Reader Case Study: 401k - Did I mess up my Mustache?

[AlmostM]

Background:
Starting in 2008 I have been putting a lot of my savings into a) paying down my house and b) my 401k.  I'm wondering if putting so much into the 401k was not ideal. 

Compared to the average american I'm doing exceedingly well, but compared to the goal of retiring before my brother gets out of Med school (within the next 3 years) I think I messed up.  Firstly, I know I spend wayyy to much to be truly mustachian.  I'd like to spend between $18k-20k per year and did that for a couple of years, including paying down student loans and paying for a couple of clunker cars.  I've proven to myself that a lower cost lifestyle is possible and enjoyable.

April 2013 I went to working part time and being paid hourly.  I lost my employer subsidized health insurance, but I got a lot of time back and about a 30% hourly raise.  Working 20-25 hours a week agrees with me well.  I can still fit in most of what I want to do and save a ton.  Right now, I am working fulltime though because I got a short term gig in Tokyo where in addition to the regular wage I'm making $225 as a per diem, of which I only need to spend ~$40/day.  The plan is to go back to very part-time work in Mar of 2015.  Going back to full-time is a great reminder of why the goal is too retire early!

Age: 30
Profession: Software related consultant

Income:
Current Salary: ~$85k after taxes per year + fully maxing out 401k contribution ($17,500)
Cell Phone & Internet and many meals paid by my company

Current expenses:
Health Insurance - $129/month
Car Insurance $110/month (Ford Ranger 2011) can serve as housing depending on climate
Food: $200-300/month - not currently minimizing at all, rarely cook at home due to work travel
Mortgage + Association dues + Taxes +Insurance: $917+$50+$175+$70
Utlitities at House: ~$210, were paid by renter in the past
Rent -- future expense $300/month (split $600 with my bf) all utiltities included assuming we stay in MN
Gas: $100/month although very variable, depends on season.  Good about biking when its warm and not going on road trips
Climbing Gym Membership - $400/year
Other: $300-$400/month
Subtotal ~$2500

Assets:
401k Accounts: $140k in various 401k accounts
Cash: ~ $90k
Lending Club: $6k
House: bought for $190k, had it rented for $1400/month which covered mortgage + all expenses and ~$200 left over for maitanence costs, although currently these are insane due to water issue which city should be addressing this spring.

Liabilities:
Mortage $88k, 1.5 years into 10 year, rate is 2% paying to my uncle
Student Loans: paid off
Car: paid off
House repairs!  (new floor & some exterior work, plus pending tax assessment related to street repairs ~$5-7k)

1 year summary numbers:
Income After Taxes: $85k
401k Contribution: $17.5k
Paid down mortgage: $9k
Added to Savings: $45k
So saving rate of 70% and total spending this year $29,800

Specific Questions:
Any advice regarding the uninvested cash - pay back my uncle for the house, with the idea that if I do retire, I dont have to feel guilty owing family?  Maybe wait to pay him back till right before I quit working?

Also, any advice on how to view the 401k toward the goal number?

Assuming I could count all my assets (house & 401k) toward my goal #, of $450,000, at my current savings/month then I'm only 16 months away from retirement.  However, due to some recent issues, I had to move back into the house, rather than renting it out - and don't think it will be rentable again until at least May 2015 -- so its an extra expense temporarily, rather than an income producer.  Also, I would pay a big tax penalty if I were to try and live off the 401k income. 

So I'm wondering if I'm really a lot futher away from retirement than I'd like to be.

[DCJrMustachian]

Congrats on being so far along on the path.  You're well ahead of the average but it doesn't look like you'll be able to retire as quite early as you want to. 

You are almost good with the 401k after you turn 59.5.  Assuming it slightly more than doubles in the next 30 years, that will give you about $20k of today's dollars you can spend each year, which is enough for a modest, mustachian old age... though you might want to keep building it up some more so that you can afford some top-tier healthcare or an annual extravagant jet trip.

Now you need a strategy for accumulating for between your planned retirement and age 60.  90k cash will only get you 3-4 years.  If your "Cash" is not appreciating, you should get it into an investment vehicle. 

You can't really count the house or rental income.  You would have to get the difference between your rental profit and your housing expense from where you would be living once retired.  Would need this detail in order to complete the calculations for you.

But in short you have at least a few years to go.  If you can sock away 50k per year you'll be in a good position in about four years, and you may want to re-evaluate based on your employment situation and market positions then.

[MDM]

AlmostM, welcome to the forums.

DCJr's points are good.

It's hard to tell your situation from your OP.  E.g., you would "like to" spend $18K-$20K per year, but how much do you actually spend?

See the How To: Write a "Case Study" Topic thread for some ideas if you would like more feedback.

Good luck!

[AlmostM]

Thanks for the quick responses.  I've updated the post to try and be a bit clearer and conform the the Case Study format better. 

I'm pretty good at the calculation side of things, but I feel like my currently lifestyle and expenses are not very reflective of what the future should be like.  Also, as my income has risen its been harder (mentally) to be as thrifty as a I used to be.  I find myself making unnecessary purchases (like drinks and bikes and clothes) that I never would have made 3-4 years ago.  Seemingly, I can live frugally when I need to, or when there is an obvious short term goal (like paying of $22k of student loans), but I don't do as well when the cash is flowing and the goals are unclear. 

I guess I'm mainly asking what the goal should be.  Pay off the house?  Set aside another $200k?  Maybe I need to go back to the 7 day challenge to see if I can get my spending side under control again. 

[Gone Fishing]

Once you retire, you will roll your 401(k) into a Traditional IRA.  Once you do that you can do an IRA ladder as detailed in the first link in my signature below.  This will prevent any penalties and will also help keep your taxes low.  Right now it looks like your income might be too high for a deductable IRA contribution, but you could still fund a ROTH IRA which would help further reduce your future tax burden.

Based on your current spending (approx $30k) it looks like you would need around $750k in income producing assets (25x spending).  If you are able to rent your house out and live somewhere cheaper, the numbers might look a little different, but you get the idea.

Don't pay off the house 2% interest is pretty much free money.  As far as savings go, just remember every dollar you spend requires $25 or so dollars invested to support in retirement.

Your $450k goal would support around $18k a year (4%)in spending assuming it was all income producing assets.   

 

[skunkfunk]

Having several years worth of cash laying around isn't a great plan. Find something to do with it.

Personally I'd pay back the uncle, but I'm ridiculous about not wanting to owe money to people.

[Threshkin]

You are almost good with the 401k after you turn 59.5.  Assuming it slightly more than doubles in the next 30 years, that will give you about $20k of today's dollars you can spend each year, which is enough for a modest, mustachian old age... though you might want to keep building it up some more so that you can afford some top-tier healthcare or an annual extravagant jet trip.

I disagree with this.  I am currently exploring health post FIRE care costs in today's dollars because I plan to retire early next year.  The lowest-cost ACA plans for two healthy under 60 year old (57/50) people are nearly $900/month before subsidies.  After subsidies the cost will still be in the range of $500 per month.

Counting on health care subsidies to stay are they are and for health care costs to stay constant with inflation is very risky.  Plus this cost only covers the insurance, not your out-of-pocket health care expenses.

In today's dollars I recommend budgeting at least $1,000 per month for healthcare expenses.  If you wind up spending less, you are golden.  Much better than discovering you don't have enough.