Author Topic: I already have kids, but I still want to retire early.  (Read 4553 times)

puzzlefighter

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I already have kids, but I still want to retire early.
« on: October 17, 2017, 01:31:23 PM »
Hello

I am a federal government employee. I've got two children, ages 2 and 7, and have a stay-at-home cohabitating partner. I am already 33, but I still want to retire as soon as possible. However, I'm having a tough time figuring out a plan of action. What are your thoughts on how to go about it?

  • I made up an estimated budget that shows about $22k/yr in unaccounted for, accessible income. I hoped to have erred on the side of overestimating expenses.
  • I am contributing $18,000/yr into a 401k-like retirement account, the Thrift Savings Plan (TSP). The current balance is just over $200,000.
  • I am contributing $5,250/yr into a Health Savings Account (HSA). Current Balance is about $28,000.
  • I am vested in the FERS retirement plan, which offers a pension, but it's really not accessible in any way until I am at least 57 (50 if I am lucky).
  • I live in Illinois. Let's assume, for now, that I cannot relocate.
  • I owe $180,600 on my mortgage at 3.75%. Original term was 30 years. I pay $878.07/month

Some details about the TSP:

  • If I take money out of my TSP before I turn 59.5, it is subject to an additional 10% tax.
  • If I stay employed with the Fed until the year I turn 55, I can avoid this penalty
  • If I take money out in the form of substantially equal payments over my life expectancy, I can avoid this penalty. This is based on an IRS life expectancy chart. The payment amount would recalculate annually as I age. As I understand it, with 200k and 33 years old, I would expect to be able to take out 4k this year if I left work and started withdrawing now. Not a ton.
  • I can take up to $50,000 out of my TSP in the form of a loan to myself if used to pay toward my mortgage. The loaned 50k will not earn as an investment at this time. The loan payback period can be up to 15 years. It would have a 2.375% interest rate.



If I want to retire ASAP:

  • Should I cease contributions to my TSP (maybe keeping a 5% salary contribution since they match that) and instead pay off my house/invest that money? The 18k is tax deferred, so I would net about 13.5k to use annually if I didn't take advantage of the match.
  • Should I cease contributions to the HSA and/or switch to a traditional non-HDHP health plan and put the $5,250 into investments as well? The HDHP plan contributes $1500/yr into my HSA automatically. The amount I contribute avoids FICA in additional to State and Federal tax. Withdrawals for payment toward medical expenses are tax tree.
  • Should I take a $50,000 loan out of my TSP to pay down my mortgage? I will have to pay this back over time (5-15 years) or the 50k will be treated as taxable income and subjected to an additional 10% penalty.

If I do any of these things, where should I put my money for the kind of growth one would need to be able to live decently at retirement?

I have been a delayed gratification kind of guy as far as money goes, but it's just becoming too long to wait. I understand I will be raising my AGI in most cases, reducing or eliminating benefits like the child tax credit, FAFSA eligibility, and raising the amount I pay in taxes.

I already feel like I am missing some of the best years of my children's lives by being stuck in an office. By the time I could "get out" via my current path, they'd both be out of college and I wouldn't even be able to see them so much. I just don't want to do it anymore.

I'm naturally open to any suggestions the MMM community has to offer.


Thank You,


Puzzlefighter



boarder42

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Re: I already have kids, but I still want to retire early.
« Reply #2 on: October 17, 2017, 02:07:38 PM »
agreed with the above. 

you should be decreasing other contributions inorder to max out your HSA ... see the investment order provided.

You're doing great.  FYI

slappy

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Re: I already have kids, but I still want to retire early.
« Reply #3 on: October 17, 2017, 03:31:37 PM »
I was going to say no to all three questions as well, and suggest that you post a case study.

boarder42

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Re: I already have kids, but I still want to retire early.
« Reply #4 on: October 17, 2017, 03:52:30 PM »
also kids doesnt affect your ability to FIRE or not.

Laura33

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Re: I already have kids, but I still want to retire early.
« Reply #5 on: October 17, 2017, 05:51:18 PM »
The key to your time to FIRE isn't how much you save, it's your savings rate as compared to your expenses.  See http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/.  Based on the info you have provided, you seem to be saving a good chunk, but it's hard to say without knowing whether your salary is $75k or $200k.

With respect to your specific questions, the only possible answer is "oh hell no."

1.  The TSP is the gold standard of retirement plans, with very very low expenses.  Why you would trade a tax deduction + ongoing tax-free growth just to be able to invest less in a fund with higher fees and ongoing taxes is beyond me.  As others have mentioned, there are ways to get money out before full retirement age. 

The other thing is that the power of compounding is greater the longer you have to let it work.  So if you do need some post-tax savings, at least do your TSP savings first, so that you take maximum advantage of the tax-free growth.  If you get to within a few years of FIRE and need more post-tax savings, you can back off the TSP then.

2.  Nonononono.  Have you looked at projections of future healthcare costs?  Or priced out insurance on the free market?  I'd throw everything as you can at that HSA for now.  Again, if it turns out you have more than you think you will need, you can back off closer to FIRE.

3.  Oh God no.  You have a low mortgage rate.  You are far better off investing in the market than paying that off (if the market doesn't do better than 3.75% between now and your FIRE date, we have much more serious problems and a whole lot of people aren't retiring).  But borrowing from a TSP is a particularly bad idea to do so.  Right now, you are putting pre-tax money into the TSP.  But if you borrow money, you don't get another tax deduction to pay it back.  So you are basically putting post-tax money back into your TSP -- and then paying taxes on that money again when you ultimately withdraw it in retirement.  And of course if your job goes away, you'd have to come up with the rest immediately -- which, if you put the money into your house, you would no longer have accessible to pay back.

I also would not borrow money from the TSP to invest in a post-tax account.  Again, the TSP has very low expenses and grows tax-free.  So you would be taking money out of a low-expense account to invest it somewhere with higher expenses, and foregoing the tax-free growth you'd get from having that $50k in the TSP so that you could pay taxes on the growth in your post-tax investment accounts.  This strikes me as snatching defeat from the jaws of victory.

Tl;dr:  you have an awesome setup right now.  Don't fuck with it.  Maximize your tax-deferred investment options, keep your expenses under control, and then be patient and let time work its magic.

maizeman

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Re: I already have kids, but I still want to retire early.
« Reply #6 on: October 17, 2017, 06:56:32 PM »
1. No. You'd be sacrificing your match which is free money. And if you'd only net $13,500 of after tax income from turning off a $18,000/year payroll deduction, you're in a high marginal income tax bracket.

2. Absolutely not.

3. Why in the world would you want to do that? You wouldn't come close to paying off your mortgage so it wouldn't improve your cashflow at all, but it would take away a big chunk of money that could be earning 9.1%/compounded in the stock market (before inflation, but then again your mortgage payment and interest is also before inflation).

Gin1984

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Re: I already have kids, but I still want to retire early.
« Reply #7 on: October 17, 2017, 09:31:00 PM »
So since everyone told you not to go with any of your ideas, do you want ideas on what to do?

puzzlefighter

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Re: I already have kids, but I still want to retire early.
« Reply #8 on: October 18, 2017, 08:07:50 AM »
So since everyone told you not to go with any of your ideas, do you want ideas on what to do?

Absolutely.

puzzlefighter

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Re: I already have kids, but I still want to retire early.
« Reply #9 on: October 18, 2017, 08:13:22 AM »
agreed with the above. 

you should be decreasing other contributions inorder to max out your HSA ... see the investment order provided.

You're doing great.  FYI

Thanks, I actually am maxing out my HSA despite only putting $5,250 into it as my HDHP automatically contributes $1500/yr, and that contribution counts toward the $6,750 max for family plans.

What's a plan of attack for me to increase the pace of retirement? I guess if I can't pay off my house faster to increase cash flow sooner, where should I be putting it?

slappy

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Re: I already have kids, but I still want to retire early.
« Reply #10 on: October 18, 2017, 08:48:39 AM »
agreed with the above. 

you should be decreasing other contributions inorder to max out your HSA ... see the investment order provided.

You're doing great.  FYI

Thanks, I actually am maxing out my HSA despite only putting $5,250 into it as my HDHP automatically contributes $1500/yr, and that contribution counts toward the $6,750 max for family plans.

What's a plan of attack for me to increase the pace of retirement? I guess if I can't pay off my house faster to increase cash flow sooner, where should I be putting it?

That's why I suggested a case study. How much extra cash do you to save each month? It looks like you're maxing out all possible tax advantaged vehicles, so your next step is to invest in a taxable account. 

lisa_mustache

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Re: I already have kids, but I still want to retire early.
« Reply #11 on: October 18, 2017, 10:26:28 AM »
The investment order link has been posted above already, and here is a link to the case study sticky:

https://forum.mrmoneymustache.com/case-studies/how-to-write-a-'case-study'-topic/

You seem to be in good shape!  Doing a full case study (even if you keep it to yourself) can be very eye opening and helpful to find out just how much money you should have available each month (and for finding where you're spending money that you don't need to be).  If you want advice on it, there is a Case Study subforum that gets a lot of action and can help trim the fat.

maizeman

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Re: I already have kids, but I still want to retire early.
« Reply #12 on: October 18, 2017, 10:51:13 AM »
What's a plan of attack for me to increase the pace of retirement? I guess if I can't pay off my house faster to increase cash flow sooner, where should I be putting it?

Since you're maxing out retirement accounts already I'd recommend starting to invest in a taxable account.

For bringing the crossover point where your stash grows big enough to support your spending closer to the present, there is nothing like cutting spending which is why others are recommending a case study.

What is your current savings rate? (pretax savings + posttax savings)/(post tax income + pretax savings)

Car Jack

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Re: I already have kids, but I still want to retire early.
« Reply #13 on: October 18, 2017, 11:29:00 AM »
Your big, underlying question seems to be:  When can I fire?

I know I started with that question or to answer the question "do I have enough?".  You have to do some work and some math and then figure it out, convince yourself that you've accounted for everything and if you have, do it.

For the work: You need to do a YNAB kind of accounting of every penny that comes in and every penny that gets spent.  Excel works fine for this if you don't want to pay money for some snazzy software.  Knowing what you spend and on-what you spend is a great exercise.  After you've done this for a year, you've got a baseline.

Now, what's coming in the future?  College for the kids?  Even with zero income, that doesn't mean that you're going to pay nothing.  Especially in the future...you don't know.  So that needs to be figured out.

Health insurance.  Nuff said. 

Some things to do to boost what you have:  Take a side hustle job.  Could be one of the driving jobs, could be working at a supermarket (where you'll get an associate discount, most likely for working there), could be a starbucks.  The cool thing is if you don't want to work there anymore, just quit.

Your stay at home partner could work, right?  That would bring in some extra savings.  Maybe with added 401k kind of capability.


puzzlefighter

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Re: I already have kids, but I still want to retire early.
« Reply #14 on: October 18, 2017, 11:30:51 AM »
What's a plan of attack for me to increase the pace of retirement? I guess if I can't pay off my house faster to increase cash flow sooner, where should I be putting it?

Since you're maxing out retirement accounts already I'd recommend starting to invest in a taxable account.

For bringing the crossover point where your stash grows big enough to support your spending closer to the present, there is nothing like cutting spending which is why others are recommending a case study.

What is your current savings rate? (pretax savings + posttax savings)/(post tax income + pretax savings)

Thanks, I will check that subforum out. I started writing this as you replied, so lemme know if it would be duplicative to post again there. I had a hard time getting the table to look right.

Roughly $1939 invest-able 'excess' per month accounting for expenses and savings that go into HSA/TSP.

I have about 35k cash combined in checking/savings accounts. I am willing to reduce this amount to increase investments somewhere.

I have about $11k in a scottrade brokerage account that I haven't messed with much recently. I tended to lose money when I played with stocks, so I backed off and have just been selling over time to claim losses for tax purposes.

I have about $2k in lending club, but that hasn't seemingly been working out for me (2 years with current +0.16% ROI), so I am exiting those positions as they pay out.

The bulk of my HSA is invested through TD Ameritrade in five ETFs so far: VTI, VYM, VEU, MGK, and IVV.

My annual estimated budget is below:

Expenses for Grocery, restaurants, apparel, entertainment, education (at this point), Misc repairs and Misc other added together are 15k. This is likely an overestimate, but I can't say by how much.




Expense Name        Amount   Periodicity        Annual Expense    Comments
Mortgage               $878.07          12               $10,536.84           27 more years
Car Loan               $363.98          12                $4,367.76            7 more payments
Car Insurance        $600.00          2                 $1,200.00             2 Cars
Home Insurance     $770.40          1                 $770.40             
Gas/Car related      $59.57            12                $714.84   
Electric                  $70.00            12                 $840.00   
Water                    $154.28         12                 $1,851.36   
Cellphone               $495.00          1                 $495.00   
Internet                 $40.00            12                 $480.00   
Gas Utility              $46.00            12                 $552.00   
Trash                     $73.96            4                 $295.84   
Amazon Prime        $99.00            1                 $99.00   
Costco Memship      $55.00            1                 $55.00   
Property Taxes        $5,461.96      1                 $5,461.96   
Health Insurance     $134.10         26                 $3,486.60   
Grocery                  $500.00         12                 $6,000.00             
Restaurants            $250.00         12                 $3,000.00             
Apparel                  $100.00         12                 $1,200.00             
Entertainment         $100.00         12                 $1,200.00   
Education related    $100.00         12                 $1,200.00              will increase over time
Personal Care          $30.00          12                 $360.00   
Cont. to TSP            $692.31        26                 $18,000.06   
Cont. to HSA           $201.93        26                 $5,250.05   
Federal Inc Tax       $391.82        26                 $10,187.32   
State Inc Tax          $155.96        26                 $4,054.96   
Medicare FICA         $59.36          26                 $1,543.36   
SS FICA                  $253.81        26                 $6,599.06   
Life Insurance         $17.70          26                 $460.20   
FERS contr              $35.43          26                 $921.18   
Misc. repairs            $100.00        12                 $1,200.00           
Misc. Other             $100.00         12                 $1,200.00   

Total Annual Est. Expenses                               $93,582.79           total expense


           
Income                  $4,428.80       26                $115,148.80         gross annual income
Est. tax return        $1,700            1                  $1,700   
Net left to invest monthly              12                $1,938.83            net monthly 'excess'
           
           



Balance on Mortgage    $180,633.12         
rate   3.75%         
Original term   30years fixed         
    appx. 27 yrs left         
           
Balance on Spark    $2,515.72         
rate   1.49%         
original term    3 years fixed         
   7 months left         

Gin1984

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Re: I already have kids, but I still want to retire early.
« Reply #15 on: October 18, 2017, 11:36:01 AM »
I spend under $30/month for my cell phone through ting, with two people.  If you have decent coverage in your area with sprint, I highly recommend them.  There should be a referral thread around here somewhere or you could PM me.

catccc

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Re: I already have kids, but I still want to retire early.
« Reply #16 on: October 18, 2017, 11:52:57 AM »
No specific advice here, but I just wanted to chime in that there are many of us here with kids on our way to early retirement.  My partner was a SAHP for many years (and I was one for a little over a year).  Kids are 6 and 8, and with both of them in school, we are now a dual income family.  Our total gross income has ranged from $25K to $88K in the time only one of us was working.  Really in the $50K-$88K range for most of the time, except for the year I stayed at home.  This year we will earn about $115K.  Our stash just crossed $850K recently and things are looking good.  I'm 38 now (DH is 39) and it is possible we will be able to stop working in a couple of years!

Oh, here is some specific advice.  IRAs.  Roth or Traditional, depending on your current mix and preference.  IDK what your IRS status is with your partner, but spousal IRAs are a thing.  I contributed to one for my partner every year whether or not he had income himself.

Meesh

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Re: I already have kids, but I still want to retire early.
« Reply #17 on: October 18, 2017, 01:08:05 PM »
So first off with 2k to invest open up an IRA for each adult in the family. So if you have a partner that would be 11k a year, or 917/m, all of which is tax deferred, so bonus: your taxes go down. The rest should go in a taxable account like vanguard or betterment.

Looking at your budget, places you could work on would be restaurants 250, entertainment 100, apparel 100, and misc 100 not including 30 personal care? that is 580 monthly, or almost 7000 a year. Cut that down and invest it. You could drastically reduce your FIRE date if you cut back on expenses.

I seem to say this to a lot of people but you need a budget. I really recommend tracking your expenses better instead of giving estimates, my guess is there are some missing areas, for example no vacation?? This will help you realize where you can cut the fat and decide if this is worth x more years of work for, but my guess is just writing down your estimates helped you realize they could be trimmed since you yourself said you spend 15k on discretionary.

Children really have nothing to do with it. Your income is high, cut expenses, retire earlier and go play with them.
« Last Edit: October 18, 2017, 01:10:25 PM by Meesh »

terran

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Re: I already have kids, but I still want to retire early.
« Reply #18 on: October 18, 2017, 07:47:36 PM »
I spend under $30/month for my cell phone through ting, with two people.  If you have decent coverage in your area with sprint, I highly recommend them.  There should be a referral thread around here somewhere or you could PM me.

You can also get them with a t-mobile SIM card. We spend about the same.

cchrissyy

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Re: I already have kids, but I still want to retire early.
« Reply #19 on: October 18, 2017, 08:58:05 PM »
I don't see an IRA. is that correct? you and your partner could each be putting $5500 per year in there.  I would do that immediately and again in January, taking your $35k savings account down to $13k. This will lower your taxable income for 2017 and 2018 by $11k. Don't even think about "picking stocks" like you did before. you want a total market index fund or ETF, and never touch it.

you sound like maybe the sort of person who wants a goal. Since you are doing GOOD with earnings, savings, and being debt-free, I want to suggest the controversial idea of paying that mortgage off early. Would you like a goal such as "pay off my mortgage when I'm 40"?
you can google a calculator for that.  here is a screenshot for bankrate, using what I think are your numbers. I just chose to send in an extra $1k per month and see the impact, which is that your 30 year loan would be paid off in just about 12.5 years.
Before everybody jumps on me, yes you would likely earn more investing this for the long run. This is an OK idea not the very most optimal idea, I know!  But your initial question makes me think maybe you're a person who wants a defined goal that gets achieved sooner.

Grogounet

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Re: I already have kids, but I still want to retire early.
« Reply #20 on: October 18, 2017, 11:59:49 PM »
Question: Can you not refinance at a lower rate than 3% in the US these days?

boarder42

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Re: I already have kids, but I still want to retire early.
« Reply #21 on: October 19, 2017, 04:18:08 AM »
Question: Can you not refinance at a lower rate than 3% in the US these days?

No you cannot. A 3.75 is a great rate I wouldn't touch it to go to a shorter term if you plan to stay 4-5 more years or longer.

puzzlefighter

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Re: I already have kids, but I still want to retire early.
« Reply #22 on: October 19, 2017, 09:07:59 AM »
I don't see an IRA. is that correct? you and your partner could each be putting $5500 per year in there.  I would do that immediately and again in January, taking your $35k savings account down to $13k. This will lower your taxable income for 2017 and 2018 by $11k. Don't even think about "picking stocks" like you did before. you want a total market index fund or ETF, and never touch it.

you sound like maybe the sort of person who wants a goal. Since you are doing GOOD with earnings, savings, and being debt-free, I want to suggest the controversial idea of paying that mortgage off early. Would you like a goal such as "pay off my mortgage when I'm 40"?
you can google a calculator for that.  here is a screenshot for bankrate, using what I think are your numbers. I just chose to send in an extra $1k per month and see the impact, which is that your 30 year loan would be paid off in just about 12.5 years.
Before everybody jumps on me, yes you would likely earn more investing this for the long run. This is an OK idea not the very most optimal idea, I know!  But your initial question makes me think maybe you're a person who wants a defined goal that gets achieved sooner.

Thanks for the advice. You are right, perhaps I need a better goal. My current goal is abstract in that I want to merely retire early and haven't had a good definition of what that is. On my current path, assuming everything stays on track, I only know for sure that I can retire at 57 as that is my minimum retirement age (MRA) for my pension to kick in at 80% benefits. I would like to retire earlier than that. I also know that if a voluntary early retirement authorization (VERA) is issued by my org, I can retire as early as 50 with full pension benefits. I estimate that to be a 25% chance. However, I want to be able to have as much time as possible with my family now. By 50, both of my kids will be college-aged and leading their own lives. I'm currently least available when they are most available and the situation will have reversed by the time I can cease working even if I were out with a VERA at 50. If I wait until my MRA at 57, both of my kids will probably be graduated from college at least, possibly married, and maybe even have kids of their own. I don't consider meeting MRA to even be "early" retirement since it's just me following the system. I'm not "beating" anything. A VERA would save me 7 years of work, but it cannot be counted on. 


I am uncertain how to best invest my job-related income and cash-on-hand to generate accessible funds for use if and when I leave work. Since posting this I have learned about a backdoor approach to funding a ROTH IRA with periodic extractions from a traditional IRA or 401k, but I do not seem to have that option with the TSP. The other way seems to setup some equivalent payment method where I take quarterly or more frequent withdrawals based on life expectancy. However, the kicker seems to be that I have to keep doing that until I am 59.5, otherwise I have to pay a 10% penalty on ALL of the $$$ I have taken out since I started to do so.

If I were to amass enough wealth to leave work at say, 45, and started to take these payments from my TSP as part of the strategy to meet my remaining expenses...I would have to continue doing that for at least 14.5 years before I could change it. It might be a good idea, but it seems very restricting. I suppose I could take whatever payments I am extracting, if no longer needed, and put some of them back into an IRA for sheltering purposes.

I actually did leave off a ROTH IRA. It has about $25,800 in it. I haven't contributed to it in a few years now. I don't even have a good excuse about why I'm not doing that. I think I originally stopped as I was saving for my house down payment and then just wanted to rebuild my cash-on-hand somewhat. I should get back into that for sure. Perhaps opening a traditional IRA might be a better way to go for now. I cannot contribute to an IRA for my spouse since she isn't my spouse according to laws. We're just co-habitating adults in a spouse-like, long-term relationship in which we've had kids together. That doesn't seem to buy much in the way of tax/healthcare benefits.

But let's say 45 is my goal age for retirement. In 12.5 years, I'll be 45. Theoretically, I could pay my house off as you stated. All things being equal, I'll have denied myself another approximately $150000 in otherwise investable income and increased my expenses by another 12k/year. While this is paid, my deductible mortgage interest will also be reduced, resulting in a higher taxable income. However, at 45 my expenses will have been reduced by 10.5k/yr forevermore, and I wouldn't have the other 12k going towards it. So by then, it will feel more like a $22.5k/yr expense reduction.

Assuming I paid off my house and then immediately quit my job, I would also start avoiding about $23,300 in taxes (fed, state, SS, medicare, FERS). I should also have no car loan outstanding by then, so that could go off. My contributions to the TSP and probably the HSA would also necessarily end. This would leave me with about $32000 in total expenses left if no costs changed. Naturally, almost all of them would increase from now to then, but my wages should at least get a little bit higher, though it couldn't be anything dramatic. Healthcare would probably be a major expense that would increase. Let's just make it 40k needed for now.

In any case, I'd have to have enough in my TSP and other investments to carry me through at least 14.5 years. I wouldn't be eligible for the FERS social security supplement since I wouldn't meet the MRA+10 requirement. FERS couldn't kick in until 57, and then only at 80%. I'd estimate roughly 2k/mo or 24k/yr, so I'd still need to take some from the TSP and other things for survival. If I wait to 60, I might get 2360/mo or 28.4k/yr, though the TSP and other investments would need to fully carry me for three additional years. I'd still have some shortfall that other investments would need to make up. I should be able to do this, but it still seems a little tenuous.

cchrissyy

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Re: I already have kids, but I still want to retire early.
« Reply #23 on: October 19, 2017, 09:58:18 AM »
will you also have social security income in your later years?

Is your partner ever going to go to work? You are describing so many costs going away by age 45 that your low living expenses might be met through part time work - yours or your partners - therefore leaving your investments invested.

kendallf

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Re: I already have kids, but I still want to retire early.
« Reply #24 on: October 19, 2017, 11:14:45 AM »
You've already gotten this advice, but you need to track your expenses for a while to determine your realistic annual budget, both now and in retirement.  A handy tool for this is Mint or Personal Capital; you can automate your expense tracking and categorization.  Then just start putting your excess away in a taxable brokerage account, invested in some simple, low cost index funds or ETFs. 

When you've determined your annual needed budget, you can determine a savings goal and how long it'll take to get there.  You've head of the 4% rule, correct?  Use cFIREsim to estimate your savings rate from now until retirement and the likelihood of success or failure after.  This is a software tool that uses historical market returns over many years to estimate best and worst case investment returns and a median.  You can add in things like a FERS pension down the road, Social Security, one time expenses or income like a house purchase or sale, college, etc.

With your income and some reasonable optimization, you can easily get there in your 40s.



puzzlefighter

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Re: I already have kids, but I still want to retire early.
« Reply #25 on: October 19, 2017, 11:41:35 AM »
You've already gotten this advice, but you need to track your expenses for a while to determine your realistic annual budget, both now and in retirement.  A handy tool for this is Mint or Personal Capital; you can automate your expense tracking and categorization.  Then just start putting your excess away in a taxable brokerage account, invested in some simple, low cost index funds or ETFs. 

When you've determined your annual needed budget, you can determine a savings goal and how long it'll take to get there.  You've head of the 4% rule, correct?  Use cFIREsim to estimate your savings rate from now until retirement and the likelihood of success or failure after.  This is a software tool that uses historical market returns over many years to estimate best and worst case investment returns and a median.  You can add in things like a FERS pension down the road, Social Security, one time expenses or income like a house purchase or sale, college, etc.

With your income and some reasonable optimization, you can easily get there in your 40s.

I have heard of the 4% rule, but I hadn't heard of cFIREsim. It looks super interesting. Thanks!

Laura33

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Re: I already have kids, but I still want to retire early.
« Reply #26 on: October 19, 2017, 01:40:29 PM »
Does the TSP give you the option to roll your balance over into a tIRA when you leave?

If so, then the answer is simple: quit.  Roll over your TSP into a tIRA.  Over the next 5 years, convert 20% of your tIRA into a Roth.  At the end of 5 years, you are allowed to begin Roth withdrawals; by converting a little each year, you minimize the tax hit.*

This approach means that you need to have only enough post-tax savings to cover your first five years of FIRE.

For now, max out your tax-protected accounts.  That takes maximum advantage of the power of compounding (i.e., allows the tax-free growth to continue as long as possible).  If you have additional money to invest, start a post-tax investment account.  As you get closer to your target FIRE date, if your non-tax-protected investments are not covering what you need for the first five years after FIRE, you can back off the tax-deferred options and divert the necessary money to your regular brokerage account for a few years.

*You can of course extend the conversion over an even longer term if you'd like.

kendallf

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Re: I already have kids, but I still want to retire early.
« Reply #27 on: October 19, 2017, 02:08:22 PM »
I have heard of the 4% rule, but I hadn't heard of cFIREsim. It looks super interesting. Thanks!

Had a bit more time, so here are a few more links.  Not coincidentally, they are from blogs you may find interesting and informative to read in general.  First is MMM:

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

Next Jeremy from Go Curry Cracker.  He has some particularly good blog posts on minimizing your taxes in retirement in addition to this one on the 4% rule.
http://gocurrycracker.com/what-is-your-retirement-number-the-4-rule/
http://gocurrycracker.com/never-pay-taxes-again/

And finally the Mad Fientist, who covers the math of picking various 401k/IRA/HSA options as well as the Roth Ladder mentioned above:
http://www.madfientist.com/