Author Topic: Early retirement plan advice?  (Read 5146 times)

dan

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Early retirement plan advice?
« on: April 26, 2013, 07:20:47 PM »
Hi folks,

I wanted to get your assessment of our current early retirement plan.

Family:
me: 36
wife: 34
kid: 1

Current assets:
Primary residence: worth 414K (sayeth Zillow), mortgage is 337K (3.625% 30 year)
Investment condo 1: worth 126K, mortgage is 88K (4.5% 20 year), cashflow is -65/month (we've been increasing the rent every year, and are probably about three years off from cash flowing [assuming rents stay on the same trajectory], only have 16 years left on loan)
Investment condo 2: worth 212K, mortgage is 126K (6.125% 30 year), cashflow is +142/month (have about 28 years left on loan--because of complex, can't refi to a lower rate)
Two 10+ year old sedan cars, both paid off
My roth: about 80k in 5 vanguard index funds, put max in every year
My IRA: about 74K in 2 vanguard index funds (rolled over from previous employer)
My 401k: about 65k in VTSMX (can't get admiral funds due to where the 401k is, put 6% of salary into this, plus 4% employer match, plus company profit sharing)
My 529: 1800
Wife's roth: about 25k held under active management (wife doesn't want to move to vanguard for family reasons), put max in every year
Wife's IRA: 17k
wife's 529: 500
Child's accounts:
8K in balanced fund (gifts + we added some so when she's older she'll have some capital)
5k in 529 (add 100 every month)


Other financial assets:
 about 60k held under active management (again, family reasons)
 16k in socially responsible investments (add about 500 every month)
 800 in treasury bonds
 200 in prosper.com loans
 18k in vanguard retirement 2030 (add about 500 every month)
HSAs: 4k (max out every year)

Emergency fund: 22k

Saving for house improvements: 18k

Debt:
mortgage on primary house
mortgage on investment properties
occasional credit card debt (always paid off every month)

Jobs:
I work making software, make around 130k/year working 40ish hours/week.  Walk to work.
Wife is part time.  Makes about 10k/year.  Rest of the time is stay at home mom to one infant (planning on at least one more).

Monthly Expenses (estimates):
mortgage: 1900 (includes ins and taxes)
Gas: 80 (2 tank fillups a month)
life ins: 70 (term)
disablity ins: 50
car ins: 100
health ins (high deductible plans, some prexisting conditions): 1000
plane tix (avg, we fly to see family 2-4 times a year): 200
internet+homephone: 75
cell phone: 90 (smartphone--it's complicated)
garbage: 25
water: 50
electricity, heat and gas: 100
Groceries: 425
Eating out: 250
Baby sitting (to allow wife to work): 300
Baby sitting (date nights): 100
House cleaning: 130
Donations: 130
Allowances/mad money: 400 (200 for each of us)
House maintentance: 200
Other purchases: 350 (household, baby stuff, travel other than airline)

Looking at this it appears we have about 6k/month in expenses.  This feels overwhelming (at 4% withdrawal that is 1.8M).  Yet I realize how much earning potential we have and wonder what we are doing wrong.

A big chunk (85%) of health ins premium is covered by my job, but most health expenses come out of our HSA.

Suggestions?

Specific items I am looking for advice on:
* any areas crying out for cutting?
* we have been considering selling one of our cars and joining a car share program.  However, selling the car will only save about $50/month.  Is it worth it?
* we received a big tax refund this year (12kish) because I didn't change my withholding when we had a child.  Wondering if that should go to mortgage paydown or investments?  I am interested in buying another investment condo, but promised myself I wouldn't do so until both current ones cash flowed.

Thanks for your time!

matchewed

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Re: Early retirement plan advice?
« Reply #1 on: April 26, 2013, 09:00:55 PM »
Food, cellphones, and paying someone to clean your house. There's also $400 a month for mad money? Are you mad? 4800 annually just for gits and shiggles.

I'd optimize the food and stop going out to eat so much. Review your cellphone usage and look for something that is more affordable to your needs. Clean your own house. And figure out what your mad money is and whether it is worth it to you.
Groceries - 300
Eating out - 0
Paying someone else to clean your house - 0
New Cellphone plan more conducive to your habits - ??
If you have cellphones why do you need a home phone?
And you're spending 550 non car related transportation. Can you trim that?

You could easily cut your budget in half.

dan

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Re: Early retirement plan advice?
« Reply #2 on: April 26, 2013, 09:36:48 PM »
Hi Matt,

Thanks for the direct feedback.  The $350 isn't just for travel, it's also for household purchases (diapers, baby clothes and stuff).  Probably only 20/month on travel (bus tickets).  But, now that I write that, it does seem high and worth investigating.

Ceasing cleaning is difficult because I don't like doing it, and my wife has repeatedly said she'd rather work extra hours and pay someone else to clean. 

I'll have to look at cell phone options.  The reason we have a home phone in addition to a cell phone is:
1. we bundled our internet with our home phone
2. we've read some scary stuff about cell phones and radiation, so we wanted a home phone that we could use.  Could probably cut back the cell phone usage.
3. we tried a skype phone and found it didn't work for us (dropped calls).
The mad money is part of a hard won compromise between my wife and myself.  Sometimes we disagree on how to spend money and this bit of flexibility makes it easier for both of us to get behind how to spend the vast majority of our income. 

We have tried some grocery limits (the cash in envelope method) in the past.  We'll have to keep on that--I think we can definitely get down to $350 or $300.

Hmmm... I'm actually blushing because it feels like I'm making a bunch of excuses, probably because I am.

Thanks for the feedback.
« Last Edit: April 26, 2013, 09:47:51 PM by dan »

A440

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Re: Early retirement plan advice?
« Reply #3 on: April 26, 2013, 11:57:18 PM »
If you have to have money in actively managed funds, can you quit putting new money in?  There is Frontline documentary (PBS) about the high costs of fees in retirement accounts.  It really makes a huge difference.  Google the Retirement Gamble and watch it.

Are these investment properties worth it?  So if you are losing money on one now, and you get to break even or make money at some point, what happens if there is a large assessment for the roof or something?  Or property tax rates go up?  I am not an expert real estate investor, but the negative cash flow just seems like a big problem.

I can't face-punch for the house-cleaners, because we have some, but both my husband and I are working 60+ hours a week.  But we still manage cloth diapers, too, and the baby's clothes come from the thrift store.

Does your wife feel the need to work for money or self-worth or staying in the loop?  Because there do seem to be significant expenses related to her working.  Maybe that's okay, because she needs to stay in practice to go back to work later, or whatever, but you should be aware of the costs associated with her working.  Have you read Your Money or Your Life?

Do you need the 22k emergency fund?  Could you sell some of the 60k actively managed funds (I am assuming this is a taxable account).

Are the $500/month contributions to investments in taxable accounts?  Is there a reason why you don't want to contribute more to the 401k?

I know there are way too many questions there, but just the way I think about things.

Cecil

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Re: Early retirement plan advice?
« Reply #4 on: April 26, 2013, 11:59:44 PM »
Some thoughts as I read.

* I don't know what American mortgages are like, but have you run the numbers on refinancing? Rates are at a pretty all-time low right now.
* Why do you have two similar cars if you walk to work and your wife is mostly a SAHM? Sell one.
* Why are you paying ~1000/year active management investment fees for "family reasons"?
* I assume you've shopped around for a cheaper health plan? Come live in Canada? :)
* If you both have smartphones why do you need a landline?
* $250 is a lot for eating out (aka hiring people to make food for you). Can you scale this back? Don't have booze, eat out less or pick cheaper places. Weigh price more heavily in your decision of what to order. This should be under $100 at least.
* Clean up your own darn house.
* Where do your $200 allowances go? That's a TON of money just going... somewhere? Toys? What? At the very least categorize it.
* $200 of maintenance on your house? Can you do more stuff around the house yourself?
* $350 of "other". You should have $0 of other. Categorize everything you spend.


re: selling the car "Is $50/month worth it" - I don't know, you tell me. Don't forget to factor in the depreciation you're eating every month you *don't* sell it. Are you going to hang onto it until it's worthless?

Think of it this way: I spent 3 hours on the phone with the cable company over $10/month - because that will reduce my needed 'stache by $3000. That's a month of savings needed right there.


358k in investments + 201k equity.

Cecil

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Re: Early retirement plan advice?
« Reply #5 on: April 27, 2013, 12:22:49 AM »
Quote
we've read some scary stuff about cell phones and radiation

You're aware that all the latest research indicates there's no detrimental effects?

pbkmaine

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Re: Early retirement plan advice?
« Reply #6 on: April 27, 2013, 02:04:59 AM »
So you don't like to clean. Who says you have to like it? If done aerobically, it is good exercise and saves money. What could be better than that?

I have always been amused by friends who pay to have the house cleaned and the yard mowed and then pay for the gym. Vacuum cleaners are very good for the abs. Cleaning windows works the arms. You can get quite a sweat scrubbing the floors.

matchewed

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Re: Early retirement plan advice?
« Reply #7 on: April 27, 2013, 05:26:13 AM »
Hi Matt,

Thanks for the direct feedback.  The $350 isn't just for travel, it's also for household purchases (diapers, baby clothes and stuff).  Probably only 20/month on travel (bus tickets).  But, now that I write that, it does seem high and worth investigating.

Ceasing cleaning is difficult because I don't like doing it, and my wife has repeatedly said she'd rather work extra hours and pay someone else to clean. 

I'll have to look at cell phone options.  The reason we have a home phone in addition to a cell phone is:
1. we bundled our internet with our home phone
2. we've read some scary stuff about cell phones and radiation, so we wanted a home phone that we could use.  Could probably cut back the cell phone usage.
3. we tried a skype phone and found it didn't work for us (dropped calls).
The mad money is part of a hard won compromise between my wife and myself.  Sometimes we disagree on how to spend money and this bit of flexibility makes it easier for both of us to get behind how to spend the vast majority of our income. 

We have tried some grocery limits (the cash in envelope method) in the past.  We'll have to keep on that--I think we can definitely get down to $350 or $300.

Hmmm... I'm actually blushing because it feels like I'm making a bunch of excuses, probably because I am.

Thanks for the feedback.

My response will be a little tongue in cheek in some places -

So you're unwilling to make the changes which will reduce your expenses. Okay then there's not much else to go over. You're happy enough to work 60 hours each to 72k a year to live. If you're cool w/ that I'm cool with that.

Seeing the comment about your wife willing to work extra hours rather than clean (and just to stick that in there you didn't mention your cleaning ability... cleaning takes less time when done by two people) and the mad money compromise shows me that you two are not on the same page regarding your financial goals. And that also is cool if your cool with it. Not every couple will be on the same page financially. But if you have some common goals and reducing your expenses will aid in reaching those, you may both be able to agree to some changes which will improve what you are looking to improve.

Honestly if you're scared of cell phone radiation then why are you using them? I would assume a $0 cell phone bill for someone who is afraid of radiation from them.

Do you need the 22k emergency fund?  Could you sell some of the 60k actively managed funds (I am assuming this is a taxable account).

I have to disagree with the emergency fund question. Unless your job skills are incredibly in demand you need a bigger emergency fund. Your expenses will only last for three months with that emergency fund if you lost a job. Frankly I'd toss that tax refund into my e-fund.

As an aside if you walk to work everyday how do you spend $80 a month on gas?

Bigote

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Re: Early retirement plan advice?
« Reply #8 on: April 27, 2013, 05:39:34 AM »
I'd be disinclined to purchase another property anytime soon.  Putting aside the debt, you are about 50% in real estate already.  I would steer new monies to equities. 

A440

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Re: Early retirement plan advice?
« Reply #9 on: April 28, 2013, 10:49:59 PM »
Quote
I have to disagree with the emergency fund question. Unless your job skills are incredibly in demand you need a bigger emergency fund. Your expenses will only last for three months with that emergency fund if you lost a job. Frankly I'd toss that tax refund into my e-fund.

My attempt at a point was not that he doesn't need an emergency fund, but that some of his other assets could be tapped in that situation.  It might be a good excuse to get rid of the actively managed funds, if he did lose his job.  Also I didn't see in his post how secure he felt with his job--maybe he is a tenured professor--I have no idea.  But if he has $20000 sitting in a checking account and debt at >6%, it's worth think about how all his cash or more liquid assets are being used.

Joet

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Re: Early retirement plan advice?
« Reply #10 on: April 28, 2013, 11:06:46 PM »
I'll admit I'm a real estate novice, but it seems like you've got a pair of money-sinkholes [condos], anyway you'd consider dumping them and finding a property with better price::rent ratio?
I thought a general rule of thumb was if the rent doesnt pay they 15-yr note on it, probably not worth buying? also are your costs inclusive of maintenance/taxes/HOA deciding to vote themselves a new pool/etc?

otherwise I'm in the same boat as you but probably worse :( I made a post about it. I'd love to get my spending down to 6k/mo
« Last Edit: April 28, 2013, 11:09:07 PM by Joet »

grantmeaname

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Re: Early retirement plan advice?
« Reply #11 on: April 29, 2013, 09:00:32 AM »
Dan, it looks like you are on the right track in a lot of ways as far as your accounts and savings are going now; the big area for improvement is your monthly expenses. Here's my item-by-item take on the most egregious offenders:
Quote
car ins: 100
$1200/year to insure two 10 year old sedans, one of which is barely driven? Do you have comprehensive coverage and no low-mile exemption, or do you regularly hit old women in crosswalks on the way to the grocery store? You could save some by shopping around the coverage you have to other insurers, and even more by dropping your coverage down to liability.

Quote
internet+homephone: 75
We pay $25/month for 3/1 internet and it's usually fast enough for four people to share it, including streaming video and online gaming. You could probably cut at least $40 out of this category. Cell phones do not cause cancer, for the record.

Quote
cell phone: 90 (smartphone--it's complicated)
It's dead simple, switch your smartphones to an MVNO. You can cut $60 a month out of this category.

Quote
Groceries: 425
Where do you shop at? Even if you insist on living on only lobster and organic raspberries, you can get them much cheaper at a grocery store than a health food store, and cheaper still at a shopper's club. Buying your staples in bulk, even if they're organic quinoa and brown rice, can save you a ton over what you're paying now. So can substituting more eggs, nuts, whey protein, beans, lentils, tofu, TVP, and friends for a little of your meat consumption -- we are meatless here only a night or two per week, but it helps us afford steak, shrimp, and salmon on the nights we do eat and keep spending at a reasonable level.

Quote
Eating out: 250
You could save $3,000 a year by cooking things yourself, enough to annually buy and then throw away a nicer car than you're currently driving. Is it really worth the life energy you're putting into your jobs in order to earn the money that you spend eating out? If you really enjoy it, I bet you'll really enjoy it more if it becomes a twice-monthly treat than a twice-a-week thoughtless habit.

Quote
Baby sitting (to allow wife to work): 300
This is more than a third your wife's gross pay, and I suspect it's more than half after taxes. I know that working part-time is not solely an economic decision, but your wife's part time work may cost you two more than it makes you after you consider this babysitting, house cleaning, eating out more often, gas, wear and tear on her car....

Quote
House cleaning: 130
I won't repeat the well-deserved facepunch you've already gotten here. Having a clean house is nice, but it's also easy. Just learn to live with only the level of cleaning you provide for your house, and you'll stop leaking four dollars a day to laziness.

Quote
Donations: 130
Donations are good. If you want to reduce this and still make a difference, consider giving your time instead of your money by volunteering for causes you care about. We've got people on the forums who work with groups like Doctors Without Borders, but it can be something much simpler like walking dogs at the local humane society, or spending the day cleaning up a park or visiting a public school classroom and reading.

Quote
Allowances/mad money: 400 (200 for each of us)
You each spend $200 beyond the date nights, eating out, babysitting, house cleaning, delicious high-quality food you feed yourselves, smartphones, high speed internet, and $350 of "other"? I think you could do a lot better than this--perhaps you could keep the category the same size but each pay for all your meals out, data plan, and your date night babysitting out of your $200.

Quote
Other purchases: 350 (household, baby stuff, travel other than airline)
$350 falling through the cracks each month is going to add up pretty fast. Have you tried a cash envelope system or an online tracking program like Mint to find and plug the leaks?

If you make most of these tweaks -- most of which are painless even in the short term, and all of which will be painless within a year -- you'll save $1200 a month, which is $360,000 of 'stache that you don't have to accumulate. If that's not exciting, I don't know what is.