35 years old planning to retire in 15 years

[dk345]

Hi, I am 35 now from California and have an early retirement plan of retiring at 50. My wife is 2 years younger than me.

Here are some key numbers of our financials:

1. Retirement accounts: $510k mainly in 401k. Maxing out every year for both of us. Own contribution plus employer match will be about $51k this year. Annual contribution should increase going forward considering higher cap. Fully invested in index now.

2. Taxable accounts: $450k right now. No unrealized gain. We should be able to save about $80k to $110k to the taxable account every year. Right now fully invested in equity market.

3. Investment property have some positive cash flow every year. Equity is about $350k in two properties (properties are expensive here in California).

4. Own residence: $200k equity, still owe bank $600k. Planning to either sell the big house at retirement or downsize to a smaller one.

Current spending: about $75k to $80k annually including mortgage payment. Could drop to $40k if the house is sold at retirement.

Would love to hear some advice on achieving my goal (retiring in 15 years).

Thanks!

 

[timemoveson]

If I compare your situation to where I was at your stage, I think you are exceedingly well positioned if your numbers play out as you suggest they can.

You did not mention employment confidence levels or children. I would see these as two factors to understand that could add risk or cost to the equation.

But on the surface, given your savings rate and spending rate, you have a straight line path to retirement in that range or earlier, in my opinion. Clearly, what you are doing to earn, save and invest your wealth is working well so far so keep doing it and look for opportunities to accelerate it without impeding your ability to enjoy your life.

 

[dk345]

Thanks!

I have a one year old kid. We probably won't qualify for financial aid when he enters college so we need to save for his college education. We don't have any big spending plan going forward (primary residence already bought) so we are basically investing all our financial assets in equity (index) trying to maximize return. We probably are going to fund my son's education selling one investment property if we don't have enough liquid asset when we retire using 3%-4% SWR. Right now, we haven't put any money into 529 plan since we prefer the flexibility of our financial asset and also we are somewhat confident that we will have taxable money to cover that part 16-17 years later.

Question here: is it wise not to invest anything in 529 in my situation? We don't have money in IRA as well since our AGI is higher than limit. We know we can use backdoor to contribute. However, considering we probably will have quite some money in retirement accounts when we retire, it makes sense to save some more in taxable accounts so it will be easier to bridge the gap for years between 50 to 60?

 

[Pilot2013]

Those are incredible numbers! Wish I had been thinking that far ahead at 35. Seems to me just keep doing what you're doing.

Good luck!

 

[dk345]

Those are incredible numbers! Wish I had been thinking that far ahead at 35. Seems to me just keep doing what you're doing.

Good luck!

Thanks! Recent strong stock market helped a lot in growing our numbers. Considering relatively long investing horizon and our high risk tolerance, we will stay 100% invested in equity at least in the next 10 years.

 

[pullmyfinger]

You are doing an excellent job! By continuing to save large sums and tracking spending to minimize expenses, you may very likely be able to retire earlier than 50.

DH and I recently retired in our 40s. I think we likely had similar assets or less than you have when we were your age. It is really fun as your portfolio gets bigger to see how much it generates on its own. The first million is the hardest, each one gets much easier.

 

[M Paquette]

Well done, sir, well done!

We were in a more or less similar situation, and didn't do the 529s either, for similar reasons, along with their coming along a little too late for us (would have preferred a two decade headstart). We felt that a well-balanced portfolio could outweigh the advantages of the 529 plans we had available for us. If we knew exactly which school the kids would be heading to a decade or two in advance, the prepaid variations of 529s might have been better choices, but we raised them headstrong, and figured if we prepaid they'd just insist on going someplace else. ;-)

 

[dk345]

Thanks for the comments pullmyfinger! Right now I am looking at 50s as the earliest so we won't get bored if we retire too young.;-) also, my son will be heading to college at that time so we can start executing our travel plan...

 

[dk345]

Hi MPaquette, we probably will let my son to take a loan first. then will offer him paying off the loan after graduation in the condition that he can land a job and support himself. so he will get more incentives in getting better grades and looking for a job I guess?

 

[Pilot2013]

dk345- I would stop the requirement at graduating. I did the same with DD's to ensure they had "skin in the game", but as my Dad did help me (I worked to pay for living, he paid tuition, which was A LOT less back then), I hoped to leave them without the worry of student loans.

 

[escapee2020]

Wow you are definitely on the right track, You are already worth over a million between homes and investment accounts


Escapee2020

 

[dk345]

2016 year end update:

1. Stock market went up well last year. Invest-able asset (401k+brokerage) increases to $1.3m now.
2. Investment property generated around $15k free cash flow last year. Looks like rent keeps going up in the recent years in SoCal.
3. Total net worth sits at $2.04m now.
4. No separate savings for kids college yet. But this is not an expense until 15 years later. Thinking of funding college expense using after tax money due to the flexibility of the fund.

Still planning to retire around 2025-2030 on $50k annual budget (today's dollar).

 

[JohnnyBGoode]

Hi dk345 - I was/am in a very similar situation and also live in CA (though I am 50 now and will FIRE in a few months).

I put two children through college using funding from 529 plans - I'm not sure why you wouldn't want to take advantage of them if possible.

I setup two 529 accounts for the kids (2 of them) in Fidelity when they were about 3-5 years old and funded it pretty religiously for the subsequent 15 years. Sure, the fund selection might not be optimal, but the growth on withdrawals are TAX FREE when used for education. Living in CA we have to deal with high taxes. And at our income level there aren't that many tax deferral options. I gladly traded off fund selection for tax-free growth.

I just paid tuition & housing straight out of the account directly to the university so there is no issue with ensuring the $$$ are being used properly.

Unless your child is going to serve in the military straight out of high school or you can guarantee that he/she will get a full ride someplace, my strong recommendation would be to set up the 529 and start putting in regular deposits (so you can dollar-cost-average over the next 15 years).

 

[dk345]

Hi dk345 - I was/am in a very similar situation and also live in CA (though I am 50 now and will FIRE in a few months).

I put two children through college using funding from 529 plans - I'm not sure why you wouldn't want to take advantage of them if possible.

I setup two 529 accounts for the kids (2 of them) in Fidelity when they were about 3-5 years old and funded it pretty religiously for the subsequent 15 years. Sure, the fund selection might not be optimal, but the growth on withdrawals are TAX FREE when used for education. Living in CA we have to deal with high taxes. And at our income level there aren't that many tax deferral options. I gladly traded off fund selection for tax-free growth.

I just paid tuition & housing straight out of the account directly to the university so there is no issue with ensuring the $$$ are being used properly.

Unless your child is going to serve in the military straight out of high school or you can guarantee that he/she will get a full ride someplace, my strong recommendation would be to set up the 529 and start putting in regular deposits (so you can dollar-cost-average over the next 15 years).

Thanks for the comments JohnM.

Yes, I am thinking about contributing to a 529 plan starting next year. There are several reasons that I don't want to go full speed in funding college expense now:

1. There are many good public universities here in California. The budget will be very different going to public school vs top tier private school. I probably should be targeting for public schools budget so I won't have much leftovers in my 529 account in case my kids don't get accepted by top tier private schools. Public school cost 100k to 150k in today's dollars. If 40% of that is capital gain and taxable then I am going to save around 10k in tax vs withdrawing carefully from my taxable accounts.
2. Uncertainties of college expense. Are they going to get any scholarships? Possible of getting the education abroad? College education expense has gone up crazily in the past years. We are possible due for some policy changes in the next 15 years.
3. Limited selection of fund choices and higher fees.

With all the limitation above I feel like that I am not get properly compensated from the tax savings. But I am looking into the option to fund enough money at least for public school expenses.

Anyway, appreciate your suggestions and I am glad 529 plan works well for you and your kids!

 

[JohnnyBGoode]

1. There are many good public universities here in California. The budget will be very different going to public school vs top tier private school. I probably should be targeting for public schools budget so I won't have much leftovers in my 529 account in case my kids don't get accepted by top tier private schools. Public school cost 100k to 150k in today's dollars. If 40% of that is capital gain and taxable then I am going to save around 10k in tax vs withdrawing carefully from my taxable accounts.

Yes, that is exactly what I did - I funded for 4 year University of California education for each. Turns out that worked out perfectly. One went to a UC and one went out of state, with a partial scholarship that brought the tuition down for out-of-state student to UC level

2. Uncertainties of college expense. Are they going to get any scholarships? Possible of getting the education abroad? College education expense has gone up crazily in the past years. We are possible due for some policy changes in the next 15 years.

My impression is maybe they can slow tuition rates, but they aren't going down. Plus at your/our income level, full ride scholarships are rare.

3. Limited selection of fund choices and higher fees.

With all the limitation above I feel like that I am not get properly compensated from the tax savings.

I guess I still don't quite get that tradeoff- the tax savings on the growth would be 40% or so and the funds & fees really aren't that bad. I would certainly not choose them for my regular portfolio, but I viewed it as a 40% automatic bump

Anyway - best of luck - sounds like you are on the right track!

 

[dk345]

2020 mid year update:

1. Invest-able asset (401k+brokerage): $3.22m
2. Investment property generated around $22k annual free cash flow
3. Net worth sits at $4.34m including home equity.

Thinking about moving retirement date to 2022 from 2030.

My annual expense is about $75k including mortgage payment. I expect to spend $100k when I retire since travel expense will be higher.

 

[Foodie]

dk345,


Congratulations and thanks for the update. Your numbers are pretty impressive and from a financial point of view look solid: $100K/year expenses with $3.22m invested assets. You are good to go.


How are you doing in the psychological part of retirement? Here are some questions that I had/have to make peace with:



Will you be able to unlock the golden handcuffs?


Is your partner/spouse on board? You have not gotten on each other's nerves spending tons of time together during COVID? If not, that is a great sign!


How is your relationship with work?


You think that you are psychologically ready?


P.S. I am thinking of retiring in 2022 as well.