46 year old needs some advice

[lalanian6]

Hi,
I’ve been ‘stalking’ this site for quite some time now but have never posted. I am interested in early retirement but am apprehensive. I’ll give you some stats; if I’ve left out anything pertinent, please let me know…
I’m 46 years old, and live in Harrison Township, MI; I would like to retire at 50 years old. I am married; my wife is 39 years old. We have a son; he is 7 years old.
We have been saving for years. We currently have the following assets with Vanguard, allocated at 70% stocks, 30% bonds:
- Roth Ira: 400,000
- 401k: 550,000
- Brokerage: 400,000
I earn 90,000/year; my wife is a stay at home mom. We have no credit cards, auto loans, student loans, etc.
We do, however, have 2 houses; one in Michigan, one in Texas. Both houses have a mortgage (Michigan – 220,000@4.625%, Texas – 130,000@3.125%). Our expenses are 3,400/month (roughly 40,000/year).
Our plan would be to continue living in Michigan, then possibly move to Texas when our son graduates High School & goes to College.
I guess what I’m worried about are the unknown expenses that may arise. I had done a little bit of research regarding health insurance & have found it to be a little daunting.
Is anyone in a similar situation? Does anyone have experience with retiring early while still raising minor children? If we were to sell the house in Texas (equity of 160,000) would you suggest investing the proceeds, or would it make more sense to use the proceeds (and 65,000 of our retirement money) to pay off the mortgage on Michigan house?
I greatly appreciate any experience or advice you could offer.
Thanks.

 

[njhowie]

I would advise against doing early retirement with the young child - you have lots of expenses ahead of you.

When you are ready, not knowing other details of your situation, sell the Texas property, take the $160k and bank it - do not invest it. I do not see any savings/emergency fund in your numbers. You indicate ~$40k/year expenses, so keep $80k (2 years) in cash/money market/savings and the other $80k in short-term CDs of 2 to 5 years.

 

[euro]

Welcome, lalanian6!
The most important piece of information you have to gather is a rock solid number for your annual expenses. I.e. track every penny you spent for the last year or two. Without that information, nobody can give you much specific advice.
That said, for starters, carrying two houses with two mortgages in two parts of the country is a big financial drain and will almost certainly make it much more challenging to FIRE
Do you currently have access to employer health insurance and how do you plan on covering HI when retired?

 

[pacergal]

Welcome!
You have done a great job saving. Make sure you have your expenses/spending number completely.
I do not see any college fund listed, are you planning on helping your son with that expense?
A great place to start is in the Forum FAQ section on questions to answer "can I retire"?
Everyone here is so helpful, you will find your answers.

 

[lalanian6]

Thanks guys.


Our annual expenses, tracked for the last 2 years average out to $3,418/month, $41,016/year.


We currently have medical/dental/vision insurance through my employer. My cost is $9,164/yr; my employer pays the other $21,205/yr. Not sure how to cover it, or what to expect for insurance costs. I've done some research...but was hoping to hear from the experience on this.

 

[lalanian6]

Our son has a 529 plan. We contribute $400/month; current balance is $40,043. We will continue at this rate for the next 11 years.

 

[Cassius King]

Amazing job having a net worth of over $1.5m on an annual income of $90k. That's the first thing that caught my eye and I wanted to comment on.

 

[lalanian6]

Thanks you pacer gal & caccius king for the compliments.


I guess i've probably done things in a different order than most. I worked in weekends and summers while going to college; I paid my way.



When I graduated, I had no student loans, no house, no wife, no kids, no bills. I worked steady for 10 years, maxed out my 401k & ira each year. I didn't get married until I was 35; we were blessed with our son at 40.


Most of my friends thought I was crazy for having a child at 40, but i am very happy.



When I was a kid, my mom told me something I will never forget; she told me the most valuable thing you can give someone, is your time.


That is the main reason I want to retire early. I want to spend quality time with my family. I don't want to miss out on being with them...I will never get another chance.

 

[SumDay]

As others have said, you've done an amazing job of prioritizing your finances. You are in far better shape at your age than we were in our 40's.

As for health insurance, on this site, I've seen everything from $12K -30K for ACA family premiums, some with some pretty hefty deductibles. I think health insurance is going to be a big shock to your budget. You can price it here: https://www.healthcare.gov/ With your low expenses, you can keep your withdrawals and consequently taxable income low, giving you an ACA subsidy.

Please keep in mind I'm just regurgitating what I've read here about ACA. I'm fortunate to have retiree medical which is $6K a year, just for me. I sure liked it better when it was $60 a month while I was still working.

Healthcare costs were our biggest shock after retiring in 2018, that that's even with DH being on Medicare.

Good luck to you. Where there's a will, there's a way, and I admire your desire to spend time with the family.

 

[HawkeyeNFO]

Is the Texas house rented out? If it's not providing a positive cash-flow, I'd sell it. Empty house is a burden that you don't need for minimum of 10 more years.

 

[CaliKid]

You are doing great. I am envious of people who can live the life they want on what I would consider a modest amount. We spend $40k a month sometimes. Not bragging - more admitting. Lol. Keep up the good work and watch the lifestyle creep. Do not let it happen!

I would rent Texas out or sell it now. It's way too long, in my opinion, to hold your retirement home and you can't afford two homes (unless one is rented) if you want to retire early.

I would probably re-evaluate at 50. I'd see where your assets are, how that 529 account is doing, etc....

Another idea, and this might be out of left field, move to Texas today. One of my buddies moved from northern cold state to Texas when his kids were about 14 and 15. The whole family has loved Texas and certainly do not miss the winters. The economy seems to be great there by all accounts, no income tax is nice, and climate is more to my liking than cold north. Get a job there making $90k or less or maybe you'll make more!?

Good luck!

 

[justlikebike]

One thing that I feel is important that I find difficult to wrap my head around is inflation.
The younger you retire, the more important that number is. What seems like a crazy amount of money at 45 is not much at 65. My favorite site for some very basic reality checking checking is: https://www.numbeo.com/cost-of-living/historical-data
Only has about 8 years of data, but gives you an idea of how much your beer will cost you in 10-20 years. it helps me see it in a way I can grasp.

 

[lalanian6]

I'm on board with selling the house in Texas. It would eliminate a chunk of expenses...and it'd be nice to get the equity out of it.


The house in Michigan is the next question.
The loan has a balance of 220,000. The rate is 4.625%; we're 1 year in, 29 years to go on the 30 year note. Would you guys suggest recasting, refinancing, paying it off, or leaving it as is? I suspect we'll be in the house for a while...

 

[Rdub]

Great job on building your NW! I retired at 47 (now 50) with 2 kids (now 10/13). I tracked my expenses in ~40 categories for many years and still do. It helps me project out my expenses. I use a 3% inflation rate on most items and ~5% for the kids private schools (k-12 and college) and Healthcare. My current non-subsidized healthcare is ~$1600 per month, plus co-pays/deductibles. I built a spreadsheet that I use to forecast income and expenses. It contains years of historical data and a forecast through 100yo, if I am so fortunate. I have also thrown in money to my budget to help our aging parents, increased travel and entertainment, and other items like kids cars, weddings, house maintenance/upgrades, etc. I bounce my plan off free retirement planners from my brokerage houses and some online tools (such as Personal Capital, Financial Engines, etc).



Life is unpredictable, so if you can, spend your limited resources (time/money) on things that make you happy. Whether it is time with loved ones, time with charities, hobbies you enjoy or just rolling around naked in $100 bills and blowing that dough.



Everyone's situation in life is different, but here are a few items to ponder in your planning:
1) Develop and review your personal investment plan (see my cliff note version below)

2) Track expenses closely
3) Forecast in some fluff to your retirement expenses for some unexpected AND fun items (house maintenance, cars, hobbies, travel, entertainment, etc)

4) Limit your fixed costs as much as possible before you retire. If the market tanks, you don't want to do any panic selling with your portfolio. This will also allow you to adjust your variable spend to maintain your planned withdrawal rate. I agree with Euro's advice on owning multiple properties, unless the others are used for rental income and is/are cash flow positive, you may want to consolidate.

5) Be somewhat conservative with your income forecast, asset allocation and WR.



Below is a Cliff note version of my Investment plan. This is one I pieced this together over the years and am comfortable managing to. I was very fortunate with my career, learned to invest on my own early, started planning for FIRE around 30 and built an 8 digit portfolio. Please don't take this as bragging, or that my advice is better than anyone else's. I am just saying we are all different, so our plans are all different. My investment plan is not right for everyone or potentially anyone..., but it works for me.



Investment Philosophy

“Buy and hold, long-term, all-market-index strategies, implemented at rock-bottom costs, are the surest of all routes to the accumulation of wealth.” - John C. Bogle
• Stick to the plan- Don’t panic when the markets are volatile/dropping. No market timing or chasing returns!
• Diversification (Asset allocation)- non-correlated assets, piece of all markets- this drives ~90% of a portfolio’s return
• Low Turnover- Index funds and rebalance annually (reduces costs, taxes and bad mistakes)
• Low Costs- Low cost index funds (preferably Vanguard Admiral Shares)
• Low taxes- Keep Taxes Low (Index funds are tax efficient, low turnover keeps taxes low, rebalance 1yr +1day for LT Cap gains) Asset location will help this!

Personal Top 10 for a successful Plan
1) Spend less than you make (LBYM)
2) Stick to your Investment Plan (review annually)
3) Diversification / Asset Allocation (non-correlated asets. A piece of all markets)
4) Keep Turnover low (reduces costs, taxes and bad mistakes)
5) Low cost Index Funds (Vanguard Admiral Shares and low cost Index ETFs are preferred)
6) Keep taxes low (Index funds are tax efficient, low turnover keeps taxes low, rebalance 1 year +1 DAY for LT cap gains, Asset Location)
7) Discipline (See #2) Think long term when the market goes south and stick with the plan!
8) Keep it simple, don't get exotic, don't chase trends and don't be greedy
9) Rebalance once per year (possibly twice if there is a big run up or contraction)
10) Keep any Individual stocks below 5% of NW.

Networth Breakdown and Cash Management
*Keep Real Estate/Rentals separate from Investments
*Asset Allocation- maintain roughly 60 equity / 40 bond mix for investments (Cash balance can be considered part of bond mix)
*Live off Rental Income and Investment WR of ~2%.
*Keep ~1 year of cash available in Checking/Savings/Short Term CDs/Treasuries
*On an annual basis, rebalance cash accounts to maintain 1 year's worth of estimate cash needs.
*No additional REITs (due to rental properties)


Investment Allocation Target 60% Equity 40% Bond/Cash Rebalance if target exceeds 5% pts +/- .

Layer into the reallocation (not all at once), be mindful of tax impact (LTCG or 401k/Roth reallocations before any short term reallocation gains)



Equity Breakdown (60%) (US 80%, Intl 20%)

Bond Breakdown (40%) US 100%, Total Bond Funds in Tax deferred/free, Munis in Taxable

Withdrawal Strategy!

1) Rental income
2) Muni Bond Income
3) Interest
4) Dividends
5) Sell overweighted Assets from taxable accounts:
A) Unrealized S/T Losses
B) Unrealized L/T Losses
C) Unrealized L/T Gains
D) Unrealized S/T Gains
6) Sell other assets from taxable accounts (if nothing is overweight)
A) Unrealized S/T Losses
B) Unrealized L/T Losses
C) Unrealized L/T Gains
D) Unrealized S/T Gains
7) Sell from tax-preferred Accounts
A) Traditional IRAs
B) Roth IRAs

This plan does not account for any potential inheritance.

 

[WyomingLife]

Great job on building your NW! I retired at 47 (now 50) with 2 kids (now 10/13). I tracked my expenses in ~40 categories for many years and still do. It helps me project out my expenses. I use a 3% inflation rate on most items and ~5% for the kids private schools (k-12 and college) and Healthcare. My current non-subsidized healthcare is ~$1600 per month, plus co-pays/deductibles. I built a spreadsheet that I use to forecast income and expenses. It contains years of historical data and a forecast through 100yo, if I am so fortunate. I have also thrown in money to my budget to help our aging parents, increased travel and entertainment, and other items like kids cars, weddings, house maintenance/upgrades, etc. I bounce my plan off free retirement planners from my brokerage houses and some online tools (such as Personal Capital, Financial Engines, etc).



Life is unpredictable, so if you can, spend your limited resources (time/money) on things that make you happy. Whether it is time with loved ones, time with charities, hobbies you enjoy or just rolling around naked in $100 bills and blowing that dough.



Everyone's situation in life is different, but here are a few items to ponder in your planning:
1) Develop and review your personal investment plan (see my cliff note version below)

2) Track expenses closely
3) Forecast in some fluff to your retirement expenses for some unexpected AND fun items (house maintenance, cars, hobbies, travel, entertainment, etc)

4) Limit your fixed costs as much as possible before you retire. If the market tanks, you don't want to do any panic selling with your portfolio. This will also allow you to adjust your variable spend to maintain your planned withdrawal rate. I agree with Euro's advice on owning multiple properties, unless the others are used for rental income and is/are cash flow positive, you may want to consolidate.

5) Be somewhat conservative with your income forecast, asset allocation and WR.



Below is a Cliff note version of my Investment plan. This is one I pieced this together over the years and am comfortable managing to. I was very fortunate with my career, learned to invest on my own early, started planning for FIRE around 30 and built an 8 digit portfolio. Please don't take this as bragging, or that my advice is better than anyone else's. I am just saying we are all different, so our plans are all different. My investment plan is not right for everyone or potentially anyone..., but it works for me.



Investment Philosophy

“Buy and hold, long-term, all-market-index strategies, implemented at rock-bottom costs, are the surest of all routes to the accumulation of wealth.” - John C. Bogle
• Stick to the plan- Don’t panic when the markets are volatile/dropping. No market timing or chasing returns!
• Diversification (Asset allocation)- non-correlated assets, piece of all markets- this drives ~90% of a portfolio’s return
• Low Turnover- Index funds and rebalance annually (reduces costs, taxes and bad mistakes)
• Low Costs- Low cost index funds (preferably Vanguard Admiral Shares)
• Low taxes- Keep Taxes Low (Index funds are tax efficient, low turnover keeps taxes low, rebalance 1yr +1day for LT Cap gains) Asset location will help this!

Personal Top 10 for a successful Plan
1) Spend less than you make (LBYM)
2) Stick to your Investment Plan (review annually)
3) Diversification / Asset Allocation (non-correlated asets. A piece of all markets)
4) Keep Turnover low (reduces costs, taxes and bad mistakes)
5) Low cost Index Funds (Vanguard Admiral Shares and low cost Index ETFs are preferred)
6) Keep taxes low (Index funds are tax efficient, low turnover keeps taxes low, rebalance 1 year +1 DAY for LT cap gains, Asset Location)
7) Discipline (See #2) Think long term when the market goes south and stick with the plan!
8) Keep it simple, don't get exotic, don't chase trends and don't be greedy
9) Rebalance once per year (possibly twice if there is a big run up or contraction)
10) Keep any Individual stocks below 5% of NW.

Networth Breakdown and Cash Management
*Keep Real Estate/Rentals separate from Investments
*Asset Allocation- maintain roughly 60 equity / 40 bond mix for investments (Cash balance can be considered part of bond mix)
*Live off Rental Income and Investment WR of ~2%.
*Keep ~1 year of cash available in Checking/Savings/Short Term CDs/Treasuries
*On an annual basis, rebalance cash accounts to maintain 1 year's worth of estimate cash needs.
*No additional REITs (due to rental properties)


Investment Allocation Target 60% Equity 40% Bond/Cash Rebalance if target exceeds 5% pts +/- .

Layer into the reallocation (not all at once), be mindful of tax impact (LTCG or 401k/Roth reallocations before any short term reallocation gains)



Equity Breakdown (60%) (US 80%, Intl 20%)

Bond Breakdown (40%) US 100%, Total Bond Funds in Tax deferred/free, Munis in Taxable

Withdrawal Strategy!

1) Rental income
2) Muni Bond Income
3) Interest
4) Dividends
5) Sell overweighted Assets from taxable accounts:
A) Unrealized S/T Losses
B) Unrealized L/T Losses
C) Unrealized L/T Gains
D) Unrealized S/T Gains
6) Sell other assets from taxable accounts (if nothing is overweight)
A) Unrealized S/T Losses
B) Unrealized L/T Losses
C) Unrealized L/T Gains
D) Unrealized S/T Gains
7) Sell from tax-preferred Accounts
A) Traditional IRAs
B) Roth IRAs

This plan does not account for any potential inheritance.

Thank you for this comprehensive post.

I'll read your withdrawal strategy over and over to make sure that I understand it as best I can.

 

[ugeauxgirl]

There are quite a few people here who have retired before their kids were out of the house. I'm 48 and my kids are 12 and 15. I'm retiring this year.

I do think retiring with kids still on the payroll takes a little more planning and a little more padding in the budget. Your spending and your assets both look great. I think retirement is very possible for you in the next few years. I would sell the Texas house and I would pay off your mortgage. Just my 2¢.

 

[Sunset]

Most have already said everything.

Yes, sell the TX house, and invest the money.

I think you should re-mortgage the Michigan – 220,000@4.625% , as I was just reading on another thread how rates are down to 3.4% and even 3 %.
You have a long time left on the mortgage, so it's worth running the numbers.

 

[Dtail]

The 2 sites with the most comprehensive healthcare information are
Healthcare.gov
Healthsherpa.com
Look heavily into trying to be able to keep your MAGI income low enough to qualify for ACA tax subsidies.
You have a decent Taxable account which should facilitate this concept.

 

[DrRoy]

+1 sell TX house or move there now and sell MI. With medical insurance, I suspect your expenses will be $50K+. At your age, and with young kids, I would not be comfortable with a near 4% WR. I am a believer that future long term returns will be lower than the past 50-100 years, and so a 3% WR for RE should be followed. (BTW, I live in Roch Hills)

 

[stephenson]

I would shoot for age 55-57 retirement.

Keep maxing out 401k, saving for the big disconnect. Child will be 16 when you are 55, 18 when you are 57.

Spend some time considering where you want to live, perhaps even connect dots of residency for the state where child likes the public colleges?

Every year you wait decreases the uncertainty time for medical care. If you are in great health and stay that way great, but if you start collecting some issues, you’ll be happy to have worked longer with attached health care insurance.

UNLESS you HATE your job.

Alternative approach ... sell both houses, move to extremely low cost area with great high school, play to the state college you like, and try and start new career - i.e. complete life rebaseline. There aren’t many really inexpensive places to live with great schools .... hard to have everything.

 

[COcheesehead]

Cut your equities 30% - 50% while still pulling money out. See how you feel about that situation. That easily could be reality in the near future.

 

[lalanian6]

Thank you everyone for the responses & great advice; I've read all responses & am considering each and every one.


I checked with my loan guy. He offered 3.5% on a 30 year; closing costs $1200.
That is probably the easiest move to make, initially.



We can't really leave michigan, as I feel the need to be near to my parents who are aging & need help.


We currently have 3 months of expenses saved in my checking account (as an emergency fund). I will probably park that money in my vanguard settlement account to earn some dividends.


The next move is to sell the texas house. It seems there are differing opinions on what to do with the proceeds...is there a logical way to decide (ie - a calculator that compares investing potential vs. mortgage cost)?


Thanks again!

 

[stephenson]

Yes, elder care is a major issue for consideration.

I have friends who convinced their parents to relocate with them to another state. Other friends who were unable to convince their parents to move. Very individual.

My parent were both gone by the time we downsized and moved.

Looking back, I might have been rather insistent, assuming they needed my care, that they move with my own family, but circumstances are so different.

You might try bringing them into the discussion. Let them know it may be time to leave Michigan to start a new life with your family. If they absolutely refuse, then it is a tough decision.

 

[Time2]

I cut my teeth over on MMM, over there you would get more people saying, you have enough, retire. It seems most people here have higher spending.
I'm a little bit skeptical of their lower incomes over there, I doubled their usual number and know I will outlive my money. My spending is a little higher at $50k to $60k

If you poke your $1.7M into Firecalc you can live on $65k with 97% success rate over the next 30 years. However, you need a few more than 30 years. I expect if you continue putting money away until 50 and we have no big stock market drop. You can make it just fine.

After you retire, you can structure your income to take full advantage of the ACA subsidy, assuming we still have it.
With your Roths, income does not count for ACA purposes, and LTCGs, zero taxes up to $78,750, you have a lot of flexibility for how you structure your income.

Throw in, at minimum you have 12 years to SS, that's gravy on top. If your portfolio is doing great at that time, you can delay taking SS.

 

[stephenson]

Time,

Did you figure in kid's college, and increased medical costs?