A few more years for me - 4 to 7

[FewMoreYears]

Thanks everyone for this forum. I’ve found it to be every educational and a nice complement to the ER blogs out there. Its great to read the variety of opinions and situations.

I’m about to turn 53, wife is 49 and I plan to retire in Dec 2021 or in 4 more years. However, it could be between 4-7 more years. Here’s my situation

1) Family of 4. A son about to enter college and daughter who has 3 more years of HS. This puts my range to retire from 4 to 7 years

2) Finished paying for the house 2 years ago. Zillow says $440K. No other significant debt other than for future college costs

3) Total non-house is $1.25M consisting of

• 401k + IRA - $547K
• Roth - $254K
• Liquid/Cash – 443K

4) Not counted above are

• 529 plans for a total of $50K or so
• $50K eTrade account for each child or a total of $100K. It’s under my name and we’ve told the kids it’s their inheritance and a jumpstart retirement fund. They won’t get access to it until much later. With assumption of it doubling every 8 years, their portfolio will be about $400K in 32 years when my first child hits 50 or $800K at 58

5) We are committed to paying our kids 4 year college education. We want to position them as best as possible with college and not saddle them with debts. They both did/are doing well in HS

• First child has gotten nice scholarships for out-of-state and first year will be about $25K. So let’s assume $100K for 4 years
• We think second child will also get scholarships but probably plan for conservative $50K x 4 years or a total of $200K
• Both kids know the expectation is they help out by getting scholarships and also finding some sort of campus job

6) My current income is $350K + bonus potential of $150K + RSU (restricted stock units). Had a career milestone 4 years ago and am earning significantly more money since then.

• My wife works some and makes about $24K
• My comp plan target has planned RSU grants annually. Because of the vesting schedule, we will be leaving some RSUs on the table when I retire. It’s hard to estimate with confidence so leaving it out of my financial portfolio altogether
• We definitely live well below our means

7) No other sources of retirement income other than our savings. Visited attorney and got all the wills etc. done


So here’s our plan so far

8) In 4 years or in 2021, we want 401k + IRA + Roth = $1M. With max contribution, employer matching and modest stock market gains, this should be doable. Don’t touch it and allow it to double to $2M by the time I hit 67. With the 4% rule, this will give us $80K + full SSN at 67

9) I’m estimating our liquid/cash will be $550 - $600K in 2021 as there will be significant cash outlays of approx. $250K (+$50K from 529) for kids’ college education. In other words, for me to retire in 4 years, we need to have saved up $250K in 4 years to pay for kids’ college over a 7 year period.

10) The $550 - $600K is what we will live on for 10 years between 57 and 67


Things for us to work through

11) Saving $250K cash over the next 4 year period for a 7 year college duration

12) The dilemma of “just 1 more year” and leaving a “legacy”. There is no doubt that we will struggle with me wondering if I should work 1 more year (or 2 or 3 etc.). I’m making a lot of money now late in career and it would seem a “waste” to not maximizing career earnings.

The longer I work, the better chance of our descendants having a jump start and easier life. My wife’s family was middle class and mine was poor

13) My dream of having an extra house/condo in retirement. The second house will be in FL, SC, NC or VA, will be on the water, and will have a boat for me to go fishing. I don’t think we’ll be able to pull this off unless I work the 7 vs 4 years

Thanks again for this community, its inspiring to read the discussions here. I will post updates to my situation periodically.

 

[Whisper66]

Welcome to the forum!
In your point 10), it appears you plan to live off of 600k for 10 yrs = 60 k/yr. Do you have a good handle on your current living expenses to know if this is realistic? Given your excellent income level I would have expected more savings if your spend rate was anything in that ballpark. Also, have your run your numbers through FIRECalc: A different kind of retirement calculator to get a good view of the probability of success for the plan?

 

[FewMoreYears]

Haven't checked out FIRECalc yet.

We are definitely exceeding the $60K a year right now but do think that once the kids are set (e.g. college funds have been saved and they are out of the house), no mortgage, and the commitment to retire early that my wife and I can keep it to $60K. The backup for unexpected surprises is the Roth which I will be able to withdraw in an emergency.

My current comp plan is not representative prior to 4 years ago. Since then, it has gotten 2 nice bumps with promotion and job changes. Hence, my anticipated "just 1 more year" dilemma to greatly increase retirement funds with each additional year.

 

[Scuba]

If you enjoy your job, you may decide to work longer to buy a second home and a boat. We decided in our mid-50's that our priorities were time together, travel, and family/friends. Therefore we made a conscious decision to ER at 56 and 57, knowing that we would likely forego the boat and another home. It's been 8 months now and we've been very happy with our decision. Good luck and just keep putting aside as much as you can. We got to the point where our assets were making more than we were at our jobs - nice place to be!

 

[FewMoreYears]

I like to think I'm pretty good at my job but I don't love it. Its a means to an end and can't honestly say I enjoy it or its fulfilling.

Another option we discussed was selling our current, paid for house and spending an additional $200K or so for a beach house in the $600 - $700K range. This would reduce the no. of additional years I would have to work.

The other factor/benefit working additional years past 2021 is added insurance as my son will be graduating from college and looking for work, and my daughter will have 3 more years of college then.

Making sure the kids are set as best as possible is probably the key variable to our retirement plans right now.

 

[NomDeER]

What are you estimating your health insurance costs will be?

 

[FewMoreYears]

Great question. Had assumed some sort of Obamacare plan but that could be in jeopardy.

The other option was, if I worked an additional +2 years (e.g. from 2021 to 2023), I will be 59 and eligible to retire/leave and have some sort of health insurance under my employer's plan. Not sure what the costs would be, assume it would go up some but probably a better deal than buying it in the marketplace.

Is there a good rule of thumb to budget for health insurance assuming decent health etc.?

 

[Scuba]

We do not have an employer plan, but have a high deductible pre-ACA grandfathered plan. We budgeted $1,400/month for healthcare until Medicare kicks in. So far we are significantly under this but it could easily go the other way. If either of us has major issues, it could be much higher, but if that happens we won't be spending our large travel and entertainment money so any shortfall not covered by insurance can come out of discretionary spending.

 

[Jerry1]

Welcome to the forum!
In your point 10), it appears you plan to live off of 600k for 10 yrs = 60 k/yr. Do you have a good handle on your current living expenses to know if this is realistic? Given your excellent income level I would have expected more savings if your spend rate was anything in that ballpark. Also, have your run your numbers through FIRECalc: A different kind of retirement calculator to get a good view of the probability of success for the plan?

I agree. I thought my income/savings/spend rate was out of balance, but you took it to another level. I topped out at $200K, saved close to $2M and am struggling to see how I will retire at around $80K per year.

You said your current situation (bump) is new to you. If you can retire on anything close to under $100K per year, commit to not living up to your new income now and save much more than it looks like you have planned.

Not to try to cover all the bases, but I suggest you start looking at the taxes you will be paying. You have a lot more than me in after tax money, but any 401k/IRA money will be taxed, so the sequence you draw the money matters. $60K out of a 401k will not be $60K to spend. You may also have state taxes.

It would also be nice to think about healthcare but that's so up in the air right now, best thing you can do is anticipate it will be expensive and do what you can to stay healthy.

Good journey to you. I'm closer to retiring and this board has helped me greatly in getting my thoughts and plans around my finances firmed up.

 

[Koolau]

I can barely run my own life, so I won't try to run yours. Having said that, I'm wondering about the costs you've built in for your kids' educations. True, you could spend a lot more, but I'm betting you could spend a lot less. In-State schools come to mind. Junior college for a couple of years (to get the basics/required courses paid for inexpensively) could save thousands. Maybe even live-at-home if that's possible.

Unless you are looking at universities with great reputations, I don't think it makes a huge difference in starting salaries for your kids. I would also submit that a good accredited school in your child's chosen field will be enough to learn what's needed in their profession. Spending double doesn't usually translate to learning twice as much IMO. Only you can make these decisions, but this is one area I see as a potential money saver. Of course, YMMV.

 

[eastnortheast]

To me (and as others have said), the key is understanding what your expenses are on a yearly basis. Knowing what my "all in" expenses are has given me confidence as I move towards FIRE. For the most part, I have been tracking pretty much every dollar, so know +/- 5% where we are spending, and what we are spending it on.

Agree that as kids move off to college, expenses should drop, but 50-60K seems like it may be tight, based on your current income and total savings to date.

 

[Blue Collar Guy]

The only part Im uneasy with if I were you, is the part about it doubling to 2 Million.

 

[FewMoreYears]

Thanks for the feedback everyone.

About 4 years ago, we had a budget of $4K after tax per month and did a pretty good job of keeping to that. The rest of the money went to savings, some family matters, and we were making additional payments for the house. We also had the rule of only 1 car payment (e.g. my car is 10 years old, wife's is 5 years and we are in no hurry to buy a new car).

Although I do think we can live on $4K after taxes post-kids and saving for college, admittedly there won't be alot of travelling (which I like to do). Haven't thought much about taxes other than I know I want to put as much in to Roth vs regular.

I do have HSA right now, its got approx. $6K. I didn't add that to my financial summary because we are using HSA funds to pay for medical expenses. I read about not using it and saving/investing the HSA contributions until retirement because of the tax benefits. In 4 years, it might grow to $30 - $40K, so may think about doing that.

About college, surprisingly my kids know what they want to pursue. I remember when I was in college, I took freshman year to figure it out. I think more and more kids nowadays have an idea. My son is set already. In early discussions with daughter, her major would be pretty specific so we've already scope out some initial schools ... unfortunately, they are out-of-state. A key unknown is how much scholarship my daughter could get.

If we were not in a position to pay for out-of-state tuition, we wouldn't. We are fortunate to be in a position to do so right now and would like them to go to schools they want. The con is that it may cost an additional +3 years ( 2024 vs 2021) before we are able to retire comfortably and without worries.

On doubling to $2M, you are right. I am a little uneasy as the market has been going up and it'll have to go down, and historical stock returns may no longer hold true but that's the assumption for now.

 

[dallas27]

Thanks everyone for this forum. I’ve found it to be every educational and a nice complement to the ER blogs out there. Its great to read the variety of opinions and situations.

I’m about to turn 53, wife is 49 and I plan to retire in Dec 2021 or in 4 more years. However, it could be between 4-7 more years. Here’s my situation

1) Family of 4. A son about to enter college and daughter who has 3 more years of HS. This puts my range to retire from 4 to 7 years

2) Finished paying for the house 2 years ago. Zillow says $440K. No other significant debt other than for future college costs

3) Total non-house is $1.25M consisting of

• 401k + IRA - $547K
• Roth - $254K
• Liquid/Cash – 443K

4) Not counted above are

• 529 plans for a total of $50K or so
• $50K eTrade account for each child or a total of $100K. It’s under my name and we’ve told the kids it’s their inheritance and a jumpstart retirement fund. They won’t get access to it until much later. With assumption of it doubling every 8 years, their portfolio will be about $400K in 32 years when my first child hits 50 or $800K at 58

5) We are committed to paying our kids 4 year college education. We want to position them as best as possible with college and not saddle them with debts. They both did/are doing well in HS

• First child has gotten nice scholarships for out-of-state and first year will be about $25K. So let’s assume $100K for 4 years
• We think second child will also get scholarships but probably plan for conservative $50K x 4 years or a total of $200K
• Both kids know the expectation is they help out by getting scholarships and also finding some sort of campus job

6) My current income is $350K + bonus potential of $150K + RSU (restricted stock units). Had a career milestone 4 years ago and am earning significantly more money since then.

• My wife works some and makes about $24K
• My comp plan target has planned RSU grants annually. Because of the vesting schedule, we will be leaving some RSUs on the table when I retire. It’s hard to estimate with confidence so leaving it out of my financial portfolio altogether
• We definitely live well below our means

7) No other sources of retirement income other than our savings. Visited attorney and got all the wills etc. done


So here’s our plan so far

8) In 4 years or in 2021, we want 401k + IRA + Roth = $1M. With max contribution, employer matching and modest stock market gains, this should be doable. Don’t touch it and allow it to double to $2M by the time I hit 67. With the 4% rule, this will give us $80K + full SSN at 67

9) I’m estimating our liquid/cash will be $550 - $600K in 2021 as there will be significant cash outlays of approx. $250K (+$50K from 529) for kids’ college education. In other words, for me to retire in 4 years, we need to have saved up $250K in 4 years to pay for kids’ college over a 7 year period.

10) The $550 - $600K is what we will live on for 10 years between 57 and 67


Things for us to work through

11) Saving $250K cash over the next 4 year period for a 7 year college duration

12) The dilemma of “just 1 more year” and leaving a “legacy”. There is no doubt that we will struggle with me wondering if I should work 1 more year (or 2 or 3 etc.). I’m making a lot of money now late in career and it would seem a “waste” to not maximizing career earnings.

The longer I work, the better chance of our descendants having a jump start and easier life. My wife’s family was middle class and mine was poor

13) My dream of having an extra house/condo in retirement. The second house will be in FL, SC, NC or VA, will be on the water, and will have a boat for me to go fishing. I don’t think we’ll be able to pull this off unless I work the 7 vs 4 years

Thanks again for this community, its inspiring to read the discussions here. I will post updates to my situation periodically.

Your return assumptions are extremely optimistic, and likely not prudent for planning on such short timeframes.

 

[FewMoreYears]

I was going by the rule of 72. Avg 8% return would mean doubling in 9 years.

I think I read last 10 years was about 7% and last 5 years about 13.5%.

What do most people on this board assume?

 

[Whisper66]

I was going by the rule of 72. Avg 8% return would mean doubling in 9 years. I think I read last 10 years was about 7% and last 5 years about 13.5%. What do most people on this board assume?

There was a thread on this recently. I assume 5% return on equities, 3% on bond funds. That's nominal. Then I assume a 2% inflation rate which drops those to 3%/1% return.

Edit: here's a couple historical threads on this question:
http://www.early-retirement.org/for...-inflation-investment-return-rates-82776.html
http://www.early-retirement.org/forums/f28/what-investment-rate-of-return-do-you-use-79579.html
http://www.early-retirement.org/for...ss-regarding-future-rate-of-return-76520.html

 

[FewMoreYears]

Okay. I really wasn't thinking about nominal vs real. Thanks for the links.