Aiming for age 45

[tyler-durden]

Big fan of the community here. Looking for advice on what I might be missing in terms of where to save and what to think about. Hoping to retire close to age 45.

Wife and I are both 35 years old.

Current stats - Married with 3 kids all under 6 years old.

Current savings combined

401ks - 880k
Roth IRAs - 30k
Taxable investments 120k
Cash/ Money Market 30k
529 plans - 50k ( spread over 3 accounts )
Life insurance Term 1.2 mm on each of us as we both work.

No student loan debt and cars are paid in full. Only debt is what is listed below for the mortgages.

2 rental properties. Currently net 10k per year in rent after accounting for mortgage/insurance etc. Value about 350k and the notes combined are about 275k.

House we live in is valued conservatively at 400k and we owe 200k. Mortgage will be paid of by 2027 if we follow the regular payments. I assume we will pay it off a few years earlier but 2027 is the date if we don't pay off early. Interest rate is 2.875%

Hope to pay for most of the kids college.

Yearly Savings - 401ks get 30k each between our contributions and companies matching/profit sharing. Roth IRA's get maxed out each year via back door roth. After tax savings ( mostly in IVV and FCNTX ) gets 20k per year. 5k added to each 529 plan totaling 15k.

Curious what people think about retiring at 45. Does it seem feasible? health care is the big unknown that has me a bit worried. One of us would be wiling to work longer part time if needed to get benefits.

All thoughts feedback and suggestions welcome

Thank you!

 

[Lagniappe]

It is hard to answer the question of feasibility of retiring at 45 without at least one more variable.

What is your current/ planned spending?

Your current savings is at a good level, but if you plan to spend more than $80-90K per year, you'll have to work past age 45.

 

[pj.mask]

Seems like you will end up around 3-3.5 million so after taxes and health insurance (seems ACA benefits could go away this year with court case and legislation)

You can run firecalc but yes, after taxes and assuming you cut 529 contributions in 10 years and plan any additional from your budget...

100k - 20k health insurance (family) leaves you around 80k per year. Including all long term budget items (cars, roofs, new appliances, etc.)

 

[gauss]

Its possible. It just depends on what you are spending each year now and what you will then spend yearly after you retire. I was out at age 47 and DW six years later. Note that we have non-Cola pensions available to us in addition to the financial assets.

-gauss

 

[Dawg52]

It's good to have a goal. If you have to work 3-5 more years you still will be the envy of all your friends.

 

[Aerides]

So roughly, you have about a million saved now, and will save around 100k per year? Without a big recession, I agree you'll probably crack 3 in that 10 years. So the main variable will be expenses. (not counting the RE, not knowing your plans to be a long term landlord there).

As far as HI, with 10 years you have a long runway. I believe things will be different by then, and am betting they will get worse, then better.

 

[tyler-durden]

So roughly, you have about a million saved now, and will save around 100k per year? Without a big recession, I agree you'll probably crack 3 in that 10 years. So the main variable will be expenses. (not counting the RE, not knowing your plans to be a long term landlord there).

As far as HI, with 10 years you have a long runway. I believe things will be different by then, and am betting they will get worse, then better.

Hi and thanks for all the responses. Health insurance is the big unknown for all of us I suppose. That said one strategy I was considering is to decrease 401k contributions and increase after tax savings. Hurts now but perhaps will be more funds accessible money pre Medicare.

To the other poster regarding expenses that is a good point. Current expenses are going to change so much. No more mortgage and no more day care. How does one estimate blue collar retirement expenses not including health insurance?

 

[YVRRocketSurgery]

It is hard to answer the question of feasibility of retiring at 45 without at least one more variable.

What is your current/ planned spending?

Your current savings is at a good level, but if you plan to spend more than $80-90K per year, you'll have to work past age 45.

+1. So much of it IMO is about managing your cash flow which obviously involves understanding your spend.

To the other poster regarding expenses that is a good point. Current expenses are going to change so much. No more mortgage and no more day care. How does one estimate blue collar retirement expenses not including health insurance?

Ideally, you should understand/track what you're spending now, what falls off after time (mortgage, kids expenses, etc), and what gets added (healthcare, leisure activities, etc). It's not a completely accurate picture but it will provide enough of a view to build your plan against.

 

[Aerides]

Given you're 10 years out, you cannot and should not try for a detailed plan for ER. Have a ballpark total number/range of a goal in mind, start getting a good idea of expenses, but understand that there are some huge variables that will ebb and flow over the coming years. So, for now, you don't have to worry about estimating for healthcare. It would be a complete waste of brain power to try.

Once you get to 5 years out, and have some more clarity on your lifestyle, you can start to tighten the estimated range. Then, more about the 2-3 year mark, get into the details.

Since you are aiming for a long period pre-59.5, you'll want to shore up taxables, but not necessarily at the expense of non-taxable. Just as you get bonuses and raises over the years, you can increase the taxable investments. You have so many years, I wouldn't want to waste one dollar of non-taxable investments.

 

[Good_Life]

Welcome tyler-durden! I don't know if I have read anyone who is as similar to me on this forum. My wife and I are also 35, have 3 kids under the age of 7 and our investment assets are very similar (you have about $150k more than me in invested assets, and I don't own investment real estate). Our mortgage term is also done one year after yours, but you beat our 3% rate

Our annual contributions to retirement/529 plans is about half of yours though at about $50k. It would be tough to do more based on our salaries.

We also have a very aspirational goal of retiring at 45.

As other posters have stated your spending rate, the severity of the next recession, and healthcare costs are three of the biggest factors. For us estimating expenses is fairly straight forward, remove childcare costs and make any necessary adjustments to leisure/travel to come up with a rough estimate. For us that is $40-$45k per year before healthcare, but we live in a fairly low COL area. Hopefully we will have about $2.5M in non-college savings assets by 45 and I think I might be comfortable with that. But inflation and healthcare costs are unknowns. As a previous poster said, if I have to work several years longer I will still be very happy.

I have struggled with after tax investment contributions. Based on your current balance and contribution (I have about twice as much in after tax as you do) you may have a little over $500k in after tax at 45. That is likely not enough with Roth contributions to make it to 59 ½, so I would research SEPP withdrawals to make sure you are comfortable with them.

You are doing awesome. I don't know how you do it though with two working parents, three young kids, AND managing and renting out properties. I know real estate can be a nice way to build wealth, but that just seems too time consuming and worrisome for me. I can barely take care of my own house let alone two more

 

[kgtest]

Nice work. Keep doing more of the same and you will be fine.

 

[pj.mask]

Converting 401k/Ira into Roth, paying income tax and taking Roth withdrawals to live on is another option.
I plan on converting to Roth but not spending it as I use up my higher amount of taxable. I will have to see what makes more sense - tax savings from Roth conversion or savings on capital gains from no income. Also any subsidies or penalties (like Medicare penalties from high income)

 

[tyler-durden]

Good life - thanks and you keep up the good work as well. Family is just back from a small vacation. Spoke with my better half and it would seem 55k is our annual expense NOT including health care. That is assuming for no mortgage and no more day care. Also not having car loans which we dont know and dont intend to ever have. The 55k annual could float to 65k as we would like one major vacation every year or every other year with the family.


I think my mind is pretty well made up to add more to the after tax investments.


Dont know where we find the time for both working and rentals. Some days are easy others as you know a little harder. Kids are great though, wouldnt change a thing.


I would say we live in a medium cost of living area. Deep roots no plans to move other than downsize from the house we have now to something a little smaller once the kids are out.


Pj mask - i like the Roth Conversion idea - would help bridge the income gap. I am semi nervous about a SEPP / 72T but it is something i could on my IRA or my wife could do on hers when the time comes... so that does offer some flexibility.



All great advice from everyone much appreciated.

 

[panhead]

I think my mind is pretty well made up to add more to the after tax investments.

I think you need to rethink this. There are ways to get money out of tax advantaged accounts before 59.5. Roth contributions can be taken out either immediately or after 5 years of aging depending on how they got in there. 401k/tIRA accounts can be accessed through SEPP or Roth conversion ladders. I'm not sure what your income is, but if you are in the 32% bracket you will be paying 32% on each dolllar to put it in a taxable account (not including state if applicable), then paying tax on any dividend/interest those dollars generate at likely 15% or maybe higher depending on your income.

If you defer the maximum to your 401k, and you're in a lower tax bracket when you retire, you will come out ahead deferring now. Even if you end up in the same tax bracket when you retire, there is a small advantage from deferred earnings.

Also, 401ks have better protection against creditors and lawsuits then taxable accounts

Also, once this space is gone, you can't get it back.

Now, if you are going to have a large pension or you believe you will be in an equal or higher tax bracket when you retire, then that's a different story.

Just some food for thought...

 

[pj.mask]

The most interesting part is balancing Roth conversion, access to money, and possibly health insurance subsidies in the early years with the uncertainty of tax and health care law changes.

With high income, you have to save after tax because you run out of room elsewhere.