So I did my friend Mrs N taxes and peeked at her mom's financials. Mostly because she hasn't been filing and I just wanted to confirm it was okay to not file. Nana was fine not filing.
But in the process of looking over all her documents I told her that she now owed $65k on her condo. She freaked out and said what, why, how?
Well in 2010 she owed $14k on her condo but she was tired of paying the monthly note. She was convinced by her ex-SIL to get a reverse mortgage in the amount of $47k. Her note was paid off and she got $23k in cash, and $8k in fees. She was told that she could live in the house till the end of her life and then Mrs N would have to sell it and pay it off. All true but I guess it wasn't explained that like a Credit Card the $47k would continue to accrue interest and fees every month and the amount owed would balloon.
It also could occur that she would reach the maximum limit to be borrowed from the reverse mortgage, in her case $150k and then be forced to refinance or sell the condo. She sat there stunned. For 8 years she actually believed she could live in her house rent/payment free and never be kicked out. It was soul crushing to see the realization kick in.
I suggested that she consolidate the reverse mortgage and get a regular mortgage now before rates keep on going up. Mrs N just got her divorced finalized yesterday so they have a rough idea of budgeting and finances.
Had I realized they were paying $1k/year in fees and $3k/year in interest on the reverse mortgage I would have suggested a year ago they consolidate while rates were lower.
She also owes an assessment on her condo but she has no idea how much. And a car loan of $10k just started in January 2018 at 5%. That being said if they consolidate all their debt, I'm including Mrs N, to the tune of $120k the payments will be around $600/month. Arrgh because they should have refinanced last year and been saving the money. And the rates are so much higher now about 1%.
I don't know what to say because I don't know if Reverse mortgages are good. I feel like maybe people should sell the house and live in it. But they get the appreciation of staying put and paying interest and fees. I guess it's a risk.
Viewing the 'Retirement' Category
So I did my friend Mrs N taxes and peeked at her mom's financials. Mostly because she hasn't been filing and I just wanted to confirm it was okay to not file. Nana was fine not filing.
I just linked tonight all our data on personal capital website. It was an interesting and enlightening snapshot of our assets and investment allocation. I did it myself earlier this year. Gave me fits figuring everything out efficiently because I worked with what my DH had done and with his 401k.
First up, we have enough in our investments to pay off our mortgage. Not enough in taxable but more than enough to pay it off if we cashed in our retirement accounts. Hadn't every really looked but interesting. Only thing taxable is the 401k and looking at it, I think we'd still have enough after taxes. Very nice.
Second, they checked my target asset allocation and I pretty much hit it dead on. I'm interestingly at a higher 90% stocks and 10% bonds mix. Higher than I thought. I thought I was at 85% and 15%. I wanted to be more at 80% stock/20% bonds. But I guess it's okay.
I just readjusted DH's 401k from VINIX to a mix of a small cap, mid cap, international growth and more bonds. I think we are holding cash that it makes sense to perhaps put a bit more into bonds even with the cash. Actually looking at it more carefully this portfolio does not include our cash position so with it included we are at my 80% stocks/bonds 10%/10% cash so maybe I shouldn't have adjusted the 401k. But I feel like this year bonds might go big and the stock market is due a correction.
A really impressive point is my management fees were evaluated at 0.07%. Yes that's awesome I think. Something I am considering is building a stock dividend portfolio. Investing in our taxable account maybe 5 stocks that pay heavy dividends.
I am also 52.2% US stocks and 23.74% international stocks. I guess things are looking good overall. This is a very nifty tool.
I also am considering buying RE as a diversification play. This is something I want to put 25k into or as much as $50k into a rental. We are talking about partnering with friends, which we'll see.
Finally the retirement projections. Well it says I have a 96% chance of retiring at age 53 with $7600/month. Substantially more than the $4k/month I was projecting. I'd like to hit that instead in 10 years but we have save more than I'm projecting which is entirely doable because I'm projecting only saving $40k/year, right now we're doing more but I want to be conservative.
We are also projecting unfortunately to be $30k short for each kid's college fund by 18. I'm thinking we might be closer to $15k. Why? Because I think it's assuming we won't have the projected $81608 by the time they start which is true. But we still have another 4 years to "save" the $2k/year we are doing and that takes care of $8k. And seeing the number in black and white being a projected $30k short each, means that if I for the next 10 years saved an extra $2k/year we wouldn't be short for either. I'm thinking maybe this year we do a one time $10k contribution to each kid for college and call it a day? I think we might have that the cards.
Anyway try using personal capital. It's an amazing website. https://www.talkable.com/x/cbBCMQ
So I calculated that maxing out our 401k and IRAs for the next 15 years will give us a 100% success rate of retiring for 45 years with a $90k/year income. This is with $0 SS income coming in.
2032 retirement gives us a 2% chance of failure. 2031 retirement gives us a 14% chance of failure. So if we continue down our path the earliest I think we could retire is 2031.
However if increase our savings to $40k/year, saving $10k/year outside for 13 years the failure rate is 2% in 2031. And in the year 2030 it's 12% failure, and in 2029 it's 18% failure.
Also adding back SS does nothing to the success rate. Because we're assuming a lower SS and taken at age 62 even if we retire at age 55.
I think it would be easier to lower the number we need to retire not $90k/year. If we lowered it to say $60k/year we can retire in 2028 or 10 years with 1% failure rate saving $30k/year and 50 years of retirement. That would take us to 100 years old. About what I guessed off the cuff.
I have always said DH and I are about 5 years away from FI. According to Fire Calculator we are. If we save $100k/year for the next 5 years and spend $60k/year, we would have a failure rate of 1% of living on $60k/year for 50 years to age 95.
But the reality is while I know we spend around $60k/year and live well, we need more because we aren't done with say college. Plus I'd rather know that everything above and beyond is gravy rather than cutting it so close.
Have you ever calculated?
I'm curious who on this site is not investing. Or cashing in their chips now to take some of the risk off the table. I've been thinking a lot about it. We're dumping quite a bit into the market right now and I do worry it's high. This is a big topic if you can imagine in a tax office. We're all discussing whether we think the market has another year of gains. So it's on my mind.
Well I decided the other day that we're staying invested. We are sticking with the plan. I am going to put more in and hold it. I'm not going to sit in cash or buy more bonds. I will put rebalance being the beginning of the year, but I'm not going to hold back or change our aggressive stance.
What made me decide this? PS wrote that. Well as I perused our previous net worth and years of record keeping. I know we kept investing in 2007/2008 when we had less than we saved. But then it paid off gangbusters afterwards.
So now yes we have a more invested. And yes we are 10 years older. But talking with DH, he's in it for 10-15 more years. He's not planning on retiring until 15 years when our youngest should be done with college. If they lay him off that's a different story but as of right now it's in our heads he's going to work 15 more years.
That being said I think with a 15-20 year time frame of investing we risk it now. We stay in an aggressive investment strategy of 85% stocks/10% bonds and 5% cash. I don't think we cash in and take some of the returns off the table because we could miss out on more gains. My thoughts are until we are 5 years out we keep on investing aggressively. At 5 years out we switch more to preservation. And perhaps because at 5 years we can make a year to year decision to retire if the market is down maybe work 1 more year.
Do you think you'll keep on investing? Or is it better to take gains off the table?
2018 has been good so far. Today I deposited 2017 and 2018 IRA contributions for DH and I. $5500 each for each year for $22k in contributions to our Roth IRAs.
Second it's weird but we ended 2017 a bit short of $800k and now it's powered through. We are at $810k, I think the company match came through for DH's 401k at the beginning of the year for last. And now we just contributed $22k. I wonder if I should rethink our stretch goal?
I also wrote down all our investments and I'm going to clean things up this next month.
We bought a 2015 Toyota Sienna AWD Limited minivan. I love, love, love it. I can't say how nice it is to have the space and ease of a bigger car. The car was $28k plus taxes and fees and we borrowed $24k for 4 years at 2.24%.
We are giving my mom the 2010 Subaru Outback. I do feel guilty about getting rid of a car so new, but the minivan I think will be good for 7 years. The plan is to evaluate it when it is 10 years and decide what we need at that time. My mom is getting rid of a 21 year old 1996 Toyota Avalon. And she could buy a new car but refuses so my used car is perfect. Sigh. Trust me I was trying to get her to buy a new car.
2017 wrap up. Our retirement accounts were ridiculous. We started at $626k and contributed $29k. We ended up with $790k today and approximate 21% return for the year.
We started the year with $435k taxable accounts and ended the year with $294k and $250k home equity we put down. Up $109k for the year. Guessing not as much saved as we should have but we did pay a lot of expenses this year.
Overall our NW went up $263k. Our kids have $22k and $14k in college. Plans to discuss this month pay off the car, how much for driveway/drain repairs this summer, roth IRA $11k, $20k taxes, and how much we plan on front loading the kids college.
I think we should earmark $10k per kid this year and see how the year goes. Then with the continual $2k/year per kid we could do another $10k in Jan 2019. I think this should cover 4 years of college?
Here are some interesting compounding numbers. I don't want to run the returns right now.
DH in 2006 started saving the maximum 401k and IRA. But he contributed to Roth IRA in 2005 In total he's saved $201,500 in 401k and $55,000 in a IRA. His total retirement savings is currently $651,693. The number break down something like this.
11/2/2017 current value $651,693 with only contributing $18,000 and we haven't saved our Roth IRA.
For me I sort of started in 2003 but my numbers are messy and I didn't have a 401k. But as of today I have $108,687.
11/2/17 current value $108,687 without $5500 2017 contribution. I have contributed $55,000. Power of compounding and staying the course? I've been boringly invested in just the stock market and nothing fancier than an index fund.
If things continue the way they are going I am going to predict we'll pass $1 million in retirement accounts in the next 18-24 months. I guess the truth is that slow and steady win the race. Probably we'd have made more investing in RE but this was pretty easy.
Keep on chugging.
I think people wonder what they are saving for. Recently more and more friends keep saying the same thing. They don't know what they want out of life. Unhappy and not sure how to change it.
I tell them they need to sit with their partners and visualize a plan. They should write a list about what they want. Some can be short term, some can be long term.
I think people get bogged down in the tiny details and comparing themselves to others. It starts with "oh I don't have any money to save for retirement. Or it's too little." To it's impossible to save for a house, car, etc.
The first step is to sit down and write/think what's important. College for kids? Retirement? Paying off the house? Clearing credit card debt? No car payment.
Then you can look at each goal and make a plan. I will save 1% to retirement and up it every year. I will save $100/month to college. I will keep making car payments into a car fund.
Sometimes I think it's so overwhelming getting started that people throw up their hands and give up rather than just asking what is important? From that answer you can always sketch a more detailed plan.
MM inspired me to check and it's been a great year 2017 financially. Our retirement savings has gone up $131k so far this year with our contributions being $11k IRA and $12k into 401k. The taxable accounts are up $97k for the year. So we are up around $228k in net worth conservatively.
I hope the year continues like gang busters. At this rate we are on track within 5 years to be FI at our crazy spending rate. We are definitely FI if we would sell the house and live in a cheaper COLA. This is how compound interest works out in people's favor. The longer and earlier you start the more you have.
DH and I were chit chatting in the car, seems like we always talk in the car. Probably because the kids are strapped in and can't distract us as much as in the house fighting. Maybe because we're trapped in two seats and not focused on our cell phones, cleaning, work, dealing with kids, cooking.
Anyway I asked him in 5 years at 45 or so would he retire if he could? I was running numbers and it's highly possible if not sooner. We could potentially do it now if we were willing to cut our lifestyle. But seriously 45 is not improbable.
His answer? "And do what? Why would I want to?" I said "follow your zen". His answer "I'm following my zen now. I spent a year finding my zen, moving with you, and finding my dream job. I don't need zen. I really like what I do. If I stop liking it I'll tell you again and we'll talk. Until then I'll work and be content."
I sat there stunned. Here i am on a savingadvice forum/blog, I read early retirement forums and blogs, and I'm not married to a spendthrift. I married a guy who wants to work.
He further goes on to say "LAL your dad is still working at 86! My dad is still consulting at 66. I am not sitting here at 45 doing nothing." I said "do something you like." DH "I am doing something I love. Who else plays video games pretty much all day everyday? Who gets to be a gamer and paid for it? If I had told 10 year old Mr LAL your job will be video games I'd have died laughing and kissed the ground." LAL says "okay when it stops being fun, quit." DH "okay deal."
So back to the drawing board. Seriously I don't know when or how I'll be dragging him away from work. We're about to embark tomorrow on a 3 week vacation, I'll try to post pictures but I won't have a computer just my phone so we'll see. First trip for DH in a year and he's not even sweating it. I'm dragging him away since he hates traveling. He'd rather stay at home and do nothing. Hence retirement is not his cup of tea in that sense. He doesn't want to travel and see the world.
Have you actually planned your retirement? And thought about what you would do?
I was thinking a lot about friends discussing how renting is throwing away money. It's really, really not. I can see how people think buying a home builds wealth. It's an enforced savings plan. Every month you build up savings by paying down the principal of your house.
But here's the truth! If you saved that principal payment and invested it, as well as invested the entire down payment of your home I'm pretty sure you'd come out ahead of the home owner. But the reality is three-fold.
One how many people would actually save the principal difference between renting and owning? So in that sense yes homeowners do tend to build wealth faster because they are forced to. And typically renters don't have the discipline to save. This is usually true as well because renters often times lack the discipline to save the principal for a down payment on a house. So home buying will build wealth but renting often doesn't because of lack of discipline. I see it too often with most of my long term renter friends they say "i could afford the same monthly payment as rent but I have no down payment." My point to them is then why aren't you saving?
Second, usually people's mortgages are more than rent. Renting often is less perhaps due to the fact that many people will rent the minimum space needed but buy a home much bigger because they are stretching the budget. I can attest to that. Our townhouse we sold was 3bd/2.5 bath townhouse 1500 sq ft. We were DINKS without kids. We didn't need that much space but we bought 5 years before kids to "grow" into to. Probably would have been smarter to rent a 1 bd apartment (like we had just sold) and then moved into something bigger 5-6 years later when we had kiddo #1. So for sure we were pretty dumb, but we liked owning and having dogs. I'm sure our rent would have been something like $1600/month (it was $1400 for a month to month studio at the time) instead of our $3k/month mortgage. But we could afford it and enjoyed the space. So if we had invested the $1400/month difference? We'd likely have made more money. Granted out of the $3k we were paying down I think $700/month principal so we were saving about half the difference. But still $700/month = $8400/year for 10 years is $84k and we could have invested that. So renting would have built up our wealth just as well.
Third I've noticed and perhaps I'm wrong when you renter you get a better location than when you buy. Most people have to compromise on something. So everyone I know compromises and has long commutes of 1-2 hours to get a "big" house. This means if they rented they could usually get something closer to where they needed to be but to afford to buy?
Right now if we wanted to save money DH and I could buy the place we're in for $600k. Instead we're buying something closer and more expensive but about the same size. So we compromised on size of home instead of location. We are paying for location. Also the $600k home would probably break even with our rent which we are overpaying because we had a dog. It should have been $2k/month we paid $2400/month for a dog. Our mortgage now is quite a bit more. But we also could have tried to rent in the same neighborhood we bought at it would have started at $3500 and we probably couldn't have a dog. So to us it's a wash.
But I don't think renting is losing money. I actually think to buy a home many times you are paying a premium to own. I think that many renters don't take advantage of the financial side to keep up with savings and match a homeowner. I think if they did it would become clearer how renting can be financial advantageous.
Have you ever considered renting if you own? And have you ever considered buying if you rent? Did you run the numbers?
For us we banked the extra money so renting we easily matched a homeowner. But I like owning with the stability and I like having a dog. I like feeling like we can do something to the house and not worry. Will we be paying a premium? Absolutely but it's one that my DH and I are willing to make because we want to. We know the financial disadvantages and advantages but still want to.
FWIW I think buying property and being a landlord is different. I think it's different numbers and cash flow and it's an investment not a primary residence you live in. I think it's something that can match stocks easily but you have to know what you are doing for arguments sake we aren't talking about RE investing.
So we ended 2016 pretty good. How good? Our NW went up $41k. We are still down from our peak NW $120k, I'm still happy where we are. Our retirement contributions were $29k plus $2552 employer match into the 401k and we ended the year up $73k so we doubled our investment. We maxed out our 401k in 4 months. With income and savings we only "spent" $30k in cash from January to August, we didn't get our first paycheck till August 12th.
Our average spending was $80k for the year. $6500k/month including $2400/month rent. Not terrible to live on $4000/month for a family of 4. It was front loaded that we had a lot more expenses without employer provided health insurance. So we spent more on essentials till August then we splurged a lot more on eating out and stuff since we suddenly had more money. NOT perfect but we were okay.
Anyway our 2017? Save $100k and increase NW $150k. Big stretch goals.
I've allowed our investments to get out of hand and out of control. Because of our move and rolling into a Roth IRA and 401ks and just starting new funds and being concerned about just our overall cash I've allowed our investments to get out of control. How out of control? I have no idea what we're invested in right now.
DH just took his 401k and dumped it into whatever we chose years ago. I didn't pick his new 401k instead he just dumped it into a couple of funds but told me the other day they told him it was super risky. I haven't done a comprehensive overlook at what we should do in about 2 years.
The kids are left in VTI for college. Boring but what else to do? I'm feeling pretty stressed out right now. I started my spreadsheet with dollar amounts and choices.
I think we've been a little to risky because my DH was allowed a lot of leeway in investing in individual stocks for fun. We rarely touch any of this even in taxable accounts we've got invested in stuff. We need to sit and make a better plan.
Goal - streamline and properly invest our accounts.
I have a feel good story I thought I'd share. A friend of mine was telling me that saving 15% of her income was the easiest thing when she was working and that it did a lot of heavy lifting for retirement.
Well she started at costco at 18 and didn't go to college. She started saving 10% for the first 2 years then 15% from years 20-38, she only ones part-time now because of her kids. She maxed out at $50k/year and has always saved 15% of her income and she's 39 and has $300k in her 401k. She's now set for life even if she never saves again. All the early saving did it for her.
She said I always tell people starting out to save 15% of their income and it'll do it for them. But most people never do. She looked at me and I said "no worries we're fine."
We missed saving in our early 20s and so we had to save A LOT more money to make up for it. We're still socking it away because of it. But the compounding works!
So it doesn't matter what you make but what you save.
DH rolled his 401k from his old company to his new company 401k. He then withdrew $60k and we are converting that to his Roth IRA. We decided on $60k to max out our taxable income in our 25% bracket. We might as well since we are at that level and going forward I suspect it'll be higher so converting any IRA or 401k money to a Roth IRA will likely not be worth it.
I've been doing a lot of thinking about some saving goals I have. My car is 2010 which isn't old and it only has 90k miles on it bought new. But I'm thinking maybe in 3 more years when it's 10 years old maybe we'd get another car and maybe it's time to start saving so we don't have payments? $500/month for 3 years?
I also think we need to start increasing our college savings. $2k/year per kid doesn't seem like enough. I'm thinking if we increased it to $4k/year per kid that would put us in a better position. It another $325/month for both kids.
I guess since 2017 is about to start it's making me evaluate financial goals. Once we buy a house and settle into a routine monthly budget I think it'll be easier to give every dollar a name.
Have you considered your 2017 financial goals?
It's almost the end of the year and it's been good. So we hit our peak NW in June 2015. And since then we are down about 12%. From when we moved because we had a lot of costs moving, selling house, etc September 30th 2015 we are down 0.7%. So we have made up the difference. At our lowest point we dipped 19.4% from 6/15 or 9.1% from 9/30/15.
Part of it has been saving and part has been the market. We managed not miss a beat and maxed out DH's 401k and Roth IRAs for 2016 and kid's college funds $4k. We also saved our signing bonus. We hit a new high of $600k+ in retirement savings. To just show what holding steady does in DH's old 401k without contributions after August
June 2015 $332k,
In one year we had quite a ride. So shut your eyes and let it ride. A stretch goal for 2017 will be if market cooperate $700k in retirement.
We are right now in a holding pattern until we settle into a house. It'll be interesting what the next year financials hold with proposed tax reform. I can't say I'm upset because I know we'll benefit a lot. We pay a ton in taxes and this year more than ever.
I want to strangle my mom. I love her and my parents have more than enough to retire on. But my mom doesn't it. She won't spend her money. I want to smack her so hard and tell her you can't die with it and I don't want it.
My mom is in the car with me as I'm prying out about her she feels she can't buy a house she wants. I say just buy the DAMN house. She says "oh we'd have to liquidate" and how will we afford it? I point out to her she gets SS, my dad gets SS, and she gets a pension.
Her monthly take home pay is says is $3k pension, $2k SS, Dad's SS $3k, and $1500 RMD from IRA because he's still working. She's retired and has been for 10 years and still contributing to a ROTH ira. They bring home at least $10k/month and my mom is still trying to save money.
I don't know what for. I wanted to strangle her. I said please buy a new car. Please buy a house you want or renovate it. Her car is a 20 year old Avalon that the A/C is broken in Hawaii but she just constantly refills coolant. She had a leaking roof for years because she couldn't pick a roof.
I wanted to shake her. I begged her to please stop saving. She looked me in the eye and said "oh it'll go to DK1 and DK2. You don't need it, but it's ridiculously frivilous to spend $10k/month".
I give up. I'm not even sure my mom realizes that they make more than the majority of the population. They are still earning income my dad is 86 today (happy birthday dad). They are only drawing on IRA because they have to. OMG. Why aren't they enjoying it?
This same mentality is why she tells me I have to work. The idea of actually spending what you saved for retirement seems crazy.
Do you savers plan on spending your retirement money? Or do you think when you get there you'll be living only off other stuff?
My thoughts has always been we'd draw on our retirement. I always had a plan to be done working by 50 and FI by 45. Looks completely on track, but my DH has mentioned more and more he'd prefer to work a bit longer he's not ready to jump off the hamster wheel. I get it he loves his job. But I like knowing we could.
But can working/saving become addicting? I feel like my parents have worried too much.
I'm going to admit to suddenly for once being jealous. In a few different ways. My cousin just bought a house with down payment help from both sets of parents. Neither of them have a good job and yet they can buy $800k home without selling their $350k condo. She's an only and I've heard that he's from a "rich" family. Some envy that they get help.
But I have recently known a lot of people who get down payment help from their families. I know multiple people whose parents gave them the down payment of $50 or $100k or more. Some are even paying/funding college for their kids.
I guess my thought is how are these parents able to give their kids/grandkids money now? I know my parents and in-laws are secure. I don't expect any help nor will we get any. But it's likely they will leave us something eventually.
I guess I'm jealous because how do people know they have enough to give to their children before death? How do they know when they are only in the 60s and 70s and in "early" retirement to know they have enough? I ponder this because I'd like to think that maybe we'll save enough to help our kids.
It's a stretch goal that we are able to pay 100% for 4 years of college, some money for a wedding/house down payment, and a car out of college. In that order I'd like to gift our kids with a leg up. I've really thought about it but we'll be in our early 50s and potentially retiring when they go off and finish college. But how will I know that I have enough? How will I be able to part with so much cash so early in our "retirement" position? Of course if DH chooses to work past 50 then I'm assuming we have a large cash flow.
But how secure do I have to be? Do I think maybe whatever our parents leave behind will be used to be passed on? I think maybe we'll get something but I could be entirely wrong. Our parents have paid for homes and pensions. But I'm not sure much cash on hand, which is understandable why gifting us with anything is pretty much nil.
But how do we get there? How do you know? Have you been gifted a substantial amount of cash from your parents or grandparents? Was it before death? If so why before? How did they know they had enough? If you got it upon death did you expect it? Was it more or less than you expected?
Wow I was reading a blog about someone's journey to biglaw and I had no idea that lawyers make so much money. I mean I knew they did I just didn't have a clue it was a public payscale.
1st year (class of 2015) – $180,000 ($160,000 + $20,000)
2nd year (class of 2014) – $190,000 ($170,000 + $20,000)
3rd year (class of 2013) – $210,000 ($185,000 +$25,000)
4th year (class of 2012) – $235,000 ($210,000 +$25,000)
5th year (class of 2011) – $260,000 ($230,000 + $30,000)
6th year (class of 2010) – $280,000 ($250,000 + $30,000)
7th year (class of 2009) – $300,000 ($265,000 + $35,000)
8th year (class of 2008) – $315,000 ($280,000 + $35,000)
8 years after you graduate you are making $300k. If you started at 25 making $180k and then by age 33 you are making over $300k. Seems crazy like a lot of money. No wonder so many friends I knew said lawyers make a lot.
Had you any clue they made this much? I know this is for biglaw and smaller firms pay less. But from reading the blog they don't make that much less necessarily.
I wouldn't do it unless I like it. But it certainly is food for thought about telling my kids if they want to go into law, they could easily be like Mr Money Mustache and retire very, very early.
I've always been ambivalent about financial independence and early retirement or FIRE. I am so impressed by those who do it Mr Money Mustache and quit a few other blogs like the frugalwood, Dr Doom, root of good, etc. Now the only one who really retired was Dr. Doom. Frugalwoods, root of good, and even Mr M stayed at home with small children and a spouse that worked. By that logic I'm RE. But I don't see it that way. Mr M now has the the benefit of a multi million dollar blog, but the others aren't there yet.
I guess that's the million dollar question. I've also read a blog about a young 30 year old couple who did choose to FIRE on $1M literally and that's it. I guess I'm unsure since retirement will last say 50 years you can't draw 4%/year. And honestly I worry about the cost of healthcare as we age.
For those couples who still have one spouse working it's fine. You get employer provided health insurance. But for those who really pull the trigger, after our "sabbatical" year I have to say that health insurance makes both people in a couple with kids especially dicey to retire early and not worry about it.
Who knows if Obamacare will ever be repealed. If so will those on it with pre-existing conditions be relegated to "ghetto" pools? Paul Ryan mentioned how much cheaper it would be to repeal Obamacare and toss everyone who is expensive into one pool. But what happens to those people? We know many people don't want to subsidize them but that's how forcing insurers to not exclude them makes Obamacare work. I'm not sure what the answer is. I guarantee and so has every economist said that an open market health policy that allows insurers to not provide insurance to those most at risk mean more people would go without.
So how can one FIRE as a couple in the US without substantial assets? I fully support the idea of living frugally. I also support the idea of financial independence. But I am not sure how to fully determine financial independence? Also how will we know if the retire early part of the equation is successful? That FIRE on $20k/year or $12k/year for a family of four will work in 20 years?
Is the only answer to wait and see? What happens if in your 50s after 20 years of retirement big expenses and medical bills crop up? Do you go back to work then? What happens if you don't have a cushion for your living expenses?
I like SA because people here seem to have a balance of saving and spending. I've realized I can't FIRE like others who are mustachian. I don't want to live on $12k or $20k/year. I guess there is a lot of truth that while we try to live frugally we still have a lot of excessive spending. And without inherently changing our "wants" LAL and Mr LAL won't be retiring without a lot more in the bank.
Do you picture yourself retiring on $12k or $20k/year? Could you? Would you? Have you?
I don't know how to relieve my mom's anxiety. I know my in-laws are just as anxious and crazy but I let my DH deal with them. BOTH sets of parents are very financially well off. Both mom's are retired with pensions that pay at least 70% of their incomes. Both sets of dad's are working for no reason other than to not die.
Unfortunately both mom's have WAY to much time on their hands worrying about money. They both retired around age 55. My mom retired at 55 because it didn't make sense to keep working and my MIL because she took "disability" with the same condition DH has.
My mom had a state pension worth 2% per year of service, plus free medical premiums for her and my Dad for life which becomes secondary after she hits medicare age. Also their medicare premiums paid for by the state (thank you hawaii) after age 65. So my parents are basically living without a single worry with regards to medical. My in-laws live in Canada and also get an old age fund and they also have free medical for life. They are not suffering and my MIL had also a pension from the university for 2% of years of service. The most horrible thing they face? My FIL complained about being forced to start drawing on his RRSP (retired registered savings plan) by age 71 and he's 65 and hasn't touched a penny that he's saved since 25 for 40 years (my MIL in the same boat). They are "worried" about paying so much in taxes because they need to "spend" down the money. OMG!
Anyway my mom is already having a breakdown over her condo flooding from a neighbor and needing repairs when she gets upset at me for pointing out that insurance will cover it. The insurance is asking her to pay out of pocket and she'll be reimbursed. They are working on a settlement currently and my mom isn't used to doing any home repairs.
Long story my parents never repair homes they basically live in it and consider it disposable (it's a cultural thing trust me sounds nuts but it's true). They finally repaired the roof after it had been leaking for year and my DK1 said "Oh water is everywhere. We need more buckets." It wasn't lack of money but rather my parents just literally have no idea how to even hire people to do home repair. It took my mom 2 years to sell an empty house because she tried to "fix" it up and get just the blinds replaced, carpet replaced and then home cleaned to sell. So put into perspective my parents have lived in the house 25 years and are finally painting it, but the ceiling in two of the bathrooms fell down. And the "painting" of the house has been going on since AUGUST 2015 when we last visited. Because the painter can only paint and repair walls if my mom packs and cleans the house.
Anyway my mom was screaming at me over the phone for not understanding her stress over money. When I pointed out that she makes as much money now as she did working she said that's not the point. The point is that she's having to tap into her retirement funds. She's on a fixed income!!!! I pointed out that retirees who struggle are people who live on only SS! Yes they have a fixed income but it's not the same fixed income as when they were working!!!
She doesn't get it. That retirement money needs to be spent in retirement. That yes you can touch all that money you SAVED for 40 years. We got into it again because my mom yelled about not saving into her Roth IRA yet for 2016. My parents are 85 and 64 and "retired" but my dad works part time at 85 and they are SAVING $13k into a Roth IRA. My mom is still trying to save on her pension. I said why are you saving in a Roth IRA when you are retired? It's for people to use to save for RETIREMENT?
I can't take the ulcer of both sets of parents not spending their money. I want to shake them both. My in-laws are complaining when I said "just blow it on buying the retirement house you want and sell the two story homes you say is difficult to clean." I hear only FEAR.
My mom's answer is "the Roth IRA is for you and the kids." I write this as I slam my head on the table. My MIL says "oh but that retirement money is for when we're really old." I say "aren't you old enough now that you are retired?" MIL "well not really I mean like maybe 90 or 100,".
I don't think either parents wish to spend what they saved for 40 years. What the hell are they doing?????
We don't need it. We don't want it. We're fine. I can't even tell them how fine we are because we have NO job right now. So they are already anxious enough without us telling them we're fine.
I am going to inherit a ton of money. My DH will likely inherit a ton of money. We have a ton of money for retirement saved. But seriously when will either of our parents think enough is enough?
I don't know how to not end up like them. I have a feeling we already are. I think my DH and I will be FI in 5 years or less. In some ways we already are. But my DH has already shown he is interested in providing everything for the kids and has stated he's not retiring for a long time Financially Independent or not. I nudged him a little recently and he said "the kids need college, wedding, maybe grad school, and it'd be nice to give them maybe even a house DP, and we're going to afford it." So he's got this purpose of working because while we might not need it he's got it in his head we're going to give the kids everything.
I don't know how to people who were "born" savers and raised "savers" can even retire because they have enough?
Seriously I wrote a long piece that got lost about why 401ks fail. They fail because people don't save in them. Think I'm joking? I think right now people are talking about how difficult retirement is. But the reality of the lack of pensions hasn't even started to hit. When? I think when the first of Generation X starts to retire we'll see truly what the 401k is worth. I think the majority of Baby Boomers still had pension. I don't think that's the case for Generation X (I'm one) and very few of my friends have pensions.
So the other day at lunch with my DK2 preschool friends and their moms the talk turned to retirement savings. A few women asked about talking to a financial advisor. They were wondering about retirement savings. These women were asking about Roth IRAs and investing 401k. I guess its good they were asking. But seriously?
They went and bought expensive homes and cars (denali, audi, benz, infiniti) but are now asking about retirement? I think we're in big trouble if people who supposedly are "educated" have no idea about retirement savings. I wanted to hit my hit head on the table because more than a few said "oh I leave it to my husband." Um okay, chances are hubby is as clueless as the wife. I don't think people who have no idea how to save or invest probably haven't been doing it.
And no I did not open my mouth, I couldn't. What could I say? That you should have thought about trying to save for retirement before you bought a house so it could fit in the budget? That it should work out before and not after when you put it so low on the priority list that many are in their 30s!!! without any or minimal. I haven't meet anyone I would guess has 6 figures in retirement and they've had pretty good incomes for a long time.
But seriously have you ever spoken up in a conversation when people begin talking about retirement and saving? I find that now that DH and I aren't working I shut my mouth even more. I've never been asked "how are you affording to live?" Only two people we've meet has asked me did you inherit a lot of money or the lotto? Nope. But no one has ever assumed or asked if I were mustachian and did we save a lot? Do we live frugally?
I think soon enough the real problem of 401ks and people not saving retirement will become apparent when the majority of retirees lack a pension. I don't think it's occured yet because many boomers have pensions, but it will.
Have you ever told anyone you were on a budget? Or how to save for retirement?
I think of this year as more of a sabbatical for us than early retirement. We certainly don't have enough to retire now based on where we want to live. We might if we moved somewhere else. We might if we were heavy into real estate investing. But honestly that was never the plan. The plan was always to move and change careers and have a fresh start. Early retirement is probably still in the cards, I'll know more in 12 more weeks, but the move did hurt us financially but at the same time I think it'll pay dividends in our lifestyle.
But the hardest part of the test? The health insurance. First time in our adult lives we've been on our own plan. We've always had employer provided coverage and it's been generous. We've always not worried about what was and wasn't covered. Perhaps it wasn't clear but we had a "general" idea and felt entitled to call and ask.
Now? Well now we buy our own insurance, for which I am eternally grateful that we can even buy it. If not for Obamacare my DH would be uninsured and my kids would have pre-exisiting conditions of asthma and allergies. I would likely be on the fence as to weather I'd be insurable and I'd have a maternity rider probably and be very expensive. As it is we are on a HDHP of $6500 per person and $13k per family deductible health insurance plan. This plan basically covers catastrophic incidents but everything else we self-insure. It still costs us $700/month just to cover ourselves. We don't have dental insurance or vision.
Fortunately for us we've been knock on wood extremely healthy so far during our tenure. My DK have seen the dr for a flu shot and annual exam. They've gone to the dentist once in November and we paid OOP for that and refused x-rays but it still cost us $200/per kid. And an office visit has been $150. We also had an ER visit for stitches (DK1 head hit a post and needed 4 stitches) but I'm unsure as of yet the cost, I assume $500, waiting for my bill in the mail.
I've been to the dentist for the cost of $300 for cleaning and x-rays they insisted. My DH got in under the gun in August and has decided he won't go until he gets a job since once a year according to his last dentist was more than enough. He's got perfect teeth with no cavities or problems. Both of us did annual exams over the summer before moving and now we're about to come due.
What I really need is more birth control. I hate the idea of paying and am considering actually planned parenthood. Truth is that I had filled all our prescriptions for multiple 3 month refills before we lost our prescription coverage for both birth control and asthma. If we had to cover it now the asthma inhalers it would be $200 a month. Fortunately before we lost prescription coverage it was $20/month.
So while our monthly spending is pretty curbed right now I think the biggest factor in "early retirement" is the difficulties not having health insurance as a group plan. Being covered by an employer makes the plans much more reasonable and better coverage than can be bought as an individual.
Right now it looks like DH will be done at the end of April. He'll take sometime to pick a job but will likely start we're thinking July 2016. Basically we'll have gone a 10 months without employer provided health insurance or a paycheck. This experience has definitely made it eye opening how much money we'd need to retire early. Of course the plan was always to be Financial Independent by age 50 and retire by 55. Now I'm not so sure if we would want to do that. I'm worried that at 55 we might have enough to "retire" but what happens if we're back on this crappy health insurance? And worried about more prescriptions or ailments that come with age?
This experience has definitely brought to the forefront the idea that its not easy to retire early. Mr Money Mustaches buys his own health insurance now for $237/month for a family of 3. I can't speak for why it's so cheap but I will say that we're a healthy family of four and it's costing us $700/month for a plan that has higher deductible levels. So there is a lot of variance in "needs" when budgeting for early retirement. Plus his annual medical spending appears to be much lower than ours.
Last post I said avoidance is what I am practicing. I'm going to avoid looking at our investments for the year or until I need to. Everything is just being left alone.
But I've realized my DH and I time the market not deliberately but accidentally. We sold in 2005 at the peak in southern California and bought at the peak but it worked out. Southern California still hasn't recovered but where we were did go up. Now I think like the last bubble you won't be able to tell until you are able to look back at the market. Did we sell at a high point in the market at 2015? Who knows.
I do know the stock market did go down. I know we didn't invest any home equity because we might need it. So some timing is happening to us but it's not on our decision but rather circumstances. Twice we've not wanted to be loud distance landlords.
But this stock market downturn did cement the idea that you don't invest money you can't afford to lose or ride out staying invested. We used to invest most of our emergency fund and have only 2-3 months of cash. But before we moved we cashed in about 18 months cash and home equity. We decided the risk wasn't worth it. Turns out that was a good assumption
What do you think about the housing market? And the stick market?
Okay so I've been avoiding until today looking at our retirement and investment accounts. It's not pretty.
So our cash is down $30k but that was planned expenses for the past 5 months. We moved and budgeted around $5k/month with some unexpected expenses and moving costs covered. Very planned.
What was unplanned. Tanking of the market. Our retirement savings in June 2015 hit a peak of $575k. We are currently with our contributions ending in August (we maxed out the 401k) as of today at a balance of $496k. Now in October 30th, 2015 when I checked we were down from $575k to $562k. So we had a small hit. But in 3 months we've lost about $70k in our retirement accounts and that's without me moving a penny. I left everything as is and avoided looking at it until today.
I swallowed really hard right now writing this but I am staying the course. I have a diverse asset allocation of stocks all in retirement and our taxable account right now we had it mostly in cash/cd/bonds and it's around $10k down from October. With our cash heavy position from home equity and cash for living expenses we decided to leave our retirement alone.
I'm a little sickened but I'm staying strong and I'm going to ignore it. We weather 2007-2010 and I know there were years we were losing money after contributions and company matches but by contributing and not changing our allocation (cheap low cost funds) it turned out and began to pay big dividends.
I guess the only thing left to do is avoidance. Avoid watching and worrying and realize we aren't touching this money for another 20 years. We'll survive this and start pulling in big gains soon enough. Ugh.
How are you doing?
Reading a post about net worth on the forums made me think about time versus money. What my DH and I are doing right now is probably costing us a lot of money. How much? Well at least $45k in salary this year and another $100k next year. Then add in the fact we're going to likely burn through $75k in expenses from not working for 10 months plus tuition for DH's program. And we're out $220k without counting the lost opportunity cost of us not saving some and investing it.
Our kids are 5 and 3. So right now my DH is getting the opportunity to enjoy them in a way many parents can't. I'm fortunate to have enjoyed them immensely until now. He's getting to experience volunteering in class, doing field trips, etc.
I'm not sure our kids understand the sacrifice we are making right now. Or that our lifestyle changed moving cross country. We've actually mentioned to our older DK1 that we no longer have an income. That we are watching our pennies and we can't buy everything under the sun.
But the truth is that we lived very much like we did before. The only change is that we didn't shop as many sales/coupons for groceries. We ate out maybe 2x/week instead of 1x/week. We ate at more expensive places instead of places with deals. But otherwise we never shopped a lot, still give the girls extracurriculars, still go out and do experiences we did before like the zoo/aquarium/etc. We've curbed our weekend roadtrips, if we were working we'd likely have gone on 1-2 weekend trip.
But I honestly don't think our kids think our life is any different. They do understand we have a much nicer, bigger SFH with a garage that is warmer. But that's due to the fact we just moved somewhere cheaper that we could afford a home. Even if we were working we'd still have rented the same place.
I wonder if our kids will understand the huge financial risk we took when they were young? Or understand ever the financial repercussions we've done by quitting and moving? I don't know, but I hope they think we did something amazing to change our lives.
But I do know my Dk1 understands those less fortunate. And we are continuing to volunteer at shelters helping to host birthday parties for children who don't have homes. She understand that there are so many others who have so much less. And at this time of year we should be grateful for having so much.
I'm still excited for the season and while there isn't a shelter party we're going to help make goody bags instead this month. I hope that when they look back on holidays they remember these sort of things. I always remember and give my children money for the red salvation army buckets because more than once my grandfather told me he and his family were on the receiving end of the Thanksgiving and Christmas food baskets. He always gave me money to put in as does my mom till this day. If not for their generosity I don't know where I'd be.
I posted about Couple A and Couple B choosing to invest their money differently. Couple A chose to pay off the home, Couple B chose to invest in a 401k. By assuming a rate of return on investment of 6%, the difference after 30 years was $691,281.00.
Not extravagant but is a pretty penny. But making a different assumption and follow Dave Ramsey and using a 12% ROI well you get a very different scenario.
Couple A - saving $15k/year for 30 years, then saving and extra $18k/year for 15 more years
6% ROI 12% ROI
15 years retirement $358,462.00 $589,327.00
20 years retirement $566,801.00 $1,139,029.00
5 years taxable $107,773.00 $124,611.00
25 years retirement $845,365.00 $2,107,775.00
10 years taxable $251,998.00 $344,216.00
30 years retirement $1,218,146.00 $3,815,046.00
15 years taxable $445,002.00 $731,236.00
Total Savings $1,663,148.00 $4,546,282.00
So using the 12% ROI couple A would have about 3x the savings after 30 years and the number honestly seems really high.
Couple B saving $29k/year for 30 years with a 6% and 12% ROI
6% ROI 12% ROI
15 years retirement $693,181.00 $1,206,991.00
20 years retirement $1,095,510.00 $2,390,051.00
25 years retirement $1,633,918.00 $4,073,891.00
30 years retirement $2,354,429.00 $7,373,694.00
Couple B also has around 3x as much savings after 30 years. And a ridiculous amount. But then maybe I'm too pessimistic and after 30 years of saving my DH and I should have $7.3M at around age 55. I find that incredible to believe however. That we are going to be that rich. I personally think our number might be closer to $2.3M hence why I use 6% ROI.
What do most people project?
Does it makes sense to pay down your mortgage or invest? For the most part it depends. Depends on your risk tolerance. Depends on your age. Depends on if you bought too much house. But honestly the numbers support investing first, especially in tax deferred (401k) or tax free (Roth IRA) accounts before you pay a penny in overage to your mortgage. The big reason being you can't go back and put the money from your mortgage being paid off into past years contributions.
What do the numbers say? I use round numbers because it's easier. Assume a couple with a stay at home mom, 2 kids, and an income of $100k and are 35 years old. Assuming Couple A contributes 15% to their retirement and the rest of their money to their mortgage. Couple B maximizes the retirement savings to 401k+Roth IRA and nothing to their home. They have a mortgage for $300k on a home worth $360k.
What ends up happening?
$15k retirement/year, pays home in 15 years because they have an extra $10,500/year for mortgage paydown. They then divert $1551/month into retirement/taxable savings for the next 5, 10, 15 years.
Saves $29k/year and pays less in federal income taxes. But they don't pay down the mortgage because all their extra money goes to retirements savings.
Couple A - using a 6% Return on Investment (ROI)
15 years retirement $358,462.00
20 years retirement $566,801.00
5 years tax/retirement $107,773.00
25 years retirement $845,365.00
10 years tax/retirement $251,998.00
30 years retirement $1,218,146.00
15 years tax/retirement $445,002.00
Total savings = $1,663,148.00, No Debt
Couple B - using 6% ROI as well
15 years retirement $693,181.00
20 years retirement $1,095,510.00
25 years retirement $1,633,918.00
30 years retirement $2,354,429.00, No Debt
Couple B has $691,281.00 more than Couple A after 30 years and a paid for home as well.
Couple B has been paying less federal taxes because they are using the 401k to lower their taxes. Because of this they actually after getting close a 40% bonus savings rate. How? Well they are saving $29k/year versus $15k/year for Couple A, but Couple A overall only had $10,500 extra to direct to the mortgage for extra savings. So almost a 40% bonus just from less taxable income.
But after 15 years Couple A is debt free. True, but Couple B likely are decent savers having put savings on auto-pilot. And whose to say either couple won't cash out their homes and downsize? In which case Couple B could in theory be debt free as well. But likely not.
I have a lot of friends who are putting off saving for retirement. Many put off retirement savings for a house. They are busy trying to squirrel away money for their first home. Then suddenly they get into the home and it's MUCH more expensive than they expected. They weren't used to saving for retirement. Then suddenly they are 30 or 32 and haven't saved a penny for retirement. Or they are saving for retirement but they want to focus on paying off the mortgage in 15 years. Or start saving for college.
Here's what happened for us. We started in our 20s. As soon as DH got a real job it was #1 priority. We determined before we bought a house that retirement savings maximum was a line item before we determined what we could afford. It just was something that we deemed necessary since we at the time only had $4k saved for me. DH didn't have any accounts being a foreigner and honestly until then I only had a Roth IRA but we were busy paying off car loans, student loans, and living as graduate students on income very close to the poverty line. So saving for retirement was a pipe dream for us. Something we knew we had to do and we felt we had to catch up.
Well we started saving and all money went to saving for retirement, building an EF, more student loans for an MBA, and the house just took a backseat. We made our payments and lived.
When we turned around we had saved over $550k for retirement in 10 years. Using a retirement calculator if we don't contribute a penny more and retire at 55, using a 7% return we'd have $1.8M for retirement. This nest egg will last us at a rate of $80k/year until age 82 not including a penny of Social Security. We currently spend including our rent $65k/year. This means our nest egg will last until 89 without social security and assuming we are still paying $2400/month in rent/mortgage. Our expenses are a lot lower if we are done with a house payment by 55 (not unreasonable). Right now we could easily live on $40k without a rent or mortgage and we've got enough cash to buy our current house without a mortgage. So our nest egg $550k would be $2.8M when we die if we lived off of $40k now and never saved another penny or used social security. Assuming we worked until 60 we'd start off with a nest egg of $2.6M and we'd die leaving behind $1.0M for our heirs.
So by saving from 26 to 36 we basically funded our retirement. If we choose not to save another penny I think with something from social security and a paid for home we'd have enough to retire early at 55 with and income more than we live on now. If we waited until 60 it'd be ridiculous.
So don't put saving for retirement on hold. I know how easy it is to justify that you have other savings like a home, car, etc. I think it's something you just have to get used and do it. Every penny we save now I know will be worth less than we had saved it 10 years ago. But doing this calculation, my plan is that we will continue saving the maximum 401k, Roth IRAs until we retire. And the goal is 100% income replacement and being financially independent by age 50. This is a stretch goal i think 55 is realistic.
It's interesting living a lifestyle eschewed by Mr Money Mustache. We're not "retired" but taking a break from working. We don't have enough to retire fully and live the lifestyle we want. We probably are close especially if we moved further out from where we are and lived very frugally. But the truth is my DH isn't willing to compromise and wants to work so we will continue on the hamster wheel. We just took a short break from "work" in the traditional sense.
It's been a month but a busy month for my DH and I. Since we moved cross country most of the month was spent unpacking, organizing, and just getting settled. For the most part we are close to being done and really getting settled into a routine.
I've noticed a couple of things. We curbed the eating out which is good since it's pricey. I miss it a little but we're trying to limit it to 1-2x a week. So far it's been 1x a week. Our cooking is getting back to where it used to be pre-kids. We have more time to put effort. Also we grocery shop more and look for sales and shop the circular because we're on a tighter budget. This month so far our grocery budget has been an excessive $700 but a lot of it has to do with buying stuff like spices, condiments, flour, sugar, canola oil, olive oil, etc. Things you need to start up your kitchen. Basic goods that all add up. It really was the first 2 weeks of moving in when we bought a ton of extra groceries and we don't have a stockpile either yet going. However we're also running lean and sort of buying enough for a week worth of cooking.
However we fill gas a lot less. So far this month we've spent $77 and haven't filled since the beginning of the month. We don't have cable just internet. The deal happened to be $50/month for 100 mbps and adding cable was an extra $20. Where we were cable was an extra $5/month because the "bundle" of local channels plus hbo was $84 versus $79 for just internet.
This lifestyle is pretty relaxing. I'm not sure if either of us could last long term but knowing we have 4 months of DH not "working" I think will go by quick. He went to a info session of his bootcamp and was told he has to get up to speed on Linear Algebra and Multivariable Calculus. So he's taking online classes to make sure he can ace it. So these 4 months should go by fast. He was also reassured that they had a 100% placement rate after the camp.
Guess it'll be interesting watching our savings dwindle and seeing what happens. We're starting off with $80k cash, $100k invested, and $350k for a house DP. I hope we don't tap any more than the $80k or at least that's our goal.
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