My plan for my wife and I's retirement

[josh4trunks]

Hi everyone, new to the forum. Glad I could find a place with like minded people are willing to help each other achieve financial independence.
My wife and I are both 26 and my goal is for us to stop working before turning 40 (with a caveat explained below). Our background is below, followed by the plan I've formed, and questions I have. Thanks!

Background

I have worked for the state government as an engineer for almost 4 years; my wife recently graduated and is about to start her first job as a nurse. I have a mortgage on our home which I purchased about 3 years ago. We intend to have a few kids; I'm personally aiming for 3 max starting around 2018, though I realize we don't have a lot of control over this.
For my work I make ~$90K/year, I have a pension (2%@55) which costs me about $7K/year based on my highest year salary, I get health insurance now and when I retire (5% paid per year of service), and I have the option of a 457b and a 401K.
For my wife's work she'll make about ~$90K/year, an option for health insurance we'll likely forgo, and has the option of a 401k and 403b. I believe she gets some percent match, but don't know the details yet. She may look for a different position within the year, but from what I have seen nursing positions here have similar salary/benefits.

Assets

• 457b - $18K

Debts

• Student Loans @4-7% ~ $74K ($8K or $19K can possibly be repaid by a government grant)
• Parents ~ 6K
• Mortgage @3.625% ~ $185K
• Student Loans @2% ~ $18.5K

Yearly Plan

Age 26 (2016)

• $18K to my 457b
• 2x$6.5K=13K to my 401K and her 403b
• 2x$5.5K=$11K to our IRAs

Age 27-39 (2017-2029)

• Maximize my 457b
• Maximize my 401k and her 403b
• When we make less than usual, (like if we take time off for children) contribute what is deductible to our IRAs.
• Payoff loans/mortgage in order of highest interest

Age 31 (2021)

• Borrow 2x$50K=$100K from our 401k/403b as a downpayment for a larger home. Probably around $500K.
• Either rent or sell our first home. If the price has increased from our original purchase price within 3 years, sell to not pay taxes on gains.

Age 39-40 (2029-2030)

• Both stop working
• Payoff 401k and 403b loans, rollover our 401k and 403b to an IRA
• Put our IRAs into SEPP. Assuming current numbers this will get us about $17K/year

Age 40-45 (2030-2035)

• Withdraw from my 457b to maximize the child tax credit. Assuming current numbers I'd need to withdraw around $45K/year which would empty my account in 6 years.
  I don't see ourselves spending everything we withdraw here so put it somewhere we can utilize during the next time period.

Age 46-51 (2036-2041)

• Assuming kid(s) go to college, do my best to maximize scholarships / low interest student loans.
• Withdraw maximum amount of eligible education expenses.
• If necessary, my wife can work part time to take advantage of the Child Tax Credit / Additional Child Tax Credit.

Age 52-54 (2042-2044)

• Get a job with the state.
  - To get health insurance one I retire I need to be enrolled in it within 120 days of officially retiring.
  - This also has the added benefit of rebasing my pension on current salaries.

Age 55 (2045 - )

• Retire from state service
• Collect my pension - 40% of my highest year of salary
• Get health insurance fully paid for my wife and I.
• To mitigate inflation I'll have the remainder of our IRAs, also Social Securitys will kick in at some point.
  If we get desperate we can do a reverse mortgage.

Questions

Does anyone have suggestions to fix or improve any details?

Any opinion on kids affect on financial independence, lol?

What do early retires do about health insurance/expenses? With this current plan we won't have coverage from age 40-51.

I have read mentions of HSAs around this forum but would love to read more if people have good links. I'm wondering if that's another option I or my wife can take advantage of to defer salary, or do most jobs only allow either health insurance or HSAs?

[thedayisbrave]

Awesome that you have all this mapped out... but just know it will NOT go according to plan, LOL.. it never does! But you can always re-evaluate when things change and go from there.

What is glaring to me is the way you plan to purchase your next house.  A few things:
--Where do you live now? Why do you feel the need to upgrade in a few years? What's wrong with your current home that you couldn't raise children in it?
--If you are adamant about purchasing a home in the next 5 years, taking out a 401K loan for the down payment is the (no offense) dumbest way to go about it, IMO.  What that means is that you can't afford the home.. borrowing from your future self doesn't  change that fact.  Instead, start saving up the downpayment NOW.  Not in stocks/bonds either but in something safe, like a money market account.
--Don't turn your first home into a rental without crunching the numbers.  Most primary residences make terrible rentals so not only will you have purchased a bigger/nicer home, but you will be losing money on your first one... a great way to guarantee you are tied to the rat race for much longer than you want to be.

[HPstache]

Why are you waiting a year to start paying extra your high interest student loans?

[boarder42]

Borrowing from your retirement plans for your down payment is a terrible idea

[redcedar]

Quick question - can you live on your pay an use your wife's to supercharge your plans? You could save for your home down payment in about a year. You could then throw it all at the higher rate student loans and then switch to maxing out pretax savings. Is that possible?

[braje]

Most likely if you quit your jobs you will have to pay the 401K loan back in full or the balance due is considered a withdrawal and penalties and taxes will be due that year.

What if you can't get a job with the State at 52?

[josh4trunks]

Thanks for the feedback.

@thedayisbrave
Yeah, probably too detailed. Guess I can hope most of the details will be still valid or applicable when the time comes. And always got to stay flexible.
Live in a 3 bedroom starter home, ~1200sqft, in neighborhood with homes valued from $250-300K, in California. I would ideally live in a city with a well rated school district and less crime; also if I did have more than 2 kids I'd probably want a larger home.
As for the 401k/403b loan, you suggest I still max them? But also save up for the $100K down-payment separately? I don't see much difference with using other earning or the 401k/403b, assuming they will both be earning at the same rate? Could you explain
Thanks, would definitely look at the numbers at the time.

@v8rx7guy
I guess I should have put those student loan payments on 2016 as well. Been paying as much as possible to that, but I don't foresee paying much more this year because of the amount I still need to contribute to the 457b/401k/403b. I'm seeing contributing to my retirement accounts as more of a yearly priority than my student loans since I'm not paying taxes on that money.

@boarder42
Same as the bold above. Mind explaining how this is worse than taking out of another $100K account earning at the same rate?

@GrOW
I can live on a portion of my pay, yes. Not sure what you mean by supercharge, everything in my plan is maxed except for the 401k/403b this year.
Why would I save for a downpayment for a house I don't yet need for a few years instead of pay off my higher interest student loans? My current plan has me prioritizing maxing my pretax saving, and as a second priority paying our student loans. I foresee the studnet loans >4% being payed off early 2018.

@braje
I already have the loan payback noted in "Age 39-40". I believe I have 60 days or something like that to pay it back.
Then I don't get healthcare, and when I pull my pension it will be 34% of my salary at age 39. This is a somewhat dnagerous part of the plan, so I'd probably play it safe and start looking a few years out. If I really needed healthcare I could take a position I'm over-qualified for like a part-time secretary, then after 6 months retire.

[boarder42]

Your loan will likely complicate the whole situation when you try to buy you have to show proof of funds. And a loan from a 401k doesn't count I don't believe.

[josh4trunks]

Your loan will likely complicate the whole situation when you try to buy you have to show proof of funds. And a loan from a 401k doesn't count I don't believe.

I know someone at my work who has done this, why wouldn't this be acceptable in my case?

[SwordGuy]

401k loans have to be paid back right away if you quit or otherwise lose your job.  Be sure you are ready for that, just in case.

Are you in a field where you can get re-hired after 12 to 15 years out of work?

What if there is a hiring freeze when you hit 52?

[josh4trunks]

401k loans have to be paid back right away if you quit or otherwise lose your job.  Be sure you are ready for that, just in case.

Are you in a field where you can get re-hired after 12 to 15 years out of work?

What if there is a hiring freeze when you hit 52?

Yeah, I realize. I think I'd have about 1-2 year left on the loans, so $20K max.

I explained what happens if I don't go back to work here, in reply to @braje
http://forum.mrmoneymustache.com/ask-a-mustachian/my-plan-for-my-wife-and-i's-retirement/msg1158623/#msg1158623
Another option, if I could afford it, would be to keep applying indefinitely until I do get a position. I can start taking retirement anytime after age 50, but age 55 is an inflection point in the rate vs age graph. After that, waiting longer probably gets you less money because you collect your pension for less years, while your rate doesn't increase much.

[bacchi]

Why would the state hire an unemployed-for-10-years engineer, even if he/she was willing to work as a secretary? That might make it worse, as any manager would know that the engineer would leave the instant a better job came along.

This is the weakest part of the plan.

[Mrs. S]

Live in a 3 bedroom starter home, ~1200sqft,

It really surprises me when a 3 bedroom house is not enough to raise 3 kids. It might be a cultural thing but don't younger kids share rooms?

[josh4trunks]

Why would the state hire an unemployed-for-10-years engineer, even if he/she was willing to work as a secretary? That might make it worse, as any manager would know that the engineer would leave the instant a better job came along.

This is the weakest part of the plan.

Yeah, this is the part that is pretty shaky. But the health insurance policy requires I do something like this.

[josh4trunks]

Live in a 3 bedroom starter home, ~1200sqft,

It really surprises me when a 3 bedroom house is not enough to raise 3 kids. It might be a cultural thing but don't younger kids share rooms?

I've never shared a room, but I was raised like an only child (my sister is 12 years older). So, yeah this is probably an upbringing thing.
Another issue is floorspace, my current home has one shared living space is the front that, at least in my area seems cramped, but in reality is totally livable.