Starting at 38

[trjn]

Hi. I and wife are both 38, both working in IT field as software developers living in HCOL in Colorado. We plan to retire earlier than typical 60 above and maintain our current lifestyle after retirement.



We both put our education first and started our career late (in early 30s). Both have Bachelors in engineering and Masters in a field of computer science. No inheritance and no financial assistance since we were 18. We were full time students and paid whatever we earned for housing. Any leftover was for tuition and used credit cards to pay the remaining tuition. Out of state tuition is expensive. Both of us starting grad school full time during 2008-2009 market immediately after finishing our engineering degrees was not helping in getting scholarships.



After grad school, we both started working within a year. All our income till now went in paying loans, credit cards, building up emergency fund, saving for down payment of house, small wedding.



Bought a house 2 years ago. Refinanced last month to a 15 years loan at 2.875% with 460k(valued at 700k) left on the loan.

Now all that is done, we are going to have a baby in a couple of months. This news suddenly hit us really hard as we do not have any significant savings for retirement. Better late than never. Then COVID happened. Gave us plenty of time to think about what to do and how to.



Have one paid off car and plan to pay off another one this month(16k left on the loan). Plan to keep these cars for at least another 5 years. So, there wont be any car payments for that period. I like working on cars, so unless something major breaks, there wont be any more money put on the cars except maintenance~ 500 a year.



Our current situation combined for both of us:


Income gross: 210k (more income potential by switching jobs, but the current covid situation has us anchored to our stable jobs).

Expense including mortgage calculated average over 2 years: 85k (anticipating it will go up by 15k with the baby coming)


100k in 401k

12k in Roth IRA (just opened this month and maxed it out for both of us)



100k in saving account(excluding 60k is emergency fund account). This is what we are undecided about. We want to use this to invest in taxable accounts but scared to put it all at once in something like a VTSAX, VTIAX, VBTLX (50/40/10) specially in current market. So, will probably start adding in chunks through out a year.



We plan to retire at about 55 or early without any mortgage.


Plan:


- Max out 401k: 19500x2 = 38000 (or whatever the limit for the year)

- Max out Roth IRA: 6000x2 = 12000 (or whatever the limit for the year)
- Max out HSA (only available from wife's employer)
- Open 529 and put 1000 in it every month for our daughter's tuition. = 12000

- Projecting expense at 100k for the year.
- Projecting Savings of ~30k net after all the expenses. This savings will go to taxable accounts VTSAX, VTIAX, VBTLX (50/40/10).
- Tax returns will go straight into paying extra principal in mortgage. Not aggressive but want to reduce the mortgage schedule a little. Just a personal milestone we want to hit.





What do you think? Feasible plan to retire at 55 or faster with the above numbers?

 

[AZ2020]

Yes, you on the right track.

You are pretty much describing our retirement track. We got serious in our mid 30s and retired in our 50s. Max everything you can and keep your expenses low.

Personally, I would invest the after tax savings more aggressively. You have a long time horizon.

Welcome to the forum!

 

[trjn]

Yes, you on the right track.

You are pretty much describing our retirement track. We got serious in our mid 30s and retired in our 50s. Max everything you can and keep your expenses low.

Personally, I would invest the after tax savings more aggressively. You have a long time horizon.

Welcome to the forum!

Thanks for encouragement. We are pretty frugal. I don't see our expenses increasing unless something drastic happens. Also we have potential to increase our(mine, wife is happy with her work place) salary post COVID. Just staying put at my current job because we want to ride out this uncertain job market and also I have been saving my PTOs to spend time with our baby. I do not want to be stressing over new job and baby at the same time.


Do you have any directions/tips on what you mean by 'invest the after tax savings more aggressively'? Like go 50/50 US/International stocks? We are still trying to understand the world of finance

 

[Love This Community]

Welcome to the forum! Congratulations to the would be new parents. I'm sure others with more experience would jump in to advice on the investment options. What i would like to point out is don't expect expenses to remain the same once after baby arrives. Also kids grow fast and soon you'll realize that you would need a bigger space. That comes with additional expenses, taxes etc. That's what happened in our case and we upgraded with our eyes wide open. Chose a lifestyle creep (the one we could afford) over frugality when it came to our primary residence.
Good luck in your journey and keep us posted.

 

[AZ2020]

I should not have used the word "more". I meant, stay in the market. Put the money in and leave it. Don't even think of touching it. Even when you are 50 you still will be in the market for another 30-40 years. Don't worry about what happens this month/year/ or even decade.

 

[Retire52]

Hi. I and wife are both 38, both working in IT field as software developers living in HCOL in Colorado. We plan to retire earlier than typical 60 above and maintain our current lifestyle after retirement.



We both put our education first and started our career late (in early 30s). Both have Bachelors in engineering and Masters in a field of computer science. No inheritance and no financial assistance since we were 18. We were full time students and paid whatever we earned for housing. Any leftover was for tuition and used credit cards to pay the remaining tuition. Out of state tuition is expensive. Both of us starting grad school full time during 2008-2009 market immediately after finishing our engineering degrees was not helping in getting scholarships.



After grad school, we both started working within a year. All our income till now went in paying loans, credit cards, building up emergency fund, saving for down payment of house, small wedding.



Bought a house 2 years ago. Refinanced last month to a 15 years loan at 2.875% with 460k(valued at 700k) left on the loan.

Now all that is done, we are going to have a baby in a couple of months. This news suddenly hit us really hard as we do not have any significant savings for retirement. Better late than never. Then COVID happened. Gave us plenty of time to think about what to do and how to.



Have one paid off car and plan to pay off another one this month(16k left on the loan). Plan to keep these cars for at least another 5 years. So, there wont be any car payments for that period. I like working on cars, so unless something major breaks, there wont be any more money put on the cars except maintenance~ 500 a year.



Our current situation combined for both of us:


Income gross: 210k (more income potential by switching jobs, but the current covid situation has us anchored to our stable jobs).

Expense including mortgage calculated average over 2 years: 85k (anticipating it will go up by 15k with the baby coming)


100k in 401k

12k in Roth IRA (just opened this month and maxed it out for both of us)



100k in saving account(excluding 60k is emergency fund account). This is what we are undecided about. We want to use this to invest in taxable accounts but scared to put it all at once in something like a VTSAX, VTIAX, VBTLX (50/40/10) specially in current market. So, will probably start adding in chunks through out a year.



We plan to retire at about 55 or early without any mortgage.


Plan:


- Max out 401k: 19500x2 = 38000 (or whatever the limit for the year)

- Max out Roth IRA: 6000x2 = 12000 (or whatever the limit for the year)
- Max out HSA (only available from wife's employer)
- Open 529 and put 1000 in it every month for our daughter's tuition. = 12000

- Projecting expense at 100k for the year.
- Projecting Savings of ~30k net after all the expenses. This savings will go to taxable accounts VTSAX, VTIAX, VBTLX (50/40/10).
- Tax returns will go straight into paying extra principal in mortgage. Not aggressive but want to reduce the mortgage schedule a little. Just a personal milestone we want to hit.





What do you think? Feasible plan to retire at 55 or faster with the above numbers?

welcome to the forum.

you look like you are in good shape to retire at 55. I ran your numbers thru FIRECalc, a great retirement calculator, and it indicates you have a 100% chance of success with your plan. I plugged numbers for you and the expected average portfolio value is $2.8 million in today's dollars in 17 years when you both turn 55.

here is the link so you can more accurately input your numbers, and the calculator is pretty nimble so you can include SSN income and adjust spending as well as your asset allocation. the $2.8 m assumed you started with $140k balance, invested $80k yearly, and you both took SSN at FRA--i plugged in $20k each, though at your income you will probably receive more. I also used the default asset allocation of 75% stocks and 25% bonds.

https://www.firecalc.com/firecalcresults.php

I suggest you go to IRS.gov so you can get a better estimate for SSN.

Best of luck

 

[trjn]

Welcome to the forum! Congratulations to the would be new parents. I'm sure others with more experience would jump in to advice on the investment options. What i would like to point out is don't expect expenses to remain the same once after baby arrives. Also kids grow fast and soon you'll realize that you would need a bigger space. That comes with additional expenses, taxes etc. That's what happened in our case and we upgraded with our eyes wide open. Chose a lifestyle creep (the one we could afford) over frugality when it came to our primary residence.
Good luck in your journey and keep us posted.

Thanks. Definitely exciting times.
I am wife both are extensive planners, almost to ocd level. We built our house with kid in mind. So, not upgrading house for quite a bit. Also sold our coupe and bought a suv as soon as we knew we are having a baby. Paying that off this month. We definitely felt life style creep when we built the house and moved from apartment. We don’t splurge but we really don’t want to miss out much either. We are pretty proud of what we achieved within a short span of time considering where we started. But we didn’t really think about retirement till now. We project about 15k addition to our expenses once the baby arrives. Our incomes will go up in coming years as well.
Hopefully we will be able to keep at it. Reading threads here is such an encouragement.

 

[trjn]

I should not have used the word "more". I meant, stay in the market. Put the money in and leave it. Don't even think of touching it. Even when you are 50 you still will be in the market for another 30-40 years. Don't worry about what happens this month/year/ or even decade.

Yes, sir. Definitely not touching it unless there is no choice.

 

[trjn]

welcome to the forum.

you look like you are in good shape to retire at 55. I ran your numbers thru FIRECalc, a great retirement calculator, and it indicates you have a 100% chance of success with your plan. I plugged numbers for you and the expected average portfolio value is $2.8 million in today's dollars in 17 years when you both turn 55.

here is the link so you can more accurately input your numbers, and the calculator is pretty nimble so you can include SSN income and adjust spending as well as your asset allocation. the $2.8 m assumed you started with $140k balance, invested $80k yearly, and you both took SSN at FRA--i plugged in $20k each, though at your income you will probably receive more. I also used the default asset allocation of 75% stocks and 25% bonds.

https://www.firecalc.com/firecalcresults.php

I suggest you go to IRS.gov so you can get a better estimate for SSN.

Best of luck

Thanks. I have been trying to play around in that calculator and it gives me hope.

 

[HI Bill]

Welcome! With your income and savings rate, all you need is a little bit of luck (keeping both your jobs, no major unforeseen costs, and a moderately favorable sequence of returns). If these hold, then you should be in good shape by around 55, as others have said! Just be aware that $100K in inflation-adjusted $ in 17 years won't buy as much as it does today. I'd set an initial goal of $1.5M, then was married, and then decided I wanted to have a travel budget that was 50% of my annual spending. That changed this year, due to COVID, and we sacrificed half the annual travel to be able to buy our dream home. Keep at it, and start thinking about what you'd like to do when you actually do RE. Make sure you have the budget to keep you engaged, entertained, and satisfied in retirement!

 

[Golden sunsets]

You're in a great position, but your combined salaries seem quite low for 2 Masters in computer science. Any plans to monetize those expensive degrees to a more meaningful number?

 

[HawkeyeNFO]

You're in a great position, but your combined salaries seem quite low for 2 Masters in computer science. Any plans to monetize those expensive degrees to a more meaningful number?

Especially in a HCOL area. You're doing OK, and maybe there are reasons for keeping the jobs you have, but you have the potential to earn much more.

 

[OldShooter]

Welcome and congratulations. Three thoughts:

1) There is no reason for you to ever again have a car payment. Simply buy what you can afford == what you can pay cash for. I got a car loan right out of graduate school (to buy a used Porsche!) and I hated that payment. Since then we have always paid cash for cars. As we became more prosperous we were able to buy nicer cars; now when we buy it is usually a car that is one model year old, either dealer's old stock or certified used. You can easily follow the same path. There is never a reason to eat the huge depreciation you have when buying a brand new car. And, no, leasing is not a good LBYM idea either. It is just a complicated and expensive way to borrow money.

2) Your saving plan is great, but you also need an investment plan. At your ages I'd suggest what we did, 100% equities. Here are a couple of books you should read:

"The Coffee House Investor" by Bill Schultheis https://www.coffeehouseinvestor.com/
"The Bogleheads Guide to Investing" by Taylor Larimore et al https://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore/dp/0470067365

Re 529s, shop plans hard. Our grandkids' 529s are in Iowa, which offers low cost Vanguard investment options. Cost matters in investing, a lot. One more: https://www.morningstar.com/articles/752485/fund-fees-predict-future-success-or-failure.html

3. With a mortgage and a child on the way, you should have some life insurance. Buy only term insurance and skip the "level premium" feature. No reason to tie up a bunch of extra money now when you will be increasingly able to pay higher premiums as you age and become more prosperous. Disability insurance from your employers is a no-brainer. Absent that option, shop hard and think harder before you decide to self-insure that low-probability, high-impact risk.

 

[OldShooter]

... $100K in inflation-adjusted $ in 17 years won't buy as much as it does today. ...

Yes! A critically important point.

The fed just announced a target rate of 2% inflation. Assuming this is achieved as a 17 year average, the buying power of $100,000 today will become $71,000. A 30% loss in only 17 years. Your realistic lifetime horizon is maybe 60-70 years or more. 2%/100K/65 years gets you $26,900 in buying power.

 

[trjn]

You're in a great position, but your combined salaries seem quite low for 2 Masters in computer science. Any plans to monetize those expensive degrees to a more meaningful number?

I completely agree. I was trying not to be too revealing but I think backstory is needed.

Short version:
- an immigrant couple from third world country, who came to US with $0 as international students in mid 2008.
- Started masters during 2008-2009 recession and racked up credit card debts on out of state the tuition fees.
- After graduation, wife spent 8 years in a lowest salary range for our qualification in a company(state owned) who promised to sponsor her permanent residency, only to say 'cant do' at the end. This was heartbreaking. She actually left with 55 days of PTO and 50 days of sick leaves on the table, that's how dedicated she was to her work.
- For me, no one was willing to sponsor my work visa or permanent residency. A mid 30s graduate who had no industry experience, competing with early 20s fresh graduates who had less to loose if they worked for less and without needing sponsorship for work visa or residency. I was not in a favorable position. And wife's company (false) promising the green card made us almost prisoners. Moving to another state/company for her was out of question and that limited my choices too.
- Finally got a job in a non profit (still working there) after 2 years. By nature, the salary is low. They sponsored our permanent residency. I love my job and 100% support its mission. I couldn't change jobs because our green cards were being processed. But now I have to change jobs to grow financially. Probably will still volunteer there.
- During this time(2011-2018), we paid off our debt and credit cards that we used to pay tuition, had one old car, saved every penny where possible, lived in the apartment where we lived since during college. Saved furiously to have enough for a down payment for the house. The news of my wife's work not sponsoring for permanent residency at the end of her 8 year max allowable work permit (H1B visa) almost broke us completely. We were nowhere near where we would want to be in our careers, nowhere near where we wanted to be in personal life, have been working like donkeys and earning lowest salary possible for the position. Had put off marriage, kids till we were in a position we had our roots stable, that was to make sure we will be staying in one country and buy a house there. Buying a house, making kids seemed futile, if we couldn't even live in the country. Seemed like we were back to square one. It was the lowest of low points in our lives.

Welcome 2018. Finish paying off our credit cards. Our green card process completes. Finally, we build a house. Move out of crappy college apartment where we lived for 10 years.

2019. Wife starts a new job, earning almost twice what she was making before. Got married as planned. Bought a second car. Still living super frugal, however expenses are more because of mortgage, utilities, everything is 5 times the price of renting. But we expected it.

2020. Got pregnant. I planned to switch jobs early in 2020, but as I started applying COVID happened. I have been applying but with hiring freeze going on due to covid, opportunities are less.

We are actually very proud of what we achieved during 2 years after a miserable 10 years prior to 2018. Live and learn. We are trying to put our life in high gear so that we can make up for the lost 10 years and never have to worry.

Especially in a HCOL area. You're doing OK, and maybe there are reasons for keeping the jobs you have, but you have the potential to earn much more.

Yes, once the hiring gets back to normal, I project my salary will increase drastically. We should be making 250-300k per year once I switch job. Just dont want to take a chance by switching right now with baby coming. My current employer is flexible and I have a bunch of PTO saved. Want to use the PTO and flexibility when our child comes in November. Plan to start a new job early next year.

Welcome and congratulations. Three thoughts:

1) There is no reason for you to ever again have a car payment. Simply buy what you can afford == what you can pay cash for. I got a car loan right out of graduate school (to buy a used Porsche!) and I hated that payment. Since then we have always paid cash for cars. As we became more prosperous we were able to buy nicer cars; now when we buy it is usually a car that is one model year old, either dealer's old stock or certified used. You can easily follow the same path. There is never a reason to eat the huge depreciation you have when buying a brand new car. And, no, leasing is not a good LBYM idea either. It is just a complicated and expensive way to borrow money.

2) Your saving plan is great, but you also need an investment plan. At your ages I'd suggest what we did, 100% equities. Here are a couple of books you should read:

"The Coffee House Investor" by Bill Schultheis https://www.coffeehouseinvestor.com/
"The Bogleheads Guide to Investing" by Taylor Larimore et al https://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore/dp/0470067365

Re 529s, shop plans hard. Our grandkids' 529s are in Iowa, which offers low cost Vanguard investment options. Cost matters in investing, a lot. One more: https://www.morningstar.com/articles/752485/fund-fees-predict-future-success-or-failure.html

3. With a mortgage and a child on the way, you should have some life insurance. Buy only term insurance and skip the "level premium" feature. No reason to tie up a bunch of extra money now when you will be increasingly able to pay higher premiums as you age and become more prosperous. Disability insurance from your employers is a no-brainer. Absent that option, shop hard and think harder before you decide to self-insure that low-probability, high-impact risk.

1. Completely agree. Never bought new car or leased. Always used, about 3-5 years old. Our cars have always been paid for in cash except for the one we got a loan to buy last year. We had planned to pay it off in a year and we are on target. Actually just dropped the pay off check in the mail.



2. We both have never read a single personal book or taken a class, but we know how to save. Reading the blogs and forums, and tried to grasp what I can. We plan to invest more towards VTSAX and similar high valued companies at 70/30 (US/international) till we hit 45. slowly look at transitioning to more stable investments like bonds. Its to see. I am not market literate enough to actively manage the brokerage account. I hope we are doing right.



Happened to open brokerage account day before yesterday and put a good amount of our savings in VTSAX. Yesterday the market goes down. Bad timing But I realize that's how the market is. We didnt plan on making a quick buck, we are here for a long haul. So, hopefully market will pick up. We plan to gradually put whatever we have in our savings accounts in the market aside from emergency fund and smaller emergency baby birthing fund this year. Probably put a bigger chunk after baby is born.


Yes, we are looking at 529s and studying them carefully to choose our options. Thanks for the link. Will read through it.

3. We both do have life insurance. We got it as soon as we got our house. But we are shopping for higher payout as we have child on our way and want to make sure she is secured just in case. Any resource/reference is highly appreciated.

Welcome! With your income and savings rate, all you need is a little bit of luck (keeping both your jobs, no major unforeseen costs, and a moderately favorable sequence of returns). If these hold, then you should be in good shape by around 55, as others have said! Just be aware that $100K in inflation-adjusted $ in 17 years won't buy as much as it does today. I'd set an initial goal of $1.5M, then was married, and then decided I wanted to have a travel budget that was 50% of my annual spending. That changed this year, due to COVID, and we sacrificed half the annual travel to be able to buy our dream home. Keep at it, and start thinking about what you'd like to do when you actually do RE. Make sure you have the budget to keep you engaged, entertained, and satisfied in retirement!

55 is not a hard stop line. Just an arbitrary age number we put. I project our incomes will go up and we will be able to save considerably more even with the baby coming. We just want to be in a comfortable position when our baby goes to college, where we dont have to worry about her financial security and she doesn't have to think about our retirement.

Yes! A critically important point.

The fed just announced a target rate of 2% inflation. Assuming this is achieved as a 17 year average, the buying power of $100,000 today will become $71,000. A 30% loss in only 17 years. Your realistic lifetime horizon is maybe 60-70 years or more. 2%/100K/65 years gets you $26,900 in buying power.

We hope to be able to put more into investment in coming years. We are basically playing catch up but never too late

 

[HI Bill]

Wow! Great story! It shows that the American Dream is still alive! No one said it would be easy or that there wouldn't be challenges, but there is the payoff at the end! Great job!

 

[rodi]

I was around your age when I got serious about retiring early... and like you, had to factor in kids and college expenses concurrent with retirement. It's doable, and your plan is solid.

Defer max into retirement accounts - which gets you used to a lifestyle that is full, but not fancy/expensive.

The one factor you don't seem to have accounted for... and is widely variable by region... Childcare. Being a nerd, when the second kid came along I did a spreadsheet that compared quiting to be a stay at home mom, nanny share, home setting daycare, and corporate daycare. Pros and cons, price, etc... We factored in things like did we need to take days off if the caregiver was sick or on vacation vs a corporate center where they had enough childcare workers to cover if an employee was sick. We factored in paying payroll taxes if we did a nanny, or nanny share. It drops but doesn't go away when the child reaches school age unless you only work during school hours... you still need after school care.

(Thank goodness my youngest is a senior in high school and those bills are long gone.)