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Preparing for FIRE Soon - help with evaluating options
Old 05-23-2013, 08:59 AM   #1
Confused about dryer sheets
Join Date: Nov 2005
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Preparing for FIRE Soon - help with evaluating options

Hello –
We are preparing for FIRE in the next 12 months or so and are hoping to get some advice. Here is our situation:
Age: 34 (me), 35 (wife)
2 children, ages 9 and 5
Total expenses: $60,000/yr - includes continued saving for kids’ college of $2K/yr each (we have agreed to pay for 2 years of community college and 2 years of state college).
Earned income: ~$150,000/yr (me); wife is an RN who stopped working in December to test FIRE
Pension (COLA): ~30,500/yr with no survivor’s benefit (I was medically retired from the military)
Mortgage: $100,000 (3.75% 30 yr fixed with 29 yrs left; P&I = $878/mo)
Home value: $200,000 (we are the first owner, built in 2005)
Total FIRE portfolio: ~1.2M (does not include college savings for kids)
o 66% taxable and 34% tax sheltered (Roth IRAs and 401ks)
Asset allocation: 75% stocks/25% bonds & cash invested in index funds all with Vanguard except for 401K, which is in an intermediate bond index fund.
Withdrawal rate if we stopped working right now = 2.5% ($60K-$30.5K)/$1.2M

We have been working toward FIRE for several years now, and my wife stopped working in December 2012 for a trial year. Prior to me stopping work, I plan to purchase additional term life insurance on myself, so my wife can replace my pension should something happen to me. The $60K in annual expenses includes this increase. At the moment we are most struggling with what to do with the mortgage. I see we have a few options:
1. Sell some of our portfolio to pay off the mortgage now. Our annual P&I is about $10,500. This would reduce our annual expenses to $49,500/yr for a 1.7% withdrawal rate ($49,500-$30,500)/($1.2M-$100K).
2. Refinance remaining balance to a no closing cost PenFed 5/5 ARM at about 2.5%, which would decrease our annual expenses by $5,800 to $54,200 for a withdrawal rate of 2% ($60K-5.8K-30.5K)/$1.2M. Would pay off at the end of 5 yrs if rates increased dramatically.
3. Pay off the mortgage from cash flow, which should take another 9 months or so.

In all of these scenarios I would continue to work through Feb 2014 (bonus) in order to pad the portfolio and take care of a few things we’ve wanted to do such as put in new countertops, buy a new mattress, and buy bicycles and kayaks.
What would you do in our situation?
Thank you in advance.

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Old 05-23-2013, 10:44 AM   #2
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Location: Atlanta suburbs
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Congratulations on your upcoming FIRE!
Since the mortgage is such a small portion of your NW I don't think it matters too much in the survivability of your portfolio.
BTW - even if you decide to go with option 3 and pay the mortgage in 9 months from the cash flow,you would save money by immediately refinancing with PenFed (although less than $1k).
Also where the $5800 reduction came from? Going from 3.75% down to 2.5% on 100k balance should save you only $1250?


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Old 05-23-2013, 11:03 AM   #3
Confused about dryer sheets
Join Date: Nov 2005
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Thank you, Sailor. Here is my math on the $5,800 reduction in annual expenses if we refinance. The original balance of the mortgage was $189,600 at 3.75% or $878/mo in P&I. Refinancing $100K at 2.5% reduces the P&I to $395/mo, so ($878-395) x 12 = ~$5,800/yr.
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Old 05-23-2013, 02:20 PM   #4
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Congratulations on an impressive portfolio for such a young couple. You didn't mention how much in dollar terms you already have committed to your children's college fund. Will $2k a year until they hit 20 be enough without having to dig into your wallet? Community college was cheap to finance for my daughter but now she is going off to a regional state college this fall. I am on the hook already for $16,000 this year and that is not including books or any of the many other bogus fees that will be inserted. 15 years from now, I would hate to speculate what it would cost here and we live in a relative "cheap" state. Of course I am including room and board into my cost which may not be that way with your future arrangement.
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Old 05-23-2013, 04:49 PM   #5
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Originally Posted by Mulligan View Post
Congratulations on an impressive portfolio for such a young couple.
+1. Looks like you are in great shape.
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Old 05-23-2013, 05:58 PM   #6
Confused about dryer sheets
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Thank you for all the responses so far! Mulligan, to answer your question on college savings, we currently have about $25k for the 9 year old and $15k for the 5 year old in Vanguard 529 plans. Using the Vanguard college savings calculator, this combined with the additional $4k per year will fund 50 percent of 4 years at a major state university here in TX when they get there. I think that includes room and board but am not sure, so I'll definitely look into that further.
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Old 05-23-2013, 06:43 PM   #7
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34 years old and ready to retire - wow! That's fantastic. So tell us, what are you planning on doing with the rest of your life? I'm still trying to figure that out myself...
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Old 05-24-2013, 07:44 AM   #8
Confused about dryer sheets
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Thank you, Ready! There is so much we want to do in FIRE. We plan on becoming much more involved in our church though children's ministry and also missions (as an RN, my wife plans on doing medical missions). I also plan to get much more involved in coaching youth baseball, possibly teach middle school or high school math for a period of time (or just tutor), and do some personal training to help people achieve their fitness goals. Who knows what else...we are looking forward to the journey though!
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Old 05-24-2013, 10:08 PM   #9
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Join Date: May 2013
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Congratulations! It's great to see other early retirees unplugging from the daily grind.
We are FI but plan on retiring next year at 41 and 37.
Good luck with it all.

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