Ok, here goes. Hopefully, I filled this out correctly. I am trying to plan our financial road map for retirement, investing & savings.
Husband and I are 33, with a 1 1/2 year old and a baby due in May (also planning on having 1 more in a couple years). Right now, I set our retirement date at 50 (17 years from now). From the case study it definitely seems we can retire earlier than that but I am concerned about paying for my kids college expenses and loosing out on all of the pension benefits we would receive by retiring early.
A few more points:
-My husband is eligible for a full pension if he works until he is 55. The pension annual amount would be about $44,000 a year. He's a teacher and has a pretty flexible schedule and is very active so he may actually want to work up until that point.
- My job is not as flexible, so if anything, I would love to retire at least when my husband retires. If I can retire earlier than him and we can live well off of his income then that would be great too. I also am eligible for a pension once I retire, the earlier I retire, the less I would get. I would want to have our primary mortgage paid off before either one of us retires.
-We have $215k in retirement accounts ($116K in 401K accounts & $99K in personal retirement accounts through our jobs). This year we will stat to max his 457 Plan and Max my 401K Plan.
- We will start fully funding Back Door Roth's this year once I get my bonus in March
-We have an investment property that will pay off in 2039 if we make no extra payments. Once the mortgage is paid off, we think we would be able to have a annual net rental income of around $21,000. The equity on this property is currently around ~$368K.
-We have a primary mortgage that matures in 2044. I would like to start to make extra payments on it so that by the time our oldest gets to college, it will be paid off. The oldest would start college when we are 49. So paying the mortgage off by age 48/49 is our goal (note the extra mortgage payments are not in the case study below). The rate on this is 4.375%
So here are my questions:
- I have not started saving anything in 529 Accounts. I originally was going to fund up to $10,000 per year to get the maximum state deduction (I am in NYC) but I just listened to a Radical Personal Finance podcast about the disadvantages of investing in 529's and I am having second thoughts. I don't know that I want to tie up my money in those accounts. Should I invest the money somewhere else instead? If we have the mortgage paid off before college starts, we would be able to cash flow some of the expenses and possibly pull from the Roth's. I just would like to have enough to help my children pay for undergrad college so they graduate with no debt.
- Should we start to pay down the investment property loan? The current rate is 4.75%. If we were to have that paid off by the time the oldest went to school, we would have about an extra $21K a year in net rental income.
- Where should we invest the extra money we have? We are maxing out my husbands 457 plan this year (he also has access to a 403B plan that we didn't plan on contributing to).
-Should we do some Vanguard index investing to have access to money for the 5 years we have to wait until the Roth Ladders kick in? Still not clear on this concept yet either.
- I also can contribute money after tax to my 401K and do the Mega Back Door Roth, I think. Not sure about in plan rollovers just yet. I still don't completely understand this concept.
Basically, I am looking for advice on; how to optimally plan for paying for 2-3 kids in college, retiring semi-early, and where to invest our current left over funds.
Category | Monthly | Comments | Annual |
Salary/Wages for earner #1 | $10,982 | 8,417 without bonus | $131,780 |
Salary/Wages for earner #2 | $8,377 | 6,166 without summer school, extra coaching jobs etcc | $100,528 |
Daycare FSA | $417 | | $5,000 |
FICA base salary/wages | $18,942 | | $227,308 |
|
401(k) / 403(b) / TSP / etc. | $1,500 | Room to increase? | $18,000 |
457 plans | $1,500 | Room to increase? | $18,000 |
Employer Match | $382 | | $4,589 |
Income subject to IRS tax | $15,942 | | $191,308 |
|
Pension | $152 | | $1,825 |
Life/LTD Insurance | $41 | | $487 |
Paycheck income before tax | $15,750 | | $188,996 |
|
|
Rental income | $2,660 | | $31,920 |
Rental real expenses | $2,150 | | $25,800 |
Rental depreciation expense | $1,074 | | $12,888 |
Rental taxable income | -$564 | | -$6,768 |
|
|
Federal Total Income | $15,378 | | $184,540 |
|
Federal tax | $2,200 | 2015 rates, MFJ, item. ded., 4 exempt. | $26,398 |
State/City tax | $864 | Guess, using 6.65% * Fed. Taxable | $10,370 |
Soc. Sec. | $1,119 | Assumes 2 earners paying | $13,425 |
Medicare | $275 | | $3,296 |
Total income taxes | $4,457 | | $53,489 |
Add Health + Daycare reimb. | $417 | | $5,000 |
Income before other expenses | $12,219 | | $146,627 |
Monthly Average Expenses: | | | |
Mortgage | $1,782 | | $21,389 |
Property Tax | $323 | | $3,874 |
Home/Rent Insurance | $233 | included is a $40 escrow amount | $2,795 |
Cable TV | $167 | | $1,998 |
Car Insurance | $200 | | $2,400 |
Car Maintenance, Registration, etc. | $150 | | $1,800 |
Child activities | $117 | | $1,404 |
Childcare | $833 | | $9,996 |
Christmas/Holidays | $125 | | $1,500 |
Clothing/Shoes | $167 | | $2,004 |
Dining (Lunch/Dinner/Etc.) | $300 | | $3,600 |
Electricity | $160 | | $1,920 |
Fuel/Public Transport | $455 | Long commute | $5,460 |
Gas/Oil for heating | $135 | | $1,620 |
Groceries | $500 | | $6,000 |
Household; Maintenance | $660 | maintenance, furniture sinking fund and misc household items+ baby items | $7,920 |
Landscaping/Yard work | $50 | | $600 |
Miscellaneous | $500 | Misc plus blow money | $6,000 |
Phone (cell) | $150 | | $1,800 |
Travel/Vacation | $400 | | $4,800 |
Water/Sewer | $71 | | $852 |
Wine/Beer/Tobacco | $50 | | $600 |
Work/Professional fees | $500 | New Car Fund | $6,000 |
Non-mortgage total | $6,245 | | $74,943 |
Loans: | | | |
|
Other tax-advantaged investments: | | | |
Roth IRA | $917 | Above IRS limit - backdoor ok? | $11,000 |
Total Expense | $8,944 | | $107,333 |
Total to invest | $3,275 | | $39,294 |
|
Summary: | | | |
"Gross" income | $19,869 | | $238,428 |
Income taxes | $4,457 | | $53,489 |
After-tax income | $15,412 | | $184,939 |
IRA+401k/403b/TSP/457 (Savers' credit) | $3,917 | | $47,000 |
Living expenses | $8,220 | | $98,645 |
After-tax investable | $3,275 | | $39,294 |
|
|
Time to FIRE?: | | | |
Time to FIRE | 17 | years | |
Safe Withdrawal Rate | 4.00% | percent | |
Real return on tax-deferred investments | 5.00% | percent | |
Real, after tax, return on taxable investments | 4.25% | percent | |
Current Savings | | | |
Tax-deferred (e.g. trad. IRA/401k) | $214,882 | | |
Projected Savings at Retirement | | | |
Taxable | $951,437 | | |
Tax-deferred (e.g. trad. IRA/401k) | $1,541,360 | | |
Roth + HSA | $284,245 | | |
Total projected stash | $2,777,041 | | |
| | | |
Projected Expenses in Retirement | | | |
Non-loan, non-work expenses | $67,119 | | |
Annual non-tax retirement expense | $67,119 | | |
Income taxes | $5,166 | | |
Total | $72,285 | | |
Total loan principal due at FI | $191,943 | | |
| | | |
Stash needed for retirement @4.0% SWR | $1,999,061 | | |
| Have $777,980 extra. | | |
Filing Status | 2 | 1=S, 2=MFJ, 3=HOH | |
# Exempt. | 4 | | |
# Children <17 | 1 | | |
| Earner #1 | Earner #2 | |
Ages | 33 | 33 | |
|
# of earners | 2 | | |
Total Income | $184,540 | | |
Std. Deduct. | $12,600 | | |
Act. Deduct. | $29,298 | | |
Exemption | $16,000 | | |
AGI | $184,540 | | |
MAGI | $184,540 | | |
Taxable | $139,242 | | |
1040 Tax | $26,398 | | |
Saver's credit | $0 | | |
Tax after n-r credit | $26,398 | | |
Child Tax Cred. | $0 | | |
EIC | $0 | | |
Net Tax | $26,398 | | |
Monthly | $2,200 | | |
|
Mtg. Int. (approx.) | $15,054 | | |
State tax | $10,370 | 6.65% | |
Prop tax | $3,874 | | |
Item. Deduct. | $29,298 | | |
Version | V7.09 | | |
Loans: | Orig. Prin. | Orig. Length | Curr. Prin. | Yrs left | Rate |
Mortgage | $357,000 | 30 | $347,557 | 28 | 4.375% |