"New" Family Case Study

[newelljack]

My Case Study: At a cross roads

Life Situation: MFJ, 3 kids under 8 y/o, live in sunny California

Gross Salary/Wages: 155,000

Pre-tax deductions:
Health Ins - 346 (only 10 months out of the year)
State Pension - 1,300
Daycare FSA - 417 (max)

Other Ordinary Income: Wife teaches dance one night a week for $108/wk.

Taxes: $22,367 federal, $6,400 state

Current expenses: I've attached the case study spreadsheet, but it boils down to the 1,700 left over at the end of the month and what to do with it.

Assets: not sure if it belongs here, but I have a rIRA with 5,300 and a tIRA with the same and wife has a 403b with 4,800. None are currently receiving any contributions

Liabilities: Vehicle 1, original loan amount $14,000, rate 2.79%, original length 36 mo, and monthly payment $406, current balance $8,300 (just over blue book, you may remember me from "Should I keep troublesome car?" thread earlier this month)
Vehicle 2, original loan amount $23,260, rate 2.49%, length 48 mo, monthly payment $509, current balance $22,360 (DW's new baby, not going anywhere)

Specific Question(s): I decided to do the case study because this morning I asked about what I should be doing with the $1,000 extra I have been paying towards the student loans. I had previously been paying off CC debt, but that is all gone, so I moved down on my snowball list.

Our goals are to be consumer debt-free and buy the house we currently rent (worth about 350k) with a 20% down-payment, but I don't entirely trust our pensions and since they pay by years of service, if either of us wants to retire early, it would mean a huge cut, so I would also like to start saving for retirement.

[MDM]

Specific Question(s): I decided to do the case study because this morning I asked about what I should be doing with the $1,000 extra I have been paying towards the student loans. I had previously been paying off CC debt, but that is all gone, so I moved down on my snowball list.

Our goals are to be consumer debt-free and buy the house we currently rent (worth about 350k) with a 20% down-payment, but I don't entirely trust our pensions and since they pay by years of service, if either of us wants to retire early, it would mean a huge cut, so I would also like to start saving for retirement.

Made some changes in the downloaded spreadsheet:
 - Changed  "# Exemptions" (cell G3) from 1 to 5 to match the number of federal exemptions you have
 - Changed "State tax" (cell H31) from 0 to 5.5% to ~match the $6,400 in state tax you mention
 - Put -21600 in B164, assuming you won't be paying child care in retirement
That gives ~27 years to FI.

Then made "401(k) / 403(b) / TSP / etc." (cell B13) $2424, leaving $10/mo for taxable investing (in other words, maximizing pre-tax investment based on current income and spending).
This took time to FI down to ~22 years.

Actual time to FI is likely to be less because of some pension amount (cell B144).  If you want a more detailed look, see one of Best and/or Recommended Retirement Calculator - Bogleheads.org.

Whatever analysis you do at this point will have a large error band, but I thought the potential benefit of using your pre-tax options might be worth considering.  Good luck!

[newelljack]

MDM, thanks for showing me how to use that sheet and increase its potential. It's crazy how I can get $700 more in savings by going pre-tax (2424/mo in 403b vs. the 1700/mo that was left over).

Childcare costs will be changing next fall when one starts going to Kindergarten and the older one can just walk over to my campus, which will drop costs nearly 600/mo. My Saturn Outlook is an entire topic on its own, but I think since DW has a newer Escape, I can ditch my clown car and opt for a Fit or something like that (what fits a dude who's 6'2" 260lbs?)

For next month I have cut the bi-weekly cleaning service ($140/mo) and cut my daughter's hours at after-school care ($120/mo). I really want to get our groceries/dining down to $5-6 a day per person. Right now it's at $8. That would be another $300?

[newelljack]

So what I'm hearing on here and my previous post "Just want to check my math" is knock out the high-interest student loan, then start contributing to the 403b.

I cannot access the pension until 55, at which point I will only receive 1.16% of my salary multiplied by my years of service, which would be 24 by that time, or 27.8%. If I stay on until 65, I can get up to 2.4%, or 81.6% of salary since I would then have 34 yrs: a huge boost for ten more years of service (no wonder teachers never retire). But I don't want to teach that long, so I guess I need to have my own plan in place to supplement the other 72.2% of my salary, find another position in education, or develop another skill.

Then there's the clown car, my 2007 Saturn Outlook on which I owe $8,300. In another post people recommended saving 4-5k to buy something else and sell the Outlook when I can break even. I guess I would need to do the math on how a lower-cost car would compare to the loans. Suggestions for economical cars for my 6'2" 260lb self? I have no issues driving a manual but I do take some pretty beat-up country roads to work so I don't want something that will fall apart like the Bluesmobile in front of the Cook County Assessor's Office.

[teen persuasion]

I cannot access the pension until 55, at which point I will only receive 1.16% of my salary multiplied by my years of service, which would be 24 by that time, or 27.8%. If I stay on until 65, I can get up to 2.4%, or 81.6% of salary since I would then have 34 yrs: a huge boost for ten more years of service (no wonder teachers never retire). But I don't want to teach that long, so I guess I need to have my own plan in place to supplement the other 72.2% of my salary, find another position in education, or develop another skill.

You don't need to replace 100% of your salary.  You need to cover your expenses.  Completely different numbers.

Remember, once you are FIRE, you won't need to save for FIRE, won't be paying FICA, job expenses like commuting costs will be eliminated, etc.

[newelljack]

Good point, teen. Even less time to FI !!!! Oh no, I'm turning into Doug !!!!