38, hoping to ER in 7 yrs, but just got started

[Giro]

Hi All!!

So happy to be part of the community.

I have been obsessed with Mr Money Mustache for months and decided to take the leap and begin my journey to ER.

Here are my numbers. Please don't laugh. I will live on homegrown tomatoes and bike everywhere if I have to.

My husband wants to retire in 8 years and I want to retire in 7.5 years.

Salaries
Me - $125,000
DH - $90,000 + $45,000 pension (he will receive this forever +3% increase ea year)

401K
Me - $105,000
DH - $100,000
DH - will also have a second pension after 8 more years of $20K

Other
Me - Cash $15,000
DH - Cash $50,000
Me - Taxable Investment Account - $10,000 (60/20/20)
Me - ROTH $25,000

Expenses
Me - $28,000 ($5000 is day care)
DH - $50,000 (struggling musician spends a lot on "gear")

Real Estate
Joint home - Value is $225,000
My rental - Value only $50,000 (rental net income of $200/mo after expenses)
His rental - $135,000 but has a $125,000 mortgage so this is ZERO value. Rent breaks even.

I have a 7 year old daughter and a 529 with $10K in it.

He is obviously fine since he has pensions. I don't want to rely on him paying everything so I am trying to cover my portion of the expenses.

My plan is to deposit $2000 per month into my investment account and maintain my 401K deposits of $17.5 annually. What do you guys think? Am I totally nutso?

I ran a FIREcalc and it says it's possible with 91% success rate. I am relying on DH being able to add me to his insurance forever. that's a risk.

[someguy]

Welcome to the forum.

How old is your DH and when can he get the pensions? If he is the same general age as you, can he really get $45K + $20K COLA'd at age 45ish?

Do your expenses include taxes, and if so, are they at your current tax rates or your expected ones in retirement?

Also, major red flag on your rental situation. I need to make a little snippet I copy and paste regarding this, but the gist is that folks almost always incorrectly calculate rental cash flow and also underconsider the amount of risk involved in using these cash flows for retirement calculation.

[Giro]

Thank you for the reply.

My husband is 44. He has been getting his first pension for two years and it will continue until he dies + 3%. He also gets lifetime medical insurance but that is a risk for me. He currently adds me in for a small fee each year. His second pension he will NOT receive for another 8 years. He must put in 10 years. So there is a risk that he will not remain with this employer for 8 more years. His first pension has no risk of ever going away.

My expenses are after estimated taxes on much lower income, but only for myself. I just guessed on my DH's expenses. I did not include any rental income in "salaries". That $200 a month is just extra. I only put those in my post as assets. I can sell the rental but I have long-term renters and they have been exceptional and in the home for 8 years now.

[Giro]

basically, I am poor and my DH has tons of money and can retire whenever he feels like it.

BOOOOOOO for me. haha I'm kidding.

[hsv_climber]

Poor people don't make $125,000 / year....

[heeyy_joe]

What is favorite brand of bike and your favorite tomato type?

[Giro]

Thats what I'm afraid of. By how much should I increase my savings? I am thinking $1000 per month, making total annual savings $56,590 for the 7.5 years.

[timo2]

I think your finances are in great shape. But as you pointed out, the issue is your health insurance. and what about your daughter's insurance? Just thinking out loud here, but by the time you want to ER, we will have a better handle on obamacare. That may help you decided when to ER (with your financial plan, it is 'when' and not 'if').

[hsv_climber]

Quote:

Originally Posted by Giro Thats what I'm afraid of. By how much should I increase my savings? I am thinking $1000 per month, making total annual savings $56,590 for the 7.5 years.

I guess I don't understand the question. You are making $125K. Your expenses are $28K. Ok, maybe you are not counting taxes, then it is another $20-30k or so.
Where is the rest of the money go if not to savings?

[Giro]

My money has gone towards taxes (20k? Hahaha )and paying my half of our home and I bought another car. I blow a bit of money also. After we bought this house, we did some upgrades. I just started my ER plan. Before now, I didnt have a plan at all and I spent whatever.

[obgyn65]

I would not make the jump with a 91% success rate. Sorry. Welcome to the forum.

[Ready]

With your expenses so low it would seem like you have the potential to put a lot of money away in savings. If you are serious about retiring in 7-8 years I would cut back on every expense possible and put everything away that you can. Owning a new car should not be on your list. Your husband's pension is significant, but if you want to have enough money on your own, you have a ways to go. Fortunately, you have a large spread between your income and expenses, so you do have the potential to get there, but you may not like the sacrifices you will have to make to do so.

In any case, welcome to the forum!

[Mill]

Go for it OP. You might make it. It should be close if youre persistant and disciplined. Just to be safe, you would probably want to take the one-more-year route though.

[BigNick]

Quote:

Originally Posted by Giro I blow a bit of money also.

As long as that statement is operative, in the present tense, you are probably not ready to ER (until you have 100% Firecalc success on half of your current assets). Very few people here would ever say that they "blow a bit of money". In effect, by having an unspecified amount of money "blown", you are (perhaps substantially) underestimating your expenses, which are "everything you normally spend", not just "groceries, insurance, and utilities".

[racy]

Giro,
Following up on what BigNick said, I suggest you setup up your investments to be automatic. This way you'll pay yourself first.

[someguy]

As you've said, it sounds like your DH has got a pretty good setup. If I'm brutally honest, it also sounds like he is more focused on ER and a better saver than you are.

That is good that you're not including rentals in your ER cashflow, but I still think there is risk you might not be properly considering. Folks without a lot of landlord experience in residential rentals tend to fairly seriously underestimate the long-term costs. There is a rule that has been validated repeatedly called the 50-50 rule. Consider a place that rents for $1,000/mo. Half (50%) of the rent ($500) will ultimately always go to expenses. Some of these expenses are regular and ongoing (real estate taxes, insurance, maintenance), but others are very intermittent and tend to be large (repairs, vacancy, eviction). You may go for years nowhere near this 50%, but trust me, in the long run you will. So that leaves the other 50% ($500/mo) to pay your mortgage and (hopefully) make profit. So if your PI isn't less than $500/mo, you're losing money!

I know you're not counting on positive cash flow from your or the DH's rentals, but I'm pointing out the 50-50 rule because I fear that one or both may actually be a negative cash flow that you need to consider. Total cash flow on rentals tends to be lumpy, especially in the big expenses category. If you aren't setting aside a relatively small amount each month to account for that, they can be whoppers when they come along. For example, in one rental I have had a stable family of 4 for 7 years. Suddenly, something happened and the domestic situation went south and I had to evict for nonpayment of rent. Between attorney fees, sheriff fees, lost rent, cleanout costs (they left tons of junk) and repairs, my costs are over $10K. At the moment, that's not a big deal because I'm still semi-working and DW is working, but if we were ER'ed this would be a much bigger problem.

Quote:

Originally Posted by Giro Thank you for the reply. My husband is 44. He has been getting his first pension for two years and it will continue until he dies + 3%. He also gets lifetime medical insurance but that is a risk for me. He currently adds me in for a small fee each year. His second pension he will NOT receive for another 8 years. He must put in 10 years. So there is a risk that he will not remain with this employer for 8 more years. His first pension has no risk of ever going away. My expenses are after estimated taxes on much lower income, but only for myself. I just guessed on my DH's expenses. I did not include any rental income in "salaries". That $200 a month is just extra. I only put those in my post as assets. I can sell the rental but I have long-term renters and they have been exceptional and in the home for 8 years now.

[Giro]

Thanks everyone! I really appreciate the feedback!

I am definitely setting everything up to be automatically deducted!

I will have to disagree that my DH is a better saver and more focused on ER. I actually have more money saved than he does, I just don't have a pension. He just went into the military and made a career of it. He is also 6 years older than I am.

My savings are not substantial and I do have a ways to go. I own my rental property and do not have a mortgage. I take 60% of the rent and put it aside for expenses (currently the account has 18 months worth of rental income in it). I have had the rental for 8 years. I do not plan to take this into retirement with me. His property is protected against nonpayment of rent, which is why I am okay with the breakeven status on that one. We would not have to involve any legal authorities to resolve issues. We do not plan to take this property into retirement either. We are basically just sitting on it and allowing the renters to pay the mortage. We also put away half of the rent for expenses.

I am just starting my journey and I do realize I will have to make sacrifices. But, I was a single mom for years on VERY LOW income and I've never really raised my standard of living. Even on $50K a year, I was able to pay off my home, save $100K in 6 years and support my family without a red cent of child support. I've only just recently started earning a decent salary. I'm up for the challenge! (I hope)

My "new" car was a 09 Corolla last year. I also have a Vespa that I drive around town to save gas. I bike to work in good weather.

I did blow a lot of money over the past two years. I bought the Corolla and I paid my half of this house and half of the upgrades. I had $150K in savings before I paid all of those things. My thoughts are that the Corolla will last me 10 years and the home is where we will retire.

I don't have a great foundation but at least I have no debt. My taxes SUCK and my bring home pay is only $6000 (after 401k). I can save half of that very easily. I've never spent more than $2800 in a single month so $3000 should be quite doable, barring unforeseen emergencies.

And I'm going to start growing those tomatoes!!