Hi Everyone! I've been reading a few threads and thought some of the members here could give me a little guidance. I have a long way to go, but I'm off to a great start, and I think I have a solid plan.
Some basics:
My name is Ben. I want to retire by the time I'm 42.
I'm 22, have a BS in Computer Science, minor in Mathematics and have been working full time in IT for a rock-solid telecom since I was 18. I attended college full time and worked full time - which was a nightmare, but I survived! My current salary is approximately $45k, hopefully with a big promotion around the corner.
My wife, who is 21, will be graduating with a BFA in Photography in Spring 2010; she's currently working part-time at the same company as me at $12/hr providing multimedia services (shooting, editing, publishing). Most likely, she will be offered a full time position upon graduation at a similar pay rate.
Our debt is manageable - about $16.3k in Student Loans for me @ ~5.5%, and about $20k in student loans for DW @ ~5%. All of these are federal loans. I currently have no plan to accelerate payments on these student loans. Outside of one revolving $2k balance @ 3.9% that I am paying minimally, we have no credit card debt. We rent currently and are debating whether or not to buy.
Our assets are meager but growing quickly. My 401k stands at about $25k value today, with 85% stocks (index funds mostly) and 15% bonds. I recently read Your Money or Your Life and realized just how soon I could retire - and because I'm up over 40% YTD on my 401k, I have been locking in recent profits by slowly adjusting into bonds. My wife has about $3.5k in a Roth IRA. Combined, we have about $5k in ING savings accounts and checking.
The Plan:
Perhaps central to this plan is that we aren't going to have children. Our dogs are enough responsibility.
I'm contributing 18% of my gross pay into my 401k, with 8% company match that is 100% vested. In 2010, I plan to keep this 401k rate the same and scrounge up $1.5k for my Roth IRA. In 2011, I plan to fully fund $5k into my Roth IRA and continue doing that for the rest of my working years. In 2012, I will raise my 401k rate to 20%, fully fund my Roth IRA, and shovel as much as I can into taxable investment vehicles.
When she graduates in May, my wife will contribute 10% to her 401k, with 8% company match that is currently 40% vested. She will fully fund her Roth IRA in 2011 and beyond, and her salary will help with keeping our lifestyle comfortable but frugal. One big helper is that my paycheck + company benefit covers our health insurance. My wife's company benefit (currently $450 per month) will go straight to her 401k.
So from 2010 to 2028, assuming 2% raises (likely to be MUCH higher) I have calculated that we can comfortably contribute the following amounts per year, split between our 401k's, our Roth IRA's, and taxable investments:
$15,162.69 $26,137.41 $26,460.16 $27,721.29 $28,075.72 $28,437.23 $28,805.98 $29,182.10 $29,565.74 $29,957.05 $30,356.19 $30,763.32 $31,178.59 $31,602.16 $32,034.20 $32,474.88 $32,924.38 $33,382.87 $33,850.53
These figures don't include bonuses ($500 - $2000 per year combined), inheritances (likely to be moderate amounts - $10k to $50k), or stock grants & options (currently have approx $10k in future value).
From 2010 to 2022, I will be shooting for an 8% return. 2023 - 2025, I'm shooting for 7%, 2026 - 2027 = 6%, and 2028 and beyond = 5%.
The ultimate goal: $1.2m in safe, interest-bearing capital at retirement time. Enough for $60k/year income pre-tax until we're 100 years old. Including housing and a few too many luxuries, our current monthly expenses rarely top $3k/mo. Chop our housing cost and live more frugally, and we can easily skate by on $2k/mo or $24k/year post-tax.
Here are a few things I've been pondering:
- Buy a house now with a mortgage or wait until I can pay cash? With no kids (and no more Lifetime Learning Credits), our tax bill is about to sky rocket. Buying a house could help with this. We wouldn't be able to comfortably swing it until late 2010, and I'd be hesitant even then. By that time, the tax incentives, housing prices, and mortgage rates might not be so favorable. Our credit scores are excellent, 720+ and rising. The down payment is our biggest concern. That and having enough left over after closing to cover emergencies like a septic failure.
- How to balance taxable investments with my 401k? I'm shoveling too much into the 401k I think, but it works for me because I never have to see the money. I know I should at a minimum fully fund my Roth IRA. But what about after that? With our tax future looking dire, the more I contribute to my 401k, the less I'll be taxed. But retiring at age 42 means that I can't tap my 401k for a Loooong time. Any ideas?
- Should I accelerate my debt payments? This may require cutting back on my investments. The interest rates on our debt accounts are relatively low; I think I can beat them with relatively safe investments in the long run. What do you think?
Please let me know if you see any red flags. Send me words of caution and of encouragement. I'm open to any and all advice.
Thanks in advance!
-Ben
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