Reader Case Study - How to better plan for early retirement

[cgc007]

Income: Military Pay: $80,340.48 after taxes for 2014, by 2020 should be around $101,114.78 after taxes before annual cost of living increases.

My pre-tax pay is $93,954.48 for 2014. Only $64,983.6 is taxable. I've already set my withholdings and exemptions to get us to a very minimal tax return, however, since my wife is pregnant, I will re-run the numbers shortly to see what the difference is with two children vice one.

Current expenses:

CHARITABLE GIFTS         $669.50
SAVING         subtotal $2,542.81
   Her Roth IRA      $458.33
   His Roth IRA      $458.33
   Basement Fund      $1,459.15
   College Fund      $167.00
HOUSING         subtotal $1,562.38
   First Mortgage      $1,074.94
   Real Estate Taxes      $253.33
   Homeowner's Ins.      $80.00
   _Repairs or Mn. Fee      $154.11
UTILITIES               $496.96
*FOOD  subtotal $580      
   _Grocery      $300.00
   _Restaurants      $200.00
   _Lunch, Her      $40.00
   _Lunch, His      $40.00
TRANSPORTATION  subtotal $211.97       
   _Gas      $148.27
   _Car Insurance      $63.70
*CLOTHING    subtotal $70    
   _Children      $30.00
   _Adults      $40.00
PERSONAL     subtotal $521.72         
   _Life Insurance        $67.72
   _Child Care              $150.00
   _Personal Care        $140.00
   _Squadron Dues      $4.00
   _General Gifts          $50.00
   _Christmas Gifts       $50.00
   _His Mad Money       $25.00
   _Her Mad Money      $25.00
   _Blow Money           $10.00
RECREATION     subtotal $40         
   _Entertainment       $40.00


The above is a typical month's expenses, for some of the line items with $0 (such as tools, crafts, etc.) when those items need to be purchased (or we want to purchase some) the difference comes from the "Basement Fund". The average amount going into the Basement Fund over the past year has been $1085/mo.

The utilities breakdown is: (These numbers are averages)
Gas Bill: $95
Internet: $63
Cell Phone: $77 (two phones, one is on republic wireless, which I just changed to last month. I'm the guinea pig and then I'll swap my wife's phone over if we enjoy/like the service)
Power Bill: $135 (I feel like we could make some headway here, but I'm not quite sure how)
Water Bill: $69 (We live in a SID, water prices will be cut in half when we're annexed into the city, should be 2-5 years from now)

I'm also happy because this means that minus the house payment and saving up to finish our basement, we're spending ~$24k a year.

Expected ER expenses: It would probably be very similar, minus the house payment, saving for retirement, and basement fund. ~$24k/year.

Assets:
Total Retirement Investments: $69,726
Her IRA: $17383
Her Roth IRA: $7263
His Roth IRA: $43316

The above accounts are invested similarly, in aggressive growth mutual funds.
SYMBOLS: AEPGX, ANCFX, AGTHX, ANWPX, SMCWX

Roth TSP: $1764
Invested with 60% C, 20% S, and 20% I Funds.

Cars:
2003 Pontiac Sunfire (paid for with a check) - his
2007 Chevrolet Impala (paid off) - hers

I think we're pretty conservative here. I could stand to get a more fuel efficient car, but it runs well, and I don't think shelling out the money to buy a different used car would save me that much. I currently get 26-28mpg in the Sunfire, which isn't great, but for a $3,000 car, isn't terrible in my mind.

My daughter has special needs (spina bifida) so we may have to invest in a van in the future, so we can lug a wheelchair around with us, however, my daughter isn't two yet, so that may be a few years off.

Savings: $28330
This contains a myriad of different spending dollars. We stay a month ahead on all of the categories listed in the budget above, and "spend" out of our savings. The largest contributors to the total savings amount are:

Basement Fund @ $12595

Charity Fund @ $9418 (this is starting to dwindle now that we have some place we'd like to donate to)

Emergency Fund @ $5176 (This is only this low because we have the basement fund to subsidize it if need be, once we finish the basement, it'll top out between $9-18k, we have not decided yet)

We also save up for long term known expenses, like Christmas gifts, Life Insurance payments, and Car Insurance payments.

Liabilities:
Our Home @ $147,554 @ 15 year fixed mortgage 2.75% APR.

Specific Question(s):

Currently I'm putting 15% of my pre-tax pay into the 3 ROTH accounts discussed above (mine, her's and Roth TSP). What my math is telling me, is that at the amount we have in retirement funds now, I can stop funding them completely, and attain a $55k/yr draw indefinitely once I turn 59.5 (I'm 31 currently). What I'm thinking I should do, is stop funding my retirement, since I won't "need" more than $55k/yr, and push all that money into paying off my house.

My current plan is in this order:

• Stop funding Roth retirement accounts
• Pay off my house (Should be able to pay off by 1-Apr-2018 by dumping current investment amounts + Basement Fund amount starting 1-Jan-2015)
• Lump-sum fund my daughter's college fund (Virginia 529, currently valued @ $4,472) to ~$25,000 (should take 6 months, with the house payment freed up, so I'd be done funding it 1-Nov-2018)
• Then do something(?) that will allow me to save up money in a way that I won't be penalized for when I begin to draw from it

The problem is, I have no idea what the something(?) is, or should be. I also think the above plan is a good idea, but I also have access to the post 9/11 GI Bill, which is transferable to dependents (aka, I could split it between my daughter and soon-to-be-born son and roll the 529 to future children).

There are many ways to accomplish this, but I want to figure out the smartest way to retire ASAP! I enjoy my job, and I very well might stay working there for 20 years (I'd be 45) to get a pension, however, I'd also like some FU money, so if I wanted to be done at any point, I could be.

Thoughts? Questions? Comments? Need more info? Please let me know.

Thanks for your help!
Craig

[ch12]

In order to retire, you have to have 25x your annual retired expenses. For you, 25*24,000=$600,000.

Use this calculator to estimate your timeline to FI: http://networthify.com/calculator/earlyretirement?income=50000&initialBalance=0&expenses=20000&annualPct=5&withdrawalRate=4

I was trying to figure it out myself, but I can't figure out your total expenses/total savings rate. I put out all your numbers in a spreadsheet, but something isn't adding up. I'm seeing right now $6,695.34 a month in expenses, but your monthly take-home for 2014 is $6,695.04. I could be keying stuff in wrong, though I double checked with your subtotals.

Normally, we slice out savings a little more. Your house principal repayment is savings in addition to your entire savings section. Only your mortgage interest is a housing expense. With your savings rate, you can figure out how fast you can get there using the calculator above. You can see Mr. Money Mustache's chart.

http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

I also see that your assets = $98,056 and your remaining house mortgage makes your net worth negative.

My current plan is in this order:

• Stop funding Roth retirement accounts
• Pay off my house (Should be able to pay off by 1-Apr-2018 by dumping current investment amounts + Basement Fund amount starting 1-Jan-2015)
• Lump-sum fund my daughter's college fund (Virginia 529, currently valued @ $4,472) to ~$25,000 (should take 6 months, with the house payment freed up, so I'd be done funding it 1-Nov-2018)
• Then do something(?) that will allow me to save up money in a way that I won't be penalized for when I begin to draw from it

The problem is, I have no idea what the something(?) is, or should be. I also think the above plan is a good idea, but I also have access to the post 9/11 GI Bill, which is transferable to dependents (aka, I could split it between my daughter and soon-to-be-born son and roll the 529 to future children).

There are many ways to accomplish this, but I want to figure out the smartest way to retire ASAP! I enjoy my job, and I very well might stay working there for 20 years (I'd be 45) to get a pension, however, I'd also like some FU money, so if I wanted to be done at any point, I could be.

In your shoes, I'd:

• Save $600,000 to live on, so that I could pull the plug whenever I wanted and spend time with my kids. How to allocate it and where to put it is well covered by people like the MadFIentist
• Pay off the mortgage
• Save for my kids' college educations, knowing that they already have some coverage from the GI bill

With your mortgage at 2.75%, most people would tell you not to pay it off because you can make more money investing. Mr. Money Mustache still had a mortgage expense for the first few years of FIRE.
http://www.mrmoneymustache.com/2012/01/16/exposed-the-mmm-familys-2011-spending/
(I'm really debt averse, and I saw how well that advice (Don't pay off your mortgage! You can make more in the stock market) worked out for people in 2008...so I'd personally pay off the mortgage and forgo the stock growth, because I'm a wussypants.)

You can take out your contributions to your Roth IRA penalty free at any time. You don't need to wait for them to grow to $55k/year levels if your expenditures are $24k/year. You can continue to contribute to your Roth accounts. Read more: http://www.ehow.com/list_6102420_roth-ira-withdrawl-rules.html

Also read: http://www.madfientist.com/retire-even-earlier/

[cgc007]

I missed posting our home value and the remainder of our assets:

2003 Pontiac Sunfire    $2,221.00
2007 Chevy Impala LT    $6,531.00
House    $199,000.00
   
Savings    $28,339.52
Retirement    $69,662.80
529    $4,471.87
Liquid Assets    $469.12 (checking - credit card balance, which of course we pay off each month)

Total Assets  $310,695.31, total debt,  $149,016.43
Total Networth: $161,678.88

[Gin1984]

Don't prepay your mortgage, and don't put money in a 529 until ALL tax advantage accounts are maxed.  Money can be taken out of a Roth IRA for college expenses.  Here is what I don't see, enough money in pre-tax accounts to account for your personal exceptions and standard deduction in retirement.  I plan to pull put enough to cover that between SS and 401k/trad IRA and the rest would come from the Roth.  In addition, you can pull from the Roth IRA prior to 59.5 without a problem, as long as what you pull is contributions, so I would be maxing the Roths.

[Nords]

It looks as if you're eliminating debt and avoiding locking up money in retirement accounts.  Yet if you invest in the Roth Thrift Savings Plan then you still have options for pulling some funds out before age 59.5 with a Roth TSP conversion ladder:
http://the-military-guide.com/2014/03/20/early-withdrawals-from-your-tsp-and-ira-after-the-military/
Every year that you do not invest in the TSP is a lost opportunity that can't be made up later, and you'll miss out on the world's lowest expense ratios (lower than Vanguard). 

If you decide to stay in the military through retirement, your daughter may be eligible for the "insurable interest" clause of the Survivor Benefits Program as an adult, not just childhood.  SBP is a decision that's years away but it's a great way to insure your pension for her benefit:
http://www.dfas.mil/retiredmilitary/provide/sbp/coverage.html
I'm very weak on this aspect of the SBP so you'll want to consult with a financial planner (and perhaps a military lawyer) when you're confident that you'll be staying for a pension.

[cgc007]

Nords - I am trying to stop contributing to any funds that will cause penalties if I touch them during ER. I didn't know I could withdraw from a Roth to pay for education expenses. I'm also already maxing both my wife and my Roth IRA, but I'm not maxing Roth TSP. The Roth ladder shown in the links you provided seems a bit daunting to me, and also left me with a question: can't I withdraw contributions I've made in the past free of charge? So if I am able to stash away enough principle in Roth accounts, couldn't I withdraw that when I leave the service and then place it into a taxable account to generate the needed interest to live off of? I'm not sure I'd be able to save that much, since the power of compound interest wouldn't be helping me in that regard. My reasoning for wanting to avoid putting more money into a Roth is that currently, at 59.5 it'll cover double what we spend now. I figure that should be enough for retirement and I want to do something smarter to cover the gap until I reach 59.5. I really don't understand the Roth ladder at all, and currently have very little ($14k) in non-Roth investments.

Gin1984 - I currently do not have any non-Roth investments. What would you suggest in this area and why? I also cannot currently max my Roth buckets (since we're saving for the basement finishing) but once that is complete, I should be able to. I currently have 2 Roth IRAs and Roth TSP as Roth buckets, so a max of $29k/y. My simple math tells me that I'll be able to fill all 3 of those once the basement savings is complete, and have a tiny amount left over. What priority order would you assign to different types of accounts? I do not have access to a 401k with a match.

[little_owl]

Hey cgc, welcome to the forums!  You have a strong foundation going already...but I included some recommendations that may get you even further.

First, lets go to your expenses.  I'll include some take it or leave it recommendations below, and my general theme is that you are not over-spending madly, but there are some reasonable cuts you could make to do even better.

Charity: You are giving a lot here on a monthly basis.  There is room to cut, as heartless as that may sound!
Saving: I will adress below.
Food: Cut the lunch money and drop restaurants by at least half.
Clothing and Personal Care are both fairly high, you could probably cut both by around half.  The personal care you could likely drop by $100.
Gifts and Mad Money: You have $200 total there, my recommendation is to trim this down.
Utilities: these seem fairly reasonable, though your power bill is nearly as large as mine and we have a much larger home (judging by the mortgage payment).  For power efficiencies, use the postings on this blog as well as the internet and even an Ask a Mustachian post here on the forums to get good recommendations on what to do to trim.  You likely have wiggle room in that bill.

Assets and Savings Strategy is where I'd go next.  I do not think you should stop investing in a Roth completely given the advantages, however if you 100% KNOW you do not need the money, just ensure you max out your and your spouses Roths.  But, your priority #1 should be starting a regular Vanguard investment account and getting money in there, yesterday.  If you make the trims I suggest above, you will have a few hundred to start with.

I hope your basement fund is fully funded soon (we are working towards the same project, so I "get it!"...however if you do not expect to get the basement fund complete in the next 6 months, I would divert at least $300 of that into the Vanguard investment. 

TIME IS THE MOST VALUABLE RESOURCE AN INVESTOR HAS.  Therefore, every day that goes by without your ER money in the market, you are losing out on having your employees (dollars) work for you.

I also think you are putting too much resource into the college funds, but I know that is an intensely personal decision.  You mentioned lump-summing 25k into a college fund.  Put that into your Vanguard investment account for Early Retirement instead.

I would also put some effort towards paying down your house, but if you are OK working such that you might work until 25 to get the pension....then doubling down on the house seems silly right now, vs. getting your investment account up and rolling.  Put enough extra each month so that it is the equivalent of 1 extra payment annually, and do not do more than that until your basement stuff is done.

Good luck on your journey!

[Gin1984]

Nords - I am trying to stop contributing to any funds that will cause penalties if I touch them during ER. I didn't know I could withdraw from a Roth to pay for education expenses. I'm also already maxing both my wife and my Roth IRA, but I'm not maxing Roth TSP. The Roth ladder shown in the links you provided seems a bit daunting to me, and also left me with a question: can't I withdraw contributions I've made in the past free of charge? So if I am able to stash away enough principle in Roth accounts, couldn't I withdraw that when I leave the service and then place it into a taxable account to generate the needed interest to live off of? I'm not sure I'd be able to save that much, since the power of compound interest wouldn't be helping me in that regard. My reasoning for wanting to avoid putting more money into a Roth is that currently, at 59.5 it'll cover double what we spend now. I figure that should be enough for retirement and I want to do something smarter to cover the gap until I reach 59.5. I really don't understand the Roth ladder at all, and currently have very little ($14k) in non-Roth investments.

Gin1984 - I currently do not have any non-Roth investments. What would you suggest in this area and why? I also cannot currently max my Roth buckets (since we're saving for the basement finishing) but once that is complete, I should be able to. I currently have 2 Roth IRAs and Roth TSP as Roth buckets, so a max of $29k/y. My simple math tells me that I'll be able to fill all 3 of those once the basement savings is complete, and have a tiny amount left over. What priority order would you assign to different types of accounts? I do not have access to a 401k with a match.

I would max out the Roth IRAs and switch the TSP to a traditional, but you could also do the other way and keep the Roth TSP and max out a traditional IRA for both you and your wife.  It really does not matter as long as there ends up being enough to last you pulling out about $20K a year from when you retire until you die, IMO.

[Nords]

Nords - I am trying to stop contributing to any funds that will cause penalties if I touch them during ER. I didn't know I could withdraw from a Roth to pay for education expenses. I'm also already maxing both my wife and my Roth IRA, but I'm not maxing Roth TSP. The Roth ladder shown in the links you provided seems a bit daunting to me, and also left me with a question: can't I withdraw contributions I've made in the past free of charge? So if I am able to stash away enough principle in Roth accounts, couldn't I withdraw that when I leave the service and then place it into a taxable account to generate the needed interest to live off of? I'm not sure I'd be able to save that much, since the power of compound interest wouldn't be helping me in that regard. My reasoning for wanting to avoid putting more money into a Roth is that currently, at 59.5 it'll cover double what we spend now. I figure that should be enough for retirement and I want to do something smarter to cover the gap until I reach 59.5. I really don't understand the Roth ladder at all, and currently have very little ($14k) in non-Roth investments.

The Roth TSP has the word "Roth" in it, but otherwise it's completely different from a Roth IRA.  I bet within five years people start petitioning Congress for Roth name changes...

So you can withdraw Roth IRA contributions at any time for any reason with no penalties and no taxes.  If you think you can take care of your ER expenses (before age 59.5) by withdrawing Roth IRA contributions then you should definitely consider dumping additional contributions into the Roth TSP. 

You can only withdraw Roth TSP contributions when you meet the conditions in that post*.  (In other words, not like the Roth IRA.)  After you leave the service, you'd still have to meet those conditions to be able to withdraw Roth TSP funds-- or else you'll pay taxes & penalties.  Most veterans leave their funds in the TSP (or Roth TSP) until the last possible moment because of the low expense ratios.  They spend down their taxable accounts (and Roth IRA contributions) before age 59.5, and if they need more than those two sources of funds before age 59.5 then they use the Roth conversion ladder.  Yes it is dauntingly complicated, and that's intended to discourage people from touching it.

I get lots of e-mails from veterans who did not contribute to their TSP accounts when they were in the military, and in hindsight they regret that decision.  I understand why you're reluctant to contribute to the Roth TSP, and if you've forecasted your cash flows up through age 59.5 then maybe that's the right choice.  Most investors are not aware of the Roth conversion ladder, and now you know. 


[* From the post:
After you separate from service– when that’s during or after the year you reach age 55.
A Qualified Reservist Distribution during at least 179 days of active duty.
Tax-exempt contributions from a combat zone.
A monthly payment based on your life expectancy.
A rollover of part or all of your account to an IRA.]

[cgc007]

little_owl - We plan to be done funding the basement by Oct-Nov time frame (4-5 months) and I'm looking into getting some handy friends to help me finish it instead of contracting all the work out. I recently started my foray into carpentry, and I'm not scared to attempt the work myself, however, if something happens and we have to move, I'd prefer the work to look as professional as possible to ensure we can sell the house at maximum value if needed. Hopefully I can get it done with no/low labor costs (friends that work for food/beer are easy to pay compared to contractors!) Then whatever money we have left over could be similarly dumped into the Vanguard account as you suggest. The targeted savings amount for the basement is $27k.

A note on the power bill, we have 1800sqft livable currently, and it's a ranch, so the basement is the same size. If I could get the nice cool air from the basement into the main floor during the summer our bill would plummet. I'd like some sort of two way fan in the subfloor that can pull air from the basement in the summer and pull air from the main floor in the summer to help even out the house. That makes sense in my head, yet I've never heard of anyone doing that, so it's either brilliant or stupid. Our thermostat is also placed for comfort instead of efficiency. It's in our great room, which is a kitchen/dining/living room with vaulted ceilings. I've been considering getting into some home automation to make things more efficient, but I'm not sure where to start. I think moving the thermostat to our bedroom could be a decent choice, but I'm not wise on all of that yet either. I'll take a gander throughout the forums/articles here and see if I can use some of those bits of wisdom/knowledge to drop it. That's the one bill I'd like to take a chunk out of myself.

Nords - Ah. That makes a lot of sense now because after looking into what you posted Roth TSP seems totally different than my Roth IRAs. I may drop it from my investment scheme since I will have enough for retirement post 59.5 with the current balances, even at a 5% gain per year! As it scales upward from there we will just end up far more than fine, 7% allows us a very nice inflation hedge, and more than that just gets silly.

Gin1984 - If I do not need any more money from my Roth/TSP accounts, should I still continue to do them? I think I understand your reasoning for the traditional to $20k post 59.5 as that's the rough amount I could withdraw and pay no/very low taxes on due to std deduction?

[Gin1984]

little_owl - We plan to be done funding the basement by Oct-Nov time frame (4-5 months) and I'm looking into getting some handy friends to help me finish it instead of contracting all the work out. I recently started my foray into carpentry, and I'm not scared to attempt the work myself, however, if something happens and we have to move, I'd prefer the work to look as professional as possible to ensure we can sell the house at maximum value if needed. Hopefully I can get it done with no/low labor costs (friends that work for food/beer are easy to pay compared to contractors!) Then whatever money we have left over could be similarly dumped into the Vanguard account as you suggest. The targeted savings amount for the basement is $27k.

A note on the power bill, we have 1800sqft livable currently, and it's a ranch, so the basement is the same size. If I could get the nice cool air from the basement into the main floor during the summer our bill would plummet. I'd like some sort of two way fan in the subfloor that can pull air from the basement in the summer and pull air from the main floor in the summer to help even out the house. That makes sense in my head, yet I've never heard of anyone doing that, so it's either brilliant or stupid. Our thermostat is also placed for comfort instead of efficiency. It's in our great room, which is a kitchen/dining/living room with vaulted ceilings. I've been considering getting into some home automation to make things more efficient, but I'm not sure where to start. I think moving the thermostat to our bedroom could be a decent choice, but I'm not wise on all of that yet either. I'll take a gander throughout the forums/articles here and see if I can use some of those bits of wisdom/knowledge to drop it. That's the one bill I'd like to take a chunk out of myself.

Nords - Ah. That makes a lot of sense now because after looking into what you posted Roth TSP seems totally different than my Roth IRAs. I may drop it from my investment scheme since I will have enough for retirement post 59.5 with the current balances, even at a 5% gain per year! As it scales upward from there we will just end up far more than fine, 7% allows us a very nice inflation hedge, and more than that just gets silly.

Gin1984 - If I do not need any more money from my Roth/TSP accounts, should I still continue to do them? I think I understand your reasoning for the traditional to $20k post 59.5 as that's the rough amount I could withdraw and pay no/very low taxes on due to std deduction?

Yes, though based on Nords statement, I would recommend the traditional be the TSP and Roth be the IRAs.  But you do know you can pull out the contributions as long as it has been five taxes years for a Roth, right?  So any money you deposit in a Roth can be taken out BEFORE 59.5 yet the gains are all tax free which ends up meaning that you will have more money overall.

[cgc007]

Gin1984 - Ok then, based off of that information, my modified plan would be to continue to max my Roth IRAs, and contribute enough to a Traditional TSP to hit that $20k income/y post 59.5yo mark. Then when there is enough principle in the Roth IRAs to pay off the house (and still enough inside the account to retire happily on, obviously) we take that out and pay the house off, dropping our monthly requirements, and not hurting our retirement nest egg.

Basically, use the Roth IRAs to save the money in, instead of paying down a 2.75% interest loan, since I very likely will get far more than 3% on my growth.

Instead of paying down the mortgage early, continue to make the minimums and put the remainder of the money (other than Roth IRA and Trad TSP contributions) toward the vanguard accounts little_owl spoke of earlier to fund the gap between when I retire and when I turn 59.5yo.

Granted, I suppose at that point, I could just leave the money in the Roth IRAs and if I lose my job unexpectedly then pay off the house, if need be, or draw money out of them to live off of. I suppose there is no real mathematical reason to pay the house off early. We are not able to itemize currently, so keeping the mortgage for tax benefits isn't worth it. However, I think I'd feel better having a paid for house! Perhaps that's reason enough to do it. Though I do think doing it the way described above would definitely net us more money in the long run.

How much sense does that plan make?

[Gin1984]

Gin1984 - Ok then, based off of that information, my modified plan would be to continue to max my Roth IRAs, and contribute enough to a Traditional TSP to hit that $20k income/y post 59.5yo mark. Then when there is enough principle in the Roth IRAs to pay off the house (and still enough inside the account to retire happily on, obviously) we take that out and pay the house off, dropping our monthly requirements, and not hurting our retirement nest egg.

Basically, use the Roth IRAs to save the money in, instead of paying down a 2.75% interest loan, since I very likely will get far more than 3% on my growth.

Instead of paying down the mortgage early, continue to make the minimums and put the remainder of the money (other than Roth IRA and Trad TSP contributions) toward the vanguard accounts little_owl spoke of earlier to fund the gap between when I retire and when I turn 59.5yo.

Granted, I suppose at that point, I could just leave the money in the Roth IRAs and if I lose my job unexpectedly then pay off the house, if need be, or draw money out of them to live off of. I suppose there is no real mathematical reason to pay the house off early. We are not able to itemize currently, so keeping the mortgage for tax benefits isn't worth it. However, I think I'd feel better having a paid for house! Perhaps that's reason enough to do it. Though I do think doing it the way described above would definitely net us more money in the long run.

How much sense does that plan make?

Yes, but keep in mind that you can roll money from your traditionals to your Roth every year and after 5 taxes years, use that money prior to 59.5.  So, depending on when you retire you may want more in your traditional. 

[Mazzinator]

What my math is telling me, is that at the amount we have in retirement funds now, I can stop funding them completely, and attain a $55k/yr draw indefinitely once I turn 59.5 (I'm 31 currently).

Could you explain your math? I only say this because I think you may be off. You'd need about $1.4mil (at 4% swr) to get $55/yr (for 30 yrs) based off the Trinity study. At your current balance $70k at 5% compounding for 30 yrs (not adding anything) I'm coming up with more like $300k balance.

Of course, I could be totally wrong!! I do have "pregnancy brain" ;-)

[Jules13]

and don't put money in a 529 until ALL tax advantage accounts are maxed.  Money can be taken out of a Roth IRA for college expenses

Is a 529 not tax advantaged in the same way as a Roth, if you are using it for educational purposes?  Is there a max that you can withdraw from a Roth to use for education?  We have 2 Roths but also two 529 plans.  We are no longer maxing out the Roth, since I decided to max out the 401k first.  Wondering if we should funnel what is currently going into 529 into Roth instead to get it back up towards the max?

Is there a good link anywhere outlining all that or can someone clarify?  Thanks!

[cgc007]

What my math is telling me, is that at the amount we have in retirement funds now, I can stop funding them completely, and attain a $55k/yr draw indefinitely once I turn 59.5 (I'm 31 currently).

Could you explain your math? I only say this because I think you may be off. You'd need about $1.4mil (at 4% swr) to get $55/yr (for 30 yrs) based off the Trinity study. At your current balance $70k at 5% compounding for 30 yrs (not adding anything) I'm coming up with more like $300k balance.

Of course, I could be totally wrong!! I do have "pregnancy brain" ;-)

Sure.

I'm using $ 74393.24 compounding @ 5% for 30 years. I'm coming up with $55.5k per year at that point, with $1.3M in the bank. I personally believe 5% to be a low number, I prefer to use 7%, so at 7%, I am at $1.7M after 30y, with an income stream that adjusts for inflation a lot better.

If my math is wrong, please let me know! That would be an important problem to solve as soon as possible!

.... Well, part of the issue was I had hardcoded my age, so those numbers will be valid when I am 60, (still 30 years).

Anyhow, here's my chart: (@7% interest and a 3.2% withdrawal rate)

Code: [Select]

Date         Amount Retirement % Contribution Grade Age Investment Pay
6/11/2014 $75,202.20 0% $-    O-3 31 $-   
1/1/2015 $80,466.36 0% $-    O-3 32 $-   
1/1/2016 $86,099.00 0% $-    O-3 33 $-   
1/1/2017 $92,125.93 0% $-    O-3 34 $-   
1/1/2018 $98,574.75 0% $-    O-4 35 $-   
1/1/2019 $105,474.98 0% $-    O-4 36 $-   
1/1/2020 $112,858.23 0% $-    O-4 37 $-   
1/1/2021 $120,758.31 0% $-    O-4 38 $-   
1/1/2022 $129,211.39 0% $-    O-4 39 $-   
1/1/2023 $138,256.19 0% $-    O-4 40 $-   
1/1/2024 $147,934.12 0% $-    O-5 41 $-   
1/1/2025 $158,289.51 0% $-    O-5 42 $-   
1/1/2026 $169,369.77 0% $-    O-5 43 $-   
1/1/2027 $181,225.66 0% $-    O-5 44 $-   
1/1/2028 $244,443.45 0% $-    Retired! 45 $-   
1/1/2029 $312,086.49 50% $-    Retired! 46 $-   
1/1/2030 $384,464.55 50% $-    Retired! 47 $-   
1/1/2031 $461,909.07 50% $-    Retired! 48 $-   
1/1/2032 $544,774.70 50% $-    Retired! 49 $-   
1/1/2033 $633,440.93 50% $-    Retired! 50 $-   
1/1/2034 $728,313.80 50% $-    Retired! 51 $-   
1/1/2035 $829,827.76 50% $-    Retired! 52 $-   
1/1/2036 $938,447.70 50% $-    Retired! 53 $-   
1/1/2037 $1,054,671.04 50% $-    Retired! 54 $-   
1/1/2038 $1,179,030.02 50% $-    Retired! 55 $-   
1/1/2039 $1,312,094.12 50% $-    Retired! 56 $-   
1/1/2040 $1,454,472.71 50% $-    Retired! 57 $-   
1/1/2041 $1,606,817.80 50% $-    Retired! 58 $-   
1/1/2042 $1,667,876.87 50% $-    Retired! 59 $53,372.06
1/1/2043 $1,731,256.19 50% $-    Retired! 60 $55,400.20
1/1/2044 $1,797,043.93 50% $-    Retired! 61 $57,505.41
1/1/2045 $1,865,331.60 50% $-    Retired! 62 $59,690.61
1/1/2046 $1,936,214.20 50% $-    Retired! 63 $61,958.85
1/1/2047 $2,009,790.34 50% $-    Retired! 64 $64,313.29
1/1/2048 $2,086,162.37 50% $-    Retired! 65 $66,757.20
1/1/2049 $2,165,436.54 $-    Retired! 66 $69,293.97
1/1/2050 $2,247,723.13 $-    Retired! 67 $71,927.14
1/1/2051 $2,333,136.61 $-    Retired! 68 $74,660.37
1/1/2052 $2,421,795.80 $-    Retired! 69 $77,497.47
1/1/2053 $2,513,824.04 $-    Retired! 70 $80,442.37
1/1/2054 $2,609,349.35 $-    Retired! 71 $83,499.18
1/1/2055 $2,708,504.63 $-    Retired! 72 $86,672.15
1/1/2056 $2,811,427.81 $-    Retired! 73 $89,965.69
1/1/2057 $2,918,262.06 $-    Retired! 74 $93,384.39
1/1/2058 $3,029,156.02 $-    Retired! 75 $96,932.99
1/1/2059 $3,144,263.95 $-    Retired! 76 $100,616.45
1/1/2060 $3,263,745.98 $-    Retired! 77 $104,439.87
1/1/2061 $3,387,768.33 $-    Retired! 78 $108,408.59
1/1/2062 $3,516,503.52 $-    Retired! 79 $112,528.11
1/1/2063 $3,650,130.66 $-    Retired! 80 $116,804.18
1/1/2064 $3,788,835.62 $-    Retired! 81 $121,242.74
1/1/2065 $3,932,811.38 $-    Retired! 82 $125,849.96
1/1/2066 $4,082,258.21 $-    Retired! 83 $130,632.26
1/1/2067 $4,237,384.02 $-    Retired! 84 $135,596.29
1/1/2068 $4,398,404.61 $-    Retired! 85 $140,748.95
1/1/2069 $4,565,543.99 $-    Retired! 86 $146,097.41
1/1/2070 $4,739,034.66 $-    Retired! 87 $151,649.11
1/1/2071 $4,919,117.98 $-    Retired! 88 $157,411.78
1/1/2072 $5,106,044.46 $-    Retired! 89 $163,393.42
1/1/2073 $5,300,074.15 $-    Retired! 90 $169,602.37
1/1/2074 $5,501,476.97 $-    Retired! 91 $176,047.26
1/1/2075 $5,710,533.09 $-    Retired! 92 $182,737.06


[UlyssesG]

I'm having trouble with your spreadsheet.  I see the 7% compounding until age 45 and then it looks like you've continued the 7% but with an extra $50k or so added as well each year.  What is that representing?  Based on a basic 7% interest starting with 70k at age 30, I'd show your age 60 balance around $532k.

[Mazzinator]

What my math is telling me, is that at the amount we have in retirement funds now, I can stop funding them completely, and attain a $55k/yr draw indefinitely once I turn 59.5 (I'm 31 currently).

Could you explain your math? I only say this because I think you may be off. You'd need about $1.4mil (at 4% swr) to get $55/yr (for 30 yrs) based off the Trinity study. At your current balance $70k at 5% compounding for 30 yrs (not adding anything) I'm coming up with more like $300k balance.

Of course, I could be totally wrong!! I do have "pregnancy brain" ;-)

Sure.

I'm using $ 74393.24 compounding @ 5% for 30 years. I'm coming up with $55.5k per year at that point, with $1.3M in the bank. I personally believe 5% to be a low number, I prefer to use 7%, so at 7%, I am at $1.7M after 30y, with an income stream that adjusts for inflation a lot better.

If my math is wrong, please let me know! That would be an important problem to solve as soon as possible!

.... Well, part of the issue was I had hardcoded my age, so those numbers will be valid when I am 60, (still 30 years).

Anyhow, here's my chart: (@7% interest and a 3.2% withdrawal rate)

Code: [Select]

Date         Amount Retirement % Contribution Grade Age Investment Pay
6/11/2014 $75,202.20 0% $-    O-3 31 $-   
1/1/2015 $80,466.36 0% $-    O-3 32 $-   
1/1/2016 $86,099.00 0% $-    O-3 33 $-   
1/1/2017 $92,125.93 0% $-    O-3 34 $-   
1/1/2018 $98,574.75 0% $-    O-4 35 $-   
1/1/2019 $105,474.98 0% $-    O-4 36 $-   
1/1/2020 $112,858.23 0% $-    O-4 37 $-   
1/1/2021 $120,758.31 0% $-    O-4 38 $-   
1/1/2022 $129,211.39 0% $-    O-4 39 $-   
1/1/2023 $138,256.19 0% $-    O-4 40 $-   
1/1/2024 $147,934.12 0% $-    O-5 41 $-   
1/1/2025 $158,289.51 0% $-    O-5 42 $-   
1/1/2026 $169,369.77 0% $-    O-5 43 $-   
1/1/2027 $181,225.66 0% $-    O-5 44 $-   
1/1/2028 $244,443.45 0% $-    Retired! 45 $-   
1/1/2029 $312,086.49 50% $-    Retired! 46 $-   
1/1/2030 $384,464.55 50% $-    Retired! 47 $-   
1/1/2031 $461,909.07 50% $-    Retired! 48 $-   
1/1/2032 $544,774.70 50% $-    Retired! 49 $-   
1/1/2033 $633,440.93 50% $-    Retired! 50 $-   
1/1/2034 $728,313.80 50% $-    Retired! 51 $-   
1/1/2035 $829,827.76 50% $-    Retired! 52 $-   
1/1/2036 $938,447.70 50% $-    Retired! 53 $-   
1/1/2037 $1,054,671.04 50% $-    Retired! 54 $-   
1/1/2038 $1,179,030.02 50% $-    Retired! 55 $-   
1/1/2039 $1,312,094.12 50% $-    Retired! 56 $-   
1/1/2040 $1,454,472.71 50% $-    Retired! 57 $-   
1/1/2041 $1,606,817.80 50% $-    Retired! 58 $-   
1/1/2042 $1,667,876.87 50% $-    Retired! 59 $53,372.06
1/1/2043 $1,731,256.19 50% $-    Retired! 60 $55,400.20
1/1/2044 $1,797,043.93 50% $-    Retired! 61 $57,505.41
1/1/2045 $1,865,331.60 50% $-    Retired! 62 $59,690.61
1/1/2046 $1,936,214.20 50% $-    Retired! 63 $61,958.85
1/1/2047 $2,009,790.34 50% $-    Retired! 64 $64,313.29
1/1/2048 $2,086,162.37 50% $-    Retired! 65 $66,757.20
1/1/2049 $2,165,436.54 $-    Retired! 66 $69,293.97
1/1/2050 $2,247,723.13 $-    Retired! 67 $71,927.14
1/1/2051 $2,333,136.61 $-    Retired! 68 $74,660.37
1/1/2052 $2,421,795.80 $-    Retired! 69 $77,497.47
1/1/2053 $2,513,824.04 $-    Retired! 70 $80,442.37
1/1/2054 $2,609,349.35 $-    Retired! 71 $83,499.18
1/1/2055 $2,708,504.63 $-    Retired! 72 $86,672.15
1/1/2056 $2,811,427.81 $-    Retired! 73 $89,965.69
1/1/2057 $2,918,262.06 $-    Retired! 74 $93,384.39
1/1/2058 $3,029,156.02 $-    Retired! 75 $96,932.99
1/1/2059 $3,144,263.95 $-    Retired! 76 $100,616.45
1/1/2060 $3,263,745.98 $-    Retired! 77 $104,439.87
1/1/2061 $3,387,768.33 $-    Retired! 78 $108,408.59
1/1/2062 $3,516,503.52 $-    Retired! 79 $112,528.11
1/1/2063 $3,650,130.66 $-    Retired! 80 $116,804.18
1/1/2064 $3,788,835.62 $-    Retired! 81 $121,242.74
1/1/2065 $3,932,811.38 $-    Retired! 82 $125,849.96
1/1/2066 $4,082,258.21 $-    Retired! 83 $130,632.26
1/1/2067 $4,237,384.02 $-    Retired! 84 $135,596.29
1/1/2068 $4,398,404.61 $-    Retired! 85 $140,748.95
1/1/2069 $4,565,543.99 $-    Retired! 86 $146,097.41
1/1/2070 $4,739,034.66 $-    Retired! 87 $151,649.11
1/1/2071 $4,919,117.98 $-    Retired! 88 $157,411.78
1/1/2072 $5,106,044.46 $-    Retired! 89 $163,393.42
1/1/2073 $5,300,074.15 $-    Retired! 90 $169,602.37
1/1/2074 $5,501,476.97 $-    Retired! 91 $176,047.26
1/1/2075 $5,710,533.09 $-    Retired! 92 $182,737.06


Hmmm, hoping someone can chime in and help out...

I'm using a simple compounding interest calculator (maybe this is wrong???) but at $74k @ 7% compounding monthly for 30 years, i'm still coming up with ~$600k...

Please tell me i'm wrong??!!??

Do you have a link to your calculator?? It looks military related (my husband is in the army with 7yrs left)

Are you going to retire from the military and collect a pension??

[Gin1984]

and don't put money in a 529 until ALL tax advantage accounts are maxed.  Money can be taken out of a Roth IRA for college expenses

Is a 529 not tax advantaged in the same way as a Roth, if you are using it for educational purposes?  Is there a max that you can withdraw from a Roth to use for education?  We have 2 Roths but also two 529 plans.  We are no longer maxing out the Roth, since I decided to max out the 401k first.  Wondering if we should funnel what is currently going into 529 into Roth instead to get it back up towards the max?

Is there a good link anywhere outlining all that or can someone clarify?  Thanks!

Yes, but it counts against you on FAFSA and Roth IRA (or other retirement vehicle) do not.  And no, there is not a max. 

[cgc007]

Hmmm, hoping someone can chime in and help out...

I'm using a simple compounding interest calculator (maybe this is wrong???) but at $74k @ 7% compounding monthly for 30 years, i'm still coming up with ~$600k...

Please tell me i'm wrong??!!??

Do you have a link to your calculator?? It looks military related (my husband is in the army with 7yrs left)

Are you going to retire from the military and collect a pension??

Ooo. I did have a math error in my spreadsheet. It's fixed now. Thanks for catching it. It was adding in very large sums of money after I retired from the military for some reason (probably because I changed the original purpose of it to FIRE!)

Thanks for catching the error. Now it looks like I must continue to beef up my retirement investments for another 1.5yrs to be able to get to >$600k @ 60 (Need another $18k in contributions).

Going forward with my new plan, outlined above should also fix any other possible errors (not attaining 7% growth) in the future as well.

Thanks for the catch!

[Jules13]

Yes, but it counts against you on FAFSA and Roth IRA (or other retirement vehicle) do not.  And no, there is not a max. 

Wow...thanks.  I never would have thought of that.  I have another question, but I'll try to find elsewhere as not to hijack the thread.  Cheers.

[cgc007]

I'm having trouble with your spreadsheet.  I see the 7% compounding until age 45 and then it looks like you've continued the 7% but with an extra $50k or so added as well each year.  What is that representing?  Based on a basic 7% interest starting with 70k at age 30, I'd show your age 60 balance around $532k.

Yeah, it was adding my pension from the military in it, due to an error. I've fixed that now, and realized I need to contribute a bit longer to reach my goals.