Well, alright... a blast from the past...

[82-T/A]

So, a little more than 12 years ago, I came on here and posted "1" message, asking if I was on track. You can find that here:


http://www.early-retirement.org/for...ght-spot-for-retirement-27752.html#post518503


For whatever reason, I never responded. But I took some of the advice, but most of it I did not... although, I did take retirement a bit more seriously.



I'm going to ask again, at this point, if I'm "on track" for retirement. I'm not a big fan of posting things that seem bragging, and maybe this isn't... I'm sure most everyone else on here is probably more successful... but I'm going to lay it all out and be judged. Then, after I do that, I'm going to state how my life has changed since my first (and only post, back in 2007).




Here's where I stand:


Education:
- Finished my Associates Degree (paid cash)
- Earned a Bachelors of Science (got partial scholarship, I paid half, my dad paid half)
- Earned a Masters Degree (company paid for it all)

• I merged ALL my prior 401ks into a "Rollover IRA" ... not much, I have about $30k in there.
• I worked for the NFL for 6 years and earned an NFL pension, fully vested, after 5 years. My high-three is based on $68k / $72k / $75k. It averages out to about $23k at retirement age, or less if I take at 57.
• I work for another company which offers a pension at 5 / 10 / 20 years. I'll hit my 10-year mark in two years. Pension payout after 10 years (if I was 57) would equate to around ~$800 a month, as-is.
• I also have a 401k w/ this company which is currently at $109k.
• I have a 529 for my daughter's college w/ $19k in it so far.
• I only have a little shy of $10k in actual money in savings account.

In total, I'd say I have $140k of 401k savings, and guaranteed $30k in retirement income from pensions if I retire at 57.



I don't have any debt, and the next two years I'll be making almost double my current salary of $109k.


So my question is two-fold... what should I be doing differently? I feel like I'm doing pretty good... but I know those numbers are probably pathetic. I'm 41, and thought I'd have a lot more saved by now. Thing is, I like to buy stuff. Most people would say that I'm responsible, so I don't buy frivolous stuff, but I recently renovated two homes myself... spending in total about $120k between the two homes. I know this has increased my equity in the homes, but at the expense of my savings and potential money earned.


One home has a mortgage for $244k, but an estimated value of anywhere from $430-470k depending what website you look. I currently rent out that home, and I'm getting $2,800 a month in rent.



The home I live in has a mortgage $204k, but an estimated value of anywhere from $270-315k depending on the website you look at.



I'm not sure what else to put. My friends all made fun of me a couple of weeks ago because they found out that I've only been doing a 5% match on my 401k, so not at all maxing out my 401k contributions at all. I also don't have a Roth IRA at all. This is all particularly important to me now because my salary will double for the next two years, and I need to make sure I don't get killed in the next tax bracket.




So, I've shared everything... and I apologize if any of it seemed pathetic (to some) or bragging (to others). I just wanted to be open and forthcoming.


What would you be doing differently? What should I do to get back on track.


... how do I even know what "on track," is?



I'm not even sure I want to retire early as I really like my job. But I'm very interested in making sure that I can have a life in retirement if / when I choose to do so, and make sure I can pass something on to my daughter, etc. I also have about $800k in life insurance (which is like $12 bucks a month).



I drive older cars, but they're in great shape... I work on them myself. I don't know what else to put, but... seems I didn't really do everything that was recommended to me in the original post. Go figure... but looking back, I didn't do so bad. My daughter was born, I improved my income, I have a rental property, etc. What should I be doing differently?






THANK YOU...

 

[REWahoo]

We'll get back to you with a response in 2031.

 

[82-T/A]

We'll get back to you with a response in 2031.

Hah... I know. I am supposed to be studying right now, but started checking my e-mail and apparently I still get e-mails from this site. Ever since I turned 40, it's been eating at me that I need to re-think my retirement and what I want out of retirement... or what I expect from it, and how I should be better planning for it.

 

[ivinsfan]

Your are doing great, congrats on getting your education at minimal cost.


For now, track your spending, all of it. Particularly important since you are getting a big bump in salary. You might be tempted to spend more, be sure it's for something you want or need and doesn't get frittered away on extras.

Are your homes in the same town? If so you could move to the expensive home for several years and then sell it and get tax free capital gains.

Expand your emergency or cash fund. 3 to 6 months living costs. At a minimum capture the entire match on your company 401 since you already do that, ramping up to the max allowable would be a good first step.

 

[Aerides]

Looks like you are in pretty good shape overall-are the pensions COLA'd?

Aside from that, I'd start maxing out your 401k now. Even doing catchups for 2019 if you can. Then also ramping up taxable savings as well, before lifestyle creep cuts into that pay increase. Not sure if you'd be Roth eligible if you're about to double.

 

[imoldernu]

$218K/yr. ?
Not qualified to give advice.

http://www.early-retirement.org/forums/f27/sharing-23-years-of-frugal-retirement-62251.html

 

[Camas Lilly]

We'll get back to you with a response in 2031.

 

[bada bing]

I don't have any debt, and the next two years I'll be making almost double my current salary of $109k.
<snip>
I'm not sure what else to put. My friends all made fun of me a couple of weeks ago because they found out that I've only been doing a 5% match on my 401k, so not at all maxing out my 401k contributions at all. I also don't have a Roth IRA at all. This is all particularly important to me now because my salary will double for the next two years, and I need to make sure I don't get killed in the next tax bracket.

Find out if your company 401K plan allows for a Mega backdoor Roth. If you don't know what that is, a search and an hour reading will clear that up.

At the same time, find out if your company 401K plan accepts IRA rollovers. If so, learn about backdoor Roths

Those two steps are the best way to get involved with a Roth IRA at you income level.

Investigate your company health insurance. Does it have a HDHP (high deductible health plan) option ? With a company sponsored HSA (health savings account) ? With any company contributions available ? If so, what does the investment account for the company HSA look like ?

At $218K per year, you should easily be able to max out the 401K including max mega-backdoor, do a backdoor Roth and max out the HSA. More is do-able with that salary without austerity, that should be the minimum you hold yourself to do. The best time to ramp up savings is while also increasing income. Take advantage of the anticipated raises as they happen.

 

[ivinsfan]

Yes a Roth would be a good idea before he hits the income cap for funding.

 

[HI Bill]

In total, I'd say I have $140k of 401k savings, and guaranteed $30k in retirement income from pensions if I retire at 57.

I don't have any debt, and the next two years I'll be making almost double my current salary of $109k... So my question is two-fold... what should I be doing differently?

I'm 41, and thought I'd have a lot more saved by now. Thing is, I like to buy stuff. Most people would say that I'm responsible, so I don't buy frivolous stuff, but I recently renovated two homes myself... spending in total about $120k between the two homes. I know this has increased my equity in the homes, but at the expense of my savings and potential money earned.


One home has a mortgage for $244k, but an estimated value of anywhere from $430-470k depending what website you look. I currently rent out that home, and I'm getting $2,800 a month in rent. The home I live in has a mortgage $204k, but an estimated value of anywhere from $270-315k...

My friends all made fun of me a couple of weeks ago because they found out that I've only been doing a 5% match on my 401k, so not at all maxing out my 401k contributions at all. I also don't have a Roth IRA at all. This is all particularly important to me now because my salary will double for the next two years, and I need to make sure I don't get killed in the next tax bracket.

What would you be doing differently? What should I do to get back on track.

... how do I even know what "on track," is?

I'm not even sure I want to retire early as I really like my job. But I'm very interested in making sure that I can have a life in retirement if / when I choose to do so, and make sure I can pass something on to my daughter. What should I be doing differently?

Welcome back! To be on track, you need to have a clear goal, which you sort of do (goal to be FI by 57). At 41 you may like your job, but as you age, your love for it may diminish, or the job may change.

My recommendations:

When your salary doubles, make no changes (no increased spending) to your lifestyle. With any increases in income:

>Max out the 401(k).
>If you're married, and your wife doesn't work, contribute the max to a traditional spousal IRA.
>Max out a traditional ROTH IRA.
>Establish a 6-month emergency fund.
>Work on paying down your mortgage debt.
>Start investing in diversified mutual funds or ETFs. No bonds at this time, IMHO.

If you do double your salary, I can see you reaching FIRE at 55, if you wanted to!
You'll need to figure out your budget for retirement, and the level of assets you project having to support that. Then run the numbers through FIRECALC to see if you're in the ball park.


Best luck!

 

[trumpeting_angel]

People here will give good investment advice. And yes, keep your spending down with that raise and watch it add up!

You might find some inspiration in reading/listening more about saving up and managing your money. I am motivated to be more frugal by listening to podcasts and reading about retirement saving. (These days, I read more about planning for spending and tax considerations since I just retired.). I really love the podcast “Stacking Benjamins” which is about as fun as finance could ever be. And if it’s not your cup of tea, there are about a million others. This forum is one of many resources available. The more time you spend with the LBYM crowd, the easier it gets.

I loved my job until I didn’t. It was great, I was good at it, it was meaningful and fulfilling. It wasn’t great money, but I did okay and I got serious about saving early enough that it added up well in this long bull market. When I didn’t want to do it any more, I was sure glad that I had saved and invested well.

 

[RobLJ]

We had a low net worth until 2000 (I was 42); really 2005. We had moved to Houston in 1990; bought a house; had two kids; got them through pre-school and up into elementary school/jr high.

Basically, we spent some more in the 2000s as our salaries increased but significantly increased (doubled) our savings in our 40's; actually more in that the DW's bonus went towards a vacation or house repairs/improvements but most towards a education fund/savings.

Most of our networth accelerated in the period from 42-57 (when I semi-retired). We were lucky in investments, to be sure.

I note this because I think you are just about that age and you're about to make a hell of a lot more than we were, even after inflation adjustments. Now is when you basically can build your nest egg. We paid off the house in 2010, one that we strained to make the mortgage on when we started in 1990. Max your 401k/Roths and dollar cost average; don't worry about their levels year to year until you are 50-52. Don't buy a newer house unless you need to, and watch purchasing cars (we tried to keep them 6-8 years).
Quicken has a net worth graph that--since I have data going back to about 1994--is pretty amazing. Year to year, the growth from my 40-55 year period didn't seem like much, but over the 15 year period it was huge as the house got paid off and the 401k/403bs grew and grew. No added debt; the house was almost all of it.

 

[joeea]

I took some of the advice, but most of it I did not...

In total, I'd say I have $140k of 401k savings, and guaranteed $30k in retirement income from pensions if I retire at 57.

Are you actually planning to retire at 57? If so, why?

I don't have any debt, and the next two years I'll be making almost double my current salary of $109k.

Just for two years? Or will that doubled salary continue going forward?

So my question is two-fold... what should I be doing differently?

Thing is, I like to buy stuff.

You might want to work on that.

My friends all made fun of me a couple of weeks ago because they found out that I've only been doing a 5% match on my 401k, so not at all maxing out my 401k contributions at all.

You might want to work on that.

What would you be doing differently? What should I do to get back on track.

... how do I even know what "on track," is?

You might want to spend a few hours with a fee-only fiduciary financial planner. They could help you figure things out.

 

[Ronstar]

I'm not even sure I want to retire early as I really like my job. ...

If you're not sure that you want to retire early because you like your job - then don't. But be prepared for the day when you know that you want to retire. That day will come eventually.

Like others here, track and reduce spending. And take 100% of the pay increase you are getting and put it in a mutual fund. Max out your 401k.

 

[thumbs]

You asked "how do I even know what on track is?"

I would recommend you do some reverse engineering.

How much do you want to have at 57? Then do the math and figure out how much you need to save and invest each year, month or week to get you there. Some assumptions will need to be made, but at least this way you can tell if you are even in the ball park. Make sure you are realistic with your numbers.

I hope that helps a little.

Good luck, and I hope you stick around

 

[tb001]

I’ll echo others who have said there’s a lot of financial growth that can happen in your 40s and 50s, both from increased earning power and compounding.

Agree, first priority should be putting max aside in 401k and Roth. One thing I haven’t seen mentioned is to carefully look at expense ratios on funds available through your 401k. I was surprised to find mine offered some pretty dicey funds with very high fees.

 

[82-T/A]

First of all, just wanted to say thank you to everyone who responded! I really appreciate it. Too many posts to quote individually (THANK YOU!!!) So I'll go through the different items:




1 - Advice taken. Yesterday at work, I increased my contributions by dollar amount so that I would max out to $19k at years end. It'll be a little tough for me; however, the pay bump I discussed starts next month.


2 - The pay doubling I discussed is because of a project that I'll be working on. But my pay will realistically go back to what it was, though, there is the potential that I'll likely get a raise afterwards, but it won't be to that degree.



3 - The two houses are not near-by. They're 1000+ miles apart. I currently pay a property manager on the home that I'm leasing out. The more expensive house is actually the smaller home. It's a house in South Florida, I'm actually in Texas now. I know that I *SHOULD* sell it, because I could outright pay off this house in Texas. But I have a strong emotional attachment to that home in South Florida, and there is the potential that I could move there again. We've lived in that house twice, and left it twice. Since buying the same home in the area would be astronomical, it provides an absurdly low cost of living in a very high-cost area should I decide to move back.


4 - I also started adding money to a Roth IRA. My next paycheck will have a direct-deposit of $200 a pay check going into it. It's all I can afford right now, but I will increase it as time goes on.



5 - My biggest goal with the two years of substantially increased pay would be to add 25k to my daughter's 529 so that, by the time she graduates from high school, her college degree will hopefully be paid for. And second, to pay off more principal for this Texas house so I no longer have to pay PMI. I think I may be able to just request an appraisal, and they may drop it anyway... but the mortgage company is going to send me a letter for the next steps. I currently pay $70 a month for PMI... which is literally the same as it would cost to sponsor two kids through World Vision in Africa.



6 - I'm going to literally go through every expense and determine what it is I spend my money on. Most of it has been supplies at Home Depot, but for everything else, I want to get a hold of what I spend. I don't want to sound totally irresponsible, because we drive older cars that we pay cash for, and I don't willy-nilly buy silly things. But I do tend to buy lunch at work, rather than make it, and I think I need to get a better hold of all expenses and see where I can minimize where I'm not using.




7 - I don't know that I "WANT" to retire at 57, but I am thinking I may want a career change. I just don't know. I haven't decided what I want to do when I grow up. I've really enjoyed renovating these two homes, and I can see myself potentially doing that in the long term when I'm retired (cash willing). I always picked 57 because it seemed to make sense. Get as much "guaranteed" income as you can, as early as you can, and that will last as long as you live. Even if it's not as much as I expect, I think I could survive on less. My thought is the home would be paid for by then, and my other expenses wouldn't be as significant; however it is something I'll need to really think about. I'd set a lot of goals years ago, but I've accomplished them all and now I don't know what to do. I need to start setting more goals... but to some point, I think I'm scared and starting to become too complacent.





Anyway, I really appreciate all the responses... this has really helped me get some "reality" from well-organized people, and I really appreciate it!

 

[Audie Murphy]

The biggest problem I see is not maxing out your Roth and 401k contributions annually. A budget might really help you also.

 

[pb4uski]

If your current marginal tax rate is higher than the marginal tax rate that you expect to be in when you are retired, then tax-deferred savings like a traditional 401k is best.... if the inverse, then a Roth is preferable. I'm guessing that in your situation that tax-deferred savings is preferable... especially for the period of the project and perhaps even thereafter.

I suggest that you look into Quicken Lifetime Planner.... an intuitive, easy-to-use retirement planner included in Quicken Deluxe and higher Windows versions (not Mac) and use this for a plan. QLP will let you know if you are on track or not. It also has a What-If function to see how different assumptions or actions impact your retirement plan. Then use Quicken to track your progress.

I'm not a huge fan of 529s. By the time DD was in college I was in my peak earning years and was able to pay for her college from cash flow. DS decided not to go to college so if I had 529 money for him it would be stuck. I saved for our kids college in taxable accounts... making regular contributions to Vanguard's STAR fund... since we didn't need to use it for the kids education it became the bedrock for our retiring earlier than once we had penalty-free access to our tax-deferred retirement accounts.

It is the cat's meow to be FI even if you still work because you like the work... I found that being FI put me in a position to freely, but diplomatically, say what everyone in the room was thinking that the bosses didn't want to hear... they appreciated the candor and came to value it and it made work much more fun for me. If it were not for the frequent travel and constraints on my time I might still be working.

 

[ckelly78z]

Your last 10 years of working have been getting established/educated, and working hard to get where you are today. The next 10 years will be your bread/butter years where it all pays off in spades.

You may not have large amounts right now, but the stage is set for some impressive gains (assuming your marital status, and the stock market don't crash). With the pensions you will be eligible for, SS, and a doubling salary, I don't see why you will need to work as old as 57 years if everything pans out.

 

[HI Bill]

So I'll go through the different items...

Wow, just wow! People ask for advice, but it seems very rare that they follow through, especially to this degree! Great job!

 

[Aerides]

7 - I don't know that I "WANT" to retire at 57, but I am thinking I may want a career change. I just don't know. I haven't decided what I want to do when I grow up.

A lot of people over 50 liked their jobs, their careers, and didn't plan to retire early. But once you get above the average age in MANY fields, that decision gets made for you. Some places it's more obvious than others, but it's a good idea to be ready and FI even if you don't plan to RE any time soon.

And starting a new career after 50 - one that can be called a career and not just a full-time-job-good-enough-for-health-insurance - can be a real trick to pull off.

 

[HI Bill]

If your current marginal tax rate is higher than the marginal tax rate that you expect to be in when you are retired, then tax-deferred savings like a traditional 401k is best.... if the inverse, then a Roth is preferable. I'm guessing that in your situation that tax-deferred savings is preferable... especially for the period of the project and perhaps even thereafter.

Does this concept hold true over 30-year time horizons [would investing more earlier offset the higher tax bill later]? Of course, we only know what the tax rates are now...they will likely be different in xx years!

 

[trumpeting_angel]

And tax rates are relatively low now.