Author Topic: May-December ER questions  (Read 7922 times)

Elisabeth

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May-December ER questions
« on: October 16, 2014, 04:54:30 AM »
Does anyone have experience planning early retirement with a significant age difference?

I am working to understand how we can use investments that belong to each of us individually to achieve this goal. We are not even close, but I figure that it is worth planning if we can achieve it. At least, ER for me :)

My husband is 43. I am 29. He has about $45k in a 401k, and another $20k in IRAs. I have $130k in my 401k, and $35k in IRAs. We also have about $40k in a taxable index fund, and minimal equity in our house. Sigh. I own some individual stocks in DRIPs - not much, probably only about $15k.

My husband receives a disability payment which is $250/mo now, and will go up to about $900/mo in 4 or 5 years. He can also "retire" from his current job in 5 years, with delayed withdraw at 62. That would be about $20k/year in a pension (once he reaches 62).

I think we actually have enough in my accounts to carry us through retirement - once I am 65. If I contribute only $5k/year for the next 35 years, the available funds are even greater. At least we do contribute the maximum to all accounts right now ($46,000/year plus employer matches). We make about $200k. I'd be happy with $40k/year in retirement (and a paid off house) but my husband wants "quality of life" which probably means more like $100k+.

Any ideas or experiences on how to manage this? Any couples with big age differences who have retired early? Do you draw down the older persons accounts faster than you would if you had to make them last forever?

Thanks in advance.


Thegoblinchief

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Re: May-December ER questions
« Reply #1 on: October 16, 2014, 05:03:54 AM »
You're really far off from retirement no matter what. Save and invest in the most tax and gain optimized manner possible (typically 401/403 max first, then tIRA, then ROTH, then taxable, all depending on investment options and total gross income).

Worry about the drawdown when you are much closer to your FIRE number. Hell, start talking with DH about the number now. No way he's going to retire in 5 years if he wants that much income in retirement.

Elisabeth

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Re: May-December ER questions
« Reply #2 on: October 17, 2014, 06:47:07 AM »
We already max retirement accounts ($46k/yr), pay $30k on the mortgage/yr, have about $60k in cash/CDs so we don't save cash - it all goes into a couple of index funds. (Also, I forgot a bit more he has in a 401k from when he was in the Army. Oops.) I guess I should have clarified that he can "retire" from his job in 5 years and find another, and still take a pension at 62 from the current job regardless of what he does in between.

Can I count myself as retired even if he still works? lol

We have crossed the $250k (income) mark this year already, which is down from last year, but I'd like to think that it's possible to retire early with our incomes. I would at least like to go part time in 2015 to spend more time with our baby. Right now I can't make the switch because we are buying a new house and I don't think lenders like to see big financial changes like that when you are borrowing another half million bucks.

Thegoblinchief

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Re: May-December ER questions
« Reply #3 on: October 17, 2014, 07:56:14 AM »
Right now you have $285K in liquid assets.

To provide $40K/yr (your stated minimum goal) you would need $1MM at 4%SWR. Many say this is safe enough, others say going forward something closer to 3% is better, which means $1.32MM.

For your husband's vague 100K/yr, that's 2.5MM @ 4% or $3.3MM.

Assuming you save 50% of $250K, that means at least one of you needs to work for ~6 more years to get to $1MM. So you're still a ways off.

Counting your husband's disability (at the higher value) reduces your required assets by $10,800 x25 (for 4%) or x33 (for 3%).

The pension is nice, so you have the more complex calculation of needing slightly less "old person" money (it would cover 1/2 of your $40K desired spending level) but still need enough to bridge the gap between now and 62.

As you can see from all of my "if this, then that" math up there, it's hard to plan without having a budget you're agreed on. $40K/yr and $100K/yr require vastly different sized asset pools.

The only withdrawal strategy that might be worth reading up on right now is ROTH conversion ladders, since those take a minimum of 5 years to complete before you can withdraw penalty free. See this:

http://jlcollinsnh.com/2013/12/05/stocks-part-xx-early-retirement-withdrawal-strategies-and-roth-conversion-ladders-from-a-mad-fientist/

Hope that helps. Surprised no one else has chimed in.

I'd totally go PT to spend time with a baby (I've worked PT and been the primary at-home parent for 8 years now).

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Re: May-December ER questions
« Reply #4 on: October 17, 2014, 08:28:26 AM »
We have crossed the $250k (income) mark this year already, which is down from last year, but I'd like to think that it's possible to retire early with our incomes.

It doesn't matter what your income is, you need to watch your spending/savings numbers if you want to retire early.

$285 in assets with $250 income seems low.  The pension should help out some.  But I agree with goblinchief, you are far off from retirement.

Elisabeth

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Re: May-December ER questions
« Reply #5 on: October 17, 2014, 09:47:38 AM »
I guess I am confused by all the info on this website. I was under the impression that by increasing one's savings rate (through lifestyle choices, earning more, etc), it is *possible* to retire in 5-10 years. I realize I'm not achieving that tomorrow. I was just looking for anyone with experience planning for retirement for people with an age difference, so we begin the planning now and have appropriate access to money as each of us reaches the age milestones.



Thegoblinchief

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Re: May-December ER questions
« Reply #6 on: October 17, 2014, 10:18:38 AM »
I guess I am confused by all the info on this website. I was under the impression that by increasing one's savings rate (through lifestyle choices, earning more, etc), it is *possible* to retire in 5-10 years. I realize I'm not achieving that tomorrow. I was just looking for anyone with experience planning for retirement for people with an age difference, so we begin the planning now and have appropriate access to money as each of us reaches the age milestones.

It's definitely possible, especially if you're okay with the $40K/yr spending level. You didn't state your current savings rate, but 50% of your current income would get you there in ~6 years depending on what the market does. But if your husband insists on a higher spending level, that will take a long while.

There have been ER couples where the lower spending spouse retired early, while the bigger spender kept working. That's of course complicated here because the bigger spender is also the older person. Working that out is a personal decision between you and DH. Good luck - but curious to know how your conversations go if you update here or start a journal :) My wife and I are very close in age but it's taken lots of conversation and compromise to craft a budget that gets us to ER on a reasonable (to me) timeline. (For comparison: my family will be FI in ~10 years despite over $100K in debt currently, earning less than $70K, and having 3 kids because our current spending is very low, and our retirement budget is only somewhat more lavish.)

For the withdrawal part, it really depends on how much $ you end up with in what vehicles.

1. Taxable accounts - basically no problem. Cap gains tax, and tax on dividends, can be optimized by doing some research and/or consulting a CPA or tax lawyer. Total return is best achieved using index/growth stocks, but some ER folks like the stability of living solely off dividend income, and letting the dividends grow over time (what's called dividend growth investing). Betterment's new Tax-Loss Harvesting + service is pretty cool. Their expense ratio is higher than Vanguard but the automatic loss harvesting to save capital gains taxes is paying for itself with a number of investors. (The Mad Fientist is the biggest voice about this currently.)

2. ROTH accounts - access to *principal* penalty free. Gains have to stay untapped until 59.5.

3. 401(k) and traditional IRA - you probably will leave this to grow as your "old person" money, but if you need to tap it, you can do it penalty free using SEPP or 72(t)

A good resource for further reading is the 5 part series Dr. Doom did on his blog here:

http://livingafi.wordpress.com/2014/05/09/drawdown-part-1-the-basics/

TL;DR: yes, you can retire in less than 10 years, but not at the budget you initially said your DH would want.

Hope that helps the confusion. But fire away with your FIRE questions (pun intended)!

Elisabeth

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Re: May-December ER questions
« Reply #7 on: October 17, 2014, 10:52:52 AM »
That helps a lot, thanks. I will look into each of those methods.

Maybe I will "retire" sooner. The issue I see is that right now, we both work. He makes slightly more, but with a few overtime options/overseas assignments that are no longer open to me (I wouldn't leave my daughter) he will definitely make a lot more. If I am the one who is so obsessed with ER then it feels unfair for me to stop working (or go p/t) while making the "rules" about our budget while he is the earner. Right now, we both work full time and share all money/expenses, and I also manage the finances, pay the bills, do all the cooking/chores in the house, oh and get up with the baby at night. He does the outside chores, which allows him considerably more freedom with his time. Maybe I am just looking for a break.

Before we were married I made a financial plan to re-evaluate at age 30. That birthday is approaching, so I think that will be a good time to scale back retirement contributions to 5% (plus 5% employer match) and maxing my IRA only. This should free up a little cash to pay down the mortgage(s) faster, or put into an index fund. I think he is too old not to contribute the max to all accounts considering the balances that are in his name.

I would LOVE to reduce our expenses more but until we move (next 6 mos) they won't go down too much. Republic Wireless has no service where we are, utilities are obscene even though I line dry clothes and diapers and keep the temp low, and the country road we are on has too high a speed limit to bike safely. This should change when we move, so I'm trying to be optimistic. We did decide to buy considerably less house, and buy in a place where we can both bike to work. After ALL of this is sorted out, I will ask my boss about part time work... It's a big to-do list.

Thegoblinchief

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Re: May-December ER questions
« Reply #8 on: October 17, 2014, 11:11:38 AM »
I would keep your 401(k) maxed. At your incomes, pre-tax savings makes a HUGE impact.

What cell carrier are you with currently?

If your mortgages are under 5%, don't pre-pay a dime. You'll make far better gains with investments, and the interest deduction is probably powerful for your income level.

Elisabeth

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Re: May-December ER questions
« Reply #9 on: October 17, 2014, 11:33:09 AM »
I switched to a Roth 401k 2 years ago since I have a ton more in my traditional, and we aren't eligible for Roth IRAs right now. I figured it would be good to have money in both Roth and traditional accounts. Do you disagree? Our "normal" salaries are $200k; so the extra work/overseas/bonuses are taxed very heavily. In 2013 I alone paid over $40k in federal taxes. My husband paid more. We filed jointly and got a refund of less than $2,500.

Last year was the first time I actually made money. All the years before that I made $40-60k, still maxed out my IRA and 401k, and saved about $10k/yr, sometimes more. I had some freelance work, but now with the baby I am not willing to spend that precious time away.

My husband has Verizon and I have AT&T. Our bills are each about $100. It's embarrassing. I called AT&T and they were able to give me a better contract - if I signed a new two year contract. Mine is up next month, thankfully. We just haven't found a cheap carrier that actually has service where we live. For anyone who thinks is cheaper to live in the country, it isn't!! Our 20x25ft veg garden did not offset the utilities/internet/cell bills. Country living = bleeding cash.

Our mortgage is 3.7%. We don't pay extra since we are selling/moving. But, once we find a place we want to live long-term, I would think that investing while also paying off the mortgage is the way to go, right? I don't want a mortgage once we are (or I am haha) retired.

Spudd

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Re: May-December ER questions
« Reply #10 on: October 17, 2014, 11:52:53 AM »
Depending on your usage you may benefit from switching to a prepaid phone plan with AT&T now that your contract is up. The cheapest is $25/mo, which gives you 250 minutes and unlimited texting. If you need data, it's $5/50MB. You can check your data usage to see how much you're currently using and decide if this would be a savings.

Note: numbers above are for zip code 90210, because I had no idea what zip code you actually live in.

CommonCents

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Re: May-December ER questions
« Reply #11 on: October 17, 2014, 11:55:53 AM »
Right now, we both work full time and share all money/expenses, and I also manage the finances, pay the bills, do all the cooking/chores in the house, oh and get up with the baby at night. He does the outside chores, which allows him considerably more freedom with his time. Maybe I am just looking for a break.

Sounds like this is the current issue - inequitable division of responsibility at home.  Maybe start conversations there.  I've been there, I appreciate it's really frustrating.  (I've almost gotten to a chore chart where I document who did what to demonstrate it's wildly out of whack.)

Also - you say you can spend $40k in retirement, but you're currently spending a lot more than that (if you've been earning $250k but don't have a ton to show for it), so you can also work on getting expenses nailed down.  Otherwise you could be planning for an unrealistic retirement.

Thegoblinchief

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Re: May-December ER questions
« Reply #12 on: October 17, 2014, 12:06:27 PM »
AirVoice is a very cheap ATT-based provider. PagesPlus is the same for Verizon. Both phones would need to be SIM unlocked.

Elisabeth

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Re: May-December ER questions
« Reply #13 on: October 17, 2014, 12:56:54 PM »
Commoncents is right. I feel like all we do is pay bills but that obviously can't be right. I will note that we only got married ten months ago and I have no idea why my husband spent so much or what he spent it on before that. Last year was the first time I made any money. I have always saved a lot (%) but I made considerably less back then so it looks really low compared with the current income. Just before we married I opened an IRA for him, and had him change his 401k to the max allowed.

For the purposes of clarity I'll exclude bonuses/overtime/overseas assignments. When we got those checks it went straight to paying off the loan he took out to remodel (before we were married) and to deposit into savings/index funds. Excluding that, our salaries are $200k combined.

Health care: $5400
Life Insurance: $900
Vision/Dental: $800
401ks: $35,000
Taxes/SS: I don't know. A lot.

What we regularly get every two weeks is $3,800. That's $98,800/year.

Monthly bills:
Mortgage: $2,500
Daycare: $1,200
IRAs: $916
Index funds: $1,200
Groceries: $400
Cell phones: $200
Internet: $60
Water: well
Gas (house): $150
Electric: $187 (most recent bill - seriously I do not know why this is. I have seen it fluctuate from 80-187. I line dry clothes and diapers, we turn off lights, and keep the thermostat very moderate)
Insurance: $150
Dog: $100 (based on the average so far this year)
Gasoline: $150

We don't shop. I spend less than $200/year on clothes (work included) only at thrift stores. I cut my own hair and don't buy a lot of "products." We don't eat out - I cook every night. Lately it's just been big house expenses: in the last 6 weeks our washer died (and having a washer full of wet, dirty diapers didn't encourage me to "shop around" long), the fridge broke but could thankfully be repaired for 1/3 the price of a new one, and we had to replace a pump grinder for the septic system. I sew, so I make a lot of the stuff for our home. We have a 20x25ft veg garden. We spend nothing on the baby but daycare - I breast feed, and we have a friend with a girl just 3 mos older who gives me clothes all the time.

But, I think we can do better. I just hate being the bad guy all the time; my husband may take another overseas job for 4 mos and who wants to be nagged and hassled about $ when you are about to go be miserable for 1/4 of the year.

Guess it is time for a fun conversation about spending and goals lol. I guess my $40k estimate was based on not paying for daycare, not paying a mortgage, not having such big savings and retirement savings deposits, and living someplace we don't have to drive everywhere and where utilities aren't horrible. (Thankfully we are moving to just such a place in 6 mos.)

I will look at airvoice for November when my contract is up. Is it month-to-month?

Cheddar Stacker

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Re: May-December ER questions
« Reply #14 on: October 17, 2014, 01:56:18 PM »
Switch back to Traditional 401k immediately, and continue to max it out. Don't worry about Roth's. They are great, but not for an income of $200K. This alone will save you about $10K in taxes, and you will see the difference immediately through an increase in your net paychecks.

Don't renew your cell contract. There are numerous other cheap cell planes, not just republic. Keep looking around the forum. Check out the IP daily's superguide.

You can deduct some of those daycare costs and get a $600 tax credit. Small, but it would help.

Have the conversations with your husband, keep optimizing expenses, keep saving, and you'll get there eventually, but now is not really the time to be discussing retiring unless one of you will continue to work for a long time.

Thegoblinchief

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Re: May-December ER questions
« Reply #15 on: October 17, 2014, 04:35:12 PM »
What is your actual usage for the gas and electric? Square footage of the house?

Nothing else really leaps out besides the phones, which was noted above. Your regular spending isn't outrageous.

I wouldn't hammer on the expenses very hard at all. Instead, if you have to "spend" any marital capital, start designing a hypothetical retirement budget and pitching it to DH. Then you have a FIRE number you can aim for.

Elisabeth

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Re: May-December ER questions
« Reply #16 on: October 18, 2014, 07:26:03 AM »
I went back and checked our 401ks and I actually switched both last December to traditional accounts.

I'll look into the daycare credit. I missed out big time this year. We can put $5k in an HSA for daycare tax-free, but I took 16 weeks off to be home with the baby; when I returned to work I found out that the window to sign up after the birth was 60 days. I'll be signing up in Nov/Dec for 2016.

I'll have to call the company about the usage. Those bills are on auto-pay and I've never seen a detailed one. Our house is 2100 sq ft. We don't use most of it and keep vents closed on the other side. The previous owner was a contractor who should have known better, but he did not put a dual system in the house. So the side we actually use is always colder/hotter than the rest (during the times we want the opposite, of course) and all we can do is close vents. I can't sell this house fast enough.

I was just reading the thread about energy hogs. Enlightening! I am guessing the energy use comes down to fridge & chest freezer, maybe water heater. I am guessing that if we have some inefficient appliance, no amount of lowering the heat and line drying clothes will make up the difference.

We are going to look at houses tomorrow. I am so excited for the rest of our lives! I hope we can buy the ugliest house of all time and turn it into a castle of efficiency.

retired?

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Re: May-December ER questions
« Reply #17 on: October 18, 2014, 09:25:25 AM »
The first thing I noticed is that the saver (you) is 14 years younger, has a good bit more in retirement savings, and has a much lower expectation of needed income in retirement (40k vs. 100k).  So, the glaring thing to me, as others have mentioned, is to get your husband on the same page.  He's lucky to have married you.

Someone mentioned Roth ladders, but I don't think you'll benefit from them until you both stop working, i.e. each of you earns enough so that you'd be taxed a decent amount.

You mention you are borrowing 500k for your new home purchase.  Where do you live?  Seems high for much of the country, but perhaps it is a reflection of your income levels.

Also, at 250k income, your take home should be a good bit higher than 100k, even after SSI, 401k, fed tax.  Look at:

https://turbotax.intuit.com/tax-tools/calculators/taxcaster/

for a quick calc in case the 250k income is new to you.  You may want to adjust your exemptions. 

The 250k less (5400+900+800+35000) = 207,900.  Let's say SS is 14k and Medicare is 4k.  You are down to 189,900.  All that's left is federal taxes.  By the time you deduct mortgage interest and prop taxes your fed taxable (250k less 5400 healthcare less 35k 401k) will drop further.  I would expect your fed taxes to be around 30-40k....rough guess.  Or, take home pay of at least 150k.


What type of IRA's are you using?  Non-deductible?  With 401k's at work and your income level, you shouldn't be able to deduct or use Roth.

Elisabeth

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Re: May-December ER questions
« Reply #18 on: October 18, 2014, 02:23:04 PM »
We have had a couple of conversations about it. I never even thought of "early retirement" before about a year ago. I have just always saved thinking that it was easier to save young; I wanted the flexibility to save less for traditional retirement later, than turn 40 and realize I needed to save more than would be possible.

My husband is not such a . control freak and planner, like I am. He is the type of person who puts a little in a 401k and says he wants to retire at 55, without ever doing the math. He is the type who believes it will all work out just fine, whereas I stay up worried at night. Now that we have talked more about it, he says he'd be okay working until a traditional retirement age. I guess I had wanted ER because it would be a chance for us to spend that time together, considering the age difference. He also said that he'd be fine working and have me stay home with the baby, but I am the one who does the math and there is no way we will get a second mortgage without two incomes. He simply isn't a details person.

I'll have to look at the tax issues again. When we get our bonuses etc they are lump sums so I assume the reason the taxes are so high is that we are taxed as if we make that much year round. Last year our gross income was $336k. After taxes, health care, retirement contributions, etc we took home less than $200k and got a refund under $2500. The mortgage interest barely saved us anything. Maybe we will have to change the withholding now with the baby. I would hate to get a big refund.

I would love to live in a smaller house. We are looking for something smaller where we are moving, but the choice is really a 4-5 bedroom house with good schools, or a small house in a shitty neighborhood with schools that rate 4/10 nationally. We've put a 5-year cap on the amount of time we want to live in that area; sinking $500k into a home is not going to move us toward a cushy retirement - early or later.

Mother Fussbudget

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Re: May-December ER questions
« Reply #19 on: October 18, 2014, 02:41:01 PM »
I'll look into the daycare credit. I missed out big time this year. We can put $5k in an HSA for daycare tax-free, but I took 16 weeks off to be home with the baby; when I returned to work I found out that the window to sign up after the birth was 60 days. I'll be signing up in Nov/Dec for 2016.

HSA is a miss - but most people don't know / think about them as a 'retirement' account.  Most people are programmed to try to maximize "taxable income", when it's better to maximize pre-tax benefits, lowering taxable income and hopefully your overall tax rate.
You should ask your benefits person whether you can sign up NOW for the 2014 HSA plan. 
Even if not, ask them if in 2015 you can contribute (up to April 15th) against your 2014 HSA allotment, and then begin to contribute to your 2015 allowance.

Elisabeth

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Re: May-December ER questions
« Reply #20 on: October 18, 2014, 03:16:54 PM »
Thanks. I misspoke. I meant sign up next month for 2015.

I did ask about the remainder of 2014 and I can't sign up for this calendar year except in the 60 days after the birth, or during open season (which is Nov - and applies to 2015). But, it is worth asking again I think, if I can contribute even a dollar lol.

Mother Fussbudget

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Re: May-December ER questions
« Reply #21 on: October 18, 2014, 03:25:14 PM »
I asked because I'm switching to an HSA plan myself starting Nov 1st - and am allowed to max out my 2014 contribution even though I'll only be covered for 2 months in this calendar year.  Can contribute to 2014 up to April 15th, and then, can max out 2015.
See the Mad Fientist's take on HSA's:  http://www.madfientist.com/ultimate-retirement-account/

Elisabeth

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Re: May-December ER questions
« Reply #22 on: October 18, 2014, 05:02:08 PM »
I don't have a high deductible plan, but passed that on to a few folks I know who do. Awesome article, thank you.

lhamo

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Re: May-December ER questions
« Reply #23 on: October 18, 2014, 05:50:45 PM »
One HUGE advantage you have with the age split is that regardless of anything else, your partner will be able to retire and access retirement accounts and benefits when you are still in your 40s.  That alone makes things MUCH simpler.  My DH is 10 years older than me, and if we retired early now (we're 46 and 56) he could start taking withdrawals from his work retirement plan without penalties or complicated SEPP arrangements.  And then at 62 he can start tapping social security -- not sure we'll do that in the end, but that is what I have plugged into FIREcalc at the moment (taking into account the reduced benefit levels for early retirement and early start of SS.

Others have mentioned it but I have to ask bluntly -- I am a little confused about why you don't have more assets given what you state as your income and savings rates.  Understand that your own income only recently went up, but you also say that your DH earns more than you.   Maybe you haven't been together very long?  Anyway, a little bit more of the back story might help us understand the situation better. 


Elisabeth

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Re: May-December ER questions
« Reply #24 on: October 18, 2014, 09:32:40 PM »
You're right - those will be huge advantages, even if he wants to work 20 more years and I retire sooner :)

We married last December. I suppose he spent his money (before we married) on the house renovations and re-financed when he divorced. There was some kind of lump sum payment to the ex wife, too.

I saved as much as I thought could when I was younger (though I realize now I could have done better), while also helping my parents with things like giving them a car, a couple of trips, etc. There were a few things I forgot to add in the initial tally of "assets," including a $20k loan I gave a friend opening a restaurant at 20% per annum (March 2015 deadline), and my husband's military 401k which is about $20-25k. We have a house with about $425k left on the loan (realtor thinks it will sell around 500-525 but I am skeptical). My husband owns 80 acres in another state, which he leases to a farmer as well as hunters - probably $15k/year. I worked and paid cash for a bachelor's degree. He used his GI bill to pay for his undergraduate education, so neither of us have student debt.

I scaled back our index fund contributions when I was on 16 weeks of leave after our daughter was born, but resumed the investment about 6 weeks ago (300/wk).

I actually try not to ask him too many questions about the financial decisions he made before we married, because it bugs him and ends up being a counterproductive conversation. What I am trying to focus on now is that we have no debt save the mortgage, and we both have good salaries now. Kind of like starting over except that at least we aren't starting at zero.

retired?

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Re: May-December ER questions
« Reply #25 on: October 22, 2014, 08:50:04 PM »
We have had a couple of conversations about it. I never even thought of "early retirement" before about a year ago. I have just always saved thinking that it was easier to save young; I wanted the flexibility to save less for traditional retirement later, than turn 40 and realize I needed to save more than would be possible.

My husband is not such a . control freak and planner, like I am. He is the type of person who puts a little in a 401k and says he wants to retire at 55, without ever doing the math. He is the type who believes it will all work out just fine, whereas I stay up worried at night. Now that we have talked more about it, he says he'd be okay working until a traditional retirement age. I guess I had wanted ER because it would be a chance for us to spend that time together, considering the age difference. He also said that he'd be fine working and have me stay home with the baby, but I am the one who does the math and there is no way we will get a second mortgage without two incomes. He simply isn't a details person.

I'll have to look at the tax issues again. When we get our bonuses etc they are lump sums so I assume the reason the taxes are so high is that we are taxed as if we make that much year round. Last year our gross income was $336k. After taxes, health care, retirement contributions, etc we took home less than $200k and got a refund under $2500. The mortgage interest barely saved us anything. Maybe we will have to change the withholding now with the baby. I would hate to get a big refund.

I would love to live in a smaller house. We are looking for something smaller where we are moving, but the choice is really a 4-5 bedroom house with good schools, or a small house in a shitty neighborhood with schools that rate 4/10 nationally. We've put a 5-year cap on the amount of time we want to live in that area; sinking $500k into a home is not going to move us toward a cushy retirement - early or later.

Yah, I worked in roles that had 1/3 to 1/2 my total comp in bonuses paid in a lump sum.  The company policy (and it may be required by the IRS) was to withhold 25% on the bonus.

But, at 336k, you likely will be hit with the AMT.  Last time I was at that level, an extra $ paid in property tax had no effect on my tax level.  i.e. certain benefits start getting cut so that the normal deductions do not have an impact.  With the prop tax, I had some flexibility on when to pay, i.e. due by Jan 31, but could pay in the prior year, and for fed taxes it matters when you actually pay it rather than when it is due.  So, if you have predictable fluctuations in pay, you might want to adjust the timing.  Mortgage interest and charitable donations still had an impact. 

Elisabeth

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Re: May-December ER questions
« Reply #26 on: October 23, 2014, 05:35:09 AM »
Ok. That is good info. I'm doing a Schedule C this year with a loss for my (side) business, too. It is a little frustrating to finally make what to me is a ton of money, after trying so so hard to save for years, and to feel like there isn't much left over going into savings. Making 200+ a year you'd think it would be simple to save more than 15k. I know we are infinitely blessed in a million ways, but the marriage penalty is reality for us.

We are about to enter a transition period in which we have two houses and two mortgages, each of us in one - so really two primary residences. We have to do this until my husband finds a job where mine (and our new house) is. So we have to maintain both houses, but I think we can only claim the interest on one. I suggested a divorce on paper but my husband didn't agree ;)

stash4cash

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  • Posts: 38
Re: May-December ER questions
« Reply #27 on: October 23, 2014, 06:23:21 AM »
Maybe I'm dense but your numbers aren't adding up for me?

You've said you have $200K plus in income. Take home pay of $3800 every two weeks and the other $100K+ is bonuses apparently. In fact it sounds like you made $300K+ and actually had $200K after taxes/retirement contributions/etc.

So you are making $200K+ after taxes and retirement contributions but your expenses as listed are around 90K a year. Where's the money going?? did I miss something else you posted explaining this?

Elisabeth

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Re: May-December ER questions
« Reply #28 on: October 23, 2014, 06:37:25 AM »
The bonuses/OT/overseas work have been sporadic, and when we got those checks we paid off loans for renovations, and socked away $30k in cash and $30k in CDs (we are about to buy a new house).

Right now the income we "count on" is about $200k. Above I listed payroll deductions, after which we are left with $98,800. We took a honeymoon in the spring ($3k) and put some cash into a big veg garden for me, I got a new sewing machine ($400), those kinds of one-time purchases I guess to add up to the $8k. I have been trying to track our expenses but since my daughter was born I have not been really successful.

But $90k of expenses isn't far off from the $98,800 we apparently actually bring home.

Seeing as we just got paid today, I will list the payroll deductions:

Income: 7680

Vision insurance: 3.69
Roth 401k: 20 (I didn't close the accounts because that required more paperwork, so I just lowered the contributions to 10 each)
Medicare: 108.11
Federal taxes: 1018.12
State taxes: 365.18
Health insurance: 204.98
Life insurance: 67.05 (each insured for a half a million)
Social Security: 220.59 (my husband already reached the 7,254 threshold)
Dental: 27.10
Pension plan: 156.16
Traditional 401k: 1328

So the take home is 4161.02. This is recent, as my husband finished paying social security for the year maybe a month or two ago. I don't know if I will pay the max this year or not; maybe the last pay period I will have a partial payment or so. Our total take-home for the year, so far, is $125k, and a bit of that was bonus $.