36 yr old father of 3 wants to be FI in 10 years

[10years away]

Hi,
I'm happy to join the group and get your opinions on financial matters. I'd like to walk away from my high stress (high pay) job in 10 years and do something more fulfilling. I daydream about leaving corporate america non stop and have done so at a very young age. I'm sure people at my company would be very surprised. Am I on track and should I allocate my savings differently? Annually I have $75,000 to save or pay down my mortgage. Here's where I currently stand: $625,000 in savings (15% cash, 20% bonds, 65% stocks / index funds). About half of the money is in IRA's / 401(k)'s, but much of the new savings is going into non taxable accounts due to maxing out my 401 (k). I recently refi'd to a 15 yr (3.5%) and owe $346,000 on my mortgage. There is no other debt.

Of the $75,000 annual saving surplus I'm allocating $15,000 to overpay my mortgage. It should be paid off in 8 years. The difference in surplus ($60,000) goes to 15% cash, 20% bonds, 65% multiple index funds.
In 10 years I'm expecting my family's monthly expenses to be $5,500. My family is very happy where we live and I don't plan on moving. Our primary expenses will be property tax, all things children (tuition, activities), and somewhat maintaining my wife & kids' lifestyle which is still relatively frugal.

Any advice on where to put my additional money or thoughts on if the timeline is feasible are greatly welcome.

 

[Midpack]

Welcome. You're off to a great start, congratulations.

Have you tried FIRECalc: A different kind of retirement calculator yet? Great place to start.

 

[SecondCor521]

Timeline is roughly feasible in my opinion, just by some back of the envelope calculations:

$5,500 monthly x 12 = $66k yearly.
$66k / 4% = $1.65 million need to have in the bank in 10 years.
Assume the current $625k in savings grows to $1m in 10 years.
Add $60k savings per year x 10 years = $0.6 million
Add the $15k from your mortgage in years 9 and 10 (because it will be paid off in 8) => $30k.

So you need $1.65 million and will have $1.63 million.

The biggest question marks I would have are whether your $5,500 budget is realistic or not for the long term (did you consider sinking funds, taxes, health insurance?) and whether growing your current savings to $1M is a reasonable rate of return assuming your allocation.

(Welcome to the board!)

2Cor521

 

[Midpack]

$66k / 4% = $1.65 million need to have in the bank in 10 years.

FWIW the 4% SWR was based on a 30 year retirement, typically age 65 planning on longevity of age 95 (self or spouse). I would plan on a longer retirement at the OP's age of 46, 4% might be pretty aggressive. Not sure where it comes from but I've seen others here mention 3% as the FI SWR for longer, early retirements or an indefinitely sustainable WR.

I know I could not sleep at night with $1.65M at age 46 with $5,500/mo expenses. But the OP seems to be planning on 'something more fulfilling' after the first career - income producing?

 

[10years away]

Hi Midpack, thanks I'll give FIRECalc a run.

 

[10years away]

The biggest question marks I would have are whether your $5,500 budget is realistic or not for the long term (did you consider sinking funds, taxes, health insurance?) and whether growing your current savings to $1M is a reasonable rate of return assuming your allocation.

(Welcome to the board!)

2Cor521

Thanks for the feedback. A few things to add on - my wife does not currently earn an income (I've learned against saying "doesn't work) and plans to work enough hours to earn Health Benefits in 10 years. Her smaller earnings (c. $50 - 60k?) should bridge any gap. I'm also planning on earning something...as long as it doesn't entail me waking up at night running work scenarios through my head.

 

[ChadR]

Timeline is roughly feasible in my opinion, just by some back of the envelope calculations:

$5,500 monthly x 12 = $66k yearly.
$66k / 4% = $1.65 million need to have in the bank in 10 years.
Assume the current $625k in savings grows to $1m in 10 years.
Add $60k savings per year x 10 years = $0.6 million
Add the $15k from your mortgage in years 9 and 10 (because it will be paid off in 8) => $30k.

So you need $1.65 million and will have $1.63 million.

The biggest question marks I would have are whether your $5,500 budget is realistic or not for the long term (did you consider sinking funds, taxes, health insurance?) and whether growing your current savings to $1M is a reasonable rate of return assuming your allocation.

(Welcome to the board!)

2Cor521

I would add that the other big question besides rate of return is inflation. Turning $625K into $1M in 10 years requires an IRR of 4.36% which sounds very doable until you realize that in 10 years $1.65M isn't enough to support $5,500 even at 4% SWR due to inflation. Instead assuming conservative ~3% for inflation and suddenly you need $2.2M at a 4%SWR to support the same purchase power in 10 years that $1.65M has today.

 

[MooreBonds]

Thanks for the feedback. A few things to add on - my wife does not currently earn an income (I've learned against saying "doesn't work) and plans to work enough hours to earn Health Benefits in 10 years. Her smaller earnings (c. $50 - 60k?) should bridge any gap. I'm also planning on earning something...as long as it doesn't entail me waking up at night running work scenarios through my head.

I'd agree with the advice that it would be pretty aggressive, given your ages, anticipated budget, and starting point. Not impossible, but (IMO) having 15% cash and 20% bonds (yielding perhaps 1% currently, and over the next few years) isn't going to help achieve the returns to get you down to a 'safer' withdrawal rate comfortably under 4%. But, it also depends entirely on what your/DW's combined income totals...which sounds like it should more than make up the difference. But if I were you, I'd think about what kinds of jobs you and she would have to get a true estimate of what kind of salaries you could expect 10 years down the road.

2 questions:
Mortgage - it's an ever-debated question on the forum..."do I pay down the mortgage earlier, or let a low interest rate mortgage last as originally scheduled"? With a 15 year 3.5% rate, it's pretty damn low. Equities are a risk, but given your 35% in cash/bonds and the mortgage rate, if I were you, I'd pay off the mortgage as originally scheduled (over 15 years) and put all of the excess 75k into different equities classes, including a generous dose of international/emerging markets.

Employment situation - you mention the plan is to have the DW return to work in 10 years to get health benefits at a salary of perhaps 50k-60k...is this salary estimate realistic if she currently doesn't work? She'll be competing against a lot of people with current resumes. Also, the children might be young now, but any reason she couldn't return to work sooner? Even if the youngest is 2 months old currently, in 5 years they would be in school....any reason she couldn't return to work then (perhaps even at one of the schools of the children)? It would help pad the cushion even more.

One other item on employment - many colleges/universities offer generous assistance for employees with children entering college (whether they go to that school or even any other school). The private ones are more generous than the public ones. Check out some higher-rated schools in your area to see what their benefit packages are...if your children are likely to go to college, it could be a HUGE benefit if your wife and/or you worked at a college and had an extra $15k-$20k/year in educational assistance to reduce the impact of college on the budget. The catch is that most require you to work there for 5-7 years before qualifying for that lucrative benefit.

 

[10years away]

To answer your two questions: I'm in the camp that believes financially it makes more sense to pay off the loan in 15 years with a 3.5% rate. But the reason I'm planning to pay off sooner is more of a mental factor -- I'm burnt out at my job and I'd like to know that if I decide to leave and take a position several rungs lower within the industry, I'd be able to pay off the house and still support my family on a reduced salary (current is 235k). So it's a question of being financially correct vs. mentally sane...right now the mentally sane is winning out.

Regarding my wife's future salary I believe I'm being pretty conservative. She earned in the low 100's two years ago with hard skills before leaving to raise the kids. But i know she doesn't want the same stressful job as before, so she may opt for a lower level position within the same industry.

You do raise a good point on asset allocation. I'm need to test my tolerance or possibly rework my timeline.

 

[PaddyMac]

If I were you, I would put the money you were going to put towards the mortgage into a conservative fund yielding roughly 4%, such as Vanguard Wellesley. In 10 years (or whenever you decide to step back) you'll have more information on where you'll be working etc. You might decide to pay off the mortgage then, or you might decide you need the money to launch your own business. If anyone has told us 10 years ago that we would move from So. Calif. to a pine forest in New Mexico and want to move from tech to art, we would have laughed. Ten years is a long time. Keep it liquid.

 

[obgyn65]

Hello - have you tried this : Merrill Edge| See Where You Stand

Any advice on where to put my additional money or thoughts on if the timeline is feasible are greatly welcome.