Stretched for Retirement, wondering about some current “needs”

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Topic Author
Doc7
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Stretched for Retirement, wondering about some current “needs”

Post by Doc7 »

Hello all,

My spouse and I are 36, have tax advantaged accounts worth approx $725K. (About $200K Roth IRAs, $500K 401K and $25K HSA). We do have a mortgage of approx $205K @ 3% and 3 children ages 4 months through 6 years.

Our gross income is $188K, my job 2/3rds of that and her job 1/3.

We have always had a goal of 6 months expenses in an emergency fund, which based on reviewing our very detailed monthly budget spreadsheet and using round numbers meant I always wanted (for last 5 years or so anyway) $36,000. We also save up for all our various budgets in savings accounts (on capital one 360 it’s basically like creating a new ‘folder’, so for instance we are saving $42/month for Anniversary trip 2023, as an example). So I probably average around $5K or so in cash at a given time in those accounts that is available for a dire, double job loss situation.

We have been saving and spending that E Fund for many years - down payment on our first home, cars in cash, etc. Finally, FINALLY, we made it hit $36K and put it on “Lockdown” 2 months ago. I in fact put $18K of it into I Bonds (so it’s gone to me until next February right now) and $18K is in the “Emergency Fund” account. A huge bonus of finishing the emergency fund is that we were able to take nearly all of the $650/month that has been building that fund and bumped our retirement-specific tax advantaged account savings to an official gross income 20.0% (27.2% after employer matches added to numerator and denominator).

I also save 1% of gross income in a taxable account in Total Stock Market index fund, that is meant to be “pay off the mortgage in 2041” money, although I already know in my head that in 2041 if we still have this same mortgage (semi unlikely), it will have so little interest left that this money would be utilized for retirement and/or college savings supplement. But as she is very excited about the prospect of being able to say good bye to our mortgage early I was able to work it into our family budget under that nomenclature, and wouldn’t mind if we spent it that way either. I know that saving in a taxable account while not having 2 max 401k and 2 max Roth IRA is not tax ideal, but i do like that cushion for a 529 supplement.

We are saving approx 4% of gross income in 529s, aiming for having approx 75% of in state flagship university saved for each of 3 children. These get 5.75% state income tax deduction.

So total “savings” right now is 20% retirement (which has increased by 1/2 in just the last several months), 1% taxable long term, 4% 529s. Total retirement accounts approx $725K, income $188K, emergency fund $36K.

With all that, here is my question.

After all our current monthly budget we have $315 left over. We recently had a power outage lasting 5 days and have had at least one 2-3 day outage each year for the last 5 years since we lived in the rural area. I would really like to purchase a Honda motor / Honda generator that I can connect to my propane line (I have 500 gallons propane underground) so I can power my thermostat and furnace (which can burn propane without using electricity as the heat source in “emergency mode”). If I figure paying an electrician and getting the generator plus propane adapter kit I am looking at probably 4-5 grand. I look at this in my monthly budget as being another 1.5 years away.

Am I doing fuzzy math to think it would be OK for us to drop to 4.5 months expenses in E Fund savings and open up $9K of our savings for the generator project, maybe a house painting project once that field calms down from all the backlogs right now?

Our jobs are management in utility industry and assistant professor at state university. My parents are retired, with $$$ and living 30 minutes away. There is almost no chance of us living on the street if my E fund hit zero dollars in an emergency. I don’t know at what point I start really reaching when trying to justify spending down this bucket.

For basically 5 years we have been treating the E Fund as a 36K goal but the 650/mo that went into it was available for this kind of thing (which is why it took so long to complete it), and now I am thinking i want to keep shoveling our current “extra budget” of $315/mo to that account but allow it to be drawn down to 75% of target. When i say "stretched for retirement", it was a big deal for us to get from "17% after match" which was my original goal for many years to "20% before matches", we have increased our retirement savings by many thousands annually in last few months, and I don't want to take steps backwards on that as I know we are running out of decades to compound this money before retirement.
Last edited by Doc7 on Mon Apr 05, 2021 1:34 pm, edited 2 times in total.
runner3081
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Re: Stretched for Retirement, wondering about some current “needs”

Post by runner3081 »

Many folks here would just use the taxable account for an eFund, assuming you are okay with taking the money out if the market was down at the time.
Topic Author
Doc7
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Re: Stretched for Retirement, wondering about some current “needs”

Post by Doc7 »

runner3081 wrote: Mon Apr 05, 2021 1:29 pm Many folks here would just use the taxable account for an eFund, assuming you are okay with taking the money out if the market was down at the time.
Well that account currently has $168 in it : )

We just considered re-fi the house (25 years remaining) to a 20, and found that our monthly payment would have gone up $168/mo, and by calling my current lender, eliminating PMI, saved us $82/mo and added another $86 to save in taxable giving us opportunity to pay off in 20 years without a 20 year re-fi, with possibility of using the money for other purposes (college or retirement) in 20 years or beyond. For 1/8th percent decrease in mortgage rate, went with the method that kept us more liquid.
Jack FFR1846
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Re: Stretched for Retirement, wondering about some current “needs”

Post by Jack FFR1846 »

Have you considered a less expensive option? A portable 5500 VA generator will cost something like $700 (what I paid). It will power everything you've talked about and quite a bit more. Downside is that it's loud and you do have to gas it up. For 3 days a year, it should be more than adequate. An electrician can install a transfer switch. I just run extension cords myself, but once up and running, I have 2 refrigerators, a sump pump, the Fios box, router, access point, tv and lots of power strips for lights, computers, phone chargers.
Bogle: Smart Beta is stupid
Topic Author
Doc7
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Joined: Fri Aug 24, 2007 12:55 pm

Re: Stretched for Retirement, wondering about some current “needs”

Post by Doc7 »

Jack FFR1846 wrote: Mon Apr 05, 2021 1:42 pm Have you considered a less expensive option? A portable 5500 VA generator will cost something like $700 (what I paid). It will power everything you've talked about and quite a bit more. Downside is that it's loud and you do have to gas it up. For 3 days a year, it should be more than adequate. An electrician can install a transfer switch. I just run extension cords myself, but once up and running, I have 2 refrigerators, a sump pump, the Fios box, router, access point, tv and lots of power strips for lights, computers, phone chargers.

Yeah, lots of people have "Generac" and other units. The thing is I also know many of these people with generators that are out of service now. I have never talked to a Honda owner that wasn't thrilled. I have really got a bit of a hankering for the EM6500SX $2899.

My family including 4 month old crying baby was all huddled in the living room, with blankets nailed to the door frames, putting logs on fire every 2 hours all night long, during this last outage for 2 days before we cried uncle and went to my parents house. I don't want to end up doing that again, plus power may not always be a 25 minute drive away. also, on well water, so all toilets only get one flush if power isn't available.

In the end, the generator is a bit of a straw man example anyway. I am probably more realistically looking for a way to justify spending more than $315/mo on average on non "routine budget items" - such as the generator and a painting project that is beyond my own scope with significant refinishing and lead paint, whereas I have painted every room in the house except this hallway that was damaged by boxspring during move-in -- over the next 2-3 years, by spending down some of my 6 month E Fund rather than reducing below 20% of income for retirement. Someone else on this forum commented on another post about itemized deductions I had replied to, on how if saving $42/month for a vacation in 3 years is our splurge told us to stop monthly giving of $1800 to "put on our own mask before helping others" but I do think our mask is "on" at this point and that is non negotiable.
lazynovice
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Re: Stretched for Retirement, wondering about some current “needs”

Post by lazynovice »

You really don’t need an emergency fund so much as a plan for an emergency. With 200k in Roth, you can pull contributions out in a crunch. Once the taxable account gets larger, that will be available too. You do need to make sure you are staying honest with yourself that the cash is not just burning a hole in your pocket if it seems every time you build it up, you find something new to spend it on. No judgment from me because I remember what having a growing family was like. There is always something.

https://www.bogleheads.org/wiki/Emergency_fund
tashnewbie
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Re: Stretched for Retirement, wondering about some current “needs”

Post by tashnewbie »

So you're giving $21,600/year, which is >10% of your gross income? That's commendable. I don't know if you have a set target for giving or what. I know you say it's "non negotiable."

Is it all non-negotiable? If you really want this generator, it seems like it'd be easy enough to pause the giving for 2 months (which still allows you to give 10%), and you'd have it. That doesn't get you the other $1-2k for installation/setup. But, personally, I'd feel comfortable "dipping" into the EF for that.

I'd even feel comfortable dipping into it for the full $4-5k. You'd still have >5 months of expenses in the EF.

I hope you and your spouse are "living a little" as you save for what looks to be a very well-funded retirement. $1800 (~$50/month) doesn't seem like a big splurge for an anniversary trip. You're doing awesome with the retirement savings.
Topic Author
Doc7
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Re: Stretched for Retirement, wondering about some current “needs”

Post by Doc7 »

tashnewbie wrote: Mon Apr 05, 2021 4:01 pm So you're giving $21,600/year, which is >10% of your gross income? That's commendable. I don't know if you have a set target for giving or what. I know you say it's "non negotiable."

Is it all non-negotiable? If you really want this generator, it seems like it'd be easy enough to pause the giving for 2 months (which still allows you to give 10%), and you'd have it. That doesn't get you the other $1-2k for installation/setup. But, personally, I'd feel comfortable "dipping" into the EF for that.

I'd even feel comfortable dipping into it for the full $4-5k. You'd still have >5 months of expenses in the EF.

I hope you and your spouse are "living a little" as you save for what looks to be a very well-funded retirement. $1800 (~$50/month) doesn't seem like a big splurge for an anniversary trip. You're doing awesome with the retirement savings.
Yes, I tried to not be legalistic about a 10% tithe (although many would be quick to point out it isn’t a tithe as only about 60% actually goes to a church or even a religious entity) , so instead I ended up being legalistic about a 10+x% tithe. With a modern spreadsheet I don’t know how you draw the line between “legalistic” and what’s just plugging the numbers into a spreadsheet in order to stay consistent. We do that % of non-retirement deposit income, with the idea that in 30 years our retirement account withdrawals will be also taken out at Needs plus X% for giving, as that money wasn’t “given on” initially.

It’s a bit disingenuous with regards to the $42/mo Aruba trip, as we also have built in a vacation budget $1300/year etc that is earmarked towards supplementing that plus a Disney trip in 3 years also, I mostly use that as an example of our budget being pretty tightly controlled / understood (there are not hidden or unbudgeted drags in it). Most folks I know do not budget that much and try to figure out their vacations, my wife and I are both pretty interested in keeping the budget managed so I looked at ticket prices, activity fees etc (we went here for our honeymoon and our five year and understand what the ideal trip and nice dinners out looks like at our non-all-inclusive stay), threw on an inflation adder, figured how much of our $1300 annual vacation budget would go to it and that $42/mo was needed to finalize that trip at that date. This is pretty standard Boglehead procedure though :)
Topic Author
Doc7
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Joined: Fri Aug 24, 2007 12:55 pm

Re: Stretched for Retirement, wondering about some current “needs”

Post by Doc7 »

lazynovice wrote: Mon Apr 05, 2021 4:00 pm You really don’t need an emergency fund so much as a plan for an emergency. With 200k in Roth, you can pull contributions out in a crunch. Once the taxable account gets larger, that will be available too. You do need to make sure you are staying honest with yourself that the cash is not just burning a hole in your pocket if it seems every time you build it up, you find something new to spend it on. No judgment from me because I remember what having a growing family was like. There is always something.

https://www.bogleheads.org/wiki/Emergency_fund
Thanks. I think these are good points. As I said earlier it would take an awful lot for the family to end up destitute and we have tons of Roth IRA contributions. We have used what was technically the e fund “in growth” at the time to put down house down payment, pay off car loans (or not take a loan at all, using this to buy in cash), and the like, which is why it took us all these years to get to 6 months in the first place. But now that i hit it, cranked our retirement to 20%, and I imagined that I was “throwing away the key” on that E Fund slush money, suddenly we feel very cash strapped to get something that we’ve talked about for a couple years and it seems like it’s forever away and maybe in our situation I don’t need to necessarily act like I have $0 now and $315 a month to build up to something like that generator.

We don’t currently really have another “cushion of liquidity” as the EF wiki article calls it.
tashnewbie
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Re: Stretched for Retirement, wondering about some current “needs”

Post by tashnewbie »

Doc7 wrote: Mon Apr 05, 2021 4:30 pm
tashnewbie wrote: Mon Apr 05, 2021 4:01 pm So you're giving $21,600/year, which is >10% of your gross income? That's commendable. I don't know if you have a set target for giving or what. I know you say it's "non negotiable."

Is it all non-negotiable? If you really want this generator, it seems like it'd be easy enough to pause the giving for 2 months (which still allows you to give 10%), and you'd have it. That doesn't get you the other $1-2k for installation/setup. But, personally, I'd feel comfortable "dipping" into the EF for that.

I'd even feel comfortable dipping into it for the full $4-5k. You'd still have >5 months of expenses in the EF.

I hope you and your spouse are "living a little" as you save for what looks to be a very well-funded retirement. $1800 (~$50/month) doesn't seem like a big splurge for an anniversary trip. You're doing awesome with the retirement savings.
Yes, I tried to not be legalistic about a 10% tithe (although many would be quick to point out it isn’t a tithe as only about 60% actually goes to a church or even a religious entity) , so instead I ended up being legalistic about a 10+x% tithe. With a modern spreadsheet I don’t know how you draw the line between “legalistic” and what’s just plugging the numbers into a spreadsheet in order to stay consistent. We do that % of non-retirement deposit income, with the idea that in 30 years our retirement account withdrawals will be also taken out at Needs plus X% for giving, as that money wasn’t “given on” initially.

It’s a bit disingenuous with regards to the $42/mo Aruba trip, as we also have built in a vacation budget $1300/year etc that is earmarked towards supplementing that plus a Disney trip in 3 years also, I mostly use that as an example of our budget being pretty tightly controlled / understood (there are not hidden or unbudgeted drags in it). Most folks I know do not budget that much and try to figure out their vacations, my wife and I are both pretty interested in keeping the budget managed so I looked at ticket prices, activity fees etc (we went here for our honeymoon and our five year and understand what the ideal trip and nice dinners out looks like at our non-all-inclusive stay), threw on an inflation adder, figured how much of our $1300 annual vacation budget would go to it and that $42/mo was needed to finalize that trip at that date. This is pretty standard Boglehead procedure though :)
Well, I must not be a “true BH” because I don’t do all that. But if it works for you, keep doing it!

If you were in a truly dire situation where you’re facing double job loss, you’d probably be eligible for some unemployment benefits. Plus your Roth IRA contributions. Could you sign up for a credit card with a 0% interest promo period? All those extend the EF. I’d personally feel fine taking $4-5k from this slush fund to buy a generator, if I felt this specific model is the best one for my family’s needs.
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