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Old 05-14-2012, 05:13 PM   #21
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No worries, same team
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Old 05-15-2012, 01:50 PM   #22
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Originally Posted by A Bird In Hand View Post
It seems like a lot of young folks aim to RE at 45. What's that about? Why not 42, 43, or 46?

Whatever the reason, I've also chosen 45 as my target for ER. I'm almost 36, so I have 9 years to figure this stuff out. Here's my current situation:

- Married, 2 kids < 5 years old
- $237k left on 20yr, 4.25% mortgage.
- Paying extra ~ $1,100/mo to pay off in 10yrs (2020) instead of 20
- ~$500k in 401(k), IRA, and TSP; 75% stock, 15% bond, 5% fixed, 5% other
- Maxing out my 401(k), plus employer contributes ~ $12k/yr
- $165k cash in low-interest savings account
- $18k, 5 years left on 10 year loan from 401(k) for home downpayment; roughly $4000k/year in payments

However, if anyone wants to offer an opinion about which strategy I mentioned (or others that I didn't consider) might make the most sense given my goal to retire in 9 years, I'm all ears.
I dream to quit work at 47, but that's a dream at this point.

Anyway, regarding your OP, where does your wife fit in the whole picture? Apart funding her RothIRA, you say nothing about her. There're two adults in a marriage here, IMHO. What will she be doing when you retire or semi-retire? I'm guessing she's SAHM with the kids right now.(?)

It kind of sounded self-centric, that's all.

Sounds that you're very conservative, not wanting to part with your $165k (minus the loan at this point). Have you thought of parking $20k/yr. in I-bonds while waiting for better interests rates? Interest is not taxable on State level and the IRS taxes after the I-bonds are redeemed only or if used for qualified college education expenses, not taxed either.
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Old 05-15-2012, 04:12 PM   #23
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Anyway, regarding your OP, where does your wife fit in the whole picture?
Right there with me.

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Apart funding her RothIRA, you say nothing about her.
True...

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There're two adults in a marriage here, IMHO. What will she be doing when you retire or semi-retire?
Hopefully giving me a back-rub as a token of her appreciation for all my hard work that resulted in our early retirement. But seriously, she's looking forward to FI too. We'd like to be able to work less, spend more time together, and enjoy our simple lifestyle.

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I'm guessing she's SAHM with the kids right now.(?)
Part time work, part time watching kids. Same arrangement will likely continue until ER or beyond.

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It kind of sounded self-centric, that's all.
I'm pretty much driving the financial planning at our house. My wife is on board with the ideas I mentioned but prefers a passive role.

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Sounds that you're very conservative, not wanting to part with your $165k (minus the loan at this point). Have you thought of parking $20k/yr. in I-bonds while waiting for better interests rates? Interest is not taxable on State level and the IRS taxes after the I-bonds are redeemed only or if used for qualified college education expenses, not taxed either.
Thanks for the idea! I'm really not sure what to do with my cash holdings for now, and you've given me another option to consider.
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Old 05-15-2012, 10:22 PM   #24
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I just moved $5k from cash to a Vanguard Roth IRA (Wellington, until/unless I think of something better). Even though I just moved money from one pile to another, it feels pretty good to lock that untaxed cash into an untaxed-in-the-future IRA. Hopefully Wellington won't do anything to make me pine for ING's 0.9% taxed interest income.
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Old 05-16-2012, 02:12 AM   #25
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I agree with scrabbler1 and others - paying down debts would be my top priority.
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you need to reduce the big cash reserve by using it to pay down at least some of your debts.
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Old 05-16-2012, 06:32 AM   #26
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I once found myself in a difficult position because I had put almost all of my savings into reducing my home loan. I lost my job suddenly along with about 1,100 others and the housing market in the small town collapsed. I only had about a 3 month emergency fund. Very good luck in finding another job quickly saved us from total financial disaster. Many of my coworkers were not so lucky.

The point of my ramble is to keep at least a year's living expenses in a safe, after tax account in case of disaster. I also can't get excited about paying of a 4.25% loan which I suspect will look like really cheap money in a few years. I would suggest you do pay off your 401k loan.
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Old 05-16-2012, 07:22 AM   #27
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The point of my ramble is to keep at least a year's living expenses in a safe, after tax account in case of disaster. I also can't get excited about paying of a 4.25% loan which I suspect will look like really cheap money in a few years. I would suggest you do pay off your 401k loan.
I believe the OP had already paid the loan and maxed out one RothIRA for 2012. Now he must fund the 2nd RothIRA.

Also, OP, you mention your wife's part-time work. Can she fund her 401k and maybe get her employer's match? If the choices in her 401k are very reasonable, she should contribute to it to reduce her current taxes. And so her after-tax 'salary' can be drawn from your savings if needed. Even if she doesn't make $17k in the part-time job, she can contribute her all pre-tax money to the 401k unless her employer has stipulations about that. I know my co. does.

I concur with 2B for keeping 1 year's expenses in accessible accounts.
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Old 05-16-2012, 07:37 AM   #28
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Originally Posted by obgyn65 View Post
I agree with scrabbler1 and others - paying down debts would be my top priority.
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Originally Posted by 2B
I once found myself in a difficult position because I had put almost all of my savings into reducing my home loan. I lost my job suddenly along with about 1,100 others and the housing market in the small town collapsed. I only had about a 3 month emergency fund. Very good luck in finding another job quickly saved us from total financial disaster. Many of my coworkers were not so lucky.

The point of my ramble is to keep at least a year's living expenses in a safe, after tax account in case of disaster. I also can't get excited about paying of a 4.25% loan which I suspect will look like really cheap money in a few years. I would suggest you do pay off your 401k loan.
Thanks guys. I should probably update my OP to indicate that I just paid off that 401k loan the other day. I mentioned it in this post.

I don't have any other debt except the mortgage.

2B, that's a harrowing situation you were in. I'm glad you managed to find a job so quickly and averted a much bigger problem. Stories like that are precisely why I've been keeping an emergency fund to cover > 1 year of expenses.

I agree that 4.25% is fairly cheap money, and will likely look a lot cheaper when rates eventually go way up. But at the moment I'm able to max out my 401k, max out our IRA's (partially via the cash savings we have), and still pay down the mortgage in half the scheduled time. Admittedly this doesn't leave much on the table for saving more in taxable investments. On the other hand it's a guaranteed 3.x% return (far better than my cash savings account), and it does help me with my ER cash-flow requirements in a manner that I'm comfortable with.

One stealthily-useful aspect of putting most of my excess income towards my mortgage is that it forces me to keep a close eye on my living expenses, which is going to be a crucial factor in my ER plans.
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Old 05-16-2012, 07:55 AM   #29
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The other reason to build up your after tax accounts would be to be able to better balance your tax rate in retirement. A few years ago I realized almost all of my assets are in a traditional IRA or 401k. In retirement I'd be forced to live off these which would drive my marginal tax rate back up to where it is now. Since then, I've been building my after tax accounts (yes, at my currently high marginal tax rate) but I should be able to manage my retirement taxes a bit better. I'll also have some opportunities to rollover trad IRA money into my Roth IRA.
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Old 05-16-2012, 08:21 AM   #30
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I believe the OP had already paid the loan and maxed out one RothIRA for 2012. Now he must fund the 2nd RothIRA.
Oops...your reply sneaked in there before I submitted my previous one. We're also fully funding my wife's Roth IRA; she just hasn't yet had a chance to take a look at the funding options yet. See, no need to fret -- she's in the loop on all this stuff.

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Also, OP, you mention your wife's part-time work. Can she fund her 401k and maybe get her employer's match? If the choices in her 401k are very reasonable, she should contribute to it to reduce her current taxes. And so her after-tax 'salary' can be drawn from your savings if needed. Even if she doesn't make $17k in the part-time job, she can contribute her all pre-tax money to the 401k unless her employer has stipulations about that. I know my co. does.
Unfortunately she doesn't have any 401k or other retirement programs available through her current employer/level of employment. In previous years we would just max out her traditional IRA instead; this year it'll be Roth.

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I concur with 2B for keeping 1 year's expenses in accessible accounts
Me too (see my last post). But even drawing down our savings to max out Roth IRAs will still leave us with > 1 year's savings after 5 years. Meanwhile, there's probably something better to do with at least some portion of $147k than to earn 0.9% taxable. A couple ideas have popped up already in this thread.
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Old 05-16-2012, 08:38 AM   #31
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The other reason to build up your after tax accounts would be to be able to better balance your tax rate in retirement. A few years ago I realized almost all of my assets are in a traditional IRA or 401k. In retirement I'd be forced to live off these which would drive my marginal tax rate back up to where it is now. Since then, I've been building my after tax accounts (yes, at my currently high marginal tax rate) but I should be able to manage my retirement taxes a bit better. I'll also have some opportunities to rollover trad IRA money into my Roth IRA.
Good point about tax diversification. We find ourselves in a similar position. Recent and pending Roth IRAs notwithstanding, 100% of our retirement savings are pre-tax. Even with ING savings, we still have more than 75% of our money in pre-tax accounts. And that allocation is only going to become more skewed over time since about 3x as much will be going into 401k than our Roth IRAs each year. Not to mention the vast majority of our returns will be on the pre-tax side, making the allocation even more imbalanced.

I guess I could put some (or all) of my 401k contributions into Roth 401k, but I'm probably getting ahead of myself. I haven't researched tax diversification enough to have any clue what a reasonable allocation would look like.
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Old 05-13-2014, 10:59 PM   #32
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Wow, it's hard for me to believe two years have passed since I found this site and made my first post. Let's see how the situation has changed in those two years:

Married w/ 2 kids -> Married w/ 3 kids
$237k left on mortgage -> $188k
Still paying ~ $1,100/mo extra on mortgage
~$500k in retirement accounts -> ~$755k
$165k cash -> $120k cash
$18k 401(k) loan -> paid off

Everything went pretty much according to plan, except our retirement accounts grew faster than I anticipated. Cash dropped significantly due to paying off 401(k) loan, fully funding a pair of Roth IRAs for a couple years, and buying a car. We're still on track to have the mortgage paid off in 6 years, which will hopefully make ESR possible in our mid 40's. I still lurk and read these forums regularly for inspiration, entertainment, and education.
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Old 05-13-2014, 11:08 PM   #33
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Oooh, looking over those numbers I just realized our net worth went up by $277,000 in two years. I guess the bulk of that is due to a great stock market, but still...not too shabby!
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Old 05-13-2014, 11:30 PM   #34
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Great progress!
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Old 05-14-2014, 12:41 AM   #35
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Ans to 45:
42, (6x9), is the answer to Life, the Universe and Everything, by Deep Thought.
43 is a prime.
44 has too many factors.
46 is never used. Who has ever use 46 as a target number for anything.
47 is Ok but its neither 45 or 50.
48 is 4 and 4+4. Bad omen for Chinese.
49 isn't 50
50 is half of 100. Who wants to retire at half your expected life expectancy. You want to retire at less than half to really validate your smarts.
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Old 05-14-2014, 11:48 AM   #36
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Rdub - Thanks! We're pleased with our progress, but well aware that a downturn in the market could happen at any time and is outside our control. Hopefully we'll be able to take that in stride when it happens. Thankfully our ability to drastically reduce living expenses (by paying off the mortgage) is not contingent upon market returns. Our jobs are pretty secure, so ESR@45 looks pretty close to a sure thing at the moment.

LongPrime, how about this: We don't want to work 9-5 after 45, and coincidentally 9x5 = 45. So we're going to ESR because numerology.
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Old 05-14-2014, 01:26 PM   #37
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Re: 45 vs. 42... For me, my goal is 42, but 45 may be more realistic. 42 is simply the goal because that's the earliest age at which I am eligible to retire from the service and collect my pension. We'll see, but it'll be a hell of a lot easier if my wife keeps working to 45 or even 42! Gives us 3-6 more years of not drawing down accounts at all!
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Old 05-14-2014, 02:12 PM   #38
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But if mortgage and all other debt is off the table at 45, then I think my living expenses should be low enough to let me work part time (or switch to a less lucrative but more rewarding job), live off that income, and postpone my withdrawal from retirement accounts.
That is our plan though we didn't figure out how to do that until we were in our fifties. With kids launched and living in a condo some place sunny and warm, our part time, lap top income should more than cover our living expenses plus living abroad in a furnished flat a few months out of the year. SS, pensions and investment income can all be reinvested. We don't really need to invest much in stocks since our expenses are so low compared to our income, so a market downturn wouldn't impact us at all.

Looking back I don't know why it took us so long to figure this out. We had the part time income but our expenses were too high until the last few years to make it all work.
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Old 05-15-2014, 01:40 AM   #39
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What is the mortgage interest rate, original term, and term of loan remaining? Have you refi'd. IMO money used to accelerate mortgage is better spent on better investments
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Old 05-15-2014, 09:55 AM   #40
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What is the mortgage interest rate, original term, and term of loan remaining? Have you refi'd. IMO money used to accelerate mortgage is better spent on better investments
My goal is to achieve -- as soon as possible -- low enough expenses so that I can afford to work part time. Specifically, my accelerated mortgage payments will result in a guaranteed ESR date in about six years. If you know of an investment that is guaranteed to return about 4% (after taxes) over the next six years, then it'll basically be a wash compared to my approach. If you know of an investment that will likely return 8% over the next six years, but with a distinct possibility my ESR date will be extended to ten or twelve years, I'm not even remotely interested.
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