What's the deal with 45?

[A Bird In Hand]

If you have a good mortgage rate, you may be too aggressive with early mortgage payoff. You could be investing and saving more. If ROI averages 7-8% and your mortgage is in the 3-4%, you're losing that extra 3-4% as well as increasing your income tax liability.

It's the age-old "should I pay down the mortgage or invest?" question, and I sure as heck hope we don't resolve it in this thread!

From my point of view, I see a lot of "if's" in your last sentence above. Granted, those if's are quite likely, but fall just short of likely enough for me to hang my future FI on.

FYI my rate is 4.25%, and the mortgage interest we paid last year just barely pushed our itemized deductions higher than the standard deduction amount. So the comparison should be "guaranteed 4.25% return vs risky 7-8% return (before capital gains tax?) in the stock market." For a short timeline of ~5 years until FI, we're not comfortable chasing a theoretical 3% spread.

Consider cutting your extra payments to a more reasonable amount and save and invest more.

Despite my defense of paying down the mortgage above, we often consider pulling back somewhat on the mortgage payments and increasing our after-tax savings. The main reason is that we'll need more after-tax savings to bridge the gap between ER and the age when we can reasonably withdraw from our retirement accounts (72(t) notwithstanding).

Also have you considered helping your kids through college with 529 plans?

529's don't do a whole lot for us since we don't pay a state income tax. I understand there are a couple other advantages (and also restrictions). Our plan for kid's college expenses is: save what we can after funding for our own ER goals; use some expected small inheritances that we expect by then (I know that sounds crass!); encourage the kids to attend reasonably priced schools; expect the kids to get scholarships and/or work to pay for much of college; possibly help the kids pay off student loans if need be. And as long as I keep working at least 1/2 time, my employer will pay $10k per kid per year.

I was FI before we paid off the mortgage.

P&I is our biggest non-discretionary expense (we consider private school tuition to be discretionary). Eliminating it will allow us to work part time, have one of us stay home with the kids, etc. So while paying off the mortgage won't get us to FI, it will enable ESR in our low 40s.

 

[A Bird In Hand]

Bird; in your OP you mention funds in TSP. Are you a federal employee? If so will you be eligible for a pension retiring at 45 from the government?

TSP is from a previous job; no pension at 45 (or any other age!)

I do understand the desire to pay off the mortgage aggressively. Did you refi at the recent low mortgage rates of 3.375 vs the 4 percent plus that you referenced in your 2012 post?

Still at 4.25%/20 yrs. We occasionally consider refinancing at ~3.5%/30 yrs just to give us payment flexibility should the need/desire arise. We've paid so much in extra principal payments over the past 5 years that the potential savings (on interest) from refinancing to a lower rate is small. Even if we did refinance, there's a good chance we'd continue on paying extra such that mortgage will be gone in ~5 years.

 

[A Bird In Hand]

Yet another year has passed since my last financial update. Here's how things went over the last year:

Married, both of us ~40, 3 children all < 10 years old
$161k left on mortgage -> $132k
Still paying ~ $1,100/mo extra on mortgage
$884k in retirement accounts -> ~$920k
$105k cash/non-retirement investments -> $90k

Investment returns were decidedly 'bleh' last year, but this month we managed to cross $1MM in combined retirement/cash accounts (and stay there for the past couple weeks). Mortgage balance went down by another $29k, and NW went up by $50k.

Roth IRA contributions and private school are killing our savings. But everyone's always telling us not to have so much $$ in low-interest savings accounts, so...

 

[CoAndy]

Things are looking really great! I love the updates. Makes for some very interesting reading. Curious...what do you pay for private school, if you don't mind sharing?

 

[A Bird In Hand]

Things are looking really great! I love the updates. Makes for some very interesting reading. Curious...what do you pay for private school, if you don't mind sharing?

Thanks Andy. This thread is mostly to help keep me focused on ER goals, but I'm glad someone else finds it interesting.

Private school is ~$10k/kid/year. A bit cheaper than the mediocre public school, but alas we have to pay for both.

 

[SumDay]

Thanks Andy. This thread is mostly to help keep me focused on ER goals, but I'm glad someone else finds it interesting.

Private school is ~$10k/kid/year. A bit cheaper than the mediocre public school, but alas we have to pay for both.

As someone who paid for 13 years, each, of parochial school for two kids, I can say it was worth it. I know our 401(k)'s would probably be bigger if we hadn't, but watching them as responsible, contributing adults makes us realize the ROI is priceless.

A hundred years from now it will not matter what my bank account was, the sort of house I lived in, or the kind of car I drove... but the world may be different because I was important in the life of a child.”

—Forest E. Witcraft

Keep up the good work. You have good problems - many don't.

 

[A Bird In Hand]

As someone who paid for 13 years, each, of parochial school for two kids, I can say it was worth it. I know our 401(k)'s would probably be bigger if we hadn't, but watching them as responsible, contributing adults makes us realize the ROI is priceless.

Without the private school tuition, I think we could achieve FI ~5-10 years earlier. All while having more/better vacations, cars, etc. And there's unfortunately no way of knowing whether the superior education will make our kids turn out any better. Yet we suspect it will, and somehow that suspicion is enough to convince us to keep paying the big $$ for tuition.

Keep up the good work. You have good problems - many don't.

Well said (the latter part). That really puts things in perspective. We are indeed very fortunate to have the the kind of problems we do.

 

[Katiek]

Thanks for letting us know your continued progress and the Roth IRA is a nice addition to your "savings"

 

[Keim]

...but alas we have to pay for both.

Why shouldn't you have to? All of society benefits from an educated populace.

 

[A Bird In Hand]

Why shouldn't you have to? All of society benefits from an educated populace.

I think you're barking up the wrong tree, comrade.

We're doing our part to ensure an educated populace -- to the tune of $30k+ per year out of pocket (our family's, not the other tax payers'). At the same time, we're relieving the tax payers in our town of $40k/year (based on the school's estimate of $13k+/year per child) by not sending our kids to the public school. Then on top of that we pay about $5k/year via taxes to educate other kids whose parents send them to the public school. Mind you, we don't make more money than most other families in town. We just take fewer vacations, drive older cars, and buy fewer toys.

Pardon me if I feel our civic duty to 'educate the populace' has been fulfilled and then some.

 

[Keim]

I think you're barking up the wrong tree, comrade.

We're doing our part to ensure an educated populace -- to the tune of $30k+ per year out of pocket (our family's, not the other tax payers'). At the same time, we're relieving the tax payers in our town of $40k/year (based on the school's estimate of $13k+/year per child) by not sending our kids to the public school. Then on top of that we pay about $5k/year via taxes to educate other kids whose parents send them to the public school. Mind you, we don't make more money than most other families in town. We just take fewer vacations, drive older cars, and buy fewer toys.

Pardon me if I feel our civic duty to 'educate the populace' has been fulfilled and then some.

You can drop the comrade crap. I'm very capitalist.

education is a common good that benefits all. Your choice not to use it doesn't relieve you of the duty to pay. Rising tide floats all boats, etc.

Do you also complain about maintaining the roads you don't use? Sewer pipes? See the logical inconsistency?

 

[Walt34]

Guys, we can disagree without being disagreeable.

 

[A Bird In Hand]

Guys, we can disagree without being disagreeable.

Aye -- that was my aim, but I'll double down on my efforts.

 

[A Bird In Hand]

You can drop the comrade crap. I'm very capitalist.

education is a common good that benefits all. Your choice not to use it doesn't relieve you of the duty to pay. Rising tide floats all boats, etc.

Do you also complain about maintaining the roads you don't use? Sewer pipes? See the logical inconsistency?

I understood your point the first time you made it. We obviously have different viewpoints on this matter, and I really don't think we'll resolve those differences in my thread. So let's move on, shall we?

 

[Keim]

I understood your point the first time you made it. We obviously have different viewpoints on this matter, and I really don't think we'll resolve those differences in my thread. So let's move on, shall we?

What? You expect someone on the internet NOT to keep a pointless argument going?

 

[A Bird In Hand]

What? You expect someone on the internet NOT to keep a pointless argument going?

Not really, but...the moderator made me do it!

 

[Keim]

Not really, but...the moderator made me do it!

Darn mods, being so... moderate!

 

[Sarah in SC]

Guys, we can disagree without being disagreeable.

I would like to order a couple of million t shirts with this printed on them.

 

[Markola]

Anyhoo, getting back to arguing whether to pay off the OP's mortgage, as for me, I like having my cake with the option to eat some too. I am not making extra payments but am instead building a large, flexible post-tax cushion that could be used to cover us in the event of a job loss, take time off between gigs to travel, build a bridge fund between FIRE and age 59.5 or, yes, pay off the mortgage if we decide to. For security yet a little growth, I've chosen to invest it in a conservative 20/80 balanced Vanguard Life Strategy fund, which means I'll pay some taxes. However, it returns better than cash yet will likely be there when I need it.

Good job so far, OP. Whether FIRE happens for you at 45, 50 or 55, you are creating options for your future that few you likely know in real life will have.

 

[A Bird In Hand]

Anyhoo, getting back to arguing whether to pay off the OP's mortgage,

Booo!

as for me, I like having my cake with the option to eat some too. I am not making extra payments but am instead building a large, flexible post-tax cushion that could be used to cover us in the event of a job loss, take time off between gigs to travel, build a bridge fund between FIRE and age 59.5 or, yes, pay off the mortgage if we decide to. For security yet a little growth, I've chosen to invest it in a conservative 20/80 balanced Vanguard Life Strategy fund, which means I'll pay some taxes. However, it returns better than cash yet will likely be there when I need it.

I can't really argue against that approach. I prefer the "sure thing" of a paid-off mortgage and attendant ability to scale back on work hours. But I certainly understand the appeal and the flexibility of having a big wad of cash instead. We've considered doing that from time to time, and we still might decide to do so before the mortgage is gone in ~4 years.

 

[jazz4cash]

As someone who paid for 13 years, each, of parochial school for two kids, I can say it was worth it. I know our 401(k)'s would probably be bigger if we hadn't, but watching them as responsible, contributing adults makes us realize the ROI is priceless.



Keep up the good work. You have good problems - many don't.

We bit the private school tuition bullet also. It was difficult at times and a challenge but worth it as you say. 16 yrs (including 4 yrs out of state for college) x 3 = 48 years of tuition payments. I added it up once and it was a big number. $10k/yr is a LOT at that age.

 

[A Bird In Hand]

5 year update

Another year, another update. I thought it might be nice to see a summary of previous years along with this year in a table. Note that I don't have the actual numbers for 2013 except mortgage and debt, so the other figures are (linearly) interpolated and appear in []:

| -- 2012 -- | -- [2013] -- | -- 2014 -- | -- 2015 -- | -- 2016 -- | -- 2017 --
Retirement| $500k | [$627k] | $755k | $884k | $920k |$1,088k
Savings| $165k |[$142] | $120k | $105k | $90k | $76k
Mortgage| $237k | $213k | $188k | $161k | $132k | $103k
Non-mortgage debt - | $18k | $0 | $0 | $0 | $0 | $0

It's nice to see the retirement accounts go above $1MM, and the mortgage dwindle away. Savings continue to erode due to some combination of fully funding our IRAs, paying for private school, and paying extra on the mortgage. Mortgage should be paid off in a little over 3 years, and cashflow will be substantially improved at that point. Hopefully that happens before we run out of savings. On the other hand, our savings is earning < 1%, so if most of it ends up in IRAs and/or paying down our 4.25% mortgage, so be it.

I've been thinking a lot lately about when we can pull the plug -- either for ER or (more likely) ESR. So far the numbers aren't shouting out "DO IT!!", but it's still possible that we'll E(S)R by 45 or shortly thereafter. I guess this will largely depend on what the market does in the next 4-5 years.

 

[evilanne]

Looks like you are making good progress but don't see anything related to expenses. How much will you need to budget for? Seems that your children are relatively young, have you planned for college?

 

[A Bird In Hand]

Looks like you are making good progress but don't see anything related to expenses. How much will you need to budget for? Seems that your children are relatively young, have you planned for college?

I almost put an 'Expenses' row in the table, but it's a little complicated. Our current expenses are much higher than I expect them to be in 5+ years. It goes something like this:

| -- 2017 -- | -- 2020| -- 2021 -- | -- 2022 --| -- 2025 --
Projected Expenses -- |

$125k​

|

$90k​

|

$80k​

|

$70k​

|

$60k​

The reasons for the decreases include: paying off the mortgage in 3 years, $10k/year gifts from parents & grandparents (for tuition) starting in ~4 years, and kids starting to graduate out of private school.

For the past few years our non-mortgage, non-tuition expenses have hovered around $55k. This includes thousands in expenses, mainly related to child-care, that should fade away in the next few years. We feel confident that we can live quite well on $55k. Tightening the belt we could get down to $45k without major hardship.

As for college, we're not going to make certain sacrifices (e.g., work full-time for the rest of our healthy lives) trying in vain to keep up with tuition inflation. If we're working at least half time, our employers will cover $10k+/year (increases with inflation) per kid for tuition. Parents & grandparents have the means and desire to help out with another $10k/year. One or two of the kids might get into an elite school tuition-free (at our expected income). We'll expect the kids to pay for 1/2, either through jobs or loans. We're not above sending them to community college for 2 years to save. Etc. Bottom line: if we are working 1/2 time, we expect to be able to cover basic expenses + tuition without issue.

 

[A Bird In Hand]

6 year update

| -- 2012 -- | -- [2013] -- | -- 2014 -- | -- 2015 -- | -- 2016 -- | -- 2017 -- | 2018
Retirement| $500k | [$627k] | $755k | $884k | $920k | $1,088k | $1,272k
Savings| $165k |[$142] | $120k | $105k | $90k | $76k | $67k
Mortgage| $237k | $213k | $188k | $161k | $132k | $103k | $72k
Non-mortgage debt - | $18k | $0 | $0 | $0 | $0 | $0 | $0

2017 was a fun ride in the stock market, was it not? Last year our retirement accounts (including contributions) increased by an amount that exceeded our income. And seeing our retirement accounts up > 250% over 6 years is certainly gratifying.

And now we're just over 2 years away from having the mortgage gone. That's going to be a $35k/year improvement in cashflow.