Looking for a sense check on my math..

[sebvad]

Married (ages 41/39), 1 child, both parents work with a combined salary of $200k/year. Net worth $1 mm USD. Current 401k value of $600k, eligible for $1500/mo of pension at age 65. Child's education is paid for, have $200k left on a $500k home. $90k cash on hand.

Considering going to a single income structure, which would take the annual income down to about $80k/year. Assuming that single income covered existing expenses + maxed out future 401k contributions until 65, pretty much every model i'm running suggests we'll be able to have an inflation adjusted $100k retirement income annually available to us (not including SS).

Does that compute for those of you who are more sophisticated at this than i am? or have i gone and gotten my hopes up

 

[RetiringAt55]

My concern is on your expenses. If you really can live comfortably on $80K/yr-401K contributions - income tax which is less than $60K, I would expect you to currently have more in savings if you had been earning $200K a year. I think you need a better idea of your real expenses. If you really can live on $60K/yr, I would think you do not need the $100K retirement income.

What models are you running and what expenses and rates of return are you assuming?

 

[sebvad]

Thanks. We just built a new house, and used quite a bit of our cash reserves to fund the house - so the past 6 months of expenses have been quite out of whack, to be certain. I've got a very firm grasp on my monthly expenses, having tracked it down to the penny for the last 20 years - so i average those expenses yearly, take the average increase of year on year, and then use that to project future increases in expenses.

I've used the FIRE calculator, the vanguard calc, and the Flexabile Retirement Planner to ballpark my numbers, but to be honest am not certain i'm using them correctly. I tend to use a below average portfolio return to be modest. Main question is, with our curent 401k balance of $600k, and a single income maxed out 401k conribution from age 40-65, would the $100k/yr retirement funding look realistic?

 

[karluk]

...Assuming that single income covered existing expenses + maxed out future 401k contributions until 65...

I can only echo RetiringAt55's comments. If your current expenses allow you to live on $80k per year and still max out 401k contributions, then why isn't your net worth much larger than $1 million? Your assets compared to your current income strongly suggests a family that is saving less - a lot less - than you say you can comfortably manage. If I were in your shoes, I would not feel comfotable dispensing with over half of our household income until I went through an extended period (at least a year or two) of actually living on $80k less 401k contributions. Your savings rate during this trial period should be roughly equal to the $120k second income adjusted for taxes and any other expenses that will decline once your household income is reduced to $80k.

 

[Animorph]

Not much fun to consider working until 65.

I'm seeing $600k 401k + $90k cash as far as invested savings. Does $80k income number include the 401k contributions? Maybe $70k required for portfolio withdrawals and pension, with no SS/Medicare but with healthcare costs? The $1500 pension in 25 years is worth maybe $716/month in today's dollars at 3% inflation, or $8600/year. So you need about $61.4k/year from the portfolio. At a 4% optimistic SWR, that requires a portfolio of $1.54M. I would think you should have no problem growing $690k into $1.54M+ in 25 years, especially with 401k contributions.

But get a handle on what your comfortable expenses/taxes/health and other retirement costs might look like, and whether working to 65 is going to be acceptable. I'd prefer planning to a younger age, just in case health or layoffs derail your plans.

 

[rodi]

Folks - they also say they funded their childs college - so that's another already funded savings account not mentioned.

My big question is why would you want to live on <80k year now, in order to fund $100k in the future? Especially if your child will leave the nest someday.

Something is askew - I just haven't figured out what.

 

[sebvad]

Thanks. $80k is gross. Ballparking a doubling rate of every 10 years, i'd hope the balance is closer to $2.5mm in 25 years. The $80k income would be a tenured professor income, so more stability than the average joe's job, but to be sure, nothing's forever...

Appreciate the second set of eyes guys, and i do hear you on the concern for spending.

 

[sebvad]

Rodi - it's not so much wanting to live on $80k now and $100k later - it's more wanting to ensure the proposed approach makes sense mathmatically, which would give a 20% buffer for 'oh no' moments and unplanned events if it does.

The college education for our child is not funded via a savings account, rather the result of being a professor, the benefit of which is the child recieves a free education.

 

[rodi]

Rodi - it's not so much wanting to live on $80k now and $100k later - it's more wanting to ensure the proposed approach makes sense mathmatically, which would give a 20% buffer for 'oh no' moments and unplanned events if it does.

The college education for our child is not funded via a savings account, rather the result of being a professor, the benefit of which is the child recieves a free education.

Awesome. I have a friend who changed jobs to work support staff at a university in order to get a similar deal. More than made up for the slight drop in pay she took.