Retirement ADVICE needed from all you guru's!

[hcho3528]

Hello, I would first like to introduce myself as hcho3528. This will be my first posting on this forum, but I have looked around for a time before registering. Like all of you hear, I dream of an early retirement, in fact I think about it weekly, even though I am happy with my job. I am married and am 27 yrs old. I have a goverment secure job, with a moderate income of 65k/year, as well as my wife. Combined we earn 130k/yr. I own a home, 30yr fixed @5.75% that I purchased at 21 in 2001. I used most of the equity to pay for my undergrad degree/wedding/wedding ring a few years ago. I owe about 208k on it, and it is valued at 250k in this current market. The nice thing about this is the mortgage is only one of our 4 paychecks, so we are living pretty comfortable. I started saving into a 457 deferred comp at 21, and currently have a small 17k in it, but a few years ago I raised my contribution form 100/month to 600/month. I also have a PERA retirement that matches my max contibution of 12%, so I get almost 25% into that retirement. My wife has almost the exact same as I with PERA and the 457 but also has a ROTH IRA with 5k in it.Next year our PERA will macth at 14%. We only have 2k in savings right now, about 4k in our checking accounts. Our job allows us to retire at 50 or 20 years, but I would like to retire earlier. The problem is, is we love to travel. We seem to not have alot of money saved because we are constantly traveling. My question now is that we are thinking of having kids in the near future where traveling prob. won't happen as frequently as it currently does. I would like to buy a new house that is about 350k, but my wife does not like the idea of being married to the mortgage, even though I think we can afford it. What would you guru's reccommend? Can we afford this? Should I just stay in my moderate home, and save money, or risk a higher mortgage in this market to get a very nice house for a very reduced price. Also, should I invest 4k into remodeling a new bathroom in this current market to sell? Will I get the value out of it even in this market? What better ways can I save for my future and to retire early?

 

[hcho3528]

Also, we have no credit card debt, and a combined school debt of about 12k for grad school (both of us).

 

[Meadbh]

Welcome. Based on the information provided, you have $42K home equity, $17K in a deferred compensation account and $6K in savings, minus $12K in student debt, for a net worth of $53K.

No, you can't afford a bigger house, even if it's priced low. So will your current house be; moving costs money, and you will be filling a larger house with stuff.

How much are you spending on travel, anyway? That's your opportunity to save. Unfortunately, you cannot assume that having kids will decrease your expenses!

Sounds like a bit of budgeting is called for. Budgeting for savings FIRST, then discretionary items.

 

[mickeyd]

Hey hcho,

What better ways can I save for my future and to retire early?

You certainly have a bunch of Qs in your first post, however the above Q is the "bottom line Q" in your post. Easy to answer also. Live (and spend) below your means (LBYM).

Sounds simple, and it is. If you make $10.00, spend no more than $.9.99 of that amount. The more space that you place between $10.00 and $9.99, the better off you and DW and your future family will be in the long-term.

It's that easy.

Good Luck.

 

[hcho3528]

You did not consider my wife's 457 deferred comp of 20k, her Roth IRA for 5k, and her PERA as well. Regardless, I understand that we probably could do a lot better at saving. When I think of how much money we would have if we did not travel so much I twitch. But then I think of all the places I've been, and experienced in the world that will be with me forever, and I am garteful I was able to do it while I am young. Young and old travel differently so I am trying to balance. I don't want to be very rich and to old to travel the way I like to (trekking through countries). I have rich family that travel in luxory and never leave their hotel...I'd rather just stay home if that was the case. Anyways, we are looking at not traveling so much, and takng up extra curricular activites if we plan to upgrade to a bigger house and start a a family. You really think we cannot afford to move? Even in this market, isn't real estate still considered good debt? I realize this is subjective and there are many variables that effect what good debt means. I just feel like we are saving a good amount and have a good amount left over but I don't want to be mortgage poor either, or struggling. Thanks for any advice...

 

[template]

Welcome to the forum, hcho3528. Lots of interesting people and good info here.

You wrote that you wanted:

1) a more expensive home
2) more travel
3) have children
4) retire early

Retiring early means you probably should cut back on (1) or (2) or both.

As a data point, I didn't buy a home until I was in my mid 30s and could make a 45% down payment in cash.

As mickeyd pointed out, LBYM is the key. It helps to develop a bias towards saving and investing and against spending and borrowing.

 

[growing_older]

Whatever way the numbers fall, I'd recommend talking to your wife about it. No matter how much you think it's a good idea, you will be happier if you both agree on what you should do - not just you get her to give in to your idea, but you both really agree. If you don't (and you said you didn't) then before you try to convince her about your idea, first make sure you really understand her idea.

If you are asking for general advice: a happy wife is more likely conducive to a good life than any size house.

 

[HobbyDave]

Housing is "good" debt because it is an appreciating asset. It is not an investment though, unless you are renting it out. As has been mentioned on the board a lot, you can't assume that your home will increase in value. If you are living fine in a modest house, I'd put a strong vote towards staying in the modest house. It is easy to upgrade homes, it is hard to downgrade. I really would love it if my wife wanted to stay in a more modest home

As for the pricing, my wife and I make around 50% more than you do, and I feel uncomfortable with our $335k home. I plan on downgrading as soon as possible. Don't forget, you're not just increasing your home price, but you'll be potentially doubling your property taxes, probably adding 50% to your utilities, adding additional furniture expenses, etc. Larger homes are much more expensive than they sound. I have had that hit home pretty hard lately, and even though we expected it, I just hate seeing that much money go down the drain.

So I suggest that you decide what your priorities are. If you want to be financially independent, travel, have kids, and have a nice home, put those things in order. All of those cost money. I put the list in my personal order.

I hate being "forced" to have a job, so I want to be FI. This means I have put a high percentage towards retirement plans, after tax funds, etc. Secondly we want to travel when retired. This means we're coming up with plans & cash for how to travel cheaply. Since I don't want to work forever (FI is the highest priority), we have come up with a few cheap(er) travel options (such as sailing our own boat around the world instead of using cruises). We have decided after years of waffling to not have kids, mainly because if we had the choice, we'd rather sail & relax for the next 15 years rather than raise kids. The last thing is a nice big home. If it was free, I'd live there, but I have plenty of things I "enjoy" more than a spacious home. So that's at the bottom of our list now.

Anyway, hope you stay in touch!

 

[Rambler]

Keep the moderate home and save, save, save! When megacorp gives you megabucks, save 'em (invest 'em) and then move up when you can REALLY afford to and still save a bundle for FIRE.

 

[kcowan]

1) a more expensive home
2) more travel
3) have children
4) retire early

From a strictly LYBM perspective:
1) buy an expensive home from someone on the verge of bankruptcy, especially a flipper.
2) learn how to write travel copy and sell your pieces to travel mags. Your trips will be a business write-off and you might even make some money at it.
3) adopt the children of single drug-addicted parents. You can be paid $800/mo until they are 18.

Do the above and your chances are good at achieving 4).

I only did 1) and I have been retired for 5 years...

 

[AltaRed]

Being house poor is no fun and RE is relatively illiquid as many are finding out today. Keep the modest house and you will enjoy life a lot more. Less is truly more.

 

[SteveR]

Hcho, welcome to the forums. Glad you found us and have decided to post.

One thing to remember, saving is great but don't forget to live life as you go along the time line to ER. No one is promised tomorrow so don't get crazy about saving. Your travels are a good way to see the world and to create memories. Don't be fooled into thinking that FIRE is only about self denial. It is about balance and living while you save and invest for your future.

 

[TickTock]

hcho3528,

Can you afford a $350k house on combined salaries of $130k? Yes.

Can you afford the house and extensive travel and children and retire early? Almost certainly not.

You need to decide how you (and when I say 'you' here, I mean you and your wife) value these things. Each one requires money, and you have a finite supply of that.

No one else can tell you how to properly prioritize. It depends on your values.

What you need to be aware of is the trade-offs. For instance, if buying the more expensive house put retirement back one year, is that worth it? Five years? Ten years? Try to get at least a ballpark accurate idea of how much more the house would cost you.

Go back and verify how much the travel is costing you per year.

Do some research on how much children cost (DW and I don't have children, so I can't help you off the top of my head, but I've seen articles on the web that mention total $ figures).

Research retirement and safe withdrawal rates (SWR, a very common acronym here). For now, know that 4% is a commonly accepted number. Given that, you need to have 25x the amount you want to live on in retirement invested (minus SS, pensions, and so on).

Then see how the expenses listed above would affect your savings, and therefore your retirement date. Then you can decide what's right for you.

 

[kcowan]

Also remember that it is really important to enjoy the journey. The one thing you cannot plan for is when your particular journey might end. The best exercise is to plan what you want to be said at your eulogy then get on with making it happen.

(And I would bet having a bigger house is not any part of it.)