Author Topic: Reader Case Study - I want to go from dumbass to badass!  (Read 7306 times)

MandalayVA

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Reader Case Study - I want to go from dumbass to badass!
« on: August 22, 2014, 05:30:54 PM »
Brief history--I'm a nearly 48-year-old woman.  My husband is nearly 59 (September is Birthday Month in the Palazzo di Mandalay).  We have no kids.  I was a general fuck-up in my young adulthood for various reasons and really didn't get it together until my mid-thirties.  Yeah, my cross to bear. 

My goal is to be able to retire when my husband does, when I'll be 54, and have enough income to maintain our quality of life until my pension kicks in eleven years from that time.

So off we go!

INCOME:  Roughly $41,000/year.  My husband and I work for the same Humongo Corporation; I've been there 11.5 years and he came in two years earlier.  I don't have a degree but have managed to work my way up the corporate ladder a little.  Our combined annual income from the job is roughly $85,000.  My husband, however, comes from a fairly well-off family and his father sends $5,000 checks every so often.  On our last tax return our income was about $98,000.

Our paychecks go into our joint account.  My husband gives me $720 a month to handle my own bills, plus an additional $150 goes into my personal Fidelity brokerage account.

EXPENSES:  Three years ago we decided to ditch our four-bedroom colonial pile in the 'burbs for a sweet two-bedroom condo in a national historic district.  Our only debt is our mortgage.  We pay off our credit cards in full every month and our cars are paid for, our newest, a 2008 Toyota RAV4, having been bought with cash.

Mortgage:  $1,050 a month.  It's a fifteen-year with a great interest rate.  My husband wants to pay this off in the next three years.
Utilities:  roughly $250 a month
Internet:  $75 a month.  We cut the cable/satellite cord earlier this year and got an antenna installed for news and football purposes.
Food:  between $200 and $300 a month depending on need.  Right now we're spending more because it's summer fruit and veggie season at the farmers market and I'm freezing things like a mofo.
Entertainment:  $150 a month but that might be high.  My husband has a Netflix account, I have Amazon Prime and Hockeystreams ($210 a year combined) and MLB TV ($25 a month).  We've cut way back on dining out, maybe once or twice a month. 
MONTHLY TOTAL:  $1,875

Then there are my personal expenses:

Cell phone:  $73 a month.  I go through AT&T because my employer has a discount program with them.  I have a Samsung Galaxy 4, also discounted through my employer.
Sundries:  $50 a month.  Hey, I'm a chick, I need tampons.  :D
Miscellaneous:  $200 a month on average.  This covers way too much of an area for me to go into detail so I won't.  Well, other than "no Starbucks lattes."  You don't want me caffeinated, trust me.
MONTHLY TOTAL: $323

ASSETS:  As my husband has a couple of trusts and our 401ks are administered through it our banking is done solely through Fidelity.  It works out well because we can use our debit cards at any ATM for free--Fidelity refunds all transaction fees, thanks, dudes!  I'm beneficiary on his trusts.  This is what I have right now per Fidelity:

My brokerage account:  $1, 283.70
My husband's Roth IRA:  $6,294.54
My personal checking account:  $938.19
The joint account:  $1,531.41
Rollover IRA (from a previous job):  $205.32
Roth IRA:  $26,852.31
Husband's account of some sort:  $2,651.34
Husband's trust:  $87,326.58
TOTAL:  $127,081.38

Here's the deal--I am WOEFULLY ignorant about stuff like investments.  My husband adores stuff like that but as I grew up in a lower-middle-class family where money matters were never discussed I get lost reading, even here.  If something happened to my husband I wouldn't have Clue One as to how to pursue things.  Since I have the brokerage account I'd like to play a little bit with index funds, basically grow my own personal nest egg.  As you can see I don't have much to play with but still, every little bit helps.  When I retire I really want to focus on volunteer work--we live in what's politely called a "gentrifying" neighborhood and since I've been at the bottom I feel that I have something to offer to get others out of that mindset.  I'll also add that neither of us are DIYs and aren't interested in being landlords. 

Help a sister out?






« Last Edit: August 22, 2014, 05:36:07 PM by MandalayVA »

MrsPotts

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Re: Reader Case Study - I want to go from dumbass to badass!
« Reply #1 on: August 22, 2014, 05:48:41 PM »
Could you provide a bit more info, like total family income and expenses?   What is net pay for both of you, and what do you do with the dollars you don't spend? 

MandalayVA

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Re: Reader Case Study - I want to go from dumbass to badass!
« Reply #2 on: August 22, 2014, 06:36:59 PM »
I listed last year's taxed income because Mr. Mandalay went into a new position at the job.  Previously, he'd always had commission, now he doesn't.  As I wrote before, my estimate for our current income is $85,000/annually.

Anything we don't spend stays in the joint account. 

MDM

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Re: Reader Case Study - I want to go from dumbass to badass!
« Reply #3 on: August 22, 2014, 11:42:24 PM »
Based on the numbers in the OP, and some guessing about state tax rate, etc., it appears you have ~$40,000/yr to invest after tax.

Does that look about right to you? 

If so, where are you investing it and why aren't total assets much higher than $127K?

If not, how much are the unlisted expenses?  E.g., you listed "your" personal expenses - does your husband have "his" expenses also?

On the surface it appears you should be in great shape to retire in a few years, but it also appears you should have accumulated more assets than you have - so something is missing...?

horsepoor

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Re: Reader Case Study - I want to go from dumbass to badass!
« Reply #4 on: August 22, 2014, 11:52:58 PM »
Does your company offer a 401(k)?

Basically, the first thing you need to do is start filling both of your tax-advantaged accounts, whether that's Roth or 401(k).  That's likely to beat paying off the mortgage if you've got a sweet interest rate on that.

MandalayVA

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Re: Reader Case Study - I want to go from dumbass to badass!
« Reply #5 on: August 25, 2014, 09:11:35 AM »
Knew I forgot something--yes, both my husband and I have 401ks, although he puts more into mine than his, and our company does currently match although there were a couple of years that it didn't due to "money-saving measures."  Right now the balance is $51,341.  As far as I know since from time to time my husband likes to play with it it's the max of 6%.  I've also decided that all extra money I get (overtime, gifts, etc.) will go into the brokerage account.  I've done that on occasion but now I'll make it a regular thing. 

MDM

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Re: Reader Case Study - I want to go from dumbass to badass!
« Reply #6 on: August 25, 2014, 11:07:42 AM »
+1 to all of 4alpacas thoughts here.

Also, is "the max of 6%" truly the maximum you are allowed to contribute?  Your company could have that limit, but 6% looks more like the maximum contribution the company will match...? 

The IRS will let each of you contribute $17,500/yr ($35K/yr total), and that is the maximum that really counts.

Ybserp

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Re: Reader Case Study - I want to go from dumbass to badass!
« Reply #7 on: August 25, 2014, 12:10:07 PM »
MandalayVA - Welcome!

I'm going to make some assumptions to answer your questions. If my assumptions are wrong, my answers will probably be wrong too. And you can choose to provide more information to get better answers, or not.

Assumptions:
(1) Your pension which begins at 65 will fully cover your financial needs from that point onward.
(2) You want your contribution to the family budget to remain $40k/yr from age 54 to 65.
(3) The whole 401k amount mentioned, $51,341, is in your 401k alone. This amount does not include your husband's 401k total as well.

You have $80,620,87 is personal assets. That gives you two years worth of early retirement living expenses right now.

You could:

(A) Seek to get $359,379.13 in savings and stock returns in the next seven years. That would require a gain of $51,339.88 per year. On a $40k income, this isn't feasible. Unless your husband is onboard and the two of you were willing to live on less than one salary while making this big savings effort happen.

(B) Seek to get the absolute maximum value out of every dollar and plan to keep your portion of the living expenses under $7,329.17/yr during your 11 years of retirement before age 65. Once again, your husband would need to be onboard with this because your frugality during those years would almost certainly affect him as well.

(C) Seek to do something in between A and B. Now that you have the two extremes A ($51.3k/yr set aside in the next 7 years for $40k/yr for the last 11) or B ($0k/yr set aside in the next 7 years for $7.3k/yr for the last 11) you can pick something in the middle. Let's say you choose to start living on $20k/yr now and saving the other $20k/yr. At the end of 7 years, your total assets are $220,620.87. You can then withdraw $20,056.44 per year for the next 11 years before your pension kicks in. Your new lifestyle now would be the same as  the lifestyle you could afford in early retirement.

I'm in favor of C because if two years into the Save $20k/yr Plan you discover you hate it, you can scale back. You could give yourself a lifestyle raise to say $22k/yr and invest only $18k/yr and plan to work an additional year to make up for it.

Catbert

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Re: Reader Case Study - I want to go from dumbass to badass!
« Reply #8 on: August 25, 2014, 12:12:23 PM »
I don't think paying off your mortgage with a sweet interest rate is the best use of cash.  But then I'm not the one you're married to.  ;-)  A compromise might be to pay enough extra that the condo is paid off when he retires in 6 years. 

Do something with the $205 in a rollover IRA.  Because of the small  amount you're probably paying fees for it just to exist.  Roll into your current 401k (if possible) or convert to a Roth.

I agree with others, your 6% "max" is probably the maximum match, not the maximum you can but in your 401k.  Up that % and keep upping it as you get pay raises or otherwise free up cash.

 

MandalayVA

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Re: Reader Case Study - I want to go from dumbass to badass!
« Reply #9 on: August 25, 2014, 01:12:42 PM »
MandalayVA - Welcome!

I'm going to make some assumptions to answer your questions. If my assumptions are wrong, my answers will probably be wrong too. And you can choose to provide more information to get better answers, or not.

Assumptions:
(1) Your pension which begins at 65 will fully cover your financial needs from that point onward.
(2) You want your contribution to the family budget to remain $40k/yr from age 54 to 65.
(3) The whole 401k amount mentioned, $51,341, is in your 401k alone. This amount does not include your husband's 401k total as well.

You have $80,620,87 is personal assets. That gives you two years worth of early retirement living expenses right now.

You could:

(A) Seek to get $359,379.13 in savings and stock returns in the next seven years. That would require a gain of $51,339.88 per year. On a $40k income, this isn't feasible. Unless your husband is onboard and the two of you were willing to live on less than one salary while making this big savings effort happen.

(B) Seek to get the absolute maximum value out of every dollar and plan to keep your portion of the living expenses under $7,329.17/yr during your 11 years of retirement before age 65. Once again, your husband would need to be onboard with this because your frugality during those years would almost certainly affect him as well.

(C) Seek to do something in between A and B. Now that you have the two extremes A ($51.3k/yr set aside in the next 7 years for $40k/yr for the last 11) or B ($0k/yr set aside in the next 7 years for $7.3k/yr for the last 11) you can pick something in the middle. Let's say you choose to start living on $20k/yr now and saving the other $20k/yr. At the end of 7 years, your total assets are $220,620.87. You can then withdraw $20,056.44 per year for the next 11 years before your pension kicks in. Your new lifestyle now would be the same as  the lifestyle you could afford in early retirement.

I'm in favor of C because if two years into the Save $20k/yr Plan you discover you hate it, you can scale back. You could give yourself a lifestyle raise to say $22k/yr and invest only $18k/yr and plan to work an additional year to make up for it.

I've gotten raises every year I've been with my company, even the year it wasn't giving out raises because I switched departments and it was considered a promotion, and historically I go up at least $1000 a year, so I estimate I'll be making $46,000 annually by the time I retire.  The pension would be adequate to cover my needs, and the 401k amount is my personal account.  I know that my husband's 401k is less because since I'm younger he thought it was more important to build up my account.  The $205 Roth I'm pretty sure isn't mine so I'll suggest to my husband to put it in his own; if it is mine I'll roll it into the other one.

I should advise my husband has an additional trust not shown here that is administered by his father, who is 82 and in poor health.  However, outside of one sister the rest of the family (three more sisters) are being supported by his father out of that trust.  One is blind, another is psychotically lazy--she's a surgical nurse but between her bad attitude and feigned injuries she hasn't worked in about two years--and the third sister has never held a real job in her life (she's my age).  SIL 3's husband got canned from his job last month--they also have a 16-year-old daughter--so my FIL's shelling out for mortgage payments and credit card bills and dinners out because FSM forbid any of them should sell their stupidly expensive houses or not go to Costa Rica or even cook their own meals.  Ironically the best-situated out of all of them is the Blind SIL, who lives in a small apartment and who's sitting on a pretty fat nest egg--which I'm sure that when my FIL boots off the other two leeches will show up with their hands out.  As I'm sure you've guessed this family has more issues than Readers Digest.   We have an idea of how much is left in the trust, but the way it's hemmorhaging money we're not counting on getting much out of it.

Ybserp

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Re: Reader Case Study - I want to go from dumbass to badass!
« Reply #10 on: August 25, 2014, 01:49:58 PM »
Good luck to you. From your description of your husband's family situation, it sounds to me like you should not count on him receiving any inheritance. And you as a couple might be best off if you really didn't get another dime if that meant the other family members did not expect him to become their new source of economic outpatient care.

MandalayVA

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Re: Reader Case Study - I want to go from dumbass to badass!
« Reply #11 on: August 25, 2014, 02:14:08 PM »
Good luck to you. From your description of your husband's family situation, it sounds to me like you should not count on him receiving any inheritance. And you as a couple might be best off if you really didn't get another dime if that meant the other family members did not expect him to become their new source of economic outpatient care.

No, as I've said my Blind SIL will take over that job--if she lets them.  She's always been kind of a doormat but with the current situation she's stepping up and defending herself.  One of her friends is a retired CPA, and my husband and the One Responsible SIL have already talked to her and the CPA about the situation.  My husband and I have considered becoming Blind SIL's trustees after my FIL's death so that when the hands come out we can spit in them.  Because they will.  The concept of having ANY sort of savings or living within one's means is completely lost on both of them. 

rmendpara

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Re: Reader Case Study - I want to go from dumbass to badass!
« Reply #12 on: August 25, 2014, 07:40:30 PM »
Great you have a pension that will cover your living costs. That plus SS (after 60) should result in a comfortable retirement.

Same as MDM, if you don't mind my blunt question: Where has all your money gone? You made $98k last year, so even if it was a high income year, I don't understand how your lifetime accumulated total assets are only ~$130k.

As far as learning about investments, just start reading. It will take LOTS of reading. Learning the basics, knowing what a 401k means and how it works vs. a taxable account. How to develop an asset allocation.

Hard to give more specific tips without understanding what's gone wrong in the past (or where you think your shortcomings are, besides not understanding your investments).

MandalayVA

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Re: Reader Case Study - I want to go from dumbass to badass!
« Reply #13 on: August 26, 2014, 07:45:35 AM »
Since a lot of people are asking a lot of questions I thought I would clear the air a bit.

I'm not totally ignorant about investments.  I know how 401ks and Roth IRAs work, but when I came here and started reading about index funds and stuff like that I was like "okay, yeah, I need to learn some stuff."

My husband does not manage my personal accounts.  I pay my own bills and most of the household bills.  I'm going to start putting a lot more into my brokerage account and from there venture out into investing on my own.  From the time we've been married (16 years) I have always insisted on having my own money and my own credit cards.  Now I think it's time to have my own investments.  And yes, one of the reasons I'm trying to learn things is in case something happens to him.

As you can see from my previous posts, my husband comes from a family that should be the poster children for Anti-Mustachians.  I come from a lower-middle-class family so being frugal comes naturally to me because of the necessity of having to be so as a child.  With him it's not the big things, but the small stuff like the Starbucks thing; I've gotten him out of that habit.  The biggest stumbling block is both of us lack ability to fix things.  As you might have guessed, he is very used to having others come in to do things and has no desire to learn.  I'm a little handier but that's not saying much.  We're lucky that we live in a neighborhood where there are guys willing to help out  (some may be Mustachians) without taking us to the cleaners.  When we sold our first house and moved into the condo, we made a pretty decent profit and invested it in good solid furniture and kitchen equipment--which we are keeping for life.

The income I cited is before taxes and deductions.  No doubt due directly to the ACA, our company mandated last year that employees whose spouses worked for companies that offered any sort of health insurance would no longer be allowed to carry them on their insurance.  As a result, my husband and I have to have separate health insurance policies.  Ironically when we retire we can go back to him paying for both of us.  Our insurance is very good--when my husband had to get his knees replaced three years ago we only had to pay $700 out of pocket.  I don't know the full cost of everything but I do know that his initial three-day hospital stay before being moved to the rehab hospital--just the stay, not the cost of the knees or anything else--was $160,000.  Some money will be freed up because we're changing long term care insurance to another company which is much cheaper and offers more coverage.  We plan on getting much more aggressive with saving now that the Six Year Plan has gone into effect.  We're in better shape than a lot of people, but we're really starting to hammer out the realities of what we need to do in order to get where we want to go.

Also, I need to add that I won't get Social Security until I'm 67, thanks to the change of the law a few years ago that affected anyone born after 1960.

nereo

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Re: Reader Case Study - I want to go from dumbass to badass!
« Reply #14 on: August 26, 2014, 10:00:47 AM »

Also, I need to add that I won't get Social Security until I'm 67, thanks to the change of the law a few years ago that affected anyone born after 1960.

Sort of.  The "full retirement age" has moved so now it will be 67 for anyone born after 1959.  However, you can still take distributions at age 62 or you can wait until you are 70 - or any age in between. When you start taking distributions determines how much you will get for the rest of your natural life. If you are able to wait until you are 70 you will get substantially more ("delayed retirement credits").
More details here: http://www.ssa.gov/retire2/retirechart.htm

MandalayVA

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Re: Reader Case Study - I want to go from dumbass to badass!
« Reply #15 on: August 26, 2014, 10:53:35 AM »

Also, I need to add that I won't get Social Security until I'm 67, thanks to the change of the law a few years ago that affected anyone born after 1960.

Sort of.  The "full retirement age" has moved so now it will be 67 for anyone born after 1959.  However, you can still take distributions at age 62 or you can wait until you are 70 - or any age in between. When you start taking distributions determines how much you will get for the rest of your natural life. If you are able to wait until you are 70 you will get substantially more ("delayed retirement credits").
More details here: http://www.ssa.gov/retire2/retirechart.htm

Thanks, nereo, good to know.  I can wait until 70.  Actually, I've already gotten SS in my life being a minor child and having a parent die.  Benefits are paid until the child is 18.