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.
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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