Lookin at 40 - Got to Stop Wishin', Got to Go Fishin'

[ShadesOn]

Hi Everyone,

My wife and I have spent the last decade diligently working towards our goal of ER, which we hope to achieve within the next 10-12 years. Lots of life changes have occurred during this time, but we have been very fortunate throughout our journey as we have experienced little to no financial hardship. I will proudly state that I believe this to be the product of our meticulous approach to budgeting and expense projections. This cautionary practice however has also been a hindrance to our portfolio growth, as I tend to be overly reserved in our investment diversification.

A little about us:
39, married, 2 kids (5 & 8). Wife is 38 and stays home with the kids. We are a homeschool family and my wife and kids love every moment of it! We are single income household with a base around $180k plus commission and bonuses. Average gross is $225 - $300k. We save roughly 40% of our gross base of $180k and 100% of everything above that.

We paid off our first starter home and agreed at that time to never have a mortgage again. This has allowed us to pay off all debt and become laser focused on our dream of ER. Our expected annual expenses at ER will be $90-100k.

Current Annual Expenses
Taxes/Insurance - $12,000
Living Expenses - $40,000

Assets
House: 600K value.

Investments
401K - $86k (terrible company 401k)
HSA - $55k
Rollover 401K IRA - $117k
Roth IRA - $90k
Brokerage - $500k
CD - $75k

HYS/Savings
$275k

We max out our 401K and HSA every year but are currently unable perform backdoor Roth conversions because of the rollover 401k. **A big question here is do we mega backdoor this thing and pay the taxes so that we can resume ROTH conversions? Our thought was yes since we plan to retire early. Thoughts?

Other concerns we have for the next decade:
Spending More - this is a tough one for me because we have become accustom to our spending habits and marginal movements within our spending make me anxious. That said, our kids will be off and on their own before we know it and we are witnessing close family members battle unforeseen to health issues as they near retirement. We recognize that our time with them is precious, but so is our dream of ER. Do we reduce our savings/investing and postpone our selfish desire to have financial freedom, or loosen the purse strings a little to make more memories. I know the answer to this, its just hard to make the adjustment.

529 - we moved money into a brokerage for the very purpose of investing for the kids education, but we question whether funding this to any major extend would be worth it. Our thoughts were place $20-$25K into an account for each kid and let it ride. If not used we could do ROTH IRA conversions for them.

Aggressive Investing - I mentioned earlier that I'm overly conservative with investing. Often times I only use 5 - 5.5% return rates when projecting our future portfolio balances. We have missed out on a lot of market growth over the years, but I'm always concerned with losing what we worked so hard to amass.

I look forward to learning from all of you and hope to stay inspired by your journey to ER!

 

[Koolau]

The spending issue is something you and DW (and to some extent, the kids) have to decide. Early Retirement is a journey and not a destination. You need to enjoy the journey SO if more spending is required along the way, you need to make that happen. But if you and the family are satisfied with your current spending, there's no reason to increase spending "just because you can."

It appears to me that you are well on your way to ER and FI. Someone will likely chime in on the Roth stuff soon. Welcome to the Forums.

 

[ut2sua]

Rollover 401K IRA - $117k

OP, you might be able to rollover the rollover-IRA (from 401K) to your current 401K. You may need to declare that all $ in the IRA were rollovered from a previous 401K. Doing this will allow you to do the Roth IRA going forward. It had been a long time so my memory may have gotten mixed up with this stuffs, but I remembered making some similar move in the past. If your current 401K won't take any rollover, then this won't work. Good luck

 

[Gumby]

Welcome to the board. It appears that you are properly focused and asking the right questions. Now that I am retired, I enjoy it greatly, but I also made sure to have a good time along the way. And now I look back on those vacations and experiences with satisfaction. I could have skipped them and retired just a little sooner, but I'm glad I didn't.

P.S. - Being a pirate is a state of mind. That doesn't change when you retire.

 

[Eastfolk]

OP, you might be able to rollover the rollover-IRA (from 401K) to your current 401K. You may need to declare that all $ in the IRA were rollovered from a previous 401K. Doing this will allow you to do the Roth IRA going forward. It had been a long time so my memory may have gotten mixed up with this stuffs, but I remembered making some similar move in the past. If your current 401K won't take any rollover, then this won't work. Good luck

I second this. I believe most 401ks accept rollovers so I’m guessing yours should, but you’ll need to check your plan document or with HR. That should clear the way for you to begin doing backdoor Roth contributions. This is what I did several years back.

 

[youbet]

OP,

Welcome! Love your lifestyle and aspirations!

How are you keeping your tax/insurance expenses to $12k with $225k- $300k income?

You mention being very conservative in your investments. Why not give us an idea of your AA?

 

[ShadesOn]

I second this. I believe most 401ks accept rollovers so I’m guessing yours should, but you’ll need to check your plan document or with HR. That should clear the way for you to begin doing backdoor Roth contributions. This is what I did several years back.

Thanks for the suggestion! My companies 401k is laden with fees and the investment options are limited, so I have been hesitant to put anymore than I need to into it. One or the other needs to happen though, because losing out on the Roth conversions is probably more detrimental to our ER goal than we realize.

 

[ShadesOn]

OP,

Welcome! Love your lifestyle and aspirations!

How are you keeping your tax/insurance expenses to $12k with $225k- $300k income?

You mention being very conservative in your investments. Why not give us an idea of your AA?

I may have confused people there. The tax/insurance I was referring to was regarding our assets, i.e. home, car, etc. I was noting it this way since we don't have any monthly payments and instead make annual payments.

Home Insurance - $5,500
Property Tax - $5,800
Car Insurance - $1,800

As for AA, what we have invested is mostly in mutual funds or target retirement funds. I'm ashamed to say that for me a HYS or money market account is an investment, which is where half of our funds sit. One could argue that's not even being conservative, its not even investing.

I will note that while the money sits, we do have monthly recurring investments set up to the tune of $6,500 per month. Going at it with more of a dollar cost average approach somewhat pacifies my anxiety of lump sum investing while still getting the satisfaction of a decent monthly interest rate.

 

[ShadesOn]

Welcome to the board. It appears that you are properly focused and asking the right questions. Now that I am retired, I enjoy it greatly, but I also made sure to have a good time along the way. And now I look back on those vacations and experiences with satisfaction. I could have skipped them and retired just a little sooner, but I'm glad I didn't.

P.S. - Being a pirate is a state of mind. That doesn't change when you retire.

I think what you said hits home. I get asked all the time, "what are you going to do with all your money, just sit on it". It's difficult for most people to understand our journey and what its for, but there is some realization to the fact that the last thing I want is to look back and wish we had done more, especially if we had the means to do it.

Always a pirate!

 

[Aerides]

I get asked all the time, "what are you going to do with all your money, just sit on it".

I'd recommend you stop talking money with most people in your life. It's not a good topic for discussion outside of your very closest friends and family - a handful of people or less.

 

[ShadesOn]

I'd recommend you stop talking money with most people in your life. It's not a good topic for discussion outside of your very closest friends and family - a handful of people or less.

I don't talk money with them in any specific capacity other than the mention of it would be nice to retire early! Most everyone I'm associated with knows my passion for personal finance, that's all. They draw conclusions based on our lack of excessive spending and make a generalized comment of sitting on money.

I'd mention that I think discussing personal finance is healthy as long as comparison doesn't rob you of your personal satisfaction regarding self worth. Discussing money is what can ignite a passion in some that may have been previously unrealized.

Comparison is the thief of joy.

 

[pacergal]

Welcome.
It looks like you are well on your way. You have done well in your savings.
As your kids grow, your expenses may also, due to sports, camps, dances/proms, etc.
It is important to save for retirement, but also important to enjoy the journey along the way!