10 years to freedom 55? Here's hoping

[Freedom2033]

Here is a fairly generic question I wrestle with - maybe there are some suggestions.

I have a company pension. It is defined benefit, so the gold standard. I can choose to put in 5% from my pay or not. Over the years I've turned it off and on.

When I run the pension calculators it amounts to a difference of approximately 5k per year if I do or don't contribute. The investment returns within the pension are quite conservative.

Knowing I have a mountain of debt, do I contribute? Or is that the wrong choice due to the debt. I am otherwise not saving at all right now.

I always lean toward yes, contribute, but I do doubt that choice.

 

[NgineER]

How much is 5% of your salary?

If I could get $5k extra in pension for every year I contribute 5%, it would seem like a no-brainer to do that’s for the next 10 years. But that almost seems too good to be true.

While getting that $5k extra per year in pension sounds pretty fantastic, I would probably still focus on getting your debt down just to clean house so that you can focus on other things than worrying about debt.

But it is hard to provide much help without knowing your debt, income or investments.

 

[Freedom2033]

How much is 5% of your salary?

If I could get $5k extra in pension for every year I contribute 5%, it would seem like a no-brainer to do that’s for the next 10 years. But that almost seems too good to be true.

While getting that $5k extra per year in pension sounds pretty fantastic, I would probably still focus on getting your debt down just to clean house so that you can focus on other things than worrying about debt.

But it is hard to provide much help without knowing your debt, income or investments.

It's based on a cap of I believe 60 or 70k. I earn commission, not a salary, but when determining benefits, they cap it at a certain pay grade. So my income is typically higher than the cap, sometimes much higher, sometimes a little bit higher, but for the past 4 or 5 years not under 100. This year remains to be seen based on current market conditions.

I'm also in a heavily taxed area of Canada. That's another reason I'm looking for generic advice, I assume the board is US based.

Total debt, including mortgage, is 500k.

I will double check the pension difference today, that was going by memory.

 

[pb4uski]

Here is a fairly generic question I wrestle with - maybe there are some suggestions.

I have a company pension. It is defined benefit, so the gold standard. I can choose to put in 5% from my pay or not. Over the years I've turned it off and on.

When I run the pension calculators it amounts to a difference of approximately 5k per year if I do or don't contribute. The investment returns within the pension are quite conservative.

Knowing I have a mountain of debt, do I contribute? Or is that the wrong choice due to the debt. I am otherwise not saving at all right now.

I always lean toward yes, contribute, but I do doubt that choice.

It's hard to say with such little info. To some degree it depends on what your debt is and what the interet rates are. If you have a lot of high-interest credit card debt then paying that down would normally be a priority over retirement savings. OTOH, if the debt is all low intererest mortgage debt then it is different. Also, what alternatives for retirement saving do you have and how do they compare to the contributory DB plan?

 

[kgtest]

I was in your boat at your age (45). Had a hard goal of retiring at 55. Had a big mortgage. My kids were younger than yours by a few years because I was very late to the parenthood game (had my sons at age 39 and 41).

I tightened our belts to be able to do the following:
a) $1000/month into 529's for the boys ($500/each).
b) Snowballed our credit debt (paying the most on the highest interest till it's retired, then paying the next highest. When it was paid down, paid it off in full every month.
c) Maxing out my 401k, including catchups when I hit 50.
d) once credit cards were paid off, took the $500/month I'd been throwing at CCs and started paying down our mortgage with extra principal payments.

It was tight. I brown bagged lunch. I cut my starbucks habit. We looked at any expenses we could cut. We did cost benefit analysis on every expense. Rec center swim team for the boys, yes... Private swim club/team, nope. Little league yes, travel team, nope. We love travel but limited 'big' trips to every 4 years, doing a car trip in the other 3 years. Cooked at home vs restaurants or fast food. etc.

Between learning to live on less (because of debt reduction and intensive savings) and good markets I was able to retire at age 52 - 3 years before my plan.

The biggest benefit was hubby and I were home when the kids were teens. They didn't like us 'up in their business' but it was a very good time to be paying attention, lots of attention, to them.

And I'm so glad we hit the 529's the way we did... They're in college now and it's nice to just draw the funds from the 529's.

I love this post. I was always worried about what it would be like to be home when the kids are teenagers. DS will be 16, DD1 will be 14 and DD2 will be 12 IF I hit my retire at 50 goal. Like you, I feel it will be very beneficial to have that family bond as they grow into adulthood. My parents are busy working too much and I got into a lot of trouble, formed friendships with the wrong crowd, and made some irresponsible choices that I feel would have been different if mom and dad were paying better attention. It caused me to be a late bloomer in almost all aspects of life, but I still turned out okay relatively speaking. Struglgled with addiction and mental health issues, but am doing fine now. Maybe it wouldn't have made a difference, but I think it would so if I can be around and there for my kids I want to dedicate as much time to them as possible.

Good advice on the 529...when you posted $1000 a year to 529 I glanced and thought ...that's a lot...but at second thought I am like wait is that enough hehe. We are putting 1000 into our kids right now but I feel like I need to double or triple that as we approach the next decade. It WILL be nice to have that there and it will be a key part of our ER as I don't want to take out of my Roth to fund college. I wouldn't mind buying a home from my Roth for them later on down the line, but that's another story. My DF did help all of us with home down payments and I feel like that really gave us a leg up in life.

 

[Freedom2033]

I haven't had a ton of time to dig around on the boards but I keep coming back... it's funny how once you set your mind to something everything comes in to hyper focus. No more "oh it's only $20, what the heck"

Today I took the kids to a free event (yay!) Only to get talked in to McDonald's for lunch. $40 for 2 kids and one adult. Paid cash (yay!) But it was every dime of my slush money until payday on Thursday. So I won't be making that mistake anytime soon again. Not only is it disgusting food, it was 1/3 of our weekly grocery budget, on one meal.

Anyway, despite the stress of the debt and inflation and rates going up and up, I'm enjoying the challenge of a cash budget and even saying no to my kids. I'm certainly not blaming my parents for our situation but neither of us were taught even rudimentary money management. Hoping to change that for this next arm on our family tree.

And I have started digging deeper in to the pension. If I ride it out to 65 it's 60k per year. While that is definitely not my intention or goal, it is some reassurance.

 

[rodi]

I love this post. I was always worried about what it would be like to be home when the kids are teenagers. DS will be 16, DD1 will be 14 and DD2 will be 12 IF I hit my retire at 50 goal. Like you, I feel it will be very beneficial to have that family bond as they grow into adulthood. My parents are busy working too much and I got into a lot of trouble, formed friendships with the wrong crowd, and made some irresponsible choices that I feel would have been different if mom and dad were paying better attention. It caused me to be a late bloomer in almost all aspects of life, but I still turned out okay relatively speaking. Struglgled with addiction and mental health issues, but am doing fine now. Maybe it wouldn't have made a difference, but I think it would so if I can be around and there for my kids I want to dedicate as much time to them as possible.

Good advice on the 529...when you posted $1000 a year to 529 I glanced and thought ...that's a lot...but at second thought I am like wait is that enough hehe. We are putting 1000 into our kids right now but I feel like I need to double or triple that as we approach the next decade. It WILL be nice to have that there and it will be a key part of our ER as I don't want to take out of my Roth to fund college. I wouldn't mind buying a home from my Roth for them later on down the line, but that's another story. My DF did help all of us with home down payments and I feel like that really gave us a leg up in life.

Two thoughts...
1) One of the main things I was able to offer my kids was driving to school swim team practices/meets, and getting to know their friends, and their friends parents. It was a good move because I could offer advice when I saw friends doing typical teenage stuff like changing friend groups to a more popular group, leaving my kid in the wake... Since I had contact with the parents, I could feel them out about these changes (in two cases the parents were horrified by their kids rude/mean behavior and glad I told them.)

2) We contributed $500/month/kid... so $1000 total/*month*... or $12k/year. Not $1k/year. Yes, this required digging deep... but since our plan was to be retired (no income) when they hit college, it was important to pre-save for that need. Our state's (CA) public school is not very good about giving aid in the amount the FAFSA would suggest. And private schools looked at things like our ADU/Granny Flat as 'business income and asset value' and therefore 100% available for tuition. (Where we look at it as retirement income and part of our primary home value). We knew we would not get much financial aid, and we were right. This is not applicable to Canadian college for the OP.

It was definitely tight, financially. Lots of denial of wants. Lots of focusing on the prize. I had coworkers who thought I was nuts. They mocked me for my leftovers lunches and cheap cellphones. They said I was a horrid parent for denying my kids the lates i-whatever....

Another thing I did - when the company offered ESPP - I went the full 10% of my salary. We were offered a 15% discount on stock - but could only buy/cashout in 6 month increments. So that was another payroll deduction of 10% on top of the maxed 401k. In addition to the extra principal payments on the mortgage... I figure we were living on about 40% of my gross pay.

 

[Freedom2033]

Two thoughts...

1) One of the main things I was able to offer my kids was driving to school swim team practices/meets, and getting to know their friends, and their friends parents. It was a good move because I could offer advice when I saw friends doing typical teenage stuff like changing friend groups to a more popular group, leaving my kid in the wake... Since I had contact with the parents, I could feel them out about these changes (in two cases the parents were horrified by their kids rude/mean behavior and glad I told them.)



2) We contributed $500/month/kid... so $1000 total/*month*... or $12k/year. Not $1k/year. Yes, this required digging deep... but since our plan was to be retired (no income) when they hit college, it was important to pre-save for that need. Our state's (CA) public school is not very good about giving aid in the amount the FAFSA would suggest. And private schools looked at things like our ADU/Granny Flat as 'business income and asset value' and therefore 100% available for tuition. (Where we look at it as retirement income and part of our primary home value). We knew we would not get much financial aid, and we were right. This is not applicable to Canadian college for the OP.



It was definitely tight, financially. Lots of denial of wants. Lots of focusing on the prize. I had coworkers who thought I was nuts. They mocked me for my leftovers lunches and cheap cellphones. They said I was a horrid parent for denying my kids the lates i-whatever....



Another thing I did - when the company offered ESPP - I went the full 10% of my salary. We were offered a 15% discount on stock - but could only buy/cashout in 6 month increments. So that was another payroll deduction of 10% on top of the maxed 401k. In addition to the extra principal payments on the mortgage... I figure we were living on about 40% of my gross pay.

There won't be any help for post secondary here. Heck, if it's the same as when I went, they won't even qualify for the government loan program because of our incomes. I didn't qualify and was out of luck until I moved out and became a mature student.

So it will be up to us and them if they want to be educated beyond high school.

I think our education savings plans are like your 529s. It's always been my goal to fully fund them. Though I do know it's not advised at the expense of your own retirement. But with our pensions I may make the decision to work longer to help them.

 

[ivinsfan]

Are you being honest with yourself It's fine to concentrate on paying debt. An essential element is where did the debt come from and how do I change my debt habits.

 

[NgineER]

There won't be any help for post secondary here. Heck, if it's the same as when I went, they won't even qualify for the government loan program because of our incomes. I didn't qualify and was out of luck until I moved out and became a mature student.

So it will be up to us and them if they want to be educated beyond high school.

I think our education savings plans are like your 529s. It's always been my goal to fully fund them. Though I do know it's not advised at the expense of your own retirement. But with our pensions I may make the decision to work longer to help them.

If you have REd at that point, would at least the youngest child be eligible because you no longer have a high salary?

 

[Freedom2033]

Are you being honest with yourself It's fine to concentrate on paying debt. An essential element is where did the debt come from and how do I change my debt habits.

Yes. I think, finally, 25 years too late, the honesty has kicked in. I guess better late then never!

 

[Freedom2033]

If you have REd at that point, would at least the youngest child be eligible because you no longer have a high salary?

Oh goodness, I never even thought about that. I will add that to my list of things to research.