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30 , married with two children in South Louisiana
Old 04-02-2014, 01:06 AM   #1
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30 , married with two children in South Louisiana

I'll lay out all the numbers here first for you guys. I am 30 , wife is 29.

Debts:
172k @ 3.5% 15 year - house recent refi
55k @ varied rates - student loans
33k @ 2.99% - car

Cash:
85k on hand and saving about 50k cash per year after taxes

401k: mine
17.5k just started this a little less then a year ago , currently at 20% contribution

401k: wife
5.5k wife just started working this last year and is also just starting her 401k, also at 20% contribution

Pension: mine
650k @ age 60 forecasted

Pension: wife
500k @ age 60 forecasted

I am at 130k +/- hourly worker

Wife is in first year of working at 70k and has a great potential for growth , salaried worker

We have two children under age of 9.

We are new to the investment / 401k / financial independence / early retirement scene and would love to hear everyone's advise on how to invest, finances and life. Over the last year we have educated ourselves on all things financial and still have along way to go. We would like to retire in the 55 to 60 age range.

Thank you all in advance and please let me know if I need to post more information.
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Old 04-02-2014, 04:14 AM   #2
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Here is my brutally honest take.

Debts: $260K
Assets: $100K

net worth: NEGATIVE $160K In other words - you're broke man.

You're already in your 30's and you still have student loan debt, you have a couple kids with nothing saved for their education, and you have a negative net worth of about $160K in total. That's a $160K debt to pay off before you are at zero. You're retirement dreams are way way off ... i doubt you will make it at 60. Too far off the mark. At $50K savings per year, it will take at least 3-4 years to pay off your debt.

Do you and wife both have life insurance?

No guarantee you or wife will live to 60 / etc to collect those pensions but more concerning is that it's not much money -- 650K pension 30 years from now is worth around 250K in today's dollars (discounting)....Taking both pensions into account, do you think you can live off of 20K or so today? That's effectively what you would have from the value of the pensions. At your ages, no guarantee you or wife will see one red cent of the social security money that you put in over the years.

If it were me:

1. get out of debt. A $33K car? Is it a BMW? Dump the car for a less expensive vehicle. pay cash for it. NO one cares what car u drive.

2. Get the student loans paid off as fast as possible - within a year or two max

3. Save save save. And get some additional savings going outside the 401K in good stocks/ETF's - bogleheads.org is a good place to start

4. Get some money put away for the kids. You're less than 10 years away from your first college tuition bill ! Average 4 years of state school is $120K x 2 kids....thats a quarter million for education...

I suspect you have champagne taste - need to tighten the belt and live below your means.

Is your head spinning ? welcome to the forum !
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Old 04-02-2014, 05:42 AM   #3
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Quote:
Originally Posted by papadad111 View Post
Here is my brutally honest take.

Debts: $260K
Assets: $100K

net worth: NEGATIVE $160K In other words - you're broke man.

You're already in your 30's and you still have student loan debt, you have a couple kids with nothing saved for their education, and you have a negative net worth of about $160K in total. That's a $160K debt to pay off before you are at zero. You're retirement dreams are way way off ... i doubt you will make it at 60. Too far off the mark. At $50K savings per year, it will take at least 3-4 years to pay off your debt.

Do you and wife both have life insurance?

No guarantee you or wife will live to 60 / etc to collect those pensions but more concerning is that it's not much money -- 650K pension 30 years from now is worth around 250K in today's dollars (discounting)....Taking both pensions into account, do you think you can live off of 20K or so today? That's effectively what you would have from the value of the pensions. At your ages, no guarantee you or wife will see one red cent of the social security money that you put in over the years.

If it were me:

1. get out of debt. A $33K car? Is it a BMW? Dump the car for a less expensive vehicle. pay cash for it. NO one cares what car u drive.

2. Get the student loans paid off as fast as possible - within a year or two max

3. Save save save. And get some additional savings going outside the 401K in good stocks/ETF's - bogleheads.org is a good place to start

4. Get some money put away for the kids. You're less than 10 years away from your first college tuition bill ! Average 4 years of state school is $120K x 2 kids....thats a quarter million for education...

I suspect you have champagne taste - need to tighten the belt and live below your means.

Is your head spinning ? welcome to the forum !

I think you're being a bit harsh and have forgotten to consider the asset value of the home he has the mortgage on to offset the debt.
For the OP: That said, I agree with getting student loans paid off as soon as possible. For future car purchases you might want to look at lesser expensive vehicles that you can afford to pay cash for. Car payments are a big roadblock to saving. Think of how much you could put away for the kids education with that money!
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Old 04-02-2014, 05:48 AM   #4
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Good point on the possible equity in a home.

I presumed it was mortgaged to the hilt / no equity or should be included in his asset base -

it could be a half million dollar home that was recently refinanced .....

But .... Probably not ... The 33k car loan is usually the dead giveaway. Not to mention what 55 k in student loans does to ones overall qualification for a mortgage...
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30 , married with two children in South Louisiana
Old 04-02-2014, 05:55 AM   #5
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30 , married with two children in South Louisiana

Great advice guys thanks a lot and keep it coming!

House has a current market value of 325 k
Kids schooling is covered , I would disagree with the cost.
I am planning on paying the car and student loans off within the next 3 months. I could have paid student loans and paid cash for car but at the time I thought it was better to have the cash on hand.
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Old 04-02-2014, 06:07 AM   #6
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Actually, my first reaction was that you're a bit ahead of where I was at that age. You've got excellent cash reserves (should probably invest some of that unless you have an upcoming use for it), limited student debt relative to your income and a good start on your retirement plans. If you are maximizing your retirement plans at work, your IRAs and still saving lots on an after-tax basis, you should have some fun. Can you fund a Health Savings Account? The fact that you don't have to put aside money for your children's education is a huge savings. Don't prepay on your low cost mortgage- instead invest the extra cash. Careful on the cars... just remember to keep them a really long time if you're going to spend that much. 10 years is a good target. Best of luck!
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30 , married with two children in South Louisiana
Old 04-02-2014, 06:22 AM   #7
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30 , married with two children in South Louisiana

I have always bought my vehicles new for the simple fact that I maintain them myself and I know where they have been. I currently have a "beater" work truck I bought new in 2003 and a 2006 truck also purchased new I use as a second family vehicle. I use them until the cost of repair outweighs their worth.
I am currently looking into opening IRAs for myself and wife and making the contributions for last year and this year. I have been looking at using vanguard.
I defiantly need to look into an investment account , something better then it sitting in a bank account.
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Old 04-02-2014, 06:29 AM   #8
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I have always bought my vehicles new for the simple fact that I maintain them myself and I know where they have been. I currently have a "beater" work truck I bought new in 2003 and a 2006 truck also purchased new I use as a second family vehicle. I use them until the cost of repair outweighs their worth.
I am currently looking into opening IRAs for myself and wife and making the contributions for last year and this year. I have been looking at using vanguard.
I defiantly need to look into an investment account , something better then it sitting in a bank account.
Vanguard is great... don't waste any time if you plan to fund 2013 IRAs! Processing may be a bit slow the few days leading up to April 15th with everyone trying to get in at the last minute. Once you get the accounts set up it's easy. You can link your bank account to Vanguard and quickly and easily transfer cash in for investment.
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Old 04-02-2014, 06:30 AM   #9
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I would be cautious on counting on any more of a pension than you have already vested in. Pension plans are on their way out and could be frozen or terminated at any time. However, you're saving well and should increase it as your income increases. Keep a year's worth of expenses in an emergency fund and stay out of debt. A mortgage is okay at your age as long as it is paid off before you retire.
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Old 04-02-2014, 06:30 AM   #10
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Also, papadad111
Yes wife and I currently have life insurance . I am insured for a total of 1.75 million and wife is at 500k. It's mostly term with a whole policy I started when I was 18 working on oil derricks.
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30 , married with two children in South Louisiana
Old 04-02-2014, 06:34 AM   #11
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30 , married with two children in South Louisiana

Dash man
The pensions are something that we are not banking on in the future. They are there but they are not guaranteed. At this point we do not include them on our plans. They have formulas that take many factors into account and most probably will be considerably more then we estimate. The pensions are defined benefit 100% funded by the companies.
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Old 04-02-2014, 06:38 AM   #12
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Rapid fire postings here- almost forgot one important thing. You may qualify for Roth IRAs if you both maxed your 401ks at work. That would push your AGI under the limit unless you have other income sources that put you over the top. However, if your AGI goes over, you are perfect candidates for backdoor Roths. Fund Traditional IRAs today, convert them tomorrow to Roths with no tax consequence (since you have no other IRAs to mess up the tax equation).
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Old 04-02-2014, 06:40 AM   #13
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Originally Posted by panacea View Post
Actually, my first reaction was that you're a bit ahead of where I was at that age. You've got excellent cash reserves (should probably invest some of that unless you have an upcoming use for it), limited student debt relative to your income and a good start on your retirement plans. If you are maximizing your retirement plans at work, your IRAs and still saving lots on an after-tax basis, you should have some fun. Can you fund a Health Savings Account? The fact that you don't have to put aside money for your children's education is a huge savings. Don't prepay on your low cost mortgage- instead invest the extra cash. Careful on the cars... just remember to keep them a really long time if you're going to spend that much. 10 years is a good target. Best of luck!

+1

You may also want to change your 401k contribution rates for you and your wife. At 20% you will reach your $17500 cap around Nov. and your wife will not reach her $17500 cap on her salary at 20%. I would reduce yours and increase her percentages to be able to Max out both 401ks. Do you guys have any company match?
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Old 04-02-2014, 06:41 AM   #14
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Panacea, that is exactly what I am looking into doing.
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30 , married with two children in South Louisiana
Old 04-02-2014, 06:43 AM   #15
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30 , married with two children in South Louisiana

Pleepus
I did not think of that, great point I will defiantly adjust those. My company matches at 6% hers at 7%
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Old 04-02-2014, 11:18 AM   #16
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Originally Posted by lucky_reaper View Post
Also, papadad111
Yes wife and I currently have life insurance . I am insured for a total of 1.75 million and wife is at 500k. It's mostly term with a whole policy I started when I was 18 working on oil derricks.
Look into ditching the whole life policy, and $1.75MM is a lot of insurance, particularly if your wife is capable of starting at $70k herself. My 2 cents.

Otherwise, yeah, I don't think you're in bad shape - at least not as bad as the first reply implies. Bringing in $200k/year, your spending isn't as frugal as many on here (mine isn't either), so you could do better and raise your savings rate with little impact on your QOL.

As someone else mentioned, kids around age 9 and no college savings yet is a red flag for me. Look into a 529 ASAP.
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Old 04-02-2014, 12:24 PM   #17
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....so based on the info you have spelled and barring any major setbacks, if you continue with doing nothing more than what you are doing now you will have around $3m at age 60 between you and your wife (including catch up contributions at age 50 and using an average of 5% interest), a paid off house and no educational expenses for the kids. Nothing to sneeze at that is for sure.

If I were you I would immediately pay off the student loans before you open up any additional saving streams. Then look into the IRAs, HSA, or any after tax savings options. Also start to wrap your arms around how much you think you will need to RE. This will help you lay out your strategy on how to get there. Then have some fun with the rest and enjoy your family with the piece of mind that you are on your way to Fire!!
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Old 04-02-2014, 12:29 PM   #18
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We had a negative net worth at age 30, a zero net worth at age 34 and now have about $1,300,000 net worth at age 43 with a income not much different than the OP. No children though.

What worked for us was making $200,000+ and living on $40,000.
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Old 04-02-2014, 06:09 PM   #19
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Originally Posted by papadad111 View Post
Good point on the possible equity in a home.

I presumed it was mortgaged to the hilt / no equity or should be included in his asset base -

it could be a half million dollar home that was recently refinanced .....

But .... Probably not ... The 33k car loan is usually the dead giveaway. Not to mention what 55 k in student loans does to ones overall qualification for a mortgage...
At a minimum the home should be viewed as $0 for asset/liability and not the -172k the initial assessment treated it as. It was recently refinanced so clearly not -172k under water but would have some asset.

With that, the OP has 85k cash, 88k loans, is putting 23k into 401k and makes 200k.

He is doing fine and just needs to stay conservative, not expand lifestyle and continue savings. As you and your wife get raises, focus on getting your wife's 401k maxed and plan on saving cash to pay for car in cash.

I would pay off the car/student loans tomorrow other than reserving 10-20k for emergency fund. Save the interest from it unless you have a specific use for the cash.
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Old 04-02-2014, 06:14 PM   #20
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I see a lot of opinions being given here, but does the OP have a specific question he would like to ask the forum members?
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