Author Topic: Financial Game Plan = What to do next?  (Read 4186 times)

Silrossi46

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Financial Game Plan = What to do next?
« on: March 21, 2016, 10:06:09 AM »
So kind of a long time reader and not much of a poster but decided to post up financial information to kind of get some feedback on what others would be maybe doing differently or possibly hear others advice on what to be doing next from a financial / savings/ investing perspective.   

ME = 23 year government employee currently 45 YO .   Looking to retire at 55 MAX maybe sooner if possible.  current salary 112,000 / year.    At 55 = Projected Defined benefit pension after 30 years of service = 6500/ month (medical included)
Side hustle 1 =   consulting IT related =   12,000 / year
Side hustle 2 =  Auto related               =   20,000/ year 
total = 144,000 / year

SOUSE =   71,000 / year  = 46 YO =   Pharmaceutical Work.  Has small pension of 1100 a month ( at 60) coming from a frozen pension at another company

TOTAL household income =  215,000    ( 1 child 19 YO currently attending College.  529 fully funded for remaining 3 years)
household budget total is 4500/month  (included ALL spending)

Right now we are living in a 4 bedroom home in the north east.  Very high COLA.  Home value 450,000$  Property Taxes 12k/year and climbing

We have ZERO mortgage ZERO credit cards ZERO debt of any kind cars paid for no loans.  We are both in good health as of now dont smoke or drink (but you never know on this one)   

 Current retirement accounts are maxed as follows
401K  = maxed=   535,000 balance  (hopefully a million at age 55)
457B (government) = maxed and at 230,000 balance  (hopefully 500K at age 55)  (no match here)
Pension 1 (me)  = projected to be 6500/month (medical included)  3800/month if i bail out at 50 (medical included)
Pension 2 (spouse) = 1100/ month ( at 60)

Savings = Currently just sitting in Ally bank account 175,000

We are currently saving 3500/ month of our take home pay.  As our savings grows i am pondering what investment i will make next and or what it would/ could be?   Possibilities include Investing in some real estate rental maybe?  I am handy and probably could make it work but realize that this would also mean trading more time for money.  Also possibly investing in a home flip?   but again trading time for money.   Secondly, we could invest in the market say opening up a  Vanguard account and jumping in right at a market correction to a good low cost index fund?    I could also buy into a business related to side hustle number 2 as i really enjoy this type of work.   

What would you do as a next step ????????   I'd love to hear others feedback on this...........

Mother Fussbudget

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Re: Financial Game Plan = What to do next?
« Reply #1 on: March 21, 2016, 11:29:58 AM »
You're looking really good financially!  I would not wait for a market correction - what if it turns out we're at the start of a bull market?
That $175K in the bank is losing 2% per year via inflation, and is the only number I see that 's concerning. 
Since you're interested in real estate, but not so much that it would take too much time, have you considered buying a REIT such as SNH - Senior Housing Properties Trust?   SNH has dividend yields of 9.03% annually.  (See Become a Lazy Landlord with REITS)

Doing a little math with just the $175K, plus $3500/month (for 5 years - assuming a retirement at 50)...

Today's numbers:
Annual budget:  $54,000
25x needed to FIRE:  $1,350,000 (assumes 4% SWR)
Saved-to-date:    $940,000
Needed:  $410,000

Future case if $175K + annual savings invested at 9.03%
   Annual Savings   Total after tax   +REIT yield (9.03%)
Year 1    $42,000.00     $217,000.00     $236,595.10
Year 2    $42,000.00     $278,595.10     $303,752.24
Year 3    $42,000.00     $345,752.24     $376,973.66
Year 4    $42,000.00     $418,973.66     $456,806.99
Year 5    $42,000.00     $498,806.99     $543,849.26

This would be enough to retire on in 5 years WITHOUT INCLUDING your pension amounts.  Don't wait TOO LONG to pull the trigger on FIRE / retirement / your long sabbatical.   Do you know how much the pension amount would be if you retire BEFORE reaching 50?

boarder42

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Re: Financial Game Plan = What to do next?
« Reply #2 on: March 21, 2016, 11:35:20 AM »
You're looking really good financially!  I would not wait for a market correction - what if it turns out we're at the start of a bull market?
That $175K in the bank is losing 2% per year via inflation, and is the only number I see that 's concerning. 
Since you're interested in real estate, but not so much that it would take too much time, have you considered buying a REIT such as SNH - Senior Housing Properties Trust?   SNH has dividend yields of 9.03% annually.  (See Become a Lazy Landlord with REITS)

Doing a little math with just the $175K, plus $3500/month (for 5 years - assuming a retirement at 50)...

Today's numbers:
Annual budget:  $54,000
25x needed to FIRE:  $1,350,000 (assumes 4% SWR)
Saved-to-date:    $940,000
Needed:  $410,000

Future case if $175K + annual savings invested at 9.03%
   Annual Savings   Total after tax   +REIT yield (9.03%)
Year 1    $42,000.00     $217,000.00     $236,595.10
Year 2    $42,000.00     $278,595.10     $303,752.24
Year 3    $42,000.00     $345,752.24     $376,973.66
Year 4    $42,000.00     $418,973.66     $456,806.99
Year 5    $42,000.00     $498,806.99     $543,849.26

This would be enough to retire on in 5 years WITHOUT INCLUDING your pension amounts.  Don't wait TOO LONG to pull the trigger on FIRE / retirement / your long sabbatical.   Do you know how much the pension amount would be if you retire BEFORE reaching 50?

You're missing the pensions with that math.  in 7 years they will be receiving 2k more per month than they currently spend. 

I would be looking to cut my hours at my job over the next 7 years to the minimum amount to still receive a pension.  Is there a pension you can get at 45 if so you can likely quit now. 

Silrossi46

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Re: Financial Game Plan = What to do next?
« Reply #3 on: March 21, 2016, 12:19:00 PM »
Than you so much for the initial responses.   

Mother =  thank you for the analysis and the answer to the pension question is that I need to wait till age 49 to get medical benefits included as part of my pension.  I just rounded up to 50 to make it simple.   I will definitely look into the REIT information as that sounds like a possibility for us.   

boarder = thank you for the insight as well.  There is unfortunately not a way for me to scale down.   I am in a high stress IT environment.  If anything it is scaling up which is not making me a happy camper!   


boarder42

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Re: Financial Game Plan = What to do next?
« Reply #4 on: March 21, 2016, 12:25:04 PM »
Than you so much for the initial responses.   

Mother =  thank you for the analysis and the answer to the pension question is that I need to wait till age 49 to get medical benefits included as part of my pension.  I just rounded up to 50 to make it simple.   I will definitely look into the REIT information as that sounds like a possibility for us.   

boarder = thank you for the insight as well.  There is unfortunately not a way for me to scale down.   I am in a high stress IT environment.  If anything it is scaling up which is not making me a happy camper!   

if i were in your shoes i'd be looking to move to a position (even with less pay) inside the govt where you can scale back your work and maintain even half that pension.  or start talking to people about buyouts etc.  b/c you're way past FI when you account for those pensions.

Mother Fussbudget

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Re: Financial Game Plan = What to do next?
« Reply #5 on: March 21, 2016, 01:23:13 PM »
if i were in your shoes i'd be looking to move to a position (even with less pay) inside the govt where you can scale back your work and maintain even half that pension.  or start talking to people about buyouts etc.  b/c you're way past FI when you account for those pensions.

+1 to this.  Also, I'm not sure about your side gigs, and whether or not you'd like to continue them into FI.
Try to get an estimate of what the monthly pension payout will be at 49 or 50. 
Another thing - keep in mind the dividends on those REIT investments can be considered/taxed as regular income if put in a standard investment account.

Have you started a backdoor Roth IRA (and a 'source' T-IRA account)?  Start putting $11K/year of that $175K into the Roth IRA ladder pipeline  beginning with $11K maximum contribution for 2015 AND your $11K max for the 2016 tax year (you can do this before April 15th, after which you can only contribute for 2016).

Something along the lines of:  Create both accounts.  Contribute max to tIRA. "Convert" immediately to Roth IRA.  Do this every year for the next 5 years.  (invest as you see fit, naturally)  After 5 years, withdraw the first year's $11K tax & penalty free.  Lather, rinse, repeat.   After FIRE, consider 'converting' up to the amount needed to match your annual budget requirements after pension.

Once FIRE'd, rollover the 401K into the tIRA, and convert to Roth as needed.  At 59-1/2, we enter the 'tax free zone' where for 10 years you can withdraw / convert from both accounts with no penalties, and the maximum tax benefit.  Ten years later at age 70, tIRA required minimum distributions kick in.

Silrossi46

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Re: Financial Game Plan = What to do next?
« Reply #6 on: March 21, 2016, 04:44:15 PM »
The pension at 50 will be roughly 4000/month (give or take couple hundred either way depending on raises)  no cola with medical included.   

I would definitely continue the Auto side hustle as I can probably ramp it up a bit and make some more there.   

Thank you for the info on the back door Roth I will certainly look into this and educate myself more on that option quickly especially keeping those deadline dates in mind for this year and the year that has passed.

I suppose this is the smarter play for me as my taxable income in retirement or semi retirement will be still fairly high and in this sense the roth makes more sense for me.   

boarder42

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Re: Financial Game Plan = What to do next?
« Reply #7 on: March 21, 2016, 07:25:54 PM »
You should retire at 50. That's such an easy choice

Silrossi46

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Re: Financial Game Plan = What to do next?
« Reply #8 on: March 21, 2016, 07:51:21 PM »
boarder  =  that's what I am leaning towards.   I just need to make sure that I have my exit strategy planned out in advance before I leave the grind.   I am a type A personality and need to have my hands in many things to fulfill my days.   That being said if those THINGS are not tied to the slavery of bosses, meetings, office politics, ect  and are actually things that I enjoy I think that would be the way to go for me.   

The insights gained here on these boards are priceless imho and it's nice to see folks with like minded attitudes helping others for sure........

johndoe

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Re: Financial Game Plan = What to do next?
« Reply #9 on: March 21, 2016, 08:32:17 PM »
Is your pension based upon the time when your salary was highest?  Or your ending salary?  If the former, would you consider a lower-paying position your last few years to avoid the "slavery of bosses, meetings, office politics" of your current position?

mxt0133

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Re: Financial Game Plan = What to do next?
« Reply #10 on: March 21, 2016, 08:34:11 PM »
Income wise you are golden.  Expense wise you could optimize a bit, but with your level of income and financial discipline I get that there is little motivation to do so. 

One thing that seems to have been left out of the equation is a 4 bedroom house with 12k in taxes plus utilities and maintenance probably eats up 30% of your current yearly expenses.  Any chance of downsizing or renting it out?  If you could cut your expenses down to 35k a year you are already more than FI.  If you still want to stay for the medical insurance, then let your wife quit if she want' and you can find a less demanding role to focus more on hobbies and side gigs that give you the pride of work without the office BS.

With your pensions and ACA I don't see why you would stay for the health insurance.  Again if you can get your expenses down a bit you can get gold plated health insurance and still have enough to last you a lifetime.  Have you taken social security into account as well?

You don't sound like the type that wouldn't be able to generate enough income on a part-time basis to let your stash grow.  Honestly your biggest problems will be how to minimize all the taxes you are going to pay when you and your wife are officially retired.

Silrossi46

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Re: Financial Game Plan = What to do next?
« Reply #11 on: March 22, 2016, 06:46:21 AM »
johndoe=  pension is based on average of highest 3 years.  I might consider it however i would have to leave the office i am in for sure where i am the Director and go to another office  (engineering per say)   I am an engineer/ IT professional with both structural engineering background and IT background attained over the years through re education and certifications.   

MXT = i was waiting for someone to pick up on the fact that i live in a VERY high COLa area.   Taxes are very high here and thats also a possible consideration.   Problem is i have set up my house/garage set up for my needs.   I have a 3 car 700SQ foot garage thats heated and well lit for me to do many of the things required by side hustle #2.   This would be gone if i moved or rented it out unless i found the same scenario elsewhere.  This is what is holding me back on this one.   

you also make a good point about cutting expenses.  Currently, part of that 4500 a month monthly budget includes the following

Lawn care = 200/month
Home cleaning = 140/month (2 times a month) 
Vacation = 400/month
Holiday/xmass = 250 / month

before i get flamed let me explain the reasoning behind these.   Lawn care and home cleaning is once of those things that allow me to continue my side hustle.   It becomes a "what is your time worth" analysis in my mind.   I/we can spend our time being much more productive and making way more money than these services cost.  Also  i have had the same cleaning people for 15 years and they have never raised the price one time.  70$ a visit to clean a 4 bedroom home with 3 full bathrooms is a gift in my mind.   Now if i was not working the full time job any longer i suppose that could change.   The vacation will stay and i don't think 5000 a year is over the top for a good fun vacation or 2 yearly.  I suppose the holiday fund is up for discussion since some could argue what are you gifting that cost 3000 a year at holiday time.   If anyone else budgets for this i'm sure they can chime in as this stuff adds up pretty fast with a big family.  I do have a ridiculous 233/ month cable/ internet bill that makes me cringe every time i look at it but that one isn't worth the fight in my household imho.     

I welcome anyone else's feedback on all this.     

boarder42

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Re: Financial Game Plan = What to do next?
« Reply #12 on: March 22, 2016, 07:09:43 AM »
you should look into travel hacking my wife and i just did 10 days in hawaii we "splurged" and went scuba diving = 320, ate all our meals out =500, sunset dinner cruise = 120, whale watch 100, gas a wash with home.  everything else covered for free with travel hacking.  including an expensive dinner. 

and we stayed at:

Waldorf Astoria - Grand wailea
Sheraton Kaanapali
Hyatt Grand - kaanapali

Rented a Jeep for 10 days.

flew first class on american airlines.

and this was a splurge vacation for us,  we could have easily kept that all under 2-300 bucks for food if we really wanted to instead 1000 bucks for 10 days for 2 people in hawaii.

Silrossi46

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Re: Financial Game Plan = What to do next?
« Reply #13 on: March 22, 2016, 08:03:33 AM »
wow that certainly seems like you extracted a ton of value out of that experience for sure.   Very impressive.