Fire by 40?

[QueensGambit]

31 y.o. married to stay at home dad (32y.o.), 2 teens

Income: approx $120k after tax and 401(k) contribution
Other income: $3700/month foster care/adoption subsidies. Drops to $1700 in two years, $0 in five years.

I contribute 10% of my income to a Roth 401(k), with a 4% company match

Current expenses:

-Mortgage: $1593 (approx $500/mon to principle, $600 interest, $500 tax and insurance)
-Utilities and other bills: $1300 (average— higher in winter because of large gas heating bills around $600/mon)
-Health Insurance: $615
-Groceries: $400
-Giving: $700
-Home Improvement: $500
-Entertainment: $200
-Dining: $300
-Kid expenses (athletics, clothes, etc) $400
-Transportation $200
-Misc $200
Total $6408

Assets:

My Roth 401(k) $65k
Husbands old 401(k) $35k
Schwab account $34k
Crypto $80k
Savings act $44k

Home is worth about $365k, mortgage balance of $275k (2 years into a 30 yr fixed at 2.81%)

Husband and I just learned about the FIRE lifestyle a few months ago and have changed our spending habits pretty quickly. We have always avoided lots of debt, but also enjoyed spending a lot. We are hoping to help pay for college for our kids (one adopted, one hoping to adopt) and retire around 40.

Over the last few months, we’ve starting investing about $5k/mon in our brokerage account, in addition to the approx $1500 invested in my 401(k) from my check and employer match. Crypto is a disproportionately high percentage of investments due to large gains.

I work a full commission job, so we have a larger emergency fund so we can easily cover kid expenses. I plan to use this to cover my older daughter’s college room and board in a couple years— she has a tuition scholarship.

[ixtap]

What is your tax bracket? It sounds like you income is high enough to use a traditional, rather than Roth 401k, especially if you are planning early retirement. You might even want to consider maxing out that traditional 401k, to get bigger tax breaks, depending on your actual tax situation.

You and your husband should definitely be putting money into Roth IRAs before adding more to brokerage accounts.

[maisymouser]

Welcome to the forum!

Are you definitely maxxing out your 401k contributions? $1500/month doesn't add up to the 2022 max.

Your spending seems really high- esp. on utilities. If heating is so high have you looked seriously into improving your home insulation, etc (factors to decrease that bill)? Is your husband willing to go back to work or work part-time? Eliminate dining out (in our 3-person household we spend <$30/month dining out on average)

I am really interested in hearing more about your foster/adopt experience, if you're willing to share. Thinking about doing the same thing at some point potentially.

I'm crypto averse so my advice would be to cash in the gains and invest in index funds.

Based on your current expenses... I'm going to keep things REALLY simple here and go with an assumption that between supporting your kids into college, then funding their college, you'll average the same expenses you currently have for at least the time through you'll have your mortgage paid off, which you will still be doing if you retire by 40. Let's be generous and say you only average $6k/month in spending at that point. That means you need $72k/year. Going by the 4% rule that means you need a whopping $1,800,000 to FIRE on. Also consider the state of healthcare- it's a giant black box in planning for FIRE and we can't really bank on costs decreasing or stabilizing in 10 years (though I sure hope they do).

You currently net approx 67k/year after taxes, spending, and 401k contributions (120k net + 19k 401k -72k spend). That means you'll increase your NW by ~$603k in savings over 9 years. That, plus your current assets, brings you to only $861k. Do you expect the market to more than double in 10 years? That is what it would take to FIRE at 4% based on what I'm seeing here. Maybe the market WILL take off further, but I don't think you can count on retiring by 40 at this rate.

Perhaps this is an oversimplification of your situation (and finance planning in general) but that's the way I see it, and I like to add a healthy margin of error. The super short napkin math doesn't add up.

You're unfortunately not that close IMHO. BUT... if you are able to rein in the spending, perhaps find a healthy measure of college assistance (common for fosters/adopted kids in many states), and/or increase your income, you're in a good starting position if you want to accelerate a FIRE timeline.

[JLee]

-Utilities and other bills: $1300 (average— higher in winter because of large gas heating bills around $600/mon)

That seems high -- have you looked into an energy audit?  There's a company in my area who will do a review of a house and check insulation/air leaks and then put together a proposal that fits in my state's energy efficiency program.  I ended up with ~$13k in work done, got $3k back from the state and financed the rest at 0% for ten years.  I have about 3100 sq ft finished (with about 1200ft being basement) and two attached heated garage bays and pay about half of that for natural gas in winter (northern NJ).

This is who I used - https://www.cielpower.com/

[QueensGambit]

@ixtap: I believe we were in the 22-24% bracket when we filed our 2021 taxes. Since you recommended we try to transition to traditional 401ks, should we be looking at traditional IRAs rather than Roth IRAs?

@maisymouser: Yeah, the math doesn’t quite work as is. I think we need to work on lowering our utility bills, especially the gas bill. We live in a very old home without storm windows or much insulation. I did purchase a new gas boiler last year, which helped somewhat (and the old one was past its expiration date and left us in the cold).

I think our spending is likely to decrease considerably when the kids move out, and I don’t think we’ll need to come up with more than about $40k per kid for college, between scholarships and family assistance. As you mentioned, there are a lot of helpful programs for kids coming out of the foster system. (By the way— if you’re considering becoming a foster parent, DO IT! There are way more kids that needs families than good parents ready to step up. Go for it!)

I’d like to get us to around $5k/month spending by retirement. I believe my income is likely to increase— last year I made $180k before taxes, but my industry is down this year because of supply chain issues and the war in Ukraine. If we can get our spending down even just a little, we should be saving well over 50% in a normal year.

@JLee: We have considered an energy audit but have yet to pull the trigger. Like I mentioned to Maisymouser, we live in an old home without storm windows and poor insulation. Do you know what kind of percentage you ended up saving per month on stuff like heating? Our bill has always seemed pretty outrageous but it can be hard to gauge in our area.

[JLee]

@ixtap: I believe we were in the 22-24% bracket when we filed our 2021 taxes. Since you recommended we try to transition to traditional 401ks, should we be looking at traditional IRAs rather than Roth IRAs?

@maisymouser: Yeah, the math doesn’t quite work as is. I think we need to work on lowering our utility bills, especially the gas bill. We live in a very old home without storm windows or much insulation. I did purchase a new gas boiler last year, which helped somewhat (and the old one was past its expiration date and left us in the cold).

I think our spending is likely to decrease considerably when the kids move out, and I don’t think we’ll need to come up with more than about $40k per kid for college, between scholarships and family assistance. As you mentioned, there are a lot of helpful programs for kids coming out of the foster system. (By the way— if you’re considering becoming a foster parent, DO IT! There are way more kids that needs families than good parents ready to step up. Go for it!)

I’d like to get us to around $5k/month spending by retirement. I believe my income is likely to increase— last year I made $180k before taxes, but my industry is down this year because of supply chain issues and the war in Ukraine. If we can get our spending down even just a little, we should be saving well over 50% in a normal year.

@JLee: We have considered an energy audit but have yet to pull the trigger. Like I mentioned to Maisymouser, we live in an old home without storm windows and poor insulation. Do you know what kind of percentage you ended up saving per month on stuff like heating? Our bill has always seemed pretty outrageous but it can be hard to gauge in our area.

I saved about 30% with the energy audit work (insulation and air sealing) and a Navien combi boiler. 

I had a reasonably current house with a boiler from 2003, newer windows etc.  Insulation was a bit lacking, as was air sealing.  If you have an old leaky house, do an energy audit ASAP.

[ixtap]

@ixtap: I believe we were in the 22-24% bracket when we filed our 2021 taxes. Since you recommended we try to transition to traditional 401ks, should we be looking at traditional IRAs rather than Roth IRAs?

I doubt you would be eligible to deduct your tIRA (although spouse might be), but you could look into it.  t401k and IRA might bring your AGI or MAGI enough to qualify for additional tax savings, like the saver's credit. On the other hand,  using a t401k and Roth IRA does give you some tax diversity, which can turn into flexibility later in life.

[Morning Glory]

+ 1 for the audit and some sealing/insulation/storm windows

You are doing great on the groceries, and props to you for the charitable giving !

Can you break out the other $700 of utilities besides heat? are there some expensive phone plans or subscriptions hidden in there?

I would be tempted to sell off some crypto and max out your traditional retirement account options (401k + IRA for yourself and spouse), for the tax savings as well as getting out of such a risky asset.

Link I found helpful on traditional vs Roth:
https://www.madfientist.com/traditional-ira-vs-roth-ira/

[QueensGambit]

Utilities/bills vary somewhat but here’s what we paid last month, in addition to our $567 gas bill:

-Verizon: $146 (just negotiated this down but still seems high. Have had TMobile and Sprint in the past and the service sucks here. Probably will have to add kid phones soon— still resisting for now)
-YMCA gym membership $33 (pretty good for a family of 4!)
-Water bill $183 (this is every other month)
-Glofiber internet $93 (recently switched from more expensive evil empire, Comcast)
-Electric: $148 (way higher since we got the kids, hmm)
-Kid allowances: $152 (kids in foster care are required to receive allowances; we pay a little extra for chores and good behavior)

[SailingOnASmallSailboat]

Verizon's cut rate plan is Visible. $25 a month unlimited (you have to join a group to get that rate; we joined one that has thousands of members so isn't likely to end any time soon)

That would bring your cell bill to $50 for 2 of you.

[CurledMoss]

Expenses $76,896 a year
Investments needed to retire is 25x so $1,922,400

You have $258,000 minus the crypto because cryptos the new dutch tulip market craze. That leave you with $178,000. So you need $1,744,400 in the next 9 years. I'll let you do the rest of the math.

[CurledMoss]

One quick comment. You said gas for heating can be $600 a month. Could you invest in geo thermal? Is your current system new or old? Is it efficient? Sell your crypto and invest in that?

I had a very old air conditioning and heat system that used fuel.

It needed updating... So I dropped 12k on geo (forced air) and it now uses no fuel and is assisted with an electric heat pump. This was done years ago I'm sure it's more money now. My utility company has a program where if majority of heat is electric you don't pay sales tax on your entire bill during winter months. Win win

Also, I looked into solar and with my utility company ROI was 13-15 years. The utility company down the road ROI was like 7 years...

[CurledMoss]

No feedback? guess OP didn't like what they read.

[QueensGambit]

No feedback? guess OP didn't like what they read.

Definitely appreciate all the good advice, particularly on potential energy savings. Sorry for the slow reply-- I'm a mom with a full time job!

[bacchi]

Verizon's cut rate plan is Visible. $25 a month unlimited (you have to join a group to get that rate; we joined one that has thousands of members so isn't likely to end any time soon)

That would bring your cell bill to $50 for 2 of you.

Check out US Mobile, too, which is a Verizon MVNO.

Why is the water bill so high? How many gallons/month does your family use?

And I agree with maxing out the 401k.

[pdxvandal]

Their water bill is every other month ... so roughly $90 per. Certainly far lower than mine.