35, and on track to retire by 50

[COcheesehead]

New Year's update: things are on track, and we had a good income and investing year:

Net worth: 1.9M (up > $300k from 1 year ago)
House equity: $950k
Tax deferred: $550k
Roth: $120k
After tax: $100k
529: $135k
Emergency fund: $40k

Expenses look ok - no new house, 3rd kid, or divorce in sight

Lots of funds in the house, no?

 

[lucky2030]

Yeah, I agree, we're over allocated in the house. This is due to better than expected appreciation (which we didn't quite realize had happened in the first few years of owning) and general conservatism about home ownership/wanting to buy a more expensive house. The plan at this point is to limit our equity in our housing to what we have now or less going forward.

 

[soupcxan]

Thanks, Markola, lots to think about from someone who's been there.

I'm not too worried about lifestyle inflation triggered by the house - the new one will be a few blocks away so we'll have the same neighbors. Of course, I wouldn't be the first to be wrong about how much money I will spend in the future

Regarding whether the financials work out for the plan - my spreadsheets say yes. We can continue to save 90K/year for retirement, 30K/year for college and have the nicer house. And once daycare is out of the way, we'll have a bigger cushion to save for retirement. The big gotcha is keeping the high income.


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I'm always skeptical of people that plan to save more, just not right now, but when X happens. I suspect a lot of time X happens and then Y comes up which is another excuse not to save more.

 

[retire2020]

We'll always need a place to stay and 529 is to pay for Kids' education so I exclude 529 and house equity from my net worth calculation. This makes me feel and plan better.

 

[lucky2030]

New Year's update:

Net worth: 2.5M (up ~$600k from 1 year ago)
House equity: $1070k
Tax deferred: $720k
Roth: $205k
After tax: $185k
529: $260k
Emergency fund: $30k

Once again a very good income, savings, and (to my surprise) investment year. We're very much on track, though I certainly expect at least one market/business cycle dip will throw us off course a bit before we retire.

 

[Bigdawg]

Why not pull the plug now? In your OP you say your expected ER expenses will be 100K. You can support that now if you sold your house and downsized to a LCOL state. Look slike you have the kiddo's college covered. I guess your after tax is a bit low but you could augment that by selling the house and downsizing. Anyway just a thought. Glad to see you are doing well.

 

[lucky2030]

Thanks, Bigdawg, that's a good point that I hadn't thought of. I don't think we have quite enough now, but if we got to ~$3.3M in the next two years, we could buy a very nice home in a LCOL area, have plenty of money for college, and live nicely on $100K @4% SWR.

Right now we're leaning towards keeping working, spending a bit more on travel, etc. However, it's really comforting knowing that we're close to FI, and that we're well positioned as soon as we'd like to change something.

 

[lucky2030]

Here's the latest, as we approach 40. Even as life has interrupted in so many ways, we're still on track.

Net worth: 3.2M
House equity: $1M (we did buy that new house)
Tax deferred: $1.1M
Roth: $330k
After tax: $260k
529: $360k
Emergency fund: $50k

Our comp has risen to $800k+ year, and we're getting to the point where we can retire when we like, just need to choose our lifestyle. The current plan is to work 7-10 more years, and save enough to be able to spend $200k/year.

 

[HI Bill]

FWIW, we're talking about going from 2000 sq ft to 3000 sq ft, which doesn't seem unreasonable for 4 people.

FWIW, my wife and I are living in an 800-sf condo, at T-two weeks to moving to our first house at age 54.7. At 3,000 sf, each family member would have 750 SF to themselves....all things equal. You need to choose...LBYM and FIRE or buy the better house and w$rk another 3 to 5 years. I've long looked at what discretionary purchases will cost me in terms of extending my career, and lack of freedom. If buying one house now and selling it later is worth w$rking another few years to you, then go for it. But if I were you, I'd stick to the one house, and save 6% x $950K + 6% x $1.5M, plus moving, taxes, closing costs, higher insurance, higher property taxes, mortgage interest, higher upkeep, more and more expensive furniture....more of everything except time!

 

[cnocmmz]

Hi Lucky3030,

It sounds like you've done the math so kudos on having a plan. It sounds like you'll need at least 2.5 million in retirement to fund your expected spend rate. Perhaps 3.3 if you're on the more conservative side.

My only advice is to carefully consider the trade-offs involved in your rather expensive lifestyle and your planned upgrades. Between transaction costs and the higher mortgage a bigger house with a nicer kitchen could cost you 600K. By your accounting that much money would fund six years of expenses for you in retirement. Is a nicer kitchen worth those six years?

There is nothing wrong with saying yes. Just be aware of those trade-offs when you're making them.

Cheers,

SIS

Agree with most except I would think a 2.5 burn rate would be more appropriate. Kids in school, maybe a 3rd child

 

[HI Bill]

Tax deferred: $1.1M
Roth: $330k
After tax: $260k
Emergency fund: $50k

Our comp has risen to $800k+ year, and we're getting to the point where we can retire when we like, just need to choose our lifestyle. The current plan is to work 7-10 more years, and save enough to be able to spend $200k/year.

Congrats on having $1.7M in net invested assets (most of us here don't count college savings plans or primary house equity, as you can't spend those). At almost 40, you've got about 11 years to go. I ran FIRECALC assuming a $1.7M starting balance, 11 years to RE, a 50-year horizon, and $200K in annual savings until you RE and $200K in annual spending. Not including SS or adjusting other parameters, it looks like you'll be able to afford to spend up to around $271K, including taxes! The sequence of returns, changes to tax rates, continued high earning potential, and lots of other things will impact the outcome. You're solidly on your way!

Most of your assets are in tax-deferred or tax-favored accounts. Start to think about how you'll come up with $200K in annual income (plus taxes) from taxable accounts. With your incomes, you'll obviously want to hit the 401(k) first, and can fill the ROTH buckets (? at your income level), but then you'll want to start adding most of your new investments to the taxable accounts. You'll have to bridge from your ER age of 50 or 45 or whatever until you hit 59.5 to avoid paying the 10% penalties for early withdrawals.

 

[Golden sunsets]

Given that you bring in $800,000/yr. I'm somewhat surprised that you have only accumulated a little more than twice that amount in investment assets. What are your current annual expenses including taxes?

 

[lucky2030]

2020 is the first year we’ll make 800k. Just 5 years ago we made half that.

We’re now saving about $300k/year, all intended for retirement. $200k/year of that is going in a brokerage account, so we should have plenty to fund our early retirement without doing a 72t.

 

[bolt]

35, married, 2 kids (infant and 3 yo). Wife is 33. Combined income ~425k +- 50k depending on stock performance. Saving 150-200K/ year. On track to retire by 50 at the latest.

Expenses
130K, not including taxes. Includes expensive day care. Projected expenses ex taxes in retirement ~100K.

Assets
House: ~950K value, owe ~75k. This is not a fancy or big house, but is in a good school district and has a decent commuting distance to our jobs. We're likely to upgrade in next 2 years to a 1.5M house to have more room, nicer kitchen, etc.

529s
76k total, invested 85/15 with Vanguard. Plan to fund to ~100K per child over next few years, then save more in brokerage account to reduce risk of over funding 529.

Retirement - all invested in Vanguard 2045
401k/tax deferred: 435K. Fully funded every year.
Roth: 80K. Will continue to fully fund mega backdoor.

Emergency fund/cash
85K. Target is 40K.

Things that might change:
* Job change - don't know if we can juggle high stress, all-in jobs with kids for another 15 years. Also, the go-go days might not last and I could end taking a job that's closer to industry standard pay (~100-150k/year less than what I make now).
* We could switch to a high deductible plan and use an HSA as another retirement savings vehicle, but I've been reluctant to add more complexity, and skeptical that the rules won't change.
* Upgrade the house. This would be a big expense, but will provide a lot of joy so we're likely to do it.
* Third child? In a moment of weakness, we might decide to up the ante.

So what do you guys think? Anything we should do differently or worry about?



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Lucky2030: As you mentioned, things always change.
I recall hearing Bernanke said the same unofficially yrs back in his day.

A couple of 35/33yr olds w/2 kids under 3, your plans are as mentioned in folklore, plans till life happens!
Plans are advisable, but I'd bet*heavily things change for you over the next 25yrs if your currently raising 2 infants under 3yrs old.

A generic quote I recall from family living in 'The Great Depression'(20-30s). Anything that eats is expensive, citing children.
In the last 30 days data shows rents dropping perceptibly >10% in
BOS and its R.E is on deck, as mentioned its rents have dropped close to >10%in last 30days. A home is a home, & not an asset till liquidated.

I'd never spend over 1M on a home made of stone, plastic, wood, glass concrete, wiring/plumbing and similar whatnot. Seems to me your drinking the kool-aid in a manor of speaking. JMO.

Good luck & Best wishes....

 

[Golden sunsets]

2020 is the first year we’ll make 800k. Just 5 years ago we made half that.

We’re now saving about $300k/year, all intended for retirement. $200k/year of that is going in a brokerage account, so we should have plenty to fund our early retirement without doing a 72t.

So you are spending $500,000/year, including taxes. I think you could do better. In your original post you stated that you expected to live on $100,000 in retirement. Do you really think that is a realistic number given your current burn rate?

 

[Nick12]

Job loss in many levels of companies is reality. With hopes of retiring at 50, ideas like upgrading the house, buying a more expensive house, thinking of having a third child are things I would not be doing in my humble opinion especially in a unstable job market like we are currently in.

 

[HI Bill]

I'd never spend over 1M on a home made of stone, plastic, wood, glass concrete, wiring/plumbing and similar whatnot. Seems to me your drinking the kool-aid in a manor of speaking.

That's what I used to think, until I costed out what it would take to build a moderate 1,500-sf home on Hawaii Island with the land and a pool....over $1M, easy, and closer to $1.2. We're closing tomorrow on a 2,600 sf house with a pool in a gated community...not the perfect design or layout, and not new, but what we could afford, and we didn't have to wait 2-3 years for completion.

 

[HI Bill]

So you are spending $500,000/year, including taxes. I think you could do better. In your original post you stated that you expected to live on $100,000 in retirement. Do you really think that is a realistic number given your current burn rate?

37% federal tax rate, plus 5% New England tax rate (?) plus SS, and other withholdings; $800K is less than $464K take-home. Subtract out $300K for savings, and that's $164K for spending, less some of the taxes I didn't calculate.

 

[lucky2030]

It’s crazy how much the market and salaries compound when things are going well. We’re now up to $3.9M in net assets, and $1M in compensation (stock run up + wife got a new job w/ a 50% comp increase). At our current savings rate we have a lot of options: we could probably retire now on $100k, we could retire in 3 years on $150k/year, or retire in 2030 w/ $10M+. It feels good to have a bunch of hard work, thoughtful planning, and luck pay off.

 

[lucky2030]

Bill is exactly right on taxes and spending. We’re saving a big chunk of take home pay.

 

[OldShooter]

... depending on stock performance. ...

From your summary I suspect that you are well diversified, but beware of overconcentration in your company's stock. If the company permits you do diversify out, limit the company stock to 10%, max 15%, of your total investments. In professional money management anything over this range is considered to be an "imprudent concentration." If you and DW are in the same industry, combine your two stocks when calculating a % of assets.

Last time a tech bubble came around, many people lost their jobs (Enron, Worldcom, etc.) and their retirements, which some companies actually encouraged them to hold in company stock.

Be careful, too, thinking of house value like any other asset. Values don’t always go up, you have to live somewhere, plus switching and transaction costs are very high.

But,hey, good job so far!

 

[lucky2030]

OldShooter - thanks for the reply.

Yes, we are invested in VTI and VXUS. We sell company stock as soon as possible. FWIW, we’d be much richer if we had held on to company stock for 10 years! But no regrets, it’s all about avoiding the downside risk and the broad market has done great.

 

[OldShooter]

OldShooter - thanks for the reply.

Yes, we are invested in VTI and VXUS. We sell company stock as soon as possible. FWIW, we’d be much richer if we had held on to company stock for 10 years! But no regrets, it’s all about avoiding the downside risk and the broad market has done great.

You're good. Congratulations.

 

[CSdot]

A few brutal responses between 2016 - 2021 in this thread.

Sounds like you deserve a little cheerleading to balance out the negative, so congrats Lucky2030.

By the way, what professions are you guys in so I can recommend it to my kids.

 

[lucky2030]

A few brutal responses between 2016 - 2021 in this thread.

Sounds like you deserve a little cheerleading to balance out the negative, so congrats Lucky2030.

By the way, what professions are you guys in so I can recommend it to my kids.

Ha, yeah. Not sure what that was all about.

I'm in software, she was a liberal arts major that's been hustling for 15+ years. Both in management now. Helps to be in a big city, and to be in growing industries (software, biotech).