29 year old hoping for ER

[Good_Life]

Hi everyone,

Great site, just started looking at it last month and have learned a lot already. I thought I should join to make things official and introduce myself. I honestly had never thought that much about early retirement until I meandered across this site while researching 529 savings plans, but am now pretty fascinated (and a little addicted).

I work for a local college and my wife works part time for the local government (also 29 years old). We have a one year old with hopefully more to come. We are planning on having two more children each two years apart (although wife is thinking three more children, but I'm not so sure on that My wife working part-time allows us to save some money on childcare as we can stagger our work schedules a little, but its still expensive especially for infant care (about $700/month). We are thinking of when our one year old gets a little older having him go to a daycare where he has more kids to play with and will also be less expensive on our wallet. We are big savers follow a philosophy of LBYM although it hasn't been too hard as we are very comfortable living basically and not needing the fancy toys or other items it seems that everyone "needs." A few of our stats:

Combined annual income: ~$90K
Mortgage: $165K (just refinanced into 15 years at 3.25%
Roth IRAs: $75,000
401k/403b: $80,000
taxable accounts: $95,000
No debts (other than mortgage)
$350k 30 year term life insurance policy for wife
$375k 30 year term life insurance policy for me
If I die my child also still receives tuition benefits through employer

Current Expenses per month
$1,400 mortgage/insurance/property tax payment
$700 child care
~$1,700 utilities/grocery/etc

My wife is on track to receive a small pension (although hasn't worked there long enough to be vested yet). I currently max out my 403b contributions while wife contributes 10% of salary (we need to fix this, but there are some weird rules on changing it that I need to research more through her employer). We also max out Roth IRA contributions, and just started putting money into a 529 savings plan for our child ($200/month). We receive pretty generous benefits from our employers medical, dental, long term care is 100% paid for both us and our child. She receives 6% of salary 401k match plus a small pension, while I receive 10% of salary 403b match. I focus most of my investments in passively managed funds, but play around with a few individual securities.

We both want to retire early, but don't really have an age goal. Its hard because of the long time frame to know what is reasonable given all the unknowns of investment environment/inflation/job security/etc. I also wrestle with the fact that through my work I receive very generous tuition benefits for my children. If I have my final and third child four years from now he/she will not be out of College until I'm 55 or so, which kind of puts an early retirement limit on me if I want/need to take advantage of the benefit. Of course I shouldn't complain if I retire when I'm 55, but I would like to have a bit more flexibility. I should also clarify that I receive significant TUITION benefits, but would still have to pay room and board (hence the 529 contributions). Anyway, I'm impressed if you read this far, I have lots of questions and want to glean as much information from folks as I can as well as contribute, but will leave that to another post. Thank you and look forward to any welcomes thoughts or advice!

[ronocnikral]

welcome good_life from a fellow 29 yo!

you seem to be well on your way. one thing you didn't mention is if you have an emergency fund. if you don't have a cash cushion, may want to think about getting some together.

I look forward to hearing about your progress and experiences.

[Good_Life]

Thanks ronocnikral, an emergency fund was a thing I have always struggled with. If I have a significant amount of liquid equity investments in non-retirement taxable accounts do you think this adequate as an emergency fund? I think there is an inherent cost if I hold assets sitting in cash and not invested. Over the long-term the gains I theoretically make holding this emergency fund in equities might offset any risks from having to draw on them during a market downturn. I would be very interested in knowing yours and others thoughts on this though.

[ronocnikral]

Have you seen this thread yet?

Personally, I want money I will need to be there when I need it. With equities, you don't get that promise. Yes, the yield is nothing exciting, but the risk is more what you need to look at. Just my opinion. Perhaps you have enough taxable investments to cover you in an emergency...That's for you to decide.

[Live And Learn]

Welcome Good_Life ! I set my retirement goals when I was 30 but I understood LBYM well before then. My goal was to retire at 50. I'm 49 and will probably miss by a year or two - more by choice than need. I did it by reading all I could on investing and always looking to save money rather than spend it. Keep reading and thanks for the intro.

PS: I agree with ronocnikral on the emergency fund - it stinks when you have to sell equities when you really dont want to. Its always nice to have 100% liquidy funds to cover an emergency.

[brewer12345]

Welcome, GL. It looks like you are on a solid track and based on my experience thus far (thinking about ER since age 26, now 38) not setting a specific age is wise.

I see three things you might want to deal with to make sure your plan will withstand all the bumps and bruises that life can throw your way (especially when you are providing for multiple kids). First, if you don't have long term disability coverage through your employer I strongly suggest you go get coverage ASAP. At your age, you are statistically far more likely to be disabled than die and either would be financially devastating. Second, I think an emergency fund is a must. I count mine as part of my fixed income portfolio allocation and don't let it change my overall portfolio design as a result. Third, I don't think you have enoug life insurance. If you are healthy and buying 20 year term, life insurance is really cheap. I'd suggest erring on the side of too much. If you are the primary breadwinner (as it sounds is the case), I would suggest you look into a 750k or 1MM policy on yourself.

One other thought: When you have more than one kid, make sure to do the math on whether it is worth your wife continuing to keep the job. Daycare costs add up quick and your DW may find that after daycare, expenses of working, and taxes she is earning less than minimum wage. If she wants to keep a hand in on her profession or otherwise earn an income, this might be an opportunity for her to pursue an entrepreneurial venture. We have done this in my family with reasonable success and it means that a sick kid or school being closed for a day here or there isn't a cause for panic.

[Good_Life]

Thank you for that thread rono, it was a good discussion. I think I'll start holding some cash now, or at least in a short term bond fund. Both our jobs are pretty secure, but I think it definitely has its place.

Thank you for your advice Brewer, I have disability insurance through my work that replaces my salary, but I need to look into my wife's work to double check. I have also heard it is far more likely that one of us would be disabled rather than kick the bucket. My life insurance was pretty cheap when I bought (I don't remember how much it is off the top of my head), but I don't smoke or go "cave diving" they kept on asking me if I went cave diving for some reason... I'll look into how expensive it would be for me to bump it up a notch.

Thanks for all the advice everyone. This is a lot cheaper (and a lot more fun) then a FA!

[Ed_The_Gypsy]

Stay realistic. It is going to be tough to RE with three or four kids. Better find something you like to do and hang on.

[EvrClrx311]

I'm also another 29 year old new member to the board (turning 30 on Sunday). You're doing awesome man, keep up the great work. Your numbers are pretty similar to mine except I'm completely house poor because of the location I live in (modest townhouse was $500,000 so my mortgage is still in the 375K range and eat up a lot of our income).

I would be careful with the retirement investments and dabbling in individual securities. People our age have a long ways till retirement so we can certainly take on more risk (I'd recommend staying 100% in stocks until at least the age of 40... or $500,000 - whichever comes first)... however making a mistake on retirement investments can really put a dent in the long term magic of compounding that we have going for us. My philosophy with investing is to have fun and take risks with my taxable investments/savings... but stay more relatively safe with retirement accounts and try to saddle the magic 10% historic average the overall stock market has returned. There I stick with ETF's tracking broad categories like Growth, International and Overall Stock Market (large, mid and small cap).

$155,000 by itself (ignoring all other contributions along the way) growing at 10% a year will turn into $3,000,000 by the time you're 60 - with continued contributions between now and then it could easily be double that.

[EvrClrx311]

Quote:

Originally Posted by Good_Life Thanks ronocnikral, an emergency fund was a thing I have always struggled with. If I have a significant amount of liquid equity investments in non-retirement taxable accounts do you think this adequate as an emergency fund? I think there is an inherent cost if I hold assets sitting in cash and not invested. Over the long-term the gains I theoretically make holding this emergency fund in equities might offset any risks from having to draw on them during a market downturn. I would be very interested in knowing yours and others thoughts on this though.

I like the way you worded it. There is a cost, and ironically risk, to having money sitting in cash (the missed opportunity to grow it through investments).

fwiw, I have the same idea as you and often hear the warnings from people about what an emergency fund really is or should be. Ultimately, I know that the stock market is not going to drop more than 50% in a given year and that might happen once in my lifetime, so odds are I might never see it again... and if it does it's going to come back, just like it has now.

Over the long run, $100,000 invested is going to give me more money than $100,000 sitting in the bank so I don't worry about cash vs investments...

I think the cash emergency fund is not as critical for individuals who are truly living below their means, and have accessible investments totaling significantly more than they would need in a true emergency. When your other investments can make up for a true disaster, the security of the emergency fund diminishes (those with no other savings, losing half their emergency fund to a market crash would be catastrophic in a true emergency... but for those who have investments totaling more than twice what they would need in emergency funds, they can ride out a disaster much easier)

[jclarksnakes]

You are doing really well. I think your taxable accounts can partly be counted on as your emergency fund. You can probably get to some of that money fairly quickly but 10K in a cash emergency fund would probably take care of you if you had something happen and needed cash super quick.

[ronocnikral]

Quote:

Originally Posted by Good_Life I have disability insurance through my work that replaces my salary, but I need to look into my wife's work to double check. I have also heard it is far more likely that one of us would be disabled rather than kick the bucket. My life insurance was pretty cheap when I bought (I don't remember how much it is off the top of my head), but I don't smoke or go "cave diving" they kept on asking me if I went cave diving for some reason... I'll look into how expensive it would be for me to bump it up a notch.

I used to have LTD insurance through my work as well, and I still bought a private policy. Being disabled isn't as black and white as being dead and policies will differ. I went with the "Gold standard" in disability insurance, guardian, and I pay a hefty amount. you may want to look into what you are getting and really delve into the nitty gritty.

I would also suggest instead of guessing what you need life insurance wise, to track your expenses, apply a return rate that includes inflation, less any other distributions you may get (SS) less what ever your wife plans to cover through working.

[brewer12345]

Quote:

Originally Posted by ronocnikral I would also suggest instead of guessing what you need life insurance wise, to track your expenses, apply a return rate that includes inflation, less any other distributions you may get (SS) less what ever your wife plans to cover through working.

And then add a wad on top of that. The world is an uncertyain place and life insurance is a very cheap way to take some tail risk off the table. I am likely overinsured, but since a $1MM face policy for 20 years when I got it at age 30 was only $500 and change a year I figured I would rather err on the side of caution since the cost difference between a 500k or 750k policy and 1MM was nominal.

[EvrClrx311]

Quote:

Originally Posted by jclarksnakes You are doing really well. I think your taxable accounts can partly be counted on as your emergency fund. You can probably get to some of that money fairly quickly but 10K in a cash emergency fund would probably take care of you if you had something happen and needed cash super quick.

My thoughts/opinions on this go against the grain, but just wanted to offer this up:

I can't think of many situations where $10,000 cash (assuming sitting in a savings account at a bank) would be better than just temporarily putting the emergency spending on a credit card until they got the $10,000 from selling a fraction of their investments?

Also, with most cards, you get 1% or more back on that $10,000

These days, getting money out of investments is a pretty quick process... for me, I can sell and wire (for a small fee) tens of thousands same day out of my investment account. My bank is actually the slow part of the processes - as they love to delay and sit on large amounts of cash to make their dollars on interest

[Live And Learn]

Quote:

Originally Posted by EvrClrx311 My thoughts/opinions on this go against the grain, but just wanted to offer this up: I can't think of many situations where $10,000 cash (assuming sitting in a savings account at a bank) would be better than just temporarily putting the emergency spending on a credit card until they got the $10,000 from selling a fraction of their investments? Also, with most cards, you get 1% or more back on that $10,000 These days, getting money out of investments is a pretty quick process... for me, I can sell and wire (for a small fee) tens of thousands same day out of my investment account. My bank is actually the slow part of the processes - as they love to delay and sit on large amounts of cash to make their dollars on interest

Would you sell postions that have an unrealized loss (but have the potential to come back) or sell the holdings you have with an unrealized gain and pay the income tax on it and potentially wipe out that gain ?

[EvrClrx311]

Quote:

Originally Posted by Live And Learn Would you sell postions that have an unrealized loss (but have the potential to come back) or sell the holdings you have with an unrealized gain and pay the income tax on it and potentially wipe out that gain ?

Good question. Depends on the situation and the current state of the account and market. If my taxes are high that particular year I might sell the losses, if they are low I'd lean more towards the gains.

For me... most of my taxable investments are in short term trading, so the tax implications are never really a factor since the stocks I hold turn over monthly.

[jclarksnakes]

Quote:

Originally Posted by EvrClrx311 My thoughts/opinions on this go against the grain, but just wanted to offer this up: I can't think of many situations where $10,000 cash (assuming sitting in a savings account at a bank) would be better than just temporarily putting the emergency spending on a credit card until they got the $10,000 from selling a fraction of their investments? Also, with most cards, you get 1% or more back on that $10,000 These days, getting money out of investments is a pretty quick process... for me, I can sell and wire (for a small fee) tens of thousands same day out of my investment account. My bank is actually the slow part of the processes - as they love to delay and sit on large amounts of cash to make their dollars on interest

So what happens if you are a victim of a natural disaster like the recent storms that hit in the midwest but on an even larger scale? What if the power grid is knocked out for a couple weeks? I am betting that if just the microwave towers are knocked out in a storm the ATMs will not work. The businesses that are not shut down could perhaps manually accept credit cards but they would run out of money for cash advances real quick. I think that at least a couple thousand of anyones emergency fund should be real cash kept at home in a safe.

[EvrClrx311]

Quote:

Originally Posted by jclarksnakes So what happens if you are a victim of a natural disaster like the recent storms that hit in the midwest but on an even larger scale? What if the power grid is knocked out for a couple weeks? I am betting that if just the microwave towers are knocked out in a storm the ATMs will not work. The businesses that are not shut down could perhaps manually accept credit cards but they would run out of money for cash advances real quick. I think that at least a couple thousand of anyones emergency fund should be real cash kept at home in a safe.

I do definitely think there is a need to store some amount of cash or valuables at home for a true natural disaster scenario. We have $1,000 on hand for such a situation.

However (playing devils advocate here), under those scenarios... $10,000 in a savings account at the bank won't do you much good either. Also, there is a risk to having a large amount of cash (or gold) at your home. Even if its stored in a safe, the odds of it getting stolen, lost or spent are probably higher than a natural disaster event crippling the banking and credit card infrastructures.

[brewer12345]

Quote:

Originally Posted by jclarksnakes So what happens if you are a victim of a natural disaster like the recent storms that hit in the midwest but on an even larger scale? What if the power grid is knocked out for a couple weeks? I am betting that if just the microwave towers are knocked out in a storm the ATMs will not work. The businesses that are not shut down could perhaps manually accept credit cards but they would run out of money for cash advances real quick. I think that at least a couple thousand of anyones emergency fund should be real cash kept at home in a safe.

I have been thinking about this issue on and off for a while and yet I never seem to get around to putting some cash away in a safe spot. I keep my e fund mostly in an out of state onlne bank, CDs at Pen Fed and Navy Fed, and a chunk of cash slopping around my brokerage account, so its hard to imagine all of these institutions experiencing operational problems at once. But there is nothing like a stack of greenbacks when you really need cash. Perhaps I should get my act together and add cash on hand to the emergency food, water, etc.

[Live And Learn]

Interesting - I never thought of an "emergency fund" as "cash on hand". I always considered it to be a cash portfolio that can be used for near term expenses without having to touch investment portfolios. Another way to look at it is the WR you'd have taken if you're already retired, assuming you withdraw at the start of the period.

In that respect I always like to have 6 months cash in an account that I can tap into without having to worry about portfolio depletion rates, opportunity losses for missed capital gains, income tax implications etc. My definition of "emergency" is not necessarily "natural disaster" but a new roof, major home repairs, day to day bills in case of income loss (for those pre-retirement) and the like.