Case Study - Are we on track?
Life Situation: Me, 28, prosecutor at DA's office. Wife, 27, SAHM. Married filing jointly, Two children ages 3 and 0. Rural California
Gross Salary/Wages: 96,360/year, 8030/month
Pre-tax deductions:
457(b): 1500/month, 18k/year
HSA: 279/month, 3350/year
Pension: 282/month, 3384/year
Health insurance 524/month, 6288/year
Other Ordinary Income: ~$200 a month in mileage reimbursements. The office also pays $380/year for my bar dues.
Adjusted Gross Income: $5445/month, plus mileage.
Taxes:
Federal: 2675/year
SS: 5126/year
Medicare: 1191/year
CA: 760/year
CA SDI: 867/year
Total: 10619/year (885/month)
Take home pay: $4550/month, plus mileage
Current monthly expenses:
Mortgage: $734 (562 P&I/172 T&I)
Health Insurance: $700. Insurance through work is reasonable for me, outrageous for my family, so we buy them individual coverage. Because it's "available" to my family, we do not qualify for subsidies. We bought a platinum tier plan for my wife this year because we knew we would be having a baby.
Student Loans: $300. $162 is my wife on the standard 10 year plan. $138 is mine on income based repayment. 3 years in on public service loan forgiveness.
Groceries: $240.
Gas/Electric/Garbage/Water: $200.
Car Payment: $190.
Gas: $150. Mostly from work travel, but I get mileage reimbursement. I bike to work on days I don't need to travel.
Baby Supplies: $150.
Home Supplies: $150. Tools, yard equipment, furniture, repairs, etc that we didn't have when living in our apartment.
Auto Insurance: $70.
Dining Out: $60. Date night twice per month.
Internet: $60.
Clothing: $50.
Mobile Phone: $40. Republic Wireless.
Dry Cleaning: $20. Needed for work.
Debt Repayment: $417. Repaying my parents for down payment assistance for our house.
Miscellaneous: $100
Total: $3631/month.
Expected Retirement Expenses: $2704/month. Above spending minus dry cleaning, student loans, car loan, and repaying my parents.
Assets:
$16000 cash in checking account.
$1000 in HSA
$10000 in 457(b) plan. 81% Vanguard S&P 500, 4% Vanguard Mid Cap, 15% Vanguard Small Cap. Attempting to emulate total stock market.
House. We paid $167,000, putting 20% down. I value it at 167,000 but market price is probably a little higher.
Liabilities:
Student Loans: $50500 for me, 6.55%. $12000 for wife, $7500 at 3%, $2500 at 6%, and $2000 at 5%. My loans are on IBR and I have 3 years of credit towards public service loan forgiveness. Even if my payment hits its maximum amount, I won't ever pay more than the $50000 I currently owe before it is forgiven in 7 years and will likely pay significantly less. My wife is 3 years into the standard 10 year repayment plan.
Auto Loan: $2200, 2%. $189/month. Original balance $6500
Mortgage: $130,900, 3%. $562/month P&I. 15/15 ARM. Adjusts once at 15 years.
Repay Parents: $20000. 0%.
Specific Question(s):
I work for local government as a prosecutor. I am very happy in my current job, but the allure of FI/RE is strong and my job is very high stress. My current goal is to retire at 45. I think our spending is all pretty reasonable. Health insurance is killing us, but once I retire we are eligible for subsidies. A huge percent of our spending is debt repayment which will be all paid off by retirement. My questions have to do with our monthly surplus and my pension.
We are cash-flow positive by about $1000 a month, but it's just accumulating in our checking account for the moment. My first thought would be open and fully fund IRA's for myself and my wife (probably traditional because it will lower my AGI for student loan payments, but we're open to Roth if that makes more sense based on our tax bracket). The other option would be to pay off the loan from my parents sooner. My wife's student loans are our highest interest debt, but repaying my parents has higher moral priority if we're going to put the money towards debt.
The other question is what to do with my pension. I get 1% of my final salary per year of service if I start drawing it at age 52 and goes up by 0.1% each year I defer, up to a max of 2.5% at age 67. My position currently maxes out at $130,000 and I have about 5 more years of guaranteed raises before I hit that level. I'm expecting that when I retire the max salary will be at least keeping up with inflation relative to where it is now. I will have 20 years of service if I retire at 45. There is a discretionary COLA based on the investment performance. It's not guaranteed, so I am not considering it for my planning. Taking the pension at 52 would substantially reduce how much I would need to save and could cut several years off my full time working career. I worry about what inflation will do to it over 20 or 30 years. This is really vexing me because of how fast the benefit increases by delaying a few years.
So are we on track for FI/RE at 45? What should we do with our extra money each month? How can I best use my pension to achieve my goals? Any and all advice greatly appreciated.