Help with downshifting plan

[moonpalace]

DW and I have $175,000 invested now. Currently investing $55k/year, about to increase to $62k/year, and then to about $75k/year over the next four years as loans are paid off. I'm 42, she's 40 - just found the mustache 2 years ago.

I make $98k, DW makes ~$85k. Two kids, 13 and 9. Twelve years to go on $260k mortgage at 2.75%.

Four years to go on $40k student loan at 3.5% ($558/month). Three years to go on $11k student loan at 5% ($324/month). Two years to go on $4k home-energy-efficiency loan at 1.9% ($234/month). As those go away we'll put the extra into investments.

What we'd like to do is continue basically as we are for the next four or five years, and then I would downshift pretty dramatically, either part-time in my current role (gov't attorney) or similar, or switch to something completely different. She would keep working a few more years.

Our investment balances should be about $400-500k at that point, and no debt other than the mortgage. One kid would likely be looking at colleges around then.

Really just looking to tap the hive-mind here. Is this a crazy plan? What should I be thinking about? Is there a calculator somewhere that can accommodate this level of detail?

Thanks in advance!

[legalstache]

What are your current/projected expenses?

Your plan could be realistic if you can cover your expenses after downshifting and then let your assets grow untouched for a while. Assuming a 6% return, letting a $500,000 portfolio grow for 20 years would leave you with about 1.6M, which may be plenty depending on your expenses. Of course that scenario would put you at a traditional retirement age too.

I think you're running into the question a lot of people here face about whether to work a few more years at a FT job versus many more years at a PT or other job. A lot of this depends on your preferences but without your expenses it's hard to say what's realistic.

[moonpalace]

What are your current/projected expenses?

Your plan could be realistic if you can cover your expenses after downshifting and then let your assets grow untouched for a while. Assuming a 6% return, letting a $500,000 portfolio grow for 20 years would leave you with about 1.6M, which may be plenty depending on your expenses. Of course that scenario would put you at a traditional retirement age too.

I think you're running into the question a lot of people here face about whether to work a few more years at a FT job versus many more years at a PT or other job. A lot of this depends on your preferences but without your expenses it's hard to say what's realistic.

FIRE expenses are about $40k/year. Should've included that!

[legalstache]

So you need 1M to be FIRE with a safe withdrawal rate of 4%. By my math, if you let 500k grow with no additional contributions, you'd reach 1M in 12 years (assuming 6% returns).

Or, if you ramp up contributions to 88k/year once loans are retired in 4 years (the amount it seems like you'd be able to contribute at that point based on your numbers), you'd hit FI in about an additional 4 years.

Either way, you're in pretty decent shape. It seems like it mostly depends on whether you'd rather stick it out for longer at a FT job and be FI sooner, or downshift but have it take longer to hit FI.

Others on the board who have actually made this decision may have some input as well.

[moonpalace]

Thanks, legalstache!

Seems like maybe the best takeaway for now is pure mustache: ramp up the savings as much as possible, as soon as possible, so there's more freedom sooner! And don't rest on our laurels along the way, but keep re-evaluating and tracking.

The other thing I didn't mention is that I will likely be getting a 8% raise in a few months, all of which will go straight to savings in 2019 and future.

mp

[legalstache]

Sure thing!

And I agree with your suggested plan. I'd take advantage of your ability to sock away quite a bit of money each year for as long as possible (as long as your job is at least tolerable). Then, once you get a little closer to your target FI number, evaluate your next move. I know stay the course isn't the most exciting advice to hear, but I think it applies in your situation (again, as long as your job isn't terrible). FWIW, I'm in a somewhat similar boat and am doing the same thing.

[Tuskalusa]

If you budget would allow, why not consider retiring some your debt earlier?  Seems like bring debt free (except mortgage) would allow for freedom faster.

[moonpalace]

Do you have access to a 457 at work? Those often give you more flexibility with pre-retirement age withdrawals, while still giving the benefit of tax-deferred growth. Also keep in mind that the FAFSA now will use your tax return income in your daughter's junior year to determine financial aid eligibility, so that might be a good time to cut back hours/income.

I would pay off the 11k student loan at 5% ASAP and snowball that payment into the next highest interest debt.

Thanks! I do have a 457 at work, and I currently contribute $11,800/year to it. Going to bump it to the max in December/January. Other current contributions are $10k/year to 401a at work (which includes about $7k match but, oddly, doesn't allow me to increase my own contribution), and $30k+ to a solo 401k.

I'm tempted by the early loan payoff, but so far have been heeding the advice in the Investment Order thread to prioritize pre-tax retirement savings over low-interest debt. If we are able to do a bit of early loan payoff after maxing the solo 401k and the 457, I will pay these off for sure.

[Padonak]

I would pay prioritize:

-Investments with matching contributions (free money)
-Paying off loans above 3% ASAP
-Other tax-advantaged investments
-Taxable investments

[MrThatsDifferent]

I’m in the pay off all your debts but the mortgage ASAP camp. In one year you’d wipe out those 3 additional loans and then have $1000/month to invest. Finish them off and stop bleeding money to interest and take that weight off your shoulders.

I’d also think of 10 more years of working, unless your job is hateful, would let you FIRE at 52, which is still pretty young to enjoy everything. That will also see one kid out of college and one halfway through college.

[MDM]

Some people sleep better at night when having as little debt as possible.

Some people sleep better at night when their investable money is being directed where they reasonably expect it to have the highest after-tax return.

Many in each group wonder how the others get any sleep. ;)

[moonpalace]

Some people sleep better at night when having as little debt as possible.

Some people sleep better at night when their investable money is being directed where they reasonably expect it to have the highest after-tax return.

Many in each group wonder how the others get any sleep. ;)

^^^^^^

Wisdom above!

For now, I'm in the camp of doing all the tax-advantaged investing I can, since my marginal tax rate is very very much higher than the rates on any of those loans. But I can definitely see the appeal of paying loans off and snowballing, too!