Fellow Mustachians,
It's that time of year when I like to review our finances and reallocate investments. I'm also starting to think about FIRE spending and how to begin planning for it, and I'm hoping that some of you will provide me with your insight/critique on our investments.
Our situation:
Me: 46 Yrs old
Wife: 42 Yrs old
Home: Owned, no mortgage, value of approx. $275,000, property taxes around $2,300/year
Jobs: State government (me), local education (wife) -- both fairly stable
Current Spending: $35,000/year, with the goal of reducing to $30,000 -- possibly much lower if we move overseas (see below)
Combined yearly income: went to $135,000 combined after a recent raise -- between us, we're currently maxing out a 457 and two 401(k) plans, two Trad. IRAs, and the rest into taxable account
Risk Tolerance: On a scale of 1-10, 10 being the most risk averse, I'm probably a 3? I didn't sell or worry a whole lot during the dot.com burst or the recession, but I didn't have nearly as much invested then either, so who knows how I'd feel now.
Current Investments:
457 Plan: $39,499 in Vanguard target retirement 2035 (0.34% net expense)
401(k): $108,118 in Vanguard target retirement 2035 (0.34% net expense)
ROTH: $51,209 in VFTSX (Vanguard socially responsible -- basically large cap) (0.22% expense), $29,822 in VSMAX (Vanguard small cap index), $34,165 in PXINX (socially responsible, Intl. index -- MSCI EAFE) (0.80% expense), VBTLX $25,765 (Vanguard total bond index)
TRAD IRA: $4,910 in VTTHX (Vanguard target retirement 2035) and $5,064 in VTHRX (target retirement 2030) -- these balances are smaller because we just started contributing to traditional IRAs instead of ROTHs. We will continue to max out the traditional IRA yearly.
Taxable: $24,122 in FSTVX (Fidelity total market index)
Cash; $32,203
The allocation %s for the invested (non-cash) portion is: U.S Stocks 52.55% (Large 34.72%, Mid 11.05%, Small 6.78%), International 26% (Developed 13%, Emerging 2.4%), U.S. Bonds 13%, Intl Bonds, 4%, "Alternatives" 3.5% (as defined by personal capital -- mostly real estate)
Current target allocation (and I'm open for suggestions on this): 80/20 stocks and bonds. 35% U.S. large, 30% international, 15% U.S. Small, 20% bonds
TOTAL Invested and Cash: $355,000
Equity in Home: $275,000
Pensions: I am eligible to draw a pension at 60 (14 years from now) that will pay approximately $12,000/year in current dollars. My wife is eligible to draw a pension at 60 (approx. 18 years from now) that will pay approx. $15,000 in current dollars. Both of our pensions are adjusted for cost of living each year if the previous year's CPI goes up at least 0.5%, with a maximum yearly increase of 3%. When one of us dies, the living spouse will continue to receive the same benefit from the dead spouse's pension. Our state's pension fund is one of the top 5 best-funded state pension funds in the country.
Social Security: Something hopefully. I haven't estimated it lately.
Our Current Plan: Leave our jobs in approximately 3-5 years and move overseas to a lower cost of living country, where we would get teaching jobs or online work for the next 3 years or so that's enough to pay the bills. Therefore, we wouldn't be using much, if any, of our investments until 6-8 years from now. We would probably rent out our house during the first year or so to make sure we like living abroad, and if we like this lifestyle, we would consider selling our house and investing the money. If the overseas plan falls through due to sick/aging parents or other circumstances, we'd probably keep our house and get jobs just to pay the bills for a few years.
Given all this, how might you change our allocation or where we're putting certain asset classes? I know a lot of people don't like socially responsible funds, and if you feel the need to say that you don't like them, that's fine. But know that I'm well aware of the arguments against them, including the fact that the expense ratios are higher.
Cash? I'm guessing the suggestion will be to invest a lot of this.
Pension? For those of you who have one, when you do a cFIREsim (or similar tool) calculation, do you use the full amount of your pension payment as a future income stream? Reduce it by a certain amount to account for risk of the pension possibly going away before you draw it? Obviously it makes a big difference whether I use this or not, since it would eventually pay for a large percentage of our expenses on its own.
Any thoughts would be welcome and appreciated. Thanks for your help.
Pigpen