Reader Case Study – Can this plan work? Semi-retire on 220k! What can we do bett

[AlwaysLearninginPA]

Life Situation: MFJ, no dependents yet. 26 and 27 year old couple in PA, USA.

Gross Salary/Wages: $58K and $55k

Pre-tax deductions: 401k—max x 2, Traditional IRA max x 2, approx. $250 a month for insurance (soon to change, but not by much). FSA is available, but we have not used it. Until Mar 2016, using the employer solo 401k deduction for another $1k/m (not included in adjusted gross income since this won’t be possible after Mar)

Other Ordinary Income: Attempting to monetize a few hobbies (gardening, blogging, editing/tutoring), but nothing to speak of at this point

Adjusted Gross Income: $63000/y; $5250/m

Taxes: (all yearly) Local: $1130 (1%); State: $3469 (3.07%), Federal: approx. $4747, FICA: approx. $3900 (these estimates are really rough—I am not totally sure what wages they are relying on, whether it’s the gross, AGI, or something in-between. Currently one of us is filing as a contractor which has really complicated this)

Current monthly expenses:
Property Taxes and Insurance: $365
Mortgage payment: $609.50
Car registration: $6 (2 vehicles)
Car insurance: $37
Comcast Internet: $40
Republic Wireless: $25
Sewer: $22
Water: $37
Natural Gas: avg $52 (tracked past 10m)
Electric: avg $47 (tracked past 10m)
Planet Fitness: $20 (soon to be $10/m due to new health benefits)
Groceries: $465 (One of us is on a special diet for a medical condition requiring expensive supplements—some of those are in here. This diet has also required avoiding many inexpensive foods due to ingredient issues, etc., so eating cheaply has been rough. This also includes bulk buying at BJ’s and household items)
Fast food and restaurants: $60/m (We are working on this)
Travel: $167
Fuel: $79
Auto repairs: $75 (see below)
Vet/pet toys: $69 (puppy with a voracious appetite for inedible objects…)
Blog fee: $6
Gifts: $83
Entertainment (movies, video games, etc): $21
Clothing: $50 (most of this has been for other people’s weddings and should not continue)
Doctor bills: $100
Garden/Home: $22 (Not including $9k spent in 2015 for new furnace, hot water heater and a/c)

Total monthly spending: approx. $2457.50
(Something about this seems off, but we paid $$$ in taxes upfront due to self-employment tax issues, $9k on new HVAC, employer solo 401k contributions, etc.)


Expected ER expenses: I am going to assume that as things go down other things will go up when we have children, so I’ll say it will stay about the same. Our goal is $25k spending but I don’t know if that is realistic???

Assets:
Property: Valued at $170k
Current asset allocation approx. 90/10; looking to switch to 80/20 around age 50
Investments: $111k (1 trad401k, 1 solo trad401K, 2 tradIRAs, and $2k in a Roth IRA)
Savings account: $11k (mostly reserved for large purchases in the near future)
Vehicle 1: 2000 Malibu worth about $2k (Have put substantial work into the car the past 2 years to pass inspection, but overall the car is sound and should last. I hope. 155k miles)
Vehicle 2: 2013 Camaro worth about $22k (see below)

Liabilities:
Mortgage: $119k remaining (original loan $124k), 30 year loan beginning 2013; 4.125%

Specific Question(s):
Due to various medical issues, it is likely we will have fertility problems. Thus, we want to start a family soon to avoid age-related issues as we get closer to 30 (not that 30 is old, but I don’t want to push my luck). Due to other health issues, it would be better if we did not work fulltime while raising children. Although ideally we would like to both be home fulltime, it looks like that would be unrealistic in our given timeframe and so we are happy with both working part-time as long as is needed.

This is our current financial plan. How does it sound to you? Is this something we are likely to be able to swing, or are we taking on way too much risk?

Limiting expenses:
•   Avoiding car expenses by getting e-bikes. The bikes we are looking at are expensive, but the range on the bikes we are looking at will allow us both to bike to work every day and also allow us to bike to all the places we normally go to that are “out of range” of our regular bikes
•   Selecting more budget-friendly recipes that fit strict diet
•   Seriously considering outfitting the Camaro with a hitch so it can be a hauler and possibly even snow tires for winter to get rid of other car. DH does not believe that we can live with just the Camaro. We drive about 3-4k miles a year. With the e-bikes, this will be significantly reduced. DH’s concern is that we won’t be able to fit 2 baby seats in the Camaro so we will need another car then (DH is a twin). Thoughts on this?
•   Replacing very leaky doors in house to avoid heat loss. We cannot lower the heat any lower (yet another medical condition), but we rarely use A/C
•   Our closest friends and family will all be married off by the end of the year, so hopefully we will have fewer gift and other wedding expenses in the future

Other big purchases:
•   Roof must be replaced within the next few years. Seriously considering metal roofing with solar panels and a green roof section. Unsure how to do this ourselves/if we should attempt

Plan:
•   Limit expenses to $25k/y
•   Put 60k/y (minimum) into savings in 2016 and 2017. End of 2017 have 220k in investments
•   2018—Have child early in year. Both take FMLA and go to part-time after. Gross income reduced to $60k/y, take-home after taxes $45k. Anything over $25k goes into taxable investments. When taxable investments equal mortgage principle, pay off mortgage (good idea???)
•   2024—Reduce part-time hours. Take-home income $25k. Continue to allow investments to grow. Ideally only stay in this phase for 10 years before ready to live off of investments
•   Should conception be difficult, we would continue working fulltime until it worked out

This is basically semi-retiring on a portfolio of only $220k. Part of me is very anxious that part-time work in our fields isn’t really available in our area. Tutoring is always an option but somewhat inconsistent. We have employers that are likely to frown upon this reduction in hours, so it may be difficult to stay where we are. We aren’t sure how to manage that particular battle when things are so tight. In 2018, we will both turn 29. If it takes longer to conceive, that puts us right at the age line I am worried about. If it happens right away, things might be way too tight. Obviously a lot of that is up to chance, but I’m a natural planner so this is particularly difficult.

If you made it this far, thank you! To sum it up: is this plan crazy, or could it actually work? Am I missing something big, or is there something else I need to consider? All thoughts appreciated!

[Cassie]

I think the biggest thing you need to determine is if you can get decent paying p.t. jobs in your field. Your other option would be for you to be a SAHM and have your hubby keep working f.t.  It would be too risky for me personally.

[AlwaysLearninginPA]

@Cassie, I think you are right. I am currently switching from contractor to FTE at my current job and it is possible in a year I will have a better idea if PT will work at the current employer. But I think we will have to research this more. DH is also attempting to switch companies, which makes things tricky

[AlwaysLearninginPA]

@Ihamo, managing 2 part-time careers is definitely something I am unsure of. Maybe I should try to find people in my area who are doing that already and see how that works for them.

As far as slowing down after kids go to school, I guess I don't have a good answer for that except that I hope at that point the house will be paid, dropping expenses significantly. I have a lot of hobbies and side interests and working is really getting in the way of them. I am great at what I do, and I get fulfillment out of it... for the first 3-4 hours of every work day =). But that is definitely something to consider. Thank you

[mozar]

If there is a line for female fertility, it's more like 38 (in recent studies). But if you have medical issues, for all you know it could already be too late. Have you gone to a fertility doctor? They can tell you how many eggs you have left. It could be you have plenty, it could be you are already done. Only one way to find out. I think that doctors say vague things to push women into having children earlier then they need to, because they think young women should be having babies, so it also may be good to get a second opinion. Do you have pcos or endometrioses? (I'm not actually asking you to tell me). Conception is still possible with either or those. Is freezing your eggs a possibility? It costs about 10k right now, and will hopefully go down. There are also treatments for low sperm count.
I think  you need to take a breath. It sounds like you are still in the major unplanned expenses phase in life. I think you need a few years to see how things settle down. But planning all the while of course.

[DebtFreeBy25]

Fertility and reproductive health issues are unpredictable. My mother had endometrioses, ovulated irregularly, struggled to conceive and miscarried a few different times in her 20s. They were insistent on having a child, so this was a major to-do in their marriage. My parents saw a fertility specialist who determined that the fertility issues were with my mother's ovulation/uterus and not with my father's sperm count/quality. She finally had me at 29 after several years of TTC and miscarrying a few previous pregnancies.

Fast forward several years, she has since divorced my father and is married to an unstable man. She's not TTC but believes that she is infertile. Surprise! She experiences a healthy, unplanned pregnancy at 38. Unfortunately, she doesn't learn her lesson about her new-found fertility, so surprise again, another unplanned, healthy pregnancy at age 42. She fortunately got a copper IUD after my sister because it was another decade before the beginning of menopause.

In other words, you are quite young and haven't even TTC yet. You may see your fertile years running out, but statistically speaking, you've still got plenty of time. From another perspective I'm ardently child-free and struggling to convince a practitioner to give me a tubal ligation (super frustrating as the major obstacle at my current age is that I've never been pregnant). Personally I see another 15+ years of potential fertility for myself and am highly uncomfortable having to rely on birth control for all of those years. TLDR: That pressure to have a baby now because you may not be able to in a few years is definitely internally driven at this point.

What I would recommend: Ask your gyno to assess your current reproductive health and whether you should speak to fertility specialist. It looks you're planning to wait two years (2016 and 2017) before TTC, and I think this is smart. You should also proactively figure out a plan for health insurance. I'd highly advise securing good medical coverage (read: not high deductible) before you even TTC. Is it possible that either you or your husband could work mostly from home? (Suggesting this from a quality of life perspective, I definitely don't think that it's realistic for one person to try to WAH full-time and simultaneously care for a small child.) Financially, it probably makes sense for at least one of you to remain a FTE for the benefits. Personal recommendation, you should both continue working even if it's only very PT freelance. In addition to maintaining a sense of independence and professional identity, it will make it easier to get work in the future and return to work FT if necessary.

Last bit of advice: Worry less. You're obviously a smart, methodical, well-planned person. Your budget is well-analyzed and reasonable. Have confidence that you're the kind of person/people who are more than capable of figuring it out, whatever "it" happens to be.
   

[arebelspy]

This is basically semi-retiring on a portfolio of only $220k.

It's not so much semi-ERing on the portfolio of 220k, because you aren't planning on spending any from that 220k, right?

It's more like switching to part time work, so that your PT work covers your expenses, and you save nothing.

Then, meanwhile, the portfolio you've built earlier, grows until you hit FI from that.

In those generic terms, I think it's a totally viable plan.

If a Mustachian can save 75% of their income, there's not a ton of reason they can't work part time, earn 1/4th of what they did, and just live on that, saving none.

In fact, I think this is an ideal plan for a lot of people, in a lot of ways.

The ACA should be your best friend with this plan.

Some things may need to be refined, and questions answered, but the framework is viable.

[AlwaysLearninginPA]

Apologies in advance for multiple messages in reply.. not quite sure how the quote thing works.

@mozar, I like the "unplanned expenses phase of life" comment-- I am feeling like that is the case! That makes me hopeful that in the future things might be a little more predictable? Since being diagnosed with my most recent problems, my conversations with the doctor have been focused on what to do since I don't want to have children yet--I think you are right that I should ask about that testing. I've been a little afraid to, but it is on my mind, and it is better to know.

[JLee]

Side note:
2018—Have child early in year. Both take FMLA and go to part-time after. Gross income reduced to $60k/y, take-home after taxes $45k.

You won't be paying 25% total tax with $60k gross income, married filing jointly with a child. Assuming $4800 and $4380 for mortgage interest / insurance/taxes, your federal income tax burden is somewhere under $5k.

[2Birds1Stone]

This is basically semi-retiring on a portfolio of only $220k.

It's not so much semi-ERing on the portfolio of 220k, because you aren't planning on spending any from that 220k, right?

It's more like switching to part time work, so that your PT work covers your expenses, and you save nothing.

Then, meanwhile, the portfolio you've built earlier, grows until you hit FI from that.

In those generic terms, I think it's a totally viable plan.

If a Mustachian can save 75% of their income, there's not a ton of reason they can't work part time, earn 1/4th of what they did, and just live on that, saving none.

In fact, I think this is an ideal plan for a lot of people, in a lot of ways.

The ACA should be your best friend with this plan.

Some things may need to be refined, and questions answered, but the framework is viable.

^ This!

The more I plan SO and I's exit strategy the more I realize that this sort of plan makes sense for us as well.

There are a LOT of things we want to do in our late 30's - 50's that can be achieved while working seasonal/ part time jobs that we will likely throw in the towel on the corporate world once our nut is large enough to support our bare bone living expenses at 3.5% SWR.

From there we will enjoy life, work when needed, and try not to touch the stache' too much.

[AlwaysLearninginPA]

[I think I got the quotes figured out now...]

@DebtFreeby25, Thank you for the words of encouragement! I am a planner by nature, ha, so I do have that going for me! And thank you for sharing your story about your mom. I have heard that that can happen with endo--you have so much trouble, and then it just heals itself after a pregnancy. What strange things the body does...

TLDR: That pressure to have a baby now because you may not be able to in a few years is definitely internally driven at this point.

   

That is very true! No one has been pressuring me--I just look up all my problems and am putting pressure on myself. I should be doing more asking...

Also, I know I am an internet stranger, and you might not see this reply anyway, but--the hormonal IUD is great and is actually more effective than a tubal ligation (!!!) and it's 100% reversible. Might be a good option, since it sounds like you are still pretty young? Absolutely no effort apart from replacing after 8-10 years (or shorter if you do change your mind), limited periods, and the limited hormones stay in your uterus, if you are worried about them flying around your bloodstream =). Because of a blood clotting predisposition, it's the only hormonal BP that is safe for me to use. Just a thought to consider, if you haven't already!


@arebelspy

This is basically semi-retiring on a portfolio of only $220k.

It's not so much semi-ERing on the portfolio of 220k, because you aren't planning on spending any from that 220k, right?

It's more like switching to part time work, so that your PT work covers your expenses, and you save nothing.

Then, meanwhile, the portfolio you've built earlier, grows until you hit FI from that.

EDIT (confusing wording): Yes, that is the plan exactly. Make as much money as possible, stow away and leave it alone. Then in part-time work, make what we need to live off of once we have a child and stash any extra. Thinking of starting that stashing into taxable accounts to be able to grab it for the house as a lump sum, but then I lose tax benefits... don't know if others have ideas on that. I will probably have to do more calculating to maximize tax benefits. At 4.125% interest, I (maybe too optimistically) hope that I can beat the market in other accounts, but having lower yearly expenses is very tempting...

I am hoping the ACA will continue in a similar fashion, I think it will be a huge help in flexibility.

Some things may need to be refined, and questions answered, but the framework is viable.

Did you see anything in particular, or do you just mean as time goes on? Obviously I will have to tweak as we go along, but any big items that look out of place, feel free to comment.

Thank you all!

[AlwaysLearninginPA]

You won't be paying 25% total tax with $60k gross income, married filing jointly with a child. Assuming $4800 and $4380 for mortgage interest / insurance/taxes, your federal income tax burden is somewhere under $5k.

Oh, that is a happy miscalculation on my part =). Thank you for pointing that out! Oh taxes...

The more I plan SO and I's exit strategy the more I realize that this sort of plan makes sense for us as well.

There are a LOT of things we want to do in our late 30's - 50's that can be achieved while working seasonal/ part time jobs that we will likely throw in the towel on the corporate world once our nut is large enough to support our bare bone living expenses at 3.5% SWR.

From there we will enjoy life, work when needed, and try not to touch the stache' too much.

Glad to see others considering it! Although at 3.5% you are taking on MUCH less risk than I am considering! I just wish that more professional jobs in this country were accommodating to part-time work. In my field, people do freelance, but that is more effort than just going to the same place every day haha and, after doing some freelance, I do prefer the consistency in a lot of ways. But, I'm willing to do it to make this plan work if I can keep the hours in check.

[arebelspy]

Some things may need to be refined, and questions answered, but the framework is viable.

Did you see anything in particular, or do you just mean as time goes on? Obviously I will have to tweak as we go along, but any big items that look out of place, feel free to comment.

Thank you all!

No, I mean up front, now. Related to your budget, the part time work, applying for health care, and just generally what your life structure will be like.

Have a plan to go from work to PT work, and what it will look like, before you take the leap.

You figured out the multiple quotes in one post thing MUCH faster than 99% of posters, so I'm confident you'll figure out the semi-ER stuff easily enough.  ;)

[DebtFreeBy25]

That is very true! No one has been pressuring me--I just look up all my problems and am putting pressure on myself. I should be doing more asking...

Also, I know I am an internet stranger, and you might not see this reply anyway, but--the hormonal IUD is great and is actually more effective than a tubal ligation (!!!) and it's 100% reversible. Might be a good option, since it sounds like you are still pretty young? Absolutely no effort apart from replacing after 8-10 years (or shorter if you do change your mind), limited periods, and the limited hormones stay in your uterus, if you are worried about them flying around your bloodstream =). Because of a blood clotting predisposition, it's the only hormonal BP that is safe for me to use. Just a thought to consider, if you haven't already!

An excellent suggestion! I was going to get a hormonal IUD a few years but didn't because it required a second visit and my gyno likes to insert them during menstruation. (I've been continuously cycling my birth control for years and am irregular by nature, so I can't just summon a withdraw bleed whenever I wish.) From what I understand 30 may be the magic number for getting a tubal (specifically Essure, the coil method), so I intend to start making calls to see if I can find a practitioner who will do it after or ideally before my next birthday. I've been set on never have biological children since forever, have extensive childcare experience- those much younger siblings I mentioned- and have been married for several years to man who also has no desire to produce offspring, so I'm an extremely strong candidate.

Good luck to you when you're ready to TTC. You may find it much easier than you anticipate. Bodies can be funny like that. Every child deserves a conscientious, thoughtful parent like you, and your future offspring will be more fortunate than most, regardless of finances.