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10 Year Plan - would appreciate feedback
Old 03-07-2017, 11:35 AM   #1
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10 Year Plan - would appreciate feedback

I have recently left the W2 world and tried to strike out on my own. I used to have income between $300k - $400k and DW has a stable, salaries physician job that pays $400K plus excellent benefits. Our new household income is now $500K/year (I get around $100k from consulting gigs while spending most of my time with a company I have founded). The idea is to spend the next 5-8 years trying to successfully grow and exit from 1-2 start ups (one has been in operation and we are talking about starting another one soon). We have young kids 6 and 9 years old and my wife and I are both 45 years old.

We live in a VERY high COL part of the country but own our home with a relatively small mortgage ($2.4M home value per Zillow with a $700k mortgage that we will pay off in the next 10 years. The mortgage has a 2% fixed interest!

For a number of reasons the 10 year time frame is key to our future plans.

1) home paid off
2) DW can get retiree status at her job, preserving several benefits while freeing her up
3) one kid off to college and the other getting ready to go. One of the benefits is tax free tuition reimbursement for the kids undergrad from DW's employer up to 50% of the fee they charge (and this fee is in the top 2-3 tuition fees in the country so we feel it will cover 60%-100% tuition where kids go to college)
4) I would have gone through a couple of cycles of creating start up companies either successfully or not

Our lifestyle is comfortable but we LBOM significantly. I estimate we spend about $250K/Year including mortgage payments. So planning for a $200K spend at retirement. Budget is steady for the last 3-4 years and a significant decrease in childcare costs will probably create room for other spending if we choose. We live comfortably on one income - always have - which is what allowed me to strike out on my own a couple of years ago.

Liquid savings:

$600K cash
$2.2M - taxable equities
$1.8 M - retirement accounts mostly tax deferred with some ROTH

We also own an investment property in our town where rents cover almost all mortgage, HOA and taxes. We have about $350K equity but I don't consider it in retirement planning.

With about $200K - $240K in annual spend we are looking at around $8M in assets required. While we are only at $4.6M I am hopeful that 10 years of growth and some continued investment will get us there. Invested significantly when we had 2 peak incomes but in the past year we have only invested in retirement accounts (around $70k/yr between DW and I which we expect to continue since hers is on autopilot and I put away 20% of my consulting income into a SEP IRA at Vanguard every quarter).

So the purpose of my message with a detailed description of our circumstances is to hear from the community about how we can make sure our future is iron-clad. We are probably not going to ER but the goal is to work without concern about money and do what makes us happy (I'm already there - DW likes her job also but keeps dropping hints of a second career in the future)

Is there anything we should be doing differently? Is there something we should look out for? How do we maximize our next egg?

Thanks for reading my message and sharing your thoughts.
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Old 03-07-2017, 01:48 PM   #2
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Congratulations, PaloAlto, on quite a success story for your family. Sounds like you are doing a lot of things right which gives you lots of options down the line (the goal is to be FI which then lets YOU decide whether or not to ER).

A few thoughts:
- The next 7-8 years with your kids are "prime time". I would not be too frugal with either time or money to enjoy your limited time with them and make some good family memories.

- Life happens - accidents, serious illness, family issues, etc. So a sense of balance both now and in the future is important. Don't put off doing or spending money on things that are important to you now thinking you have plenty of time later. You may not. (You don't seem to be in danger of spending too much now and running out later.)

- I think it's important for kids who grow up in relative affluence to understand that a) most people don't have it so good and b) this doesn't make them any better than anyone else. Being generous with your time and money now can help a lot in this regard.

Of course, these are just my opinions - YMMV.
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Old 03-07-2017, 02:21 PM   #3
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Have you considered relocating? I know you have a family and also live in a HCOL area, so your annual expenses are rightfully so higher than others just based on those two factors alone.

However at about $4m investable assets right now, you could very easily be FI in most locations in the country, and many desirable ones too. If you took your home equity of $1.7m, you could buy an awesome house in the Chicago area for $1m. That would leave you with $700k left over + $350k rental property + $4.6m cash/assets = $5.65m. At 3% SWR, that would leave you with a $170k annual spend.

Personally, I think you should re-consider your priorities, as that is plenty IMO, although it's easier said than done, esp. when you / your wife want to "make hay while the sun is shining" so definitely understandable.

congrats though! great accomplishments.
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Old 03-07-2017, 03:10 PM   #4
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Thanks for the feedback and replies.

MBAustin: I did not specify but our lifestyle includes making memories- in fact our largest discretionary expense is vacations usually 1-2 overseas and 1-2 domestic family outings each year. That said our kids are learning how to budget already- we started giving them allowances that they have to spend when they want things besides necessities and it is nice to see them learning the benefits of LBYM at this young age or defer a purchase. We usually have to help them spend rather than save :-)

YoungInvestor2013: we love where we live both from career and social perspective so we wouldn't consider moving. We also have close family nearby so kids can grow up with cousins. Despite the cost I don't think we would consider moving out. Thanks for the suggestion though
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Old 03-07-2017, 03:12 PM   #5
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I doubt relocation is on the table. Reading between lines, poster's DW likely has a specialist position affiliated with Stanford Medical School. That, plus the industry in which OP is consulting/starting up are strong ties to Palo Alto.

Even if relocate, there are not many comparable positions his DW that are in medium or low cost of living locations--just less high cost locations....

Given their housing situation (excellent), and both spouses' job satisfaction, why relocate?
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Old 03-07-2017, 03:21 PM   #6
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Originally Posted by 2017ish View Post
I doubt relocation is on the table. Reading between lines, poster's DW likely has a specialist position affiliated with Stanford Medical School. That, plus the industry in which OP is consulting/starting up are strong ties to Palo Alto.

Even if relocate, there are not many comparable positions his DW that are in medium or low cost of living locations--just less high cost locations....

Given their housing situation (excellent), and both spouses' job satisfaction, why relocate?


Bang Bang - on target :-) and there is the nearby family and schools to add to the mix
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Old 03-07-2017, 04:02 PM   #7
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Originally Posted by PaloAlto View Post
...

So the purpose of my message with a detailed description of our circumstances is to hear from the community about how we can make sure our future is iron-clad. We are probably not going to ER but the goal is to work without concern about money and do what makes us happy (I'm already there - DW likes her job also but keeps dropping hints of a second career in the future)

...
You are doing great. Ironclad is difficult. Surest way would be to have one of your startups become a unicorn.

Realistically though, you are on a very nice path and should have no problem in doing whatever you and your spouse wish in 10 years. DW and I are retiring this year at 56/57, with flexible annual spend planned well in excess of what we ever spent on ourselves while employed. On the way, we lived well, but also well below our JD/MD means--a fair amount of dive trips, paid for three private colleges, etc. Thus, we have had a pretty good outcome--and even accounting for the fact that we are in a much cheaper part of the country, we were nowhere near where you are 10 years ago.

As one of the most active boglehead posters often says, "Stay the Course" and you'll be more than fine.
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Old 03-07-2017, 04:52 PM   #8
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Sounds like you're doing quite well. Don't forget to find a way to give back. A lot of folks need some help around this planet of ours.
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Old 03-07-2017, 05:27 PM   #9
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I totally get leaving Relo off the table for now, but as part of that 10 year end game?

If, at 10 years (or after both kids are in college, say 2 years into ER, you then moved somewhere still in nicer CA locations, close to family, but not THAT close to the employment hubs, you could shave a large chunk off your COL and possibly get more house for less or get a good chunk of equity back into your net worth.

Just something to think about, if you could downsize just a tad in the first two years, your goal for ER could maybe come in the $6-7 range, instead of 8. Maybe something that fits with wherever your wife's future career idea might take place?

Other than that, you sound like you're in very good shape. I'd probably look to increase the investment contributions especially over the next 3-5 years, so you can refactor as you go along.
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Old 03-07-2017, 06:48 PM   #10
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Well, I can suggest a semi-Iron Clad method for ensuring you reach your goal in 10 yrs.

Getting from NW=$4.6M to NW=$8.0M requires ~6%/yr gains over 10 yrs, and that's honestly not overly challenging. Plot that on a simple chart (lines or columns, whatever makes you happy). Each subsequent year's amount (e.g.: $4.6x1.06=$4.9M) is your NW goal for that year. Now for the hard part: make a solemn commitment to achieve/exceed each year's NW goal, even if you have to make up any difference with additional savings. It's a way to almost/sort of guarantee yourself that you'll stay on track with your NW progress.

It sounds so simple that it's almost hokey. But, I can attest that it works. DW & I did the same thing (with smaller $ and a higher % annual return) over an 8 yr period from 2006-2014. You'll notice that this period included the 2008/9 Great Recession, where we had to gut it out for 3 yrs to catch back up to the NW progress line. But, we did it; and I think it's doable for you, given your numbers & timeline.

This also doesn't require one of your startups to bloom; that would be gravy.

FWIW, I also agree with Aerides' suggestion to consider relocation after your nest is empty. You may decide to stay put but, things change considerably around that time, and it's worth considering.
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Old 03-07-2017, 08:29 PM   #11
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Thanks. Great suggestions. Relocation is definitely off the table - only place we would move to is Manhattan - doesn't address the COL

Houston55 - I like your suggestion - that's a new technique. Last night I plotted our NW chart from 2007 to 2016 and calculated roughly 8% Rate of return. What I noticed was we never had a down year as we were investing more heavily when the market was down so if you look at the chart without knowing when new funds were added you see double digit growth every year..
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Old 03-07-2017, 09:31 PM   #12
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Sounds like you're doing quite well. Don't forget to find a way to give back. A lot of folks need some help around this planet of ours.


Agree. We do this in small ways and try to teach the kids about it but maybe when we reach FI we could start being more aggressive here - or if one of the start up has a nice exit
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