33 and looking to retire on a beach at 50

[chicago_meatball]

Hi everyone!

This is my first crack at serious financial planning so bear with me and correct me if I'm doing something stupid The stretch goal is to retire at age 50.

I'm 33 and married (wife 31) with 2 kids that are 4 and 1.


Current jobs - both of us work for the same megacorp in different businesses and climbing the corporate ladder. We both earn about the same money and pre-tax about 220K with salary and bonus.

Pension- both of us are in pension vested pension plan projecting to pay out a combined 8K a month at age 65 if we stopped working for the company at age 50.

investments
401K - combined balance is 230 with us both maxing out plus 3.5 company match. mainly invested in stock funds and a 2040 retirement fund. I'm accepting additional risk now knowing I'll need to begin getting conservative around 2020.
HSA - started this year maxed out, plan to collect reciepts and let it grow
Backdoor Roth started this year for each of us, will max out for 2013 and going forward
-Any other tax sheltered accounts I can work my way into?

250 a month toward kids college fund in a investment club with family/friends. Current balance 9K.

-open to more investing as money frees up. 2 kids in daycare @2350 a month has us tapped out now.

Housing
180K owed at 3.75% - paying extra to pay off in 2030 (goaled retirement year) home value around 275K
Rental townhouse
130K owed at 3.85 - paying extra to pay off in 2030, valued about 110K. Stuck with this during the housing downturn. I'll likely sell it prior to retirement to avoid the hassles of it.

The retirement plan.
16 years to go, if I can continue to max out everything above I should ~330K in the HSA and Roth that I can pull back out. Housing should be paid for and youngest son will be graduating soon. I'll need to stretch this money out for 5 years until i can begin dipping into my 401k.

This will be the biggest crunch and may require an extra year or 2 of work, but its the stretch goal.

Once 55 I can begin pulling out the 401k until I can begin pension and SS at 65. This is possible if I have 1 mil plus in 401K, well on target with reasonable market appreciation.

Once we are 65, we should be able to live off our combined pension and SS assuming our roth/401K/HSA has been deleted.

What do you old pros think!

 

[Midpack]

Welcome to ER.org neighbor.

You're off to a good start, but (unless I missed it) without your planned retirement annual spending, no one can give you a meaningful reply. You can almost certainly retire at 50 if your spending is low enough or your portfolio & income sources are large enough.

Run your numbers, including spending, through FIRECalc: A different kind of retirement calculator for starters.

Living on a beach is usually expensive unless you're thinking UP.

 

[chicago_meatball]

I kept seeing fire calc on the site and wasn't sure where to find it! thanks.

 

[RetiringAt55]

Consider taking your SS at 70 and DW taking hers at 62 for longevity insurance and higher survivor benefit. There are many other good SS strategies for married couples to consider as well. The 70/62 one is good if you make around the same amount of SS at FRA.

Consider the Illinois Bright Start 529 savings plan if you are in IL. It can save you a lot in state taxes over time.

I thought the date to start pulling out of a 401k without penalty was 59.5. I think you can only pull out at 55 if that is the year you leave employment.

 

[chicago_meatball]

A quick google search would prove you correct.

Regarding FireCalc- would I be estimating costs in present dollars, I'm having a hard time doing that 16 years out. In theory I will be mortgage free and only have property taxes, and would likely be ready to down size. Currently, my non-mortgage related expenses come out to roughly 3500 a month.

So to be using the tool correctly, would I need to find the $ that would bridge the gap from age 50-59.5 assuming annual expenses of 3500*12= 42K

 

[Dash man]

I think you'll need to plan more for he years before your pension and social security kick in. I don't see you having enough to live on, let alone live on a beach. Health care alone will eat up your HSA and you can't save enough in a Roth to pull out enough to live on for that entire time. The sale of the rental property will help, but you'll have to pay capital gains taxes including for any depreciation you've been deducting, which is 25%. Do you keep cash in an emergency fund? I didn't see that in your post. You might consider opening a taxable brokerage account to put some money into. Not everything needs to be in a tax deferred account. This gives you more flexibility to manage your taxes by reducing what you need to take out of your 401k.
One other major item to consider is your pension may be frozen or terminated before you reach your target age. My wife and I both have pensions but hers was frozen six years ago and is about to be terminated. She will still get the pension, but the past six years didn't add any value to it.
You're off to a great star for early retirement, but your goals of 50 on a beach might be a stretch.

 

[chicago_meatball]

I think you'll need to plan more for he years before your pension and social security kick in. I don't see you having enough to live on, let alone live on a beach. Health care alone will eat up your HSA and you can't save enough in a Roth to pull out enough to live on for that entire time. The sale of the rental property will help, but you'll have to pay capital gains taxes including for any depreciation you've been deducting, which is 25%. Do you keep cash in an emergency fund? I didn't see that in your post. You might consider opening a taxable brokerage account to put some money into. Not everything needs to be in a tax deferred account. This gives you more flexibility to manage your taxes by reducing what you need to take out of your 401k.
One other major item to consider is your pension may be frozen or terminated before you reach your target age. My wife and I both have pensions but hers was frozen six years ago and is about to be terminated. She will still get the pension, but the past six years didn't add any value to it.
You're off to a great star for early retirement, but your goals of 50 on a beach might be a stretch.

First off, thanks for the response! I'm just now digging into this so I'm still catching on to whats reasonable and whats not.

I'm sorry to hear about your pension experience. I kinda expect something like that to happen to us. Megacorp ceased the pension program to new hires about 3 years ago so I assume its only a matter of time until a majority of the decision makers aren't in it and it is just a drag with no tangible benefit to those in charge.

I know I'll need more savings between now and then, but I'm basically capped out on what I can save until I start getting the kids away from daycare and into school. A big portion of that 2400 should be going to additional savings. Plus my wive and I have probably averaged 6-9% raises in salary or bonuses the last 5 years. I hope to keep funneling these increases into future savings.

So much of expense forecasting seems to be a bit of a mystery. I assume things can't be more expensive than day care, i just don't know how much family like is going to cost as the kids age.

Regarding EF's. To date, I have treated my 401K like my emergency fund with loans. Our company plan allows free loans with all interest funneled back into the account. It doesn't suspend contributions in anyway so I fail to see the down side except for difference between the interest rate and the gained appreciation. I have done these a couple of times in the past and I am comfortable with them.

With the creation of the Roth or collecting receipts with the HSA, I was thinking of this as a substitute if something were to arise. It would all depend on the situation we would need the money. Plus now that I'm capped out of tax sheltered savings, I'll be forced to begin to accumulate into taxed places.

Regarding the beach, St Thomas is a favorite of mine and assuming I was selling my house in IL, I should be able to move into something comparable with retiring there. But more than that, its nice to dream and helps make the sacrifices worth while.

 

[kgtest]

First off, thanks for the response! I'm just now digging into this so I'm still catching on to whats reasonable and whats not.

I'm sorry to hear about your pension experience. I kinda expect something like that to happen to us. Megacorp ceased the pension program to new hires about 3 years ago so I assume its only a matter of time until a majority of the decision makers aren't in it and it is just a drag with no tangible benefit to those in charge.

I know I'll need more savings between now and then, but I'm basically capped out on what I can save until I start getting the kids away from daycare and into school. A big portion of that 2400 should be going to additional savings. Plus my wive and I have probably averaged 6-9% raises in salary or bonuses the last 5 years. I hope to keep funneling these increases into future savings.

So much of expense forecasting seems to be a bit of a mystery. I assume things can't be more expensive than day care, i just don't know how much family like is going to cost as the kids age.

Regarding EF's. To date, I have treated my 401K like my emergency fund with loans. Our company plan allows free loans with all interest funneled back into the account. It doesn't suspend contributions in anyway so I fail to see the down side except for difference between the interest rate and the gained appreciation. I have done these a couple of times in the past and I am comfortable with them.

With the creation of the Roth or collecting receipts with the HSA, I was thinking of this as a substitute if something were to arise. It would all depend on the situation we would need the money. Plus now that I'm capped out of tax sheltered savings, I'll be forced to begin to accumulate into taxed places.

Regarding the beach, St Thomas is a favorite of mine and assuming I was selling my house in IL, I should be able to move into something comparable with retiring there. But more than that, its nice to dream and helps make the sacrifices worth while.

Move to Maui when you retire. The COL is high, but the beaches are some of the nicest in the United States.

Great job on your ER goals btw. Doing much better than my DH and I and we don't have any kids.

 

[RetiringAt55]

Regarding FireCalc- would I be estimating costs in present dollars, I'm having a hard time doing that 16 years out. In theory I will be mortgage free and only have property taxes, and would likely be ready to down size. Currently, my non-mortgage related expenses come out to roughly 3500 a month.

I would expect your non-mortgage expenses to be much higher than this. Are you adding in life insurance, health insurance, vehicle replacement, home repairs on all of your properties, etc.? If you are really only spending $3500 a month you would have more in savings. I recommend you track your expenses for a couple of years in Quicken or Mint. Also when you add numbers in Firecalc, use present dollars but also add in taxes.

 

[Dash man]

I'm sorry to hear about your pension experience. I kinda expect something like that to happen to us. Megacorp ceased the pension program to new hires about 3 years ago so I assume its only a matter of time until a majority of the decision makers aren't in it and it is just a drag with no tangible benefit to those in charge.

I know I'll need more savings between now and then, but I'm basically capped out on what I can save until I start getting the kids away from daycare and into school. A big portion of that 2400 should be going to additional savings. Plus my wive and I have probably averaged 6-9% raises in salary or bonuses the last 5 years. I hope to keep funneling these increases into future savings.

So much of expense forecasting seems to be a bit of a mystery. I assume things can't be more expensive than day care, i just don't know how much family like is going to cost as the kids age.

Regarding EF's. To date, I have treated my 401K like my emergency fund with loans. Our company plan allows free loans with all interest funneled back into the account. It doesn't suspend contributions in anyway so I fail to see the down side except for difference between the interest rate and the gained appreciation. I have done these a couple of times in the past and I am comfortable with them.

With the creation of the Roth or collecting receipts with the HSA, I was thinking of this as a substitute if something were to arise. It would all depend on the situation we would need the money. Plus now that I'm capped out of tax sheltered savings, I'll be forced to begin to accumulate into taxed places.

Regarding the beach, St Thomas is a favorite of mine and assuming I was selling my house in IL, I should be able to move into something comparable with retiring there. But more than that, its nice to dream and helps make the sacrifices worth while.

I love St. Thomas, but not sure I'd want to live there. Maybe St. Croix?
Don't be sorry about our pension experience, we're doing just fine thanks to stock options, diversified stock holdings, a good emergency fund and rental properties.
i would strongly suggest you build up a cash emergency fund in a savings account for true emergencies. You can't borrow from your 401k if you lose your job. Suppose you had borrowed money from your 401k, spent it and then lost your job? You'd be required to pay it back or face the 10 percent penalty from the IRS. The emergency fund is for true emergencies and should cover about a year's worth of living expenses. You don't want it in stocks and then having to take it out in a down market. Trust me on this one as someone who has experienced a job loss in their prime when I thought I had a secure job, then got hit with a divorce on top of that. Emergencies happen and it's best to be prepared even if you think it always happens to the other guy. I recovered nicely, but it was really tight for a while.
You'll be able to increase your savings as your pay increases. Inflation will happen whether the government admits it or not, but if you keep saving as you are you'll be fine. My point was simply you might need a few more years than your goal, but that doesn't mean you shouldn't keep your goal! It just might need to be adjusted as you get closer.

 

[chicago_meatball]

Thanks Dashman - in my mind everything will always be somewhat fluid. Of when I can retire and where money goes. As for now, If I were to begin bulking up my EF, is it best to come from 401K, or Roth IRA contributions?

Also holding it as a true emergency fund, I could also turn to the college fund if needed as its not a sheltered account at this point. Obviously it would be a final straw before I would do that. And this would only be during the intermediate time while I'm building up things over the next 2 years.

St criox huh? We've never been, only to T and J. And we absolutely love John. potentially living on Thomas would mainly be a means of being able to live on John. Plus you also have a closer proximiity to the BVI side too. What on criox sets it apart above T&J?

R@55- In the next 2 months I going to payoff a car @600 a month, and a addition to the house @400 a month. Those have dragged on me the last 3 years and my wife and I became bonus eligible this year so that increased our NI roughly 22,500 for the first time this march. I'm sure there are lots of expenses I haven't accounted for yet related to insurances, repairs and autos. To agree I've grown comfortable with many of the benefits of corporate work I'd lose. Those are things I'll need to examine.

 

[Dash man]

Thanks Dashman - in my mind everything will always be somewhat fluid. Of when I can retire and where money goes. As for now, If I were to begin bulking up my EF, is it best to come from 401K, or Roth IRA contributions?

Also holding it as a true emergency fund, I could also turn to the college fund if needed as its not a sheltered account at this point. Obviously it would be a final straw before I would do that. And this would only be during the intermediate time while I'm building up things over the next 2 years.

St criox huh? We've never been, only to T and J. And we absolutely love John. potentially living on Thomas would mainly be a means of being able to live on John. Plus you also have a closer proximiity to the BVI side too. What on criox sets it apart above T&J?

For the tax deferred accounts, you should fund your 401k up to your match, then the Roth, then up to the max for the 401k. It doesn't have to be all or none. Start building your emergency fund by reducing your 401k contributions, but not by eliminating them. The employer match is free money you don't want to give up.
One thing you might want to look into for down the road. My 401k plan allowed me to contribute up to $25K per year, with everything after the IRS maximum contribution going in as after tax. If yours allows that, you can use that for additional savings later on in life when your income is higher and your expenses lower.
St. Croix isn't as crowded as St. Thomas, and that is very important to me...I hate crowds and traffic.

 

[chicago_meatball]

For the tax deferred accounts, you should fund your 401k up to your match, then the Roth, then up to the max for the 401k. It doesn't have to be all or none. Start building your emergency fund by reducing your 401k contributions, but not by eliminating them. The employer match is free money you don't want to give up.
One thing you might want to look into for down the road. My 401k plan allowed me to contribute up to $25K per year, with everything after the IRS maximum contribution going in as after tax. If yours allows that, you can use that for additional savings later on in life when your income is higher and your expenses lower.
St. Croix isn't as crowded as St. Thomas, and that is very important to me...I hate crowds and traffic.

We either stayed on St John's or used Thomas as a communing point to stj. Definitely agree on the traffic on cruise ship days.

 

[Mulligan]

We either stayed on St John's or used Thomas as a communing point to stj. Definitely agree on the traffic on cruise ship days.

St. John is the greatest, Chicago. Just got back from my annual visit a month or so ago. Nothing like a day at Solomon Beach all to yourself. I am never on STT any longer than it takes to get to Red Hook from the airport. After some reflection St. John may not be a good place for me to live. I don't think my skin could tolerate the beach everyday and my liver definitely would not appreciate daily happy hour visits as I know where they all are and they are cheap!

 

[Ready]

Welcome to the forum Chicago.

I see you have already received a lot of input, so I won't bother to duplicate what all these other brilliant minds have already shared.

One thing that did pop out is that you said you both work for the same company. I'm sure there are some conveniences associated with this, but a good financial planner would remind you of the risk associated with not diversifying each of your income sources among two distinct companies. If it's a megacorp, it's probably not a big risk, but just something to keep in mind over the next 17 years that you plan to be in the work force.

Also to note, the greater the percentage of your income that you can put away into savings, the quicker you can reach FI and ER. We don't know what your expenses are, but regardless of the number, if you are contributing a high percentage of salary to savings, it is likely because you are living on very modest expenses, and thus LBYM is working. Plan to have at least 25x your current annual expenses in savings before retiring, and more ideally 33x. You will have to make some assumptions about what your expenses might be 17 years from now but you don't have to adjust them for inflation. Just trust that your investments will either keep up or outpace inflation over the next 17 years anyway and this will balance everything out. If you plan to pay off your mortgage before you retire, you don't need to include that in your expense figures. You may have to guess how much your children will cost you in 17 years. Hopefully they will be close to being self supporting by then.

I retired last year at 46, and I live on the beach in Southern California, so it can be done! The more you can control your expenses and maximize your savings, the more likely you are to achieve success. Stay focused on the long term goal and don't get caught up buying expensive cars and other material items you don't need. Trust me, they mean nothing compared to the freedom of being able to do whatever you want each day, without having to answer to anyone!

 

[chicago_meatball]

Welcome to the forum Chicago.

I see you have already received a lot of input, so I won't bother to duplicate what all these other brilliant minds have already shared.

One thing that did pop out is that you said you both work for the same company. I'm sure there are some conveniences associated with this, but a good financial planner would remind you of the risk associated with not diversifying each of your income sources among two distinct companies. If it's a megacorp, it's probably not a big risk, but just something to keep in mind over the next 17 years that you plan to be in the work force.

Also to note, the greater the percentage of your income that you can put away into savings, the quicker you can reach FI and ER. We don't know what your expenses are, but regardless of the number, if you are contributing a high percentage of salary to savings, it is likely because you are living on very modest expenses, and thus LBYM is working. Plan to have at least 25x your current annual expenses in savings before retiring, and more ideally 33x. You will have to make some assumptions about what your expenses might be 17 years from now but you don't have to adjust them for inflation. Just trust that your investments will either keep up or outpace inflation over the next 17 years anyway and this will balance everything out. If you plan to pay off your mortgage before you retire, you don't need to include that in your expense figures. You may have to guess how much your children will cost you in 17 years. Hopefully they will be close to being self supporting by then.

I retired last year at 46, and I live on the beach in Southern California, so it can be done! The more you can control your expenses and maximize your savings, the more likely you are to achieve success. Stay focused on the long term goal and don't get caught up buying expensive cars and other material items you don't need. Trust me, they mean nothing compared to the freedom of being able to do whatever you want each day, without having to answer to anyone!

Congrats, looking forward to that day someday. We do both work for the same Corp, but we are in different business and different industries. (and different offices for that matter) My wife was laid off once so we are well prepared for corporate realities.

Regarding the 27 or 33 times earnings. Are those strictly cash account assets? Or would you factor SS or pensions/401K's into this as well? Also, is the times earnings or expenses.

 

[chicago_meatball]

St. John is the greatest, Chicago. Just got back from my annual visit a month or so ago. Nothing like a day at Solomon Beach all to yourself. I am never on STT any longer than it takes to get to Red Hook from the airport. After some reflection St. John may not be a good place for me to live. I don't think my skin could tolerate the beach everyday and my liver definitely would not appreciate daily happy hour visits as I know where they all are and they are cheap!

Solomon beach huh, don't think I have been there. Is that north shore? Our favorite is waterlemon. Been there 4 or 5 times and the most we have shared it with is 6 people.

 

[Mulligan]

Solomon beach huh, don't think I have been there. Is that north shore? Our favorite is waterlemon. Been there 4 or 5 times and the most we have shared it with is 6 people.

Yes, it is the easternmost. As you get off the ferry, it's to the left. Walk to state park entrance and then follow Lind Point Trail. About a 20 minute walk through the forest trail. Very few people are there because tourists either do not know about it or are too lazy to walk it. The trail can be fun, too as we have seen iguanas, donkeys, chickens, mongooses, shell crabs, and we one time literally stood beside a baby deer and took a picture with it... No modern conveniences there, just the white sand, coconut trees, and of course the beautiful clear blue water! I have noticed housing is incredibly expensive there to buy, but not so bad to rent through VRBO.

 

[Ready]

Congrats, looking forward to that day someday. We do both work for the same Corp, but we are in different business and different industries. (and different offices for that matter) My wife was laid off once so we are well prepared for corporate realities.

Regarding the 27 or 33 times earnings. Are those strictly cash account assets? Or would you factor SS or pensions/401K's into this as well? Also, is the times earnings or expenses.

Sorry...I meant 27-33X expenses, not earnings. Regarding whether to include social security or pensions, that is something you have to decide for yourself. If your pension is well funded and you know for sure it will be there, I would think it makes sense to include it. Some people are worried that social security might not be there in full for someone your age. I tend to believe it will, or mostly will, but I did not include it in evaluating my situation, especially since I don't plan to collect until age 70, which seems like a really long time from now.

Your 401K money should count, but you need to remember that you can't access it until 59.5, so you need to have enough between 50 and 59.5 in taxable accounts to cover you.

 

[chicago_meatball]

Yes, it is the easternmost. As you get off the ferry, it's to the left. Walk to state park entrance and then follow Lind Point Trail. About a 20 minute walk through the forest trail. Very few people are there because tourists either do not know about it or are too lazy to walk it. The trail can be fun, too as we have seen iguanas, donkeys, chickens, mongooses, shell crabs, and we one time literally stood beside a baby deer and took a picture with it... No modern conveniences there, just the white sand, coconut trees, and of course the beautiful clear blue water! I have noticed housing is incredibly expensive there to buy, but not so bad to rent through VRBO.

I'll be sure to check it out. We are going back this summer/fall for our 10 year anniversary. My favorite thing may be the wild donkees. We were staying near Ajax Peak on the eastern half of the island. We kept seeing them on the roads and we were hoping to see them around the house. Finally on our last night there we were celebrating my bday at crabby's and when we got home there were 3 donkeys in my drive way. Needless to say we spent the next hour feeding them any and all left overs in the fridge.

Regarding the hermit crabs, pour a pan of bacon grease on to the ground and see what happens. within mintes hundreds descended uponthe forest.

 

[daylatedollarshort]

Retiring at the beach well before normal retirement age is doable, especially with high incomes and pensions. The trick is to not spend like many of your co-workers probably do. Their expenses might match or even exceed what they bring in.

Instead try to save one income and live off the other if you can, or whatever you can manage. The more you save the sooner your ER at the beach life will become a reality.

We were always pretty good savers but if I had life to do over I would have saved even more than we did. We've cut our expenses now on a lot of overpriced good and services we haven't really needed or missed.

 

[Mulligan]

I'll be sure to check it out. We are going back this summer/fall for our 10 year anniversary. My favorite thing may be the wild donkees. We were staying near Ajax Peak on the eastern half of the island. We kept seeing them on the roads and we were hoping to see them around the house. Finally on our last night there we were celebrating my bday at crabby's and when we got home there were 3 donkeys in my drive way. Needless to say we spent the next hour feeding them any and all left overs in the fridge. Regarding the hermit crabs, pour a pan of bacon grease on to the ground and see what happens. within mintes hundreds descended uponthe forest.

I bet that is a sight to see, would probably freak my GF out though! So do you stay closer to the Coral Bay side? That is where I hear a lot of the donkeys hang out. We have only been on that side of the island once via cab tour ride as neither one of us want to mess with driving on the "wrong side of the road". They usually aren't around Cruz Bay too much. Last month though 3 of them were walking the street in front of Mongoose Junction acting like they owned the entire road. Pretty hilarious I thought.

 

[chicago_meatball]

I bet that is a sight to see, would probably freak my GF out though! So do you stay closer to the Coral Bay side? That is where I hear a lot of the donkeys hang out. We have only been on that side of the island once via cab tour ride as neither one of us want to mess with driving on the "wrong side of the road". They usually aren't around Cruz Bay too much. Last month though 3 of them were walking the street in front of Mongoose Junction acting like they owned the entire road. Pretty hilarious I thought.

There were three at my birthday party too. We kept seeing those 3 on the roads too. Two bigger ones and a smaller on. We were way up on the mountain with a view of Coral bay off in the distance. we were probaby 800 feet above see level, on a small side road call Ajax Peak Rd. Some crazy inclines to get up to the rental. We rented a van for the week with the people we were with.Driving was fun once you got used to the side of the road.

 

[MRG]

Consider taking your SS at 70 and DW taking hers at 62 for longevity insurance and higher survivor benefit. There are many other good SS strategies for married couples to consider as well. The 70/62 one is good if you make around the same amount of SS at FRA.

Consider the Illinois Bright Start 529 savings plan if you are in IL. It can save you a lot in state taxes over time.

I thought the date to start pulling out of a 401k without penalty was 59.5. I think you can only pull out at 55 if that is the year you leave employment.

Couple of different posts on 401k distribution. It depends on the SPD(summary plan description). Mine is set up so at age 55 (or older) and terminated from service, allows non - penalty withdrawls. I retired this year at 56, took my first penalty free distribution this December. I've known other folks, with the same SPD, quit at 50 and start taking penalty free distributions at 55. Other SPDs don't allow for that, or require limited distributions.

I can't advise if you should do the distribution, only that it may be possible. Of course your SPD has to allow at the time you hit 55, the SPD can change.

MRG