Are we screwed or is there hope? (starting retirement savings in late 30s/40s)

[PNW_FIRE]

Hi, I would love some help with my case! I'm new to learning about and understanding anything around personal finance and have a lot to learn. My main question is around if we'll ever be on track for retirement and what we can do to improve our situation. 

Background: My husband and I are completely new to saving for retirement and, unfortunately, are starting very late in life (for a variety of reasons). We live in a VHCOL area with two young kids (both under 3) and are currently renting.

Salary: We make $170K gross/year (me $100K; husband $70K).

Ages: Me: 37; husband: 46

Debt: We have no debt.

Assets: No real assets. We own our vehicle (value of around $10K) but I don't really count this as an "asset" or factor it in to anything regarding our net worth.

General Savings: $125K total. We have $100K saved for a possible down payment on a future home. The money is in a high-yield savings account. In addition, we have $25K saved in an emergency fund.

Current Retirement Savings: We both started actively saving for retirement this year (I realize starting this late is horrible and insane, but it is what it is).
 
--Me: Total current retirement saving is around $43K. This year I opened and put $6K in a Roth IRA with Vanguard (Target Date Retirement Fund 2050). This year I also opened a Roth 457B through my work and have $7K in there (also in Vanguard TDRF 2050, Expense Ratio of .30%). I work for a local government agency and am enrolled in our pension program which takes out approx. 10% of my income per year (I've had this job for about 3 years and so I have about $30K in there).

--Husband: Total current retirement savings is around ~$18K. This year, my husband opened & put $6K in a Roth IRA with Vanguard (TDRF 2040). He started contributing to his 401K last year and has about $12K in there, all in American Funds 2040 TDRF (with an unfortunate Expense Ratio of 1.20%--the best his work plan can offer).

PLAN for future/ongoing retirement contributions:
--Me: I would like to retire in the next 18 years at age 55. My plan is to max out my Roth IRA ($6K) and Roth 457B ($19,500) each year, (and to hopefully max out with "catch-up contributions" at age 50 as my salary increases and would allow me to do so). In addition, I would continue contributing ~10% of my salary to my required work pension plan. I (roughly) estimate the pension would pay out approx. $30K/year at age 55.

--Husband: He would also like to retire in 18 years at age 64. His plan is to max out his Roth IRA ($6K) each year, and contribute at least 20% of his salary to his 401K plan (currently this would be around $14K/year, but hopefully his salary continues to increase and he can eventually max this out as well).

Specific questions:

-With the plan outlined above (barring a major financial disaster/emergency that derails us), do we have any chance of being able to retire in 18 years?

-Do our Target Date Retirement fund selections make sense? Should we be investing in something different/more aggressive?

-I've elected Roth contributions for our IRAs and my 457B plan. Does this make sense? I've tried reading up on Traditional vs Roth and can't come to a clear understanding on what's best for our situation. With the limited information in this post, could anyone take an educated guess as to what would be best for us--considering we file taxes as married/jointly, make $170K/year between us, and deduct my husband's 401K contributions and my pension contributions, plus we have a daycare FSA for our one child who is in daycare ($5K/year limit)?

-Should I abandon the idea of possibly buying a house in the next couple of years in our VHCOL area if it means we would have to reduce our retirement contributions by approx. $500/month? Basically, would this be "a very bad idea no matter what" or an "it depends/what do you value" type of situation? We would very much like to stop renting (not having to move on a whim with two kids if a landlord decides to sell; not having to worry about changing our kids' schools if we have to find a new place to rent in a different part of town, etc.), and we would like to take advantage of current low mortgage rates (we both have excellent credit)--but we don't want to do so if it means retirement would be impossible.

-Any other advice that could help us with planning for retirement?

Thank you!

[brooklynmoney]

There’s not enough info to say if renting or buying is better but In general in a VHCOL area it’s better to rent. The NY Times has a great calculator on Rent vs Buy that you should play with. I think it would also depend if you plan to retire in your current area. For the most part it is insane to stay in a VHCOL area during retirement. Especially as these areas are usually high tax as well. I know of what I speak per my user name. You also might try posting a case study here so we can help you cut expenses.

[bacchi]

-With the plan outlined above (barring a major financial disaster/emergency that derails us), do we have any chance of being able to retire in 18 years?

Start tracking your spending. Use Mint, YNAB, or a spreadsheet but you need to know how much you're spending and where.

As a WAG, it looks like you'll be fine with your pension at 55. If you closely examine your spending, you can probably pull it in a few years.

-Do our Target Date Retirement fund selections make sense? Should we be investing in something different/more aggressive?

The 2050 is 90/10 while the 2040 is 85/15. Seems ok to me. The funds will drop eventually but just keep piling money in.

-I've elected Roth contributions for our IRAs and my 457B plan. Does this make sense? I've tried reading up on Traditional vs Roth and can't come to a clear understanding on what's best for our situation. With the limited information in this post, could anyone take an educated guess as to what would be best for us--considering we file taxes as married/jointly, make $170K/year between us, and deduct my husband's 401K contributions and my pension contributions, plus we have a daycare FSA for our one child who is in daycare ($5K/year limit)?

It depends on your income now vs your income later. Traditional is probably better unless you expect a lot more income later (from an inheritance, lottery, RSUs, business taking off, etc.).

Edit: You probably won't be able to contribute to a traditional IRA because of income limits. Consider using a pre-tax 401k/457 though. You're being taxed at a higher income now vs when you'll be withdrawing from your 457. I.e., taxed at a ~120k income vs ~$55k income.

[FINate]

This year I also opened a Roth 457B through my work and have $7K in there (also in Vanguard TDRF 2050, Expense Ratio of .30%).

What are the rules for contribution limits for having both a Roth IRA and a Roth 457B? I was under the impression that Roth limits applied across all Roth accounts (e.g. opening another Roth account doesn't double your contribution limit). Dunno, maybe it's different for a Roth 457B.

[ysette9]

Are you planning on retiring in your same area or somewhere else lower cost? That will make a big difference in your overall situation.

We also live in a VHCOL area. The NY Times rent vs. buy calculator told us we were better off buying if we planned on staying in our location for at least ten years. You can do the same calculation for yourself. Really it comes down to whether the appreciation is enough to outpace the investments you would otherwise put your money. There is also the difference in cost if buying versus renting. Usually it is cheaper to rent in HCOL areas over buying the same place.

[frugal_c]

You are actually in great shape. Between the pension, your stash and social security in assume you should be fine.  However it's hard to know for sure without knowing your monthly spend.  I think your stash alone should be well over $1m by the time you are 55 so you could pull 40k from that , $30k from pension, how do those numbers sound to you?

[Zamboni]

Welcome!

I agree that you will be in great shape in 18 years if you commit to maxing out your retirement plan options between now and then. Having the discipline to pay yourself first and not change course will get you there.

Be happy you figured this out now! I see an alarmingly sad number of cases online where someone is in their late 50's or 60's and is in your shoes. So, you have a relatively long time frame to save as long as you don't back out of the plan.

[mistymoney]

hmmmm, everyone is viewing this very optimistically! A bit surprising to me!

[Tuskalusa]

Agree. If you stay the course on these plans, you should be able to reach your goals.

I agree that contributing to the Traditional 457B probably makes sense it’s more tax efficient. So you’ll have the added benefit of saving on taxes now and building your assets for the future.

I wouldn’t worry about buying a house right now. Your plans are solid with renting. 

[SwordGuy]

In today's dollars, what would you be spending per year when you retire?   Unless I just missed it, you didn't tell us this crucial piece of information.

You have a number of things going for you:

1) No debt.
2) Great income.
3) Already started saving a lot.

If you keep doing what you're doing now you'll be way better off than most Americans.

I suggest you check out www.cfiresim.com and fill in a scenario or three and save them. 

With your current savings you're doing better than about 62% of American families and you haven't really been trying until now.     
If you set your minds to it you've got all the resources to make this happen.

As for buying a house, if you're going to stay in your current area after retirement, I would wait until you find a real deal.   Check out the real estate/landlording forum for resources on how to find a good property at a great price.  It takes knowledge, time, work, and a touch of luck.   Recessions are great for helping fully prepared people get lucky, by the way.

We bought our current house at $96K below assessed value simply because we followed the above advice.

[PNW_FIRE]

Start tracking your spending. Use Mint, YNAB, or a spreadsheet but you need to know how much you're spending and where.

Thanks! We just downloaded Mint and will start tracking our spending. We've always just spent less than we earned, but we really don't have a super clear idea of where our money is currently going so I know we have not been maximizing our savings potential.

It depends on your income now vs your income later. Traditional is probably better unless you expect a lot more income later (from an inheritance, lottery, RSUs, business taking off, etc.).

Edit: You probably won't be able to contribute to a traditional IRA because of income limits. Consider using a pre-tax 401k/457 though. You're being taxed at a higher income now vs when you'll be withdrawing from your 457. I.e., taxed at a ~120k income vs ~$55k income.

I'm going to continue researching but will almost certainly be changing my 457B Roth contributions to Traditional/Pre-Tax based on my expected retirement income being much lower than what we currently earn, and we'll be keeping my husband's 401K contributions as Traditional/Pre-Tax.  I am planning on keeping both our IRAs as Roth contributions because I believe you're right and our income does not allow us to participate in a Deductible Traditional IRA (MAGI limit of $123K for married/filing jointly), but we're OK with the Roth IRAs (MAGI limit of $193K).

[Paul der Krake]

You're far from screwed.
You know what you're talking about.
You have a plan.
You'll be fine.

That being said, buying a house because you're worried your kids may have to switch schools at an unspecified date in the future is ridiculous. It's neither a burden nor something worth fretting about. You'll find a way to make it work, like the tens of millions of renters with children who have come before you. I have no idea whether homeownership is right for you, but this should be a tiny, tiny factor.

[PNW_FIRE]

What are the rules for contribution limits for having both a Roth IRA and a Roth 457B? I was under the impression that Roth limits applied across all Roth accounts (e.g. opening another Roth account doesn't double your contribution limit). Dunno, maybe it's different for a Roth 457B.

Thanks for mentioning this--from my understanding it looks like you can open a Roth IRA and have a Roth 401K at the same time. I can't find much information on having a Roth IRA and a Roth 457B, but I'm guessing it's allowed similarly to having the Roth IRA and 401K. Either way, I'm planning on switching my 457B to Traditional.

[PNW_FIRE]

hmmmm, everyone is viewing this very optimistically! A bit surprising to me!

I'm surprised as well! (was expecting a gloomier outlook). I recently have developed Fear of God-level anxiety about retirement (based on the little we currently have saved in retirement accounts and our ages), hence my wanting to kick things into high gear now. We can't really do anything about the past, so I'm trying to be somewhat optimistic, while realistic, about what we can do to move forward. I'm hoping the plan I outlined can (somewhat) salvage our situation, but maybe it's too little too late?

Everyone's encouragement is very motivating, but I'd also love to hear your thoughts if you have some contrary opinions.

[reeshau]

Have you read the Shockingly simple math post?https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/  It projects you need a 50% savings rate to retire in 18 years, starting from scratch.  While you are doing great saving as you are, I do suspect the other shoe will drop once you understand and can share your expenses.

[PNW_FIRE]

Have you read the Shockingly simple math post?https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/  It projects you need a 50% savings rate to retire in 18 years, starting from scratch.  While you are doing great saving as you are, I do suspect the other shoe will drop once you understand and can share your expenses.

Interesting article. I will have to dig into it more. We are definitely not saving 50% of our income, and yes, we need to get better about tracking exactly where our money is going so that we can make improvements.

Question about the math in the article--How does having a pension impact the math in the table? I did some deeper calculations, and it looks like in 18 years, my pension would provide me with $38K/year. How would that factor in when figuring out the savings rate needed to retire in 18 years?

[ysette9]

For more complex situations with pensions and social security or lumpy spending (like eventually paying off a mortgage or college expenses) I like cFIREsim online calculator. It takes a bit of time to familiarize yourself with it but it is very flexible and powerful.

[mistymoney]

hmmmm, everyone is viewing this very optimistically! A bit surprising to me!

I'm surprised as well! (was expecting a gloomier outlook). I recently have developed Fear of God-level anxiety about retirement (based on the little we currently have saved in retirement accounts and our ages), hence my wanting to kick things into high gear now. We can't really do anything about the past, so I'm trying to be somewhat optimistic, while realistic, about what we can do to move forward. I'm hoping the plan I outlined can (somewhat) salvage our situation, but maybe it's too little too late?

Everyone's encouragement is very motivating, but I'd also love to hear your thoughts if you have some contrary opinions.

Well - for background, I'm a relatively new member of the forum, and after a good period of years investing aggressively, hit some snags financing the college years for my kids and ended up here seeking input earlier this year. Just like you are now!

For my case study, I was 52 - only 6 years older than your husband - with 750k invested assets, 250k home equity. On the negative side was about 125k in student loans, with younger child with 2 more years to go. I made some mistakes trying to minimize the student loans and ended up with about 18k in other debt which I was paying off. So kind of a mixed bag!

I didn't get a whole lot of "you're good! You'll be fine" as you are getting here! I'm still learning and reading a lot here, talking to people in real life, etc, but when I read your OP, I was honestly expecting some tough love in the posts.

To me, seems everyone really gave you a total pass when you haven't even shared your monthly or yearly spending, so there is no idea where the money is going or how realistic your plans may be.

I have been accused of being overly optimistic about my own situation - so there is that. And maybe that is a piece of this! But my 750k in retirement investments were not viewed nearly as favorably as your intentions to save aggressively in the future.

So - that left me a bit confused! But I am a neophyte here, so not sure how this is all viewed?

[Stasher]

To me, seems everyone really gave you a total pass when you haven't even shared your monthly or yearly spending, so there is no idea where the money is going or how realistic your plans may be.

I have been accused of being overly optimistic about my own situation - so there is that. And maybe that is a piece of this! But my 750k in retirement investments were not viewed nearly as favorably as your intentions to save aggressively in the future.

So - that left me a bit confused! But I am a neophyte here, so not sure how this is all viewed?

I agree, I am unwilling to give any comments or advice without knowing the entire other side of the spectrum to this. You have a ridiculously awesome income and have a paid off vehicle, outside of this we have zero information. I follow a few PNW bloggers who live on a fraction of your income and manage to easily achieve 50% savings rate with a very relaxed lifestyle.

I also didn't see here, do you have any debt?
As for your expenses, you MUST do this work first and foremost. To know where you are going you first need to know where you are.

[Villanelle]

Have you read the Shockingly simple math post?https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/  It projects you need a 50% savings rate to retire in 18 years, starting from scratch.  While you are doing great saving as you are, I do suspect the other shoe will drop once you understand and can share your expenses.

Interesting article. I will have to dig into it more. We are definitely not saving 50% of our income, and yes, we need to get better about tracking exactly where our money is going so that we can make improvements.

Question about the math in the article--How does having a pension impact the math in the table? I did some deeper calculations, and it looks like in 18 years, my pension would provide me with $38K/year. How would that factor in when figuring out the savings rate needed to retire in 18 years?

The easiest way to think about a pension is just to subtract the projected amount from your expenses, and then the 4% rule still applies.  So if your expenses will be $50k and the pension $10k (all in today's dollars), then your expenses are, in effect $40k.  So subtract $38k from your annual expenses (projected after retirement) and consider that the number you need to cover with the 4% rule.  (How certain are you that will will stay in this job for long enough to qualify for that pension and that the rules of that pension will stay more or less the same?)

Since you will have a pension, I would say that you should be more aggressive on your investing  Generally pensions can be seen as very roughly equal to the bond portion of a portfolio so having that means you can put more in equities and less in bonds. 

(Whether your pension will be inflation adjusted or not makes some difference in all this.)

[mistymoney]

Have you read the Shockingly simple math post?https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/  It projects you need a 50% savings rate to retire in 18 years, starting from scratch.  While you are doing great saving as you are, I do suspect the other shoe will drop once you understand and can share your expenses.

Interesting article. I will have to dig into it more. We are definitely not saving 50% of our income, and yes, we need to get better about tracking exactly where our money is going so that we can make improvements.

Question about the math in the article--How does having a pension impact the math in the table? I did some deeper calculations, and it looks like in 18 years, my pension would provide me with $38K/year. How would that factor in when figuring out the savings rate needed to retire in 18 years?

The easiest way to think about a pension is just to subtract the projected amount from your expenses, and then the 4% rule still applies.  So if your expenses will be $50k and the pension $10k (all in today's dollars), then your expenses are, in effect $40k.  So subtract $38k from your annual expenses (projected after retirement) and consider that the number you need to cover with the 4% rule.  (How certain are you that will will stay in this job for long enough to qualify for that pension and that the rules of that pension will stay more or less the same?)

Since you will have a pension, I would say that you should be more aggressive on your investing  Generally pensions can be seen as very roughly equal to the bond portion of a portfolio so having that means you can put more in equities and less in bonds. 

(Whether your pension will be inflation adjusted or not makes some difference in all this.)

Could the same logic apply to social security income?

For OP - is the pension instead of social security or in addition to it? That may be obvious to some people but I have no idea about municipal workers.

[Villanelle]

Have you read the Shockingly simple math post?https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/  It projects you need a 50% savings rate to retire in 18 years, starting from scratch.  While you are doing great saving as you are, I do suspect the other shoe will drop once you understand and can share your expenses.

Interesting article. I will have to dig into it more. We are definitely not saving 50% of our income, and yes, we need to get better about tracking exactly where our money is going so that we can make improvements.

Question about the math in the article--How does having a pension impact the math in the table? I did some deeper calculations, and it looks like in 18 years, my pension would provide me with $38K/year. How would that factor in when figuring out the savings rate needed to retire in 18 years?

The easiest way to think about a pension is just to subtract the projected amount from your expenses, and then the 4% rule still applies.  So if your expenses will be $50k and the pension $10k (all in today's dollars), then your expenses are, in effect $40k.  So subtract $38k from your annual expenses (projected after retirement) and consider that the number you need to cover with the 4% rule.  (How certain are you that will will stay in this job for long enough to qualify for that pension and that the rules of that pension will stay more or less the same?)

Since you will have a pension, I would say that you should be more aggressive on your investing  Generally pensions can be seen as very roughly equal to the bond portion of a portfolio so having that means you can put more in equities and less in bonds. 

(Whether your pension will be inflation adjusted or not makes some difference in all this.)

Could the same logic apply to social security income?

For OP - is the pension instead of social security or in addition to it? That may be obvious to some people but I have no idea about municipal workers.

If you mean the logic about just deducting if from your annual expenses to help create your FIRE number, then yes.  Although figuring out how much one might receive from SSI in the future requires some large leaps of faith, so I'd proceed with caution. 

[mistymoney]

Have you read the Shockingly simple math post?https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/  It projects you need a 50% savings rate to retire in 18 years, starting from scratch.  While you are doing great saving as you are, I do suspect the other shoe will drop once you understand and can share your expenses.

Interesting article. I will have to dig into it more. We are definitely not saving 50% of our income, and yes, we need to get better about tracking exactly where our money is going so that we can make improvements.

Question about the math in the article--How does having a pension impact the math in the table? I did some deeper calculations, and it looks like in 18 years, my pension would provide me with $38K/year. How would that factor in when figuring out the savings rate needed to retire in 18 years?

The easiest way to think about a pension is just to subtract the projected amount from your expenses, and then the 4% rule still applies.  So if your expenses will be $50k and the pension $10k (all in today's dollars), then your expenses are, in effect $40k.  So subtract $38k from your annual expenses (projected after retirement) and consider that the number you need to cover with the 4% rule.  (How certain are you that will will stay in this job for long enough to qualify for that pension and that the rules of that pension will stay more or less the same?)

Since you will have a pension, I would say that you should be more aggressive on your investing  Generally pensions can be seen as very roughly equal to the bond portion of a portfolio so having that means you can put more in equities and less in bonds. 

(Whether your pension will be inflation adjusted or not makes some difference in all this.)

Could the same logic apply to social security income?

For OP - is the pension instead of social security or in addition to it? That may be obvious to some people but I have no idea about municipal workers.

If you mean the logic about just deducting if from your annual expenses to help create your FIRE number, then yes.  Although figuring out how much one might receive from SSI in the future requires some large leaps of faith, so I'd proceed with caution.

I was specifically thinking about being more aggressive in retirement savings -stocks-.

I'd be more confident in SS than in a pension TBH. I've known a few folks counting on nice pensions who had the rug pulled out from under them when the PBGC came in and they ended up with less than half of what they'd counted on.

[Cassie]

You will get better advice once you figure out your expenses.

[Villanelle]

Have you read the Shockingly simple math post?https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/  It projects you need a 50% savings rate to retire in 18 years, starting from scratch.  While you are doing great saving as you are, I do suspect the other shoe will drop once you understand and can share your expenses.

Interesting article. I will have to dig into it more. We are definitely not saving 50% of our income, and yes, we need to get better about tracking exactly where our money is going so that we can make improvements.

Question about the math in the article--How does having a pension impact the math in the table? I did some deeper calculations, and it looks like in 18 years, my pension would provide me with $38K/year. How would that factor in when figuring out the savings rate needed to retire in 18 years?

The easiest way to think about a pension is just to subtract the projected amount from your expenses, and then the 4% rule still applies.  So if your expenses will be $50k and the pension $10k (all in today's dollars), then your expenses are, in effect $40k.  So subtract $38k from your annual expenses (projected after retirement) and consider that the number you need to cover with the 4% rule.  (How certain are you that will will stay in this job for long enough to qualify for that pension and that the rules of that pension will stay more or less the same?)

Since you will have a pension, I would say that you should be more aggressive on your investing  Generally pensions can be seen as very roughly equal to the bond portion of a portfolio so having that means you can put more in equities and less in bonds. 

(Whether your pension will be inflation adjusted or not makes some difference in all this.)

Could the same logic apply to social security income?

For OP - is the pension instead of social security or in addition to it? That may be obvious to some people but I have no idea about municipal workers.

If you mean the logic about just deducting if from your annual expenses to help create your FIRE number, then yes.  Although figuring out how much one might receive from SSI in the future requires some large leaps of faith, so I'd proceed with caution.

I was specifically thinking about being more aggressive in retirement savings -stocks-.

I'd be more confident in SS than in a pension TBH. I've known a few folks counting on nice pensions who had the rug pulled out from under them when the PBGC came in and they ended up with less than half of what they'd counted on.

Well, it's all personal comfort.  If you feel fairly confident in SSI and the amounts you will get, it does make sense to mentally categorize that as a conservative leg of your investment stool.  Whether that pushes you to be "more conservative" (than what?) or not is going to be up to you.  And in addition to your confidence level in SSI, you probably also need to look at how far from collecting you will be at the time of retirement. 

[thesis]

Poor is a state of mind. Screwed is a state of mind. Don't let the examples of super-young millionaires trick you into believe all hope is lost. You are doing pretty good by average standards, the very fact that you're on here seeking advice to reach this new FI goal is the indicator that yes, there is hope and yes, you very likely do have what it takes to kick ass.

[bacchi]

hmmmm, everyone is viewing this very optimistically! A bit surprising to me!

I'm surprised as well! (was expecting a gloomier outlook). I recently have developed Fear of God-level anxiety about retirement (based on the little we currently have saved in retirement accounts and our ages), hence my wanting to kick things into high gear now. We can't really do anything about the past, so I'm trying to be somewhat optimistic, while realistic, about what we can do to move forward. I'm hoping the plan I outlined can (somewhat) salvage our situation, but maybe it's too little too late?

Everyone's encouragement is very motivating, but I'd also love to hear your thoughts if you have some contrary opinions.

Well - for background, I'm a relatively new member of the forum, and after a good period of years investing aggressively, hit some snags financing the college years for my kids and ended up here seeking input earlier this year. Just like you are now!

For my case study, I was 52 - only 6 years older than your husband - with 750k invested assets, 250k home equity. On the negative side was about 125k in student loans, with younger child with 2 more years to go. I made some mistakes trying to minimize the student loans and ended up with about 18k in other debt which I was paying off. So kind of a mixed bag!

I didn't get a whole lot of "you're good! You'll be fine" as you are getting here! I'm still learning and reading a lot here, talking to people in real life, etc, but when I read your OP, I was honestly expecting some tough love in the posts.

To me, seems everyone really gave you a total pass when you haven't even shared your monthly or yearly spending, so there is no idea where the money is going or how realistic your plans may be.

I have been accused of being overly optimistic about my own situation - so there is that. And maybe that is a piece of this! But my 750k in retirement investments were not viewed nearly as favorably as your intentions to save aggressively in the future.

So - that left me a bit confused! But I am a neophyte here, so not sure how this is all viewed?

It probably depends on who responds and I might've set the tone.

* With no debt, we know that at least they're living within their means.
* Given their income and their plans, we can estimate what their spending is/will be.
* The pension helps as does the short span between the spouse retiring and SS (64 vs 67).

You're right though -- without their spending, it's difficult to determine if the plan is feasible.

I suspect that their spending is (very) high and could be cut. This plan absolutely depends on them maxing out their accounts as intended. That's a big If given their likely current spend.

[Hirondelle]

hmmmm, everyone is viewing this very optimistically! A bit surprising to me!

I'm surprised as well! (was expecting a gloomier outlook). I recently have developed Fear of God-level anxiety about retirement (based on the little we currently have saved in retirement accounts and our ages), hence my wanting to kick things into high gear now. We can't really do anything about the past, so I'm trying to be somewhat optimistic, while realistic, about what we can do to move forward. I'm hoping the plan I outlined can (somewhat) salvage our situation, but maybe it's too little too late?

Everyone's encouragement is very motivating, but I'd also love to hear your thoughts if you have some contrary opinions.

Well - for background, I'm a relatively new member of the forum, and after a good period of years investing aggressively, hit some snags financing the college years for my kids and ended up here seeking input earlier this year. Just like you are now!

For my case study, I was 52 - only 6 years older than your husband - with 750k invested assets, 250k home equity. On the negative side was about 125k in student loans, with younger child with 2 more years to go. I made some mistakes trying to minimize the student loans and ended up with about 18k in other debt which I was paying off. So kind of a mixed bag!

I didn't get a whole lot of "you're good! You'll be fine" as you are getting here! I'm still learning and reading a lot here, talking to people in real life, etc, but when I read your OP, I was honestly expecting some tough love in the posts.

To me, seems everyone really gave you a total pass when you haven't even shared your monthly or yearly spending, so there is no idea where the money is going or how realistic your plans may be.

I have been accused of being overly optimistic about my own situation - so there is that. And maybe that is a piece of this! But my 750k in retirement investments were not viewed nearly as favorably as your intentions to save aggressively in the future.

So - that left me a bit confused! But I am a neophyte here, so not sure how this is all viewed?

It probably depends on who responds and I might've set the tone.

* With no debt, we know that at least they're living within their means.
* Given their income and their plans, we can estimate what their spending is/will be.
* The pension helps as does the short span between the spouse retiring and SS (64 vs 67).

You're right though -- without their spending, it's difficult to determine if the plan is feasible.

I suspect that their spending is (very) high and could be cut. This plan absolutely depends on them maxing out their accounts as intended. That's a big If given their likely current spend.

To add to that, the OP themselves also set a tone. These folks ask if they're screwed, which they are obviously not considering they have good incomes, no debt and some savings. If I look at your first posts (the case study) @mistymoney I do see higher assets, but also CC debt incurring interest which people here on the forum generally aren't gonna go easy on. I agree that the OP may have avoided a lot of tough love by not posting their expenses.

[BrightFIRE]

@PNW_FIRE Do you also have access to a 403b? From what I've seen, usually someone who has a 457 also has access to a 403. And if so, you could save even more money (and reduce your taxable income even more!) by contributing to both. It's possible that you don't, since you have the pension, but I thought it was worth getting you to check out.

[MrThatsDifferent]

You’ve gotten some great advice so far, much better than I could offer, however, let’s have a little dose of reality. You’re not screwed if your 18 year plan works out perfectly, and there isn’t: major illness, death, divorce or job loss. Not trying to be the voice of doom here, just, well, that’s life, right? You guys haven’t been great with your savings and you have a plan now, my thinking is that you really want to dig deep, be conservative, save where you can (while having a life) and drop all unnecessary spending. Personally I’d keep renting and move that deposit into a Vanguard account and let it make you more money. You can’t afford to drop your guard with your plan, although you have a lot going for you.

[PNW_FIRE]

Thanks for everyone's feedback! Some thoughts, answers to questions that were asked, as well as some new questions...

1. Savings: I've downloaded Mint and am trying to go through with my husband to sort out our spending over the year. I really don't have a good sense of where our money is going (this year, I've been automatically designating a certain amount to retirement/savings and spending the rest), so I see a lot of potential in this area for optimizing our situation. 

To give a general idea of my current spending/savings rate, I checked my last paycheck and see I've earned $97K to date. So far this year, I've invested ~ $10K in pension, $6K in IRA, $7,500 in 457B, and $10K in my savings account. I've had $14K in taxes withheld to date, so I believe this gives me a savings rate of approx 40% ($33,500 saved to date this year out of take home pay of $83,000).

Am I calculating this correctly? I'm also assuming I really need to factor in our joint savings rate to have this be meaningful.

2. Investments:

Do you also have access to a 403b? From what I've seen, usually someone who has a 457 also has access to a 403.

No, I only have access to the pension and the 457B.

Since you will have a pension, I would say that you should be more aggressive on your investing 

Do you mean invest in all stock (VTSAX, for example) instead of our Target Date Retirement Funds? I'm somewhat risk adverse, so I would have to be convinced VTSAX would give me a much higher return to warrant the increased risk. It seems like the TDRFs are a nice compromise for our risk tolerance.

Traditional is probably better unless you expect a lot more income later

Thanks for everyone's input on this. I've already switched my future 457B contributions from Roth to Traditional.

3. Retirement/Pension:

For OP - is the pension instead of social security or in addition to it?

The pension is in addition to social security.

(Whether your pension will be inflation adjusted or not makes some difference in all this.)

The pension also has a 1.5% annual compounding cost of living adjustment.

I'd be more confident in SS than in a pension TBH. I've known a few folks counting on nice pensions who had the rug pulled out from under them when the PBGC came in and they ended up with less than half of what they'd counted on.

I'm pretty confident in the pension being available--everything I've read indicates that this specific government agency "guarantees" the pension and I've never heard of amounts being changed (the plan has recently reduced to a less generous plan but only for new employees moving forward). I am much more concerned with the idea that I may not have this job for the next 18 years (recession, disability, what have you)...so I think it's probably wise to think of the pension more of a "bonus" for now (it would be wonderful if it works out but don't factor it in greatly to my current retirement calculations).

4. Housing:

That being said, buying a house because you're worried your kids may have to switch schools at an unspecified date in the future is ridiculous.

You're right.

I'm extremely skeptical that you can buy a decent house in a VHCOL area and only spend $500/month more than you do now.

I agree.

As for buying a house, if you're going to stay in your current area after retirement, I would wait until you find a real deal.

I think this is where we've landed on the housing situation. My eagerness to buy a house has dropped tremendously from reading these posts and FI/RE posts in general about VHCOL areas.

We will be absolutely fine renting and I don't want to rush into home ownership. I also don't want to completely and permanently dismiss the idea of buying. I think for now, we're fine renting but we'd like to keep the $100K down payment around in savings for the next couple of years to see if with some luck/more research/shift in housing market, we can find something that makes sense (a deal; an option for "house hacking" --finding a place with a basement we could rent out, etc). We'd like to be in a position where we're ready to buy if something great comes along, but we also aren't going to hold our breath waiting for this to happen.

Does this sound like a reasonable approach or, given our primary desire to retire in 18 years, should we just completely get over the idea of buying and invest our down payment?

Personally I’d keep renting and move that deposit into a Vanguard account and let it make you more money.

I feel like we haven't quite reached this point mentally of accepting that home ownership is not in our future---we're maybe 70% there. If we don't find a house that makes sense soon (in the next year or two), we will likely start investing some of this down payment.

Since we will hopefully be maxing out our tax-advantaged accounts (husband's 401K, my 457B, our Roth IRAs) with contributions from our salaries ...what options would we have for investing this $100K? Just open a taxable account and invest it in the Target Date Retirement Funds we're comfortable with? Or is there something more clever we should/could be doing with this money?

Thanks!

[Laura33]

As others have noted, the elephant in the room is your expenses.  You have a decent plan, along with a significant backstop with a pension and SS.  But the unanswered question is how well does your plan match your actual behavior?  In particular, you guys are making a metric shit-ton of money, and you are both old enough to have been working and making decent money for a long time.  And yet all you have to show for it is a paid-off car and $125K.  Now, $125K is nothing to sneeze at.  But for a couple who has been working good-paying jobs for over/almost two decades?  Not so much.  Honestly, the only thing that puts you in a decent position now is the forced savings from your pension.

But that doesn't mean you're screwed.  As everyone here's favorite guy Dave Ramsey says, the great news is you've got a really big shovel to dig yourself out with.  It sounds like you have made some changes this year and have managed to cut expenses enough to save a fair amount.  What about your husband?  You need to be doing this together.  My specific suggestions, which mirror some that have already been noted:

1.  Track every penny.  As the Shockingly Simple Math post notes, your time to FIRE is directly correlated to how much you save vs. spend.  You guys have pretty clearly been spending well over $100K/yr, and yet I bet you can't tell what at least 40% of that goes to.  If you pay attention to everything, that will almost immediately show you areas where you're embarrassed by how much you threw away on stuff you don't even remember.  Long-term tracking helps you to account for those occasional or unpredictable expenses that tend to throw people off track, like car repairs/tires, seasonal kid sports/activity fees/gear, and the like.  Tracking is the key to everything, because you can't possibly know how much you'll need to save for retirement when you have no idea what your current lifestyle is costing you.

2.  Both you and your DH need to be in traditional retirement accounts, and you need to be throwing as much as possible into those accounts.  The benefit of a traditional IRA/401(k)/etc. is they allow you to put quite a bit more money away for the same hit to your paycheck, which is important when you are behind.  At your current income, you are definitely paying high taxes now; at your current savings, you won't have a lot of income later to be taxed.  So make the switch to traditional accounts now, and worry about future tax rates once you have enough saved to make that an issue.

3.  For the $100K you already have, get it into the market.  People talk about the 4% rule all the time, which is a great rule of thumb -- but that rule assumes that the money is invested in the market, not sitting in an interest-bearing account.  You're right that you can't just dump all of that into a tax-sheltered account.  But what you could do is max out all of your tax-sheltered retirement options, and then if that makes your budget too tight, withdrawing from that account to make up the difference. 

4.  Once you have data on your expenses, look at everything with a critical eye.  There is so much that we simply assume we need that we really don't, from big things like houses with yards for kids, all the way down to the well-debated coffees.  Read MMM and the forums for suggestions.  You do not have to cut out everything; the goal is to stop the mindless spending and to focus your money on things that bring value to your life.

Again, you have plenty of time to set things right, and plenty of income to get yourselves in a position to retire when you want to.  You just need to build a habit of saving what you need to first, and living on the rest.  You absolutely can do this if you want to.

[PNW_FIRE]

Both you and your DH need to be in traditional retirement accounts, and you need to be throwing as much as possible into those accounts.  The benefit of a traditional IRA/401(k)/etc. is they allow you to put quite a bit more money away for the same hit to your paycheck, which is important when you are behind.

We currently have everything in traditional/tax-deductible accounts (457B and 401K), except for our IRAs. With our combined income of $170K, I believe we don't qualify for tax-deductible contributions to a Traditional IRA (my understanding is that the MAGI limit is $123K for married/filing jointly). So I think our only option for the IRAs is to go with Roth--does that sound right?

[Laura33]

Both you and your DH need to be in traditional retirement accounts, and you need to be throwing as much as possible into those accounts.  The benefit of a traditional IRA/401(k)/etc. is they allow you to put quite a bit more money away for the same hit to your paycheck, which is important when you are behind.

We currently have everything in traditional/tax-deductible accounts (457B and 401K), except for our IRAs. With our combined income of $170K, I believe we don't qualify for tax-deductible contributions to a Traditional IRA (my understanding is that the MAGI limit is $123K for married/filing jointly). So I think our only option for the IRAs is to go with Roth--does that sound right?

Sorry, thought you said Roth 457B.  You're right about there being a MAGI cutoff for the tIRA -- that's partially why you want to maximize the work-sponsored traditional options, because if you have the chance to contribute enough to those, you might be able to reduce your MAGI to the point you can do a traditional IRA.

(Well, technically, you can always contribute to a traditional IRA, you just don't get to deduct it, so there's not much point when you have the Roth option available). 

[ericrugiero]

The retirement savings you list are about 32% of your income (counting the pension) which is very good in most circles. But, if you look at the shockingly simple math behind early retirement post referenced above it comes out to around 30 years.  Of course, you have almost $200,000 saved now for a head start. 

If you are spending everything but the 32% you have listed for investments then you need a really big stache to retire.  If you can pinch back that spending some by optimizing your life then the amount you need and the time to get there will change drastically. 

Based on the limited information you gave, I'm guessing you won't quite be ready in 18 years without some changes.  The good news is it shouldn't be hard to tweak things and shorten that time line.  You have a great income and lots of options.  Decide what's important to you and go for it. 

[Unique User]

I agree with others that you really need to know your expenses and model everything on cfiresim or in excel, I love my excel spreadsheet.  I've got 9 years of data and various retirement models in my spreadsheet.   I'm also a bit skeptical about an 18 year plan, although you do have young kids.  It's probably human nature, but we kept moving up our retirement date.  First it was nebulous because we had no clue and had just re-entered the workforce after having worked for ourselves in a resort town for several years, then it was 60, then I found MMM in 2014 and it was after my daughter finishes college so 54 and we're actually quitting this year so 50 for me.  I think my point is what someone else made in that a lot can happen in 18 years.