Advice/Assurance on Future Path

[MasterStache]

Long time reader first time poster. Just looking for a little advice or reassurance for our future plans and current situation.

Some background. My wife and I are both 38. We have 2 kids (4 and 10). I am an engineer and she is an MRI Tech at a local hospital. We both work full time. I'll skip all the boring historical details.

Combined Income: 120K
Retirement: 401k - $110,000, 403b - $55,000, Roth IRA - $20,000
Mortgage: $1460/mo.
Debt: $198,000 mortgage, $1,000 CC, $1500 student loan
Savings: $2K

I recently paid off over 7K in student loan debt and paid off a low interest loan incurred when we purchased a solar array. We have two cars paid for and a lot of life left. Obviously my next step is continuing to pay off the small debt we have left.

We have a beautiful house that we bought in a down market in which we have sunk a lot of money into. As stated above, we have a large solar array that was installed by myself. It saves about $1000 on energy every year. I installed a 10 zone irrigation system and completely renovated the yard and landscape. We've been told by many, many folks including landscapers that we have the nicest yard in our large town. The grass has become sort of a hobby for me. We also have a large 22,500 gallon pool in the backyard surrounded by beautiful landscaping that I put in myself.  We had a new concrete driveway put in last year. I renovated my daughters room over the winter. So much has been done to our house. I am confident we could get 250K out of it or more.

Over the last couple of years I have grown tired of taking care of everything. It's a half acre of landscaping, grass and pool. I do it on my own. It's fun for the most part and rewarding, but it's a lot of daily work. My kids are growing up and I feel sad that I cannot spend as much time with them. They get shoved to the side a lot because the pool needs maintenance or the yard needs mowed. I am also a FIRM proponent of achieving early retirement.  It's been a goal for a while now.

Here is my planned proposal:
1. Sell the house - Our home was originally valued at 230K in 2009. We bought it for 210K and currently I would estimate it is worth at least 250K. Similar sized homes with deplorable landscaping and no solar sell for about 250K in this area. 
2. Downsize - Use the roughly 50K leftover from the sale as a down payment on a bit of a fixer upper in the price range of about 150K. That basically halves our mortgage payment.
3. Fix it up - Work on building some equity by keeping the home and putting a lot of sweat into it. Make it ours.   
4. Invest - With early retirement on the mind I would like to possibly start investing in rental Real Estate or something to provide an income stream during my pre-old man years (40s and 50s). I believe freeing up thousands every year by downsizing would give me the ability to do this. I have recently lowered my 401k  contribution to 6% which is what my company matches. Between company match, my investment and dividends it will still come out to 14K every year invested. I'll let that ride for the next 22 years so I have plenty of old man money.
5. Retire!!! Or work part-time doing what I really enjoy.

Ultimately I want more time with my kids hiking, riding bikes, etc. I want more financial freedom to start investing in things I enjoy like working on homes even installing solar panels. Doing the above will net a lot more time, a lot more money and certainly the possibility of very early retirement.

Any feedback, suggestions are welcome.

[Cheddar Stacker]

Read this: http://www.madfientist.com/retire-even-earlier/ Then max out the 401K and 403B.

It sounds like it's time to sell the house. It sucks your time, and your money. Maintenance on that big of a yard with elaborate landscaping and a pool is not cheap. Reign it in. You don't need that much fanciness.

When you buy the new house get the lowest 30 year loan you can find. Any extra money should be invested, not used to payoff the mortgage early.

Worry less about taxable investments and Real Estate right now. It's time to get very serious about retirement savings. If you can do both, then do both. But focus on the Retirement savings first as it allows you to sock away more quickly without really effecting lifestyle. I would recommend you also adjust your lifestyle though. You could be saving much more than you have in the past. I was guilty of this as well until about 5 years ago.

If you can get your wife on board you will be looking at retiring closer to 50 than the 60 you are currently projecting.

Welcome to the forum, and good luck!

[sirdoug007]

You will need to do better than 14k/year in savings to get to an early retirement.  Maxing out both your wife's and your 401(k)/403(b) @ 35k/year and then finding ways to put more away in a taxable account will put you on the right track.


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[MasterStache]

Thanks for the advice gents. I am considering maxing out the 401k and 403b but here is my issue with that. If I leave it as is and simply contribute up to the company match, even with a modest return of roughly 4-5% over the next 22 years it will still grow to over 600K. But what about the years before I even think about starting to tap into this "old man" fund? I would like to have a steady income stream to hit retirement in maybe 10-12 years. Maybe earlier if I play my cards right.

I read the article MMM provided about how much is too much in your 401k and I'm right about where I need to be. If we max out both accounts I am afraid it will leave little money for other immediate investments and income stream possibilities. It will be tough to retire before I can tap into those retirement accounts without any immediate income streams. Sure it would be great to have over a million dollars but if I can't truly access it without being slammed with penalties before 60, what good is it during my younger years?

Maybe I am missing something?? Oh and I simply just guessed at our homes worth. Zillow has it valued at around 242K. But they don't take into account any of the fancy upgrades.

   

[Jacana]

I don't know much about the retirement money questions yet , but something struck me as out of place in your plan. You said you want to sell to have more free time to spend with your kids/ enjoy life. If you buy a fixer upper and put sweat equity into it, how is that any better than an already nice house with yard work? We bought a fixer upper in 2009 because it was a great deal, but it has been one long 5 years of intensive work and a good bit of money too. And stress trying to do all the renovations between work and toddler and life. I like your idea of downsizing and all that, reducing yard work and house maintenance, I just wonder if a fixer upper would really be the right choice. 

[MasterStache]

Read this: http://www.madfientist.com/retire-even-earlier/ Then max out the 401K and 403B.

It sounds like it's time to sell the house. It sucks your time, and your money. Maintenance on that big of a yard with elaborate landscaping and a pool is not cheap. Reign it in. You don't need that much fanciness.

When you buy the new house get the lowest 30 year loan you can find. Any extra money should be invested, not used to payoff the mortgage early.

Worry less about taxable investments and Real Estate right now. It's time to get very serious about retirement savings. If you can do both, then do both. But focus on the Retirement savings first as it allows you to sock away more quickly without really effecting lifestyle. I would recommend you also adjust your lifestyle though. You could be saving much more than you have in the past. I was guilty of this as well until about 5 years ago.

If you can get your wife on board you will be looking at retiring closer to 50 than the 60 you are currently projecting.

Welcome to the forum, and good luck!

Thanks for the link Cheddar. It looks like I need to educate myself on some of the "loopholes" (not really sure the correct word to use) of retirement accounts. That certainly answers some of my questions. I think I have some math to do before we start looking for another house. The main issue will be getting my wife on board. She's never been much of a saver and at times has chastised me for "saving too much." I am definitely the saver and she is the spender. To her the thought of putting so much money in her 403b is very unappealing. She actually just converted over to an HSA for heath insurance. I was not happy at first because she reduced her retirement contribution to do so, but I am quickly learning it's not such a bad move. Now as much as she loves our home and seems stubborn at times, I was able to convince her to downsize. I think she is coming around to the ideal of less is better. It's an uphill battle for me.

[MasterStache]

I don't know much about the retirement money questions yet , but something struck me as out of place in your plan. You said you want to sell to have more free time to spend with your kids/ enjoy life. If you buy a fixer upper and put sweat equity into it, how is that any better than an already nice house with yard work? We bought a fixer upper in 2009 because it was a great deal, but it has been one long 5 years of intensive work and a good bit of money too. And stress trying to do all the renovations between work and toddler and life. I like your idea of downsizing and all that, reducing yard work and house maintenance, I just wonder if a fixer upper would really be the right choice.

That's an excellent question. The projects have been completed in relatively short time periods. The main problem is the upkeep, especially of the yard. On any given weekend I spend about 5 hours or so in the yard. Between mowing, pulling weeds (have about 6K+ sqft in landscape), mulching, trimming bushes flowers, etc. sweeping the pool deck, even spraying fungicides. Cleaning the pool and testing chemicals. As well as taking care of the pool equipment, fertilizing, etc. etc. etc. It's never ending. Just ask my wife. Over the last couple of years she has really not been happy about "single parenting" on the weekends because dad is in the yard so much.

Our plan isn't so much to downsize the house, but to downsize the lot. No pool, not much landscaping, no irrigation systems, no elite golf course quality grass. Just make it look nice with minimal maintenance. I don't like spending 2 hours mowing the grass every 3-4 days. And our projects will be spread out over longer time frames with very few projects in the summer. Rehabbing a kitchen doesn't require nearly as much upkeep as rehabbing 0.5 acres of landscape and lawn.

[Cheddar Stacker]

MMM is great. I love this website and I'm forever grateful to him. He is brilliant with the philosophy, phsychology, and execution of spending less, saving more and retiring early. The post you referred to is great, but it's not perfect.

Madfientist is brilliant with math and analysis, not disrespect to MMM but he's not on par here. Reiread that link. Read everything it links to. Read jlcollins, including his guest post from madfientist.

Then come back with more questions.

[MasterStache]

MMM is great. I love this website and I'm forever grateful to him. He is brilliant with the philosophy, phsychology, and execution of spending less, saving more and retiring early. The post you referred to is great, but it's not perfect.

Madfientist is brilliant with math and analysis, not disrespect to MMM but he's not on par here. Reiread that link. Read everything it links to. Read jlcollins, including his guest post from madfientist.

Then come back with more questions.

I will do that. I appreciate the insight and the willingness to answer questions

[Cheddar Stacker]

No problem, that's why we're all hear, to learn. Here's a link to a forum post from a couple months ago. This question is asked at least once a week here. There's discussion in this link, and I also linked to many other threads with discussion on the topic. You are not alone in questioning this, but 95% of the people here will give you the same answers I did as you'll see in these threads.

http://forum.mrmoneymustache.com/ask-a-mustachian/why-do-we-want-to-max-out-401k/msg350665/#msg350665

[MasterStache]

No problem, that's why we're all hear, to learn. Here's a link to a forum post from a couple months ago. This question is asked at least once a week here. There's discussion in this link, and I also linked to many other threads with discussion on the topic. You are not alone in questioning this, but 95% of the people here will give you the same answers I did as you'll see in these threads.

http://forum.mrmoneymustache.com/ask-a-mustachian/why-do-we-want-to-max-out-401k/msg350665/#msg350665

Wow, this topic really is brought up quite a bit. I feel simultaneously relieved and also somewhat repetitive. I didn't realize there were certain caveats to retirement accounts as far as accessing that money earlier and the tax advantages one can partake in. I am still trying to sort through the tax bracket stuff, but it's certainly becoming more clear. I'll continue reading and learning and certainly appreciate the help.

On a side note, I am constructing some spreadsheets in an attempt to show the wife just how much money we can free up moving and the vast advantages to doing everything we can to max out our retirement accounts and more. Sometimes merely showing her elicits a better response over just telling her. When I brought up the moving the other night she was hesitant and somewhat sad. The next day after having 24 hours to think about she was totally on board and telling the kids how much better it will be for both time and money.

[Jacana]

Ah, I guess that makes more sense. I can understand your wife's opinion! I would not be happy with that either. Sounds like a high maintenance yard. Where do you live that you need to mow 2 hours every 3 days?? Are you over-fertilizing or over-watering? My parents have half an acre of mostly grass in Florida, it takes maybe 20 min max to mow with a ride-on mower once a week.

You may want to look into low maintenance native landscaping (or even xeriscaping depending on your region) at your next house; it can be beautiful too. Sounds like a great idea to ditch the pool for sure.

 Rehabbing a kitchen doesn't require nearly as much upkeep as rehabbing 0.5 acres of landscape and lawn.

Wow you must be a lot faster at interior renovations than we are! We still have a lot to learn.