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30 years old, a new parent, and looking to retire in 10-15yrs
Old 05-15-2012, 02:57 PM   #1
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30 years old, a new parent, and looking to retire in 10-15yrs

As the title says, I am 30 years old, and my wife and I just had our first child about a month ago (he's a cute little guy ). We've always been fairly frugal minded, with the occasional "consumerist" purchase, and we've been lucky to have fairly good careers up until this point. After browsing many Early Retirement sites, including this one, for the last 6 months... I am very excited when I run the number regarding retirement.

Here is a rough rundown of what our situation is:

Income: $181k (down to $147k as of next month, as the wife will be going part time for the foreseeable future as to get rid of the need for childcare)

Liabilities
Mortgage: $280k @ 4.75% (refi'ed last year)
Student Loan: $4k (Let me tell you, I cannot wait to pay this off over the summer)

Assets
Home: ~$400k
401k: ~$130k (Wife and I both contribute 10+% of our salary, and get employer matches)
Roth IRA: ~$60k (Wife and I fully fund these over the course of a year on a monthly basis)
Taxable Accounts: $20k (really this is just an extension of our "emergency fund")
Emergency Savings: $15k

In the near future, I will have a large chunk of monthly savings open up when I pay off my student loans. We're planning on pushing that money into a combination of a 529 plan for the little one, more 401k funding, and paying down the mortgage.

I would say that without the mortgage, our monthly expenses only run about 2-3k, so I think that getting by on that amount post-retirement would be fine, since our costs would drop even more (we'd lose a car for sure, among other things related to working).

One thing I'm finding hard to put into the equation is Social Security and both mine and my wifes employer pension (wow, these still exist?). My pension will be meager, from working for a company for 7 years. My wife on the other hand is still working for the same company (going on 9 years) and probably doesn't plan on leaving as they are very flexible about work schedules (allowing her to go part time).

Theoretically, we might be able to retire earlier than expected, if we were to retire with the knowledge that after Age 62 we'd had more income coming in. Also, we're not afraid of working part time during "retirement" for maybe some minimal income and/or healthcare.

This site is a great place. Keep up the good work!
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Old 05-15-2012, 03:00 PM   #2
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Go refi again. You could probably shave close to a full percentage point off your mortgage rate.
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Old 05-15-2012, 03:14 PM   #3
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Sounds like you're on a good starting path.
Be prepared to change your plan as life throws you curve balls. My employer was acquired - freezing the defined benefit pension... New owner had a "portable" pension that was more of a lump sum or annuity - but not nearly as nice. Even that got "frozen" a few years ago. If I'd been counting on pensions, I'd be hosed.

You're smart to start funding the 529 now. Compounding will help it grow to reach the target amount for your bundle of joy. I look at 529's as a Roth for college.... you're putting in post-tax money, but withdrawing it tax free. Since you plan to retire before your son is in college, it's good to have it funded before you retire.

I'm older than you - but had kids later than you. So I'm budgeting for 529 contributions for the first several years of retirement. That definitely has an impact on my retirement budget plans.

Also- if you run your projections through firecalc - be aware that the spending amount you put in is not net - it's gross... So you need to account for taxes.

I'm pretty much a newbie on this forum, but want to welcome you.
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Old 05-15-2012, 03:54 PM   #4
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Go refi again. You could probably shave close to a full percentage point off your mortgage rate.
+1. Planning to retire in 10 or 15 years? Think about refinancing to a 10 or 15 year mortgage. You should be able to get a rate less than 3.5%.
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Old 05-15-2012, 04:43 PM   #5
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+1. Planning to retire in 10 or 15 years? Think about refinancing to a 10 or 15 year mortgage. You should be able to get a rate less than 3.5%.
Ah...that is the rub. Problem here is that I refied last year and paid for closing costs that would take 3 years to recoup. If I were to refi again, i might need to stay hetr a few more years on topof that. I should have mentioned that we arent totally sure if we'll stay in the same home after 5 years. I'll have to crunch the numbers.
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Old 05-15-2012, 05:25 PM   #6
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Ah...that is the rub. Problem here is that I refied last year and paid for closing costs that would take 3 years to recoup. If I were to refi again, i might need to stay hetr a few more years on topof that. I should have mentioned that we arent totally sure if we'll stay in the same home after 5 years. I'll have to crunch the numbers.
Ignore what you paid to refi last time. That is a sunk cost and should not affect anything you do in the future.

If you think you will not stay in the house that long, www.penfed.org offers a 5/5 ARM at 3% where they eat all of the closing costs.
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Old 05-15-2012, 07:22 PM   #7
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Ignore what you paid to refi last time. That is a sunk cost and should not affect anything you do in the future.

If you think you will not stay in the house that long, www.penfed.org offers a 5/5 ARM at 3% where they eat all of the closing costs.
The payment on a 10yr loan is too restricting for my tastes (as in it takes up too much of my extra money). I do however need to reinvestigate a refi... again, it seems. Even setting up for a 3.25% 15yr loan, with the expectation of paying it off in 10-15 years will save us 100k.
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Old 05-15-2012, 08:03 PM   #8
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Hello and welcome!

A few things I'll throw into the mix.

1) have you figured out how much $$$ you'll need at retirement to throw off the kind of monthly income you want at retirement? Keep in mind that theories about "safe withdrawal rates" are evolving but most younger folks who need money to last many years are talking 3-3.5% of their portfolio annually. It will be a while until you can access Social Security (probably age 70+ for us younger people). At 3% each million in the bank will kick out 30k for you to live on.

2) your estimates of living expenses seem quite low, especially when you take into account 10-15 years of inflation between now and then as well as healthcare...

I think the numbers will tell you how realistic your plans are. On the surface 10-15 years sounds a bit aggressive/unrealistic to me given your current savings, college needs, and timeline, but numbers trump gut-feel so good luck with your calculations!

SIS
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Old 05-15-2012, 08:22 PM   #9
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This is my understanding of the 5/5 ARM. It is a loan with payments based on amort. of 30 years and interest rate is locked for 5 years, then based on current interest rates resets for another 5 years, and so on. It generally has a cap of up to 2% per increase with an overall ceiling. If interest rate stays low, there is a remote chance it does not increase the full 2%. Besides a no cost closing, you might save some $$ overall by paying down the loan faster if you maintain your current payment schedule.

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Originally Posted by bo_knows View Post
The payment on a 10yr loan is too restricting for my tastes (as in it takes up too much of my extra money). I do however need to reinvestigate a refi... again, it seems. Even setting up for a 3.25% 15yr loan, with the expectation of paying it off in 10-15 years will save us 100k.
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Old 05-15-2012, 08:29 PM   #10
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This is my understanding of the 5/5 ARM. It is a loan with payments based on amort. of 30 years and interest rate is locked for 5 years, then based on current interest rates resets for another 5 years, and so on. It generally has a cap of up to 2% per increase with an overall ceiling. If interest rate stays low, there is a remote chance it does not increase the full 2%. Besides a no cost closing, you might save some $$ overall by paying down the loan faster if you maintain your current payment schedule.

Hmmm, I am not familiar with ARM's because I always saw them as dangerous. It looks like you're correct. Based on Penfed's example rate/amount, it's basing it off a 30yr loan range. I just did the calculations, and based on the amount that I want to increase putting toward our mortgage and a possible exit from this house in 3 or 5 years, we'd save 20-30k. Looks like I need to move fast.
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Old 05-15-2012, 08:35 PM   #11
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Hello and welcome!

A few things I'll throw into the mix.

1) have you figured out how much $$$ you'll need at retirement to throw off the kind of monthly income you want at retirement? Keep in mind that theories about "safe withdrawal rates" are evolving but most younger folks who need money to last many years are talking 3-3.5% of their portfolio annually. It will be a while until you can access Social Security (probably age 70+ for us younger people). At 3% each million in the bank will kick out 30k for you to live on.

2) your estimates of living expenses seem quite low, especially when you take into account 10-15 years of inflation between now and then as well as healthcare...

I think the numbers will tell you how realistic your plans are. On the surface 10-15 years sounds a bit aggressive/unrealistic to me given your current savings, college needs, and timeline, but numbers trump gut-feel so good luck with your calculations!

SIS
I appreciate the comments. Criticism is welcome. I have been doing many different rounds of calculations. I usually go off of a 4% withdrawal rate, but maybe I should run the numbers with 3-3.5%. I do put a lot of weight on the fact that expenses would drop, so perhaps I should do a more in depth analysis of that. We currently live in a very expensive part of the country (DC suburbs), and I assume that we would get out of dodge during retirement and work part time.

Assuming some part time income totalling $15-20k for us, a nest egg of 700k in 10 years doesn't seem too bad, including inflation. I'll have to run several scenarios. I took a statistics class in grad school and had a lot of fun with excel, so I enjoy doing those sort of calculations
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Old 05-16-2012, 02:07 AM   #12
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Welcome to the forum, bo_knows.
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