Hello Mustachians,
My wife and I found this blog in January and have been devouring it ever since. While she's been out shaping the minds of our next generation as a teacher, I have been marching up the corporate ladder in order to feel more "secure" by earning more money. It could definitely be said that we've decided to take the red pill after having been blissfully living a consumer lifestyle, oblivious of our marketing and financial services brainwashing.
The good: - We have no debt
- We spend less than we earn
- We put all of the expenses we can on our CapitalOne Venture card (2% back) and pay it off every month
- We max out our retirement accounts
- We've saved quite a bit of cash
- We have 5 bikes + a trailer (I used to race and want to get back to it again)
The bad: - 1 Car (2014 Subaru Forster, Paid in Full)
- We have done almost nothing with our money
- What we have done has performed poorly
- 401k fees are killing us
- We're not nearly as Mustachian as we should/could be
- We're worried we've missed the boat on FI.
I'm 36, DW is 34, we have a 3yo and would like to have one more child. We currently live in the California, so between the property values, cost of living, and taxes, it's a challenge spending as little as we would like. We're incredibly excited about accelerating our FI so we can relocate back to our hometown in New England, near family, good schools, and more reasonable real estate and cost of living. We would love the opportunity to follow in MMM's footsteps and focus on being parents while our kids are young/in school. We'll definitely end up working some after FI, but prefer to do more soul searching and finding ourselves before we commit to anything.
We think we could possibly make this happen in the next 5 years, but are still so new to it all that we're unsure how realistic that really is. I'll leave my questions for the end of this post, but would greatly appreciate feedback and guidance from this incredible community.
Thanks in advance!
Gross Income:
DH | $212k + $53k Bonus (25%) |
DW | $65k |
TOTAL: | $330k/yr |
"Traditional Retirement" Savings:
DH | $17,500(401k) |
DW | $17,500(403b) |
TOTAL: | $35k/yr |
Net Income:
DH | ~$118k | UPDATE:* Additional info see Addendum #1.
|
DW | ~$35k | |
TOTAL: | ~$153k/yr | ~$12,750/mo |
Current expenses:
Home | $2,800 | Rent |
Kids | $1,650 | Childcare + $100 misc. |
Food & Dining | $800 | Groceries + $100 dining out |
Allowance | $750 | Personal spending |
Bills & Utilities | $500 | |
Insurance | $140 | Auto, Renters, Valuable Property (bikes, computers, furniture) |
Phone | $140 | |
Electric | $100 | |
Water | $70 | |
Internet | $50 | Includes basic cable "for free" |
Netflix | $8 | |
Shopping | $500 | Family spending |
Travel | $500 | Budget for $6k/year for 2 East coast trips |
Auto & Transport | $300 | |
Health & Fitness | $100 | Meds, co-pay, etc. |
TOTAL: | $7,900/mo | $94,800/yr |
TOTAL Cash flow: $4,850/mo, $58,200/yrExpected ER expenses:
Home | $1000 | Property Tax, Insurance |
Food & Dining | $500 | Groceries + $100 dining out |
Allowance | $500 | Personal spending |
Bills & Utilities | $283 | |
Heat | $85 | Potentially $1k/yr for heating oil |
Insurance | $50 | Automotive |
Phone | $40 | |
Electric | $50 | |
Water | $0 | |
Internet | $50 | |
Netflix | $8 | |
Shopping | $200 | Family spending |
Travel | $400 | Vacation travel UPDATED |
Auto & Transport | $100 | |
Health & Fitness | $100 | Meds, co-pay, etc. |
TOTAL: | $2,933/mo | $35,196/yr |
UPDATE: Increased ER Travel budget by $200. Updated ER Expense totals.Assets:
Cash - Savings | $193k | Previously down payment savings |
Cash - CDs | $90k | Laddered 2015-2019 "Emergency fund" |
401k | $250k | Fidelity |
401k | $21k | Fidelity (Previous Employer) |
403b TDA #1 | $50k | TIAA-CREF (Previous Employer) |
403b | $40k | TIAA-CREF (Previous Employer) |
403b TDA #2 | $8.5k | TIAA-CREF |
Roth IRA | $4.5k | USAA |
Betterment | $3k | |
Brokerage | $7k | USAA - 99 shares of Facebook IPO |
Brokerage | $3k | Vanguard |
Brokerage | $0 | Fidelity |
Brokerage | $0 | ETRADE |
TOTAL Cash: | $286k | |
TOTAL Retirement: | $374k | |
TOTAL Investments: | $13k | |
TOTAL: | $673k | |
Liabilities: $0
Employer Equity5/2013 | 8500 RSU | 1 yr cliff, 4 yr vesting |
2/2014 | 1500 RSU | 1 yr cliff, 4 yr vesting |
TOTAL Unvested Value: | $550k | (10000 RSU @ $55.00/share) |
Our immediate plan to get to FI1. Consolidate brokerage accounts into Vanguard (close them)
Betterment | $3k | |
Brokerage | $7k | USAA - Facebook IPO |
Brokerage | $0 | Fidelity |
Brokerage | $0 | ETRADE |
2. Move Cash+CDs into Vanguard brokerage account
Cash - Savings | $193k | |
Cash - CDs | $90k | |
3. Allocate 'stash
VTSAX 100%
or
VTSAX 88%
VMMXX 12%
or
VTSAX 50%
VGSLX 25%
VBTLX 20%
VMMXX 5%
4. Move Roth IRA to Vanguard
5. Convert 401k into Vanguard Roth IRA (backdoor conversion)
401k | $21k | Fidelity (Previous Employer) |
6. Make 2013 IRA backdoor Roth contribution into Vanguard Roth IRA
DH | $5,500 | |
DW | $5,500 | |
TOTAL: | $11k | |
7. Rebalance 401k based on overall asset allocation
8. Figure out what to do with old TIAA-CREF accounts
403b TDA #1 | $50k | TIAA-CREF (Previous Employer) |
403b | $40k | TIAA-CREF (Previous Employer) |
9. Rebalance 403b based on overall asset allocation
403b TDA #2 | $8.5k | TIAA-CREF |
10. Figure out optimal auto,renter,valuable property insurance situation (High deductible?)
11. Figure out optimal health insurance situation (HSA?)
DH+child | $232/mo | Employer Kaiser HMO |
DW | | Employer Kaiser HMO |
12.
UPDATE: Figure out appropriate Federal and State withholdings to increase take home pay.That would leave us with a account portfolio looking something like the following.
Cash - Savings | $15k | USAA |
401k | $250k | Fidelity |
DH Roth IRA | $36.5k | Vanguard |
DW Roth IRA | $90k | Vanguard |
403b TDA #2 | $8.5k | TIAA-CREF |
Brokerage | $281k | Vanguard - VTSAX + FB |
Notes:1. We'll have to purchase a house when we relocate to New England. The decision boils down to needing $500k upon FI for a house, or $250k for a house plus $100-$200k over the following 10-12 years for tuition.
2. I included my employer equity though it's not real money until it's in the bank. My intention is to sell/cover and hold for long-term cap-gains. Also, I should receive roughly the same 1500 share grant annually until FI.
Specific Question(s):1. Given our current (or proposed) assets/allocation a) is FI possible in 5yrs at $35k/yr
2. How should we structure funding our FI before 59.5yo, before 70, after 70?
3. Punch us in the face over our current and ER expenses. Please.
4. Does our FI plan seem reasonable? What are we missing?
5. Given our ages, we're comfortable being aggressive or extremely aggressive with our AA but are still unsure how that works if we also need to live off that AA. We just cribbed JLC's simple allocations, so happy to have some pointers here.
6. We're still only learning about Roth conversions and especially backdoor conversions especially given our pre-FI income bracket. What are we missing in that part of the plan?
7. WTF are we supposed to do with TIAA 403b annuities? I'm hoping we can just treat them like other funds, but have no idea.
8. We're trying to have another child, and the Kaiser HMO fee for our first (which included 5 days in the hospital and a c-section) cost us $100.00. DW and I have separate healthcare plans right now with child #1 on my plan. Given our 5yr horizon, is it worth considering moving off my plan onto an HSA plan?
9. What is the most reasonable way to consider the employer equity in our net worth/AA? Should we consider just taking the ordinary income hit for some guaranteed cash rather than gamble with long-term cap-gains?
* Addendum #1: Paycheck InformationPrimary Deductions:Federal Income Tax: | $1,454.55 | Withholding = 1 |
State Income Tax: | $533.49 | Withholding = 1 |
State Disability Insurance: | $84.09 | Mandatory disability/unemployment fund |
Social Security: | $522.37 | |
Medicare: | $122.17 | |
TOTAL: | $2716.67 | |
Other Deductions:Dental: | $16.50 | |
Kaiser HMO: | $116.00 | |
401k: | $800.00 | |
TOTAL: | $932.50 | |
Net: | $4892.50/chk | $9,785.00/mo |
* Addendum #1: Relocation TaxationReader
Thegoblinchief astutely noticed the high property tax numbers in our ER Expense breakdown. Here's a the short answer why we've budgeted $12k/year for property tax and insurance. The state we're planning on relocating to has no state income tax. Because of this, the state/towns primarily make up for those funds with higher property taxes. the 2013 tax load for our home town was almost 18% which would be $9,000/yr for a $500k home. Additionally, our hometown happens to be one of the more affluent towns in the state. That's a pain financially, but it comes with other benefits such as great schools and more robust/diverse culture. This is why we have to make a decision about Note #1 above. We have an option of living in an adjacent town and where property prices and tax rates are lower. The tradeoff is having to drive more due to the rural nature of the towns, and potentially having to tuition our kids into the good schools.
UPDATE: I was able to direct-rollover 80% of my 401k funds into my tIRA at Vanguard since those were from a previous rollover. This opens up a whole new world for my AA.