Hello! Reviewing my plans :-)

[vetmom]

Retirement plans

Hello,

I'm a 37 year old female and single parent to one 5 year old child with a lifelong expensive medical condition. I thankfully have relatively dependable employment (6 year as an associate veterinarian in a thriving small animal practice) and live in a reasonably low cost of living area in rural TN. I also love my job, but I would love it a lot more if I did it purely because I enjoyed it and not because I also need the money :-)

My goal for FIRE is currently 55-60 and I am not aversed to some part time work in retirement - but I want it to be either volunteer or at my enjoyment and leisure - not to support myself!

My son will hopefully be fully independent by 25 as with his medical condition insurance for him and medication costs will be outrageous until he is gainfully employed or a medical breakthrough occurs. Funding his insurance, helping fund his education if he so chooses and paying off my mortgage are my 3 big financial pre-retirement goal.

Financial Information

Income
$75,000 annual base salary but bonuses possible so I can make an additional $10,000-20,000 annually if our clinic keeps growing at its current rate.

Debt
-Mortgage $48,900 @ 4.125 %
-Paying $200 extra to principal/mo
- should have it paid off in 10 yrs max on this schedule

Investments
-$68,000 taxable in largely stock, inherited
-Tax deferred
tIRA $87,000
Roth $30,000
Simple IRA $17,000

80/20 stock/bond split for asset allocation

Continued annual contribution plan
-$12,500 max my Simple IRA
-$5,500 max Trad or Roth IRA
-$6750 max HSA (save receipts to try to treat this as a stealth tIRA)


Budget
My budget based on the above is with presumption of enough bonus money to cover the HSA costs so I do not budget for that monthly. I've not made less than $5000 in annual bonuses in 4 years & work is only getting busier!

50,000/yr after tax and includes my child and childcare expenses, LTD insurance and life insurance which obviously will disappear as I near retirement - so I believe I could live comfortably on $60,000/yr pretax


So if all goes well investing $25,000-27,000 annually to tax advantages accounts toward retirement goal for the next 20 or more years. If I have additional bonus income I will be contributing the extra money toward
1) Medical costs to avoid tapping HSA savings
2)pay down mortgage principal
3)Enjoyment for my son and I :-)
4)additional savings/taxable account

Running this plan through Firecalc it shows no failure so it looks like a successfully plan. I've played around with online compounding calculators and assuming a conservative stock/bond return of say 3-4% overall in 20-25 years my timeline should allows me to withdraw around 60,000/yr and live very comfortably in retirement, especially once SS starts kicking in. Of course if business stays good allowing me an extra $15,000 a year and the stock market returns are better than my conservative 3-4% guess then my timeline could certainly speed up!! I'm conservative in my planning by nature, however, so I don't want to depend on those things. Does this seem like a reasonable approach? Do my numbers seem at least theoretically sound? Thoughts appreciated.





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[pb4uski]

I would divert the extra $200/month in mortgage principal to investments since I think in the long run your 80/20 investments will return more than 4.125%. I think 3-4% is too conservative and you will likely do better. Good plan though.... congratulations!

[Katiek]

Welcome, Vetmom!

[dvalley]

Great info there for your first post, sounds like you've done your homework . Also, very similar to my first post here a few years ago when I was 38.

To summarize:
Salary+bonus = $75-80k+ annual - good
Your investments+savings @ 37yo = $202k - very good
Annual savings rate of 20-25k - very good
Target retirement nest egg in today's dollars = 1.5-1.8M (4% SWR)
AA: 80/20
Timeframe to target FIRE age 17-20 years - great

Looks like you've got this as long as you keep going wit the plan. I too like what pb4uski suggested but many folks feel better when their house is fully paid off. I think with your savings, AA and time-frame you could go either way and be fine.

[gauss]

FWIW - My personal strategy to paying off the house is to maintain a payment until both DW and I have stopped working for good. The idea is that when she stops working, our household income will drop significantly. By timing the house payoff to be at the same time it will tend to cushion the change in income. I refinanced to a HEL at 1.9% a few years ago so I am not taking too much of a financial hit with this psychological appealing strategy.

-gauss

[vetmom]

Thanks all! I appreciate the feedback. Yes, I've gone back and forth over invest vs. payoff mortgage. For me getting the mortgage paid off is probably more for my peace of mind than the smartest financial decision. Seeing the amounts of money that go to the interest on my mortgage over the life of the loan just hurts me! My first impulse is to try to throw all my extra money at paying it down, so only doing $200/mo extra and trying to split bonus money between investing and paying down the mortgage is my mental compromise on that :-)


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[target2019]

Quote:

Originally Posted by vetmom Thanks all! I appreciate the feedback. Yes, I've gone back and forth over invest vs. payoff mortgage. For me getting the mortgage paid off is probably more for my peace of mind than the smartest financial decision. Seeing the amounts of money that go to the interest on my mortgage over the life of the loan just hurts me! My first impulse is to try to throw all my extra money at paying it down, so only doing $200/mo extra and trying to split bonus money between investing and paying down the mortgage is my mental compromise on that :-)

Since you're maxing the retirement plans, and have extra cash, it makes sense to pay down 4.125% loan as long as you are comfortable with it.

The opposite argument is that you could invest in more equities, and possible have better return.

We paid off early, and had no debt to speak of as kids entered college. So the strategy helped us quite a bit.

[mystang52]

In your situation you are definitely doing the right thing paying extra towards your mortgage: "For me getting the mortgage paid off is probably more for my peace of mind...." That was my reason, as well, when I aggressively paid off my mortgage.
Personal finance is partly emotional, so if a given strategy gives you that emotional peace if mind it's worth a lot. On this issue, I'm with you and suggest you stay the course.

[dvalley]

When I sat down to calculate what I'm paying for the mortgage interest rate (3.75%), after tax deductions it was effectively only 2.2%. While it's still a chunk of money (on $300k balance) I figured I could make more than 2.2% with index funds over the next 10 years. So I eased up on the mortgage payoff. However, I do fully understand the peace of mind part- it's one of those decisions I'll keep going back and forth on.

[Slow But Steady]

Would your son qualify for a special needs trust?


I'm not sure exactly what the rules are, but perhaps someone else could chime in on whether it would be a useful tool.

[MichaelB]

Welcome to the forum, Vetmom!

I'm sure you have included both life and disability insurance in your plans. In your situation a Special Needs trust, as referenced by Slow But Steady, can also be very helpful.

[vetmom]

I don't think he will qualify for a special needs trust. His medical condition while lifelong shouldn't prevent him from living a fully functional and productive adult life (unless a rare neuro side effect occurs), it's just incredibly expensive to manage! I do still hope for a cure on his lifetime.

I do have long term disability insurance, life insurance and a will (if I die while he is a minor it determines guardianship) and trust set up to control dispensations of his inheritance until his 35th birthday if I were to die while he was still young. Thank you for the suggestions.


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[Markola]

Bravo, you are making amazing progress toward your clear goals. Smart people come down on all sides and strategies regarding the mortgage so, in a low interest rate environment, it really comes down to what you prefer. In actuality, it appears you could pay it off today with your taxable $ and then really crush your savings for the coming years until you retire. Or put the $200/mo into your taxable investments to help build a mountain of assets and choices later, which could include paying the mortgage off at that time, or renting the house for income, or selling and moving to an inexpensive condo or rental apartment. Personally, I've decided that making extra mortgage payments doesn't benefit my monthly budget because the mortgage payment + extra payment + upkeep means that too much of my cashflow goes to "Housing," which is very low return, and could grow faster elsewhere. I have also learned the hard way a few times that stuff does hit the fan in life and, when it does, cash - or at least liquidity - is king. Good luck!

[MBAustin]

Welcome, vetmom! You seem to have an excellent grasp on the FIRE fundamentals - DIY investing, LBYM, and sticking to the plan. You'll be an inspiration to others here, I'm sure!