Where to start?!

[Letsdoit]

My husband and I have been thinking about early retirement for awhile but after a rough month at work we are now all in. I’m wondering where to even start? Our stats:

He’s 41 and I’m 31. We have 2 kids, ages 4 and 6. Currently have about $230,000 in 401k and IRAs, $3500 in 529 and $40,000 in a mutual fund. We are about to inherit around $500,000. We each make about 75,000 annually.

We are able to max our contributions to his IRA and 401k currently and should be able to do the same for mine when we finish paying for daycare and payoff car debt in the summer of 2019 (our only debt besides our mortgage). Our house is worth about 130,000 and has 100,000 still left on mortgage.

My 2 big questions that remain after all of my research:
1) How do we determine how much money we actually need to retire and begin to set out short term goals? Hubby has a harder time sticking to budget than I do and I think we need to have short term savings goals to get us to the finish line.
2) Where do you invest if planning on retiring before 59 1/2? I know that there are a few work arounds for IRA and 401k to avoid early withdrawal penalties but I’m not seeing any advice to just invest in some basic non tax sheltered index funds to use before 59 1/2. Is that unwise for some reason?

Thank you for any advise or resources that you can provide!

 

[REWahoo]

Start here: http://www.early-retirement.org/for...-answer-before-asking-can-i-retire-69999.html

 

[EastWest Gal]

Welcome to the group. I think you've come to the right place. There are a lot of resources and like-minded folks here when it comes to early retirement.

 

[StephieJean]

Welcome, you two seem on the right track. Something to consider may be to encourage open and honest dialogue with the family to discuss all things money, budgets, savings, etc. as this will make the topic less intimidating as your family grows/matures. But it sounds you are on your way to a good retirement plan.

 

[joeea]

How do we determine how much money we actually need to retire and begin to set out short term goals? Hubby has a harder time sticking to budget than I do and I think we need to have short term savings goals to get us to the finish line.

Start with trying to estimate your annual expenses in retirement. That's something you'll need to have in order to start to answer the "how much do we need" question.

Determine what you actually spend now, and consider how that might change over time.

 

[travelover]

..........

My 2 big questions that remain after all of my research:
1) How do we determine how much money we actually need to retire and begin to set out short term goals? Hubby has a harder time sticking to budget than I do and I think we need to have short term savings goals to get us to the finish line.

Once you have established estimated yearly spending in retirement including healthcare and taxes, you need roughly between 25 and 33 times that amount in investments. Example : $40,000 spending requires a million to 1.2 million dollars.

2) Where do you invest if planning on retiring before 59 1/2? I know that there are a few work arounds for IRA and 401k to avoid early withdrawal penalties but I’m not seeing any advice to just invest in some basic non tax sheltered index funds to use before 59 1/2. Is that unwise for some reason?

Thank you for any advise or resources that you can provide!

Nothing wrong with just investing in a Total US or Total World stock index fund in an after-tax fund. Dividends are minimal and no capital gains until you sell.

 

[JoeWras]

Hi, and welcome.

Re: #2, and your comment "Is that unwise." No, it is not unwise. As travelover says, a nice investment in a broad index is always a good plan for a long horizon, and it is liquid at any time.

I think you see people going for the 401k and IRA first, because of the tax advantage, especially now that you are entering your highest bracket years. However, in another group I'm in, they think tax rates will go crazy about 20 years from now so they are not liking a lot of deferral now. But let's not go there, it is speculation. I want to mention something very important this is not speculation.

Your 401k. If you are saving, you really, really want to make sure you are at least taking advantage of the company match. This is important free money. Secondly, if your companies have stock purchase programs, many of those have an immediate 15% discount, or more! Don't ignore those, just make sure to sell them quickly to avoid being overweight in your company. You have enough invested there.

I started planning in earnest for my impending ER at age 55 in 4 months about 15 years ago. We have plenty outside of tax sheltered accounts to make it between ER and 59 1/2. Heck, we both can access our 401ks at 55 since our plans allow as we are retiring from our companies. But that's just a safety valve. We have enough for 5 years. But that came after we paid off our debts and filled up those sheltered accounts.

We'll actually be doing Roth conversions over the next few years to realize income. That wasn't planned since Roth didn't exist, it is just a strategy I learned here.