Author Topic: Tweak our plan or give us a kick in the pants...  (Read 4186 times)

poniesandFIRE

  • 5 O'Clock Shadow
  • *
  • Posts: 29
    • ponies and FIRE
Tweak our plan or give us a kick in the pants...
« on: April 13, 2017, 10:07:13 AM »
Looking for advice on how to meet our goals and if we need to get more drastic. Lurked here a while, but still pretty new to this so be kind. :)

Situation: Married, in our 30s, one young child

Goal: Semi-Fire in 2023 when husband has 20 years service in railroad. We would like to reduce work at this point to a more part time basis. We both like our careers, but the hours are brutal and we want more time as a family.

Net Income (after taxes/insurance/401ks/railroad retirement/union dues)
His: Average $3,000/month
Hers: $3,232/month
Side business: Between $1,00-1,500/month
TOTAL: $7,232

Home:
Worth approx. $215k and owe $144k (4.75% 30 year, have paid extra principal previously to shave off about 4 years so far)

Vehicles:
Car - paid for worth $5k
Truck - worth $40k owe 28k at 1.99% (truck is used for side business) - Our only debt besides house and obviously not mustachian. Intend to pay off and keep 10+ years (diesel).

Savings:
Emergency fund: $10k
His 401k: $86k (adding 10% plus a 4% match)
Her 401k: $44k (adding 8.33% plus a 4% match)

Expenses:
Mortgage/taxes: $1,500 (property and school taxes are $6k/year)
Day care: $892 (will reduce in 2018 when child starts school)
Cell/Trash/Electric/Dish/Snow plow: $350
Groceries: $450
Eating out: $75
Insurances: $250
Heat: $200
Gas: $300
Truck payment: $551
Pets: $50
Clothing fund: $30
Vehicle maintenance fund: $50
TOTAL $4,698

We easily have $2k-$2500 excess funds per month that we need to efficiently allocate. Previously we have been using this money for paying off debt, boosting our emergency fund and putting some on the mortgage.

Current short term plan:
1. Start a small 529 ($100/month)
2. Up 401k contributions to 12%. (Should we instead push closer to trying to max these out?)
3. Put excess on mortgage with goal to have it paid off by 2023 (about $1000/month would accomplish this). I know this is a hot topic of discussion.

What are we not thinking about? What should we be doing?
Paying off the truck aggressively is a topic of conversation as is starting other investment accounts (Roth IRA, etc). We also should be putting aside some funds for home repairs in the next few years, as our house is 100+ years old and needs some work.

poniesandFIRE

  • 5 O'Clock Shadow
  • *
  • Posts: 29
    • ponies and FIRE
Re: Tweak our plan or give us a kick in the pants...
« Reply #1 on: April 14, 2017, 07:35:32 AM »
When he retires from the railroad after 20 years does he get a pension?

The truck is crazy expensive.  If it's necessary for your side business, you could probably still do the work in a beater truck for much cheaper. 

I'd definitely recommend maxing out your 401k's before paying off debt at 4.75% and 1.99%.  You avoid paying taxes at 15-25% that way depending on your bracket.  You should also do Roth accounts if you have money left over.

For the 529, you should check to see if you get a tax break from your state for contributions into the 529.  If so, I'd prioritize that over paying off debt as well if your state income tax bracket is over 5%.

I think you should focus on accumulation.  You have about 130k in investments - at a 4% SWR you would only have 5k in income annually.  Unless the railroad pension is large or you have a pretty lucrative part time job(s) it will be difficult for you to retire.

Thanks for your reply! We've been so focused on paying down debt rather than accumulation for the past few years. I think it is time to switch our focus.

At 20 years service he's eligible for 60% of the average of his best 3 years salary, but not until standard retirement age I believe is how it works. I need to do some research on RR retirement to be sure. 30 years service is full retirement, again not until standard retirement age. So, basically in our 60s and on we will have good "guaranteed" income, but still need to fund our 40s and 50s. He may want to continue working in the railroad after 2023, but on a less demanding job assignment. Perhaps 30-40 hours a week rather than the 50+ hour weeks he mostly has now.

We do get a tax break in our state for 529 contributions, so I guess we should put that in front of paying down debt.

The truck is definitely something to think further on. I can't exactly go to a "beater" as I use it for hauling horses long distances to horse shows for my business and need a certain towing capability, but the job could be done by something somewhat less expensive for sure.

zolotiyeruki

  • Walrus Stache
  • *******
  • Posts: 5603
  • Location: State: Denial
Re: Tweak our plan or give us a kick in the pants...
« Reply #2 on: April 14, 2017, 10:04:49 AM »
You have a $40k truck for a side business that only brings in $1,000-$1,500/mo before expenses.  Am I understanding that right?  Between the payment ($550), gas ($200?), insurance ($100?), depreciation (a few $100), and maintenance, not to mention the cost/value of the trailer, I really wonder if that side business is actually profitable, even before you calculate your hourly wage.

The investment order sticky is a great resource for knowing where to put your money first.

Morning Glory

  • Magnum Stache
  • ******
  • Posts: 4867
  • Location: The Garden Path
Re: Tweak our plan or give us a kick in the pants...
« Reply #3 on: April 17, 2017, 03:09:46 AM »
I agree with the previous poster to max the 401k before making extra house payments, as long as you are not getting reamed on fees or expense ratios. Also contributing enough to the 529 to get the tax break. Judging by your property taxes, it looks like your state income tax is probably pretty low anyway.  A Roth is a good idea because you can withdraw your contributions penalty free so it serves as a sort of second emergency fund.

You really are doing better than most people but I do have some friendly face punches for you.

Face punch 1:You need to get rid of the big fancy truck. I am confident you can find a reliable truck with the towing capacity you need for about $5k, especially if you don't care how it looks.
Face punch 2:  What is "snow plow" under your utilities? Are you paying someone to plow your snow? Seriously?
Face punch 3: Dish? Really?


poniesandFIRE

  • 5 O'Clock Shadow
  • *
  • Posts: 29
    • ponies and FIRE
Re: Tweak our plan or give us a kick in the pants...
« Reply #4 on: April 17, 2017, 08:18:34 AM »
You have a $40k truck for a side business that only brings in $1,000-$1,500/mo before expenses.  Am I understanding that right?  Between the payment ($550), gas ($200?), insurance ($100?), depreciation (a few $100), and maintenance, not to mention the cost/value of the trailer, I really wonder if that side business is actually profitable, even before you calculate your hourly wage.

The investment order sticky is a great resource for knowing where to put your money first.

The side business income is net, after expenses, including insurance/depreciation/diesel, etc.

Thanks for the sticky link! :)

poniesandFIRE

  • 5 O'Clock Shadow
  • *
  • Posts: 29
    • ponies and FIRE
Re: Tweak our plan or give us a kick in the pants...
« Reply #5 on: February 17, 2021, 08:08:38 AM »
Several years later update...

Situation: Same just slightly older... ;)

Goal: FIRE by 2025. We may both continue to work part time after to fund some personal dreams.

Net Income (after taxes/insurance/401ks/railroad retirement/union dues)
His: Average $3,680/month
Hers: $3,530/month
Side business: Budgeting $1,500, but likely higher in 2021
TOTAL: $8,710

Home:
Sold it in 2020 and have been renting for almost a year.

Vehicles:
Car - upgraded in cash.
Truck - still have it, paid off.

No intentions/need to upgrade either vehicles for the next 4 years, at least.

Savings:

His 401k: $207k(adding 15% plus a 3% match)
Her 401k: $128k(adding 15% plus a 4% match)
Cash for new house: $90k - no rush on this as we are very happy in our apartment. Will likely purchase something in cash in 2022.
Roth IRAs: Started the end of 2020 and will max out for both of us for 2020 and 2021 soon.
529: $5,800

Expenses:
Rent: $800
Cells: $100
Groceries: $550
Eating out: $75
Insurances (vehicles and term life): $300
Gas: $300
Pets: $50
Clothing fund: $40
Vehicle maintenance fund: $100
529: $160
Fun money: $125
TOTAL $2,600

Our plan for the next few years is to divide the excess funds as follows:

1. Max out Roth IRAs
2. Up cash savings to $150k to be ready to purchase a home and/or investment property
3. Up 401k contributions to max them out
4. Start investing outside of retirement accounts

It's amazing how things have changed quickly in four years and I've got a lot of hope (and a plan!) for that to happen again in the next four years.

RWD

  • Walrus Stache
  • *******
  • Posts: 6530
  • Location: Arizona
Re: Tweak our plan or give us a kick in the pants...
« Reply #6 on: February 17, 2021, 08:14:24 AM »
Nice progress!

draco44

  • Pencil Stache
  • ****
  • Posts: 527
Re: Tweak our plan or give us a kick in the pants...
« Reply #7 on: February 17, 2021, 08:28:10 AM »
Always interesting when OPs check back in! Glad to hear you are still working towards your goals.

Good for you for opening Roth IRAs.
Nice on increasing your income.
Is Cell/Trash/Electric/Dish/Snow plow now rolled into your rent costs?

Okay, a few facepunches:
1. Why has your clothing budget gone up by $10/month? Are you making efforts to buy secondhand? Repair what you already have?
2. Why is your eating out budget line item the same as it was pre-pandemic? If ever there was a time you could be able to reduce this luxury expense, it's now. Especially since your grocery budget increased $100 since you last checked in (larger child = more food money?)
3. What's the deal with this new line item for "fun money?" What does that capture vs. the categories in your previous budget?

poniesandFIRE

  • 5 O'Clock Shadow
  • *
  • Posts: 29
    • ponies and FIRE
Re: Tweak our plan or give us a kick in the pants...
« Reply #8 on: February 17, 2021, 08:53:05 AM »
Always interesting when OPs check back in! Glad to hear you are still working towards your goals.

Good for you for opening Roth IRAs.
Nice on increasing your income.
Is Cell/Trash/Electric/Dish/Snow plow now rolled into your rent costs? - All utilities are included in rent.

Okay, a few facepunches:
1. Why has your clothing budget gone up by $10/month? Are you making efforts to buy secondhand? Repair what you already have? - Growing child. I also ride horses, which requires fairly expensive clothing, even if buying second hand/keeping/repairing.
2. Why is your eating out budget line item the same as it was pre-pandemic? If ever there was a time you could be able to reduce this luxury expense, it's now. Especially since your grocery budget increased $100 since you last checked in (larger child = more food money?) - Kid eats a lot more than he did back then. With nothing else going on, we enjoy our occasional take out as a family. Supporting local businesses, especially small town restaurants we enjoy in non-pandemic times, remains something we are interested in doing.
3. What's the deal with this new line item for "fun money?" What does that capture vs. the categories in your previous budget? - We now have a kid in elementary school and this covers things like - school pictures, sports, classroom snacks, teacher presents, etc. We also agreed as a family to put aside money for things like family weekend trips, as part of moving to a small apartment. We wanted the freedom (financially and time wise) to do some "adventures" (you know, when the pandemic ends...).

zolotiyeruki

  • Walrus Stache
  • *******
  • Posts: 5603
  • Location: State: Denial
Re: Tweak our plan or give us a kick in the pants...
« Reply #9 on: February 17, 2021, 08:55:37 AM »
Thanks for checking back in, OP.  It's always nice to hear updates.  Wow, you've done a fantastic job of dialing back your expenses! And it looks like you've got a good plan going forward.

What benefits do you get once you hit 20 years in the railroad?

ericrugiero

  • Pencil Stache
  • ****
  • Posts: 740
Re: Tweak our plan or give us a kick in the pants...
« Reply #10 on: February 17, 2021, 08:59:45 AM »
You are making good progress.  Over 4 years you have increased your invested money by $205K while paying off ~$30K debt.  I'm assuming the $90K in house savings came primarily from the sale of your home. 

By the 4% rule you would need $780K invested at your current spend and you have $335K invested plus $90K in a house fund.  The house fund could either be invested and used towards your expenses or used to pay cash for a home which drops your expenses.  If we assume buying a home breaks even (purchase cost vs reduction in expenses) then you could count the $90K toward the $780K you need.  Note: this is a big assumption and you should look at whether it's true before buying.  This means you need to gain $355K over the next 4 years which is more than the $250K progress you made over the last 4 years but still very possible. 

All this assumes you are wanting to hit the 4% rule.  If you continue to work part time you could choose a lower target (higher withdraw rate).  Or, if you are more conservative due to the long retirement you are looking at you could choose to save more. 

One other thing to keep in mind.  Most of your invested money is in 401K's.  You can access that money through a roth conversion ladder but you still need plans for the first five years expenses.  Don't forget to have money available for those first 5 years.   

Overall, you are making great progress and could very well make your 2025 target. 

poniesandFIRE

  • 5 O'Clock Shadow
  • *
  • Posts: 29
    • ponies and FIRE
Re: Tweak our plan or give us a kick in the pants...
« Reply #11 on: February 17, 2021, 09:22:40 AM »
You are making good progress.  Over 4 years you have increased your invested money by $205K while paying off ~$30K debt.  I'm assuming the $90K in house savings came primarily from the sale of your home. 

By the 4% rule you would need $780K invested at your current spend and you have $335K invested plus $90K in a house fund.  The house fund could either be invested and used towards your expenses or used to pay cash for a home which drops your expenses.  If we assume buying a home breaks even (purchase cost vs reduction in expenses) then you could count the $90K toward the $780K you need.  Note: this is a big assumption and you should look at whether it's true before buying.  This means you need to gain $355K over the next 4 years which is more than the $250K progress you made over the last 4 years but still very possible. 

All this assumes you are wanting to hit the 4% rule.  If you continue to work part time you could choose a lower target (higher withdraw rate).  Or, if you are more conservative due to the long retirement you are looking at you could choose to save more. 

One other thing to keep in mind.  Most of your invested money is in 401K's.  You can access that money through a roth conversion ladder but you still need plans for the first five years expenses.  Don't forget to have money available for those first 5 years.   

Overall, you are making great progress and could very well make your 2025 target.

Thank you for your thoughts! The $90k did come primarily from the sale of our house. Your numbers are what I was thinking too. The only huge budget question would be health insurance, as that's currently through my husbands work.

I expect income to continue to grow these next few years and I have potential for increasing the side business income pretty drastically the next year or two, thus ideally beating our numbers during the last four years.

Likely I will continue to work, at least part time, for a couple more years, while we start a roth conversion ladder on my husband's 401k. I should be able to cover our living expenses to let our investments continue to grow during that time. This should give us a little more breathing room in the budget. We will receive a decent railroad retirement income (safe estimate would be $30k/year), but not until my husband is in his 60s, so I'd still like to be safe at a 3.5-4% withdrawal rate.

zolotiyeruki

  • Walrus Stache
  • *******
  • Posts: 5603
  • Location: State: Denial
Re: Tweak our plan or give us a kick in the pants...
« Reply #12 on: February 17, 2021, 10:48:08 AM »
Ah, so the railroad benefit doesn't come into play for another 25 years?  That's basically out of the picture then :)

ericrugiero's number ($780k) is correct if you ignore taxes.  Assuming you're in the 12% bracket, you'd need about $880k saved up.  If you plan to work for the first five years of ER while you build your Roth Ladder, that's a perfectly valid strategy.  Getting to $880k from the $335k you have now is going to be a steep challenge, even with you working until 2028.

Morning Glory

  • Magnum Stache
  • ******
  • Posts: 4867
  • Location: The Garden Path
Re: Tweak our plan or give us a kick in the pants...
« Reply #13 on: February 17, 2021, 10:56:15 AM »
Thanks for checking back in. Haha I was such a noob when I first commented. You guys are doing great!!!!