FUEGO
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- Nov 13, 2007
- Messages
- 7,746
Catchy title, huh?
I wanted to get a reality check from my esteemed fellow ER.org posters, since there are a bunch of smart, financially savvy people here. Here is my retirement plan in a nutshell, and I would welcome feedback and criticism.
First a little background. I'm 32, DW is about the same (29 going on 30 again lol). 3 kids, age 1, 6, and 7 (eldest are in 1st and 2nd grade, respectively). We think it is feasible to be able to retire in 3 years when I'm 35. Maybe we will, maybe we won't.
I keep a written financial plan for ER, which I have copy/pasted and edited to suit my purpose here.
Goal:
To fund our annual spending needs and wants from investments and other sources of income. Over time, our spending will grow with inflation, and our income should keep pace with inflation with a good chance of increasing faster than inflation. Temporary decreases in spending can be achieved during periods of poor market returns by cutting some elements of discretionary spending and postponing large capital expenditures (like new(er) cars, house repairs, long vacations, etc).
Current Financial Position:
Income Producing Assets: Enough right now plus new contributions over the next 3 years to have around $1.4 million in 2013 dollars.
Non-income producing assets: 1 Single Family house, 1800 sq ft, value ~$140,000.
Liabilities: Mortgage: $56,000 (4 years remaining)
Student loans (will be mostly forgiven): $105,400 ($20,000 net present value owed after forgiveness)
Some notes:
Student loans
- Income Based Repayment plan means no payments due when all kids are in the house
- With 2 people in the household, approximately $1500/yr due until 2036 (25 years from start of IBR plan)
Kid expenses through college – The goal is to save enough for 4 years in state tuition per child. That cost is currently about $30,000 per child. Assume funds will grow at the rate of Higher Education Inflation (recently running 6-7% per year). In other words these funds will not have any real growth over time.
SS in the future (total for both of us):
– At age 62: $17,000/yr (2013 dollars)
- At age 67: $25,000/yr (2013 dollars)
- At age 70: $31,000/yr (2013 dollars)
- Assumes working through end of 2015
Health insurance
– Jan 1 2014 – Health ins ~$1000 or free at AGI around $33,000-35,000
- Once there are only 2 of us in HH, ~$2000 per year for Health Insurance
Fed and state tax liability
Federal taxes will be zero with kids in the house. With 2 of us, ~$500 per year (starting 2032).
State taxes will initially be around $500/yr, then increase to around $1500/yr when there only 2 of us.
Structure of withdrawals
- taxable, traditional IRA, Roth – when to 72t?
- use 457 plan as a variable withdrawal source
- determine best structure for withdrawals close to time of retirement
EXPENSES AND DEVELOPING OUR ER BUDGET:
I took our current spending while we are working, which I have tracked meticulously for about 3 years now, and considered a number of additions and subtractions that will be likely during ER.
Then I considered large one time or lump sum expenses we want to plan for.
In order to get a feel for our "number" or how much we need, I created a matrix of target portfolio sizes based on our projected annual ER spending plus the total lump sum amount we forecast.
Annual ER Expenses
Expense | Amount
Baseline annual spending right now | 23000
Auto - Gas | -1000
Health Insurance/Care | 2000
Dental costs | 500
Free school lunches | -576
House maintenance costs | 1500
increased kid costs | 2000
car replacement | 2000
Contingency (10% of Baseline) | 2300
Taxes | 500
"Core" ER Expenses: | 32224
Vacations/Fun Money | 6000
Total Annual Spending: | 38224
This means we would need $38,224 in 2013 dollars to live like we want.
We also budget for one time, lump sum amounts that we want to have set aside for specific purposes or reasons:
Expense | Amount
College Education | 91200
Mortgage Payoff | 56000
Student Loan Reserve fund | 20000
Children Wedding/Big Expense | 15000
Oh $hit! Money | 23000
TOTAL: | $ 205,200
The bottom line is that we need to set aside $205,200 on top of whatever portfolio is necessary to allow withdrawals.
Target Portfolio:
Withdrawal Rate | Amount to meet annual spending | Including Lump Sums
3.00% | $1,274,133 | $1,479,333
3.25% | $1,176,123 | $1,381,323
3.50% | $1,092,114 | $1,297,314
I don't have a safe withdrawal rate selected, but these are the portfolio values we will need based on a range of withdrawal rates. In other words, $1.3 to $1.5 million depending on how much margin of safety we want.
Our portfolio is 100% equities right now, all index funds and expense ratios around .2%. I don't have a good plan for getting away from 100% equities yet, but that is on the horizon.
About 35 years after we ER, under the current SS structure we could get enough SS to roughly cover our core living expenses.
Thanks for reading what may be the longest but hopefully not the most convoluted ER forum post ever.
Thoughts?
I wanted to get a reality check from my esteemed fellow ER.org posters, since there are a bunch of smart, financially savvy people here. Here is my retirement plan in a nutshell, and I would welcome feedback and criticism.
First a little background. I'm 32, DW is about the same (29 going on 30 again lol). 3 kids, age 1, 6, and 7 (eldest are in 1st and 2nd grade, respectively). We think it is feasible to be able to retire in 3 years when I'm 35. Maybe we will, maybe we won't.
I keep a written financial plan for ER, which I have copy/pasted and edited to suit my purpose here.
Goal:
To fund our annual spending needs and wants from investments and other sources of income. Over time, our spending will grow with inflation, and our income should keep pace with inflation with a good chance of increasing faster than inflation. Temporary decreases in spending can be achieved during periods of poor market returns by cutting some elements of discretionary spending and postponing large capital expenditures (like new(er) cars, house repairs, long vacations, etc).
Current Financial Position:
Income Producing Assets: Enough right now plus new contributions over the next 3 years to have around $1.4 million in 2013 dollars.
Non-income producing assets: 1 Single Family house, 1800 sq ft, value ~$140,000.
Liabilities: Mortgage: $56,000 (4 years remaining)
Student loans (will be mostly forgiven): $105,400 ($20,000 net present value owed after forgiveness)
Some notes:
Student loans
- Income Based Repayment plan means no payments due when all kids are in the house
- With 2 people in the household, approximately $1500/yr due until 2036 (25 years from start of IBR plan)
Kid expenses through college – The goal is to save enough for 4 years in state tuition per child. That cost is currently about $30,000 per child. Assume funds will grow at the rate of Higher Education Inflation (recently running 6-7% per year). In other words these funds will not have any real growth over time.
SS in the future (total for both of us):
– At age 62: $17,000/yr (2013 dollars)
- At age 67: $25,000/yr (2013 dollars)
- At age 70: $31,000/yr (2013 dollars)
- Assumes working through end of 2015
Health insurance
– Jan 1 2014 – Health ins ~$1000 or free at AGI around $33,000-35,000
- Once there are only 2 of us in HH, ~$2000 per year for Health Insurance
Fed and state tax liability
Federal taxes will be zero with kids in the house. With 2 of us, ~$500 per year (starting 2032).
State taxes will initially be around $500/yr, then increase to around $1500/yr when there only 2 of us.
Structure of withdrawals
- taxable, traditional IRA, Roth – when to 72t?
- use 457 plan as a variable withdrawal source
- determine best structure for withdrawals close to time of retirement
EXPENSES AND DEVELOPING OUR ER BUDGET:
I took our current spending while we are working, which I have tracked meticulously for about 3 years now, and considered a number of additions and subtractions that will be likely during ER.
Then I considered large one time or lump sum expenses we want to plan for.
In order to get a feel for our "number" or how much we need, I created a matrix of target portfolio sizes based on our projected annual ER spending plus the total lump sum amount we forecast.
Annual ER Expenses
Baseline annual spending right now | 23000
Auto - Gas | -1000
Health Insurance/Care | 2000
Dental costs | 500
Free school lunches | -576
House maintenance costs | 1500
increased kid costs | 2000
car replacement | 2000
Contingency (10% of Baseline) | 2300
Taxes | 500
"Core" ER Expenses: | 32224
Vacations/Fun Money | 6000
Total Annual Spending: | 38224
This means we would need $38,224 in 2013 dollars to live like we want.
We also budget for one time, lump sum amounts that we want to have set aside for specific purposes or reasons:
College Education | 91200
Mortgage Payoff | 56000
Student Loan Reserve fund | 20000
Children Wedding/Big Expense | 15000
Oh $hit! Money | 23000
TOTAL: | $ 205,200
The bottom line is that we need to set aside $205,200 on top of whatever portfolio is necessary to allow withdrawals.
Target Portfolio:
3.00% | $1,274,133 | $1,479,333
3.25% | $1,176,123 | $1,381,323
3.50% | $1,092,114 | $1,297,314
I don't have a safe withdrawal rate selected, but these are the portfolio values we will need based on a range of withdrawal rates. In other words, $1.3 to $1.5 million depending on how much margin of safety we want.
Our portfolio is 100% equities right now, all index funds and expense ratios around .2%. I don't have a good plan for getting away from 100% equities yet, but that is on the horizon.
About 35 years after we ER, under the current SS structure we could get enough SS to roughly cover our core living expenses.
Thanks for reading what may be the longest but hopefully not the most convoluted ER forum post ever.
Thoughts?
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