Author Topic: Reader case study - retirement-heavy savings, no F-you money  (Read 4007 times)

wkf

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Reader case study - retirement-heavy savings, no F-you money
« on: December 01, 2013, 10:17:06 PM »
Married, mid-40s, with two kids (15 and 13).

Income:  $135,000 for me, $45,000 for her, though her take-home is only $1500 a month due to (modest) private-school tuition coming out of her private-school paycheck.

Expenses:  $55,000 annually, including:
   * $1,200 for DirecTV (I know; soon to be cancelled)
   * approximately $12,000 for food--working on
   * $2,000 for alcohol, also working on
   * $2,000 for restaurants, about half for work lunches, half for dinner for wife and kids between school and sports
   * $8,500 for two car loans, one at 4.9% interest, paid off in two years, the other at 0%, paid off in four years (more on this below)
   * $6,400 for gas and $500 for tolls (again, more on this below)
   * $3,200 for cell / phone / Internet
   * $1,500 for electricity (including pool pump)
   * $1,000 or so for propane (stove, hot water heater, and some supplemental heating)
   * Most of the rest for family vacations (car camping / backpacking trips to see this great country of ours), medical expenses, and relatively modest entertainment expenses
      (Netflix, sports for the kids, etc.)

Investing:
   * $30,000 in 401(k) and 459 plans (I'm eligible for both, thanks to a quirk in the law)
   * $7,400 in a SEP-IRA including employer match
   * $9,600 in 529 plan
   * $4,500 in taxable accounts, intended for college

Assets:
   * $940,000 in investments; $17,000 in 529 plans, $168,000 in taxable accounts (again, primarily intended for college), and the remainder in a variety of tax-advantaged
      retirement accounts that we obviously don't want to touch for another 12-15 years
   * bank accounts typically have just enough cash to pay off the monthly credit card bills, which are paid in full every month

Liabilities:
   * car loans

Here's the rub--several of them:
   * We live mortgage-free on a long-held family farm, more or less in the middle of nowhere.  Which is part of what makes it so nice, along with the fact that we heat
      primarily with firewood cut from the farm and split by myself, weekends are great with the peace and quiet, and we have lots of opportunity to make money off
      of the land (though we've taken no real steps towards that yet).  Unfortunately, there are not many jobs nearby.  Hence, I commute 55 miles one-way for my job,
      and my wife commutes (taking the kids to school) 25 miles in the other direction.  The house is fantastic, the school is fantastic; my job, not so much at this point.

   * My job had been incredibly secure until last week, when I came very close to being let go, and it's not clear how the next 12 months will go.  I have realized I have
      very little fuck you money--not enough to feel comfortable with two kids and our expenses at the level they're at.  Obviously, if worse came to worst, we'd save more
      than half of our gas expenses immediately (and associated savings, including tolls and car insurance), and I'd get about 20% - 25% of my salary (pre-tax) as severance.
      And we have the taxable investments, which, again, were intended for college for the kids.  Setting aside the investments, we could make it 12 months without too much
      difficulty (probably including paying off the 4.9% car loan, if not selling the car, though health benefits through her employer are not as good as through mine)...but...

   * To complicate matters, I have eight more years until I get a ~$60,000 defined benefit pension at the age of 53.  I could most likely get a job with a related employer,
      at a somewhat significant pay cut (which wouldn't be a huge concern) that would still qualify me for the pension, though there's absolutely no guarantee.  If I cannot,
      I would receive a pension of about $40,000 at 62.  The pension was going to tide us over, along with my picking and choosing part-time consulting work, until 59 1/2
      when the retirement savings would kick in.

I am not happy with recent developments at work, but I am where I am.  I have given thought to resigning, but the paucity of f-you money, the pension, and kids
approaching college have held me back.   I would very much like to give the kids a large head start on their college expenses, if they decide not to get welding training
(we have the equipment on the farm) and go to North Dakota to pull down $75,l000 at 18.  Moving is conceivable, but very, very far down the list of reasonable options.

I've been reviewing our expenses, and figure I can pretty quickly and easily cut back about $500 a month (mostly the DirecTV, cell phones (hello, $10 plans!), and car
insurance (GEICO is almost $400 cheaper annually than Progressive--quite a turnaround from a few years ago).  But, over the next 12 months, that won't add substantially
to my f-you 'stache.  Won't hurt, though.

I'd come across Mr. Money Mustache a few months ago, thought it was interesting, and largely in line with my philosophy (though a bit more hard-core).  After the last week,
however, I have become very attracted to the thought of improving myself, my health, living off of the land and taking care of the house while the wife is keeping any eye
on the kids' education and earning some money.  But, see two paragraphs above.

So, suggestions?

Zamboni

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Re: Reader case study - retirement-heavy savings, no F-you money
« Reply #1 on: December 01, 2013, 10:38:39 PM »
If you have a Roth IRA in place you can start a Roth pipeline now.  Some explanation:
http://www.mrmoneymustache.com/forum/ask-a-mustachian/help-me-understand-the-roth-conversion-pipeline-idea-and-its-benefits/

You are on the edge of being able to contribute to a Roth this year, so it depends on if you make more or less than what you cite.
http://www.irs.gov/Retirement-Plans/Amount-of-Roth-IRA-Contributions-That-You-Can-Make-For-2013

What you have in taxable accounts should cover you easily for 5 years until you get the Roth pipeline going.

Quote
I've been reviewing our expenses, and figure I can pretty quickly and easily cut back about $500 a month (mostly the DirecTV, cell phones (hello, $10 plans!), and car
insurance (GEICO is almost $400 cheaper annually than Progressive--quite a turnaround from a few years ago).  But, over the next 12 months, that won't add substantially
to my f-you 'stache.  Won't hurt, though.

I vote for making those changes in any case.  Why keep flushing that money?

Think about all the gas money you'll be saving by ditching that commute (not to mention the TIME it takes.)

lhamo

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Re: Reader case study - retirement-heavy savings, no F-you money
« Reply #2 on: December 02, 2013, 02:57:04 AM »
What are the money-making opportunities with your land?  Can you start focusing some serious attention/energy on those as an alternative to taking a desk job if the current gig gives up the ghost?

While I admire your desire to fund college for your kids, the reality is that you have a very decent fall-back position in the event you do lose your current job, so I wouldn't worry too much.  Having a lower income would be good in terms of the kids qualifying for more financial aid.   

There is certainly lots of fluff to cut to bring the monthly spending down.  The $2000 on alcohol and $2000 on restaurants seem excessive -- your portion of those totals should go to $0 or close to it as soon as possible.  Can you stop using the pool without damaging it?  Not sure how that kind of thing works.  Phones, insurance, non-necessary travel can all be cut back. 

Good luck figuring things out and hope you can find a way to ditch the miserable job and make the money you need to live on (and then some) off your land.  SOunds like a potential dude ranch/B&B type situation.  Or wilderness camp for teens, maybe?  Liability issues for that would probably be prohibitive, but would be fun to explore the options.

chasesfish

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Re: Reader case study - retirement-heavy savings, no F-you money
« Reply #3 on: December 02, 2013, 04:31:30 AM »
Ummm...

I think you already have f-u money.  $1.1mil in investments (albiet heavy taxable), a free and clear mortgage, and a spouse who brings home $1500 on top of your kids private school.  If you can get your expenses down to the $50,000/year range, you're in great shape.  This is before exploring what you would do post-real job that could bring in income. 

You need to explore the roth pipeline or 72t quickly, then have a conversation with your wife about how she would feel if you stopped working.  Also consider just how much you're willing to contribute towards college for your kids (I don't have an opinion here, but it is a large expense)

http://www.bankrate.com/calculators/retirement/72-t-calculator.aspx

Oh, pay off that damn car loan at 4.9%.  Guaranteed, tax free rate of return.

Another Reader

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Re: Reader case study - retirement-heavy savings, no F-you money
« Reply #4 on: December 02, 2013, 07:54:57 AM »
If you mean 457 plan instead of 459, then you have a wonderful option available to you.  My assumption with a 401 (k) and a 457 plan, is that you work for a non-government non profit employer, such as a hospital.  As long as your employer is financially healthy, in your shoes, I would max out the 457 plan.  The beauty of the 457 plan is that it is a deferred compensation plan, not a qualified retirement plan.  Once you separate from your employer, the money may be taken out without paying a penalty, just the income tax.  Check into the options for post-employment withdrawals from your plan.

Maxing out the 457 and the 401 (k) ($35,000) may drop your income to the point where you can fund both Roth IRA's at the maximum amount.  Contributions to Roths can be withdrawn without tax or penalty.

Kids can fund their own education to some extent.  Less income because of maximum retirement contributions will likely help with financial aid.  If you retire before college starts, they may get more aid. 

Your expenses are ridiculous, especially given the lack of job security.  You have a job emergency and they should be cut dramatically.

Work up an income plan that involves the 457 payout and Roth contributions until you collect the smaller pension.  It is not unusual for companies to fire or lay off employees shortly before they become eligible for enhanced pension benefits.  In your shoes, I would assume the lower, later pension.  Will you both be eligible for Social Security?  Once you see your probable income on paper, your choices will become clear.

SunshineGirl

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Re: Reader case study - retirement-heavy savings, no F-you money
« Reply #5 on: December 02, 2013, 09:54:41 AM »
You could pay for your kids' college using your retirement money without penalty. You'd just pay your normal tax rate on it. I have this in mind myself, because I want to deplete that account before retirement. If you're unemployed or have a very low tax rate at the time, the tax rate would be very low.

I, too, would look to see how you can earn income off your land. If nothing else, start by studying what sort of tax benefits are available for farming. I had some doctor friends who were hellbent on buying a farm due to the tax benefits...can't remember any particulars.

Could you run a "glampground?" (luxury camping). An Air BnB unit? An orchard?

fodder69

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Re: Reader case study - retirement-heavy savings, no F-you money
« Reply #6 on: December 05, 2013, 09:50:58 AM »
Sounds like you are in a really good situation frankly. The job thing does suck including that commute. The cell phone bill is crazy and DirectTV is definitely too high. The car loans seem low enough that with your salary there is definitely no reason you can't pay off the one with interest very quickly. The 0% interest one is not a huge concern but I'd still pay it off just 'cause.

I'd say between your pension and your retirement savings you are set for your post 59.5 years. I'd recommend trying to put as much as possible into your taxable assets at this point (after paying off the car loan of course!).

Your expenses don't seem too bad really, do what you can to cut down on food and beverage and I'd look for ways to cut electric and propane (good suggestions here).