Author Topic: I'm a bit late to MMM party.  (Read 2444 times)

politenessman

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I'm a bit late to MMM party.
« on: May 07, 2018, 05:23:58 PM »
My wife and I are in our early 50s. In the past, we've not made the best of choices but have always made good money, until the crash of 2008 which wiped out my career and pushed us into bancruptcy. We did eventually recover; I retrained myself at quite a low cost, and now work in IT as a network engineer, my wife is in internet analytics. I pull about $90k/yr and she pulls $150k/yr

About a year or so ago we made the decision to downsize, focus on retirement and get healthy, as we are couch potatoes. So how are we doing?

We shed almost $400k in debt so far by taking care of the high interest debts, student loans, snowballing and selling our almost 4000 sqr ft house (we are empty nesters and don't need that much space.) eliminating SUVs and getting a small car.

In terms of debt, we have $15k in the car loan and that will be gone in the next 4 months.
We are both maxing out our 401K contributions (our earnings basically dictate that we do this for tax reasons.)
We moved to Colorado (by sheer coincidents, to MMM's hometown) and our healthier lifestyle is working. Weight and blood pressure is going down!

We are working our way to frugality - the car gives good gas mileage, no SUVs here. We also only use it once per week and combine all of our trips. We don't tend to spend frivolously but I suspect we have more going out than we should, especially in terms of rent (~$1950 MRC). However we both work from home so we have zero commute. This also helps us eat better as we can prep all our own meals and not rely on the drive through etc.

I discovered MMM about 4 weeks ago so I am still very much a noob, probably need a few face punches, but I throw myself at the mercy of the forum.

My #1 concern now is that once the debt is eliminated (September), I want to purchase a small home but I also want to save for as early a retirement as possible. These two seem to be at odds with each other, mostly due to our ages.

From what I can see, I will take about 24 months to save a decent deposit, and then another 3-4 years to beat the mortgage to nothing. By this time I will be 58. This doesn't give me much time, so what is the wisdom of the forum. I am guessing I can't be the only one in this position.

nereo

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Re: I'm a bit late to MMM party.
« Reply #1 on: May 07, 2018, 05:33:11 PM »
Welcome. 
It sounds like you have seen the light and have made some amazing progress so far.  Congrats on that.

Regarding the 'save-vs-buy-a-home' question, the first thing I would do is determine whether buying is right for you in your particular market.  Often, it isn't.  Try using this calculator:
https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=1&abt=0002&abg=0

Once you have figured out whether you are going to buy a home or not, I'd carefully consider this investment order.  At the very least you want to have an ER fund to your satisfaction (#0) and pay off any high interest debt.  You'll probably want to take advantage of any tax-advantaged accounts you can before saving for a down payment, though at your income those might be limited.
https://forum.mrmoneymustache.com/investor-alley/investment-order/

I'm also a bit curious about the purchase price of a home in your area.  With your income you ought to be able to save a few thousand $k/month if you really commit. Taking 24 months to save up for a down payment with ~$200k in income suggests you either are still spending quite a bit and/or home prices in your area are extremely high (>>$500k). In most cases you only need 20% to avoid PMI (sometimes less).  What is your target?

politenessman

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Re: I'm a bit late to MMM party.
« Reply #2 on: May 07, 2018, 07:17:33 PM »
I have indeed seen the light but perhaps a little too late - now its really damage control and doing the best we can until retirement, when ever that may be.

I took a look at the rent vs buy page you referenced and it does indicate that I should buy.
With regards your other questions, we have an emergency fund (I assume that what ER stands for). Currently that stands at $10k but later on I would like to add another $5K to it if I can.

All high interest debt is gone. The final piece of debt left is a small car loan that I should have paid off by September or so.
Both my wife and I fully fund our 401Ks. This helps reduce our tax burden, but leaves us with a monthly take home of about $9500.

As for the math on the house - typical small house here runs anywhere from $295k on upward, but to be realistic, I think I am looking at about $350k. I figure a 20% deposit minimum, but saving for that doesn't start until the car is paid off (around Sept) so I am looking at the remainder of 2018 and all of 2019 to save the deposit at a rate of about 4.5K/mth (about 15 months).

Our spending is higher than most here would recommend, at about 4500-5000 month including rent. We are working on that.
I'll also take a look at the investment order page - I hadn't seen that one yet and it does look interesting.

Miss Piggy

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Re: I'm a bit late to MMM party.
« Reply #3 on: May 07, 2018, 07:35:06 PM »
Nope - you're not too late. You're right on time! Great progress so far. You've really come a long way.

former player

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Re: I'm a bit late to MMM party.
« Reply #4 on: May 07, 2018, 07:51:05 PM »
Given that you need somewhere to live and will need to pay for it through capital, mortgage payments or rent, buying shouldn't make any difference to your retirement date, provided 1) the maths says that buying is financially advantageous/neutral as against renting and 2) you don't spend more on buying than the point at which buying is financially advantageous/neutral in relation to renting.

I suspect that the second point is the one at issue: the temptation to upgrade over the accommodation that you would be renting.  You've already overbought at least once: try not to do it again.  Overbuying is not just about square feet.

nereo

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Re: I'm a bit late to MMM party.
« Reply #5 on: May 08, 2018, 05:39:22 AM »
I have indeed seen the light but perhaps a little too late - now its really damage control and doing the best we can until retirement, when ever that may be.

I took a look at the rent vs buy page you referenced and it does indicate that I should buy.
With regards your other questions, we have an emergency fund (I assume that what ER stands for). Currently that stands at $10k but later on I would like to add another $5K to it if I can.

All high interest debt is gone. The final piece of debt left is a small car loan that I should have paid off by September or so.
Both my wife and I fully fund our 401Ks. This helps reduce our tax burden, but leaves us with a monthly take home of about $9500.

As for the math on the house - typical small house here runs anywhere from $295k on upward, but to be realistic, I think I am looking at about $350k. I figure a 20% deposit minimum, but saving for that doesn't start until the car is paid off (around Sept) so I am looking at the remainder of 2018 and all of 2019 to save the deposit at a rate of about 4.5K/mth (about 15 months).

Our spending is higher than most here would recommend, at about 4500-5000 month including rent. We are working on that.
I'll also take a look at the investment order page - I hadn't seen that one yet and it does look interesting.

At this point if you are looking for detailed advice a full case study is your best bet.  Be aware that posters will point out the obvious money drains and give you some face punches for your decisions thus-far.  Instructions can be found here. 

You certainly have the income and have made great strides in reducing/eliminating debt to reach a happy retirement fairly quickly.  You have not mentioned what assets you have already (e.g. 401k balances, savings).

You are looking at 60-70k for a down payment on a home.  Currently you spend $4500-5000/mo.  Normally that would suggest you'd need ~$1.3MM to $1.5MM to retire early (RE), but things are likely far less for you; you are older and closer to drawing SS, which could provide you with a good chunk of your retirement income.  If that $4500-5000 includes rent or housing that expense could go away as you pay off your mortgage.    For every $1k/mo in expenses you shed, you need $300,000 less in assets to retire early.

g'luck.

pecunia

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Re: I'm a bit late to MMM party.
« Reply #6 on: May 08, 2018, 06:19:06 AM »
Quote
We moved to Colorado (by sheer coincidents, to MMM's hometown) and our healthier lifestyle is working. Weight and blood pressure is going down!

This impressed me.  I guess when you watch your money closely there is less junk food and beer.  I guess the MMM lifestyle has other than fiduciary rewards.  Mr. Mustache is saying to use a bicycle which is good for the cardiovascular system.  Thanks for your example. 

politenessman

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Re: I'm a bit late to MMM party.
« Reply #7 on: May 08, 2018, 06:23:00 AM »
Quote
We moved to Colorado (by sheer coincidents, to MMM's hometown) and our healthier lifestyle is working. Weight and blood pressure is going down!

This impressed me.  I guess when you watch your money closely there is less junk food and beer.  I guess the MMM lifestyle has other than fiduciary rewards.  Mr. Mustache is saying to use a bicycle which is good for the cardiovascular system.  Thanks for your example.

Thanks you! As we both now work from home 100%, we are able to focus on more exercise, and preparing the right foods for us. I am pre-diabetic so eating right can make a huge difference to my health. As far as the exercise goes though, its only been a few weeks and we don't have our bikes yet, but they are on the list of things we need to do.

politenessman

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Re: I'm a bit late to MMM party.
« Reply #8 on: May 08, 2018, 06:26:18 AM »
-- snip --

At this point if you are looking for detailed advice a full case study is your best bet.  Be aware that posters will point out the obvious money drains and give you some face punches for your decisions thus-far.  Instructions can be found here. 

You certainly have the income and have made great strides in reducing/eliminating debt to reach a happy retirement fairly quickly.  You have not mentioned what assets you have already (e.g. 401k balances, savings).

You are looking at 60-70k for a down payment on a home.  Currently you spend $4500-5000/mo.  Normally that would suggest you'd need ~$1.3MM to $1.5MM to retire early (RE), but things are likely far less for you; you are older and closer to drawing SS, which could provide you with a good chunk of your retirement income.  If that $4500-5000 includes rent or housing that expense could go away as you pay off your mortgage.    For every $1k/mo in expenses you shed, you need $300,000 less in assets to retire early.

g'luck.
Thank you, I will look at the case study and perhaps put one together.
Our assets are a mix of 401k and some old IRAs which total about $300k
We also have an (almost) paid off car.
... and that is about it.

nereo

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Re: I'm a bit late to MMM party.
« Reply #9 on: May 08, 2018, 06:36:53 AM »
Thank you, I will look at the case study and perhaps put one together.
Our assets are a mix of 401k and some old IRAs which total about $300k
We also have an (almost) paid off car.
... and that is about it.

That's a really solid place to start, particularly since you have eliminated almost all of your other debt.
Depending on how dedicated you want to be to the goal at hand (namely reaching enough assets to be FI or flat out 'retired') you have the potential of getting there in just a few years.  THis would require dropping your monthly expenses considerably.  Alternatively, some back-of-the-envelope calculations show you could have well over $1MM saved in 10 years if you continue with your current plan of saving ~$5k/month and spending ~$5k/month (and slightly below-average market gains). With SS on the horizon for both of you that could put you solidly in the 'safe to retire' zone.

How fast and how secure you want to approach this is up to you.  I'd emphasize that there are big advantages to reducing expenses and increasing physical activity/self-dependence beyond just the bottom $ line.  You already seem to be enjoying some of those benefits with your better health and lower bloodpressure.


Laura33

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Re: I'm a bit late to MMM party.
« Reply #10 on: May 08, 2018, 07:08:12 AM »
For every $1k/mo in expenses you shed, you need $300,000 less in assets to retire early.

This x 1000.  If you take nothing from this post, remember this.  The most effective way to put yourself in a great financial position as quickly as possible is to cut your expenses, because it both gives you more money to save and reduces the size of the pot you need.

Personally, I multiply everything by 25:  if I want to maintain this lifestyle in perpetuity, I need 25x that cost invested.  When I look at it that way, there is suddenly a lot less that seems really appealing in the moment, you know?

I would suggest you go to the SS website and see what kind of benefits you and DW would be entitled to -- if you have consistently had high-paying jobs (except for the 2008 timeframe), you are likely to be eligible for 2 very nice SS payments, which might in an of themselves cover a lot of your mandatory expenses.  That might help relieve some of the pressure -- if you don't need to worry about getting by long-term, then everything you save is just to allow you to retire a couple of years before you are eligible for full SS.

Congrats on coming back from a horrible situation and digging yourself out of such a deep hole.  If you apply the same degree of focus to savings, you will be in a great position in no time.

politenessman

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Re: I'm a bit late to MMM party.
« Reply #11 on: May 09, 2018, 01:49:16 PM »
So I threw together a quick and dirty case study:
https://forum.mrmoneymustache.com/case-studies/how-screwed-are-we-for-early-retirement/

Thanks for all the advice. I've been working on the x25 basis since I found MMM and I figure we need ~$1.2M with our current expenditure.
We have about $300k now in 401k/IRAs, so I just need another $900k - its good to have a goal!

If I retire at 62, then I only have to wait a further 5 years until I get my SS, so I guess that makes my life a little easier.

Brother Esau

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Re: I'm a bit late to MMM party.
« Reply #12 on: May 09, 2018, 02:05:31 PM »
If I retire at 62, then I only have to wait a further 5 years until I get my SS, so I guess that makes my life a little easier.

Maybe you already know this but you can tap into SS starting at 62, only with reduced benefits.

Lady SA

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Re: I'm a bit late to MMM party.
« Reply #13 on: May 09, 2018, 02:15:24 PM »
So I threw together a quick and dirty case study:
https://forum.mrmoneymustache.com/case-studies/how-screwed-are-we-for-early-retirement/

Thanks for all the advice. I've been working on the x25 basis since I found MMM and I figure we need ~$1.2M with our current expenditure.
We have about $300k now in 401k/IRAs, so I just need another $900k - its good to have a goal!

If I retire at 62, then I only have to wait a further 5 years until I get my SS, so I guess that makes my life a little easier.

Is that $1.2 million inclusive of your SS benefits, or not? Have you looked into what kind of benefits you and your wife would receive? This may change your required target number if SS covers a portion of your expenses, and you only have to support yourselves for a few years between retirement and SS benefits kicking in.

pecunia

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Re: I'm a bit late to MMM party.
« Reply #14 on: June 01, 2018, 05:49:43 PM »
Please keep in mind that Social Security at 62 will only give you 70 percent of full benefits.  If you can just hold out, you'll get 30 percent more after about 4 years.

Let's say that's a 5,000 dollar per annum difference.  This is equivalent to saving $5,000 X 25 = $125,000

OR

125,000 / 4 years = $31,250 invested in each of those 4 years