Update after about 2 years... retire at 48?

[piranha]

Below the dotted line is the last post I made on this forum 22 months. Mostly for myself... but would appreciate comments as to whether my age 48 goal is still realistic.

Wife (44) and I (42) teach in public schools. I've been teaching for 19 years and bought 5 additional years service towards my retirement... so I have 24 years of service in the public school system in my state. Our combined annual income is around $165,000. We have 3 kids (14, 12, and 8).

Our only debt is around $95,000 left on the mortgage (10 year fixed at 3%) that will be paid off in exactly 5 years if we keep adding extra to the principal at the current clip. We plan on staying in our current house after retiring.

Rainy Day fund in bank (Money Market) totaling $25,000. 2 new vehicles. I finally broke down and bought a 2014 Grand Cherokee... paid cash.

Non Retirement investments (Mutual Funds) totaling roughly $145,000. These have decreased in value due to the new car purchase and a decision to make some home improvements.

403b investments totaling $445,000

Roth IRA investments totaling $230,000

So... our investments (Roth, 403b, regular mutual funds) total $820,000.

We have also saved approximately $120,000 for our 3 kids (combined) up to this point in educational accounts.

We are currently contributing:
$10,000 a year total to our 2 Roth IRA's
$20,000 a year total to our 403b accounts
$6,000 a year total to our 3 kids educational accounts.

For me, the plan remains to retire at 48 years old. That's when I'll be eligible (as long as things remain how they are now) for an annual pension (45% of my salary at the time) with close to full benefits, and won't have any more house payments to worry about. My wife will not be eligible for a full pension until her mid 50's due to time off with kids. She has come around some to the idea of me retiring early from my current career while she works another 3-4 years, but isn't quite there yet.

I've toyed with some financial calculators and my plan appears to still be attainable... but would like to see what some experts here think about my plan.

Sure hope this market keeps up. I've been in index and some low cost growth funds up to this point. Start getting more conservative or keep doing what I've been doing?




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Current situation as of 3-30-2013:

Wife (42) and I (40) teach in public schools. I've been teaching for 17 years and bought 5 additional years of service towards my retirement... so I have 22 years of service in the public school system in my state. Our combined annual income is around $160,000. We 3 kids (12, 11, and 6).

Only debt is around $125,000 left on the mortgage (10 year fixed at 3%... will be paid off by the time I turn 47 if we keep adding extra to the principal at the current clip).

Rainy Day fund in bank (Money Market) totaling $30,000.
One new vehicle (paid off in cash), but I'm still driving the 99 Grand Cherokee.

Non Retirement investments (Mutual Funds and DTE Stock) totaling roughly $200,000

403b investments totaling $320,000

Roth IRA investments totaling $165,000

Approximate educational investment for all 3 kids totaling $90,000

For me... the plan remains to retire at 48 years old. That's when I'll be eligible (as long as things remain how they are now) for an annual pension (45% of my salary at the time) with close to full benefits, and won't have any more house payments to worry about. my wife will not be eligible for a full pension until her mid 50's due to time off with kids. She still laughs at me when I say I plan on retiring that early. My reply continues to be wait and see... wait and see.

I realize I was probably overly optimistic with hitting the 2 million $ level before retiring... but think 1.5 million is realistic.

Still scared about the cost of college continuously rising, and would like to be able to provide my children with the opportunity to enter the working world debt free.

I've toyed with firecalc and my plan appears to still be attainable... but would like to see what some experts here think.

 

[38Chevy454]

Like many posts of the same general question you are asking, the answer is depends on your expenses. If I do some crude math, you save $48K per year, and I will assume approx $22K taxes, so that leaves about $95K expenses you are living on yearly basis.

In 5-6 years is when you plan to retire, and the house will be paid off. At that time will have two kids in college and one a few years out. I applaud you for the kids college savings, I presume this will cover the expenses to save out-of-pocket? House expenses may drop some when kids off to college if not living at home, but I would not call it a significant amount.

Also will assume the same or more savings for next 5 years, so you should be able to get the 403B and Roth accounts up some more, plus general account increase in value, if no crazy drop or pullback results in the market. $820K at 5% per year will give about $1M, just due to the growth. Add in your $30K per year, so another $150K before any growth. It might be a reasonable expectation for about $1.2M in savings when you retire; this is what you would have available for withdrawal.

So given all that above, no idea what your pension is vs your expenses. If wife keeps working, you may be able to live on her income and not require any withdrawal from savings. Even if you do not do much saving, you avoid withdrawing and can let the savings grow. If wife stops working when you do, then it becomes expenses vs income (pension plus withdrawal).

 

[2B]

You are still six years out. From my quick glance you are very marginal but you can't predict what the stock market will do from here. Unfortunately, the same can be said for what might happen after you retire. I think you need to keep on keeping on and look at it again when you are about 2 years out. Run FireCalc and ORP and see what they say.

 

[daylatedollarshort]

Even though this link is satire, we really did pick a school a lot like this:

Nation's Parents Release Annual Ranking Of Top 50 ˜Perfectly Good" State Schools | The Onion - America's Finest News Source

We semi-retired early and our oldest went to community college, is now getting financial aid at a "perfectly good" public 4 year majoring in a STEM field, has a decent paying internship at a start up, belongs to several clubs on campus, and is an officer of one, and attends career oriented meetup groups to make business contacts, which is partly why I find The Onion video so funny. I don't think college necessarily has to cost parents so much. Maybe it is different in other states, but for us college so far has not been very expensive and kiddo #1 seems happy and appears to have pretty good job and salary prospects.

Other than that, I would run the calculators already mentioned and have a fallback plan for a poor initial sequence of returns, since the bull market has been going on a long time now and they usually don't last forever. I like the Fidelity Retirement Income planner the best myself, though I think they over estimate health care costs, so I adjust for that.

 

[piranha]

Like many posts of the same general question you are asking, the answer is depends on your expenses. If I do some crude math, you save $48K per year, and I will assume approx $22K taxes, so that leaves about $95K expenses you are living on yearly basis.

Also will assume the same or more savings for next 5 years, so you should be able to get the 403B and Roth accounts up some more, plus general account increase in value, if no crazy drop or pullback results in the market. $820K at 5% per year will give about $1M, just due to the growth. Add in your $30K per year, so another $150K before any growth. It might be a reasonable expectation for about $1.2M in savings when you retire; this is what you would have available for withdrawal.

So given all that above, no idea what your pension is vs your expenses. If wife keeps working, you may be able to live on her income and not require any withdrawal from savings. Even if you do not do much saving, you avoid withdrawing and can let the savings grow. If wife stops working when you do, then it becomes expenses vs income (pension plus withdrawal).

A lot of this is spot on.

We save 36K total per year right now (not 48K... only 6K total for kids college per year... been saving since the day they were born for that. Like all parents, hope they can earn scholarships and never have to use the $$$ for college... but we're certainly not banking on it). We plan on maintaining that level of savings for the next 5 years.

I plan on my pension providing around 35K per year starting the day I retire.

Until the wife retires, we probably would not need to dip into retirement savings much at all. Her salary + my pension = Pretty close to what I expect our living expenses to be during retirement.

 

[chris2008]

2 comments:
IMO the key is knowledge and control of expenses.
I would invest some time and effort to find out exactly where the money goes and how to make most of it. Then you will be better able to decide if her salary and your pension will be enough.

DH and myself had decided that in our case it made sense to retire together instead of retire him when he became eligible and me 6 years later.
There seems to be a big gap between your both target retirement dates. This might build up resentment. Why not meet in the middle and enjoy freedom together?
There are already some threads on the subject of working+retired partners.

 

[Bestwifeever]

Not knowing the OP's expenses, but considering there are three kids coming through the preteen and teen years, I think this plan is cutting it awfully close. Not fair imho to skimp on them (I don't mean in their college choices, but in the rest of the expenses kids can rack up).

 

[poorcarver]

It seems to me that the wild card is your assumption regarding your teacher pensions. At least in Illiinois any presumption about state pension payout, eligibility, or quality looking six years out is quite a gamble.

 

[daylatedollarshort]

It seems to me that the wild card is your assumption regarding your teacher pensions. At least in Illiinois any presumption about state pension payout, eligibility, or quality looking six years out is quite a gamble.

Good point. I'd look at what has realistically been funded, not promised.

 

[piranha]

It seems to me that the wild card is your assumption regarding your teacher pensions. At least in Illiinois any presumption about state pension payout, eligibility, or quality looking six years out is quite a gamble.

This is a given. There's no way I would consider retiring early without the pension system still being intact in 6 years. That said, it's also the reason I want to get out as early as possible.

This may be faulty thinking, but I'm of the opinion it would be much harder for a state run pension system to reduce or eliminate promised payments AFTER you're already retired as opposed to while you're still working. Within the past 2 or 3 years, I've had to more than double the amount of money going towards the pension system (from 3% of gross to 7% of gross). If it all of a sudden gets yanked from under my feet, well... better watch what I say on an internet message board.

 

[Green Hornet 21]

From a quick run of your savings, retirement, after tax and kids college fund , I would say that you are well ahead of most Americans. Perhaps as much as 90% .At least if you excluded some of the people on this forum. Also you and your wife will hopefully have a lifetime pension which is a huge plus in this day and age. The majority of your savings is in IRAs/403bs so you will most likely not access until age 59. This may stretch your 45% of salary pension and wife's final salary/pension during that 11 year period. In spite of your impressive college savings, you will have to shell out some additional funds for education as well as possibly some future weddings as well. Once you hit 59 you should be able to supplement your pension with a safe 3% to 4% withdrawal rate. Depending on your lifestyle that should provide for a reasonable standard of living. Your biggest threat is inflation. Many people have retired early with a pension that is adequate for their basic living expenses. However, overtime, inflation can and will diminish their purchasing power. Look at your salary and assume a 3% rate. Your savings will provide a hedge against inflation only if you can control your cost of living over the next 40 years and you are able to maintain a healthy return on investments in the rage of 6% to 8%.

 

[heeyy_joe]

You climbed the foothills to base camp. Congrats but the mountain is still there to climb. (Keep working).

 

[2017ish]

.... The majority of your savings is in IRAs/403bs so you will most likely not access until age 59. This may stretch your 45% of salary pension and wife's final salary/pension during that 11 year period. .....

SEPP and/or Roth conversion ladder would get around this. Although I'm sure its been discussed here before, this is my "go to" link to start discussion about early withdrawals from tax deferred accounts: Stocks — Part XX: Early Retirement Withdrawal Strategies and Roth Conversion Ladders from a Mad Fientist