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Hoping to be FI by 45
Old 02-08-2014, 10:39 PM   #1
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Hoping to be FI by 45

I am a 34 SAHM with 2 kids. My DH (36) and I are pretty financially conservative and I've been trying to convince him to consider retiring early or at least be less nervous in case something happens before then.

Income gross $130k, but with bonuses last year DH made $200k. Our expenses are PITI $30k/year and $30-35k/year expenses. Rest of our income is saved and taxes. I think if we ER we need to move and buy a home cash to eliminate home expenses.

Savings $450k retirement, $180k taxable investments, $60k Cash EF
Debt $390k mortgage left
House $650k value

We save the maximum retirement savings in 401k and IRA and the rest is taxable accounts. If we conservatively save for 10 more years $50k/year and increase our home equity by $100k so $300k total, we'd have a net worth of $1.5M at least. This would give us 4% SWR of $60k.

It would be enough to not move, but if we move, how much sooner could we ER? Could we do it in 5 years? I think we're on track for 45 for sure, but earlier?
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Old 02-09-2014, 06:20 AM   #2
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Welcome to the forum living. Seems like you are on the right track and are thinking about all the right issues. Using your 4% rule, you would need to back out the PI portion of your PITI to determine what you really need in retirement and therefore when you could FIRE. Also need to factor in larger non-recurring items that you may not be including in your current budget, such as car replacement, home repairs and maintenance, etc. Also, you may want to look at a possible increase in your entertainment expense and the cost of health insurance. Finally, 4% may be an aggressive target if you pull the trigger at 45. Not sure what a good target is for a 50ish year time horizon but 3.5% may be more realistic.
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Old 02-10-2014, 10:51 PM   #3
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I think you hit on one key component - need to live in a lower cost of living area in order to make your plan work. As long as you are good with that it enables a sooner ER date.

Another thing you need to consider is kid's expenses, especially college but also any other activities that may cost some. You may have that included in your savings, but it was not mentioned specifically.

5 years may be tough, but it all comes down to what you need to live on. That amount has to come from your savings and any other source like pension (no mention of that, plus age may prevent drawing it until later). SS is obviously way out many years so not an option for immediate funds.
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Old 02-10-2014, 11:50 PM   #4
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Congrats on a great path towards ER early in your lives. I think that is awesome!
My gut feel is you are on track for the 10 year plan. Five years not so much. Although it will come down to your risk comfort level.

Try using FIRECalc and other tools to run scenarios. Enjoy the many hours dinking around with numbers which weirdos like me enjoy. Based on your future planned ER budget, you can determine how much nest egg you will need. The tough part is that there are a lot of variables and too many uncertainties. At some point we all have to pull the rip cord and adjust as we go.

Best wishes.
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Old 02-11-2014, 08:26 AM   #5
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If we conservatively save for 10 more years $50k/year and increase our home equity by $100k so $300k total, we'd have a net worth of $1.5M at least. This would give us 4% SWR of $60k.
Welcome to the forum, you're doing great. Please note that the 4% (or maybe rather 3.5% at age 44/46) WR is a percentage of your investment portfolio, not your net worth. Home equity doesn't count here, unless you sell the house (but then you'll have higher expenses for rent, obviously).

If I were you, I'd keep on doing what you're doing and not stress out about the actual year. Maybe there's a big market drop, maybe a bull market la 1980-90s, maybe inflation comes back, maybe not... If you keep saving like that, you'll be FI in no time.
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Old 02-11-2014, 08:35 AM   #6
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Welcome! Reading your profile was a lot like reading mine... similar ages (well, reversed since I am the DH!), but no kids (so I guess not that similar!), but financially strikingly similar. Others make good points about SWR being invested assets, not NW. Unfortunately $1.2MM doesn't go as far as it used to.

DW and I hope to be FI by age 42 (me, her 39). Our "number" is $1.45MM, but that will include a significant pension. We have a higher savings rate (with no kids), so I think we can get there, but that only changed this past year when we really looked at our expenses and committed to the goal. I think if you guys can raise your savings rate somehow, you can get to a higher number.

I'd recommend running everything through FIRECalc and deciding what you're comfortable with. As others mentioned, you can make your plan work by lowering your expenses somewhat, but at our age I think it's more important to maximize savings rate.

Good luck!
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Old 02-11-2014, 12:48 PM   #7
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Welcome to the forum, you're doing great. Please note that the 4% (or maybe rather 3.5% at age 44/46) WR is a percentage of your investment portfolio, not your net worth. Home equity doesn't count here, unless you sell the house (but then you'll have higher expenses for rent, obviously).

If I were you, I'd keep on doing what you're doing and not stress out about the actual year. Maybe there's a big market drop, maybe a bull market la 1980-90s, maybe inflation comes back, maybe not... If you keep saving like that, you'll be FI in no time.
Well said. The OP is on a great path, and I think very smart to plan to 'at least be less nervous in case something happens before then.' This was a major motivation for me, after witnessing some 50-somethings losing their (expected life-long) jobs when I was in my early 30's ( we were hiring, I was screening resumes for our MegaCorp at a job fair). I could tell be the look on their faces they were not prepared to retire, and their skill-sets were no longer in demand. I still remember some of those faces - it was sad.

I'll add that you can't really get a good run on a historical tool like FIRECalc going past ~ 45 years. You start dropping off some bad sequences from the mid-1960's (not a full 45 year span). But 45 years and 100% success at 75/25 AA allows for a 3.2% WR, So that's a baseline, and it hits diminishing returns beyond that, so somewhere south of 3% is probably a 'forever' portfolio.

I don't think the OP should sweat the mortgage if it is at a good rate, despite some people's emotional view on this, it is unlikely to be a big factor either way financially.

And how is your savings invested? The general approach here is something close to the FIRECalc default portfolio, 75/25 AA in low cost index funds, but 40/60-90/10 is likely to do as well. But if you go far outside of that, or have high fees, some adjustments are probably in order.

-ERD50
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Old 02-11-2014, 01:49 PM   #8
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Living,

Congrats on being so far down the retirement road. Don't fret too much about reaching your goal by a specific year and just keep on throwing money into savings and investments, and re-evaluate from time to time to see how close you are. If you want to get there sooner, look at downsizing and moving to a cheaper COL. The less you spend, the less you need. You will have to have a good handle on what you need to live to figure out how much you need to save, so work on those figures while maxing out saving.

And do some research into thinking outside the box for meeting your needs. We are retiring when Youngest graduates high school, having the funds saved to send him through college. However, this link will tell you about filing a Simplified Needs Test for FAFSA if you are below a certain income, $50K MAGI at the time of "printing," which allows you to ignore your assets in qualifying for financial aid: FinAid | Financial Aid Applications | Maximizing Your Aid Eligibility It will be interesting to see if we can keep any of the savings we tucked away for college, or if all they will do is give us loans.
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Old 02-11-2014, 04:06 PM   #9
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Living,

Congrats on being so far down the retirement road. Don't fret too much about reaching your goal by a specific year and just keep on throwing money into savings and investments, and re-evaluate from time to time to see how close you are. If you want to get there sooner, look at downsizing and moving to a cheaper COL. The less you spend, the less you need. You will have to have a good handle on what you need to live to figure out how much you need to save, so work on those figures while maxing out saving.

And do some research into thinking outside the box for meeting your needs. We are retiring when Youngest graduates high school, having the funds saved to send him through college. However, this link will tell you about filing a Simplified Needs Test for FAFSA if you are below a certain income, $50K MAGI at the time of "printing," which allows you to ignore your assets in qualifying for financial aid: FinAid | Financial Aid Applications | Maximizing Your Aid Eligibility It will be interesting to see if we can keep any of the savings we tucked away for college, or if all they will do is give us loans.
InParadise, Thanks for sharing the link. Will that apply to unearned income as well? For us ERs, Assets is all we'll have and no earned income so this can help us get some aids for the kids. ERs can control their AGI by planning ahead. I've twin boys who'll enter college in 2022 when, hopefully with the God's grace, I will be retired.
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Old 02-11-2014, 04:30 PM   #10
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InParadise, Thanks for sharing the link. Will that apply to unearned income as well? For us ERs, Assets is all we'll have and no earned income so this can help us get some aids for the kids. ERs can control their AGI by planning ahead. I've twin boys who'll enter college in 2022 when, hopefully with the God's grace, I will be retired.
I believe it does. MAGI is Modified Adjusted Gross Income: https://turbotax.intuit.com/tax-tool.../INF22699.html 2022 is a ways off. Much can change but at least you can keep your eye on it to see if the option remains, and what might be added to your plate. One thing I find interesting is the (albeit small) trend towards free tuition in return for a future percentage of your income. Something has to change down the road. I just don't think it will happen in time for our guys.

It is also important to note that currently retirement assets are not counted towards your expected family contribution calculation. Your home may or may not be, depending on the school. We had started scrambling to see how we could convert all our funds to retirement funds so they would not count, but now we don't have to. Still looking at converting all our conventional IRAs to Roths so that we are not forced to take RMDs resulting in heavily taxed social security. That will be a balance game of conversions and keeping income low for FAFSA and ACA if we go that route.
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Old 02-13-2014, 03:06 PM   #11
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Yep..InParadise. ACA and SNT will be my goal to qualify. I've daughter going to college this year and know for sure that I'll not get any aid due to my income and assets. 2022 will be double whammy for me so sincerely hoping that this provision is still around. I could just withdraw enough for four years at once before they enter college and keep my MAGI below 50K(hopefully it'll be more in 2022).
I could not agree more about free tuition - current system needs to fixed. At 4-6% inflation rate, I only wonder how my grand kids will ever be able to attend college!
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Old 02-17-2014, 07:50 AM   #12
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I read over boglehead that post Regan Era mostly you get qualified for some loans(6-7% interest any way) and/or work study program through FAFSA. In that case, it's not that appealing to keep AGI below 50K and loose the benefits of filing 1040 like itemized deduction/ScheduleD etc...
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Old 02-17-2014, 08:39 AM   #13
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I read over boglehead that post Regan Era mostly you get qualified for some loans(6-7% interest any way) and/or work study program through FAFSA. In that case, it's not that appealing to keep AGI below 50K and loose the benefits of filing 1040 like itemized deduction/ScheduleD etc...
Our itemized deductions will be plunging off a cliff. When we retire, there will be no mortgage, property taxes around $1,000, and of course much reduced state taxes with the controlled income. Charitable contributions will be in the form of volunteering. I don't do the taxes....what am I missing?

It will be an interesting experiment, anyway. Honestly, we are not budgeting a whole lot more than the $50K, and $20K of that was originally put in to make sure that we would be OK if retiree health care went away and we had to find a way to get insurance for ourselves. With money already allocated for the kids' college, our non-educational expenses should be insanely low with a paid for house in a very low COL area. We are looking for an outdoorsey type free activities retirement, at least for the first 20 years, and no matter how hard I try, I find $50K income to be overkill for us. If we take the ACA instead of retiree health care, keeping the income low to qualify for subsidies is another focus.

Looking to keep DH alive and actually spend quality time with him. For us, that is not expensive. Never been interested in the Cadillac version of retirement. YMMV.
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Old 04-15-2014, 03:36 PM   #14
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Thanks I believe that we need to look at home equity for ourselves because we won't be living where we live when because of cost of living. We are going to cash out and downsize in price for sure. There is no way we are living somewhere that a townhouse is $750k. No. It is not going to happen.

But I don't know how to account for it in fire until we buy a house cash and realistically live on a budget without pi

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