Author Topic: Reader Case Study: Will we ever retire?  (Read 4793 times)

Futtee

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Reader Case Study: Will we ever retire?
« on: October 10, 2014, 04:43:44 AM »
Background:

I'm a 44 year old stay-at-home mom to two little boys, 2.5 and 4 yo.  My husband is 54 and is a licensed social worker.  He just started his own private practice in April (2 hour car commute became a 7 min. walk.  Totally badass :).  I am working part-time as his scheduler, biller, claims adjudicator, marketer, etc.  We save money by not having to hire someone, and this allows him to focus 100% on seeing patients.

Income:  For this year, projected net is 25-30K.  We are hoping that next year we are in the $60-70K range, but it is hard to really predict until we have a few years under our belt.

Expenses:  Approx $4,000/mo.  $1K/mo in deductible business expenses (rent and misc. office expenses).  The rest is living expenses.  We live fairly frugally….or do we? I have modified this post and have broken out expenses, and I see there are places to trim fat.  Our older child is enrolled in an expensive preschool that a relative generously paid for, and we are keeping our fingers crossed that she will pay again for year 2 of preschool.  If not, we will have to factor that in to our living expenses next year.  We could transition him to a different preschool but this would not be ideal for him.  The little one goes to daycare two days a week also so I can get work done and also stay sane.  He will go to a far less expensive preschool next year (although I will have less time to work then since it will only be 2 hrs/3 days a week).  Daycare this year and preschool for the next two years are our biggest expenses.  No vacations on the horizon. 

Here is a breakdown of our expenses for September:
Groceries : $450
Home supplies:  $100
Fuel:  $125 (gas to get to and from expensive preschool for #1, daycare for #2)
Gas & Electric:  $240 (we use YNAB and save this amount every month; bill much lower in summer, higher in winter)
Basic cable + internet:  $63 (part of this is deductible since I work from home)
2 cell phones:  $190 (we use these for business so partly deductible.  I have thought about switching but have not really looked into it all that much…we drank the iPhone kool aid and not sure how to sober up!!)
Trash & recycling:  $25
Municipal water:  $40
Home Ins:  $33
Life Ins (husband): $69
School and Property Taxes:  $198 (gotta love NY)
Health insurance:  $0 at the moment due to our projected annual income (thank you NY); will likely change next year so I try to save about $75/mo for Future Health Insurance
Daycare:  $450/mo.  Preschool is $0 due to generous benefactor but if we had to pay for it, it would be an additional $700/mo.
Car insurance:  $61
Kids catch-all (diapers, clothes, activities, etc): $200
Xmas, Bdays, Other special occasions:  $200
Pizza:  $44
Netflix:  $8
Boxed wine:  $46
Monthly car service and inspection savings:  $30
Roof replacement in 2015 savings:  $200
Snow/Lawn & Garden:  $50
Adult clothing:  $40
One-off expenses: $73 for driver's license renewal
Anything left over is earmarked for either Roth 401K contribution or 529's (not sure which, that is one of our questions).


Liabilities:  None.  House is paid for (est. $275K).  We will likely keep the house when we retire.  Cars are paid for ('03 Impreza, '06 Outback).  I have tried to get the hubs to give up the Impreza, but he feels strongly that we need it.  He is a musician and has weekly gigs as a side hustle, so the 2nd car is mostly used for that purpose.  His feeling is that when he is out playing, he does not want me to be stranded at home with no car if there is an emergency with one of our kids.  He also drives the car to yoga twice a week in the am while I am driving kids to school/daycare.  He could ABSOLUTELY ride his bike to yoga as it is one mile away, but, his mustache is more of a 5 o'clock shadow at the moment.

Assets:  We were DINKS for quite some time and I had a wonderful 6-figure job that allowed me to save...we also inherited money in '07.  We are currently working with a financial planner that has worked with my husband's family for several years.  Assets including cash in checking account include $680K.

1.  Metlife Annuity worth about $92K.  We are still in the first 7 years and cannot withdraw without penalty.  I think in 2017 we will have some flexibility.  Not sure why we ever thought this was a good idea!?
2.  Inherited fixed annuity from NY Life for about $27 or $28 K.  My father had it set up as a qualified IRA. Surrender period ends in Dec.  Not sure what to do with this - perhaps roll into Roth IRA?
3.  Husband's Roth Ira and my Roth IRA - his has $35K, mine has $32K.  Invested in MFS Moderate Allocation B (MMABX).  High fees, Expense ratio 1.8%, sales load.  Should we migrate to Vanguard accounts?
4.  My rollover IRA:  $33K  all invested in PIMCO Real Retirement 2050 PFYPX.  I guess I'm stuck with this until PIMCO shakes out? Otherwise we are considering perhaps moving this to and IRA at Vanguard: Vanguard Total Retirement Funds 2040 or 2050.
5.  Husband's Rollover IRA: almost $200K.  Invested in various mutual funds:  FINSX, FKSAX, AMEFX, IGFFX, OHYFX, MUSEX, NEFFX, OYEIX, OOSYX, and 30% in PIMIX (grrrr...)
6.  We have an investment account with approx $220K invested in a range of mutual funds.  Most have E/R's under 1%.  ATDYX, OHYFX, NEFFX, OYEIX, OOSYX, OIDYX, and unfortunately 43% in PIMIX (double grrrr...).
7.  529 plans for boys, each have only $5K in them.

Here are my burning questions:
1.  Should we migrate any/all our investments to Vanguard or Betterment?
2.  Should we try to take advantage of our very low tax bracket this year and do a Roth conversion for my husband's IRA?
3.  Husband is going to open a Roth 401K. Anyone have ideas on best place to do this?
4.  Should we be putting any extra savings into 401Ks, or 529's?  Our plan is for my husband to work full time for 10 more years and then drop down to part time at age 70.  This will coincide with children's college.  We would like to pay for 50% of state school for each of them.  If we have $50 or 60 K each saved for them by the time they go to school, we will be overjoyed.  BUT, we will not save for college at the expense of our retirement.
5.  My biggest question is, will I need to go back to work in 2 or 3 years in order for both of us to be fully retired in 15 years?  I know we shouldn't count on social security, but my husband is 54 and it is likely he will receive it - at least $2K per month.  I will have a pension of $1K/month starting at age 65.  I have earned enough to qualify for SS ($1096 at age 62, $1556 at 67 or $1930 at 70 with 0 projected future income).  We do not plan on a lavish retirement - we'd like to be snowbirds and spend the winters somewhere warm, but plan on continuing our frugal lifestyle.  Would be nice if we could both have monthly massages in our retirement, LOL!!!

Thank you so much MMM readers for any insights you can share.  I love this forum and appreciate all of the wonderful advice and expertise.
« Last Edit: October 10, 2014, 07:04:25 AM by Futtee »

Setters-r-Better

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Re: Reader Case Study: Will we ever retire?
« Reply #1 on: October 10, 2014, 06:08:18 AM »
Will you be selling the house in retirement?  Looks like investment add up to about 640, 000?

MrsPete

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Re: Reader Case Study: Will we ever retire?
« Reply #2 on: October 10, 2014, 06:12:14 AM »
A couple things you could do today to save more:

- Take a couple's massage class . . . and give one another massages.  Quit the professionals.

- Drop pre-school.  Consider how this became a "middle class need":  Head Start was begun in the 60s as a way to give a "leg up" to at-risk kids who weren't getting what they needed at home -- that is, kids who weren't learning their colors, shapes, counting, who weren't learning to enjoy books.  Middle class people, who already were giving their kids those basics at home, started saying, "Well, if it's good for them, it would be good for my kid too."  And the "need" for preschool was born.  Long-term, preschool gives no benefit to a kid from a positive home environment. 

My personal experience: My oldest didn't do preschool, though she came home from the hospital to a room with a filled bookcase, and she had lots of exposure to nature, museums, craft supplies, and other educational items at home.  She was the second highest scholarship winner in her graduating class, and she is currently making As as a nursing student at a large university.  Clearly her lack of preschool didn't hurt her.  In contrast, my youngest DID attend preschool.  It was coincidence that it worked out that way -- it wasn't necessarily a plan on our part.  No real difference in their academic performance over the years. 

The big point:  If preschool is easy and affordable, do it . . . but if it's a financial stretch, it's something you can skip without fear of negative consequences. 

- Your husband walks to work. You're at home.  Why do you have two cars?  Get rid of one, and it'll be a huge money saver. 

- Should you get a job in a couple years?  Big question, and I'm not sure we have enough information to adequately answer.  I'd lean towards no -- you have relatively substantial assets, and -- as you say -- your husband is fairly sure to collect Social Security.  Plus you're providing him help for work, which he would probably have to "hire out" if you were working elsewhere.  You might consider something part-time to bring in a bit of money.  For example, perhaps you could band together with another SAHM to put together a day care that'd be open only on teacher workdays -- working parents struggle to find coverage for those oddball days.  Or a seasonal job at Christmas. 

However, at the same time, I'd ask whether you yourself have worked enough time to collect Social Security in the future, and I'd ask if your retirement funds are strong enough to withstand inflation. 




 

MayDay

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Re: Reader Case Study: Will we ever retire?
« Reply #3 on: October 10, 2014, 06:22:39 AM »
I would like to see a breakdown of your expenses, as they seem quite high given you don't have a mortgage. 

I consider preschool 100% necessary to my sanity, and anyway if you are working it is really just a childcare expense.  But by all means, compare the cost of an in-home daycare or other babysitter to the cost if preschool.  For me, pre school is cheaper on an hourly basis.  If it wasn't, a play based daycare would be fine for my younger kid who is very bright and social.  We would have just sent her to daycare once or twice a week, but preschool is actually cheaper. 


RichMoose

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Re: Reader Case Study: Will we ever retire?
« Reply #4 on: October 10, 2014, 06:55:50 AM »
Your expenses are on the higher side considering you don't have a mortgage payment. $3800 in monthly non-business expenses should be easy to drop to about $3000 or less. I would start with selling one vehicle. Save those monthly maintenance and insurance costs, along with the eventual replacement.

I would consider moving funds to Vanguard (or Fidelity Spartan if you prefer). You currently are holding a laundry list of funds with almost everyone in the business. I would move to a much simpler holding like the Boglehead 3-fund portfolio or something along those lines: http://www.bogleheads.org/wiki/Three-fund_portfolio

Yep, a Roth conversion would be smart if it doesn't trigger a tax penalty. It might be your one chance until retirement, if his business takes off. I would consider moving all your funds to one location such as Vanguard (or Fidelity). So opening new accounts should be done there as well.

You are actually nor far from FI in many ways, I would keep doing what you're doing. If your husband can pull in $70k on his business, you could just work there and still achieve FI in 15 years and take advantage of income splitting.

Futtee

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Re: Reader Case Study: Will we ever retire?
« Reply #5 on: October 10, 2014, 07:14:50 AM »
Thanks so much everyone for your input, it is invaluable!! Some awesome suggestions here.

Setters:  We are planning on staying in our home after retirement.  Hopefully we will not have boomerang children but I'm sure many readers know how that goes…

Mrs. Pete and MayDay:  Great points about pre school.  Daycare/preschool definitely a necessity for sanity and work reasons.  I think I need to really just find the least expensive options.  I added a breakdown of our expenses to the post, as well as my projected SS income..  Also added some info about the 2-car situation.  Need to work on husband…and yes, if I no longer work for my husband either he needs to hire someone to do the work, or he has to reduce his productivity by about 30-40% to do the work himself.  Neither of those are great options!

TuxedoEagle:  I agree, we definitely have more wiggle room with expenses.  A lot of this is trying to work on the husband and get him on board with cutting expenses.  Thank you for the advice on consolidating.  I have been thinking we need to do this but again getting the hubs on board is an issue since our financial planner has been 'in the family' for a very long time.  That will be a difficult conversation to have.  I think I need to show him how it will eventually save us money.  Will talk to our accountant regarding tax penalties for Roth conversion...

Catbert

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Re: Reader Case Study: Will we ever retire?
« Reply #6 on: October 10, 2014, 01:21:48 PM »
This sounds like a great year to do Roth conversions while you have an unusually low income.  Do a projected tax return NOW.  Talk to your CPA if you have one or just play with 2013 version of TurboTax or another on-line preparer.  Decide what bracket you want to fill up 10%? 15%?  Do some conversions to fill your bracket.

Regarding you inherited fix annuity in an IRA.  This might be a good candidate for the Roth conversion.  Since its in an traditional IRA (I assume) you'll need to pay tax on the distribution.  Since its inherited you'll need to take distributions and pay taxes on it as long as its an inherited IRA.  Hmmm...can you do Roth conversions on a inherited IRA?  Must admit I'm not sure... 


Futtee

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Re: Reader Case Study: Will we ever retire?
« Reply #7 on: October 10, 2014, 03:21:26 PM »
Mary W., yes, great idea bout doing the tax return NOW.  I am going to give our accountant a call and see what he comes up with.  And will have to look in to what to do with that inherited IRA.  Would love to convert that to Roth.  If it's possible to do, this should not be a huge tax event because it's only earned about $2K.

Thanks for the great ideas and suggestions every one! 

Any thoughts on 401K vs 529?  I'm thinking 401K is the smarter place to put any extra funds at this point...

Catbert

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Re: Reader Case Study: Will we ever retire?
« Reply #8 on: October 10, 2014, 04:13:38 PM »
Mary W., yes, great idea bout doing the tax return NOW.  I am going to give our accountant a call and see what he comes up with.  And will have to look in to what to do with that inherited IRA.  Would love to convert that to Roth.  If it's possible to do, this should not be a huge tax event because it's only earned about $2K.

Thanks for the great ideas and suggestions every one! 

Any thoughts on 401K vs 529?  I'm thinking 401K is the smarter place to put any extra funds at this point...

When you take money out of an inherited IRA you owe income tax on the total distribution.  The tax basis on a traditional IRA is not stepped up upon death.

Futtee

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Re: Reader Case Study: Will we ever retire?
« Reply #9 on: October 10, 2014, 04:46:31 PM »
aaaah, yes.  Bummer!!!

1967mama

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Re: Reader Case Study: Will we ever retire?
« Reply #10 on: October 10, 2014, 08:37:39 PM »
A word on needing a car "in case of emergency." Many years ago we had a real live emergency where my 18 month old son fell out a 2nd floor window. I rode in the ambulance with him and my other children stayed with a neighbour. YMMV. But I'm fairly certain that had no neighbours been available, the paramedics would have brought the other children with us.

For minor emergencies like running out if an ingredient for a recipe, I taught myself to pre-read the recipe and confirm that I had all the ingedients before I started (or a reasonable substitution). I kept up a good supply of staples (powdered milk, flour, sugar, oil, etc) so that I could make many things without needing to run to the store.

I always made sure that the medicine cabinet was well stocked, especially with children's items. And I kept a "sick day kit" with ginger ale, saltines, Gatorade, applesauce packs etc)

Hope this helps!