Are we on track?

[brady778]

Hi All-

I am looking for some feedback on if we can retire in 8-10 years. We are in our early 40s, and I was hoping to retire in 8 years. The kids will be in college starting in 10 years.

Our current assets are
401k - 1.8 M
Taxable - 600K
Home equity around 400K
Mortgage is around 600K
529s - 200K ( Hoping to fund to 750K )

We contribute about 70K to retirement accounts and save 40-50K in taxable. We would like to target 120-150K income annually in retirement. This will include all expense like healthcare, taxes etc. Most of the investments are in low cost index funds with an AA of 80/20

I think we are on track but looking for any criticism or suggestions.

 

[klondike8]

I think you are on track if you can keep pumping $120k/year into saving for the next 8 years and the market is cooperating.

Your 529 seems too high to me. Let them have some skin in the game. I will never give my kids a free ride even I can afford it but it may be just me.

 

[Scratchy]

In 2000, I would never have guessed my portfolio would be as low as it was in 2010.
In 2010, I would never have guessed my portfolio would be as large as it is today.

This is all with a fairly steady income, and no major financial shocks. That could have made things even more extreme.

You'll just have to continue spending and saving prudently and see what the markets and lady luck deliver to you.

 

[WyomingLife]

Hi All-

I am looking for some feedback on if we can retire in 8-10 years. We are in our early 40s, and I was hoping to retire in 8 years. The kids will be in college starting in 10 years.

Our current assets are
401k - 1.8 M
Taxable - 600K
Home equity around 400K
Mortgage is around 600K
529s - 200K ( Hoping to fund to 750K )

We contribute about 70K to retirement accounts and save 40-50K in taxable. We would like to target 120-150K income annually in retirement. This will include all expense like healthcare, taxes etc. Most of the investments are in low cost index funds with an AA of 80/20

I think we are on track but looking for any criticism or suggestions.

Welcome and thanks for posting.

I don’t think we have sufficient information to assess.

What is your household income? I’m guessing there are two wage earners, with maybe gross $500K. Maybe a bit more.

How many children?

Your expenses are framed as “around” [X]. Do you know what your current expenses are? How accurate are you forecasts of future expenses?

What does FireCalc say?

 

[DrRoy]

I believe that at the age you have in mind, for added security, you should try for a WR near 3%. For that, you need your RE assets to about double.

 

[brady778]

I think you are on track if you can keep pumping $120k/year into saving for the next 8 years and the market is cooperating.

Your 529 seems too high to me. Let them have some skin in the game. I will never give my kids a free ride even I can afford it but it may be just me.

Thanks. I am projecting we will be able to do that. I hear you on the 529, but we like to pass on the savings to future generations or donate to charity

 

[brady778]

Welcome and thanks for posting.

I don’t think we have sufficient information to assess.

What is your household income? I’m guessing there are two wage earners, with maybe gross $500K. Maybe a bit more.

How many children?

Your expenses are framed as “around” [X]. Do you know what your current expenses are? How accurate are you forecasts of future expenses?

What does FireCalc say?

Unfortunately, I do not have a good estimate on our expenses but I am going to bet that they will be much lower in the future. We spend most of our monthly budget on kids activities, eating out and traveling. One of my goals this year is to get a good estimate on our monthly expenses. I would say currently they are around 8-10K including mortgage.

Firecalc is at 100% at annual 150k spending and retirement in 8 years. The time Period was set to 50 years, with social security of $48/K for both starting in 2045.

 

[brady778]

I believe that at the age you have in mind, for added security, you should try for a WR near 3%. For that, you need your RE assets to about double.

So the target should be > 5M. I am not sure if we can get there in 8 years.

 

[karen1972]

You have $600k on your mortgage, are you planning for that to be paid off by then or is that part of your expenses in retirement?

 

[brady778]

You have $600k on your mortgage, are you planning for that to be paid off by then or is that part of your expenses in retirement?

Good question. I think I am willing to carry the mortgage since the interest rate is low (<3). Mostly likely will downsize when the kids leave for college.

 

[The Cosmic Avenger]

If you have any Fidelity accounts, their retirement planner has a very detailed budget worksheet hidden away. It allows you to mark expenses as necessary or flexible (i.e., utilities vs. luxury travel), and to put in time-dependent expenses, like private health insurance until 65. I used my current budget to estimate most of those, and it made me look up what we spend per year on each utility.

The good news is twofold: one, your costs will go WAY down as the kids grow up and move out, and if you're saving like crazy, that is one huge "expense" that will disappear when you retire (although I will still maintain a property tax account that gets 1/12 of our annual bill transferred into it every month, for example).

 

[brady778]

If you have any Fidelity accounts, their retirement planner has a very detailed budget worksheet hidden away. It allows you to mark expenses as necessary or flexible (i.e., utilities vs. luxury travel), and to put in time-dependent expenses, like private health insurance until 65. I used my current budget to estimate most of those, and it made me look up what we spend per year on each utility.

The good news is twofold: one, your costs will go WAY down as the kids grow up and move out, and if you're saving like crazy, that is one huge "expense" that will disappear when you retire (although I will still maintain a property tax account that gets 1/12 of our annual bill transferred into it every month, for example).

Thanks for the Fidelity tip! I think that will help to track expenses

 

[Omalley]

As mentioned above, you need to understand how every dollar is currently being spent. Then you can perform a reasonable analysis of how expenses may change during the next 8 years. I use Quicken to track our finances, but there are many options available today. This exercise also highlights unnecessary spending that can be eliminated without pain (recurring charges for services no longer valued).

As for the planned 529 savings, depending on the number of kids you may be overfunding a bit. We are about to send the first of two kids to college this fall. Considering mid-west flagship State U's both in/out of state. After merit scholarships, cost is $30k/yr for tuition, fees, dorm and meal plan. Also have the option of less prestigious in-state universities with full merit scholarships, so $15k/yr for fees, dorm, and meal plans. I can understand the desire to set up future generation education funds, but don't do so to the detriment of saving for your desired retirement.

Overall, it looks like your existing investments with your planned contributions should have you in an ideal situation in 8 years. Your Taxable investments will be useful in bridging the gap while a Roth conversion ladder is put in place after you stop working.

 

[brady778]

As mentioned above, you need to understand how every dollar is currently being spent. Then you can perform a reasonable analysis of how expenses may change during the next 8 years. I use Quicken to track our finances, but there are many options available today. This exercise also highlights unnecessary spending that can be eliminated without pain (recurring charges for services no longer valued).

As for the planned 529 savings, depending on the number of kids you may be overfunding a bit. We are about to send the first of two kids to college this fall. Considering mid-west flagship State U's both in/out of state. After merit scholarships, cost is $30k/yr for tuition, fees, dorm and meal plan. Also have the option of less prestigious in-state universities with full merit scholarships, so $15k/yr for fees, dorm, and meal plans. I can understand the desire to set up future generation education funds, but don't do so to the detriment of saving for your desired retirement.

Overall, it looks like your existing investments with your planned contributions should have you in an ideal situation in 8 years. Your Taxable investments will be useful in bridging the gap while a Roth conversion ladder is put in place after you stop working.

Thanks for the reply and data point on college spending. It's really hard to estimate what the future costs will be, so good to get some real world numbers. Our biggest spends are eating out due to nature of our jobs and traveling with family, along with kid related expenses. Yes, I am hoping for Roth conversions and spending down the Taxable account while bridging.

 

[Retired Expat]

Personally, I think you are cutting it close or low. Assuming retirement at 50 in 8 years, Assuming you add 50k a year to your taxable retirements savings you will be at 1 million. With 5% interest assumed future value is about 1.36M. Which at a WR of $150k is close since you can’t or shouldn’t access the 401k before 59 1/2 if they don’t change that.

Of course retirement can be many things and all at different price points. Sailing the world on your yacht or puttering at home in your MCOL neighborhood. 1st class travel with stays at the best 5* hotels or AirBnB stays or even house swapping for nothing with other folks.

What I can tell you from my experience is that all the best planning will account for no more than 50 percent of how things will turn out about how your life will go. So really only you can figure out where you want that retirement to be, in what kind of home, at what level of luxury, how much and what kind of travel, is there an expensive golf club membership involved? One or two cars etc etc.

I moved to a very LCOL area when I retired and so wound up spending much less than I had budgeted. So now 8 years later thanks to an unexpected market run up can pretty much do what ever I want. Well , within reason anyway.....(Still not flying 1st class and staying at the George V in Paris!)

 

[brady778]

Personally, I think you are cutting it close or low. Assuming retirement at 50 in 8 years, Assuming you add 50k a year to your taxable retirements savings you will be at 1 million. With 5% interest assumed future value is about 1.36M. Which at a WR of $150k is close since you can’t or shouldn’t access the 401k before 59 1/2 if they don’t change that.

Of course retirement can be many things and all at different price points. Sailing the world on your yacht or puttering at home in your MCOL neighborhood. 1st class travel with stays at the best 5* hotels or AirBnB stays or even house swapping for nothing with other folks.

What I can tell you from my experience is that all the best planning will account for no more than 50 percent of how things will turn out about how your life will go. So really only you can figure out where you want that retirement to be, in what kind of home, at what level of luxury, how much and what kind of travel, is there an expensive golf club membership involved? One or two cars etc etc.

I moved to a very LCOL area when I retired and so wound up spending much less than I had budgeted. So now 8 years later thanks to an unexpected market run up can pretty much do what ever I want. Well , within reason anyway.....(Still not flying 1st class and staying at the George V in Paris!)

Thanks. Yeah, I think you are correct and we are cutting it close during bridging period and that's why I am a bit concerned about the retirement that early. So I guess two alternates would be save more or delay it few more years. We definitely won't be traveling in uber luxury, or living in mansions. The plan is to downsize the home and travel frequently.

 

[ncbill]

Personally, I think you are cutting it close or low. Assuming retirement at 50 in 8 years, Assuming you add 50k a year to your taxable retirements savings you will be at 1 million. With 5% interest assumed future value is about 1.36M. Which at a WR of $150k is close since you can’t or shouldn’t access the 401k before 59 1/2 if they don’t change that.

Of course retirement can be many things and all at different price points. Sailing the world on your yacht or puttering at home in your MCOL neighborhood. 1st class travel with stays at the best 5* hotels or AirBnB stays or even house swapping for nothing with other folks.

What I can tell you from my experience is that all the best planning will account for no more than 50 percent of how things will turn out about how your life will go. So really only you can figure out where you want that retirement to be, in what kind of home, at what level of luxury, how much and what kind of travel, is there an expensive golf club membership involved? One or two cars etc etc.

I moved to a very LCOL area when I retired and so wound up spending much less than I had budgeted. So now 8 years later thanks to an unexpected market run up can pretty much do what ever I want. Well , within reason anyway.....(Still not flying 1st class and staying at the George V in Paris!)

What stops them from rolling the 401k to a traditional IRA on retirement & then accessing those funds penalty-free using Rule 72(t)?

 

[brady778]

we may be able to use that rule to close the funding gap to 59.5.

 

[Mdlerth]

Your future's so bright, you gotta wear shades

So the target should be > 5M. I am not sure if we can get there in 8 years.

No one knows for certain what the future holds, but doubling in 8 years means increasing at an average of 9%. You're already contributing about 5% per year, so it's not so far-fetched. The ominous "sequence of returns" threat doesn't come into play during accumulation, other than perhaps in your favor. I think your chances are excellent.

Also, once you tap SS, it will cover a third of your expenses, so your projected 3% WR at that point will drop to only 2%. I think the technical term accountants use for that is "bulletproof".

 

[brady778]

No one knows for certain what the future holds, but doubling in 8 years means increasing at an average of 9%. You're already contributing about 5% per year, so it's not so far-fetched. The ominous "sequence of returns" threat doesn't come into play during accumulation, other than perhaps in your favor. I think your chances are excellent.

Also, once you tap SS, it will cover a third of your expenses, so your projected 3% WR at that point will drop to only 2%. I think the technical term accountants use for that is "bulletproof".

Thanks. Good point about contributing 5% Already via savings. I think we are in good shape as long as we can continue saving at the same rate for the next 8 years. I had reduced our social security benefits by 10% to account for any surprises so that’s additional cushion in there as well.

 

[Rambler]

I think you are on track if you can keep pumping $120k/year into saving for the next 8 years and the market is cooperating.

Your 529 seems too high to me. Let them have some skin in the game. I will never give my kids a free ride even I can afford it but it may be just me.

I agree. We told our kids we’d pay for tuition, books and rent. They were on the hook for food, clothes, incidentals, and play money. We bought our son a car, but he was required to pay the insurance and other costs. Because my daughter went to school in a Hawai’i and didn’t need a car to get to school and work, she chose to wait until after graduation for hers. She ended up with a better car than my son, because, she got married and they paid their own rent, and she got a scholarship for the last two years of school, so we just had the books to pay for. And my son took extra time to graduate that my daughter didn’t require. So her car was a bit more comfortable than his. We had to show him the math, that we had actually spent much more on his education and car combined than on hers, but he was still resentful.

 

[Rambler]

So the target should be > 5M. I am not sure if we can get there in 8 years.

Well, your savings are currently 2.4 million. In 8 years, at a 7% annual return, you’ll have 4.1 million, on what you have saved already. Of course, I don’t know what your AA is, nor do I know what the stock market will do in the next 8 years. Then, add in the 960k you indicate you will save in 401k and taxable until then, and, again, depending on returns, you have your 5m, plus or minus. So if you stick to your plan, I think you may be able to pull it off. OTOH, if you had 10 years, you probably have enough wiggle room to get to your goal.

 

[brady778]

Well, your savings are currently 2.4 million. In 8 years, at a 7% annual return, you’ll have 4.1 million, on what you have saved already. Of course, I don’t know what your AA is, nor do I know what the stock market will do in the next 8 years. Then, add in the 960k you indicate you will save in 401k and taxable until then, and, again, depending on returns, you have your 5m, plus or minus. So if you stick to your plan, I think you may be able to pull it off. OTOH, if you had 10 years, you probably have enough wiggle room to get to your goal.

True! Thanks for inputs. One of the big drivers for ER is the bridge period to convert 401K/IRAs at lower tax rates. In that regards, I rather withdraw less $$ but retire earlier.

 

[Scrapr]

I agree. We told our kids we’d pay for tuition, books and rent. They were on the hook for food, clothes, incidentals, and play money. We bought our son a car, but he was required to pay the insurance and other costs. Because my daughter went to school in a Hawai’i and didn’t need a car to get to school and work, she chose to wait until after graduation for hers. She ended up with a better car than my son, because, she got married and they paid their own rent, and she got a scholarship for the last two years of school, so we just had the books to pay for. And my son took extra time to graduate that my daughter didn’t require. So her car was a bit more comfortable than his. We had to show him the math, that we had actually spent much more on his education and car combined than on hers, but he was still resentful.

Please tell me you got them both Ramblers out of your barn full of Ramblers...

your daughter just got the "nicer" Rambler ;-))