Author Topic: Case Study: How is this logic for ER?  (Read 5031 times)

rescuedog

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Case Study: How is this logic for ER?
« on: April 01, 2014, 04:04:20 PM »
Here we go!  How are we doing?  Does our logic on finances ER and post-ER age make sense?

We are a married couple (ages 35/37).  Together we have a gross income of $147,000.  A total of 50% of our income goes into retirement (HSA, Roth, 457b, and 401a gifts from our employer).  No kids.  We’ve had our money merged for over 2 years now, but I have two full years of expenditure data so far.  Guessing we can ER in 11 or 13 years. 

INCOME/TAXES:
Monthly Gross: $12,268
Pre-tax retirement accounts: $3,467
Taxes: $2,755
Net Monthly Income: $6,321

Not included is:
Unpredictable Monthly Side Income: $736 (this greatly varies:  profit on spouse’s work trips, spouse’s bonuses, and my eBaying selling, but that is our 2 year average) Maybe I should be doing yearly average?


SPENDING: (again a 2 year average)
With our $6,321 take home here is how we spend it (we are fine with our expenditures):
Two Roth accounts: $917
Mortgage/Property Taxes/Insurance: $1301
Utils/Cable/Internet/Heat/Gas/Lights/Sewer: $338
Groceries: $515
Eating Out: $288 (oddly we bring lunches everyday to work, so this includes past vacations as well)
Alcohol: $117
Auto: $340 (two paid off cars: includes registration, oil changes, repairs, insurance, gas, everything)
Misc: $1,390 ((Note this includes a deck, a wedding and landscaping all one time things, but if those were removed from this everyday misc, it's $550/month)
Health: $103 (two HDHP which have no monthly premium)
Clothing: $153
Entertainment: $307 (2 year average, we take cheap trips often, plus families live out of state so plane tix $$$)
TOTAL EXPENDITURES: $5,769  (or $4,929 without three items mentioned above)

MONTHLY LEFT OVER: $579 (or $1,392 without three items mentioned above)  Does not include surplus income

RETIREMENT SPENDING GUESS (a very low guess): $3,709
Just a really rough guess, I took out the mortgage and the Roth basically.  Left the taxes/insurance.  Doesn't account for health insurance yet (I haven't done research).  Or extra trips out of the ordinary while we're still spry.

RETIREMENT SAVING SUMMARY TOTAL: $6,125/mo
Which consists of:
Pre-tax accounts: $3,467
Post-tax accounts: $917
Employer gift: $1,742 (not a matching, it's a gift of 14.2% of our salaries, same employer)

ASSETS:
$704k in 401a, 457b, 403b, Roth, HSA (I can break if down if needed)
$210k house (guesstimate)

DEBTS:
$166k mortgage – set to be paid off in 15 years (ages 52 and 50)



Here are a couple retirement game plans.  I have no idea if I'm thinking about the math properly for the ER and post-ER portions.

Two ER scenarios:
Retire in 11 years (ages 46/48)
Retire in 13 years (ages 48/50)

For the early retirement age years:
The 457b money is the ER plan as of now (we're at a state university).  There are no early withdrawal penalties; you just have to be done with your job.  Subject to income taxes though.

If we keep putting $2,917/month into 457bs like we are now, in 11 years @4% we will have $870k which needs to last us 11.5 years of ER.  In 13 years @4% we’ll have $1.02 mil to last us 9.5 years).  This is a very conservative 4% (we invest aggressively right now).  This just needs to last us until 59.5. 

I did some rough annual salaries guesses (just the value at ER then divided by years it needs to last in ER) and the lowest annual salary I got was $76k gross with ER at 46/48 for the first year (which doesn’t include all the growth on the money that has not been withdrawn yet). For medical we’ll have the HSA available as well (for health insurance premiums, etc).  The other guesstimates go up to 6 figure for an annual salary.  Woah, I think this can work!

For the retirement age years:
We will continue to contribute $3,209/month to the other (non-457b) accounts up until ER age.  Then come age 59.5 (for me really), most of other accounts will be accessible. 

If we contribute to the non-457b accounts for 13 more years (with ER at 48/50), and don’t use it until age 59.5, 4% gives us $2.03 mil.

If we contribute for 11 years (with ER at 46/48), and don’t use it until age 59.5, 4% gives us $1.92 mil.  That seems pretty good!  And this assumes the 457b money is all used in ER.

So with that extra income that is left over each month:

We could add $100/month to our mortgage and get it paid off in 11.5 years when we are 46/48 (I used a mortgage calculator tool for this).  We probably need to do this right now so it is paid off for sure by ER.

We could just let it stack up in the checking like it has been.  $13k in there now, I project it to be $21k at the end of the year.  Even with a few big ticket purchases per year, this is still the case.

We could start putting money into the 403b again (worth about $53k now, just sitting there).  It's pre-tax contributions too.

Or any combination of these.


Emergency plan?  You might notice we don't have a big chunk of regular savings in a savings account.  If I lose my job, we can live off of H’s just fine (my income is half of his).  Would have to stop some retirement contributions.  If I lose my job, we can still live off of my income with more bare bones living and the checking $.  If we both lose our jobs, we’d go to bare bones living, use the checking $ and then any Roth contributions (no penalty withdrawals at any time) or credit cards as a last resort.  There are enough Roth contributions to last us a year.  However, we’re diligent enough to not touch it and it would require an extremely dire situation.

I’ve ran our withdrawal scenarios through MSN Money Retirement calculators, FireCalc, etc.  It all looks good so far.  I think we’re going to die with too much. 

What would you change?  Does this retirement logic make sense?  Should I use a percent higher than 4% in my calculations? 

I used Dave Ramsey's Investment calculator to run the 457b money ER plan, and then the "rest of the money" plan at different growth rates.  Both the other program assume all your money is accessible at the ER age you put in however.
« Last Edit: April 03, 2014, 12:47:22 PM by rescuedog »

Eric

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Re: Case Study: How is this logic?
« Reply #1 on: April 01, 2014, 04:54:11 PM »
You're spending a ridiculous $55K per year on non-housing expenses, including an absurd total of almost $17K on miscellaneous.  That's more than your housing!!

If you keep spending a ridiculous $55K per year after you've paid off your housing (which should be higher, because I'm assuming part of the housing cost is property tax and insurance which won't go away) you'd need approximately $1.4MM to fund that lavish lifestyle.

I didn't read through all of your scenarios, but you'll easily be able to hit that number.  The question is, how soon would you like to?

rescuedog

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Re: Case Study: How is this logic?
« Reply #2 on: April 01, 2014, 05:03:53 PM »
To go with real 2012 and 2013 numbers and not the averages,

2012 non-mortgage expenses were $45k (which included a small wedding with two guests and a new deck on the house).

2013 non-mortgage expenses were $51k (which included $6k of landscaping, $5k in braces for the both of us, and big car repair).

I didn't add the Roths into these figures.

"Lavish" - haha yes! 
« Last Edit: April 01, 2014, 05:16:34 PM by rescuedog »

brewer12345

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Re: Case Study: How is this logic?
« Reply #3 on: April 01, 2014, 05:12:18 PM »
I think you will have no real problems retiring early.  Your return figures are probably conservative, but the downside of doing so is just that you have the option of retiring earlier than planned.

lackofstache

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Re: Case Study: How is this logic for ER?
« Reply #4 on: April 02, 2014, 08:04:34 AM »
You're halfway there and saving a good amount. I don't see any problem reaching retirement in either of your scenarios. I'd spend less and retire sooner, but if you're both happy with it, you can do just as you've planned.

rescuedog

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Re: Case Study: How is this logic for ER?
« Reply #5 on: April 02, 2014, 09:38:51 AM »
This was my first crack at "doing some numbers" honestly, and those were ages I pulled out of the air.  I was actually very surprised and pleased with what I came up with and almost wasn't sure I believed the numbers.  My H always thought 45 or earlier, so now we have an idea of where we stand.  We needed a baseline in order assess where to go from here! 

Still need to decide what to do with the extra money.  I plan on doing some number crunching of putting it at the mortgage versus into retirement acounts (where it will have the most impact).

I'm not ready to quit my job in 5 years' time however.  Things are too exciting.  10?  Probably.

Catbert

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Re: Case Study: How is this logic for ER?
« Reply #6 on: April 02, 2014, 11:05:25 AM »
Assuming you have a good interest rate (I'm sure you do) I'd add the extra $100 a month and pay off in 11 years when you might ER.  With todays low mortgage interest rates there's not much incentive to devote your extra money to pay off super quick.  Investing would be a better option.

okashira

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Re: Case Study: How is this logic for ER?
« Reply #7 on: April 02, 2014, 11:11:43 AM »
.... you got me at the 900K in assets on a 13,000 monthly income and plan to retire in more then 10 years.

Either your spending is out of control or think you need way more money then you do.

beltim

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Re: Case Study: How is this logic?
« Reply #8 on: April 02, 2014, 11:15:02 AM »
You're spending a ridiculous $55K per year on non-housing expenses, including an absurd total of almost $17K on miscellaneous.  That's more than your housing!!

If you keep spending a ridiculous $55K per year after you've paid off your housing (which should be higher, because I'm assuming part of the housing cost is property tax and insurance which won't go away) you'd need approximately $1.4MM to fund that lavish lifestyle.

Not only is this not helpful, but you did the math wrong.  In fact, the OP gave you the monthly figure on expenses excluding savings and mortgage ($3709).  12*3709 = $44,508
How did you come up with $55k per year?

I didn't read through all of your scenarios...

Oh, I see.

beltim

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Re: Case Study: How is this logic for ER?
« Reply #9 on: April 02, 2014, 11:23:22 AM »
This was my first crack at "doing some numbers" honestly, and those were ages I pulled out of the air.  I was actually very surprised and pleased with what I came up with and almost wasn't sure I believed the numbers.  My H always thought 45 or earlier, so now we have an idea of where we stand.  We needed a baseline in order assess where to go from here! 

Still need to decide what to do with the extra money.  I plan on doing some number crunching of putting it at the mortgage versus into retirement acounts (where it will have the most impact).

I'm not ready to quit my job in 5 years' time however.  Things are too exciting.  10?  Probably.

Looks like you're on track to be well ahead of being able to retire in 10 years.  Your numbers for retiring in 11 years give you an income of ~$80k per year after you retire for the rest of your life, and this is significantly more than you spend now.  Health care may be expensive, but if you're at a state university you might be able to get retiree health benefits – it's worth looking into. 

rescuedog

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Re: Case Study: How is this logic for ER?
« Reply #10 on: April 02, 2014, 11:26:47 AM »
Looks like you're on track to be well ahead of being able to retire in 10 years.  Your numbers for retiring in 11 years give you an income of ~$80k per year after you retire for the rest of your life, and this is significantly more than you spend now.  Health care may be expensive, but if you're at a state university you might be able to get retiree health benefits – it's worth looking into.

That is a good idea, I will check that out!  We have done zero research yet other than asking H's parents what they pay as retirees. 


Well, I was kind of doing the math wrong (or not enough).  My husband's calculations were way better than mine.  Hot damn!  Looked at ER in 3, 5, and 8 years from now. 
« Last Edit: April 02, 2014, 08:21:56 PM by rescuedog »

sirdoug007

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Re: Case Study: How is this logic for ER?
« Reply #11 on: April 03, 2014, 11:29:18 AM »
Your best bet to getting to ER is to work on whittling down that "Miscellaneous" category.  $1390/mo for non-essentials is 37% of your ER monthly spending!  At a 4% SWR, you need $417,000 in the bank to support your "Miscellaneous" category!!!

If you could cut that down to $500/mo, your ER spending ends up down to about $2800/mo, $34000/yr.  At 0.04% you would need about $850k to support that level of spending.

Since you currently have $704k and a $166k mortgage ($538k net), even with no returns on investment you would be at $850k in less than 5 years at your current savings rate.  With good returns it may be 2-3 years out.

However if you need an extra $900/month to get to $1400/mo in miscellaneous you will have to save up that $417k mentioned earlier.  Something to think about...

rescuedog

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Re: Case Study: How is this logic for ER?
« Reply #12 on: April 03, 2014, 12:00:29 PM »
Perhaps my categorizing method need to be reassessed or a little more explanation. 

I removed the deck (a five figured deck), the landscaping and the wedding from the "misc" costs and that gives me a new 2 year average of $550/month.

I don't envision building a new deck every year, or getting landscaping, or heck getting married every year :).  So those costs won't be there (but yes they are in my initial "misc" calculation).

However, I am sure some day we'll need a new furnace, or fridge, etc.  One day we'll end up replacing the car or maybe hardwood floors if we can't get these carpet beetles under control.  Maybe I should not put them in Misc, but you still have to account for big ticket items somehow.  They show up planned and unplanned.
« Last Edit: April 03, 2014, 12:16:39 PM by rescuedog »

Comella

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Re: Case Study: How is this logic for ER?
« Reply #13 on: April 03, 2014, 07:32:18 PM »
Very good stuff!  You guys are rocking it!

Your Miscellaneous stuff is fine, hard for some people to realize this was a 2 year snapshot and not average over like 15 years.  Obviously you had a lot to do in those years and it won't be like that every year... but obviously you will have some things planned and unplanned.  I would first have an Emergency fund for those unplanned things... even if it's like $20k in a money market account, then you wouldn't have to fret about taking money out of the Roth that is making you good money. 

I don't know what you are investing in, but if you say it is somewhat aggressive, I don't see why you wouldn't average more like 7%, especially since you are leaving it in there for so long without touching it.  When you run the numbers with 7%, you will be at your target in no time! Like I said, keep up the good work and enjoy it also. :)

lordrtype1

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Re: Case Study: How is this logic for ER?
« Reply #14 on: April 04, 2014, 05:26:36 AM »
I like the careful planning!  I want to have about 1.2 mil when I retire, but I would only need 800k with my present (estimated) expenses, so planning for the worst and hoping for the best is never a bad thing to me.  If you're ok with your 'real' expenses, even if they're a little higher, your planning still helps to keep it covered.  I'm sure you won't be upset having too much money when you do retire, so keep working the plan!