New to FI

[Hokie]

Hello everyone! I am new to this forum and relatively new to the FI/RE concept. Over the past month I have gone down the rabit hole of trying to learn as much as possible as quickly as possible about the concept and then trying to apply it to my life. To say the least it has been an overwhelming approach because I have so many variables and moving parts with my personal situation. It has lead me to a point where I just need to simplify it all and lock in on a plan and get it done. So, I am going to lay out the details of my situation in the hopes that those here that are well versed in the FI concept can weigh in with advice, ideas, etc that may better help me tie all of the info together.

I am 36, married, 2 kids(6&2). Im a sales manager for an insurance company. Been with company 13 years(8 years as agent, 5 as manager). Wife is a public school teacher. She is 34 and in year 4 of her teaching career.

My income has quickly jumped over the past few years and I honestly can say that I have spent my career so far being very irresponsible with our money. We have never had any financial stress(meaning there has always been "enough" coming in to keep us able to have what we want. My income fluctuates as it is largely commission/bonus based but conservatively it is $200K/year. About $160k is W2 income and $40k 1099 as i am an independent contractor for one insurance company. My wife's salary is $45k.

I have $300k in 401k. Until this year I had just been putting 6% into it which is what employer match is.(i know...foolish) I will max my contribution this year and each year moving forward. Wife is in the VRS(va retirement system) I foolishly have paid little attention to this and currently in process of learning more about it and will soon make major changes in what we are putting into this

We have roughly $20k in roth IRAs. Need to figure out how to get joint income low enough to be eligible to contribute to this(havent put money into it in 8 years!!) We contribute $200/month to a 529 and currently have $25k in that.

We built our home 3 years ago. $320k balance on mortgage, $400k value on property.

$30k in student loans($300/month, paid off 2024 if stays the same)
$17k car loan($450/month 3%, pay off 2021)
$14k car loan($400/month 3% pay off 2021)
$22k personal loan(i know horrible decision....for inground pool....$520/month 5.5%, pay off 2021
No credit card debt, no other debt

$30k in savings(just moved $20k into vanguard VTSAX so $10K left in savings

We have gone through, in extreme detail, our spending over the past year. It was extremely eye opening, embarrassing, etc. We literally were THROWING money away on "crap". I can say that we have eliminated most of the waste and still working on trimming more of it out.

So, at this point we have about $3,800/month going toward debt. Another $2kish going to monthly expenses that we cannot cut(daycare/before&after school care, utilities, etc) We are dialing in our food,gas,etc budget. After it all settles we will have rougly $5k/month free to go somewhere. $2K of that is my wifes current take home pay. I am going to try to get as much of that as i can into her pre tax retirement accounts and HSA so that will cut down on that $5k # above.

I have always wanted to retire mid 50's. However, I had never mapped that out. Just had the mindset of "ill figure it out eventually" well, eventually is here! I am confident I can get to FI by 50(maybe sooner) I love my job so I may not retire then but I want to be in a position by 50 where it will be an option if I choose. So, do I currently aggressively pay the above debts off(not mortgage) and then start dumping money into low cost index funds? Do I stay the course with the debt payments and start dumping money into vanguard now? Do i do a hybrid approach to both? Do any of you have any knowledge of the VRS that my wife is in? Any advice on that? Is a HELOC to consolodate my debt a good option. Then keep paying the same I am toward those debts but to the HELOC? I admit that I am completely ignorant when it comes to taxes. I REALLY need to figure out how to take advantage of every possible tax strategy available....advice on that?

Any other advice, tips, etc would be greatly appreciated. It has taken way too long for me to get to this point but I am here now and ready to get to FI ASAP. I just need to now map it all out. Thanks!

 

[MBAustin]

Welcome, Hokie! Congratulations on your "wake-up call"! Many folks don't get to this point until their 40s or even 50s.

I wouldn't stress about getting your income low enough for Roth IRAs - if you FIRE in your 50s, you'll have plenty of time to convert regular IRAs/401K rollovers to Roth if that still makes sense. Personally, I would knock out the non-mortgage debt as quickly as possible, which will help you really ramp up your other savings and investments. Establishing a savings fund to enable paying cash for your next vehicles and other major expenses would also make sense.

You don't mention college savings - I would look at 529s or just put money aside for it in designated accounts. When your youngest gets to kindergarten in a few years, your child care expenses should go down significantly so you can apply that to college savings.

We're glad to have you and hope we can help you stay on track!

 

[Hokie]

Thanks for the response! We do have a 529 plan we started when our oldest was born. Currently put $200/month into that and have roughly $25K in it right now.

 

[LiveBelowMeans]

Welcome! My son is a Hokie. Congrats on the wake-up. I would max the retirement accounts and use everything else to pay off the debt. Start with the 5.5% debt first. The feeling of accomplishment once you become debt free is liberating. Look into HSA accounts, they are triple tax free if you can access a high deductible health plan. You use the HSA as a savings account. First get laser focused on the non mortgage debt. Good luck. JMHO

 

[OldShooter]

... Any other advice, tips, etc would be greatly appreciated. It has taken way too long for me to get to this point but I am here now and ready to get to FI ASAP. I just need to now map it all out. Thanks!

You already know the most important part: Live well below your means and save like crazy. Everything else is fine-tuning.

Congratulations on your wisdom. You will get some good fine-tuning suggestions here, but keep your eyes and behavior firmly focused on what you already know.

"The Coffee House Investor" by Bill Schultheis would be a good read for you. Very low key; Bill even gives you a recipe for pumpkin pie.

 

[HI Bill]

You woke up! As mentioned, most never do! Congrats! Maxing out the 401(k) contributions, then paying down debt would be my first orders of business. Then, you can get really serious about saving for retirement. Seriously consider 'needs versus wants': Example - I used to buy a new iPad every two years. Then my wife stopped me. My old one (now four years old) works fine, and even though I'd like a newer model with anti-glare feature, I'm waiting until this one dies, or something amazingly better comes out. Just an example.

Even though you're ~$403K in debt, you should be able to get out from under most of it in 5+ years at your income level (set up a serious spreadsheet with payoff calculations). At this point, it seems like you might be able to make a mid-late 50s date if your income stream/savings focus are maintained! Also, calculate NOW what your nest egg will need to be to maintain the lifestyle you'd like in retirement. This could be a major wake-up call. Most people retiring at 50-55 want/need $80+K in annual income, and just following the simple 4% 'rule', means you'll need $2MM in invested assets. Best wishes!

 

[Hokie]

Thanks so much

 

[Hokie]

You woke up! As mentioned, most never do! Congrats! Maxing out the 401(k) contributions, then paying down debt would be my first orders of business. Then, you can get really serious about saving for retirement. Seriously consider 'needs versus wants': Example - I used to buy a new iPad every two years. Then my wife stopped me. My old one (now four years old) works fine, and even though I'd like a newer model with anti-glare feature, I'm waiting until this one dies, or something amazingly better comes out. Just an example.

Even though you're ~$403K in debt, you should be able to get out from under most of it in 5+ years at your income level (set up a serious spreadsheet with payoff calculations). At this point, it seems like you might be able to make a mid-late 50s date if your income stream/savings focus are maintained! Also, calculate NOW what your nest egg will need to be to maintain the lifestyle you'd like in retirement. This could be a major wake-up call. Most people retiring at 50-55 want/need $80+K in annual income, and just following the simple 4% 'rule', means you'll need $2MM in invested assets. Best wishes!

Great stuff! Thanks

 

[Hokie]

You already know the most important part: Live well below your means and save like crazy. Everything else is fine-tuning.

Congratulations on your wisdom. You will get some good fine-tuning suggestions here, but keep your eyes and behavior firmly focused on what you already know.

"The Coffee House Investor" by Bill Schultheis would be a good read for you. Very low key; Bill even gives you a recipe for pumpkin pie.

Thanks! And I'll put the book on my list. Just started JL Collins "the simple path to wealth"

 

[Hokie]

Welcome! My son is a Hokie. Congrats on the wake-up. I would max the retirement accounts and use everything else to pay off the debt. Start with the 5.5% debt first. The feeling of accomplishment once you become debt free is liberating. Look into HSA accounts, they are triple tax free if you can access a high deductible health plan. You use the HSA as a savings account. First get laser focused on the non mortgage debt. Good luck. JMHO

Thanks! And Go Hokies!!

 

[Red Badger]

Actually, you arrived 30 years ahead of most Americans. Who, at 65ish, are thinking WTF!!??

I was keeping up with the neighbors into my 40's before the bell went ding-ding..
I like the "we" in your post because I assume DW is on board. Whether its H or D, it takes both "pulling on the same end of the rope" to attain freedom.

Don't put your nose to the grind stone (that'll hurt), but do keep up the LYBM!

 

[UnrealizedPotential]

If you want to retire by 50, then strongly consider putting some of that 5K a month when it becomes available, in after tax accounts so you can get to the money when you need it. If you turn 50 and have all of your assets in retirement accounts, those usually come with age restrictions, and you will have to jump through hoops to make it work and I've never done it it that way, but I think it's a pain.



That was the problem I had, and a lot of people have. So think about how you can make it work if you decide to leave early. Another thing to consider is it would be better IMO if you could tap your after tax accounts to live off of and leave your retirement accounts alone to grow.

 

[potto0213]

You mention that your wife is a teacher. Mine is also. You may want to check out the options that your wife has in her retirement plan (usually a 403-b). Teacher's retirement plans are notorious for the really bad options (annuities, high cost mutual funds, etc.) that they force you to use. You may be better off putting that money into low cost index funds in an after tax account. Just be diligent before you invest.

 

[Hokie]

You mention that your wife is a teacher. Mine is also. You may want to check out the options that your wife has in her retirement plan (usually a 403-b). Teacher's retirement plans are notorious for the really bad options (annuities, high cost mutual funds, etc.) that they force you to use. You may be better off putting that money into low cost index funds in an after tax account. Just be diligent before you invest.

Yes, she is in the VA Retirement Hybrid system. No other option for her. Basically it is a mix of a 457 deferred comp and a 401c(which I still am trying to figure out) She can put up to 9% of income pretax into it combined. They match 2.5%. We can choose any of the available investment options which are similar my 401k options. We are putting 100% into an s&p 500 index fund. Im still trying to learn all of the details of her options but what I described above seems to be the max we can do.

 

[Golden sunsets]

Strongly suggest eliminating the $83,000 in non mortgage debt as quickly as possible and refrain from future borrowing. As soon as debt is paid off those monthly payments can add to your asset base. Also depending on your intentions for paying for your children's college education costs, $200 may not be enough.


Sent from my iPad using Early Retirement Forum

 

[aida2003]

Hokie,

You don't need to think of ways to lower your income in order to contribute to a Roth IRA. Google "backdoor Roth IRA" or "Steps to/of backdoor Roth IRA" and you'll find articles explaining the steps. Of course, I find it easier to do it in the same year though you're allowed to do it by April 15 of next year. Easier because it's less confusing to follow instructions when filing a tax form for this backdoor Roth IRA stuff.

 

[Hokie]

Hokie,

You don't need to think of ways to lower your income in order to contribute to a Roth IRA. Google "backdoor Roth IRA" or "Steps to/of backdoor Roth IRA" and you'll find articles explaining the steps. Of course, I find it easier to do it in the same year though you're allowed to do it by April 15 of next year. Easier because it's less confusing to follow instructions when filing a tax form for this backdoor Roth IRA stuff.

Thanks so much....had no clue of this as an option and it seems to be perfect solution. Thanks!

 

[athena53]

Congratulations on getting to this point relatively early in life- especially the part about not mindlessly spending on "stuff". A good book on this subject is "The Millionaire Next Door". It really resonated with me because I AM one of those people and I don't drive a fancy car or wear designer clothes, although my travel budget is more than the average person collects in SS. Priorities.

Not sure which part of the insurance business you're in but from the property-casualty side (retired in 2014) I can say things are changing- more people see insurance as a commodity (even though not all policies are equal) and there's pressure to reduce commissions. A friend who's a Farmers agent is downsizing his house and just let a staff member in his agency go. So, it's good to plan now for getting out early- the business may change even though you're doing very well now.

 

[GalaxyBoy]

Good to see a fellow Hokie! Looks like you know what to do - save as much as possible, pay off debt, LBYM, and don’t forget to enjoy life along the way.

My DW is a retired state employee and we have a good chunk of savings in the VRS. I wish we could move more there as their funds have incredibly low expense ratios. The stock fund, for example, has an ER of only 0.02% which is as good as it gets. I'd max out the contributions there if it were me. A previous post was opining about typical teachers’ plans but I can say that the VRS is a very good plan with great fund options.

Be sure to check out The Bogleheads web site and wiki for tons of common-sense information on investing. It doesn’t have to be complicated.

 

[SnowBound]

Hokie: Be very careful with the 529. Roughly the way college financial aid works is a quarter of the 529 value will be subtracted from a financial aid package every year. IE: By graduation day all of YOUR 529 will be in College's coffers. Better to be debt free and no 529 verses a 100K 529 and 100K mortgage. I would assume a private college Financial Aid Officer will smile big when they look up your home on Zillow and see it is worth 600K vs 60K (don't up size right before HS graduation if going the private route). Oh, car & personal loans are not deducted from assets when figuring a college aid package, so make sure all the car loans are payed off first.

 

[Hokie]

Congratulations on getting to this point relatively early in life- especially the part about not mindlessly spending on "stuff". A good book on this subject is "The Millionaire Next Door". It really resonated with me because I AM one of those people and I don't drive a fancy car or wear designer clothes, although my travel budget is more than the average person collects in SS. Priorities.

Not sure which part of the insurance business you're in but from the property-casualty side (retired in 2014) I can say things are changing- more people see insurance as a commodity (even though not all policies are equal) and there's pressure to reduce commissions. A friend who's a Farmers agent is downsizing his house and just let a staff member in his agency go. So, it's good to plan now for getting out early- the business may change even though you're doing very well now.

Travel is definitely my weak spot, but instead of giving it up, we are now just being as creative as possible. EX.) My wife and I recently flew to Bahamas, stayed 3 nights and all of that was covered by credit card reward points. We spent money while there but basically it was a "free" trip. Fortunately, my company has several incentive trips each year that send us all over the place too. The Insurance world is definitely changing. I deal with mostly farm and crop insurance in rural VA, but also personal and commercial P&C as well as Life and health insurance.

 

[athena53]

Travel is definitely my weak spot, but instead of giving it up, we are now just being as creative as possible. EX.) My wife and I recently flew to Bahamas, stayed 3 nights and all of that was covered by credit card reward points.

DH and I did that a lot before I retired; fortunately, I traveled enough on business (including transatlantics in Business Class later in my career) to rack up airline and hotel points that helped greatly with our travel expenses. He was 15 years older than I was, so waiting till I retired to make our dream trips wasn't a good idea. We still managed to retire comfortably by not spending wildly in other areas.

 

[ab620]

I would pay off all of your non-mortgage debt like a madman. If your so inclined, I would take your savings and drop on the cars and pay them off. That would free up almost $900-1000 a month to pay off other debts.

Debt free is the way to be.

 

[pjigar]

If you qualify for HSA then max it out and DO NOT withdraw from from HSA, instead invest the balance. Think of HSA as an extension of your 401K, only better. Also if you can't contribute to Roth IRA due to phase out then consider "backdoor" Roth IRA contribution. You would want to move all your regular IRA balance to 401K in order to utilize backdoor IRA.

And yes, congratulations. You are not late. I woke up when I was 35 and I had 100K in net worth. You will experience over the years that the mere act of thinking about FI will change your spending, savings and investing habits and it wouldn't be long before you see snowballing effect. Just make sure your wife on the same page as you and keep her in the loop with your plan and progress.

 

[athena53]

You will experience over the years that the mere act of thinking about FI will change your spending, savings and investing habits and it wouldn't be long before you see snowballing effect. Just make sure your wife on the same page as you and keep her in the loop with your plan and progress.

Totally agree with this. What really got me thinking seriously about saving for retirement (although I'd been saving all my life) was a simple Excel spreadsheet that I developed about 15 years ago at age 50, starting with what I had, adding in projected savings over my career, accumulating it at interest, and looking at what I could withdraw at retirement (adjusted for inflation). Not as fancy as FireCalc, but I could see the light at the end of the tunnel. It was great motivation and when I decided to walk away from my job at age 61 it gave me the confidence to ER.