Hello! 33, Father-to-be, Lawyer, Looking for ER in 15 years

[B0bL0blaw]

Yes, I have worked for the federal government for the past couple years. The pension will be a nice boost, but it really can at most form one leg of the fabled 3-legged stool of retirement. If you have 30 years of service, you can draw an annuity of 33% of your "high-3" average salary. For me, I'll probably have more like 10-15 years of service and only get 10-15% of my salary. (Plus, if you retire "early" you don't get COLA until you hit the retirement age of 62, so your annuity gets eaten away by inflation.) That's not nothing, of course, but it's not gonna come close to covering my retirement!

[Omalley]

We are about 10 years ahead of you on this FIRE journey. Begin to form a plan on funding your expenses from your expected RE date to when you can access other tax-deferred options. You may need significant brokerage assets if you won't have access to an early pension payment or other income stream in your late 40's/early 50's.

I am not sure what state you live in, but you may want to consider pre-paid tuition plans. Our state lets you pre-pay semesters at the current rate, and if the semesters aren't needed later or they attend private/out of state schools you can cash them out at the current tuition rate at that time. Over the last 12 years costs have doubled and it was nice to lock in the 2004 tuition rates.

As for ongoing expenses, try to adjust in small ways that may not be as noticeable. Adjust the thermostat by 1-2 degrees, upgrade to high efficiency lighting, low flow shower heads, stay at Holiday Inn Express instead of Marriott. These small changes can add up and begin reducing the nest egg needed to fund RE.

Omalley

[B0bL0blaw]

Hey y'all. I meant to post a 6-month update in July but I must have lost track of time in the summer. Hope everyone had a great summer. Not sure if anyone is following along, but I like posting these for my own benefit as well as to stimulate some discussion hopefully.


Without further ado, here is our status as of July 1 (with the 6-month change from January 1 in parenthesis):
Retirement Accounts: $393k (+$56k)
Taxable brokerage account: $90k (-23k)
Home: -$435k mortgage (+5k)
Student loans: -$54k (+49k)
Cash: $36k (+3k)
529: $10k


The main thing that jumps out is the drop in student loans. One of my variable rate law school loans crept up over 4% interest, so we paid it off. We used some money from a brokerage account, as well as some cash reserves, and just paid it off. I have no qualms about carrying low-interest debt, as long as I'm building wealth, but I'll admit it felt pretty good to pay it off! The remaining student loans are still at 3% so I'm not gonna rush on those for the moment.


Our son turned 1 this summer. Wow -- first year flew by! I've added his 529 account to the report above. We're probably going to try for another kid soon-ish, but nothing to report on that front yet.


Still targeting 2030ish to be fully financially independent. I think we're on track for hitting the mark a little early, maybe 2025-2027, but we've been enjoying a bull market for quite some time, and I don't want to get ahead of myself.


Cheers!

[B0bL0blaw]

Happy New Year! Back again for a 6-month update. Here is our status as of Jan 1 2018 (with 6-month change from July 1 in parenthesis):

Retirement Accounts: 465k (+72k)
Brokerage Account: 102k (+7k)
Mortgage Debt: -430k (+5k)
Student Debt: -52k (+2k)
Cash: 53k (+17k)
529: 14k (+4k)

No big changes, just staying the course and enjoying great market returns. I know these can't last forever, but boy is it fun! We have accumulated a little cash for flexibility. Not sure what we're going to do with it yet, but we have a few options. Possibly will pay off final student loans if the interest rates go up (currently at 3.5%). Also may move in the near-term, so the cash gives us a little flexibility to do that.

Otherwise looking forward to 2018 and hoping for a steady and stable year. We may try for a second child soon-ish, but no announcements yet!

Best wishes for a healthy and happy 2018 to all!

[B0bL0blaw]

Back again for a 6-month update. Here is our status as of July 1 2018 (with 6-month change in parenthesis):

Retirement Accounts: 505k (+40k)
Brokerage Account: 138k (+36k)
Mortgage Debt: -424k (+6k)
Student Debt: -50k (+2k)
Cash: 35k (-18k)
529: 18k (+4k)

Kid #2 is in the oven. Gonna have to fire up another 529 account. Otherwise, same old same old, staying the course. Staying heavy on equities, with current asset allocation across all accounts as follows:


- domestic equities: 75%
- international equities: 13%
- bonds: 7%
- alternatives: 3%
- unclassified: 2%


I am aiming to gradually increase my bond allocation so that I hit about 50% (domestic equities) / 25% international equities / 25% bonds in about 10 years. That calls for increasing my bond percentage by 2% per year.

[ExFlyBoy5]

Thanks for the updates, I like seeing progress like this. Also have to comment on your username. "Bob" is one of the best characters of Arrested Development. For those who aren't familiar with "Bob" here is a clip...

https://www.youtube.com/watch?v=mwWAsNZTnug

[HI Bill]

Bob - great progress...it looks to me like your investible assets minus house/student liabilities went from -$210K to +$204K! If you keep this up, you just might make your goal!

[Golden sunsets]

Great work on the student debt over the past six months. If it were me, I'd knock that debt out completely Asap.


Sent from my iPad using Early Retirement Forum

[Oz investor]

some extra cash buffer to exploit any future downturn might be timely ,

( a well placed $10k can be a lot of help in say 5 years time )

best of health and luck to you and your family

[B0bL0blaw]

Quote:

Originally Posted by Golden sunsets Great work on the student debt over the past six months. If it were me, I'd knock that debt out completely Asap. Sent from my iPad using Early Retirement Forum

I understand the urge, but have been resisting it. The loans are currently at 3.5% and it has served me well to pour all available money into the market rather than paying down loans. They were previously 2.5% and have risen gradually up to 3.5%. My plan for years has called for paying them off aggressively if/when the interest rate reaches >= 4%. Until then, I am trying to stick to my plan on the belief that long term market returns should exceed 3.5%. (I know this is not guaranteed, especially at current valuations, but it is what I consider to be the better bet. We shall see.)

[B0bL0blaw]

Quote:

Originally Posted by Oz investor some extra cash buffer to exploit any future downturn might be timely , ( a well placed $10k can be a lot of help in say 5 years time ) best of health and luck to you and your family

Thanks for the positive wishes. I try to pour all available money into the market on the belief that time in the market beats timing the market, and we never know exactly when the downturn will happen. Stockpiling cash is tempting with current valuations, but I am trying to stick to my investment plan. In the long term (ie, 10+ years from now), I believe that today (and yesterday and the day before) will be viewed as a good day to have bought equities.

The one reason why I would consider stockpiling cash is to give added flexibility -- we may want to move (downpayment), pay down loans, or do something else with the money.

[B0bL0blaw]

Quote:

Originally Posted by HNL Bill Bob - great progress...it looks to me like your investible assets minus house/student liabilities went from -$210K to +$204K! If you keep this up, you just might make your goal!

Hey that's a cool way to look at progress. Thanks!

[underwrite]

Quote:

Originally Posted by B0bL0blaw Back again for a 6-month update. Here is our status as of July 1 2018 (with 6-month change in parenthesis): Retirement Accounts: 505k (+40k) Brokerage Account: 138k (+36k) Mortgage Debt: -424k (+6k) Student Debt: -50k (+2k) Cash: 35k (-18k) 529: 18k (+4k) Kid #2 is in the oven. Gonna have to fire up another 529 account. Otherwise, same old same old, staying the course. Staying heavy on equities, with current asset allocation across all accounts as follows: - domestic equities: 75% - international equities: 13% - bonds: 7% - alternatives: 3% - unclassified: 2% I am aiming to gradually increase my bond allocation so that I hit about 50% (domestic equities) / 25% international equities / 25% bonds in about 10 years. That calls for increasing my bond percentage by 2% per year.

Nice job. The updates are interesting to read.

[B0bL0blaw]

Back again for a (belated) 6-month update. Here is our status as of Jan 1, 2019 (with 6-month change in parenthesis):

Retirement Accounts: 470k (-35k)
Brokerage Account: 133k (-5k)
Mortgage Debt: -418k (+6k)
Student Debt: -48k (+2k)
Cash: 150k (+115k)
529s: 21k (+3k)

Bad 6 months in the market (as everyone knows), but we are staying the course. Large cash holding is due to a sad windfall of $100k. Otherwise pretty steady through rough waters and just staying the course.

May keep large cash for now, we are looking to move in the next year or 2 and keeping cash we'll keep us flexible. But, boy I am tempted to just use the cash to pay off the student loans and be done with them.

It is interesting to look back over the last 3 years I've been running this thread. A lot of changes in our lives, for better and worse -- 2 kids, 2 deaths in the family, a job change and other smaller changes of course. But the finances just kind of plug away on autopilot.

Happy new year to all!

[HI Bill]

Quote:

Originally Posted by B0bL0blaw Retirement Accounts: 470k (-35k) Brokerage Account: 133k (-5k) Mortgage Debt: -418k (+6k) Student Debt: -48k (+2k) Cash: 150k (+115k) 529s: 21k (+3k) May keep large cash for now, we are looking to move in the next year or 2 and keeping cash we'll keep us flexible. But, boy I am tempted to just use the cash to pay off the student loans and be done with them.

I agree, I'd pay off the student debt. That should leave you $102K in the cash account.

Would that, along with the equity in your house, allow you to buy the place you want when you move? If so, I'd say go for it (without knowing the student loan interest rate).

BTW, given your current NIA of about $287K, I wouldn't hold any bonds if I were you. Too far out from FIRE, and too early to be conservative, which will likely just draw out how long it takes you to become FI. JMHO.

[B0bL0blaw]

Quote:

Originally Posted by HNL Bill I agree, I'd pay off the student debt. That should leave you $102K in the cash account. Would that, along with the equity in your house, allow you to buy the place you want when you move? If so, I'd say go for it (without knowing the student loan interest rate). BTW, given your current NIA of about $287K, I wouldn't hold any bonds if I were you. Too far out from FIRE, and too early to be conservative, which will likely just draw out how long it takes you to become FI. JMHO.

Thanks for the input. Unfortunately no, $102k is not enough to put down 20% down payment on the house we want in the (expensive) metro area where we live. Probably we will need about $150k-180k for our target houses. So that's why we've been holding off on paying off the student loans -- although as I said it sure is tempting.

As to our allocation. We currently hold about 8% bonds, and are looking to gradually increase bonds to about 25% by the time we hit FI around 2030. I agree it is too early to be conservative, but I guess I disagree with the implication (if I'm reading you correctly) that 8% bonds is in fact conservative. We think it's pretty reasonably aggressive for our current stage and our goals.

Cheers!

[HI Bill]

Quote:

Originally Posted by B0bL0blaw Thanks for the input. Unfortunately no, $102k is not enough to put down 20% down payment on the house we want in the (expensive) metro area where we live. Probably we will need about $150k-180k for our target houses. So that's why we've been holding off on paying off the student loans -- although as I said it sure is tempting. As to our allocation. We currently hold about 8% bonds, and are looking to gradually increase bonds to about 25% by the time we hit FI around 2030. I agree it is too early to be conservative, but I guess I disagree with the implication (if I'm reading you correctly) that 8% bonds is in fact conservative. We think it's pretty reasonably aggressive for our current stage and our goals. Cheers!

If $150K is 20% down, that means you're taking on $600K+ in mortgage debt. Given where you are, and that your cash will be delpleted, how will you pay that off and be FI in 11 years? You must have a heck of an income!

Many here don't hold bonds until later in their life, closer to 1 to 3 years before they retire, wanting to maximize returns. If your savings rate is really as high as it would seem, then maybe you can afford to increase your bond AA without lenthening your working years too much. For most of us, having 10% or more in bonds is a drag on returns that means we would have to retire year(s) later.

[B0bL0blaw]

Quote:

Originally Posted by HNL Bill If $150K is 20% down, that means you're taking on $600K+ in mortgage debt. Given where you are, and that your cash will be delpleted, how will you pay that off and be FI in 11 years? You must have a heck of an income! Many here don't hold bonds until later in their life, closer to 1 to 3 years before they retire, wanting to maximize returns. If your savings rate is really as high as it would seem, then maybe you can afford to increase your bond AA without lenthening your working years too much. For most of us, having 10% or more in bonds is a drag on returns that means we would have to retire year(s) later.

Income is relatively high, yes. Also, cash won't be depleted -- we have approx. $400k in home equity in our current house but we're just not using that for the new home purchase -- would rather buy then sell than the reverse. So, we will sell our house (and have some $300-350k in cash) after we buy a new home. Lastly, we don't plan to pay off the mortgage before FI. Happy to carry the mortgage as long as it's within the budget. My projections show that having 10% in bonds has only a small effect on projected growth rate, and once again we currently have only about 8%!

[Nick12]

Quote:

Originally Posted by B0bL0blaw Income is relatively high, yes. Also, cash won't be depleted -- we have approx. $400k in home equity in our current house but we're just not using that for the new home purchase -- would rather buy then sell than the reverse. So, we will sell our house (and have some $300-350k in cash) after we buy a new home. Lastly, we don't plan to pay off the mortgage before FI. Happy to carry the mortgage as long as it's within the budget. My projections show that having 10% in bonds has only a small effect on projected growth rate, and once again we currently have only about 8%!

What's so bad in staying in your current home?

[pb4uski]

Quote:

Originally Posted by B0bL0blaw Income is relatively high, yes. Also, cash won't be depleted -- we have approx. $400k in home equity in our current house but we're just not using that for the new home purchase -- would rather buy then sell than the reverse. So, we will sell our house (and have some $300-350k in cash) after we buy a new home. Lastly, we don't plan to pay off the mortgage before FI. Happy to carry the mortgage as long as it's within the budget. My projections show that having 10% in bonds has only a small effect on projected growth rate, and once again we currently have only about 8%!

You could take out a HELOC to tap some of your home equity temporarily, use the proceeds from the HELOC and existing cash as a downpayment for the new home, then sell the old home and use part of the proceeds to pay off the HELOC.

You end up in the same spot as buy then sell financially but just take on a tad of additional risk.