Howdy from Houston

[mointx]

Hello! I've been lurking on the boards for the past week and wanted to pop in and introduce myself.

I am 42 yrs. old, and DH is 43. We'll be married 20 yrs. this coming fall, and we have two wonderful boys, ages 7 and 4.

We currently have $586K in retirement - 401Ks (small percentage in Roth 401K)/IRAs/Roth IRA. We both max out 401K contributions.

Currently there is $41K total in the kids' 529 accounts.

We have about $13K in cash savings. No taxable accounts yet.

Our only debt is the $33K left on our mortgage (home worth $300K), and we plan to have it paid off by Christmas this year.

We live below our means and in the past have cash-flowed things as they came along (adoption costs, home repairs, replacing cars, etc.)

Once the house is paid off we will have extra money to continue to save and invest. For sure, we want to beef up our cash savings and might consider throwing a bit more at the 529s. Also, we would like to take what used to be our mortgage payment and invest that into taxable accounts. I've also thought about splitting up my 401K contributions so that more is going into the Roth 401K vs the regular 401K.

Our hope is for me to semi-ER by the time I am 45 while DH continues to work full time. However, it would be nice if DH could ER by age 55 or so. I am hoping we learn a lot from the wisdom of everyone on these boards so that we can get on track to ensure we hit our ER goals.

 

[aja8888]

Welcome from another "Houstonite" (The Woodlands).

Keep up the good work!

 

[retire2020]

It all depends on how much your expenses will be. You can plug your no in firecalc and get an estimate. Once you accumulate minimum 25X your yearly expenses you'll have good base to star planning that exit date.

 

[pb4uski]

What I did when I was about your age is to value average extra cash flow available for investment into Vanguard's STAR fund (or Wellington would be another good choice).

Let's say I expected to have $2,000 a month available to invest. I would invest $2,000. A month later, I would invest whatever was needed to bring my account up to $4,000. If the fund price had gone up over the last month I would invest less (and buy fewer shares) and if the fund price had gone down over the last month I would invest more (and buy more shares). A month later, I would invest whatever was needed to bring my account up to $6,000. And i would keep repeating this process month after month. If my cash balance was building up more than I liked I would increase the amount per month a little and vice versa if my cash was depleting more than I liked.

It worked well for me.

Having these taxable account investments was a key to ER for me as these are the funds we are relying on to carry us from ER at age 56 to when we can access tax-deferred monies. It also gives us flexibility to do Roth conversions now while our tax rate is low and pay the tax from out taxable accounts which will hopefully save us a lot in taxes after SS, pensions and RMDs start in our 70s. Having accounts whose tax-attributes are diversified give you more flexibility.

 

[2soon2tell]

Welcome from another greater Houstonian (Sugar Land).

 

[2B]

Welcome from another Woodlands member.

As suggested earlier, run your numbers through FireCalc to see how well your savings (now and future) balance out your future expenses. You didn't indicate what your expenses are so your savings may be fabulous or pathetic. So much depends on your lifestyle.

I'm not sure that a 529 is in your best interest. Any 529 money is expected to be spent on college before scholarships kick in. Also, it's hard to tell whether your 4 and 7 year olds will be interested or able to attend a four year college. A junior college in Texas is almost free. The public universities in Texas are also not that expensive. Your retirement timing also has both you and your DH retired around the time they would start. Nothing precipitates scholarships like parents with no income. Savings in retirement plans are not included in the scholarship financial aid application. Money is money. Savings for college can come from anywhere. There's no real magic in a 529.

 

[mickeyd]

We live below our means

Welcome fellow Texan. You have broken the code to RE~LBYM.

 

[mointx]

Thanks for the warm welcome!

Combined income last year (AGI) was a little over $236K. Our current expenses run @ $6500 monthly. That also includes our charitable giving, though, which runs about 10% annually. So, it's not like we're big spenders. I do realize, however, that having 2 months cash reserve for emergencies may not be enough. After finishing the mortgage in a few months building that back up will be a priority.

As for the 529s vs. scholarships, although retirement accounts are not considered for scholarship needs, what if we had a considerable amount in a taxable account? We already max out both 401Ks, and I do a back door Roth IRA annually so some extra funds would end up in a taxable account. That could be a significant amount after 10-15 yrs. Will that count agInst us?

 

[2B]

Thanks for the warm welcome!

Combined income last year (AGI) was a little over $236K. Our current expenses run @ $6500 monthly. That also includes our charitable giving, though, which runs about 10% annually. So, it's not like we're big spenders. I do realize, however, that having 2 months cash reserve for emergencies may not be enough. After finishing the mortgage in a few months building that back up will be a priority.

As for the 529s vs. scholarships, although retirement accounts are not considered for scholarship needs, what if we had a considerable amount in a taxable account? We already max out both 401Ks, and I do a back door Roth IRA annually so some extra funds would end up in a taxable account. That could be a significant amount after 10-15 yrs. Will that count agInst us?

At your income level there won't be any scholarships for your first son. Your second son would have some potential for scholarships but you are right that substantial after tax savings will probably eliminate any possibility. On the bright side you are in excellent financial shape and can probably easily cover the costs.

I don't think 2 months of cash reserves are adequate. I think in terms of having a year in "safe" assets available. This can be money market or CDs that come due during the year.

 

[mointx]

A year since our intro...

Hello! I am back and decided to give an update on where we stand right now.

I am now 44 yrs old and DH is 45. Our boys are now 8 and 5 years old. Just did our taxes, so our AGI is @ $250K. Monthly expenses are running @ $6500 including our charitable giving. We no longer have a mortgage, and our home is worth $300K. While many people were out shopping the day after Thanksgiving last year we were at the bank making the final payment on our home. So now we are completely debt free, which is an awesome feeling. However, I find that I am still having to stick to a budget so that the extra funds we used to throw at the mortgage principal is now being put into emergency savings or put aside for other things we know we will need (new roof, new A/C units, etc.). Of course, we are also having a little bit of fun with the money. DH is finally finishing up working on a 1975 Corvette Stingray that has been living in our garage for the past 16 years.

Retirement savings is $705K, mostly in 401Ks (small percentage in Roth 401K)/IRAs/Roth IRA. We both max out 401K contributions.

Kids' college savings is $52K

We have about 6 months of expenses in cash reserves in a savings account.

Now that we are at this point we are looking more into taxable account savings. We didn't realize beforehand how important it would be to do this in order to ER, so we really appreciate the advise we have gotten here.

I am also wondering if I should go ahead and put my 401K contributions in the Roth 401K or leave them in the regular 401K or maybe do a mix of the two?

 

[ivinsfan]

You might think about taking a harder look at your monthly expenses. 6500 a month with no mortgage is not a small number.Your house payment went away, but your monthly expenses did not drop? Also, the age of your boys suggests that you no longer have a lot of daycare expense so no mortgage, smaller daycare bills, where is the 6500 going and can it be cut in any way. You want to reduce the income you make in a year or 2 and your husband wants to quite completely in 11 years. With those goals, you don't have a lot of room for "fun" stuff at this time.

 

[retire2020]

IMHO, with 250K AGI, your current savings is way less. You can bump up that savings rate for coming years in after tax account. Also, 529 is under funded. College cost is high(paying 30K/yr for my daughter and that too in a instate public university).

 

[2B]

Welcome back. I'm not too concerned about the 529 funding. Money is fungible so putting a bunch into the 529 just limits its use for other purposes. We all like to think our kids will go to college and get a rewarding career. Unfortunately, a lot happens to 5 and 8 year olds before they are ready for a career. Texas public universities are still a bargain. I cash flowed 3 kids through college. I still recommend you get at least a year's living expenses in readily available cash/liquid investments.

It's not clear how much your income contributes to the substantial AGI. If you're a big part of it, why are you retiring? What will you do all day?

More details are needed to comment on your financial plan.

 

[soupcxan]

Another Houstonian here.

I did some research on 529 plans and they seemed mostly pointless to me. Extra fees, extra penalties, meager tax savings. I'd rather just invest in a taxable account and have full control of the money.

 

[Texas Proud]

Another Houstonian here.

I did some research on 529 plans and they seemed mostly pointless to me. Extra fees, extra penalties, meager tax savings. I'd rather just invest in a taxable account and have full control of the money.

I guess you did not look at Vanguard.... no fees... and can invest in some Vanguard funds...

 

[soupcxan]

I guess you did not look at Vanguard.... no fees... and can invest in some Vanguard funds...

Where did you see no fees? Even with Vanguard there is an added layer of cost to use the 529 plan. I can buy their S&P500 index admiral shares in a taxable account with an expense ratio of 0.02%. The same fund in a 529 plan has a 0.02% expense ratio PLUS a 0.19% program management fee. All the fund choices have 529 plan fees of 0.11% to 0.27%. See page 23:

https://personal.vanguard.com/pdf/529progdesc.pdf

 

[Texas Proud]

Where did you see no fees? Even with Vanguard there is an added layer of cost to use the 529 plan. I can buy their S&P500 index admiral shares in a taxable account with an expense ratio of 0.02%. The same fund in a 529 plan has a 0.02% expense ratio PLUS a 0.19% program management fee. All the fund choices have 529 plan fees of 0.11% to 0.27%. See page 23:

https://personal.vanguard.com/pdf/529progdesc.pdf

Well, slap me down!!! You learn something every day....

I guess I did not get down that far.... still, I do not think that .19 expense ratio is that bad considering the tax savings....

 

[Terryjm51]

Welcome Missouri city west side of town.


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[martyb]

I was 100 miles north of Houston, but retired in NW Louisiana last summer. Still.....welcome!!

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[Car-Guy]

A belated welcome from a born and rasied X Houstonian. I spent the first 55+ years of my life in Houston. Watched it grow from a population of about 600,000 to well over 2 million (4+ million if you count all of Harris county) IMO, the best thing about Houston was (still is I guess) a really great place to work.

Retired a few years ago and moved about a 150 miles north.

 

[mointx]

You might think about taking a harder look at your monthly expenses. 6500 a month with no mortgage is not a small number.Your house payment went away, but your monthly expenses did not drop? Also, the age of your boys suggests that you no longer have a lot of daycare expense so no mortgage, smaller daycare bills, where is the 6500 going and can it be cut in any way. You want to reduce the income you make in a year or 2 and your husband wants to quite completely in 11 years. With those goals, you don't have a lot of room for "fun" stuff at this time.

I went back and looked at our monthly expenses and realized I was mistaken. Our monthly expenses run about $6000, which is still quite a bit, but reflects expenses today. I don't anticipate that it would continue to be that much once income drops. I went back and looked at the past few months. Part of that money went to church and charity (@ $1300 monthly) - once income comes down that probably will, too. We spend about $600 a month in gasoline and toll roads (Houston is pretty spread out); without as much commuting that should go down, too. $700 per month during the school year goes to after-school care and up to $1400 during the summer months for summer day camp since my husband and I both work full time. In addition, the monthly expenses include $900 per month that we put aside to pay for annual property taxes and homeowner's insurance, and $500 per month we are contributing to college.

As for the "fun stuff" - the most we are budgeting for the Corvette repair is $4500 total, which is a one-time thing. I didn't think we had a whole lot of extras in our budget, but I will go back and take a closer look at that. Thank you for your input.

 

[mointx]

Welcome back. I'm not too concerned about the 529 funding. Money is fungible so putting a bunch into the 529 just limits its use for other purposes. We all like to think our kids will go to college and get a rewarding career. Unfortunately, a lot happens to 5 and 8 year olds before they are ready for a career. Texas public universities are still a bargain. I cash flowed 3 kids through college. I still recommend you get at least a year's living expenses in readily available cash/liquid investments.

It's not clear how much your income contributes to the substantial AGI. If you're a big part of it, why are you retiring? What will you do all day?

More details are needed to comment on your financial plan.

You are right, there is no guarantee one what the future holds for our children, so further funding the 529 is something we are revisiting. We are also continuing to work on our liquid savings. I used to think 6 months' expenses was good enough, but with the economy being the way it is lately (DH is in the petrochemical industry) it may not hurt to have more.

Out of the $250K my portion is about $100K, DH is about $150K. I don't necessarily want to completely ER, just semi-ER by cutting back my hours so I can spend more time with my boys. The money is good, but my kids won't be young forever. Full time work plus having 2 school-age kids is a lot right now, esp since my work hours can get kind of funky. It's part of the reason why it has taken me so long to respond to everyone's input. I haven't really had a chance since last weekend to get back on the board.

I agree that Texas public universities are a great bargain. My husband and I are both grads of the University of Houston and are doing okay, I think.

 

[mointx]

Welcome Missouri city west side of town.


Sent from my iPhone using Early Retirement Forum

DH and I both grew up in Missouri City. After we got married we moved to Houston and lived inside the Loop for a few years before moving out to Pearland, which is where we have been ever since (almost 18 yrs).

 

[mointx]

Well, slap me down!!! You learn something every day....

I guess I did not get down that far.... still, I do not think that .19 expense ratio is that bad considering the tax savings....

This is good information - I appreciate you both posting about it.

Did anyone have any input regarding my Roth 401K question? Just wondering if I should go ahead and make all my contributions post-tax.

In addition, any suggestions on an after-tax account that we could open ourselves? We're out of options on the tax-sheltered side, I think.

 

[ivinsfan]

I went back and looked at our monthly expenses and realized I was mistaken. Our monthly expenses run about $6000, which is still quite a bit, but reflects expenses today. I don't anticipate that it would continue to be that much once income drops. I went back and looked at the past few months. Part of that money went to church and charity (@ $1300 monthly) - once income comes down that probably will, too. We spend about $600 a month in gasoline and toll roads (Houston is pretty spread out); without as much commuting that should go down, too. $700 per month during the school year goes to after-school care and up to $1400 during the summer months for summer day camp since my husband and I both work full time. In addition, the monthly expenses include $900 per month that we put aside to pay for annual property taxes and homeowner's insurance, and $500 per month we are contributing to college.

As for the "fun stuff" - the most we are budgeting for the Corvette repair is $4500 total, which is a one-time thing. I didn't think we had a whole lot of extras in our budget, but I will go back and take a closer look at that. Thank you for your input.

Well, when you breakout those numbers I see where your money goes and I agree there isn't a lot of 'fun stuff" there.

How much of that 900 month goes to property tax, you might want to take a hard look at your homeower's insurance and see if you can make some adjustments there.

Only you and your DH can decide if the church contributions and the college money is a deal breaker. Those seem to be the items in your spending that can be adjusted. You day care costs would drop, but as your kids get older and have more activities and start driving the overall expenses won't really go down and it might even go up.

If your work hours are very demanding and draining, keeping that particular job part time might be a problem. A lot of posters say it hard to keep the hours under control in a situation like that.

Good luck....