Need input on my basic retirement road map! (emphasis on "basic!")

[Nick_Miller]

Okay here's a basic retirement road map I was playing around with last week. It's VERY basic and there are a ton of angles to this I have not explored. I'm just looking for feedback and help.

Current Status:
Married, H(age 42, me) and W (age 37)
Two kids: (10 and 6  - we are putting a little in their college funds but mostly they will need to pay their own way)
Current family income: Will be about  $150K this year but we've never earned this much before.
Goal for FI/FIRE/retirement: For my 50s to have lots of "me" and "us" time. I want to slow down. We live in a LCOL area, and we plan to keep our home when it's paid off.
Current Retirement Accounts (total) $92,000


EDITED 8/31/16: After all the face punches, I deleted the old "plans" and now include my revised road map. Here it is..

     
Hitting $800,000.00 for FIRE     
     
Dec 2016 Retirement Balance (est)    $100,000.00    Calculations assume 7% annual return
     
*start with saving $20K and add $5K/year     
for 10 years - would save $65K in last year*     
     
2017    $128,400.00   
2018    $164,138.00   
2019    $207,727.66   
2020    $259,718.60   
2021    $320,698.90   
2022    $391,297.82   
2023    $472,188.67   
2024    $564,091.88   
2025    $667,778.31   
2026    $784,072.79   
     
In 2026, H 53 and W 48, could       
move down to PT work and just break even       
on expenses for a few years.       
     
Stashe would grow for next 7 years during       
"semi retirement"     
2027    $838,957.88   
2028    $897,684.93   
2029    $960,522.88   
2030    $1,027,759.48   
2031    $1,099,702.65   
2032    $1,176,681.83   
2033    $1,259,049.56   
     
Total FIRE at ages H 60 and W 55     
     
4% AWR =     $50,361.98     $4,196.83
                    Per Year              Per Month
     
At this point, H
has full access to all his IRA accounts     
with no penalty (and in case of Roth, no taxes)   

*decide when H should take SS*

[Jack]

With an income of $150k and expected retirement contributions of only $18k, the implication is that you are* spending a lot of money maintaining your lifestyle (and paying a lot of taxes while you're at it!).

Neglecting taxes, your proverbial "number" (to reach 25x expenses) would be $130K * 25 = $3.25M. With only $400K invested when you are 52 years old, how do you ever expect to get there?

IMO, you deserve a facepunch because even your "save like maniacs" scenario is laughably pitiful. With your level of income, you should be maxing your 401k and IRAs so easily that doing so doesn't even count as a goal, and saving several tens of thousands of dollars in taxable accounts on top of that. (I assume your wife isn't eligible for her own 401k; if she is then you should obviously be maxing that as well -- and still saving 5-figures in taxable.)

As for more specific advice:

First of all, your car payment should be gone today, not in 2018. This is because you should immediately sell the car(s) in question and buy a $3-$5k replacement(s), paying cash.

Second, the expenses you talk about paying off in the next few years add up to $3200/month, but your income is something like $10k/month (give or take taxes). Wherever the other $7K is going, I guarantee at least half of it is frivolous and should be cut out. This is corroborated by your claim that after those end your remaining expenses would be $3K/month: $3K + $3,200 = $7,200/month current expenses, leaving about $3K/month in current spending unaccounted-for. (Note: that's a minimum; I expect if you posted a case study we could explain to you how to do much better.)

Third, regarding investment choices: there is essentially no reason to invest in taxable before maxing your tax-advantaged accounts, and very little reason to choose cash-equivalents (e.g. CDs) instead of stock index funds.

(* or, since you say you just started earning this high income, "soon will be")

[Nick_Miller]

With an income of $150k and expected retirement contributions of only $18k, the implication is that you are* spending a lot of money maintaining your lifestyle (and paying a lot of taxes while you're at it!).

Neglecting taxes, your proverbial "number" (to reach 25x expenses) would be $130K * 25 = $3.25M. With only $400K invested when you are 52 years old, how do you ever expect to get there?

IMO, you deserve a facepunch because even your "save like maniacs" scenario is laughably pitiful. With your level of income, you should be maxing your 401k and IRAs so easily that doing so doesn't even count as a goal, and saving several tens of thousands of dollars in taxable accounts on top of that. (I assume your wife isn't eligible for her own 401k; if she is then you should obviously be maxing that as well -- and still saving 5-figures in taxable.)

As for more specific advice:

First of all, your car payment should be gone today, not in 2018. This is because you should immediately sell the car(s) in question and buy a $3-$5k replacement(s), paying cash.

Second, the expenses you talk about paying off in the next few years add up to $3200/month, but your income is something like $10k/month (give or take taxes). Wherever the other $7K is going, I guarantee at least half of it is frivolous and should be cut out. This is corroborated by your claim that after those end your remaining expenses would be $3K/month: $3K + $3,200 = $7,200/month current expenses, leaving about $3K/month in current spending unaccounted-for.

Third, regarding investment choices: there is essentially no reason to invest in taxable before maxing your tax-advantaged accounts, and very little reason to choose cash-equivalents (e.g. CDs) instead of stock index funds.

(* or, since you say you just started earning this high income, "soon will be")

Our take-home pay is more like $6500 right now. About $25K of the $150K will be bonuses I earn whenever I bring in x amount of money at work. Those bonuses this year have went DIRECTLY to either chopping down student loans or to investing. The only bonus money we "splurged" on was replacing the gutters and (original) wood siding on our 50-year-old home that was in bad shape.

So consider a $125 yearly income / 12 = $10416/month. I am over-withholding federal/state taxes from my main job because about $15K of the total $125K income is from a creative side project of mine where I'm a contractor/creator so no taxes are taken from those checks. I wanted to make SURE that we don't owe fed or state taxes next year (this is my first year with income from this side project). Come this spring, we'll definitely get a refund, I'll have a much better handle on my yearly tax liability from the side project, and I'll likely decrease my withholdings about $500 per week, giving us more money to invest for 2017.

I didn't mention all of this in my first post, because I didn't think it was relevant, but we have tightened the budget. Yes my wife has a nice car, and yes we pay $100 for house cleaning per month, but we live in a modest home, I drive a paid-for 13 year-old-vehicle, and we have added about $60K to our net worth so far this year.

And I mentioned maybe opening a taxable VTSAX or a muni fund (no fed taxes)outside of retirement because my wife's 401k (the only one we have access to) is not all that great. Fees are higher than I'd like.

Basically my point is that we'll only take home $78000 plus bonuses this year, and the BIG expenses (childcare, student loan, mortgage, car payment) eat up almost $40000 of that.

So we have $38000 left plus bonuses to pay for all other monthly expenses (food, utilities, gas, health insurance premium, etc) With those numbers, I thought investing $18000 was pretty good!

[Dee18]

I glanced back at your original case study and saw it included 125/mo for cable, 1240/mo in eating costs, 100/mo on clothes (mostly for kids!); and $240/mo mad money, etc.  I did not read all the subsequent posts so you may have cut a lot of those costs, but if so you should be able to contribute more to savings.  You have a large income.  If you work on the expense side you could retire in  10 years.  There are so many examples of people who have done so on much less.  Is all that consumption really worth the years of work ? (and of not funding your kids' college accounts--although many on MMM will disagree with me about that.)

[CrispRetirement]

It looks like you're going to have a lot more money available in the next 4 years. Over $28k less yearly payments than you're making right now - if you roll those into the retirement plan, you're going to be quite a bit closer. In my opinion the $500/month car payment is a lot, but you can make your own decisions. Money acts like money - you'll have to save more to retire earlier.

[Nick_Miller]

I glanced back at your original case study and saw it included 125/mo for cable, 1240/mo in eating costs, 100/mo on clothes (mostly for kids!); and $240/mo mad money, etc.  I did not read all the subsequent posts so you may have cut a lot of those costs, but if so you should be able to contribute more to savings.  You have a large income.  If you work on the expense side you could retire in  10 years.  There are so many examples of people who have done so on much less.  Is all that consumption really worth the years of work ? (and of not funding your kids' college accounts--although many on MMM will disagree with me about that.)

Yes we've slashed groceries and cut our eating out in half. Kids' clothes for the school year have been purchased and I don't see many clothing necessities cropping up this year.

If it was entirely up to me, I'd sell the newish car for a cheaper one and fire the house cleaner, but those things are VERY important to my wife, and she's 80% on board now and if you're married, you understand that's HUGE. We HAVE to be on the same team. And I just toss out "MMM" once in a while but I don't go overboard. I want her to get on board VOLUNTARILY.

And she's getting there: Example - She wanted to take a vacation this year, but once we started running investment numbers she was the one who said, "It's not worth it" to take the vacation.

[Nick_Miller]

It looks like you're going to have a lot more money available in the next 4 years. Over $28k less yearly payments than you're making right now - if you roll those into the retirement plan, you're going to be quite a bit closer. In my opinion the $500/month car payment is a lot, but you can make your own decisions. Money acts like money - you'll have to save more to retire earlier.

I think rolling over those "savings" is very possible. We have a decent amount of cash on hand (about $25000) and when the car gets down to $10K balance next summer, I'd consider just paying it off. Paired with the schedule daycare decrease, that $900 monthly decrease in monthly expenses will be SWEET.

[Retire-Canada]

3. Or should we just try to save like maniacs for the next ten years and double the 401k contributions? So that would be $11K in IRAs and $14K in 401k for $25K/year and then maybe start a taxable fund in VTSAX and add $5K per year so that too, for $30K/year? But even that doesn't have us at FIRE at the end of the 10 years. :(

Start with this ^^^, but keep looking for additional opportunities to save more. With your income $30K/yr savings is just getting warmed up. If you got up to $50K/yr for 10yrs you'd be close to the $900K you need invested for $36K/yr at 4%WR.

[MDM]

Our take-home pay is....
About $25K of the $150K will be bonuses I earn whenever....
I am over-withholding federal/state taxes from my main job because...I wanted to make SURE that we don't owe fed or state taxes next year [so]...we'll definitely get a refund.

I didn't mention all of this in my first post, because I didn't think it was relevant....

Your case study also starts with a "Take home" amount.

Consider the How To: Write a "Case Study" Topic thread, which includes "Case study posts should specify gross income, then list amounts for each pre-tax deduction" and "...actual taxes you should use for your cash flow analysis, and may differ from the amounts you are withholding from each paycheck."

There are many quirks in the tax code.  Some are "harmful" and some are "helpful".  Starting with your annualized gross income, then looking at annualized expenses (including actual taxes, not withholdings), can help you understand your situation better.

[Nick_Miller]

3. Or should we just try to save like maniacs for the next ten years and double the 401k contributions? So that would be $11K in IRAs and $14K in 401k for $25K/year and then maybe start a taxable fund in VTSAX and add $5K per year so that too, for $30K/year? But even that doesn't have us at FIRE at the end of the 10 years. :(

Start with this ^^^, but keep looking for additional opportunities to save more. With your income $30K/yr savings is just getting warmed up. If you got up to $50K/yr for 10yrs you'd be close to the $900K you need invested for $36K/yr at 4%WR.

Thanks. I went over the numbers last night and fashioned a much more aggressive investing plan, basically rolling over the lowered expenses into investing. I figure even if we don't hit all of these more aggressive goals, we're likely to save more than we would have without them.

I'll post those new numbers tonight. Basically it has us reaching about $800K in 10 years, then moving into semi retirement, working PT and earning the $36K yearly (net of taxes) that we would need to pay our expenses. I figure that's only about $50K gross. Heck, by that point, I might be able to earn $25K gross with my writing, as my first novel is doing well and on course to make $15K this year. Writing fiction would be my ideal semi-retirement gig, with all the fun and flexibility inherent in such endeavors.

 We'd be able to leave the stache alone for a few years and let it get up closer to $1M before withdrawing anything.

[Retire-Canada]

Basically it has us reaching about $800K in 10 years, then moving into semi retirement, working PT and earning the $36K yearly (net of taxes) that we would need to pay our expenses. I figure that's only about $50K gross. Heck, by that point, I might be able to earn $25K gross with my writing, as my first novel is doing well and on course to make $15K this year. Writing fiction would be my ideal semi-retirement gig, with all the fun and flexibility inherent in such endeavors.

 We'd be able to leave the stache alone for a few years and let it get up closer to $1M before withdrawing anything.

Sounds good. That is more or less my plan. One more FT year of work and then let my investments do their thing while I work PT. I think transitioning to retirement is not a bad thing as it will be quite an adjustment to make. Plus you get free time earlier than if you worked FT until you hit $1M. And if the markets take a tumble right before you were going to FIRE you just keep trucking along PT until they recover.

That sort of plan gives you lots of flexibility, which is a better approach for FIRE success in my opinion than working many extra FT years to hit a lower than 4% WR.

Good luck with your plan and your writing.

[Nick_Miller]

Here's the revised plan...

      
Hitting $800,000.00 for FIRE      
      
Dec 2016 Retirement Balance (est)    $100,000.00    Calculations assume 7% annual return
      
*start with saving $20K and add $5K/year      
for 10 years - would save $65K in last year*      
      
2017    $128,400.00    
2018    $164,138.00    
2019    $207,727.66    
2020    $259,718.60    
2021    $320,698.90    
2022    $391,297.82    
2023    $472,188.67    
2024    $564,091.88    
2025    $667,778.31    
2026    $784,072.79    
      
In 2026, H 53 and W 48, could       
move down to PT work and just break even       
on expenses for a few years.       
      
Stashe would grow for next 7 years during       
"semi retirement"      
2027    $838,957.88    
2028    $897,684.93    
2029    $960,522.88    
2030    $1,027,759.48    
2031    $1,099,702.65    
2032    $1,176,681.83    
2033    $1,259,049.56    
      
Total FIRE at ages H 60 and W 55      
      
4% AWR =     $50,361.98     $4,196.83
                    Per Year              Per Month
      
At this point, H
has full access to all his IRA accounts      
with no penalty (and in case of Roth, no taxes)   

*decide when H should take SS*