The Money Mustache Community
Learning, Sharing, and Teaching => Case Studies => Topic started by: IsThisAGoodUsername on August 23, 2018, 09:06:50 AM
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Question: What are your suggestions to improve my financial profile so FI retirement is possible?
Background:
Even though I’m putting max into 401k & HSA, I feel like I’m woefully under saving and at 46 I feel like I am late to the game. I just found MMM (and related resources) 2 weeks ago. I’m reading as much as possible and trying to get my spending/savings/investing to a point where I can be FI.
Demographics:
- Divorced 46M in central Ohio (HCOL)
- 3 teenage children (1 college freshman, 1 high school senior, 1 high school freshman. Ex-spouse and I each claim 1 high schooler as dependent.) Shared parenting for the high schoolers.
- I am not planning on paying for childrens’ college (no way I can afford it); but they each have about $20k in 529s which will help. When 529 is depleted, I’m encouraging them to get part time jobs to reduce need for loans.
- Personal Capital indicates NW = $206,000.
Gross Salary/Wages:
- Tech industry FTE job: $95k gross.
- Side hustle: $15k net (This is a variable amount, but this number is based on previous earnings.)
Savings:
- $16,000 Ally online savings @ 1.8%
- $200 Health Savings Account ($200 contribution every 2 weeks. Will invest 85% VFIAX / 15% VBLTX)
Retirement Accounts:
- 401k from previous job: $21,000
- Vanguard 500 Index Fund (VFINX) – 0.14% E.R.
- Vanguard Institutional Target Retirement 2035 (VITFX) – 0.09% E.R.
- Vanguard Mid-Cap Index (VIMSX) – 0.17% E.R.
- Current 401k: $4,000
- All in Vanguard Small Cap (VSMAX) - 0.05% E.R. (Just started this job recently. Contributing 18%. Company matches up to 9%, but the match vests after 3 years, then yearly after that)
Real Estate / Vehicles
- 27 years remaining on 3.25% mortgage. Total monthly payment is $1,378. Original purchase price: $190,000. Zestimate: $224,000 (for whatever that’s worth…)
- Just sold my 2006 Toyota Avalon when it needed extensive repairs after serving me for 200k miles. Paid cash for used 2017 Honda Accord (23k miles): $24,000.
- Cash payment for car was going to be from my savings, but Dear Mother offered interest free loan. I took her loan for $14,000. Will pay her back $250/month for 56 months.
Investments:
- American Funds IRA #1: $6,500
- AMCAP Fund (AMCPX) - 0.68% E.R.
- American Funds Rollover IRA #1: $39,000
- American Balanced Fund (ABALX) - 0.57 E.R.
- Capital Income Builder (CAIBX) - 0.59% E.R.
- Capital World Growth & Income Fund (CWGIX) - 0.77% E.R.
- The New Economy Fund (ANEFX) - 0.78% E.R.
- Washington Mutual Investors Fund (AWSHX) - 0.57% E.R.
- American Funds Rollover IRA #2: $62,000
- American Balanced Fund (BALCX) - 1.37% E.R.
- Capital Income Builder (CIBCX) - 1.39% E.R.
- Capital World Growth and Income Fund (CWGCX) - 1.56% E.R.
- The New Economy Fund (ANFCX) - 1.59%
- Washington Mutual Investors Fund (WSHCX) - 1.37% E.R.
- American Funds SEP: $3,500
- Investment Company of America (AIVSX) - 0.58% E.R.
Major Liabilities / Expenses:
- Credit Card debt: none!
- $900/month after-tax child support. This will decrease by about 50% in spring 2019 when high school senior turns 18.
- Providing $100/month to college freshman. He has a 529 which is paying for all other costs. When the 529 runs out in sophomore year, he’ll have to take loans and get a part time job.
- $250 of remaining medical expenses, on a $50/month payment plan so I can pay out of pocket and invest HSA.
- I anticipate ~$1,500 in college application/AP score/transcript expenses for the high school senior within next 1-2 months. Will heavily work on grants/scholarships when he is accepted.
Current Strategies:
- Since finding MMM, I have moved the emergency savings account from a low yield savings account to 1.8% online Ally account.
- Will continue to put savings into Ally until balance = $20k which I estimate to be ~6 months of expenses.
- I’m just got started with PersonalCapital, which notified me the AmFunds holdings are high fees.
- I have been previously using HSA for actual medical expenses. Children have had massive health expense, but these have just started to trail off. Through MMM, I learned to leave it alone, contributing and investing the HSA, which I’m planning to do [85/15 split between VFIAX/VBLTX]. I am paying medical expenses out of pocket now and will invest the HSA.
- I have a meeting next week with my tax preparer who originally recommended AmFunds. My questions will be why I’m paying such high fees. Unless she reveals the Holy Grail to me, I’m planning to rollover all the American Funds holdings into Vanguard accounts (85% VTSAX / 15% VBLTX).
- I’m tracking all expenses in Quicken: major offender is that I eat out a lot, averaging $900/month on total food. I am focusing on cutting this down, but I still want to try to adhere to a low-carb/keto diet. Yes, I understand this will cost more since I’m not loading up on rice/beans/etc, but for me the health benefits are worth it. $900/month is excessive for just me and sometimes the kids. I want to reduce it by 50%.
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It sounds like you are doing a good job of educating yourself and making appropriate steps. I think you should skip the conversation with the tax advisor who recommended those crap funds and just transfer it all now to Vanguard funds. Since the money is in an IRA you can make that move without tax consequences. Awesome that you have low-fee choices in your 401(k).
On an irrelevant side note, housing of $200k sounds very affordable to me, especially on your great salary! What makes you say you are in a HCOL area?
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I think you should skip the conversation with the tax advisor who recommended those crap funds and just transfer it all now to Vanguard funds.
On an irrelevant side note, housing of $200k sounds very affordable to me, especially on your great salary! What makes you say you are in a HCOL area?
I can't remember if she recommended those funds, or just AmFunds in general. Perhaps I foolishly chose those specific funds without realizing the ERs. Regardless, it's water under the bridge.
I'm spending 30% of my take home income on my monthly mortgage payment which seems high. With 1 kid out of the house, and 2 others soon, maybe I should just look to downsize since I don't need as much house for myself.
My kids have been very expensive with medical costs, and I haven't done a good job of mitigating other expenses. I'm just trying to catch up, and I don't know if I can.
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When the 529 runs out in sophomore year, he’ll have to take loans and get a part time job.
It sounds like you're on the right track. This one thing stood out for me though. He doesn't need to wait until the money runs out to get a part time job. The sooner the better.
Congratulations on figuring things out. You'll be amazed at how much difference this can make in your life.
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It sounds like you have a pretty good plan.
It's difficult to say whether the real estate is the right choice for you. You say HCOL... but you also say central Ohio. I don't think of Columbus as being HCOL at all. How big a place are we talking about? If I was single and had all the kids out of the house, I would want something small and easy to take care of.
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You say HCOL... but you also say central Ohio. I don't think of Columbus as being HCOL at all. How big a place are we talking about? If I was single and had all the kids out of the house, I would want something small and easy to take care of.
Agreed. People here will quibble about whether Chicago is a HCOL (compared to NYC and San Francisco, for example), so if you're in central Ohio, 200K sounds like a fair bit of house, especially if you're looking to accelerate retirement. Columbus, at least, is way cheaper than average for America: https://www.bestplaces.net/cost_of_living/city/ohio/columbus
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How big a place are we talking about? If I was single and had all the kids out of the house, I would want something small and easy to take care of.
4 BR.
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4 BR.
Is there any reason you think you'll need such a big place?
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4 BR.
Is there any reason you think you'll need such a big place?
Not any more.
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Definitely get your IRAs away from American funds as soon as you can.
Downsizing the house will hopefully drop your mortgage payment to under 20% of your income.
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If you can halve your food expenses, great. ($450/mo)
In ~6mo the medical debt will be gone. ($50/mo)
And Spring 2019, child support will reduce. ($450/mo)
Make sure you max a ROTH ira with some of this.
Talk to us about your 401k match. Sounds like they'll contribute ~$8.5k/yr. So, after 3 years, all $25.5k will vest? Or just the first $8.5k vests after 3 years, and then the second $8.5k will vest the year after that, etc.?
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Talk to us about your 401k match. Sounds like they'll contribute ~$8.5k/yr. So, after 3 years, all $25.5k will vest? Or just the first $8.5k vests after 3 years, and then the second $8.5k will vest the year after that, etc.?
Yes, it's my understanding that the vesting @ the 3 year mark will be that $25k amount. Subsequent matches vest after 1 year.
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You might want to consider a Costco membership to reduce the cost of your proteins, esp if you est a lot of fish. Their flash frozen wild caught salmon fillets are on our standard rotation.
We eat a pretty high protein diet and I spend about $700/month for four people (two adults and two teens)
Great suggestion! I had a membership there many years ago when my children were younger. I'll check it out again.
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You already max out your 401(k): $18.5k
Your employer match is: $8.5k
You already max your HSA: $6.7k
You'll do a ROTH next: $5.5k
That's $39k in savings every year right there. If you can trim down food and possibly housing expenses, I'm betting you can save 50% of your take-home pay, if not more. That should get you retired in ~10 years, though you might want/have to keep the side-gig going. Remember, you could claim SSN as early as 62, so that's just 6 years of retirement to get through before you have access to an additional income stream.
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You seem to have a lot of good planning/ideas around a lot of specific spending and investments etc. But given your investments are only about 1x your annual income, the big picture monthly budgeting/spending/savings rate seems to be a lot more important here. You state $20k as about 6 months expenses for you, so if your expenses are really only $40k/year with $110k/year income you are doing great. But that begs the question why do you only have 1x spending saved at 46? I guess the answer is not that you are woefully under-saving currently as you fear but that in the past you were woefully under-saving and now you've fixed it, so are basically just getting started on this new high savings rate path? Or maybe the divorce caused a very big hit? If any of that is the case I'd say you are doing great, but given you just started it will take some time and by far the most important thing right now is maintaining that very high savings rate.
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But that begs the question why do you only have 1x spending saved at 46? I guess the answer is not that you are woefully under-saving currently as you fear but that in the past you were woefully under-saving and now you've fixed it, so are basically just getting started on this new high savings rate path? Or maybe the divorce caused a very big hit? If any of that is the case I'd say you are doing great, but given you just started it will take some time and by far the most important thing right now is maintaining that very high savings rate.
Thanks for the kind words. Healthcare expenses, divorce, various child related expenses, and frivolous spending were all a bit hit on me previously. I'm not making excuses, those are just facts. But that's all the past. I'm late to start on the path, but I'm on the path now!