35 with debt and 3 young kids; is FIRE Possible?

[KappaCity]

Hey Everybody. Somewhat new to this forum, but have been kicking around the FIRE concept the past few years. Something struck a nerve when a close family friend died 6 months after retiring at age 63. It made me question things...

About me: Married 35 y/o with 3 kids (11,9,5). Wife is SHM, but we’ve been talking about having her work part-time starting this fall while kids are in school to accelerate our plan (hopefully adds another $500/month after taxes).

Why do I want FIRE:
Grew up without very much money, and have been in debt my entire adult life. I love my job, but want to do other things in life.

Balance Sheet

Income:
$125K as Software Developer
401K: I add $20K/year with my contribution (min % up to match), employer match and employer ‘pension’ payment.

Assets:
401K: $270K
Pension: $20K (grows at 30 year rate [2%?]). Can cash it out when I leave company…
House: $210K
Bank account: $5K

Liabilities:
Mortgage: $150K
Student Loans: $36K
No Car Payments!


My Initial Though Process:

I was looking over my budget and removed all debt payments(which should be gone when I’m retired: Student Loans, Mortgage[P+I], Life Insurance] it comes to around $40K/year. I added a little bit extra and rounded it to $48K (4K/month). I probably could be fine with $36K/year, but why not live a little.

If I use the 4% SWR, I need $1.2M in investable assets to ‘retire’.

If I work until Age 60 and fund my 401K and fully fund a Roth IRA($11K/year) I’ll have:
401K: $1.8M
Roth: $520K
Total: $2.3M (In Todays $) (all assumptions are using 0.05% after inflation yearly growth rate)

From my standpoint this is very inefficient to continue working after I have $1.2M (plus some safety net).

After looking into FIRE I realized I can have access to my 401K money earlier than 59 1/2 if I do a Roth IRA Ladder. So I looked at it from the other side. What’s the minimum amount of time I need to obtain $1.2M in assets? This isn’t technically correct because it all can’t be in 401K. I will need some Taxable $ to sustain us until Roth IRA ladder is 5 years deep.

If I just fund 401K and Roth IRA I will hit $1.2M in 2032 when I’m 51.

My Current Game Plan is this:

• Work full-time the next 11 1/2 years (until 2029)
  401K balance at end: $788K
  Roth balance at end: $175K ($121K in contributions)
  Debt free, House paid for, 3 months Emergency Fund
  *Need to save $197K ($150K + $35K + $12K)
  *Think it works out to an extra $530 above my current Mortgage and Student Loan payment.
  Fund some College for kids
  $800/month split between kids will give them $35K when college age
• Work part-time the next 3 years(2029-2031) (just cover expenses and let investments grow a little more), while starting Roth IRA Ladder @$48K/year
  
• Retire in 2032 @51 (Will have 29/30 Social Security years)
  *Live off Roth IRA Ladder
  *Continue Roth IRA Transfers
  *Hopefully won't need SS payments

Questions:

• Is $750K really enough money to do a $48K/year Roth IRA Ladder for 20-25 years?
  *Excel PV function tells me it is: ‘=PV(0.04, 25, 48000)’
• It’s hard to run this scenario in FireCalc. Does anyone have any advice? I run a close scenario as best I can and it comes up with 100% success rate. I’ll try backing down the years and see if I can takes years off while staying above 96%
• What investment allocation should I be looking at in my 401K? Currently I think it's like this (Invested in funds with pretty low fees):
  * 50% US Stock (mix of all categories: growth, income, value, small, medium, large-cap, tech)
  * 35% Foreign Stocks
  * 10% Emerging Markets
  * 5% Aggressive Bonds
• Big unknown is kids college. Will definitely steer them to start at a cheaper 2 year school and transfer out. Looking to relocate to a state with much better public college system. My wife loves UVA (In-State tuition is only $15K!). I’m not a huge fan of the current private education system. I went into a lot of debt and didn’t get much financial help/advice from my parents. One line of thought I had is to retire as soon as possible to try and maximize financial aid, don’t know how realistic that is(son graduates highschool in 6 years) or if it would amount to much savings since I'd be transferring $48K/year.

 

[Blue Collar Guy]

Ill answer your first question "Is fire possible?" Yes sure it is , Im going to come off hard on you. But here it goes, I think YOU should get a second job. You can deliver pizzas at night for 500 a month. The taste of victory will be sweeter when you cross the line.

 

[Mdlerth]

Bienvenidos!

Welcome to the board. I will take a crack at your questions, but I could be way off so stick around to hear a few other responses.

1. The excel PV function is deterministic, but reality is statistical. I'd be a bit squirmy if I had to depend on a guaranteed 4% showing up every quarter for a long stretch of years. (See "sequence of returns.")
2. What I just said about statistical still holds true. Remember FIRE Calc is partly statistical, but it has something over a hundred actual historical scenarios that it uses for extrapolation; that's not a huge number. I like FIRE Calc, but in my own planning I include a moderate safety cushion to cover unknowns such as a big jump in expenses because of surprises.
3. This comment will probably generate a lot of controversy, but my conclusion is this: it almost doesn't matter what your AA is. You are likely to be similarly successful with anything in the range of 50-100% equities, and the rest in bonds and cash. (Okay, let the games begin!)
4. It's not clear that your fourth point is a question at all. As a resident of the Old Dominion, I confess to being partial to its cornucopia of fine schools. How could I not be, when I sent so much loot their way instead of retiring earlier? (Sent 5 children to VA colleges, so I'm still w*rking out my final TMYs.) No question about it, you should pack up and move here right away! (In this instance I'm being humorous. Please don't take this answer seriously!)

Anyway, you seem to have a legitimate plan with a high probability of landing in ER at a much earlier age than I will manage. Props to you, and I look forward to following your progress. Good luck!

 

[Johanson]

Ill answer your first question "Is fire possible?" Yes sure it is , Im going to come off hard on you. But here it goes, I think YOU should get a second job. You can deliver pizzas at night for 500 a month. The taste of victory will be sweeter when you cross the line.

Not a bad idea but I would suggest a software developer write an app, if their contract allows that, or, do side jobs involving computers/networking/etc. It pays better and probably more inline with the OP's skills.

 

[Bryan Barnfellow]

KappaCity,

I like your username! I wonder how detailed your 48K budget is. This seems critical because your 1.2M goal is dependent on it. Could you share that with us? We are nothing if not data hounds on this forum. Are you taking into account that your health insurance will likely transfer from your company's side of the ledger to your own? What about long term care? Is your life (=the stream of income you bring to your family) adequately insured in the meantime (term only!)?

Do you have now/will you have then a capital improvements/repair/replacement fund that you can draw on as things come up in the future (roofs, cars, HVAC systems, etc.). What about dental health? I have found that teeth, no matter how well cared for, will sometime fail due to general wear and tear. And dentists are not cheap. Social costs tend to go up too. More coffee or drinks get togethers now that you have more time.

My wife and I developed a fairly watertight budget for the 25 years we saved and LBYM'ed like crazy; but it was years in its evolution, with lots of tinkering as we gained experience. Upon early retirement two years ago, at my age 59, we had to adjust our budget to reflect some of things I mention above. It fits pretty well now; but we maintain a fairly significant cash holding that we can use for the unexpected that one must learn to expect!

I hope this is helpful. The more detail you drive down to the more confidence you can have in your plan. That said, bravo to you and your spouse for planning this move! In our case, we started in 1992 at the dining table with an excel spreadsheet and never doubted once our goal or how we would get there.

-BB

 

[Bryan Barnfellow]

One more thought: are you funding your wife's IRA now too?

-BB

edit: Never mind. I see you show the annual contribution at 11K

 

[jetpack]

Earn more or spend less if you want to retire sooner. As a software developer, like myself, side projects can really add up. My side project, an app, let me quit the 9-5 at age 33. Been going strong since and now have a fully funded retirement.

 

[Bigdawg]

Kappa,


First of all, welcome. Great move coming to this forum. Lots of knowledge and experience with the members here. Secondly, kudos to having a plan at age 35. Most don't. I would venture to say many or most here didn't have a detailed plan at 35. Some did of course. Remember, a plan is just a starting point to deviate from. No plan survives first contact. There is a member on here named Fuego. He is similar age with 3 kids. He is FIRE already. If you go to his profile you can find his FIRE website. Good stuff on there. Biggest thing you can do right now is save, save, save and LBYM. High % of equities. Like 80-90% at your age. Look for ways to increase DW and your income. Training, PT work, side gig, etc...

 

[ivinsfan]

Well, you make 125 a year put 20 in your 401,have a small mortgage payment, a student loan payment and only 5000 in after tax money?

Where are you going to find the 11K for your Roth's from your spouse's part time job that she doesn't have yet? To be brutally honest your DW will probably need to get a full time job to pull this off in 12 years....I think your estimated spending is way off since you have literally no cash on hand.

Keep reading here and work your budget numbers,have discussions with your spouse about the two of you both working and the amount of money you want to funnel toward college for 3 kids. It's important to nail that down before the oldest one starts college.I find some people over commit to helping the older and then feel they have to carry through and spend that on all the kids. good luck.

 

[Sojourner]

I didn't examine your budget numbers all that carefully, but with 3 small children to raise, I wonder if you have realistically included the costs you'll be incurring to raise them to college age. I read somewhere recently that it costs the average middle-income couple about $230,000 to raise a child from birth through age 17. So you're looking at roughly $700k in budgetary expenses right there. There's little doubt that raising 3 kids is going to make it much harder to achieve FI and early retirement... but I'm sure that if you save and invest aggressively and wisely, seek to maximize your incomes, and practice LBYM zealously for the next 20 years, it's doable.

Cost of raising a child: $233,610 - Jan. 9, 2017

 

[exnavynuke]

A. The 4% rule is based on a 30 year retirement, and you're talking about more like a 40 year retirement, so you should adjust all your numbers for more of a 3.5% or even lower withdrawal rate unless you're counting on pension/SS to fill the gap (in which case you really need to run those numbers).

B. If you've only deducted expenses from your current spending to get your "retirement spending" then you've likely way underestimated the costs. How much do you pay for health insurance now (I'm guessing company subsidizes the premiums significantly) vs how much will that likely cost you 11 years from now on your own? Many people see $10-20k in health care costs during ER until they can qualify for medicare etc... be sure to plan for that stuff. Does your spending include putting money aside for infrequent expenses like replacing the roof, the car, the HVAC system, etc? Getting your budget right is the #2 most important thing about planning for FIRE (behind LBYM so you can save/invest for it) as far as I'm concerned. This shouldn't be done optimistically or without serious consideration of all the things you might be missing imo.

C. Are you planning on using 72(t) withdrawals? At $175k when you theoretically start withdrawing money, the Roth alone is unlikely to sustain you until you're 59 1/2.

 

[Exit 2024]

Welcome! Looks like you very detail oriented and I do believe you can pull it off about future budget and plans, have some questions/ comments :
--- after paying off mortgage, your expense will not go to zero as you will have to pay taxes and insurance every year, make sure that it is included in your projections.
--- Also what about Health insurance, did you budget for that in your 48k/year target ?
---does your wife have any marketable skills? You are planning that her part time job will bring about $500/month after taxes, looks like minimum pay job, or close to it. If no skills, I would seriously consider to get her go through some training or classes to improve ability to get better job opportunities.

 

[38Chevy454]

I think you can make it, stick to your budget and save as much as you can. Do you have any extra after-tax cash available now? If so even small Roth contributions could give a nice kick start to that portion of retirement savings when compounded over 15+ years. I think at your age 90% or better for equities allocation is good if you can handle the market swings, you are at 95%. my personal feeling is having 35/95 in international is a bit more than I would be comfortable with, especially since emerging market is adding to that international mix and it is really more like 45/95. I would maybe have 75/95 in US based, and then you can split the international and emerging for the last 20/95.

What kind of 529 programs does your state offer? Some have some in-state tax benefits. 529 is kind of like a Roth, in that the amount grows with tax-free withdrawals for education expenses.

Most important thing, stay the course and continue to make the regular investments toward retirement savings. What is your student loan interest rate? Might balance that vs increased retirement savings to get that debt down and eliminated.

I am sure it seems obvious, but any additional income you can get from extra work for you or your wife is going to get you closer to your goals sooner.

 

[CaptTom]

I won't bore you with the details, but at 35 I was in FAR worse shape financially than you are.

And here I am. Retired at 56. One year in, no regrets.

So, yes. You can do it.

Whether or not you should is up to you. It's been said here a lot, but bears repeating: When it's time, you'll know. From your post, I'd bet that you already do. It wasn't until I was within 5 years of retiring that the possibility ever even crossed my mind. But when it did, the die was cast.

 

[mystang52]

"Everyone has a plan, 'til they get punched in the mouth." A lot of life events (good and maybe not so good) can and will happen over that 11+ year timeframe you are projecting. Since you're not - right now - able to ER, just stay focused with your eye on the prize.
Avoid debt, save what you can, plan for those known future expenses (college, weddings maybe?, etc), and periodically reassess. At age 35 I could see no way whatsoever to ER. 65 seemed more likely. But I practiced what I just preached here, and it was a happy ending for me. Not as good as your goal of 56, but I ER'd by 60.
You're in much better financial shape than I was at your age, so I'm sure you'll reach an ER goal.

 

[Senator]

I have had renters with much less, and retired earlier. Many without ever working a day in their life. They had a decent place to live, plenty of food, free Christmas presents at Christmas. And a whole lot of other benefits.

They did lack some choices, but it never bothered them.

All you are working for is future choices.

 

[Milton]

I think YOU should get a second job. You can deliver pizzas at night for 500 a month. The taste of victory will be sweeter when you cross the line.

OP "love(s his) job, but want(s) to do other things in life." With or without a second income, achieving FI is going to take quite a few years. Stressing himself out with moonlighting, and spending less time with his family or on hobbies, etc., will substantially detract from his overall life satisfaction, without significant reward.

 

[CaptTom]

All you are working for is future choices.

That's a great line!!

I have been exposed to others who chose a lifestyle that avoided work. I'm quite sure I could have learned to be even better at gaming the system than those individuals.

In the end I decided that the difference between them and me, was that I could choose which way I wanted to live.

But you said it so much more succinctly. Thanks!

 

[Hermit]

Big unknown is kids college. Will definitely steer them to start at a cheaper 2 year school and transfer out. Looking to relocate to a state with much better public college system. My wife loves UVA (In-State tuition is only $15K!). I’m not a huge fan of the current private education system. I went into a lot of debt and didn’t get much financial help/advice from my parents. One line of thought I had is to retire as soon as possible to try and maximize financial aid, don’t know how realistic that is(son graduates highschool in 6 years) or if it would amount to much savings since I'd be transferring $48K/year.

My son went to a small public 4-year college in VA for two years and then transferred to VT. He was told his credits would transfer. They did. Unfortunately for him the engineering department would not accept those transfer credits so he wound up taking all of his math plus quite a bit of science twice. I think there is a word of caution in there somewhere for you.

 

[Katiek]

Welcome. I think you'll find a lot of useful information here, and people who want to be helpful. I share the concerns some people have mentioned regarding your planned budget and whether it includes health care, replacement for big assets, house repair, LTC, dental and other unexpected costs. I'm not sure the detail you envision will really hold up over the years as

However, the good news is that all the work and planning you are doing now will give you options in the future for things you can't even expect. Maybe it will be FI at the age you want, or maybe, having a solid retirement base will enable you to take a part time job or some other opportunity that may not pay as much but that you find rewarding for other reasons.

The base you are building will enable you to deal with lots of unexpected challenges and opportunities and even if you don't get FI exactly when you want, it will be earlier than if you didn't do the planning (and saving) now.

 

[aida2003]

Ill answer your first question "Is fire possible?" Yes sure it is , Im going to come off hard on you. But here it goes, I think YOU should get a second job. You can deliver pizzas at night for 500 a month.

Way too harsh, I'd say. When would he rest? ...unless I missed something in your articulation of your thoughts here. I see OP's point though that his DW could do something during the day like a part-time gig while the kids are at school, but again it would be tough on the family. Who would cook, grocery shop, or clean the house? Juggle, juggle, all I can say.

PS. OP has vanished? Hope not delivering pizzas now.

 

[Blue Collar Guy]

Way too harsh, I'd say. When would he rest? ...unless I missed something in your articulation of your thoughts here. I see OP's point though that his DW could do something during the day like a part-time gig while the kids are at school, but again it would be tough on the family. Who would cook, grocery shop, or clean the house? Juggle, juggle, all I can say.

PS. OP has vanished? Hope not delivering pizzas now.

Yes, I agree I was harsh, the guy makes a buck and a quarter a year , and his idea is to make / force his wife out of the house, to make a few bucks, he said 500 a month. How about he "man up" and either get a side job in his field which would produce more $ per hour then her working. If he cant get a side job due to no work or restrictions, then pizza man, you come to my house Im good for a $5 with every pie delivery. If the bride said "hon I want to get out of this house a few days a week , thats a different story. I didnt get that from his post.

 

[rodi]

At 35 I had a rough idea that I wanted to retire at 55. For me it was pre-marriage and kids (I was a late bloomer)... but setting a plan was good. Now I'm 55 and retired 3 years ago at age 52... Despite having added a husband and 2 kids to the mix. Here are my thoughts.

Set goals for savings... but don't forget to live life now... Enjoy your kids. Don't be so tight on saving that you don't allow for opportunities with the kids.

Your college savings are probably light. I've got a junior and freshman in HS... college funding is very much on my radar. You don't just need to consider tuition - you also have books, dorms, spending money, etc... Here in CA the "all in" cost for a UC school is close to 32k. Only about $15k of that is tuition. Check the websites of the universities - they should all have some estimated budgets.

Roth is a great option... Make sure you include your wife in the roth contributions so you can both have accounts.

FUEGO - a regular poster here retired young with young children - he's a good example of someone living a very full life with kids under roof, on the cheap. He uses travel hacks to provide international trips each year. He takes advantage of free/cheap programs through the schools and parks, etc.

Have you talked to your wife about all this? Is she on the same page about going back to work? Have you considered what you'll do for school breaks, summers, and after school? Summer day camps can get pricey. Winter break - who stays home? Same with spring break? Depending on her skill set - can she get a job with the school district... that's what one SIL did - gave her summers off and school breaks off... it worked for them.

 

[imoldernu]

Won't go into making suggestions, but wanted to check in because your planning sounds so much like where I was , back in 1975... when I was your age.. Adjusted for inflation, my salary was somewhat less than yours is today, but everything else was so close that it was deja vu... SAHM wife, four sons, and resources acquired by ourselves.
Major difference was I wasn't smart enough at the time to do the long range planning. It wasn't until a cancer scare in1989, at age 53, that it became real.

A health scare led to a crash course in long range planning, and an assessment of the decision to go back to work, or to take a chance on retiring, with the idea that a return to full or part time work might be necessary.

A relatively detailed review of what we did to become relatively safe in our retirement... (now, 28 years) is spelled out in this extended thread which I've tweaked over the short five years I've been posting here on ER.

http://www.early-retirement.org/forums/f27/sharing-23-years-of-frugal-retirement-62251.html

The reason I'm not suggesting this as a plan for anyone, is because we're all different, and deal with our dreams and goals in a different fashion. What I liked about your post was this:

I love my job, but want to do other things in life.

Though I don't often talk about that, it was the driving force that made us bite the bullet, and leave the workforce. The past 28 years have been magnificent and fulfilling, albeit without many of the trappings of wealth... travel, and an extravagant lifestyle. We learned where to go, what to do, and how to spend, to maintain an affordable level of financial management, so that we feel relatively safe as we enter our final years.

No advice ... just a little bit of information about how one couple handled the big question of 'when can we retire?'.

Best wishes, and congratulations on looking ahead at your early age. Not necessary to become compulsive about planning, but a bonus to smooth the psyche, and build an outlook that will guide future success.

 

[97guns]

A skimpy 5k bank account would be my concern