35 and seeking a reality check

[Spontaneous Saver]

Hi all, looking for advice here: I'm 35 years old and I got semi-serious about retirement and long-term planning 10 years ago but I don't feel like I'm making a lot of progress on my goals of retiring before I'm 45. I'd appreciate some honest feedback from the community on how I'm doing and what I can improve on for the next 10ish years.

For starters I'm a fed gov't employee- I make just under 6 figures and I've been here for 10 years- no plans on going anywhere. If anything, I hope to earn a promotion in the coming months and then cross the threshold into six-figure income. If I stay until I'm 50 I may be eligible for an early retirement buyout of up to 40k but that's so far away I can't fathom what things will look like.

I'm married, husband is 47 and about to retire from the military with a pension around $58k/year before taxes. He's going to take a break for a few months and then go back to work after Christmas. He has two young kids from a previous marriage and has to pay child support amongst other expenses for them. He also likes to work but hasn't been able to lead a life of leisure yet so I'm hoping he will enjoy his temporary break between careers and decide that FI is better than another 20 years in the rat race.

Our portfolio is not very diverse but I find that simpler is better for me.
TSP: $123k (I put in 10% of my income and the feds match 5%)
Roth IRA: $52k (maxing it out for the last 2 years- will keep that up)
Husband's Roth: $34k (he forgot he had it and we're now putting a trivial amount in there, $250/mo.)
Emergency fund: $2300 (will build this up to 25-30k by this fall when loan is paid off)

We are in the process of paying off our debt, one loan will be gone this summer leaving only our mortgage to go ($260k owed). After getting a cushion for emergencies paying off the mortgage is our next priority. I don't think I will be comfortable not working unless the house is paid for. Currently we are allocating about $6k/mo for debt payments. Depending on my husband's next career move we can have the house paid for in 2023.

We live below our means but I can't quantify that like many of you here have shown in your posts. I know that we write a budget every month and we stick mostly to it. It's a road map and so far it's working well for us.

What do you guys think? Are we on the right track?

 

[MBAustin]

Welcome Saver!

Overall it sounds like you're doing a lot correctly. Getting out of all debt other than your mortgage is key. This also means building up savings for large occasional expenses such as major home repairs or car replacement.

You say that your portfolio is "not very diverse" but you don't mention your asset allocation. At your age, most folks here would say that your personal retirement funds (TSP & Roth) should be fairly aggressively invested (say 70% stocks, 30% bonds). Since your husband is older, his might be less aggressive, but that depends on how large a proportion of your expenses are covered by his pension.

I think you'll find lots of helpful information here, so poke around and feel free to ask questions!

 

[bloom2708]

Pay off all your debt, have a "big enough" house paid off and save up for lumpy spending and keep your expenses under $58k per year and you can retire anytime you want.

Spending/expenses is where you make/break your early retirement.

The pension is very nice. Does health coverage come along at a reasonable price with the pension? You may be closer than you think.

Things like college saving may keep you working part time. Plan the work, work the plan.

 

[pj.mask]

With 200k savings it sounds like you expect to rely mostly on your pensions for income? If that’s the path I would plan more for lumpy expenses and want to be under budget in the pension.

Using SWR I feel has more flex on when to take money than straight pension when most investments will be concentrated in stocks, especially during a market crash.

 

[Dash man]

Well, you’re better off than I was at your age! Just keep saving and investing. You’re on the right track. Work on some diversification of your investments and track your spending. Use Firecalc and some other tools to check out your progress. If you’re healthcare is covered and your expenses are low, you’re well on your way. Think about the lifestyle you want in retirement and determine if your planned spending will allow that.

 

[Spontaneous Saver]

Thank you!

Thanks all for your responses, it is encouraging to read your feedback!

To answer a few questions:
My TSP is 60% in C fund, 20% in S and 20% in I- not a conservative allocation but I'm comfortable with it.

My Roth IRA is in a Vanguard L fund (2040 or 2045 I believe). It's on autopilot for a while now. I just transferred it out of an American Fund account that I wasn't happy with- the fees were high and after 10 years of trusting a planner I didn't feel the returns were worth the fees.

My husband's IRA is also in a Lifecycle fund but at the moment the name of the fund is escaping me. We don't really intend to live off this account and we'll likely drain part of it to pay for the kids' car in another decade when husband is able to make withdrawals without penalty.

The kids have college funds already set up plus my husband has given them each half of his GI Bill (so they get 2 years covered each). I'm very confident that they will have more than enough for school. Part of me feels that we're putting aside too much but it was an agreement made before I came around and in the big picture this is a good problem to have.

Our healthcare will be through TRICARE when husband retires so we're in great shape for that. I'm very lucky. I believe the costs are around $600/yr for family coverage.

Question for all of you: what are lumpy expenses/spending? I saw it mentioned twice and I'm not sure what you're referring to.

 

[Dtail]

Lumpy expenses can include a new roof, new cars, etc in terms of long term lumpy expenses. Thus these types of expenses should be planned for as part of an overall budget where applicable.
Short term lumpy expenses some build into their budget can be monthly house maintenance, car maintenance.

 

[pj.mask]

Buying a car, replacing a roof, medical cost, helping kids. Anything that could result in a significant cost (in terms of $$ or as a % of annual spend, whatever is more relevant to you) that is sporadic and not in yearly budget.

So what happens if you get in an car accident mid car cycle and need to replace your car (+medical out of pocket costs)?

Will your emergency fund cover this? Would you have access to retirement accounts to draw funds?

With a large investment account it can be a small increase from withdrawal but if you have a small investment account and money is needed during a downturn can really drain that fund.

Then how do you replace that emergency fund or stock investments after the event to plan for the next one? Do you have some room in pensions for savings?

 

[mrWinter]

Question for all of you: what are lumpy expenses/spending? I saw it mentioned twice and I'm not sure what you're referring to.

When people say lumpy expenses they mean one-off periodic large expenses, like a new roof on your home, foundation repair, new septic, wedding, new car etc. They are lumpy in that if you were to graph your monthly expenses it wouldn't be a smooth flat line, it would have these periodic lumps. One need not forget them when calculating expenses, it's easy to do when looking at a few months expenses and summing them all up, but forgetting that cars wear out and one day will need to be replaced, etc.

The big question I see is how much is going to child support and other child costs. Really that's just part of your expenses picture. Back of the napkin math is: Take total annual expenses (including lumpy ones averaged and child payments), subtract your pension income. That's how much you need (after taxes) to cover with investment income. Take that number and add your expected taxes and that's how much you'll need to withdrawal each year from your portfolio. Take that number and multiply by 30 to allow a 3.33% withdrawal rate and Bob's your uncle that's your magic number, the number you need your portfolio to be to comfortably retire (that multiply by 30 figure can/is often argued). Work till you hit the magic number, then hit the beach.

Use firecalc and see what it says.

Obviously plenty more to it than that or these boards wouldn't exist, but I think that's the general gist. Between now and retirement you can have fun diving into all the minutia.

That healthcare offer is awesome (assuming it's decent coverage).

 

[Spontaneous Saver]

So what happens if you get in an car accident mid car cycle and need to replace your car (+medical out of pocket costs)?

Will your emergency fund cover this? Would you have access to retirement accounts to draw funds?

Then how do you replace that emergency fund or stock investments after the event to plan for the next one? Do you have some room in pensions for savings?

If I work until I'm 45 then I'll have the house paid off when I'm 40 and 5 years to put aside cash. I hope to have a substantial savings built up (about 350k) in non-retirement accounts and no mortgage. We will be covered by TRICARE health insurance so that should ease a lot of the burden of any medical expenses. I'd say that would cover most of the scenarios above factoring in the pension that has COLA as well- but I know planning is linear and life is not so this is all subject to change.

 

[pj.mask]

If you plan to retire before pensions kick in there are a few approaches some people like to use - common one being bucket (need 75k * 10 yrs = 750k + (75k - 65k pension) =10k using a 4?% SWR gives you $250k (discounted for being saved 10 years in advance is probably an additional $125k)

Of course adjusted based on when you get pensions (earlier than 55) and do you expect > inflation growth of savings? Just going through a general example.

I dunno what tricare out of pocket expenses are (if anything) - our plan is like $6k/family but we might also have non-covered expenses (e.g. out of network chiropractic).

I’m almost zero pension so if I need more one year I can reduce the next and cash flow it. How will you cash flow expenses with a pension? HELOC? Just consider it and include it in your planning.

 

[robnplunder]

Op, you are on the right track. Just posting here about it make you a head starter.



If I can turn back the time and go back to when I am 37, there is one mistake I will correct. The biggest mistake was that my investment choices were not aggressive enough for my age. I should have gone 90/10 ratio, and the "90" should be comprised of mostly aggressive stocks and mutual funds. Had I done that in 30s, it would have shortened my retirement by number of years.

 

[Offgrid Organic Farmer]

... What do you guys think? Are we on the right track?

It sounds to me like you have it all together.

My wife worked for a Federal agency [DeCA] and she got their pension. I did 20 years in the US Navy and I got that pension. For us the big hurdle that made retirement possible was to be out of debt and owning our home.

Good luck

 

[ponyboy]

Your combined savings seem really low to retire in 10 years...at the age of 45. My wife also works for the government, from what I understand you wont be touching your pension any time soon, tsp or that fers thing. Good luck, im 36 and wife is 34...and have significantly more $$ than you guys, and at the moment im not sure how we could retire before 50...and our expenses are fairly low!

 

[Spontaneous Saver]

Your combined savings seem really low to retire in 10 years...at the age of 45. My wife also works for the government, from what I understand you wont be touching your pension any time soon, tsp or that fers thing. Good luck, im 36 and wife is 34...and have significantly more $$ than you guys, and at the moment im not sure how we could retire before 50...and our expenses are fairly low!

I'm sorry, I don't think I was being clear. My husband gets his military pension this year (this fall). It will be $58k/yr before taxes and has COLA. He's also going back to work as a civilian in January-ish and will earn a paycheck on top of the pension. If I wanted to earn a pension for myself I am eligible in 15 years at the earliest.

We will not be pulling from my retirement accounts for regular living expenses when I am 45. The goal is to lower our expenses in the next ten years to be within the pension by that time- which after increases will be around $71k.

 

[Offgrid Organic Farmer]

I'm sorry, I don't think I was being clear. My husband gets his military pension this year (this fall). It will be $58k/yr before taxes and has COLA. He's also going back to work as a civilian in January-ish and will earn a paycheck on top of the pension. If I wanted to earn a pension for myself I am eligible in 15 years at the earliest.

We will not be pulling from my retirement accounts for regular living expenses when I am 45. The goal is to lower our expenses in the next ten years to be within the pension by that time- which after increases will be around $71k.

Your healthcare costs will be covered by Tricare.

When I retired, we bought rural land and began building a farm. Since my pension is enough to support us, we used my wife's income to pay for construction. When we were finally done with all construction projects, my wife put in the papers for her retirement from DeCA.

I think your plan is great.

People who are pre-retirement will often fear the process, and stress how much they think they will need. But once you have stepped through that vale you will see that the fear and stress did not add any value to the process.

 

[ponyboy]

I'm sorry, I don't think I was being clear. My husband gets his military pension this year (this fall). It will be $58k/yr before taxes and has COLA. He's also going back to work as a civilian in January-ish and will earn a paycheck on top of the pension. If I wanted to earn a pension for myself I am eligible in 15 years at the earliest.

We will not be pulling from my retirement accounts for regular living expenses when I am 45. The goal is to lower our expenses in the next ten years to be within the pension by that time- which after increases will be around $71k.

Ah, that makes a big difference. Yeah...you'll be fine then.

 

[kgtest]

Lumpy expenses can include a new roof, new cars, etc in terms of long term lumpy expenses. Thus these types of expenses should be planned for as part of an overall budget where applicable.
Short term lumpy expenses some build into their budget can be monthly house maintenance, car maintenance.

I always thought a new roof would be like 20k. naa, it can be done for $6500 depending on the size. Then I thought vehicles were like 30k hey they avg vehicle sales price these days is 36k. Naaa, used one for 16k works just as good for half the price. never pay retail, invest every penny, you can do it.

 

[Dtail]

I always thought a new roof would be like 20k. naa, it can be done for $6500 depending on the size. Then I thought vehicles were like 30k hey they avg vehicle sales price these days is 36k. Naaa, used one for 16k works just as good for half the price. never pay retail, invest every penny, you can do it.

New roof by us on a 2800 sq ft one level house is around 12k. You won't find my butt up on that roof.

 

[REWahoo]

New roof by us on a 2800 sq ft one level house is around 12k. You won't find mu butt up on that roof.

That's a real bargain. I had to spend almost $18K to replace my roof 5 years ago on a similar size single story house. And that was the best of multiple bids...

 

[Dtail]

That's a real bargain. I had to spend almost $18K to replace my roof 5 years ago on a similar size single story house. And that was the best of multiple bids...

I know Texas is hot too, but FLA roofs alas only last 20 years vs. standard 30 years up North.

 

[REWahoo]

I know Texas is hot too, but FLA roofs alas only last 20 years vs. standard 30 years up North.

Heat isn't our roof's worst enemy, it's hail. That's what got our first roof after only 3 years, our second after 12. This one has made it 5 years so far...

 

[SumDay]

If I can turn back the time and go back to when I am 37, there is one mistake I will correct. The biggest mistake was that my investment choices were not aggressive enough for my age. I should have gone 90/10 ratio, and the "90" should be comprised of mostly aggressive stocks and mutual funds. Had I done that in 30s, it would have shortened my retirement by number of years.

Ditto! And, I'd have put lots more in my Roth.