42 year old hoping to retire in 10 years

[52AndOutorNot]

I’ve been reading this forum for at least five years and have found the advice here illuminating. Thanks to all of you for your posts. By way of background, I’m 42 years old and live with my boyfriend. We purchased a house together last year that we hope to grow old in. I’ve listed my income and numbers only, his are not included. I’m divorced and reluctant to marry again or mix assets, both of us are fine with the situation as it is. I’m responsible for 80% of our mortgage, remodel and other housing costs. All other consumable expenses (groceries, lawn service, etc) are split 50/50. Here are the high level details:

Home: $715K current value ($157K equity; $558K owed; planning two year ~$400K remodel to be paid in cash; area home values range from ~$1M - $2M, we bought a 125 year old fixer upper in an ideal location)
Salary: $525K plus bonus (salary just received a big bump due to promotion to partner; annual bonus ranges from $40K - $80K)

401K: $600K ($213K 401K, $122 Roth 401K, $265K after-tax contributions; since I’m now an “owner” of the company I pay my contributions plus matching company contributions, ~$24K annually plus any after-tax)
Pension Plan 1: $32K (self-funded firm managed, will pay in $39K this year)
Pension Plan 2: $90K (company will contribute ~$23K based on my age and years of service this year)
Remodel savings: $100K
Savings: $75K
HSA: $6K

First, I’ll address the house which is comparatively expensive. This is very much our dream home and in a perfect location for us. The remodel will bring the house up to date and we are putting in grab bars, transitionless showers, etc that will allow us to grow old in the home and house my aging father should he move in with us. If we eventually need live-in assistance the basement has a separate entrance, full kitchen and full bathroom which we can convert to a single living space. During the next two to three years I’d like to complete the major remodel as well as start paying down the mortgage if possible. I’ve already put $100K cash aside for the remodel so have about $300K left to save (some of which my boyfriend will cover). We own the property jointly, though in actuality I have 80% ownership and he has 20% (need to get to attorney to formalize the agreement but financial records bear that out). If I die, he’ll get the house outright and enough of my life insurance policy to pay off the mortgage and not have to move. The remainder of my life insurance and other assets would go to my family.

My net worth is low compared to my salary, but I just started earning a high salary after being promoted. I’m targeting to have $1M in my retirement/pension accounts by age 45 which will hopefully grow to ~2M - $3M by age 59 ½. After age 45, I’d like to focus on saving in post-tax accounts for 6 or 7 years. My goal is to retire at 51 or 52 years old and have enough to live off of until I’m 59 ½. Current retirement assets total $722K. With $86K added per year (not including any after-tax contributions I make), I should hit $1M by 45. I have other non-liquid assets not listed above, including a rental property that I own with my siblings but haven’t included here since it’s not exclusively mine and the decision to sell will be a group one.

My focus right now is to get the remodel done and then start paying down the mortgage. My current expenses including housing costs are about $6K per month, or $72K annually. My taxes are approaching $150K annually.

Any thoughts you can share on my plan are appreciated, besides the house being a money pit.

[eta2020]

Yup I think you yourself can clearly see your problems. Very expensive house and small savings given your income.

That house will be draining you with maintenance, heating, taxes etc etc. I know you don't want to hear but that is all that pops in my mind.....

BTW we have payed off house, no loans (cheap cars) and our expenses are about 5k per month. That includes 8k on property taxes. I do not know how you are able to make huge mortgage payment and have almost same expenses as us.

Our taxes are not too far from yours

[52AndOutorNot]

eta2020, thanks for your comments. I was expecting to hear that. J

Our mortgage payment, insurance and property taxes are $3,600 per month on a 30 year loan. I pay $2,900 of that. The other $3,100 per month is what I live on (boyfriend pays half of day to day costs so additional on top of my $6K spending per month). Due to the age of our house, property taxes are only $6K per year. Very low, who knows if those will be reassessed soon. Our neighbors who are in brand new $2M homes in the area pay $20K per year but that’s based on new construction tax assessments. Neighbors who are in historical homes like ours pay similar taxes to us. Car is eleven years old and paid off. Have separate cash account for car replacement not included in assets because that’s already earmarked. Will likely purchase another inexpensive used car when this one dies. I take public transportation, so only one car is needed.

[Katiek]

Congrats on your promotion and the nice raise. That should definitely help your future savings and your plan. I hate to sound negative, but one thing that jumps out at me is your housing situation. You said you're covering 80% of the mortgage, but the way you describe your situation, I assume the house is jointly owned. I know you're planning to grow old in the house, but plans have a way of not always working out as expected. Just make sure you're ok if you end up not with your current boyfriend.

Maybe your boyfriend is helping with the remodel or covering other items, so I don't mean to suggest there is anything unfair about the situation, but I just want to make sure you consider every situation, no matter how unlikely you think it is.

[eta2020]

Quote:

Originally Posted by 52AndOutorNot eta2020, thanks for your comments. I was expecting to hear that. J Our mortgage payment, insurance and property taxes are $3,600 per month on a 30 year loan. I pay $2,900 of that. The other $3,100 per month is what I live on (boyfriend pays half of day to day costs so additional on top of my $6K spending per month). Due to the age of our house, property taxes are only $6K per year. Very low, who knows if those will be reassessed soon. Our neighbors who are in brand new $2M homes in the area pay $20K per year but that’s based on new construction tax assessments. Neighbors who are in historical homes like ours pay similar taxes to us. Car is eleven years old and paid off. Have separate cash account for car replacement not included in assets because that’s already earmarked. Will likely purchase another inexpensive used car when this one dies. I take public transportation, so only one car is needed.

Well look at a positive. From my experience I believe crucial years are 40-50.
This is where you make or break your portfolio.

You are just entering it. You have lot of choices in front of you.

[52AndOutorNot]

Katiek, Thanks for your message. The 15 plus years of working 80 to 100 (yes, 100) hours a week are finally paying off in a big way. For many of the early and hardest years I was making under $100K.

Yes, the house is jointly owned in case I die. My family doesn't need the money or house and I don't want his situation to change if something happens to me. However, if our relationship ends for some reason I need to have that side agreement in place outlining the 80/20 ownership. I would buy him out if something like that happened.

[Greencheese]

Judging from your location of Chicago and use of the word "house" I assume you're in the North Shore area? Very nice part of the state to live in!

[Katiek]

Having a written agreement covering your rights regarding the house if the relationship ends fixes the biggest red flag I saw in your post.

[prose3589]

Welcome. I am in a similar situation as you in that I am divorced, 43 and own my dream home with my SO. I will echo the other comments. It is imperative that you have a written agreement with your partner. Joint tenancy is not enough.

You have a nice income and a plan. I am looking to retire at 55 and playing catchup on my retirement. I see 55 as a goal not a finish line. If I have to work a year longer or do consulting so be it.

Good luck. Hope we both meet our goals.




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[38Chevy454]

Welcome to the forum, get the legal docs in place for the house ownership would be my number one recommendation. Then start maximizing your savings. I know you want to remodel, and have it for life. But you may change locations or other life events and may not ever come close to recovering the remodel expenses. Sure it makes it nice while you live there, and should help sell better if you arrive at that decision someday. Just watch the remodel expenses as they will not increase house value at same level as the costs. I am sure Chicago will up your tax base as well, never seen a city where they won't take advantage of your work to increase house value.

I guess my overall opinion is being house poor is not a good position to be in. You have current ability to really max out savings for the next 10 years and be set for retirement at 52 like you want to do. Don't let the house affect those plans.

[utrecht]

You are a lawyer right? You work with lots of other lawyers. Why haven't you gotten the legal paperwork taken care of on the house yet? I wouldn't be putting that off any longer if I were you.

[TimSF]

Seems very reachable, back of envelope. 10 years of your income ($6 m) - income taxes ($2.5m) - remodel ($300k) - living expenses ($700 k) - paying off house ($700 k) = $1.8 m + investment gains. Should be more than enough to get you from 52 to 59.
We did something similar - in high-earning 40s, saved like mad and invested in high cost home and retired at 51. But we needed to sell the high-value home to make it work. You look to be in a better position with other sources of income.

[52AndOutorNot]

Thanks for all your comments. Yes, the side agreement really needs to be done. With travel and moving I've shelved this for some time. No more excuses, I'll add it to the top of my to do list.

TimSF, Thanks for your back of the envelope calculation. That's along the lines of what I was thinking as well. Hopefully my income continues to rise and make this goal reachable. If I have to, I'll continue working until I'm 55 but that's not ideal for me. If something really major happens, we can always sell our house. Again, not ideal but an option for us.

[Rothman]

Congrats on your achievement 52AndOutorNot, but you may consider alternate sign on name 52StillWorkingBigHouse. Certainly not the worse outcome but I think you need to accept you are making that choice because clearly your income isn't the problem to be out at 52 it's those expenses, but if that's what you want 58AndOutBigHouse is also available. I wish you the best


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