My imperfect journey and aspirations

[ModestNestEgg]

Greetings, former Early Retirees and Aspirational Early Retires!

First of all, I have enjoyed lurking here, and whether you realize it or not, as a lurker this forum was inspirational for me to begin a slow journey to put myself in at least a better position than I was a few years ago, but I’ve decided to join to be a more active participant. First, enough information about me (without giving away too much sensitive detail):

I’d like to retire at some point in my 50’s and while I’m not terribly affluent, I don’t have an overly expensive lifestyle.

I am in my mid 40’s, and like the common story goes, I wish I had started my retirement planning sooner. I did actually have the best of intentions to be financially responsible when I was young, buying a couple of acres of raw land when I was 20 from summer jobs in high school and the early part of my college days, thinking that was going to be a great investment. It has risen in value a bit, but unfortunately was not in an area that was appreciating as much as others.

So, I obviously do not have the wealth that some of the members here have (and had some very considerable medical expenses a few years ago, though things are good in that area now). I do not have a portfolio in the seven figures (not even quite the six figures yet, but getting close), nor a wealthy uncle who is going to leave me a huge inheritance or summer cottage in the Cayman Islands , but I do have some advantages, one of which was able to start my Roth, 401K, and 403B 8 years ago and have gotten over 91K in it now. That may not be much to some people, but it’s something to me. And I'm in a better position than the people I know of who are living paycheck to paycheck and worried about their electricity getting cut off.

Also, I am fortunate enough to still have a pension, working in the public sector, and being in a state with a well funded pension system that I am fully vested in with 22 years in the public sector and state pension, which also includes vesting with health benefits being paid after I retire until I am eligible for Medicare.

My particulars:
66K Annual Salary (though it's really 62K since a mandatory 4K goes towards my contribution to the pension that I mention below)
37K in savings
No credit card or vehicle loan debit.
46K in mortgage debt. House is probably worth 150-160K but I don’t plan on selling, at least not anytime soon. This will be paid off in 5-6 years, freeing up about $775 a month, though I'll obviously still have property taxes and maintenance costs. That may seem low to some, but it's a decent somewhat newer small home in a quiet community that hasn't seen loads of job growth, though there are areas growing much faster within an hour or so of me. I'm here due to my job and family responsibilities so that I don't have to endure a long commute to either.
Land is probably worth 25K.
31K in Roth IRA (last year I maxed that out and my goal is to keep doing that)
52K in Roth 401K (no employer contribution- I've stopped contributing to that to focus on my Roth)
8K in 457B (no employer contribution- I've stopped contributing to that to focus on my Roth)

I've split the difference between contributing to the Roth and paying a bit extra on the mortgage, which is at 3.7%

My pension would pay out a minimum of a little over $2,500 by the time I’m 50 (in about 6 years which is the earliest I could take my pension) or $3,000 a month by the time I’m 53, though I’m not certain the extent that inflation or COL adjustments of the pension will have on that. Waiting until 57 would bump that pension up to $3,500. At that point, I’d have no mortgage debt and still health insurance, but realistically that’s still not a great amount to live on, but I like the fact that I could change jobs to go in a different direction that gives me more flexibility than my current position, take a few months off to do some brainstorming and relaxing before jumping back into something and I’d still have the subsistence pension no matter what.

So there is my story and where I am at this point.

 

[W2R]

Welcome to the Early Retirement Forum!

It sure sounds to me like you're on the right track and making great progress. I love that you have no credit card or vehicle debt. As for the mortgage, many of us paid ours off early (I did that too), and others invested that money instead. I think that no matter which of these you do, you are way ahead of others at your stage in life.

It sounds like you have figured out all the basics. LBYM (Living Beneath Your Means) is really important right now, while putting any excess that you don't spend into your mortgage or investments. But you already know that.

 

[ModestNestEgg]

Thanks you W2R. I appreciate the welcome and encouragement, and yes, LBYM is what I'm going to continue to focus on!

I know there is peril with timing the market, but I do like the "Fear-Greed Index" and go to that regularly. I have a baseline amount that I contribute to my Roth each month but when the index is going towards greed, I focus on early mortgage payments and when it goes towards fear, I put a little more in the Roth.

 

[Rickt]

ModestNestEgg, Welcome!
AS W2R said, you are in better shape than many .....Congratulations!!
I noticed, the land you own is worth ~$25K. Is there any way you can sell it and invest the proceeds in a Total Market Index Fund or in a balanced Fund so that you can make that money work harder for you?
Best wishes to you.

 

[ModestNestEgg]

ModestNestEgg, Welcome!
AS W2R said, you are in better shape than many .....Congratulations!!
I noticed, the land you own is worth ~$25K. Is there any way you can sell it and invest the proceeds in a Total Market Index Fund or in a balanced Fund so that you can make that money work harder for you?
Best wishes to you.

Thank you for the welcome and encouragement, Rickt.

Selling the property is certainly an idea that's been on the table. I think when I bought it, I pictured the area growing faster than it has and that's still in the realm of possibility, in that some areas 30 minutes away are growing very rapidly, and there are quite a few recreational opportunities around the land, as it is near a lake and national forest. So I'm keeping up with the real estate market closely in that area. I get all kinds of junk mail from out of town investors wanting to buy it, but I know better than giving those a second thought.

 

[street]

You found the right place for your journey to ER. There are great people here with a lot of wisdom and they will build your confidence to retirement.

Welcome.

 

[Midpack]

+3, you're doing better than most of your peers, and better than too many 20 years older than you - (sadly) they'll be working for MANY years to come. You're doing the right things, you just have to stick with it - frankly it's shocking how the nest egg builds the longer you stay at it. Well done.

 

[ModestNestEgg]

+3, you're doing better than most of your peers, and better than too many 20 years older than you - (sadly) they'll be working for MANY years to come. You're doing the right things, you just have to stick with it - frankly it's shocking how the nest egg builds the longer you stay at it. Well done.

Midpack. Thank you so much for the encouragement and yes, I plan to stick with it.

 

[militaryman]

Will you get SS? If you took SS at 62 and retired with the 3500/month from pension at 57 then you could use your nest egg to bridge the 57-62 of no SS. 42k pension plus 20k SS(estimated) fulfills your budget needs, yes ?

 

[teetee]

Good to hear your past and happy that you have a working plan. You are way ahead of the majority of the population because of that.

The first 100,000 is going to be relatively easy for you. And you should definitely celebrate once achieving that goal. The next is 500,000. It was a grind for me but well worth it. From that point on, you are semi financially independent ( but definitely pay off your mortgage and any other form of debt first ) because you won't be in panic mode if you suddenly lose your job, not with half million that you can fall back on.

Net worth of 1,000,000 will take a few more years but the confidence boost from the first 500k is magical enough to keep me going so I think without any unexpected expenses you would not have a problem to get to that goal in 10 years.

By the time you are 55, you will have net worth of 1M and a paid-for house. The retirement (and a long road trip) will be waiting for you at the corner.

That is assuming you are able to raise income (side gigs like drive for Amazon or even just local seasonal delivery opportunities can earn you 30+k more income a year), cut back your expense further to be able to max both of the Roth and 401k contributions annually (that is 25k delayed gratification per year) and make smart decisions on large ticket items (a new washer, a used vehicle, etc).

I did it like it was a game, especially when I learned how to lower my monthly living costs by $50 a month. It got to a point that I have total costs within $300 and all were for essentials, no fun money wasted. Pandemic allowed me to work from home so I was able to cut my transportation costs.

Put all the money (except for emergency fund) in US stock index fund is my easy investment strategy. Don't invest in hypes or something you don't fully understand.

 

[pjigar]

What is your marginal tax rate today? Do you think your marginal tax rate will be lower or higher in the retirement? If it is going to be lower then you should contribute to traditional 401K. At a more macro level, I aim to distribute my savings in to Roth, Transitional Tax differed and after-tax buckets equally. My theory is that it would give me better options to lower my tax bill when time comes.

Do you have access to HSA? You should use that option since lot of employers will contribute something on your behalf. You can contribute minimal required by your employer or more if you can afford. Don't withdraw from HSA but treat it like an investment account and invest the balance into a broad market funds.

 

[Ramen]

What are your current monthly expenses? How do you imagine they will change in retirement?

How is your $91K retirement stash invested?

Will you get Social Security in addition to your expected pension payout?

If you're not already tracking your monthly expenses, now would be a great time to start. You note that your expected pension payout of between $2,500 and $3,500 a month is not a whole lot to live on. Or is it? By the time your house is paid off, you might find your pension is more than enough (plus SS if you're getting it). If it's not, then you still have time to calibrate your saving and investment strategy to make up any difference.

 

[ModestNestEgg]

First of all, I just want to give everyone a big thank you for the warm welcome and words of helpful and practical advice!

You found the right place for your journey to ER. There are great people here with a lot of wisdom and they will build your confidence to retirement.

Welcome.

Thank you Street!

Will you get SS? If you took SS at 62 and retired with the 3500/month from pension at 57 then you could use your nest egg to bridge the 57-62 of no SS. 42k pension plus 20k SS(estimated) fulfills your budget needs, yes ?

I am not one of those public employees who does not pay SS and therefore would not be eligible to receive it. Still, since 62 is close to two decades away, and I'm in the age bracket that is likely to see either some cuts and/or an increase in the eligible retirement age (the exact result in a guess at this point), I'm trying to rely to heavily on a particular expectation but am seeing it as a bonus. I may be able to address the other part of your questions in another response below. But these are good things to think about!

Good to hear your past and happy that you have a working plan. You are way ahead of the majority of the population because of that.

The first 100,000 is going to be relatively easy for you. And you should definitely celebrate once achieving that goal. The next is 500,000. It was a grind for me but well worth it. From that point on, you are semi financially independent ( but definitely pay off your mortgage and any other form of debt first ) because you won't be in panic mode if you suddenly lose your job, not with half million that you can fall back on.

Net worth of 1,000,000 will take a few more years but the confidence boost from the first 500k is magical enough to keep me going so I think without any unexpected expenses you would not have a problem to get to that goal in 10 years.

By the time you are 55, you will have net worth of 1M and a paid-for house. The retirement (and a long road trip) will be waiting for you at the corner.

That is assuming you are able to raise income (side gigs like drive for Amazon or even just local seasonal delivery opportunities can earn you 30+k more income a year), cut back your expense further to be able to max both of the Roth and 401k contributions annually (that is 25k delayed gratification per year) and make smart decisions on large ticket items (a new washer, a used vehicle, etc).

I did it like it was a game, especially when I learned how to lower my monthly living costs by $50 a month. It got to a point that I have total costs within $300 and all were for essentials, no fun money wasted. Pandemic allowed me to work from home so I was able to cut my transportation costs.

Put all the money (except for emergency fund) in US stock index fund is my easy investment strategy. Don't invest in hypes or something you don't fully understand.

Those are all good thoughts. 500K would be extremely ambitious given my situation, however, I like the way you think in terms of having a lofty goal and getting as close as you can. Even 100K gives one more options than zero, so wherever this ends up, an ambitious goal is going to be a positive.

I also like the idea of thinking of it as a game. I know the common advice is don't check your investment account balances, but early on, checking them daily gave me motivation by seeing them grow. Even when we had a correction a few years back, I still checked them because I knew my dollars were buying more shares and that was motivational as well to see the discount I was getting.

What is your marginal tax rate today? Do you think your marginal tax rate will be lower or higher in the retirement? If it is going to be lower then you should contribute to traditional 401K. At a more macro level, I aim to distribute my savings in to Roth, Transitional Tax differed and after-tax buckets equally. My theory is that it would give me better options to lower my tax bill when time comes.

Do you have access to HSA? You should use that option since lot of employers will contribute something on your behalf. You can contribute minimal required by your employer or more if you can afford. Don't withdraw from HSA but treat it like an investment account and invest the balance into a broad market funds.

My tax bracket is 22% at this point, whether that will increase or decrease is a good question. I had done the Roth accounts because I like the idea of having the growth not be taxed, especially if the tax rate rises the way the national debt keeps snowballing. But it may be a good idea to look at other options.

I unfortunately do not have an HSA, as my employer does not offer that with the health coverage they provide (which still costs me a lot in out of pocket and deductibles). I was a little confused on whether I'd be able to start one on my own. Our HR department wasn't able to give me very clear information (and they probably can't as that may be deemed as giving tax advice). But that would be something to look into further I think.

What are your current monthly expenses? How do you imagine they will change in retirement?

How is your $91K retirement stash invested?

Will you get Social Security in addition to your expected pension payout?

If you're not already tracking your monthly expenses, now would be a great time to start. You note that your expected pension payout of between $2,500 and $3,500 a month is not a whole lot to live on. Or is it? By the time your house is paid off, you might find your pension is more than enough (plus SS if you're getting it). If it's not, then you still have time to calibrate your saving and investment strategy to make up any difference.

The $91K include $31K in the Roth IRA, $52K in the Roth 401k (no employer contribution) and $8K in a 457B. I anticipate my biggest change in expenses will be eliminating a mortgage payment of over $9,000/year, plus between my Roth IRA, mandatory state retirement fund, and early payments on my mortgage, that adds up to over a third of my net income, that would no longer be expenses in retirement, not factoring in cost of living and other costs that may (?) increase such as health care.

 

[pjigar]

When I asked future marginal tax rate, I meant: What incomes/cashflows (that you can't control e.g. pensions, SS, etc.) will you have when you retire? Would that put you in 22% bracket or higher? Obviously we don't know how the tax rates will change in the future so you have to go by the today's rate for an apple-to-apple comparisons.

 

[ModestNestEgg]

When I asked future marginal tax rate, I meant: What incomes/cashflows (that you can't control e.g. pensions, SS, etc.) will you have when you retire? Would that put you in 22% bracket or higher? Obviously we don't know how the tax rates will change in the future so you have to go by the today's rate for an apple-to-apple comparisons.

Got it. Thanks for the clarification. Assuming what my pension will be (roughly about $3K per month depending on when I retire- it could be less or more) and maybe Social Security could be optimistically be, that income would only be at the 12% bracket, but if it crept into the 22% bracket, it would likely just barely do so, but like you mention, all of this assumes the tax brackets remain the same.

 

[RxMan]

ModestNestEgg, welcome to the forums! There is a wealth of knowledge and experience here.

I think you are better off financially than you realize. Congrats on realizing you need to plan for your future.

My only comment would be to echo the suggestion to sell the land unless there is some special significance to it beyond its financial value. With the proceeds you could invest in a broad based mutual fund and you’re still young enough to hold it long enough to balance out the volatility.

Consider contributing to your traditional 401k plan with at least some of your allotted retirement savings. This will hedge your bets against future tax policies by giving you some funds in a variety of different accounts with regards to their tax status.

I’m in my 40s as well although I’m getting to my upper 40s now. I don’t really count SS in my planning yet because so much could change before I will be eligible to collect.

I’d just focus on getting a good idea what your annual spending and expenses are so you will be able to properly prepare a budget as you get closer to retirement. What you’ll need in retirement is highly dependent on your spending along with other factors like taxes, healthcare costs, and inflation. Your pension will also play an important role in your retirement planning.

Good luck to you! Glad you decided to join rather than just lurk! Thanks for sharing your background/story with us.

 

[ModestNestEgg]

ModestNestEgg, welcome to the forums! There is a wealth of knowledge and experience here.

I think you are better off financially than you realize. Congrats on realizing you need to plan for your future.

My only comment would be to echo the suggestion to sell the land unless there is some special significance to it beyond its financial value. With the proceeds you could invest in a broad based mutual fund and you’re still young enough to hold it long enough to balance out the volatility.

Consider contributing to your traditional 401k plan with at least some of your allotted retirement savings. This will hedge your bets against future tax policies by giving you some funds in a variety of different accounts with regards to their tax status.

I’m in my 40s as well although I’m getting to my upper 40s now. I don’t really count SS in my planning yet because so much could change before I will be eligible to collect.

I’d just focus on getting a good idea what your annual spending and expenses are so you will be able to properly prepare a budget as you get closer to retirement. What you’ll need in retirement is highly dependent on your spending along with other factors like taxes, healthcare costs, and inflation. Your pension will also play an important role in your retirement planning.

Good luck to you! Glad you decided to join rather than just lurk! Thanks for sharing your background/story with us.

Thank you for the encouragement and advice, RxMan! I agree that people here have a lot of wisdom to offer. I totally agree regarding the budgeting. I think I've been tracking my spending fairly well but there's always room for improvement.

I'd certainly be open to putting the land on the market but I think the two things that have made me hesitate are 1.) I bought it from income during high school when I was doing landscaping for people in my neighborhood, so I think there's some attachment in knowing that I was able to purchase it simply from that, and it's almost motivational to visit it (it's about an hour's drive from where I live, so I go to check on it a few times a year) knowing that. I think mentally it's nice knowing that I have a little plot of land away from my daily life that's mine and I can go visit it. I know those are probably not the most rational reasons but I think that's what's making me think twice before putting it on the market. AND 2.) It's juxtapositioned between a very rural area and a suburban area that's growing fast. I would hate to sell it now and then 10 years from now, the area finally starts booming. That may be wishful thinking or a little bit of FOMO though.

Still, I think that's worth thinking about. At the time, I think I saw owning property as a perfect investment. If I had it to do over again, I would have invested that in a Roth IRA, but that's all hindsight. For a 20 year old, I still think it was a better decision than buying a flashy vehicle that may not even be on the road at this point.

 

[GTP2022]

Remember one thing when reading this forum. Comparison is the thief of joy.

You are in a solid position that will only get better as you keep hitting your targets financially. Don't forget to live an enjoyable life. I'm sure you know this due to the medical issues you referenced.

Best of luck.

 

[pacergal]

+1
Welcome to the forum. Keep saving and monitoring your spending, take time to read and learn. You will get to retirement before you know it.
Savings+Pension+SS is the great "3 legged stool"

 

[Ramen]

The $91K include $31K in the Roth IRA, $52K in the Roth 401k (no employer contribution) and $8K in a 457B. I anticipate my biggest change in expenses will be eliminating a mortgage payment of over $9,000/year, plus between my Roth IRA, mandatory state retirement fund, and early payments on my mortgage, that adds up to over a third of my net income, that would no longer be expenses in retirement, not factoring in cost of living and other costs that may (?) increase such as health care.

What I meant above is not what kind of retirement accounts you have but how the funds in them are invested. Are they in mutual funds? If so, what are the asset types and allocation? Maybe they are in target date funds? Or money market (cash) funds? This is important.

Those are all good thoughts. 500K would be extremely ambitious given my situation, however, I like the way you think in terms of having a lofty goal and getting as close as you can. Even 100K gives one more options than zero, so wherever this ends up, an ambitious goal is going to be a positive.

Just for example, if you put $91,000 into the Vanguard Balanced Index Fund (VBIAX) and added $6,000 a year (your Roth IRA max contribution) to it for 10 years, you'd end up with more than $400K, according to Portfolio Visualizer (I ran a backtest and a Monte Carlo simulation).

With a "lazy portfolio" of three funds or so, you could invest more aggressively and possibly end up with more.

Check out Bogleheads.org for more on lazy portfolios. And I suggest reading Your Money or Your Life for more about tracking expenses and staying true to your goals.

 

[ModestNestEgg]

Remember one thing when reading this forum. Comparison is the thief of joy.

You are in a solid position that will only get better as you keep hitting your targets financially. Don't forget to live an enjoyable life. I'm sure you know this due to the medical issues you referenced.

Best of luck.

Thank you for the kind thoughts, GTP2022. Yes, that is very wise advice to not compare oneself to others. I knew coming here that many people would be much further along than I am, and I just try to be happy for them but focus on my situation when it comes to these matters. And we don't always know what's going on with them. I've known people with lucrative careers with a salary well into six figure per annum territory and they're miserable. It's not worth doing 10 years of aging over a year of high income. That would totally defeat the purpose!

+1
Welcome to the forum. Keep saving and monitoring your spending, take time to read and learn. You will get to retirement before you know it.
Savings+Pension+SS is the great "3 legged stool"

Thank you pacergirl. I appreciate the thoughts and warm welcome.

What I meant above is not what kind of retirement accounts you have but how the funds in them are invested. Are they in mutual funds? If so, what are the asset types and allocation? Maybe they are in target date funds? Or money market (cash) funds? This is important.

Just for example, if you put $91,000 into the Vanguard Balanced Index Fund (VBIAX) and added $6,000 a year (your Roth IRA max contribution) to it for 10 years, you'd end up with more than $400K, according to Portfolio Visualizer (I ran a backtest and a Monte Carlo simulation). Being that those are managed by the state Treasury office as a public retiree fund, I don't have the degree of investment choice over those as my own Roth IRA.

With a "lazy portfolio" of three funds or so, you could invest more aggressively and possibly end up with more.

Check out Bogleheads.org for more on lazy portfolios. And I suggest reading Your Money or Your Life for more about tracking expenses and staying true to your goals.

Thank you for the clarification. I'm sorry, I misunderstood.

Yes, the Roth IRA is a Vanguard 2035 Retirement Fund, but the Roth 401K and 403B are, in rounded percentages, 12% bonds, 31% Large cap index funds, 12% Small & mid cap funds, 36% International funds and 9% Diversified real assets. The 403B, (which is where the least money is at around 8K vs. 52K in the Roth 401K and 31K in the Roth IRA), is similar, except for a higher proportion of bonds (30%). I contributed to those early on, but decided to fund the Roth IRA instead because of more control over how it's managed and the ability to withdraw principal in a dire emergency only, but I have no intention of doing that until retirement except in the most extreme of circumstances.

Any thoughts? And thanks for the website and book information! I will check both of those out.

 

[Ramen]

OK, just for kicks I ran your investment numbers through Portfolio Visualizer, both in a backtest of the past decade and a Monte Carlo simulation for the coming decade. These projections assume a $6,000 annual contribution to your Roth IRA, since you intend to keep maxing it out. Over time, and also at age 50, the max allowed will increase, so the numbers below could be different if you opt to increase (or reduce) your annual Roth contributions. And of course any market surprises could change your actual outcome.

If you had started with $91K a decade ago and added $6K annually to your Roth (beginning with your Roth's current $31K balance) and added nothing to your other accounts (current balances of $52K and $8K), the backtest shows you'd have $378K total now. If you keep doing what you're doing, the Monte Carlo simulation shows you could have up to $471K total a decade from now.

If you use the 4% Rule for withdrawals, or something close, your portfolio could generate about $18K a year ($1,500 a month). Add that to your expected pension and SS benefits for a retirement income estimate.

Remember, these are all just model projections. Your actual outcome will differ.

 

[ModestNestEgg]

OK, just for kicks I ran your investment numbers through Portfolio Visualizer, both in a backtest of the past decade and a Monte Carlo simulation for the coming decade. These projections assume a $6,000 annual contribution to your Roth IRA, since you intend to keep maxing it out. Over time, and also at age 50, the max allowed will increase, so the numbers below could be different if you opt to increase (or reduce) your annual Roth contributions. And of course any market surprises could change your actual outcome.

If you had started with $91K a decade ago and added $6K annually to your Roth (beginning with your Roth's current $31K balance) and added nothing to your other accounts (current balances of $52K and $8K), the backtest shows you'd have $378K total now. If you keep doing what you're doing, the Monte Carlo simulation shows you could have up to $471K total a decade from now.

If you use the 4% Rule for withdrawals, or something close, your portfolio could generate about $18K a year ($1,500 a month). Add that to your expected pension and SS benefits for a retirement income estimate.

Remember, these are all just model projections. Your actual outcome will differ.

I know nothing is a given but that sounds very sweet! Thank you for taking the time out to do this.

If anything, when my mortgage is paid off, I do plan to increase my contributions/investing. And while I may decide to keep working past the time that I've mentioned, at least in some capacity, the goal is to be in a position to be able to make the decision.

Even with the start that I have now, I already feel more at ease than I did when I started doing this.