35 YO Looking for a Pulse. On the right track?

[madatrub]

Stumbled upon this site from work while doing some research on what it would take to retire early. I must say, the overall detail and contribution given by its members is refreshing. Glad I found it..

About my situation, I'm 35, with a 33 wife... We're just looking to take our current financial pulse.

Income is roughly $250k combined, although we've both busted our butts to significantly increase our salaries in the last 5 years (up from $120k). I'm what I would consider frugal, we take approx 1 vacation a year, drive cars that are both paid off and looking to get 100k+ miles out of, etc... We're in the process of paying off our home, with $190k left on a mortgage which started at 280k 3 yrs ago, sometimes making double/triple payments. No student loans, no credit card debt, no other significant bills. We have no children, but we are working on that currently .

Combined we have $260k in 401ks, $20k in Roths (before we made too much to contribute), $50k in cash, $50k in her ESPP, and $50k in various vanguard funds. We have about $300k equity in our house. Upon retirement I will have a pension (Cash plan) that currently has $150k in it, along with fully covered retiree medical. 401k is basically split up 60% stocks, 20% bonds, 20% capital preservation

I try to keep very good tabs on our expenses, and use an excel spreadsheet to track it over the last several years. After a 10% investment in her ESPP, maximum into our 401ks, we still manage to save $1500-4000 a month additional.

A few questions:

* Does this feel like a good start towards being able to retire early (I'm currently looking at 45-55)?
* Im quite new to the forums, and have played around a bit with the FIREcalc. Do people generally try to shoot for a 100% success rate?
* For the people that have had children, I have heard horror stories on the actual amount a child will cost you through their lives, is it possible to retire *AND* raise children?
* In general it feels like I'm carrying too much cash, and I generally let my savings account accumulate 20-30k before i move lump sums into a vanguard account. What tips can you give me on more proactively moving money and maximizing my savings.
* Any other tips that people can offer, I'd love to discuss them...

 

[DanteAlighieri]

Yes, you are definitely on the FIRE track, but if you have a couple kids and the wife quits work you will find yourself on the Road to Workville for quite some time. I don't know where you live but here in SoCal $120k for a family of 4 is middle-class worker bee at best.

 

[MooreBonds]

Welcome madatrub

I'd say that you're off to a great start! To touch on a few of your questions:

Children - while I'm 31 and single/no children and don't have any direct experience, there are many who say that children are extremely expensive. These are usually the same parents who simply buy what they want, and don't take income/savings into account when making their purchases (i.e. the typical live-above-your-means types). While raising children isn't cheap, you can raise them sensibly and not end up forking out a million dollars doing so. If you and your spouse have the sense to live sensibly, odds are you two will have the power to raise your children sensibly and not give in to their every whim/demand/matching what their friends' parents do for their friends, etc.

There have been a few threads on this subject - try searching the forum (although I know the search function isn't the easiest, depending on what it is you're searching for ).

On track to FIRE @ 45? - Although you've provided an impressive balance sheet, the equally-biggest factor is your "personal income statement" (more specifically, your expenses, since you've mentioned your income).
It looks like it won't be a problem to meet your goal, but what is your total annual mortgage payment, and what's the total annual "all other expenses" (vehicles, trips, gifts, food, etc., excluding contributions to the ESOP/401/IRAs/etc). That will go hand-in-hand with your portfolio in determining when you can retire.

Investing your cash more quickly - If you know you'll have $2k+/month in investible cash, AND if you know you'll be putting it into a few Vanguard funds, why not simply set up an automatic transfer each month? Or, simply sit down at the computer at the end of the month (or week, whichever) and when/if you update your financial portfolios or pay bills, spend 2 minutes transferring over the money.

100% success rate on FIRECalc: many people will warn you that even with a "100% success rate", it only tells you that you would have survived any 30 year historical period that is in FireCalc's database. While this is good, you have to know the benefits and limitations of the tool. Sure, things will probably/hopefully never be as bad as the depression going forward, but you never know what the future will bring. And, even if you have a 100% success rate, that means that you made it to the end of year 30 with at least $1 left...not to mention that some of those periods saw your portfolio lose as much as 50%+ of its' starting value (if you were in year 22 of your retirement and your portfolio had dropped in half, you don't know if the future will bring it back or not - not exactly a comforting thought).

But, it's still a great tool to get a feel for what you need. The 3%-4% withdrawal rate is just as good as a preliminary tool, until you get within 5 years or so of retirement, when you want to do some nitty gritty estimates of expenses to get a more firm handle on when you could realistically retire.

One comment: quite a few people (including myself) will caution you to not assume that you'll have 100% retiree health insurance coverage continued by your employer into the next 35 years....while it could happen, the odds are probably against your employer continuing that benefit for the next 35 years. So, you'd probably want to budget at least something for probable health insurance premiums as a safety factor.

 

[madatrub]

Moore, thank you for the feedback, it's much appreciated. Obviously, we are in the "beginning stages" of this type of thought process, so there is still a long way to go to learn as much as we can.

As for personal income, we gross about 20k/mo. After taxes, 401k, ESPP, insurance, deductions, etc we bring home about 9k/mo. We're dumping about 4k/mo into the mortgage paydown. As for other expenses, they are quite mild... I work in the oil business and enjoy a nice discount on gas, she works in medical IT and works from home, so other expenses like electric/gas/phone/internet are covered by her company. We budget $200 a month in car maintenance, we take one trip per year, but even airfare is covered with work frequent flyer miles, and even then we use our yearly bonus money to pay for that, which is on top of the salary I mentioned.

All in all we live what I would consider comfortably, but we still live no different than when we made half as much. We eat out infrequently, and would rather spend a night home than out on the town.

As I mentioned, i've tried to keep track of our monthly expenses over the past several years, and since finishing our student loans. Omitting what you asked about, we pay about $45k towards our mortgage per year, although only required to pay $25k. All other expenses total about $3k/mo. Quite frankly, we could "splurge" way more than we do, since in effect if we werent paying down the mortgage faster, we'd be saving in the neighborhood of 60% of our total gross income, but it never has "felt right" to me.

Thanks for your comments about automatic transfers (or even a monthly wire transfer), I've been lazy and I should really be letting my money work for me. I realize this probably isnt the forum, but I'm a neophyte at best when it comes to various funds, perhaps some can give me a few recommendations on where to start?

RE: the retiree medical comment. While I agree, and I most certainly would play it conservatively.... the company I work for has been around for 100+ years, I don't see it going anywhere anytime soon, but yes you're right, they could stop the benefit tomorrow if they wanted to, so I agree.

To Dante: I'm from the NE USA, around PA/NJ/DE area. We've talked about children, and given my wifes medical background (Nursing background), she has the flexibility to quickly go back to work (which is her plan) after having a child.

 

[Texas Proud]

Don't do wire transfers.... set up your checking account with Vanguard for ACH....

When I go and check my balance at Vanguard... sometimes I say "I got extra cash in my checking account" and pull it up in a different window... do some quick dirty math of how much I need to keep in the account for the upcoming 'whatever' and then hit the 'buy' button on the Vanguard window... choose which account I want and it takes a couple of minutes... done...

I DID have an auto debit feature there for awhile, but stopped it when I was laid off... now that I am employed again I will probably start it up again... this is for the 'known' extra cash you have each month...

The beauty of the ACH is that if something big comes up, (which is VERY rare), I can go in and send money back the other way and it is there in two day...

 

[Coach]

Personally I'm pretty happy with an 80% success rate in FIRECalc for a 30 year retirement. My retirement budget has enough padding in it that I could cut back quite a bit if things are looking bleak.

Coach

 

[MooreBonds]

Based on the #s you provided, it looks like you initially had a 15 year mortgage with a rate of around 4.5%. Granted, there are a thousand ways to skin a cat, but here's my take on your situation:

--Pay just the $25k/year mortgage payment with little extra payment, and plow the rest into additional Vanguard funds. At this rate, you'll have the house paid off in about 8-10 years. Which, if all goes well, will be a few years before your first born might be considering college (if you haven't been paying private school tuition already). So, that would give you a few years to continue a $25k annual expense in your budget to prepare for possible college expenses down the road. As a side note, since your wife is a nurse, have her look at possibly working at any good colleges that have health care programs: most employees (even part-time!) will get some form of tuition cut if their children attend that college (and colleges/universities usually offer fairly good compensation packages to begin with, even ignoring the tuition credit). However, most have a minimum # of "full-time equivalent" years before you qualify for that benefit...but it's one hell of a benefit if you can work it in.

--What is your pension cash value balance growing at each year? What kind of contribution rate is added yearly? Also, when you say your company pays retiree health care, what are the conditions of that? (how long do you have to work for the company to qualify for retiree benefits? Do they start at a certain age or length of time after retiring? And do you get family coverage, or just for yourself? Although, if your wife is able to work even part-time, most health care institutions offer fairly good health care insurance at pretty good rates, from what I've seen)

--In your 401k, what's the "capital preservation" account paying? My guess is that it's not yielding much, and you might do better putting your 401k more into stocks/bonds, and leaving your 'cash/capital preservation' balance in your taxable accounts (again, it all depends on how low they're paying in your 401k and what you can do outside of it).

Doing a few quick and dirty calculations in Excel:
4.0% annual inflation
6.5% annual investment portfolio returns
$530k starting investment portfolio (excluding cash)
Adding $120k to total portfolios in year 1, adding just $60k/year to portfolios in years 2-10 (assumes you and wife have children, and reduces your overall savings rate for 10 years for her to raise children and additional children expenses)

With those somewhat conservative numbers, in 10 years your portfolio would grow to $1.3 million in real (2008 ) dollars. A 3% withdrawal would throw off $38,700 in real (2008 ) dollars in income per year (pre-tax).

So, with those fairly conservative assumptions and preliminary totals, it looks like your basic annual costs (sans children-related expenses) would mostly be covered when you turn 45. Of course, any additional growth and/or savings beyond the assumptions above would only grow the portfolio. But, at first glance, it looks like FIRE at 45 is definitely a realistic, doable goal with just a 3% annual withdrawal rate (strongly encouraged for those with 40+ year retirement horizons)

If you want to discuss more particulars of specific funds, savings assumptions, or other stuff, feel free to post in the "FIRE and Money" forum (or send a member a private IM ).

 

[madatrub]

To answer some of your additional questions,

- The pension grows at the CPI-U + 2%, which has been in the 6% range the last few years. Contribution rate is 8% of salary up to SS max, then 12% on the remainder, so it has been averaging 8-10k the last few years. Company pays retiree medical for Me + Spouse, after 25 years of service, which I'll hit at age 45.

- Capital Preservation has about a 4.7% 1 yr return at the moment. (My 401k currently only has 15% of my total balance in this fund, with 15% in bonds and 70% in stocks).

- My taxable accounts contain about 20% in cash and are only yielding 2.4%. The rest of the taxable account is a mix of Mid caps, REIT, Asset Allocation Fnds, High Yield funds (which are all currently taking a beating at the moment)

Thanks for the quick and dirty , it gives me some hope that I wont be a corporate slave for the next 20+ years.


EDIT: The mortgage is a 30yr, but our taxes are a bear in NJ ($1400 mort + $700 Escrow). I want to have it paid off by 45, I'm going to check out a calculator to see what my monthly should be to get me there and look to invest the remainder. (EDIT2: Looks like a $3000/mo payment will get me to paid off at 45, which will enable me to save an additional $1k/mo on top of what I'm currently doing)

 

[Milton]

Children - There have been a few threads on this subject - try searching the forum (although I know the search function isn't the easiest, depending on what it is you're searching for ).

Here's one recent discussion that touches upon the impact of children on FIRE: http://www.early-retirement.org/forums/f26/seeking-advice-early-retirement-35289.html#post650971.

 

[madatrub]

About my situation, I'm 35, with a 33 wife... We're just looking to take our current financial pulse.

We have no children, but we are working on that currently.

Combined we have $260k in 401ks, $20k in Roths (before we made too much to contribute), $50k in cash, $50k in her ESPP, and $50k in various vanguard funds. We have about $300k equity in our house. Upon retirement I will have a pension (Cash plan) that currently has $150k in it, along with fully covered retiree medical. 401k is basically split up 60% stocks, 20% bonds, 20% capital preservation

..

LOL, until a member mentioned this, I totally did not remember that I posted this almost 16 years ago. Guess it deserves an update. (The forum is telling me its 5566 days old)

First, its 16 years later , I have 2 children (14/12), and I'm no longer married

Cash plan pension no longer exists, and the company dumped fully covered retiree medical.

Instead of 1 home, me and SO are working on paying off 2, of which we use one as rental.

We have a combined NW of 1.9MM (excluding primary residence), with 1M in 401k, 400k in rental real estate/ROTHs, and balance in aftertax accounts. Goal for FIRE is currently at 59

Moral of the story: Things can and will change based on your plan, but while the path is never going to be a straight line, we anticipate we'll still be able to hit our target of an early retirement.

 

[Koolau]

Looks like you are on your way and headed in the right direction.



Having kids: They ARE expensive though you can control some of that. They don't need the latest electronics or the best clothes. That's up to you.


College expenses are a killer.


BUT, you do get some breaks with kids - not the least of which is tax savings.



Nothing is more rewarding than having kids and you learn more about yourself by having kids than any other way.



So, it's a mixed bag and only you and DW can decide if it is for you or not. So, YMMV.

 

[Katiek]

Love the update 16 years later! Before I saw the update, I didn't realize it was an old thread and was going to say you're on a great path, but things can change a lot in 20 years - but your update certainly showed that. And the benefits of being flexible.


But great to hear that things are going well and that you're still on a track to retire early, even if not as early as originally planned.

 

[pacergal]

Always good to hear updates.
Yes, things can and do change! It looks like you are still doing well on your way to ER