Author Topic: Reader Case Study - I'm kind of on my way. What do you think?  (Read 3514 times)

huapala07

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Reader Case Study - I'm kind of on my way. What do you think?
« on: February 04, 2015, 02:28:54 PM »
Age: 33 this month
Stay at home wife (29) with 2 year old and one expecting in March
Florida (No state tax)

Income: Gross income - $30,600
Adjunct pay for 4 courses a year: $1800 each = $7200
Total income: $37,800
Net income: $32000?

Current monthly expenses:
Car insurance (2 cars - Hyundai Elantra and Honda Fit)   70
Health Insurance   276
Car Registration   6
Gas   75
Car maintenance   100
HOA   44
Home insurance   109
Home tax   109
Utilities   235
internet   43
groceries   400
Haircuts   20
Dry cleaning   5
Misc   300
Medical    $50
Total:  $1842


Expected ER expenses: None?

Assets:
Monthly pay: $2666
House - Paid off mortgage in slightly over 2 years.  House bought for $118,000 as foreclosure.  Zillow says its worth $168,000 now, but I doubt it's that high.  Maybe $130,000?
VA disability: $133 a month
TSP - $5000
Work 401b - $22,000 Fidelity (98%ish in stocks) - My employer contributes 7% of my income toward retirement (currently $2142).
Vanguard Roth IRA - $10,900 VTSAX (100%)
07 Honda Fit Sport Manual - paid off
09 Hyundai Elantra Automatic - paid off

WIC and Medicaid for children

Liabilities: Credit card bills that I pay off every month (All rewards cards)
No debt

Specific Question(s): I don't make a lot of money, but I've always been frugal and my wife is frugal.  My wife would like to go back to work, but this probably won't happen for another 5 years.  However, I'm hoping to contribute at least $5,500 into my Roth IRA.  I just started adjuncting at my school last fall, but I think I should be able to teach 4 classes a year.  I will also start my PhD this May, but my school will be basically paying all of the tuition.  I just need to pay for the expenses for my annual visit to the UK to meet with my supervisor.  If I can get a college teaching position one day, I wouldn't mind working until I suddenly die while lecturing ;p.  The leadership at my school likes me and several (even the provost) said they'd like to see me teach here one day.  But even if not and I stay in my current position, I wouldn't mind doing this for another 20 years.  However, I'd like to have the security of financial independence by the time I'm 65 (earlier the better of course).  If I contribute $5500 every year and my stocks grow 7% every year, I should be close to a million by the time I'm 68.  This is also not taking into account my wife going back to work one day.  Do you guys think we're doing well?  One thing we will not give up is two cars.  However, I'm hoping that we can hit at least 200,000 miles on both cars, which means our cars should last about 20 years total. 

Once my wife goes back to work, I'd like her to maximize her annual Roth IRA contribution as well.  We'd also like to send our kids to private school.  We are willing to make that sacrifice.  Where we are in Florida, we do not want our kids to go to public school and I wouldn't mind retiring later to give my kids a better educational option.  My family are immigrants, so I've personally seen and benefited from my parents' own sacrifice for me and my brother. 

What do you guys think?  Am I doing well?  How else can I improve?  When my wife goes back to work one day, what should I do to improve my savings?  Let's say that my wife gets a job that pays $20,000 a year in 5 years (very conservative estimate.  She has a bachelor's degree in English and she'll get a free master's at my school in human services - only one that fits her personality).  Do you think we'd be able to achieve FIRE status earlier than 65?  If so, how early? 
Also, I'd like to be able to eat out a little more regularly once my wife starts working.  Right now, we probably eat out once every month or two.  When we do, we probably don't go over $25.  I know it may be an unnecessary luxury, but with working full time, teaching adjunct (which I can use up my current work time to devote toward teaching so I'm not losing a lot of time), trying to be a good dad, and starting a PhD, going out to eat would be a mental and emotional luxury that I think would be helpful for me. 

I would love to hear from you guys, even if it's just an encouragement.  Thank you.
« Last Edit: February 04, 2015, 03:00:22 PM by huapala07 »

Gone Fishing

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Re: Reader Case Study - I'm kind of on my way. What do you think?
« Reply #1 on: February 04, 2015, 02:44:15 PM »
Why are you contributing to a Roth and not a tIRA at your income level?

The OP is probably not paying much of anything in Federal income taxes at his current pay level.  This is the perfect time to contribute to a ROTH vs a tIRA, but what he needs to look into is contributing more to his 401(b) vs the ROTH to make sure he maximizes his potential tax credits (namely the Earned Income Tax Credit).  If it makes sense and he can afford it he can also fund a IRA for his wife even though she does not work.  It wouldn't surprise me if he wasn't also eligible for some type of social benefits given his income and family status. 

Gone Fishing

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Re: Reader Case Study - I'm kind of on my way. What do you think?
« Reply #2 on: February 04, 2015, 02:48:07 PM »
Based on your current savings rate and expenses I would think you could be FI in roughly 25 years or so.   

ShoulderThingThatGoesUp

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Re: Reader Case Study - I'm kind of on my way. What do you think?
« Reply #3 on: February 04, 2015, 02:54:10 PM »
Why are you contributing to a Roth and not a tIRA at your income level?

The OP is probably not paying much of anything in Federal income taxes at his current pay level.  This is the perfect time to contribute to a ROTH vs a tIRA, but what he needs to look into is contributing more to his 401(b) vs the ROTH to make sure he maximizes his potential tax credits (namely the Earned Income Tax Credit).  If it makes sense and he can afford it he can also fund a IRA for his wife even though she does not work.  It wouldn't surprise me if he wasn't also eligible for some type of social benefits given his income and family status.

Yeah, I went to the bathroom, realized my post was dumb, and deleted it.

huapala07

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Re: Reader Case Study - I'm kind of on my way. What do you think?
« Reply #4 on: February 04, 2015, 02:58:31 PM »
Why are you contributing to a Roth and not a tIRA at your income level?

The OP is probably not paying much of anything in Federal income taxes at his current pay level.  This is the perfect time to contribute to a ROTH vs a tIRA, but what he needs to look into is contributing more to his 401(b) vs the ROTH to make sure he maximizes his potential tax credits (namely the Earned Income Tax Credit).  If it makes sense and he can afford it he can also fund a IRA for his wife even though she does not work.  It wouldn't surprise me if he wasn't also eligible for some type of social benefits given his income and family status.

Thanks, So Close.  You are correct.  At my income level, I figured I'd rather pay the low taxes.  If our income goes higher, I'll switch to a tIRA.  However, I didn't know that contributing to my 403(b) would help maximize my EITC.  I'm putting money into my Roth IRA because I don't like Fidelity, which is the company my 403(b) is tied to.  Would it be better to fund my 403(b) rather than my Roth?  It seems like I've had better return with Vanguard than Fidelity so far, but I'm willing to change if EITC would bring in greater return.  Also, I'd like to fund my wife's IRA, but I don't think I can afford it at this point. 

Do you think I can be FIRE in 25 years with or without my wife's future IRA contributions?  Whenever I used a retirement calculator, I inputted $5500 annual contribution with a 7% return for 30-35 years.

nereo

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Re: Reader Case Study - I'm kind of on my way. What do you think?
« Reply #5 on: February 04, 2015, 03:08:28 PM »
Quote
What do you guys think?  Am I doing well?  How else can I improve?  When my wife goes back to work one day, what should I do to improve my savings?  Let's say that my wife gets a job that pays $20,000 a year in 5 years (very conservative estimate.  She has a bachelor's degree in English and she'll get a free master's at my school in human services - only one that fits her personality).  Do you think we'd be able to achieve FIRE status earlier than 65?  If so, how early?
Also, I'd like to be able to eat out a little more regularly once my wife starts working. [snip]

I would love to hear from you guys, even if it's just an encouragement.  Thank you.

based on your income level, you seem to be doing a very good job.  As someone in a similar financial situation as you, congrats on managing to save and have no debt and a paid-off house.  Your main crutch right now is your income, and at 33 I hope/expect that your income will increase substantially over the next 10 years.  If your wife has a masters and is planning on working full time I'd shoot for something much higher than $20k/year (equal to ~$10/hr).  As soon as you have more income try to put everything extra into tax-advantaged accounts.  Remember that you get $11k in an IRA as a married couple.
At your current rate I project you could retire sometime around age 58 (if retirement spending ~ current spending), but if your wife goes back to work and your savings improve you could shave that down to 50 no problem.
Keep it up!


huapala07

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Re: Reader Case Study - I'm kind of on my way. What do you think?
« Reply #6 on: February 04, 2015, 03:13:00 PM »
Quote
What do you guys think?  Am I doing well?  How else can I improve?  When my wife goes back to work one day, what should I do to improve my savings?  Let's say that my wife gets a job that pays $20,000 a year in 5 years (very conservative estimate.  She has a bachelor's degree in English and she'll get a free master's at my school in human services - only one that fits her personality).  Do you think we'd be able to achieve FIRE status earlier than 65?  If so, how early?
Also, I'd like to be able to eat out a little more regularly once my wife starts working. [snip]

I would love to hear from you guys, even if it's just an encouragement.  Thank you.

based on your income level, you seem to be doing a very good job.  As someone in a similar financial situation as you, congrats on managing to save and have no debt and a paid-off house.  Your main crutch right now is your income, and at 33 I hope/expect that your income will increase substantially over the next 10 years.  If your wife has a masters and is planning on working full time I'd shoot for something much higher than $20k/year (equal to ~$10/hr).  As soon as you have more income try to put everything extra into tax-advantaged accounts.  Remember that you get $11k in an IRA as a married couple.
At your current rate I project you could retire sometime around age 58 (if retirement spending ~ current spending), but if your wife goes back to work and your savings improve you could shave that down to 50 no problem.
Keep it up!

Thank you, Nereo.  Even if I can achieve FIRE status by 58, I'll be doing flips!  And I'm assuming that tax-advantaged account would be a tIRA or t403b and not Roth.  If so, I'm planning to do that once our income level goes up.  I appreciate your encouragement.  I think I'm doing well, but it's always reassuring to hear from those who are already following the Mustachian way.