Case Study - Can I sleep comfortably?

[Frizhand]

Income:
Wife - 75K (gross).  Net after tax, health/dental ins and other deductions - $46K
Me - I'm self employed and my income changes from year to year, can range from 50K to 100K.  On average, I have earned about 70K (gross) since starting going on my own. 

Total: It's hard to put an exact amount. Our combined net income in 2012 was almost 120K.  Last year,  80k (again, net after taxes and deductions). This makes planning a little difficult and the amount we save changes all the time.

Current expenses:
I track every expense using Mint.  We currently spend about 70K per year.  I think it's a little high and we can do better but it includes 1 time expenses, like braces for my son (4K this year). 

I didn't include every expense since my questions are mostly focused on our future plans based on our current saving amounts.  I continue to monitor our spending with the goal of shaving off where possible.  I recently cut cable and installed solar panels (no more electric bill).

Our biggest expenses are food (@16K per year, I know we can do better here), RE taxes (@8K), travel (@8k, family of 4, we like to travel. some years this can be more if we take a bigger trip), bills/utilities (@8K, oil heat in the NE is a big part of that; now that we cut cable and have solar that will drop by about 2K).


Assets:
-Home - no mortgage - house value @ $450,000
-Retirement accounts (includes 401K, all IRAs, wife's 403B) - $560,000
-College savings (2 children) - $104,000.  This includes 529 plans ($52K) and a Variable Life Ins policy ($52K) that I plan to cash out to pay for college.
-Cash (money market, emergency) - $91,000  (this is more than I need but with my fluctuating income I like to keep a bigger safety net.  Once I'm brave enough to invest this, I plan to put about half into a Vanguard account)

Total - @ $1.1 mil (this is hard to believe!)
* This total does not include college savings since I consider that an expense and that money will not be used for retirement. It also does not include my wife's pension.

 
Liabilities: none.  Other than monthly expenses, we have no debt.  No credit card or car loans.


Specific Question(s): 
I have 2 main questions:

Question 1
I'm wondering if my planning makes sense.  My wife is a teacher and can retire with a pension in about 14 years (at age 55, we are 41 now).   So, our plan has been to save for retirement and college, with the goal of retiring at 55 once the kids are out of college.

Based on our current saving amounts, the calculations I do say we should have about $1 mill in our retirement accounts in about 14 or 15 years (5% growth rate).  At that point the kids will be out of college and we'd downsize our house (adding the home equity to our retirement portfolio).

Are my general calculations correct? Assuming our income just covers our expenses until then (i.e., worst case, 0% savings rate), and our $560K in investments really grow to about $1 mill in 14 years the plan would be to combine @4% withdrawal rate with my wife's pension (@30k per year) and SS for income during retirement.  Of course, since I couldn't access the qualified retirement accounts until 59.5 (and SS even later) we would live off the pension and home equity for a few years to bridge that gap. 

This doesn't take into account paying for college but I plan to save more and have as much of it covered as possible by the time they get there....and have my kids work to pay for the rest.


Question 2
Since I'm self employed and my wife is a teacher I don't work a lot in the summer. I tend to work when I can but spend a lot of time with my wife, kids and other family... it's like a temporary, summer long 'retirement'.  I also take time off during school vacations. Part of me always feels guilty when I do this and I begin to worry about my income/savings and the money I'm NOT making.  Simply put, I can't really believe I'm secure enough to have this much flexibility.  Spending time with my family is a high priority for me and a big reason why I left a great job (that paid well) to work for myself.

Am I going to wake up one day and wish I had worked more (saved more) now?  My 'temporary summer retirement' and other flexibly that comes with my employment situation is great, but it does cost me money.  In some ways, I'm enjoying some of the benefits of FIRE now, but am I really financially prepared to be living this way? For years I worked long hours and took vacations here and there but as my kids have gotten older work and money have become less important. However, part of me can't shake the idea that a responsible adult/parent should be working 'full time'.

Thanks for reading and sharing your thoughts.
In the meantime, I continue to work to cut our spending in order to help me sleep better at night!

[neo von retorch]

I think most of Question 2 is just cultural, though it might not hurt to earn more during that time. But the big variable for you is expenses. You listed $40k worth of expenses but mentioned a total of $70k. If you're going to average $40k going forward leading up to and into retirement, that $1 million is investable assets plus the value of your home would put you in a healthy position to retire at 55, particularly with the additional income of your wife's pension. (Though you'll also have a one time expense of buying whatever housing you'd be replacing that house with, so don't forget to deduct that.)  Even if you only average $80k net income, you'd be saving 50%. Over 15 years, You'd be in a great position!

But if you keep spending $70k now and into the future, you're going to have a much longer wait to retire comfortably.

[Frizhand]

Thanks, Neogoless.   I feel like I'm close to making the numbers work in my favor but not in the clear yet. 

I agree we need to cut the spending. Some of the difference between the 70K total and the 40K I listed is home (improvement, maintenance, etc, 5K), entertainment (3k), 2 cars (gas, maintenance and insurance, 5K...yuck), and other things that add up. I think we have some leaks were we can stop losing money.   

[horsepoor]

It seems it would be easy to get spending down below your wife's net pay (no mortgage, so I'm assuming no car payments, student loans or other major monthly payments).  That way, you guys could stash everything you make, given your variable income.  That would also allow you to invest most of that $91K and still be able to sleep at night.  Sounds like you're doing great with that 7-figure NW!

[GGNoob]

If you're retirement accounts average 7% returns for the next 14 years, you'll have a total of $1.4M. So that with extra money from downsizing you house, pension, and SS should put you in a pretty good spot. It's also great that you have no debt and have been able to save up so much to help your kids with college. Lastly, if you get some of that savings/emergency fund invested, that will have a chance to grow over the next 14 years as well ($50k invested at 7% return for 14 years would be $128k).

Sounds like you should be fine to me, but it can't hurt to continue to add to your retirement accounts until you retire.

[Frizhand]

It seems it would be easy to get spending down below your wife's net pay (no mortgage, so I'm assuming no car payments, student loans or other major monthly payments).  That way, you guys could stash everything you make, given your variable income.  That would also allow you to invest most of that $91K and still be able to sleep at night.  Sounds like you're doing great with that 7-figure NW!

This has always been my goal!! But I never seem to be able to do it !  My wife is frugal but definitely not Mustachian. And truthfully, neither am I...but I try!   So, it's been a struggle to cut some of our spending because there are things she (we) doesn't want to cut.  I'm fine with that because it's a balance that works and I've been able to save and become debt free anyway.   

[och4]

Friz, congratulations on the great sum of money. I would like to be where you are when I am at that age, 15 years away. Right now, I desperately want to start a side project that generates enough cash flow to even get close to your position.

However with that being said, if I was in your shoes. I would question if I truly enjoy my current skill-set and if it's worth going on with it. For myself, I seem to get bored every two to three years and pick up a new task. Possible this could apply to you and enjoy life even more?

[MDM]

This has always been my goal!! But I never seem to be able to do it !  My wife is frugal but definitely not Mustachian. And truthfully, neither am I...but I try!   So, it's been a struggle to cut some of our spending because there are things she (we) doesn't want to cut.  I'm fine with that because it's a balance that works and I've been able to save and become debt free anyway.   

Yes, having a paid mortgage does indicate that you can save - good for you!  I didn't see in your posts if you are contributing the max allowed to tax-deferred savings...?

Many people find it easier to save if the money never goes into the checking account at all.  In other words, do you and your wife contribute the absolute maximum to your respective tax-deferred plans?  I.e., http://www.obliviousinvestor.com/sep-vs-simple-vs-solo-401k/ for you and 403b for your wife?  If you aren't, that would be a good thing to do.  You can always pull some from the $91K if needed for expenses in a given month.

Even if the $91K starts dropping because you start putting more into tax-deferred accounts, you could look at that as dollar-cost-averaging the $91K (or whatever fraction thereof you choose) into the market.

[Frizhand]

Yes, having a paid mortgage does indicate that you can save - good for you!  I didn't see in your posts if you are contributing the max allowed to tax-deferred savings...?

Many people find it easier to save if the money never goes into the checking account at all.  In other words, do you and your wife contribute the absolute maximum to your respective tax-deferred plans?  I.e., http://www.obliviousinvestor.com/sep-vs-simple-vs-solo-401k/ for you and 403b for your wife?  If you aren't, that would be a good thing to do.  You can always pull some from the $91K if needed for expenses in a given month.

Even if the $91K starts dropping because you start putting more into tax-deferred accounts, you could look at that as dollar-cost-averaging the $91K (or whatever fraction thereof you choose) into the market.

Good points.   I usually contribute the max every year.  This year has been a little slower for my work so I haven't... yet.  Since you ask,  I should say that technically, I'm not 'self' employed in the eyes of the IRS.  I work for a small (5 person) company with a couple friends.  I am my own 'group' within the business.  I set my own hours, manage my own work, etc.   We have a 401K plan that I contribute to.   But for the purposes of explaining my situation it was easier to say 'self employed'.  Sorry if that was misleading.

Part of my motivation for posting was to decide if I should stop contributing to a pre-tax, qualified plan and start putting savings into a taxable Vanguard account (along with some of that 91K). That way I can easily access the money before age 59.5. But it does have the downside of being taxable.  With my fluctuating income, I'm not sure I can max out the 401K/403B AND save a significant amount in a taxable account (yet another reason to cut expenses!).