Morning all, looking for some direction/guidance/suggestions from the board on what my wife and I should be doing differently financially to help ensure a great future for us and our children. I know that's a very broad target, but my thoughts are a steady income in an early retirement and setting a foundation for our kids to do the same. Neither of our parents really talk finances too much. I try to have discussions with friends and coworkers (just big picture, no specifics), but nobody really seems comfortable discussing.

Some info below that should paint a picture of where we're at now.

• Both 30yo
• Both employed, combined income between $150k-200k
• Only debt is one vehicle and home.
• Reasonable mortgage (1500sf house <4% loan), about $100k equity in home.
• Fully funded emergency account (5 months) in Ally "high interest" savings (3.4%)
• I have always contributed to 401k to max employer match, but current employer does not offer.
• Wife has 401k, we plan on maxxing this year. Dialing the contribution up every month.
• Both have Roth IRAs with automatic monthly contributions set to max at $6,500/ea.
• Any bonuses will go into brokerage account.
• Pretty much everything invested in S&P 500 index funds.

What we're doing for our one (currently) kid:

• 529b with automatic $250/month contributions. Invested in Fidelity 2040 target fund.
• Custodial brokerage account with same monthly contribution. Invested in S&P 500 index fund.

I've always tracked my finances very thoroughly. My current excel sheet goes back over 5 years with account balances updated every pay period. However, I had some discipline issues and came into our marriage with a decent amount of CC debt from toys and travel. On the other hand, my wife never really tracked anything but was extremely disciplined. After the birth of our first son last year, it really motivated us to get things squared away because I want to be able to spend as much time with family as possible and not feel like I'm forever tied to work. We started with Dave Ramsey, but kinda broke off at the whole pay off your mortgage before any investing over 15%.

My goal is to retire around 50 with a target of $2.5mil invested. Nothing scientific about this number, I've just based it off the 25x rule and feel $100k annual income would be very comfortable.

The big things we have coming up are:

• Childcare for our son. Grandma is getting a little old to watch him four days a week, so we're looking into other options, including my wife quitting her job. That would obviously have major impacts on our finances, but we both want what is best for him.
• A second child. Further pushes us to wife staying home.
• Moving. Really wanting to buy some land and build a house outside of town. We could "afford" it, but I hate seeing it push my retirement projections back.

That wound up being a lot more than I intended. I appreciate any feedback.

Is your wife planning on retiring by 50 also? Are you going to have a part time gig to have some extra cash on the side when you retire?

If both of you guys are retiring at that age with no additional income I see retiring at 50 with 2.5 mil pretty unrealistic. You would have 15 years of covering healthcare before Medicare kicks in. Either one of you guys have any health issues arise it could wreck you budget. I would also assume you would move your portfolio to being more conservative when you retire which would generate a lower return. If you leave the majority in the market you could see it shrink considerably. In addition to that inflation may make that 100k seem like nothing.

You could definitely retire at 50 with 2.5 mil but it may not be as comfortable as you would like.

SquareOne07 said:

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Do you have specific questions?

I would make sure portfolios are allocated properly, life insurance is adequate, and run some models to hone in on the likelihood of success in retiring @50 on $2.5M…many folks fail to consider the 9.5 year gap in being able to tap into their retirement and then the healthcare gap until they turn 65.

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Not really. Just looking for thoughts from those on this board much more knowledgeable than myself.

I'm glad you mention life insurance. That is one thing we do not have in place. I'll get to working on that.

Get some term life for you & wife. Or, get her a policy that you can find, use that cash value when needed. You also can redo the term b/f you turn 40 & be good till you hit almost 60.

Get out of the index, buy dividend growing stocks.

Good stuff…some knowledgeable folks on here that could walk you through that as well if you're needing help. I'm not a fan of the basic "income multiplier" method.

ag0207 said:

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Is your wife planning on retiring by 50 also? Are you going to have a part time gig to have some extra cash on the side when you retire?

If both of you guys are retiring at that age with no additional income I see retiring at 50 with 2.5 mil pretty unrealistic. You would have 15 years of covering healthcare before Medicare kicks in. Either one of you guys have any health issues arise it could wreck you budget. I would also assume you would move your portfolio to being more conservative when you retire which would generate a lower return. If you leave the majority in the market you could see it shrink considerably. In addition to that inflation may make that 100k seem like nothing.

You could definitely retire at 50 with 2.5 mil but it may not be as comfortable as you would like.

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I don't know the answer to your first questions. I am currently in construction and have thought about doing home remodels and maybe pick up new construction projects at my own pace at some point to generate some extra income and give myself something to do.

That number does not have inflation figured, which is a good point. I'm using a typical monthly expense (based on what we do now) of $6k x 12 = $72k, which is around a $100k withdrawal after taxes. I am likely grossly oversimplifying this. On the other hand, our incomes should only increase between now and then, allowing us to contribute more.

MyNameIsJeff said:

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My goal is to retire around 50 with a target of $2.5mil invested. Nothing scientific about this number, I've just based it off the 25x rule and feel $100k annual income would be very comfortable.

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since retirement is still 20 years out, good practice is to pick a year and index your retirement number to it. i.e. if you want to draw a retirement income of $100k and need $2.5 million in 2023 dollars, make sure you revise that figure periodically to account for inflation. and if you don't already, get a solid grasp on your spending habits to determine whether $100k is enough/too much.

otherwise you're doing everything right

If not done already you 100% need to get life insurance on yourself. Insurance through work and another term policy outside of work on yourself totaling $2M or more to protect your wife and kid/'s...since you are pretty young. The idea is that you are worth more dead than alive, lol ha!.

I would also take a policy out on your wife to protect you. Since you sound like the primary income source, maybe set her term policy around $500K.

This is how I'm set up insurance wise.

Your checking on the right boxes on the stock market side, but I would definitely consider balancing it in the future in rental properties for cash flow & equity (I wouldn't buy a rental property right now. Let the real estate market breath and interest rates to settle down). I'm trying to pick up a new rental property every 3 years until I get to 5 properties. My wifes new "job" is just to manage those rentals. They generate monthly cash flow for us and act as her "new job". It gives her the freedom to run our household and care for our kids. Take them to school, pick them up, practices, etc.

Also to supplement your wife's possibly "missing" income if she decides to stay home, mix in some high-dividend stocks for additional income source.

I don't know that we'll be able to retire at 50, but we should have a stable rental income cash flow by 50 to be more flexible with our work-life balance that is for sure.

MyNameIsJeff said:

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• Fully funded emergency account (5 months) in Ally "high interest" savings (3.4%)

Could look to move some/all of this into TBills at the moment, which are yielding 4.5%+, with essentially no risk, flexible terms depending on how liquid you want to be (4-week, 8-week, 13-week, 17-week, 26-week, 52-week terms are available). Look up TBill laddering to take advantage of the longer-term/higher yield TBills, while maintaining good liquidity + ability to continue re-upping at a higher rate in a rising rate environment. I built a 13-week TBill ladder, which makes 33% of my investment available every 4 weeks (which I auto-reinvest back into the next 13-week TBill until rates drop). This gal is a little superfluous, but if you can hold attention, she has a good video:

• Both have Roth IRAs with automatic monthly contributions set to max at $6,500/ea.

If in the 150k-200k range; just watch this as your compensation increases to be sure you don't overfund. You'll eventually hit contribution limits/throttling. I overfunded one year when my wife made more than I expected. Small PITA to correct, but better to avoid.

• Pretty much everything invested in S&P 500 index funds.

Maybe look to add some Small-Cap / Mid-Cap index funds for diversity sake? I really like MGK right now too for a focus on the Big Boys.

What we're doing for our one (currently) kid:

• 529b with automatic $250/month contributions. Invested in Fidelity 2040 target fund.

If you can, seed the 529 with a large starting contribution and continue the monthly contributions to give it a good kick start and more $'s with longer time in market. I seeded my kids with $5k to start and give $200 a month. After 8 years, kid #1's is just north of $30k to give you an example of what that has yielded over that time.

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Sounds like you're doing a great job! Some of my thoughts that hopefully help some.

We've actually been talking quite a bit about getting into rental properties. Most of my drive to and from work each day is spent listening to the Bigger Pockets podcast. I think I could use my construction experience to buy some lower cost properties, renovate them, and rent out for a decent return. The "BRRRR" method, if you will.

Instead of 529, do company stock purchase, if available. Then give your shares to the spawn to avoid taxes and let them pay their tuition. Works for us, your mileage can and most likely will vary.

The problem nobody anticipates is that after everything works out, it's difficult to walk away from peak income. I'm hoping the last kid getting out of high school is our exit. But one more RSU vesting, or one more bonus, or one more stock purchase, or one more IRA matching, or one more raise, would be sweet.

Diggity said:

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that was the first thing that stuck out to me.

$2.5M seems very light to retire that early.

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did he mention how much he has saved up already?

amassing $2.5 million in only 20 years with a family of 4 on an income under $200K?!

I have that income on my own (with no kids and no wife) and haven't come close to $2.5 million at age 52.

1) Fund HSA if your insurance plan qualifies
2) Continue what you're doing
3) Buy rental properties

Yeah, I think that's what I need to work on refining. And I'm sure it will continue to be a moving target over the next decades as we approach "the number". While we could live off the $85k from your projection and maintain our current standard of living now, our plans also include a bigger, more expensive house on acreage as well as more travelling.

I think the main thing is just to continue to invest as much as we reasonably can through the stock market or other passive income streams such as real estate.

LMCane said:

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Diggity said:

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that was the first thing that stuck out to me.

$2.5M seems very light to retire that early.

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did he mention how much he has saved up already?

amassing $2.5 million in only 20 years with a family of 4 on an income under $200K?!

I have that income on my own (with no kids and no wife) and haven't come close to $2.5 million at age 52.

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My projection is pretty simple including around $30k/year at 8%. The problem I'll admit with this is that the bulk of this money is in retirement accounts that won't be accessible without penalties for another 9.5 years.

Old McDonald said:

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MyNameIsJeff said:

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My goal is to retire around 50 with a target of $2.5mil invested. Nothing scientific about this number, I've just based it off the 25x rule and feel $100k annual income would be very comfortable.

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since retirement is still 20 years out, good practice is to pick a year and index your retirement number to it. i.e. if you want to draw a retirement income of $100k and need $2.5 million in 2023 dollars, make sure you revise that figure periodically to account for inflation. and if you don't already, get a solid grasp on your spending habits to determine whether $100k is enough/too much.

otherwise you're doing everything right

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Identifying our spending habits is the first step we took in our process so far. We run everything through Mint to automatically sort expenses. We've eliminated a lot of unnecessary recurring costs and are working to reduce some of the other big ticket items, such as groceries.

Now if I could just keep my wife out of Target...

MyNameIsJeff said:

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Old McDonald said:

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MyNameIsJeff said:

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My goal is to retire around 50 with a target of $2.5mil invested. Nothing scientific about this number, I've just based it off the 25x rule and feel $100k annual income would be very comfortable.

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since retirement is still 20 years out, good practice is to pick a year and index your retirement number to it. i.e. if you want to draw a retirement income of $100k and need $2.5 million in 2023 dollars, make sure you revise that figure periodically to account for inflation. and if you don't already, get a solid grasp on your spending habits to determine whether $100k is enough/too much.

otherwise you're doing everything right

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Identifying our spending habits is the first step we took in our process so far. We run everything through Mint to automatically sort expenses. We've eliminated a lot of unnecessary recurring costs and are working to reduce some of the other big ticket items, such as groceries.

Now if I could just keep my wife out of Target...

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More power to you, but unless the grocery shopping was wasteful or frivolous, I wouldn't cut too many corners there. Brings me more happiness I guess.

We are extremely vigilant about food usage and low waste, and I've found that that really helps to keep costs down.

The good news is that if you conclude that you are something like 30% underfunded, extending your timeline even just a few years with additional savings plus market returns - you should be able to close that gap with 3-4 additional years (which is still very early)

A lot of advisors out there have some pretty neat tools to illustrate all of these assumptions and variables and "what if"s that would probably be happy to help a fellow Ag look through.

A lot of great points in here. A follow up would be don't be afraid of having a stay at home spouse. Daycare for 2 kids will cost more than a house mortgage. A mother or father can develop a very special bond with their children when they have all the time to devote to them.

Plus, with stay at home spouse…you can still fund her Roth IRA and can take the full standard deduction for your single income meaning you will pay significantly less in taxes. Will you make more than having her work? Certainly not, but it is something you should consider. Run pros and cons and determine what would best fit your lifestyle.

If you're very serious about retiring early, start exploring ways to access savings before the age minimum. Ideas include saving more in the taxable account, looking into Roth IRA laddering, and seeing if employer can do a mega backdoor Roth. Not necessarily in that order. But overall, sounds like you're on the right track.

Do what is ultimately best for your family with childcare, but dont underestimate those dual income years and the impact it will have on your retirement. Factor in the loss of your wife's company match and tax free 401k contributions when you do the math on day care vs. stay at home.

I had two friends retire at 40. Both went back to work and are still working at 54/55. Lots of older friends retired before Covid. They had the double whammy of buying first homes in the mid 80's and cashing out before Covid. It's good to have a plan and it's good to be flexible. It's best to be lucky with timing.

Old McDonald said:

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MyNameIsJeff said:

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My goal is to retire around 50 with a target of $2.5mil invested. Nothing scientific about this number, I've just based it off the 25x rule and feel $100k annual income would be very comfortable.

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since retirement is still 20 years out, good practice is to pick a year and index your retirement number to it. i.e. if you want to draw a retirement income of $100k and need $2.5 million in 2023 dollars, make sure you revise that figure periodically to account for inflation. and if you don't already, get a solid grasp on your spending habits to determine whether $100k is enough/too much.

otherwise you're doing everything right

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I agree with this. And you could estimate inflation to help set a target. 3% inflation over 20 years turns a $100k salary today into a $180k salary in 2053. With that in mind, a $2.5M target would really be a $4.5M target in 2053.

Echoing what has been said before...

1. Off the top of my head, $2.5M seems low
2. Take care of insurance immediately - 30 year level term would be my recommendation. It is cheap at your age. Also cover your spouse. I quoted someone at $500K in coverage for $400/year age 27 for 30 year level term a few months ago.
3. MAKE SURE YOU HAVE A WILL! Not sure if you said this in your original email but most 30 year olds don't
4. Stay at home spouse worked for us

Good luck and God Bless!

Aggiewes '87

Have you considered what you'll do once you retire at 50? I couldn't imagine retiring that early, hell its only 17 years away!

I have family members who have retired at 55, 65, etc. and no matter the age they seem to have partially degraded into a homebody that cannot fathom doing more than one activity a day. It's borderline annoying.

Corps_Ag12 said:

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Have you considered what you'll do once you retire at 50? I couldn't imagine retiring that early, hell its only 17 years away!

I have family members who have retired at 55, 65, etc. and no matter the age they seem to have partially degraded into a homebody that cannot fathom doing more than one activity a day. It's borderline annoying.

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Then it's time for you to move out.

MyNameIsJeff said:

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SquareOne07 said:

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Do you have specific questions?

I would make sure portfolios are allocated properly, life insurance is adequate, and run some models to hone in on the likelihood of success in retiring @50 on $2.5M…many folks fail to consider the 9.5 year gap in being able to tap into their retirement and then the healthcare gap until they turn 65.

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Not really. Just looking for thoughts from those on this board much more knowledgeable than myself.

I'm glad you mention life insurance. That is one thing we do not have in place. I'll get to working on that.

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Feel free to send me an email if you'd like help finding and understanding life insurance products.

keith@centexins.com