16 year countdown...

[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?

Thanks!

[maddythebeagle]

I dont know about making it but I think you are on the right track with the higher percentage of income saved and pushing to have your house paid off by 45. I would suggest that you come up with a budget for how much you will need in retirement (subtract out s.s. and medicare taxes, etc.) as well as your mortgage payment. You may need less than you think. I would also suggest that you put together a spreadsheet to model what kind of returns you think you will get as well as being able to see your progress and increase savings if needed.

[MooreBonds]

Quote:

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? Thanks!

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.

--Peter

[chris2008]

Hello,
one thing that helps me a lot is TRACKING EXPENSES daily and in detail.
I know exactly where my money is going to.
Thus I am pretty sure that I will be able to ER comfortably at 50% of our today's income + inflation.
Also, a lot of purchases fall into perspective if measured against the time I have to spend to afford it (("Is this item really worth 5 hours of my life?" "Do I really want a daily lunch out or rather 2 per week plus a nice vacation per year ? (or x years ER)")).

[MRGALT2U]

Quote:

Originally Posted by chris2008 Hello, one thing that helps me a lot is TRACKING EXPENSES daily and in detail. I know exactly where my money* is going to. Thus I am pretty sure that I will be able to ER comfortably at 50% of our today's income + inflation. Also, a lot of purchases fall into perspective if measured against the time I have to spend to afford it* (("Is this item really worth 5 hours of my life?" "Do I really want* a daily lunch out or rather 2 per week plus a nice vacation per year ? (or x years ER)")).

I don't really "track" expenses. However, I did quit my Frappacino
habit (Frappacinotomy?) on my birthday. Cuts the sugar, cuts the
caffiene, and saves between $500 and $750 a year. Only one slip in 2 weeks so I think I made it I do dine out a fair amount
but normally at moderately priced venues.
No cable or cell saves another $840 a year. It all adds up.

JG

[onecaribou]

Well, from my understanding my defined benefit pension will provide a balance of all the funds contributions with a pretty marginal gain for those withdrawing from the plan before their prescribed retirement date (age 55 with 25 years experience is the option I would qualify for first). I could keep the plan open and just wait to receive (reduced) benefits from it at age 65 or just roll it into an IRA when I retire or otherwise leave my current employer. It's not an ideal plan for someone looking to FIRE but I can't complain when my employer funds it to the tune of 9.8% of my income without any employee contribution requirements.


The additional income I anticipate is from a 'skip generational' irrevocable trust that my father and uncle and the primary beneficiaries of. My father has committed to assisting my siblings and I with $20K/year gifts (tax free) once he begins receiving income from the trust on my grandmothers passing. Eventually my siblings and I will inherit the principal ($5.5M) but I'd rather worry about building my own retirement on my own terms than dream about the 'big payoff' when my parents and uncle pass on.

Our 401K plans are allocated very aggressively right now...

Large Cap Growth - 25%
Balanced (stock/bond mix) - 20%
Asia Pacific Growth - 25%
Capital World Growth - 10%
New Economy - 20%


Besides $10K in savings we have no taxable accounts we are currently investing in.

We already track our expenses and are investing very close to all we can afford until we pay off a very low interest car loan (2.9%) in aprox. 18 months. At that point we can invest an additioanl $375/month.

I was hoping the $20K gift would cover health insurance premiums for us after retirement with the rest of our savings going towards funding the rest of our retirement expenses.

Thanks for all your advice.

[Sisyphus]

Onecaribou,

Welcome to the forum! Your story is very similar to mine.

I would plug your numbers into a compounding interest calculator (just do a Google search) and see what you come up with. Then, adjust for cost of living/inflation and see if you're comfortable. There are tons of calcs out there to help you with this effort.

Based on what you're saying, I would be pretty comfortable with that 16 year timeline. Depending on how things go (investments can go up OR down!), you should be fine. At least fine enough to work at only a part-time or as-needed basis. Basic guideline is this: 401(k) to the level of company match, then Roth IRAs to max allowed, then additional investments as applicable.

Set your target date, but don't chisel it in stone... you may have to adjust it further out or (hopefully) earlier as your ROIs dictate. Also, do what you can to be sure that most of your raises will go toward investments and keep your basic expenses as flat as possible... if you don't have a detailed budget, make one right away. It's too easy to spend what you make and you might be surprised to find that you might be able to increase your investments even more.

Best of luck to you!