Journey to ER!

[ERdream]

A little background on the DW and the family:

I am 36 and the DW is 32, 3 kids under the age of 5. I just finished my training ( felt like forever) after a change in careers and feel very behind on the journey to ER. I enjoy 80% of the time on my job and never thought that I would want stop working before 60. However the more time I work and spend less time with my family, the more ER is what I want.

We made a big mistake earlier this year that I regret and now my DW does also, we bought her dream home for 650k. It was new construction, custom built and we over paid for it compared to other comps in the area. DW loves the house and that is enough for me to sleep at night but it will be one of the main reasons I do wont retire before 50.

The other reason for not being able to reach ER until 50 is my HUGE student debt. 270k for medical school loans. Now I have no one to blame for them but myself. I just refied at 3.35% for 15 years from 6.8% from Uncle Sam who was compounding the interest while I made 50k in training. Looking back I could have lived on less and probably game out with 190k but I was to stupid to realize it when I was in school ( and ER was never on my mind)

DW is the most supportive person in my life and great partner. I often fall into the trap of being unable to say no to anything that she wants and she has be raising our 3 children almost by herself during training and I feel that she should be rewarded with the "nicer" things in life. With that being said we have both been committed to living well below our means after buying the money pit. I am more towards to MMM life style, but the wife leans a bit more towards "living life" so we plan on saving 50-60% of our income and still leaves plenty for 2-3 nice vacations and allotted money every month for her to spend.

So onto the ugly financial state of our family.

Mortgage: 638K @ 3.5%, monthly payment of 3090$
Student Loans: 370 @ 3.35% , monthly payment of 1980$
Total Assets: 72K in Roth IRA's, 53k in my old 403B (which will be moved into my new 401k this summer when I become eligible for it). 8k in a taxable vanguard account. 3k in ally saving for a meager emergency fund. ( this will slowly climb throughout the years but we both feel that my job/income is safe enough that investing our money is more important at this time)

NET WORTH: - 780k!!!!!!!!!!!!!!

Yes thats NEGATIVE.

Our plan to dig ourselves out of this HOLE and into ER is the following:

1. Save 70k in taxable accounts for the next 2 years, at that time my salary will rise and push that to 150K until ER.
2. Max ROTH IRA every year until ER for 11k a year.
3. MAX 401k starting this year for 53k a year. I contribute 32k and my work does the rest.
4. We were putting an extra 1k towards the mortgage every month, but we feel that we can get more out of investing that money right now and let it compound. Have mortgage paid off before ER.
5. Students loans will be paid off at the start of ER, no extra payments on this either.
6. 529 for the kiddos, plan on 150k for each kid for undergraduate school.
7. 3M in taxable acount, IRA, 401k by ER estimated to be 50-51 yo.
8. Live off 90k a year in ER, by then our youngest will be starting colllege (hopefully).

It is just utterly depressing looking at these numbers and the only solace is that I am lucky enough to make a very comfortable living and will be able to save as much as we have planned. Thanks for reading and welcome to my very uphill journey to ER, any advice or tomato throwing welcome!

 

[RobbieB]

You 4 will be fine. You are young and have a nice family, enjoy them!

You are also wise and know your finances and know what you have to do. A man with a plan. Stick to your plan, enjoy your wife and kids and have fun!

 

[2017ish]

Good for getting a handle on things! Do you have Term life insurance? How about disability insurance? (I vote for coverage of your own, not paid through your employer, so that if payments become necessary they will be tax free....) Get that Emergency fund up....

Your student loans--270 total, or an extra 100K from undergrad to take them to 370--you use both numbers? And, for whatever its worth, your net worth would include the FMValue of your house.

Is your specialty (and location) such that you could pick up some work on the side? For example, laborist or hospitalist shifts....

Make sure DW is on board with everything. What is her background/training? If she were to reenter the workforce at some point, you'd have another income stream to devote to debt repayment. Made a huge difference for us when I went back in after raising the kids and constructing our houses, etc.

Feel for you. We had 3 under the age of 4 as of DW's second year in private practice; but our debt load was sufficiently low that I quit working not too much later. If I were in your shoes (which I'm not), that amount of debt would be frightening; even at those facially low interest rates, I'd want to get rid of the student loan debt quickly.

Similarly, my personal preferences would be to cut the nice vacations down to one a year for you and DW--and a road trip with the kids. Depending upon the definition of "nice," that would free up more funds to pay down debt.

Agree with RobbieB. You'll do fine in the end if you keep an eye on things, but a daunting task.

 

[ERdream]

My loans are all from medical school totaling 270k.

Term life and disability are taken care of, its kinda funny that if i get disabled with my individual and group policy I will make 90% of my income without working, but of course I don't hope for this.

We have no desire to take my kids on any grand vacations as of yet, we have 2 year old twins who are wrecking machines. We wont actually take a 'real vacation' for 2 years. Short drives to visit her family and some 3-4 day trips to chicago is all we have planned for now.

I am working almost every weekend this year (46 weekends out of the year) to make extra money until I make partner in 1.5 years. I will continue to work extra until we have more money saved. I will however cut back to less weekends in the following years, to much time spent away from my family is making me depressed.

DW was a nurse but once our first was born she wanted to be home with him and I couldnt have agreed more. I dont think she will ever want to go back to work and I would never ask her to.

I am hoping that after partnership I can actually increasing savings to close to 175k a year in taxable accounts if the partners salaries stay the same.

Ugg time to get ready for work....I just keep telling myself what I am doing is for my family and I would do anything for them!!!!

 

[daylatedollarshort]

It is a lot of debt compared to an average household, but with your income and repayment ability you should be fine before too long.

Good work on the plan.

 

[Aerides]

I read your opening with your age, and kids age, and already thought "So, ER at 50?" before i read any further.

Then I see the rest and you still have that goal - the important thing is you know where you are and have 14 years to get there so it should be pretty easy. You have a plan that sounds reasonable. Your Max 401k number is off tho (regulated caps), unless you mean to add post-tax to it and are very happy with the account options.

 

[2017ish]

...Your Max 401k number is off tho (regulated caps), unless you mean to add post-tax to it and are very happy with the account options.

My assumption is that he is referring to maxing out 401k/Pension_Profit_sharing plan. From legal standpoint he puts in his max 18K and the group puts in 35K.

The internal bookkeeping doesn't have to match that allocation--DW is an owner of her group and her production is tapped to fund the 35K, even though it is "from the employer." In OP's situation, it looks like in the years before becoming an owner, he is getting a true employer match for part of it and being tapped for a portion of the "employer" portion.

 

[MBAustin]

Congratulations for getting your financial act together relatively early compared to many, with an income stream that will allow you to reach FIRE by your early 50s if you stick with the plan. There are many young doctors in your situation whose spouse wants to live the lifestyle of your income, or more, and they end up with few options. You, however, will have many options, and options make life much more fun, IMHO.

I do think that you should start having some conversations about DW starting some part-time work once the kiddos are all in school, which could fund her "mad money" and also make her a contributor to the family's financial success.

Welcome and we look forward to hearing more from you!

 

[braumeister]

You also might be interpreting "ER" differently from many of us.

For example, I retired at 55, and while not nearly as early as some here, it was earlier than anyone I knew personally and certainly felt early.

You say you enjoy your job 80% of the time, and that's something only a minority of people can say. So relax, you're on track now and will do fine.

 

[2017ish]

...

I am working almost every weekend this year (46 weekends out of the year) to make extra money until I make partner in 1.5 years. I will continue to work extra until we have more money saved. I will however cut back to less weekends in the following years, to much time spent away from my family is making me depressed.

...

Moderation in all things. Granted, you are in a hole, but you've got great income and a roadmap. You need time with family to keep yourself balanced. Particularly if it is making you depressed. I work far too many hours and 7 days most weeks now, but our kids are gone; that was an option that we rejected when they were little.

A better balance sheet is not much use if you are depressed and don't see enough of your kids--and it could impact your marriage.

 

[Totoro]

Mortgage: 638K @ 3.5%, monthly payment of 3090$
Student Loans: 370 @ 3.35% , monthly payment of 1980$
Total Assets: 72K in Roth IRA's, 53k in my old 403B (which will be moved into my new 401k this summer when I become eligible for it). 8k in a taxable vanguard account. 3k in ally saving for a meager emergency fund. ( this will slowly climb throughout the years but we both feel that my job/income is safe enough that investing our money is more important at this time)

NET WORTH: - 780k!!!!!!!!!!!!!!

Bit confused here, how do you get to -780k?

Assets = 72 + 53 + 8 + 3 = 136k and a house
Liabilities: 370 + 638 = 1.008k

Net worth = negative 872 + a house.

Are you saying your house is only worth 92k?

Seems to me your house, even if you overpaid, would be worth 500k at least. so you are actually more around 370k negative?

 

[swakyaby]

You've managed to save quite well just out of residency despite the educational debt. Don't feel too discouraged. With your income potential, you'll make short work of those loans within a few years and will probably end up paying off your mortgage many years early. So many helpful and great comments by all. They're right about not overdoing the hours working nearly every weekend. You may be young and full of energy, but even you will suffer burnout and depression if you try to keep that up for very long.

As unlikely as it seems, even a young doctor needs an emergency fund in the event of temporary income loss, particularly if the spouse is not w*rking. I've already had that happen twice in my 25 years of medical practice. Once when the hospital that I worked in was bought out by the competing dominant hospital in town, and second when the hospital-based medical group I was partner in and had enjoyed a 30 year relationship with the local hospital lost their contract and dissolved. Those were definitely stressful financial moments as I burned through my emergency savings while I relocated and joined a new medical group, but had a 3 month period before my accounts receivables amounted to a real paycheck.

My advice is to keep it all in balance. Your family depends on you, so don't let yourself burn out.

 

[ERdream]

Bit confused here, how do you get to -780k?

Assets = 72 + 53 + 8 + 3 = 136k and a house
Liabilities: 370 + 638 = 1.008k

Net worth = negative 872 + a house.

Are you saying your house is only worth 92k?

Seems to me your house, even if you overpaid, would be worth 500k at least. so you are actually more around 370k negative?

Sorry typo in there, my student loans are 270, fat fingers strike again! Also note that there is some rounding going on in those figures but the -780k is almost smack on

 

[papadad111]

First. I don't get your math either. If u dumped the house, doc, what could you get for it tomorrow? Take the mortgage less what you can get for the house and that's your house portion of net worth. Likely negative by a 100k or so worst case?
Then subtract all student loan debt
Then add what you've saved.

Second, Protect the marriage. Divorce due to stress because your wife is home alone with 3 little kids and you're working all the time is a risk. A risk is spoiling her now with the fancy new house and all that goes with it ... and her not being willing or able to throttle back her "doctors wife" lifestyle/spending. Get her working to contribute a bit to the pot sooner vs later as others suggest.

Insure yourself as you've done... Life and disability.

Pay the student loans as fast as possible. That's about the best return on investment that you can expect now days too. Pay those faster than house.

Refinancing the loans - maybe not the best move. The federal loan consolidation clause has some funny refi terms as I recall and you can only refi once and the rate used is based on the rates outstanding. Did your interest capitalize into the loan ? Or you were able to pay off the interest before the grace period ran out?

Also, Spending creep will be an issue as the kids grow up. 150k per kid may not be enough for college in 12-15 years - be aware of that.

Good news is earnings potential is there. Keep head down and work hard. Get that debt knocked out fast and then save save save / invest invest invest.

Welcome onboard and keep us posted.

 

[Katiek]

As others have suggested, you're in good shape. You're young and have a lot of options for your future. The house and the school loans are big commitments, but ones you can handle and still save for your future.

My suggestion would be to have some financial discussions with your wife and make sure you're on the same path. Jointly analyze the amounts needed for school loans, mortgage etc and come up with at least a high level budget and targets for savings and spending. It doesn't need to be to the penny, but some high level numbers so if/when lifestyle creep opportunities arise, you'll jointly understand the impact it will have on your goals. Not joining a tennis club or foregoing some other expense will seem a much better option when you both understand that can mean you'll work fewer weekends and have more time together as a family.

I'd also echo peoples' suggestions to work hard, but don't overdo. Your kids are young only once and this is a unique opportunity to have an influence on their lives and help shape their own self-impressions. You can't wake up 15 years from now and try to start bonding with them when you're ready to retire. Even quiet time that doesn't seem like you're doing much makes a lasting impression on a young child and helps them understand they're important to you.

Your profession is especially useful because there will be a lot of opportunities to do alternative work arrangements in your future. Part time or contract work that will still pay very well. You'll have more options to scale back and transition slowly if that is what you want in your future.

 

[ERdream]

Thanks for all the encouraging sentiments and support!

DW and I have been using a pretty strict budget ever since I started my job and thankfully we are on the same page for saving and spending. While I do gravitate towards and save every penny and have no extra, she reminds me that we should also enjoy life. We both feel that we are not deprived and do enjoy a nice dinner out 1-2x a month.

DW and I do go back and forth on how much extra I should work, she thinks less and I think more. Almost have way through this year of working almost every weekend and I now see that her and everyone is right Next year I will continue to work extra but to a significantly decreased degree.

I find myself struggling often however not to want to work as much as I can now to put that money away early and let compounding interest do its trick, but seeing my young boys grow up and I have missed out on many family times I see the errors of my way.

To respond to some early posts of my NW, I do not view my house as an asset but as a liability until its paid off regardless of the equity we have built. The housing market that we moved to has almost no appreciation and we do plan to stay in our current house until we die or are forced into a retirement home. The equity we have/will have is a sunk cost for housing and unless an unseen event causes us to borrow from that, I see no value in using that to inflate our NW.

While the student loans are at 3.35%, we are dividend investors and our current portfolio yields around 3.6% and our yield on cost basis is 4.6%. Also if I die my students loans DW is not responsible for my loans. I believe the best plans considering all possibilities is keep investing and let the student loans and mortgage take care of themselves. We will however adjust payments on the mortgage as we get closer to ER to have the mortgage paid off.

The 401k is a profit sharing account which after my own contributions and the groups contributions allows either 53k or 52k a year. I need to find out the exact figure when I enroll in July.

Thanks for the insight on the emergency fund, we plan on getting that up a bit faster then what we had originally planned and hope to keep 30-40k in our Ally account.

Its a marathon not a sprint is what I keep telling myself, do not get to focuses on ER that I lose sight of whats most important, time with my family as we grow. I will update every month just to keep DW and I honest with everyone here and ourselves.

 

[swakyaby]

Your Max 401k number is off tho (regulated caps), unless you mean to add post-tax to it and are very happy with the account options.

I have a similar workplace retirement plan, a profit-sharing plan, with a maximum contribution limit of $53K plus an additional $5K for over 50 year olds. Mine has no employer matching, just a way to defer income taxes which will start to become substantial when you become a partner.

 

[RobbieB]

A house is a major investment and if you plan to stay a long time it's a good one. Yes, you need to do the maintenance (roof, HVAC, gutters, etc) but eventually you get to live pretty free of cost. And that's just like having an extra income stream (no need to pay mortgage or rent) in your retirement years.

I find that very comforting -

 

[Katiek]

If you're going to include the mortgage as a liability, then the value of the house should be considered an asset. That's not artificially inflating your net worth. You have an asset you can sell that would pay off the mortgage, or even if you're upside down a bit, would pay off most of the mortgage. That's not the case with most credit card debt or most other loans.

See, you're already making progress!

Glad the forum could help reassure you that while working and investing are important, you're in good shape and don't need to do something drastic like working every weekend for years. You have a plan and a lot of options, taking some time to enjoy all the things you worked so hard for is definitely a good option!

 

[ERdream]

If you're going to include the mortgage as a liability, then the value of the house should be considered an asset. That's not artificially inflating your net worth. You have an asset you can sell that would pay off the mortgage, or even if you're upside down a bit, would pay off most of the mortgage. That's not the case with most credit card debt or most other loans.

See, you're already making progress!

Glad the forum could help reassure you that while working and investing are important, you're in good shape and don't need to do something drastic like working every weekend for years. You have a plan and a lot of options, taking some time to enjoy all the things you worked so hard for is definitely a good option!

Thanks! I should be viewing the house on both sides of the ledger, that actually makes me feel a bit better about our NW, but alas the debt has not decreased.....YET.

 

[Walt34]

ERdream, I never had numbers like that but relatively was perhaps worse off. Between a house (at that time and place a good idea) and a new pickup truck (not such a good idea) in 1984 I was in debt that was 2 1/2 times my gross income. So I'm familiar with that uneasy feeling.

In 15 years we had zero debt. It can be done.

 

[aida2003]

Everyone said you've got great income, but I didn't notice the figure mentioned. Just knowing you're a doc, it must be substantial.
As long as you're healthy and you have all necessary insurances, you'll be fine. You might start enjoying making big $$ and forget your wish to ER. Perhaps you're too focused on ER at the very start of your career... I agree with your DW that you shouldn't forget about some 'living today'. You're a young family, keep her happy (but within reasonable limits on her spending). You don't want to end up with an expensive divorce as you might never retire then. Mutual work on the happy/healthy family life is more relevant and if you both stay frugal enough, you'll become wealthy.

I'm kind of on the side of your wise to raise your kids even through middle school. Being FT working parents ourselves, it's not easy to run the household errands, shopping and driving kids to/from school and their activities. If your DW works you might need to hire a housekeeper and/or other help which would almost negate her earnings and increase the stress in the household.

I agree that it's not a very good idea to pay extra on your mortgage. You've got a very low rate.

 

[petershk]

OThis is a bit presumptuous and personal so take with grains of salt. No offense intended since I don't know you or your DW.

I get the feeling your biggest challenge won't be financial... it'll be relationship.

Why?

Because you kind of hint at the fact that your DW and you have a different view of money... it may seem minor at first, but when push comes to shove, those little things can matter. When it comes time to pull the trigger there is lots of anxiety and nervousness so alignment of partners is super critical imo.

As a personal example, my DW today looks forward to me leaving my high paying job/career to spend time with family and is excited to reduce spending to have that happen sooner. That is reducing our cost of living has been a JOY for her... not a sacrifice. Also, the idea of me giving up decades of income (as I reach earning peak no less) and thus reducing how much we could have and how opulent our life could be makes no difference to either of us because we value time with each other and our kids more.

It sounds like while you are like that, your wife may see this as a sacrifice. I'm not sure that will be sustainable. I think for FIRE to work, both people have to be positively engaged. It's really a lifestyle choice. I personally think there's nothing wrong with people who work their whole lives, upgrade their lives as they go, build successful careers, make and spend lots of money... that's fine. I work with many people who are similar to me in earning, etc and they are gong a very different route... and seem perfectly happy. They think I'm a bit nuts... that's fine =.

The other thing you said that concerns me is that your DW would prefer that you work less... but then she also is the one that pushed for the dream house and to enjoy life more. If enjoy life more comes with high financial costs (doesn't have to of course) then those two things don't match. You can't work like crazy to pay off debt quickly and live an expensive life AND spend lots of time at home. That stress over time can really create problems even if it's minor at first.

So imagine it's 15-20 years from now. Your debt is gone... you've got enough money to support your current lifestyle and you've been disciplined about not upgrading to get there. You and your DW sit down to talk about next steps.

You say "I'm going to give up my even higher paying job so I can be at home with our teenagers and you" instead of "I'll keep working and that means because we've saved assuming I'll quit we can get a bigger house, more financial security, take those dream vacations, etc."

How will that sound? Will you both answer the same way with enthusiasm or will one person have regret and feel like they gave up something big?

I'd be really clear on that as early as possible because misalignment late is very expensive. When you start spending 24/7 with your partner up from a few hours a day as many retirees do... you have to REALLY get along and trust each other.

My suggestion is (if this might be an issue... I hope I'm just nuts) to sit down and have a very honest conversation about how you will feel in 15-20 years assuming you'll be able to retire but be at peak earnings and the whole time you've been working. Increasing earnings and saving your lifestyle has remained the same while maybe the lifestyle of those around you has been substantially upgraded.

Again... a personal example. I have a 900K house which is "average" by crazy socal standards. My DW and I routinely visit friends who live in 2-4M houses which we could in theory afford... but not if our plan is ER. Knowing we could just live in an "awesome" house like that with only adding 5-6 years of me working is tempting sometimes and it's also weird when people come to our "modest" house. That's kinda what I mean. You really have to be aligned on the goal to deal with those things in my personal experience anyway

Sent from my HTC One_M8 using Early Retirement Forum mobile app

 

[ERdream]

My income this year will be around 450k and the same for the next year. In 2018 it should rise to 560-580k.

There seems to be a bit of an misunderstanding concerning DW.

When I say that we are not on the same page all the times its because I can be VERY EXTREME at times For instance if it was up to me I would hardly ever use the clothes dryer. I would buy all my kids clothes used ( since they grow so fast). I would aggressively shop 2-3 grocery stores to get our monthly food budget under 500$ for a family of 5 etc etc. Like I stated before I gravitate towards MMM lifestyle. When I refer to DW wanting more of a life style, that would include such things as getting her hair cut and highlighted 2x a year, using the dryer , using our allotted monthly food budget of 700$.

Most people will probably consider me a bit crazy, but the amount of debt we have concerns me. We have a budget that we made together ( I will post it when I get more time) and we review it 2x a month to make sure we are on target. With that being said I prefer to wear 26 pieces of flair and she is happy wearing 12

I view our marriage as solid as anyone elses, sure we disagree and we have our fights about how crazy I am sometimes about money but she is far from wanting to lead a lavish lifestyle. She is completely on board with me retiring early, just not willing to do MMM lifestyle.

I appreciate all the concerns and take them all to heart, I know how important my time is with my family and making sure that DW is happy. Sometimes its not as easy as one would think to balance family life and financial success.

 

[rodi]

I agree with you on used clothes when the kids are little. But the best way is to target families that have kids a few years older... and get their hand me downs for free. Then pass them on to a family with kids younger than yours. That worked pretty well till about age 9 or 10.

Now, at age 15, my older son has discovered good will.... He can get quirky shirts for 50 cents each.