Author Topic: Newbie and ready for a face punch!  (Read 5159 times)

kelly1mm

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Newbie and ready for a face punch!
« on: September 29, 2012, 01:27:35 AM »
Hello all!  Been a reader for a while and on ERE and thought I should get a face punch/check up.  A bit about my situation and then the gory details.

Wife and I are in our mid 40s.  Live in rural area 125 miles from a town of over 50,000.  We like it here though and do not want to move.  Rural = lower wages.  No kids.  For the first 40 years of our lives we were like the masses as far as consumption (a bit under, haven't had credit card debt for over 15 years) and that caused us to think we were doing OK.  Kind of had a pre mid life crisis and started thinking what is the meaning of it all.  Probably about the time we found out we were not going to have kids, either naturally or via adoption.  Anyway, read YMOYL, Walden, Possum Living and other simple living books.  Started making some seeming drastic changes and wife is mostly on board.  That led to ERE and that lead here.  When looking at the following we are trying to retire in 10 years (specifically June 2023, wife is a teacher)

Hard Assets:
House: value = $175,000 with a $106,900 4% 15 year mortgage 13.5 years remaining (net $69,000).
Cars (4 of them!  Will get to that a bit later): $17,000 total
401k/403b: $28,221
IRA: $46,107
Roth IRA: $2257
MMA/Emergency fund: $18,289
Checking: $8,279
PM's (current value): $5266
TOTAL: $194,419

Soft assets:
Pension #1: Comes on line July of 2023 = $989 per month in current $ and inflation adjusted.
Pension #2: Comes on line in August 2027 = $280 per month NOT CURRENT, actual amount but is THEN inflation adjusted

Debts:
HELOC: $8280  (this WAS $34,000 November of 2011, been putting all extra $ to this)
School loans: $34,860 at 2.9% fixed

So, not including the pensions, our current net worth is $151,279.  That is pretty bad for a 42/45 year old couple!  SELF PUNCH to the FACE!

OK so what do the monthlies look like?  Here you go!

Net income $5790
Mortgage (PITI) = $1154
HELOC payment = $2500 (min = $50)
Utilities (water, garbage, electric)= $210
School loans = $285
Car insurance = $105
Food/household/pets = $318
Gas = $214
Cable/telephone/internet = $115
Cell phones = 12 (recent change from $112 per month to prepaid)
Habits (mine is cigs- 10x face punches, hers is beads for jewelry) $160
Clothes: $60
Eating out: $85*
Alcohol = $45
Charity =  $400
Prescriptions = $27
Gifts/misc = $100

Monthly investments:
403b (no match) = $115
401k (SWEET 125% match on 6% BUT low income because part year) = 140 from me, 175 from them = $315
Pension = $238

Savings rate (being most generous by including Mortgage principle paydown, HELOC paydown and investments / net income+ employer match + deferred comp) is  3668 /6458 or 57%

Now for my excuses ...... I mean reasons for some of the more punch worthy expenses .....

Cars = remember we are RURAL.  No mass transit.  Wife works 9.5 miles away 190 days per year.  I work 6.3 miles away 52 days per year.  Nearest grocery store = 27 miles.  That is 2 cars.  3rd car was my father's and we used to work on it together.  Cost for insurance and registration = $112 per year, drive it less than 1000 miles per year.  4th car is a BIG TRUCK, a 89 F-250 4WD.  Bought it for $700 4 years ago.  Cost the same $112 per year for ins/reg.  Use it to harvest 4 cords of wood per year for heating, saving about $1000 per year.  Drive it less than 500 per year.

Eating out = This is actually a very mustachian thing in that I am only paying food cost.  I hold the liquor license for a out of state owners of the local Indian restaurant  (we are now really good friends with them).  We go there once a week and have a bottle of wine with dinner.  The leftovers are taken home and we eat them again for the next night's dinner.  So cost is $20 per week  but that gets 4 meals, a bottle of wine, and takes care of date night!

Cigs = no excuse.  I suck!

Plans = Pay off the HELOC by December 2012. From January 2013 till June 2023 add $200 per month to the mortgage to make sure it gets paid off by retirement date.  The other $2300+ raises will go into savings.  In December, 2015 we could use that savings to pay off the mortgage.  We will probably do that.

So, if you made it this far, START PUNCHING AWAY!   Any comments, suggestions, questions?

Thanks for reading!  Love this place and the forums are GREAT
« Last Edit: September 29, 2012, 02:23:20 PM by kelly1mm »

gooki

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Re: Newbie and ready for a face punch!
« Reply #1 on: September 29, 2012, 03:47:55 AM »
You have a plan, now stick to it.

If you are still smoking next year, you will get face punched.

It Figures

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Re: Newbie and ready for a face punch!
« Reply #2 on: September 29, 2012, 06:12:30 AM »
Could you stop the $400 to charity and do volunteer work instead?

Another Reader

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Re: Newbie and ready for a face punch!
« Reply #3 on: September 29, 2012, 06:43:38 AM »
In your shoes, I would stop or severely reduce the charity until I had paid off more of the debt and substantially increased my retirement savings.  Contribute time or goods such as some extra wood you collect instead.  Your future pension income is a drop in the bucket of what you will need, so I would put a high priority on that.  It's a worthwhile goal to pay off the HELOC, but I would fund both 2012 IRA's and increase my contributions to the tax deferred workplace savings as a higher priority.  Take what is left and hit the HELOC.

The student loans are annoying, but I would attack them after I paid off the HELOC and increased the retirement savings.  The interest rate is favorable, and you can't go back and fund retirement savings for past years if you stop to pay off the student loans and the HELOC.

The remaining items are all fairly reasonable to me.  Just keep an eye on places to cut over time. 

And quit smoking, like yesterday.

« Last Edit: September 29, 2012, 07:54:38 AM by Another Reader »

herisff

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Re: Newbie and ready for a face punch!
« Reply #4 on: September 29, 2012, 07:51:20 AM »
Re: your big truck - you may have good friends who also have a big truck. Could you borrow their big truck for your wood expeditions and ditch yours? As recompense for your friends, have them over that night for dinner or take them out to the Indian restaurant, thereby cementing your friendship AND being able to ditch your truck? Just a thought, and it may not work for you depending on how often you go get wood.

frugal_engineer

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Re: Newbie and ready for a face punch!
« Reply #5 on: September 29, 2012, 08:35:20 AM »
Not sure where you are geographically, but 6.3 miles is a pretty short bike ride, especially if its only 52 days per year.  Maybe a bad plan if youre in the mountains somewhere, but it will add another incentive to stop smoking so you can exert yourself with some clean lungs.

Stash  the fuel costs and the cig costs!

kelly1mm

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Re: Newbie and ready for a face punch!
« Reply #6 on: September 29, 2012, 08:47:58 AM »
Re: your big truck - you may have good friends who also have a big truck. Could you borrow their big truck for your wood expeditions and ditch yours? As recompense for your friends, have them over that night for dinner or take them out to the Indian restaurant, thereby cementing your friendship AND being able to ditch your truck? Just a thought, and it may not work for you depending on how often you go get wood.

I could borrow my FIL's (or BIL, or several friends) truck as this is a rural area and 'everybody' has a truck!  I really should ditch the truck.  I went back and checked the mileage and for the last year I drove it 91 miles in a total of 6 trips.  Even at super low reg/ins that works out to over $1 per mile not including gas.  Add in gas and it is about $2 per mile.

Thanks for the imput.

kelly1mm

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Re: Newbie and ready for a face punch!
« Reply #7 on: September 29, 2012, 08:51:46 AM »
Not sure where you are geographically, but 6.3 miles is a pretty short bike ride, especially if its only 52 days per year.  Maybe a bad plan if youre in the mountains somewhere, but it will add another incentive to stop smoking so you can exert yourself with some clean lungs.

Stash  the fuel costs and the cig costs!

I am in WAY western Maryland.  Basically WV mountains.  Beautiful but really hilly.  I DO need to stop smoking though.  I did once for over 4 years.  Hated it and wanted a cig every day of those 4 years.  Started back up as part of the pre mid life crisis.  Other changes were for the best, the cigs not so much.

kelly1mm

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Re: Newbie and ready for a face punch!
« Reply #8 on: September 29, 2012, 08:56:38 AM »
Could you stop the $400 to charity and do volunteer work instead?

This is already a compromise with the wife.  It is tithe.  Used to be straight 10% pre tax ($200 per week).  We cut it down to 100 per week.  Wife won't go less even with in kind contributions (I run the church's food pantry).  It is what it is.

kelly1mm

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Re: Newbie and ready for a face punch!
« Reply #9 on: September 29, 2012, 09:29:52 AM »
In your shoes, I would stop or severely reduce the charity until I had paid off more of the debt and substantially increased my retirement savings.  Contribute time or goods such as some extra wood you collect instead.  Your future pension income is a drop in the bucket of what you will need, so I would put a high priority on that.  It's a worthwhile goal to pay off the HELOC, but I would fund both 2012 IRA's and increase my contributions to the tax deferred workplace savings as a higher priority.  Take what is left and hit the HELOC.

The student loans are annoying, but I would attack them after I paid off the HELOC and increased the retirement savings.  The interest rate is favorable, and you can't go back and fund retirement savings for past years if you stop to pay off the student loans and the HELOC.

The remaining items are all fairly reasonable to me.  Just keep an eye on places to cut over time. 

And quit smoking, like yesterday.

Most of the above has already been commented on except the 'pensions will be a drop in the bucket to future needs' comment.  I am not so sure they will be a drop in the bucket.  Here is my math:

Pension #1 = $11,868 pa
Pension #2 = $3,360 pa
Total = $15,228 pa / $1268 pm

Total current expenses - P&I of the mortgage, school loans and cutting 200 from charity = $1,763

So, even with some non-mustachian spending, the base retirement budget is $21,156 pa.  Pensions cover 15,228 of that (or 72% of total need) leaving $5,928 needed from retirement funds.  Using a 4% SRR, that should be $150,000 needed.  Right now we have $76,585 of that.  Doing nothing but keeping up with current 403b/401k contributions and with not gains would add $54,180 to that.  We also would be putting $2500 per month away (assuming we pay off house in Dec 2015) so 7.5 years of 2500 pm would be $225,000, again, with no interest gains.  Total those up and the total as of retirement should be minimum $343,000. 

That would be $13,720 at a 4% SRR.  Add that to pensions and we have a income of $28,984 pa.

Does this sound about right?  Am I missing something?

 As for health care we would qualify for medicaid as our income would be less than 133% of the poverty line.

EDIT:  Forgot to add in the P+I from the mortgage after it is paid off to the savings.  That is $856 per month/ $77,000 over the time period.  That ups the stash to 435K or 17k pa at 4% SRR.
« Last Edit: September 29, 2012, 02:25:14 PM by kelly1mm »

Another Reader

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Re: Newbie and ready for a face punch!
« Reply #10 on: September 29, 2012, 09:45:48 AM »
Yep.  Inflation.  Also pension investment risk, as most of these systems are underfunded with any reasonable rate of return applied.   However, I did overestimate, forgetting some things will be paid off.

What about Social Security?  Do either of you contribute?

Could you sell wood for some of the tithe?  Pick up some extra work?  The idea is to max out savings now and let investment gains do the heavy lifting.

Also, are you sure you want Medicaid as your health care provider?  What about dental, is there a public program for that?  What are you doing for health insurance now? I don't see an expense for that.

kelly1mm

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Re: Newbie and ready for a face punch!
« Reply #11 on: September 29, 2012, 10:21:43 AM »
Yep.  Inflation.  Also pension investment risk, as most of these systems are underfunded with any reasonable rate of return applied.   However, I did overestimate, forgetting some things will be paid off.

What about Social Security?  Do either of you contribute?

Could you sell wood for some of the tithe?  Pick up some extra work?  The idea is to max out savings now and let investment gains do the heavy lifting.

Also, are you sure you want Medicaid as your health care provider?  What about dental, is there a public program for that?  What are you doing for health insurance now? I don't see an expense for that.

Both pensions are government.  One is US, one is state (MD).  Both are inflation adjusted.
Both of us qualify for Social Security with no offsets.  Did not include that but should be $2300 per month for both of us combined if taken at 62.  More if we wait.  That is our backstop.

Health care now is through employment.  $228 per month is our cost.  I used net for the income so that was included in the gross but not net.

Do I WANT Medicaid?????  Not really.  I don't know yet if you can buy insurance through the exchanges that start in 2014 IF you qualify for medicaid, as everything seems to be based on taxable income.  I certainly don't want to pay 12k per year if I forego Medicaid and instead opt for 'regular' insurance but then get no subsidy.  A bit of a perverse outcome if you ask me.

I am working at the church for my tithe (run the food pantry).  Wife wants to pay cash.  Already discussed and this was the compromise.

Thanks for your comments!  They made me think!

Another Reader

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Re: Newbie and ready for a face punch!
« Reply #12 on: September 29, 2012, 10:58:21 AM »
Some pension systems have insurance plans associated with them.  Often a portion of the cost is paid by the system and the retiree pays the rest.  Have you looked into whether you and/or your wife could get health insurance through the retirement systems?  The rules may change by the time you retire, but it's hard to eliminate future benefits entirely for current employees in government systems.

Is your part time job something you can do until you are ready to retire?  Is it secure long-term?  Is it physically demanding and something you might "age out" of before you both retire?  Something else to consider in your calculations.

With at least some Social Security likely to be available in your 60's plus some form of Medicare at 65, that lessens your long term needs.  However, I'm all about having options and more income rather than less, so my plan to fully fund retirement is still what I would follow, if I were in your shoes.  Yes, I would pay everything off before retirement if possible, but I would want the security of the income/asset cushion.


kelly1mm

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Re: Newbie and ready for a face punch!
« Reply #13 on: September 29, 2012, 11:25:49 AM »
Some pension systems have insurance plans associated with them.  Often a portion of the cost is paid by the system and the retiree pays the rest.  Have you looked into whether you and/or your wife could get health insurance through the retirement systems?  The rules may change by the time you retire, but it's hard to eliminate future benefits entirely for current employees in government systems.

Is your part time job something you can do until you are ready to retire?  Is it secure long-term?  Is it physically demanding and something you might "age out" of before you both retire?  Something else to consider in your calculations.

With at least some Social Security likely to be available in your 60's plus some form of Medicare at 65, that lessens your long term needs.  However, I'm all about having options and more income rather than less, so my plan to fully fund retirement is still what I would follow, if I were in your shoes.  Yes, I would pay everything off before retirement if possible, but I would want the security of the income/asset cushion.

I have looked into the insurance through the pension plan.  This is really in flux as it does not take into account the shake out due to the ACA, especially after 2014.  I fully expect that the state will do away with retiree health care benefits once the ACA takes effect.  IF it stays the same as now we COULD get the same insurance we have now for $821 per month.  If my wife works till 62, it would drop to $291 per month.  Medicaid or a subsidised plan through the exchanges would make much more sense, at least to me.

My job(s) are both non-physically demanding.  One is done from home durring the winter/spring (tax related).  One is at the courthouse on a contract.  The courthouse gig is longterm and I can (probably will) keep at it post 'retirement'.  That is only 5 hours per week and nets 13k per year.  The tax gig is not as secure (and has the kicking 125% 401k match) as the technology is always changing as well as the tax code.  I would probably keep doing this as well, so I guess it is only my wife who is retireing.  Basically I guess I was planning for worst case senario/FI, instead of FIRE.

Social Security, again, is my backstop.  Not included as I am not as sure it will be there as the others. 

Also, in doing the calculations above, I forgot to add to savings the PI from the mortgage to savings after the mortgage is paid off.  That (with 0 growth) would result in a $435,000 (2/3 after tax) stash at 55.  17000 per year at 4% SRR.  I edited the above post.
« Last Edit: September 29, 2012, 02:26:28 PM by kelly1mm »

Another Reader

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Re: Newbie and ready for a face punch!
« Reply #14 on: September 29, 2012, 11:49:39 AM »
Check with the retirement systems.  There will still be employer based insurance plans and most likely subsidized products from pension systems.  The exchanges will be for folks that don't have insurance through their employers.  The retirement system I get my insurance through is going to an exchange system for the supplemental Medicare plans for 2013, but they are still subsidizing the plans.

I understand your detailed planning process, but with all the unknowns, consider overfunding your portion of your future income.   It's better to be conservative and well equipped to roll with the punches. 

kelly1mm

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Re: Newbie and ready for a face punch!
« Reply #15 on: September 29, 2012, 12:02:19 PM »
Check with the retirement systems.  There will still be employer based insurance plans and most likely subsidized products from pension systems.  The exchanges will be for folks that don't have insurance through their employers.  The retirement system I get my insurance through is going to an exchange system for the supplemental Medicare plans for 2013, but they are still subsidizing the plans.

I understand your detailed planning process, but with all the unknowns, consider overfunding your portion of your future income.   It's better to be conservative and well equipped to roll with the punches.

True, having too much saved is never really a problem!  I guess I was just checking to see if there was anything I was drastically missing.  From the coments it looks like just a few tweeks are needed (quit smoking, sell some cars!, that sounds familiar!) to be in great shape but, as far as I can see, I seem to be in OK shape barring pension implosion/SS implosion.  If that were to happen, we are all in a world of hurt as old people dying in the streets is not good for societal morale, if you get my drift.