Originally Posted by onecaribou
Turned 29 a couple months ago and reviewed our retirement outlook and I'm looking some advice. I would really like to be retired by age 45 if at all possible.
My wife and I have an income of $90K/Yr and including my pension, 401K and my wife’s 401K (with a very generous 12% match) we are investing equivalent to 28% of our income annually. We have approximately $60K in our plans so far.
I hate to even mention it but we expect to have an additional $20K/yr (for the rest of our lives) to invest once an older relative passes away sometime in the next few years.
We will be rolling the last of our HELOC and our 30 year mortgage into a new 15 year mortgage as soon as our lock ends later this year.
How is our outlook? Do we have a good chance of retiring in 16 years at 60% of our preretirement income? Do we need to invest more? What about reducing our 401K contributions (while maintaining out matches) and going with a Roth?
Just as many people sing the praises of diversification in investments, I always look to diversify my potential exposure to taxes.
IMO, definitely save enough to max out your ROTHs each year. That way, when you do retire, you will have some taxable funds, some 401(k) that will be taxed as income, but also some in tax-free ROTHs.
A few questions:
1) I'm still a little shaky on DBPs in general....you mention you save the equivalent of 28% of your income annually: how do you calculate your balance/value in your pension? Does your pension grow a balance, which you then convert to an annuity when you retire? Or do you get $X/year in pension income for each year of service for varying levels? Does your pension have any COLAs? What is your pension projected to payout? Starting when?
2) Will the $20,000/year anticipated income be fully taxable? Tax-free? Does it have any COLAs? If I were you, I'd assume that I would NOT receive it...unless it's in an irrevocable trust set up with yourself as the beneficiary. Just my "assume the worst" habits rising to the surface, and a desire to not place my assumptions for personal fortune increases on the passing of others. (not that there's anything wrong with plugging in a $20k annual payout if someone set up a trust for you - I'm referring just to the numerical assumption factor of banking on balances in a relatives account, rather than any 'societal politeness' factor)
3) What do you have your 401(k)s invested in? What do you save in taxable accounts outside of your pension/401(k) plans?
4) What are your options for health insurance? Is it offered by your employer? At any rate, I'd strongly advise you look into setting up a Health Savings Account (HSA), if you meet the requirements (see several posts on the ER forum, or check out www.hsainsider.com
for an excellent free resource website with tons of info). It lets you buy a high-deductible plan and invest a certain amount (which grows tax-free) to be used to pay for a wide variety of health care expenses. Remember that while health care may be cheap today, it sure won't be when you're 50/60 (to check, try one of the many websites that offer free instant health insurance quotes. Enter a DOB to make yourself 55/60 today, and prepare for a rude awakening
Other than that, you look like you're on a great start. Welcome to the forum, from someone who also hopes to hang it up by 45.