Hello! I've been frugal my whole life (thanks mom and dad!) and a reader of this blog for years, but a recent move to a new city and a higher stress (and much higher earning) job has made me want to lock down an age at which I can count on being retired.
The point of this post is not really to get advice on how to cut spending, which is why expenses are rather vague--apologies. Feel free to offer what advice you'd like on that front, though! I'm primarily concerned with the following three questions:
- My husband enjoys his work and would like to continue working for at least 10 years. My job is pretty stressful and I would like to know I will have the freedom to quit in 3 years. If I quit in 3 years, and husband in 10 years, will we have enough to support ourselves? Assumptions are that expenses would go down during retirement to possibly ~45k/year (e.g., currently maintaining two households which would stop) and I would, once I recover from high stress job, continue to earn some amount during retirement, conservative assumption $10k. Husband will collect pension starting in 18 years of an unknown amount, probably ~15% of his highest pay...we can likely assume that would account for at least 20% of our expenses starting at age 52.
- After maxing out IRAs and HSA, what is the best investment vehicle for us? I used to put extra cash into our taxable account, but husband and I now work for the Federal government, opening up the world of the Thrift Savings Plan (TSP), which is similar to the 401k, but which I don't fully understand and is relatively new to me. One question I have is whether these funds are accessible to us before age 55 (23 years away for me)--a quick Google suggests I may be able to convert it to Roth and put it through the Roth ladder, but I'm not positive I trust that. Other options for current extra cash include refinancing house to 15-year mortgage, or paying extra mortgage payments.
- I incurred $1500 in medical expenses this year which I paid out of pocket. Should I try to get reimbursed from the funds in my HSA or just not worry about it?
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Life Situation: Married filing jointly, no kids, no plan for kids. One cat, he's loud but cheap. Alaska, USA.
Gross Salary/Wages: Me: $89k, Husband: $60k. Employer matching retirement and HSA: $7.8k.
Taxes: For simplicity, I estimate deductions due to taxes are 22% (including all federal tax, Medicare etc)--this is confirmed from last year's marginal tax bracket, our tax refund, and current paycheck deductions. No state tax or sales tax.
Rental Income: Last year we remodeled our split level into two separate units with the intention of renting out one unit for $1300/month. Currently not fully capitalizing on this as we soon intend to occupy downstairs and remodel upstairs. YTD rental income: $2.4k
Total Net Income: rounded to $127kCurrent expenses: - Average monthly mortgage+taxes+util cost: $2100/month (see below for more details)
- Rent+internet payment for husband's house (we work separately for much of the year): $700
- Phones: $40/month--Google Fi
- Health+car+renters insurance: $340/month ($125 of health ins premium automatically contributed to HSA, accounted for in income)
- Food: $650/month (incl eating out, alcohol etc)
- Cars gas/maintenance: $300/month (two older vehicles paid fully, one higher fuel efficiency, one larger vehicle used for construction projects. Much highway driving as we live separately and see each other on weekends.)
- Misc spending: $650/month. Sorry, I know this is a very low level of detail. I don't enjoy budgeting and have used our good financial situation and general baseline frugality to basically just not worry about it...I know that's not fully Mustachian! This number comes from an average of our credit card statements minus expenses accounted for elsewhere. Main expenses include tools, home improvement supplies, outdoor recreation equipment, travel to lower 48 to see family (~2x/yr), clothes and personal care, vet bills...
Total monthly expenses: $4780, yearly: $57360 Assets: ~$60k from house if we sold today. $8k in cars. Financial holdings:
- Vanguard taxable: $276k, 10% bonds, 20% Vanguard total international, 70% Vanguard total stock market
- Roth IRA (me): $100k, 50% Vanguard 2050, 15% Vanguard total international, 23% Vanguard total stock market, 12% REITs
- Roth IRA (husband): $89k, variety of mutual funds, managed by family mortgage broker--very unclear on fees and asset allocation
- HSA: $15k, invested in Vanguard 2050 retirement fund
- Gift account from parents: $22k, invested primarily in NASDAQ, significant capital gains when sold
- TSP--me: $9k, invested in 2050 target retirement fund
- TSP--husband: $20k, invested in 2045 target retirement fund
- Bonds: 2k, mature w/in 5 years
- Savings account: $36k (v. low interest rate...)
Net worth: $641k ($573k investments and cash)Liabilities: Mortgage is only liability--no other debt. Purchased home for $310k in 11/2018 at a 4.375% interest rate on a 30-year mortgage. $245k remaining on loan. We will remain in house as my primary residence for minimum 4 years, and after that we could rent out both units of house for likely ~$3000 total rent, or sell, whichever.
- P+I: $1238
- Taxes (escrow): $451
- Utilities (significant seasonal fluctuation): average monthly $410 including internet. No alternate providers for any utility in area
- Total: $2100 average monthly
A main question of this post is if I should refinance to take advantage of lower interest rates. My original loan provider is quoting $4500 in closing costs to refinance to a 15-year mortgage at 3.125% interest rate or 30-year at 3.375%. Details of three options are:
- No change: Current 30-year mortgage at 4.375%, 351 more payments at P+I $1238.23 = $434,618 (would contribute at least 2 extra payments/year)
- New 15-year mortgage at 3.125%, 180 payments at P+I $1727.59 = $310,966. $4500 in closing costs.
- New 30-year mortgage at 3.375%, 360 payments at P+I $1096.40 = $394,704. $4500 in closing costs. (Would contribute at least 2 extra payments/year)
Bonus pressure is that loan officer thinks interest rates will rise 0.125% tomorrow and suggests I lock in loan rate tonight. Have not had time to research other options yet!
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That's the story as far as I know it! Please see the beginning of this post for my driving questions precipitating this snapshot of our finances. I'm very interested in any insight you all may have. I will be active here over the next week or so and will post details of potential refinancing options as soon as I get them. Thank you in advance!
ETA: details of refinance offer from original loan provider, which came in 45 seconds after I posted!