Author Topic: Updated: FI stash number, military retirement and mortgage, and dog care issues  (Read 7684 times)

Basenji

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I've looked around MMM for this question, but haven't seen the exact topic. Apologies if I missed it somewhere.

My husband is retired military, so he receives retirement pay. He has a new job and I work. Our biggest obstacle to FI is the house mortgage (quite a doozy in DC area but at a crazy low rate). We're lucky and doing pretty well. Lots of work to do on other expenses, but we're tackling them one by one. Here's the question: I understand the annual expenses x 25 rule for calculating our FI number. But what is the best way to add in the mortgage payment and the retirement in the calculation?

For simplicity, let's say the mortgage/taxes/interest are just about equal to my husband's retirement income. Where I get confused is does the 25x calculation still hold? For us, the 4% withdrawal rate assumption gets skewed because we will--in theory--always have income from the retirement. Or do we do some sort of math jiggle to account for that the mortgage will be gone in 20 years (we aren't paying it off early because the rate is below 3%) but the retirement will continue indefinitely? I know it's a stupid question to the experts here, but I keep getting stuck trying to figure it out. Any help would be appreciated.

Update 1: 8/25/13

Reporting back as promised after doing the FIREcalc and trying out few other tools including from kablamo and davisgang90

The good news: we can be FI in 5 years (according to FIREcalc) with a score of 100%. We were surprised and feel good, even though we have a LOT of work to do on the budget. A few things make our situation work: low healthcare costs because we have military TRICARE coverage. I actually get paid $40 per month by my employer because I don't take the health coverage through work. His military retirement is obviously a HUGE positive factor.
We did NOT include social security in the calculation because we wanted to be super conservative.

So, we are NOT going to be one of the MMM miracle stories because we have made lots of spending mistakes along the way. On the other hand, we've had amazing travel experiences. I have to thank my husband who put us on this track by automating our savings 20 years ago (dollar cost averaging is your friend). Even including the fact that we lost a horrific portion of our investments in the stock market downturn, we are feeling like there is light at the end of the tunnel.

Some basic stats:
Current stache: $313,000 in a mix of retirement 401k, index funds, IRAs, etc. Some of this we can't access until 59 and 1/2 (I am 45 and he is 49), so I may have questions in other threads about where to put future stache-ings.
Mortgage is $2,880 x 12 = $34,560 at 2.875% (30 year fixed, thank you NFCU!), just refinanced this year, not paying it off early
Husband's military retirement: $4,000 x 12 = $48,000 (inflation indexed)

All hangs on an assumption that we will increase the stache by about $70,000 per year x 5 more working years. This is totally doable without major heartache. Why didn't we do it earlier? Because we are idiots.

Current annual expenses without mortgage: $37,200. We are starting to rip that shit apart. All the usual suspects are on the table.
Dropped cable TV, keeping internet
Coming up: cell phones to Republic or other VoIP (we find the tech guide and all the choices more than confusing, but we get the general idea)
Food: We've cut down eating out drastically (I actually love to cook and am good at it). No buying lunches. Eating down the pantry, etc.

I am not ready to be punched in the face, so maybe you can just spank me:
Current HUGE expense that is beyond shameful for me to admit here, but...dog care...$935 per month. No, not for food and toys and vaccinations, that's separate. This is doggie daycare: We have two dogs who would destroy the house if we left them alone all day long. They run around all day in a supervised place with really good people. [Blah blah rationalize, rationalize.]

Even though my job is absolutely 90% emails and online stuff, my current employer only allows me 1 day per week working at home. I've asked to do 3 days at home, but no go. As an experiment, I'm about to do some on-the-side freelance work for a telecommute-only firm. It will never be full-time with that particular company, but it could be a nice supplement to our income and I'm trying to cobble together all freelance, all telecommute work to get the dog care down to zero. I'm also going to ask again at work, with more pleading. Go ahead, let the spanking begin.


Update 2, 10/25/13:

An update because I think something interesting happened. In sum, this is a story of how obstacles and problems can lead to fresh thinking and new solutions.

One huge expense we had (see thread above) was doggie day care. We were sending 2 dogs 5 days per week for $55 per day (discount on second dog). Although it was clearly insane and anti-Mustachian, we were not sure how to reduce this as we both work full time, we  are not comfortable leaving the dogs at home for 8 or 9 hours at a stretch (for various reasons), and I had already asked my boss to work at home 3 days per week (no go).

Then one of the dogs starting having issues at daycare (minor squabbles escalating into a final big fight, the other dog got hurt, and we had to pay the vet bill). Although the day care did not categorically kick her out, they were pretty much on the verge. This was incredibly stressful and caused us to step back and reevaluate the entire dog care situation.

My husband and I brainstormed what might be a good solution and then I went to my boss with a plan that addressed his concerns about my working at home (not being in the office for face-to-face meetings): I would work at home in the mornings and come in the afternoons 5 days per week. He went for it!

Now the dogs are at home with me in the mornings 3 days per week, with a dog walker in the afternoon to bridge the 4 to 5 hours. I send the dogs to daycare 2 days per week because they really love it and it provides social training. The staff are really working with us with the trouble-maker, giving her "timeouts." Ironically, she is behaving much better. Our theory is she was getting overwhelmed 5 days per week with no downtime.

Savings: $4,900 per year! And I'm happier with my work situation! And the dogs seem happier!  [Punches self in face]

The lesson for me (and why I am updating) is it took a big stressor to make us step back and take a fresh look at how we do things. We are trying to do that with lots of other issues/habits now. Even brainstorming "crazy" ideas like selling the house and moving. Even if we don't act on the ideas, it's a great exercise.
« Last Edit: October 25, 2013, 10:10:15 AM by Basenji »

bo_knows

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Re: FI stash number, factoring in military retirement and mortgage
« Reply #1 on: August 21, 2013, 06:16:05 AM »
The typical "25x" rule is for your overall expenses.  If you simply include your mortgage/taxes/interest in your expenses, and figure for 25x, you'll get what you're looking for. Though, with an extra income stream (pension), that 25x doesn't really hold... as you noted.

Alternatively, there are retirement calculators out there that would let you put in your exact expenses, portfolio, and income streams (pensions) to figure out how much you'd actually need to sustain yourselves through retirement.  I'm partial to the one in my signature line (I'm biased, lol), but there is also www.firecalc.com.


Basenji

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Re: FI stash number, factoring in military retirement and mortgage
« Reply #2 on: August 21, 2013, 06:19:13 AM »
Thanks, I'll give it a go and report back...

bo_knows

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Re: FI stash number, factoring in military retirement and mortgage
« Reply #3 on: August 21, 2013, 06:37:02 AM »
Thanks, I'll give it a go and report back...

Both of those tools have a fairly high learning curve. Don't hesitate to ask questions here or in their respective forums.

AJDZee

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Re: FI stash number, factoring in military retirement and mortgage
« Reply #4 on: August 21, 2013, 07:43:41 AM »
If that retirement pension truely is for the rest of your life, and is matched with inflation then I would calculate it as...

((all your annual costs, including mortgage payments etc) - (annual pension)) x 25 = your stach needed for FI

so if all your expenses are $40,000 per year and the retirement income (after tax) is $25,000 then you'll need $15,000 x 25 = $375,000 in the bank, in today's dollars.

Until you have that then you are not FI, the way I see it.

Note: you also have to keep in mind that 4% SWR (25x annual spending) is a rule of thumb assuming you have your $375,000 invested appropriately. They study that came up with 4% SWR had something like 50% bonds, 50% equity or something like that?

bo_knows

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Re: FI stash number, factoring in military retirement and mortgage
« Reply #5 on: August 21, 2013, 07:54:48 AM »
If that retirement pension truely is for the rest of your life, and is matched with inflation then I would calculate it as...

((all your annual costs, including mortgage payments etc) - (annual pension)) x 25 = your stach needed for FI

so if all your expenses are $40,000 per year and the retirement income (after tax) is $25,000 then you'll need $15,000 x 25 = $375,000 in the bank, in today's dollars.



That would be a conservative back-of-the-envelope calculation, as technically the mortgage would eventually be paid off, thus having a big decline in expenses.  But, if you're at the beginning of a 30yr mortgage, and consider a 30-40yr retirement, it's probably not that far off.

Basenji

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Re: FI stash number, factoring in military retirement and mortgage
« Reply #6 on: August 21, 2013, 10:22:40 AM »
You guys are great. I am going to sit down with hubby and do the full FIRE process. I feel pretty good about the investments we have (balance of stocks, etc.). Good point about retirement being tied to inflation, I'm not sure. Will check.

davisgang90

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Re: FI stash number, factoring in military retirement and mortgage
« Reply #7 on: August 22, 2013, 10:46:43 AM »
Congrats!  Your husband has a COLA adjusted annuity for life!  (I will be in the same boat when I retire).

As others have said, you can subtract the pension from your expenses to figure out how big your stache needs to be.  The two calculators mentioned are great.  Here (http://financialmentor.com/calculator/best-retirement-calculator)  is a simpler one that just does a straight run on the numbers, but is pretty handy for figuring out some rough numbers.

I've done some writing on my blog on the topic and Nords has written a ton, to include a book! http://the-military-guide.com/

I also live in the DC area (Alexandria) but do not intend to retire here so we are renting.


Basenji

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Re: FI stash number, factoring in military retirement and mortgage
« Reply #8 on: August 22, 2013, 12:41:34 PM »
Cool, thanks. After I posted I noticed some of those military links, D'oh! We're gathering all our info for the BIG CALCULATION...I did a back of the envelope last night and it looked pretty good.

And of course all this MMM influence is making me question everything, including the house I live in. I love my house and I like the DC area, but the FI angel comes to me in my sleep...

I do plan to report back here with real numbers and questions in case my details are helpful to anyone else.

davisgang90

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Re: FI stash number, factoring in military retirement and mortgage
« Reply #9 on: August 22, 2013, 01:23:04 PM »
Please do.  I posted several questions related to military pensions when I first got here, lots of great responses and information.  Feel free to email/PM me if I can help at all.

Basenji

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Re: FI stash number, factoring in military retirement and mortgage
« Reply #10 on: August 25, 2013, 09:43:00 AM »
Also in OP:

Reporting back as promised after doing the FIREcalc and trying out few other tools including from kablamo and davisgang90

The good news: we can be FI in 5 years (according to FIREcalc) with a score of 100%. We were surprised and feel good, even though we have a LOT of work to do on the budget. A few things make our situation work: low healthcare costs because we have military TRICARE coverage. I actually get paid $40 per month by my employer because I don't take the health coverage through work. His military retirement is obviously a HUGE positive factor.
We did NOT include social security in the calculation because we wanted to be super conservative.

So, we are NOT going to be one of the MMM miracle stories because we have made lots of spending mistakes along the way. On the other hand, we've had amazing travel experiences. I have to thank my husband who put us on this track by automating our savings 20 years ago (dollar cost averaging is your friend). Even including the fact that we lost a horrific portion of our investments in the stock market downturn, we are feeling like there is light at the end of the tunnel.

Some basic stats:
Current stache: $313,000 in a mix of retirement 401k, index funds, IRAs, etc. Some of this we can't access until 59 and 1/2 (I am 45 and he is 49), so I may have questions in other threads about where to put future stache-ings.
Mortgage is $2,880 x 12 = $34,560 at 2.875% (30 year fixed, thank you NFCU!), just refinanced this year, not paying it off early
Husband's military retirement: $4,000 x 12 = $48,000 (inflation indexed)

All hangs on an assumption that we will increase the stache by about $70,000 per year x 5 more working years. This is totally doable without major heartache. Why didn't we do it earlier? Because we are idiots.

Current annual expenses without mortgage: $37,200. We are starting to rip that shit apart. All the usual suspects are on the table.
Dropped cable TV, keeping internet
Coming up: cell phones to Republic or other VoIP (we find the tech guide and all the choices more than confusing, but we get the general idea)
Food: We've cut down eating out drastically (I actually love to cook and am good at it). No buying lunches. Eating down the pantry, etc.

I am not ready to be punched in the face, so maybe you can just spank me:
Current HUGE expense that is beyond shameful for me to admit here, but...dog care...$935 per month. No, not for food and toys and vaccinations, that's separate. This is doggie daycare: We have two dogs who would destroy the house if we left them alone all day long. They run around all day in a supervised place with really good people. [Blah blah rationalize, rationalize.]

Even though my job is absolutely 90% emails and online stuff, my current employer only allows me 1 day per week working at home. I've asked to do 3 days at home, but no go. As an experiment, I'm about to do some on-the-side freelance work for a telecommute-only firm. It will never be full-time with that particular company, but it could be a nice supplement to our income and I'm trying to cobble together all freelance, all telecommute work to get the dog care down to zero. I'm also going to ask again at work, with more pleading. Go ahead, let the spanking begin.
« Last Edit: October 25, 2013, 10:04:06 AM by Basenji »

AJDZee

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Re: FI stash number, factoring in military retirement and mortgage
« Reply #11 on: August 25, 2013, 11:44:20 AM »
$1000 / month for doggie daycare... and that doesn't include food. Wow...??  I wonder if you just left them at home in a blocked off area or room to 'destroy the place' if they could even do $12,000 worth of damage each and every year.

I mean...$1000/month is most people's mortgage payments. Sorry... Just trying to comprehend. It's going to take a few minutes. haha

That $70k/year stach growing over the next 5 years to hit FI, did you factor in gains on your investments, or does that mean you guys need to contribute $70k per year for 5 years?

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Re: FI stash number, factoring in military retirement and mortgage
« Reply #12 on: August 25, 2013, 12:22:40 PM »
Current HUGE expense that is beyond shameful for me to admit here, but...dog care...$935 per month. No, not for food and toys and vaccinations, that's separate. This is doggie daycare: We have two dogs who would destroy the house if we left them alone all day long. They run around all day in a supervised place with really good people. [Blah blah rationalize, rationalize.]
My brother owns a dog daycare center in Denver.  I completely understand, and you're doing a good thing. 

Basenji

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Re: FI stash number, factoring in military retirement and mortgage
« Reply #13 on: August 25, 2013, 01:16:36 PM »
That $70k/year stach growing over the next 5 years to hit FI, did you factor in gains on your investments, or does that mean you guys need to contribute $70k per year for 5 years?

We didn't factor in gains from the stash (or I don't think we did, not sure if the FIREcalc does it automatically). So, yes $70k x 5 years.

The doggie daycare thing is crazy, I know--I intellectually know (but emotionally I'm not there). I almost didn't cop to it here, but I felt that I learn reading here both from people's successes AND mistakes and issues they have. So, there's my whack-job stupid issue. Like I wrote, I'm actively trying to find a better telecommuting situation and thinking of trying out leaving them at home as an experiment a few times. I've spent the past few days thinking up options like finding a dog walker. If I had found MMM 18 months ago we wouldn't have 2 dogs now, perhaps, but I made a commitment to them for life and they make my life better.

In any case, that's the dirty truth and I'm going to do something about it.
« Last Edit: August 25, 2013, 01:21:16 PM by Basenji »

AJDZee

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Re: FI stash number, factoring in military retirement and mortgage
« Reply #14 on: August 25, 2013, 01:40:10 PM »
So the good news is that you might hit FI earlier than 5 years, if you didn't take into account gains into your $350,000 increase! :)

I actually have the opposite view in that, if I were to get a dog but also work 8-10 hours a day, I'd get two of them so they can keep each other company at home while I'm away. It's all in how we look at it, I suppose.

I've wanted to get a puppy for a few years now (I look on kijiji every week to torture myself haha) but I won't get one while I'm in a condo, will wait until I have some property. I look forward to that :)

Nords

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Re: FI stash number, factoring in military retirement and mortgage
« Reply #15 on: August 25, 2013, 02:43:24 PM »
The doggie daycare thing is crazy, I know--I intellectually know (but emotionally I'm not there). I almost didn't cop to it here, but I felt that I learn reading here both from people's successes AND mistakes and issues they have. So, there's my whack-job stupid issue. Like I wrote, I'm actively trying to find a better telecommuting situation and thinking of trying out leaving them at home as an experiment a few times. I've spent the past few days thinking up options like finding a dog walker. If I had found MMM 18 months ago we wouldn't have 2 dogs now, perhaps, but I made a commitment to them for life and they make my life better.
This is hard part of the road to FI, where you have to align your spending with your values.  Some pet owners would no more give up their pets (or their pet accommodations) to accelerate FI than parents would give up their kids (or childcare, or kid's activities). 

Look at it from the other side:  you wouldn't want to be FI after having to make hard choices about your pets.  You'll find a way to balance things.

My brother's dog-care business is booming, and he has plenty of clients for boarding nights/weekends as well.  About the only time that dog owners pull their pets out of the care center is when they're laid off or quit their jobs-- the owners, not the dogs.

Basenji

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Re: FI stash number, factoring in military retirement and mortgage
« Reply #16 on: August 25, 2013, 03:40:41 PM »
This is hard part of the road to FI, where you have to align your spending with your values. Some pet owners would no more give up their pets (or their pet accommodations) to accelerate FI than parents would give up their kids (or childcare, or kid's activities). 
Very true. I need to find the sweet spot. For some things aligning spending with values is FUN, like dumping the cable TV, baking bread, and eating the planted-itself-must-have-come-from-the-compost-pile butternut squash from my garden. In fact, most of it is fun. The dog costs will be a challenge, but in fact, the problem will resolve itself: I figure out the telecommuting issue and/or we attain FI in 5 years and I stay home working part time and/or or the dogs get 5 years older and prefer crashing on the couch most of the day.

AJDZee

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Re: FI stash number, factoring in military retirement and mortgage
« Reply #17 on: August 26, 2013, 03:41:48 PM »
This is hard part of the road to FI, where you have to align your spending with your values. Some pet owners would no more give up their pets (or their pet accommodations) to accelerate FI than parents would give up their kids (or childcare, or kid's activities). 
Very true. I need to find the sweet spot. For some things aligning spending with values is FUN, like dumping the cable TV, baking bread, and eating the planted-itself-must-have-come-from-the-compost-pile butternut squash from my garden. In fact, most of it is fun. The dog costs will be a challenge, but in fact, the problem will resolve itself

That's the beauty of the MMM community - you'll get so much support and high fives from everyone here when you make small and big steps towards frugal/financially sound lifestyle. But you'll also get people's honest opinions when you're deviating from badass-ness. I think it's best to take the opposing opinion and consider it, and see how it works into your values/priorities, etc. Last week I was made fun on a different thread because I said I wasn't going to bike to work all through winter when the snow starts coming. Perhaps I'll push my comfort boundaries now in the winter.

I think the main difference in this community of folks (besides cutting spending down and disciplined investing strategy) is they have actually taken the time to calculate the impact of expenditures (compunded over time) and decide if it's worth it to them... Whereas most of society tends to be a hyper-consumer and they work in a lot of costs as 'necessary' to life without thinking what it's actually costing them.

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Re: FI stash number, factoring in military retirement and mortgage
« Reply #18 on: October 25, 2013, 10:01:34 AM »
Thanks for the update!  Even though I didn't contribute to the original thread I was curious as to what you decided to do with doggie day care.
And congrats on everything working out!
« Last Edit: October 25, 2013, 11:41:47 AM by vespito »

Basenji

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Re: FI stash number, factoring in military retirement and mortgage
« Reply #19 on: October 25, 2013, 10:05:04 AM »
Thanks!

Also per the new "case study" guidelines I updated in the OP.
« Last Edit: October 25, 2013, 10:10:55 AM by Basenji »