Would I be able to retire by 50 or 55?

[seulbee77]

I'd like to post this on "Ask a Mustachian" forum, but it wouldn't let me, so here it is...

Income: 
Currently, I(age 36) make $65K and DH(age 37) makes $90K with a total of $155K.
He will have a pension of about $200 at 62
We have a rental property that generates net of about $600 that we give it to DH's mom to help out, but we'll have it eventually.
Our Net income is $8,500

   
Expenses:
Mortgage of $2500/month ($2000 + $500 as additional principal) on a 15 yr loan at 2.875%  (I think we should invest that     extra $500 principal and just pay $2000 but DH thinks differently... so I let him pay it.  At this rate we should be paid off by 2024, or when we are about 46, 47 yrs old)
After care and extracurricular activities for kids (5 and 6 yrs old) is $1,000/month
We go to church and give about $500/month
No car payments (we have 2011 Hyundai Sonata and 2000 Toyota 4Runner, and 2000 Toyota Solara, all in good condition)
Misc (gas, activities, eating out, utilities, groceries, gifts, anything else I haven't mentioned) - $2,500
Total expense is about $6,500

Liabilities:  None besides the mortgage mentioned above

Assets:
My 401K - $50,500
DH 401K - $30,000
My roth IRA - $88,000
DH roth IRA - $5,000
Other stocks - $30,000
Checking and Savings - $15,000
(I max out my 401k at $17,500 ($10,000 into roth 401k and $7,500 into traditional 401k) with no match from employer and max out Roth IRA at $5,500, but DH puts 6% into his 401K with 3% matching from employer.  So every year, we save about $33,000 minimum, roughly 20% of our income.
Total Asset - $218,500

Mentionables:
We have no cable.  We visit both our parents often, about 4 times a week where we'll have dinner prepared by them so it saves our groceries.  They live within 10 miles and it's a win/win situation.  We are both healthy now and excercise about 3 times a week.
At this rate, and with a hopeful expectation of aobut 8% returns on our assets, we expect to have roughly $1.3MM by age 50 and $2.1MM by 55.
I learned about SEPP, so thinking about taking that option until we turn 62 to collect our SS pmts.  At 62, we'll be able to collect about $3,000/month.

Hopefully when we retire, thinking $3,000 to $4,000 expense per month without mortgage and kids' expenses.  We are not big spenders and enjoy spending time with friends and traveling a little.
What do you guys think?  Would it work?

Updates:
Currently, our health insurance is covered by our employers but after retirement, I wasn't sure how much our health insurance would be out of pocket and are not included in the post retirement expenses above.
We are not contributing to our children's college education b/c we want to cover for our retirement first and figured we can help them pay for their student loan later.

[Eric]

First, your expenses are kind of vague.  Do they include health insurance?  Are you planning to contribute to your children's college if applicable?

But using your numbers, at the high end, if your expenses are $4000/mo, that'll be partially covered by $600/mo in rental income and $200/mo pension, making the amount you'd need to cover from your stache about $3200/mo or $38K/year.  Even with a 3% withdrawal rate, $1.3MM should kick off $39K/year.  If you went with a 4% withdrawal rate, that would be $52K/year.  So that should have you pretty well covered, especially because we haven't considered your SS income yet.

With the amounts you have in your Roths and brokerage accounts, I'd be surprised if you had to touch the 401k/IRAs before 62.5, making the SEPP unnecessary.

Why does your husband only contribute 6% to his 401k?  You could both up your savings rate and reduce your tax bill by quite a bit by increasing this to the max.

[seulbee77]

First, your expenses are kind of vague.  Do they include health insurance?  Are you planning to contribute to your children's college if applicable?

But using your numbers, at the high end, if your expenses are $4000/mo, that'll be partially covered by $600/mo in rental income and $200/mo pension, making the amount you'd need to cover from your stache about $3200/mo or $38K/year.  Even with a 3% withdrawal rate, $1.3MM should kick off $39K/year.  If you went with a 4% withdrawal rate, that would be $52K/year.  So that should have you pretty well covered, especially because we haven't considered your SS income yet.

With the amounts you have in your Roths and brokerage accounts, I'd be surprised if you had to touch the 401k/IRAs before 62.5, making the SEPP unnecessary.

Why does your husband only contribute 6% to his 401k?  You could both up your savings rate and reduce your tax bill by quite a bit by increasing this to the max.

Thank you for your input!  I've answered your questions in Update section of main posting. 

We don't know when we'll get the $600/mo in rental income b/c we plan on giving it to DH's mom as long as she's alive. 
$1.3MM includes Roths, brokerage accounts and 401ks.  So if we retire around 50, don't we have to pay a penalty if withdrawing before 59.5 yrs old?  Majority of the $1.3MM will be in Roths and 401Ks.

DH see retirement investing differently.  For example, I think he should put the additional $500 he's paying for mortgage into a 401k or Roth IRA.  He wants to get rid of the mortgage ASAP.  I've been talking to him about getting him to think more me, but he won't budge....

Question:  If we contribute before tax money to 401K, does that decrease our SS pay?  I couldn't find a straight answer on this on my searches...

[Exflyboy]

Paying off the mortgage is not a cut and dry deal.

I mean right now the employment market is picking up for professionals and I hope you live in a town where if your existing employer went under you have other places to go get employment.

Then your argument is.. "Hey we can earn more money in the stock market than we can by paying off the house at this low interest rate".. You are absolutely correct.

But... Let say we have another big recession and you do live in a "one Horse town" like I do.. well then its not so simple because you might find the very moment your mortgage payment is due that you have no job... Oh and because the reason you have no job is a 2008 type recession.. well now your investments are only 60% of what they were so now probably you couldn't pay off the house even if you wanted to and now you move back in with Parents!!

Thats why i took the conservative approach and paid off the house before I invested anything.. I'm sure it cost me money in the long run but it was sure nice knowing I owned the roof over my head.

Frank

[Exflyboy]

If you look in box 1 on your W2 you will find your wages are reduced.. this is for 401k deductions etc.

In the "SS wages" box it is NOT reduced however.. so judging by this I would say no there is no deduction for 401k contributions towards SS or medicare for that matter.

I am not an expert though but seems pretty obvious.

Frank

[tomsang]

What are you doing with the difference between the $8,500 net income and the $6,500 expenses?  Are you also investing the $2,000?

You should review this article for the math behind the dates. http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

 There are a few calculators out their to estimate your retirement
http://mustachecalc.com/
http://www.cfiresim.com/input.php

Once you have tighter numbers you can calculate the years to retirement. 

When calculating your savings rate you should include 401k contributions, IRA, 401k matches, other savings $2k per month?, etc.  Divide that by your (Net take home + 401k contributions + 401k match)

I think you will be close to 50% savings if you are saving the monthly difference between income and expenses ($2k)

401k does not affect your SS

Good luck.  Seems like you are on your way.  I would max out your husbands 401k before paying down mortgage or using the $2k per month to max it out.

[seulbee77]

Thats why i took the conservative approach and paid off the house before I invested anything.. I'm sure it cost me money in the long run but it was sure nice knowing I owned the roof over my head.

Frank

Frank, yes I see your point.  I suppose the reason why I don't try to persuade my husband is exactly bc of that reason.  You never know what'll happen tomorrow, so we just use our money the way each of us thinks is best. =P

Also, thanks for your insight on looking at W2s!  I didn't even think of that, duh!  Anyways, it sure did clear up my long time question!

[tomsang]

Thats why i took the conservative approach and paid off the house before I invested anything.. I'm sure it cost me money in the long run but it was sure nice knowing I owned the roof over my head.

Frank

Frank, yes I see your point.  I suppose the reason why I don't try to persuade my husband is exactly bc of that reason.  You never know what'll happen tomorrow, so we just use our money the way each of us thinks is best. =P


Also, thanks for your insight on looking at W2s!  I didn't even think of that, duh!  Anyways, it sure did clear up my long time question!

My take would be paying $500 a month on your mortgage is riskier than investing.  If there is an issue with your family you have more liquidity with investments.  A bank is not going to allow you to stop making payments because you prepaid.  They are going to require you to make the scheduled monthly payment or they will begin foreclosure proceedings.  If you need cash for opportunities or emergencies, you are better off with investments vs. a paid off loan.  If you are looking for 30+ years of life you would have been better off 100% of the time based on historical asset returns when compared to your fixed rate mortgage rate at 2.875%.

If it is going to cause marital strife then it is not worth the optimization, but I think it should be clear that paying off your mortgage early by making monthly extra payments is not a conservative or safer investment.  You are creating a situation where a significant portion of your assets are tied up in one asset class that is subject to natural forces that could wipe out that asset.  Investments can be spread to 1,000's of companies, government agencies, and countries throughout the world.  If they all come crashing down at once worrying about your mortgage will be the least of your concerns.  If you have a dire feel for the future, then you should not own a house or other investments as they will depreciate in value.