need to do/should I do?
« Reply #3 on: July 25, 2020, 09:05:33 PM »
I ran your crude scenario in cfiresim.com and made some guesses. In 15 years of saving $70k/yr, indexed to inflation, you should have around $2.25M. Assuming your spending at that point is $80k/yr (big guess on my part since you donít specify what you think your spending will be), you have a 92% chance of portfolio success for retirement from 2035 to 2080. This assumes a default 75/25 fixed stock/bond portfolio.

If you can provide more specifics then we can give much better answers.

How long have you been making this kind of money? To me your net worth seems pretty low considering how inexpensive your housing is and how much you are bringing home together. You also have a good amount of debt outside of the mortgage so you might need to look at your cash flow and see if you need to dial back the savings to make sure you arenít running a structural deficit.

Definitely work on getting your wife to max put her 401k. That will do so much good for your joint financial position. The size of your take-home paycheck is pretty much meaningless; I like the idea of finding something better to focus on, like how much is getting funneled into an investment account and watching that grow.

UnleashHell

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Re: What more do I need to do/should I do?
« Reply #4 on: July 26, 2020, 05:06:33 AM »
SS: I'm assuming that you've paid in for the 7 years that you have been here? another 13 and you are at the 20 years that will near enough max it out. you can increase in with further working after that but the amounts you get in return is fairly small.
check out whats happening with your UK pension. you may be able to do a top up. probably won't get the full amount but a small payment now could see a reasonable return when you collect (if they don't keep moving the goalposts).
You will have a reduction in SS here for 50% of the UK pension you collect if you only work here for 20 years. Each year after that reduces that 50% by 5%. so your 15 more years now could mean doing 22 years into SS which in turn means the value of the UK pension reduction is down to 40%.

its not huge but for the pair of you you might see a big chunk of that 60K outgoing covered by SS in your 60's and onwards.
Check the SS website for a real estimate. (that will assume you work until SS retirement but you can roughly figure it out)

Oh and max the 401k's - that'll drop your effective tax rate.

Freedomin5

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Re: What more do I need to do/should I do?
« Reply #5 on: July 26, 2020, 05:39:51 AM »
If you really want to calculate your savings rate, others have asked that question and received a response in the past:

https://forum.mrmoneymustache.com/case-studies/calculating-savings-rate/

https://forum.mrmoneymustache.com/ask-a-mustachian/calculating-my-savings-percentage/

I think MMM calculates it as a percentage of take-home income.

Aunt Petunia

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Re: What more do I need to do/should I do?
« Reply #6 on: July 26, 2020, 07:52:13 AM »
It is important psychologically for my wife to see a reasonable paycheck every two weeks, so we have not maxed out her 401K.  She works incredibly hard as a nurse with COVID patients.  Iím not going to make her paycheck be basically $600.

It's a very hard job to be a nurse right now, and in general.

But this isn't a good reason not to max her 401k.  Especially since you can afford it.

If it helps, she can check her 401k balance every pay period, and see the number increase.

Agree. I am a nurse and I max everything out. I also really started to hate my job after covid hit (I just transferred to a different department to get out of there) so seeing those numbers go up gives me a lot more of a boost than any frivolous spending could. Since your wife still has student loans, I am assuming she hasn't been at it long enough to get burned out.

A couple of other comments: at your high income level you should be doing all traditional contributions instead of Roth. Mad fientist explains this really well.

Have you ever tracked your spending? I use Mint but there are lots of other tools out there. That is the first step in figuring out how much you will need to retire. Your housing costs are low and going out once per week is reasonable, so unless you have a lot of junk from Target/Amazon you are doing just fine.

s0198362

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Re: What more do I need to do/should I do?
« Reply #7 on: July 26, 2020, 06:54:50 PM »
A couple of other comments: at your high income level you should be doing all traditional contributions instead of Roth. Mad fientist explains this really well.

Iíve gone back and forth on this one.  The reason Iím doing some in Roth is that I feel for early retirement Iíll need to draw on this (as I donít have much of anything else) and it should be available, whereas the traditional 401k wonít be available till traditional retirement age.  Or am I misunderstanding something there.

s0198362

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Re: What more do I need to do/should I do?
« Reply #8 on: July 26, 2020, 06:59:15 PM »
SS: I'm assuming that you've paid in for the 7 years that you have been here? another 13 and you are at the 20 years that will near enough max it out. you can increase in with further working after that but the amounts you get in return is fairly small.
check out whats happening with your UK pension. you may be able to do a top up. probably won't get the full amount but a small payment now could see a reasonable return when you collect (if they don't keep moving the goalposts).
You will have a reduction in SS here for 50% of the UK pension you collect if you only work here for 20 years. Each year after that reduces that 50% by 5%. so your 15 more years now could mean doing 22 years into SS which in turn means the value of the UK pension reduction is down to 40%.

its not huge but for the pair of you you might see a big chunk of that 60K outgoing covered by SS in your 60's and onwards.
Check the SS website for a real estimate. (that will assume you work until SS retirement but you can roughly figure it out)

Oh and max the 401k's - that'll drop your effective tax rate.

That info re.  SS is really helpful.  Yes, 7 years and counting of SS contributions, my wife has a whole load but not much in terms of totals contributed (early career change to nursing so only been employed full time for 5 years or so).

My UK National Insurance is likely nothing.  Last I checked I only have about 7 years of contributions as I did a post grad education and then moved to France.

French pension minimal too (3 years), so Iím just going to have both as nice to have bonuses but not count on them.
« Last Edit: July 26, 2020, 07:01:56 PM by s0198362 »

MrsSpendyPants

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Re: What more do I need to do/should I do?
« Reply #9 on: July 26, 2020, 07:11:54 PM »
Good job keeping your house payment low!  We make a similar amount and our home was a stupid 425k which definitely hurt us.

As for savings rate, if you are counting 401k+HSA then you need to add them back into the take home pay.  So 60k/(120k+41k+7k), otherwise you get the benefit of the 401k twice.

I'll be watching this for tips since we're in a similar both.

ysette9

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Re: What more do I need to do/should I do?
« Reply #10 on: July 26, 2020, 07:25:27 PM »
A couple of other comments: at your high income level you should be doing all traditional contributions instead of Roth. Mad fientist explains this really well.

Iíve gone back and forth on this one.  The reason Iím doing some in Roth is that I feel for early retirement Iíll need to draw on this (as I donít have much of anything else) and it should be available, whereas the traditional 401k wonít be available till traditional retirement age.  Or am I misunderstanding something there.
Will you have anything in taxable accounts or will all of your savings be in retirement accounts? If you will have some in taxable as long as you have about 4-5 years worth of spending in taxable then you can start your Roth conversion pipeline to get access to retirement funds early.


https://www.madfientist.com/how-to-access-retirement-funds-early/

s0198362

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Re: What more do I need to do/should I do?
« Reply #11 on: July 26, 2020, 07:39:29 PM »
Will you have anything in taxable accounts or will all of your savings be in retirement accounts? If you will have some in taxable as long as you have about 4-5 years worth of spending in taxable then you can start your Roth conversion pipeline to get access to retirement funds early.


https://www.madfientist.com/how-to-access-retirement-funds-early/

Nothing in taxable right now worth speaking of, apart from emergency fund at $33K.

s0198362

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Re: What more do I need to do/should I do?
« Reply #12 on: August 01, 2020, 08:01:34 AM »
I wouldn't worry too much about savings rates, they vary so much depending on how you calculate them. The real question is whether you're saving enough to meet your retirement goals. There isn't much in the way of specifics about your expenses and what you expect them to be when you retire. If your timeline is truly 15 years then I think you're in good shape; the house will be paid off and you're saving well for your kid's college (maybe even a tad too much, given that Georgia has pretty decent in-state scholarship programs). But it all depends on whether you expect to spend more or less in retirement than currently.

Is the pension defined benefit? If yes, then I generally wouldn't include the balance in your net worth calculations, but rather calculate your monthly/annual estimated amount when you retire and then factor that into your post-65 expenses (along with Social Security) -- cfirecalc and the other tools can help with this.  But if it's more like a cash balance plan or individual account that you can roll over into an IRA when you separate from the company, then it feels safer to include it in your stash.

And keep working on your wife about maxing the 401k. Maxing two 401k's is supercharging your FIRE quest.  Maybe see if she's willing to increase her contribution rate each year as she gets raises? And also show the tax savings in concrete dollars, that might help too.

Thanksfirestarter2018.  Pension isn't a defined benefit, basically an individual account that I can roll into an IRA at somepoint.
Upped my wifes 401K contribution to 15% for now, will let some dust settle on various other cost savings and expenses that have occurred this summer and see where we are.

s0198362

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Re: What more do I need to do/should I do?
« Reply #13 on: August 01, 2020, 08:03:14 AM »
It is important psychologically for my wife to see a reasonable paycheck every two weeks, so we have not maxed out her 401K.  She works incredibly hard as a nurse with COVID patients.  Iím not going to make her paycheck be basically $600.

It's a very hard job to be a nurse right now, and in general.

But this isn't a good reason not to max her 401k.  Especially since you can afford it.

If it helps, she can check her 401k balance every pay period, and see the number increase.

Will look to see if I can "pay money" into her back account on her pay day so that it looks like she isn't working for nothing as we up her 401K contributions.

s0198362

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Re: What more do I need to do/should I do?
« Reply #14 on: August 01, 2020, 08:09:12 AM »
It is important psychologically for my wife to see a reasonable paycheck every two weeks, so we have not maxed out her 401K.  She works incredibly hard as a nurse with COVID patients.  Iím not going to make her paycheck be basically $600.

It's a very hard job to be a nurse right now, and in general.

But this isn't a good reason not to max her 401k.  Especially since you can afford it.

If it helps, she can check her 401k balance every pay period, and see the number increase.

Agree. I am a nurse and I max everything out. I also really started to hate my job after covid hit (I just transferred to a different department to get out of there) so seeing those numbers go up gives me a lot more of a boost than any frivolous spending could. Since your wife still has student loans, I am assuming she hasn't been at it long enough to get burned out.

A couple of other comments: at your high income level you should be doing all traditional contributions instead of Roth. Mad fientist explains this really well.

Have you ever tracked your spending? I use Mint but there are lots of other tools out there. That is the first step in figuring out how much you will need to retire. Your housing costs are low and going out once per week is reasonable, so unless you have a lot of junk from Target/Amazon you are doing just fine.


Just read up on SEPP on mad fientist's blog.  looks as if there will be a way to access funds in a trad 401K.  Now changed my contributions to 100% trad 401k.

I use a spreadsheet for budgets.  I really like this tool:  https://www.vertex42.com/ExcelTemplates/money-management-template.html

s0198362

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Re: What more do I need to do/should I do?
« Reply #15 on: August 01, 2020, 08:16:38 AM »
I ran your crude scenario in cfiresim.com and made some guesses. In 15 years of saving $70k/yr, indexed to inflation, you should have around $2.25M. Assuming your spending at that point is $80k/yr (big guess on my part since you donít specify what you think your spending will be), you have a 92% chance of portfolio success for retirement from 2035 to 2080. This assumes a default 75/25 fixed stock/bond portfolio.

If you can provide more specifics then we can give much better answers.

How long have you been making this kind of money? To me your net worth seems pretty low considering how inexpensive your housing is and how much you are bringing home together. You also have a good amount of debt outside of the mortgage so you might need to look at your cash flow and see if you need to dial back the savings to make sure you arenít running a structural deficit.

Definitely work on getting your wife to max put her 401k. That will do so much good for your joint financial position. The size of your take-home paycheck is pretty much meaningless; I like the idea of finding something better to focus on, like how much is getting funneled into an investment account and watching that grow.

I've added some numbers above.  I've been on this salary range (6 figure) for around 4 years.  House purchased 4 years ago too. Does that explain the net worth?  My wife (girlfriend at the time) basically bought debt to the table (student loans), had just graduated (career change) and was in her first regular paying job when we moved in together.

When you say "You also have a good amount of debt outside of the mortgage" are you talking car and student loans?  interset rates are done at decent levels.  Are you suggesting save less and clear those debts?