32 y/o teacher checking in...early retirement possible?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
nsherman2006
Posts: 14
Joined: Wed Jun 14, 2017 11:53 am

32 y/o teacher checking in...early retirement possible?

Post by nsherman2006 »

Hello!

I posted a portfolio for review 4 years ago and got some great advice, but am now motivated to move up my retirement age from 58 to 43, which requires some shifting of my investment strategies. I'm not sure I will retire if I'm able to at 43, but I want to have the option. I'm sure that if I do retire, I will find some sort of enjoyable pastime that earns me some money (maybe flipping houses). Anyway, I'd love to have y'all take a look at my current standing and plan and let me know what you think:

Emergency funds: Usually 3-5 mos. expenses in checking

Debt: ~$110k Mortgage, 7 years remaining, 2.79%

Tax Filing Status: Single

Tax Rate: 22% Federal, 5% State

State of Residence: CT

Age: 32

Income: $71k/yr salary, ~$21k yr rental income

Current Portfolio:

-$105k in IRA (67% Roth, 33% Traditional)
--54% in FZROX (Fidelity Total Market)
--28% in FZILX (Fidelity International)
--18% in FXNAX (Fidelity US Bond)

-$75k in 403b (60% Roth, 40% Pre-tax)
--55% in VIIIX (Vanguard S&P 500)
--28% in RERGX (American Funds EuroPacific Growth)
--17% in VBTIX (Vanguard Total Bond)

-$60k in taxable Fidelity account (should be increasing to $190k soon with house sale)
--20% in cash
--80% in individual stocks

-$620k in real estate (should be decreasing to $485k soon with house sale)
--$190k primary residence ($110k mortgage balance on this one)
--$160k 2-family rental, generating ~$18k/yr net income
--$135k single family rental, generating $9k/yr net income
--$135k previous residence, pending sale

Net worth roughly $750k

Current Contributions:

-Max 403b at $19.5k/yr (100% Pre-tax, may adjust to get income to top of 12% tax bracket)
-Max 457 at $19.5k/yr (100% Pre-Tax)
-Max Roth IRA at $6k/yr

Total Savings Rate: $45k/yr

Current Expenses:

-$20k/yr for mortgage/taxes (7 years remaining)
-$20k/yr for car/food/personal

Expenses roughly $40k/yr

Additional Potentially Relevant Information:

-I am contributing to a teacher’s pension, which assuming I work until age 43 (20 yrs service) and begin collecting at age 60, will pay 40% of my top 3 years. For now, assuming 40% of 90k, I expect this to provide $36k/yr once I reach age 60.

-I will be able to purchase health care through my school after retiring at the rate they pay, if no other options are available at that point.

-My house is fairly small and recently renovated (new roof, solar panels, new kitchen, new bathroom), so I am anticipating no significant expenses in the short term, but it has a well/septic so I want to be prepared for replacement costs if necessary. I also can do most work myself so any expenses incurred should be minor.

-My car is relatively new and owned outright (2017 Chevy Bolt), so I anticipate very low cost of ownership for the short term, and expect to replace it with a similar used, electric car upon its demise.

-I intend to sell the 1-family rental when the current lease expires and purchase another 2-4 family rental, which may require an additional $50-$100k from my taxable account

-My house will be paid off in 7 years, which should reduce my annual expenses to ~$25k/yr.

-My goal by age 43 is to have at least $500k in 403b+IRA combined, at least $500k in taxable+457 combined, and at least $500k in real estate both housing me and generating income.

-I currently have a girlfriend who out-earns me and is also financially stable, so if any family changes happen in the near future, I expect that the financial impact will be relatively easily absorbed with a second income.

-I intend to have 2 redundant sources of income between ages 43-60: Gains on my taxable+457 accounts (intending to avoid drawing it down), and rental income. The goal will be to use the rental income as my primary source of revenue, but the investment gains can provide a safety net in the case of vacancy or unexpected expenses.

Questions:
1. Do you have any advice, critique, or feedback related to my investment allocation or contribution strategy?

2. Am I overlooking anything that may require altering this plan?

3. What, if anything, would you do differently in my position?
Last edited by nsherman2006 on Mon Jan 11, 2021 2:20 pm, edited 1 time in total.
anonenigma
Posts: 841
Joined: Thu Apr 21, 2011 11:58 pm

Re: 32 y/o teacher checking in...early retirement possible?

Post by anonenigma »

Seems like a heavy lift.

As a CT teacher, you haven't been paying into Social Security. If you pay into Social Security for 30 years, your benefit won't be reduced by the Windfall Elimination Provision.
Monsterflockster
Posts: 733
Joined: Thu Nov 21, 2019 12:03 am

Re: 32 y/o teacher checking in...early retirement possible?

Post by Monsterflockster »

nsherman2006 wrote: Fri Jan 08, 2021 1:10 pm Hello!

I posted a portfolio for review 4 years ago and got some great advice, but am now motivated to move up my retirement age from 58 to 43, which requires some shifting of my investment strategies. I'm not sure I will retire if I'm able to at 43, but I want to have the option. I'm sure that if I do retire, I will find some sort of enjoyable pastime that earns me some money (maybe flipping houses). Anyway, I'd love to have y'all take a look at my current standing and plan and let me know what you think:

Emergency funds: Usually 3-5 mos. expenses in checking

Debt: ~$110k Mortgage, 7 years remaining, 2.79%

Tax Filing Status: Single

Tax Rate: 22% Federal, 5% State

State of Residence: CT

Age: 32

Income: $70k/yr salary, ~$25k yr rental income

Current Portfolio:

-$105k in IRA (67% Roth, 33% Traditional)
--54% in FZROX (Fidelity Total Market)
--28% in FZILX (Fidelity International)
--18% in FXNAX (Fidelity US Bond)

-$75k in 403b (60% Roth, 40% Pre-tax)
--55% in VIIIX (Vanguard S&P 500)
--28% in RERGX (American Funds EuroPacific Growth)
--17% in VBTIX (Vanguard Total Bond)

-$60k in taxable Fidelity account (should be increasing to $190k soon with house sale)
--20% in cash
--80% in individual stocks

-$620k in real estate (should be decreasing to $485k soon with house sale)
--$190k primary residence ($110k mortgage balance on this one)
--$160k 2-family rental, generating ~$18k/yr net income
--$135k single family rental, generating $9k/yr net income
--$135k previous residence, pending sale

Net worth roughly $750k

Current Contributions:

-Max 403b at $19.5k/yr (just switched to 100% Pre-tax)
-Max Roth IRA at $6k/yr
-$24k/yr to taxable Fidelity account

Saving roughly $50k/yr

Current Expenses:

-$20k/yr for mortgage/taxes (7 years remaining)
-$20k/yr for car/food/personal

Expenses roughly $40k/yr

Additional Potentially Relevant Information:

-I am contributing to a teacher’s pension, which assuming I work until age 43 (20 yrs service) and begin collecting at age 60, will pay 40% of my top 3 years. For now, assuming 40% of 90k, I expect this to provide $36k/yr once I reach age 60.

-I will be able to purchase health care through my school after retiring at the rate they pay, if no other options are available at that point.

-My house is fairly small and recently renovated (new roof, solar panels, new kitchen, new bathroom), so I am anticipating no significant expenses in the short term, but it has a well/septic so I want to be prepared for replacement costs if necessary.

-My car is relatively new and owned outright (2017 Chevy Bolt), so I anticipate very low cost of ownership for the short term, and expect to replace it with a similar used, electric car upon its demise.

-I have a budget surplus (currently $5k/yr, should grow over time) that I anticipate will cover large car/house expenses in the medium/long term.

-I intend to sell the 1-family rental when the current lease expires and purchase another 2-4 family rental, which may require an additional $50-$100k from my taxable account

-My house will be paid off in 7 years, which should reduce my annual expenses to ~$25k/yr. I plan to increase my savings rate at this point.

-My goal by age 43 is to have at least $500k in 403b/IRA, at least $500k in taxable investments, and at least $500k in real estate both housing me and generating income.

-I currently have a girlfriend who out-earns me and is also financially stable, so if any family changes happen in the near future, I expect that the financial impact will be relatively easily absorbed with a second income.

-I intend to have 2 redundant sources of income between ages 43-60: Gains on my taxable account (intending to avoid drawing it down), and rental income. The goal will be to use the rental income as my primary source of revenue, but the investment gains can provide a safety net in the case of vacancy or unexpected expenses.

Questions:
1. Do you have any advice, critique, or feedback related to my investment allocation or contribution strategy?

2. Am I overlooking anything that may require altering this plan?

3. What, if anything, would you do differently in my position?
How much does your employer pay into medical insurance? My district pays about 18k and individuals pay another 4K-12k depending on your plan.

Family? Kids?

You have 75k in your 403b. If you max you’ll be assuming some crazy growth over the next 10 years.
Topic Author
nsherman2006
Posts: 14
Joined: Wed Jun 14, 2017 11:53 am

Re: 32 y/o teacher checking in...early retirement possible?

Post by nsherman2006 »

anonenigma wrote: Fri Jan 08, 2021 1:44 pm Seems like a heavy lift.

As a CT teacher, you haven't been paying into Social Security. If you pay into Social Security for 30 years, your benefit won't be reduced by the Windfall Elimination Provision.
Can you expand on what you mean when you say a heavy lift? I understand that my plan is aggressive but if it has shortcomings, I'd like to find them out more specifically.

And even though I do have 6 years of pre-teaching employment in Social Security, I'm not planning on Social Security for any part of my retirement savings.

Thanks for the input!
Topic Author
nsherman2006
Posts: 14
Joined: Wed Jun 14, 2017 11:53 am

Re: 32 y/o teacher checking in...early retirement possible?

Post by nsherman2006 »

Monsterflockster wrote: Fri Jan 08, 2021 1:58 pm
How much does your employer pay into medical insurance? My district pays about 18k and individuals pay another 4K-12k depending on your plan.

Family? Kids?

You have 75k in your 403b. If you max you’ll be assuming some crazy growth over the next 10 years.
I'll have to look into insurance. I know I'm only paying around 2-3k per year.

I do plan on having kids, but if the current relationship works out I believe that the second income added in will more than make up for any costs, and my goal is to continue this path so that I could retire and have more time for family.

I have 180k between 403b and IRA, and am contributing 25k/yr toward the combination, so I don't think it's crazy to think that in 10 years that combined balance should be around $500k. To clarify, I'm looking for $500k between the two, not in each one.

Thanks!
BashDash
Posts: 890
Joined: Mon Nov 28, 2016 12:31 pm

Re: 32 y/o teacher checking in...early retirement possible?

Post by BashDash »

Do you have access to a 457 plan.. believe it or not you can max that AND a 403b.
tashnewbie
Posts: 1586
Joined: Thu Apr 23, 2020 12:44 pm

Re: 32 y/o teacher checking in...early retirement possible?

Post by tashnewbie »

A couple small comments:

Your current individual stock holdings is ~13% of your portfolio, excluding real estate ($48k/$370k). That's a bit high to me. I wouldn't want more than 5% of my portfolio invested in individual stocks.

If you get married, would your spouse want to continue working outside the home? You might want to plan for either of you needing to stay home for some time to stay with the child(ren).
Topic Author
nsherman2006
Posts: 14
Joined: Wed Jun 14, 2017 11:53 am

Re: 32 y/o teacher checking in...early retirement possible?

Post by nsherman2006 »

BashDash wrote: Fri Jan 08, 2021 2:17 pm Do you have access to a 457 plan.. believe it or not you can max that AND a 403b.
Welp....I feel like an idiot. I am eligible. Scratch the contributions to taxable accounts. I'm going to max out a 457 as well and adjust accordingly.

Thanks!
anonenigma
Posts: 841
Joined: Thu Apr 21, 2011 11:58 pm

Re: 32 y/o teacher checking in...early retirement possible?

Post by anonenigma »

nsherman2006 wrote: Fri Jan 08, 2021 2:05 pm
anonenigma wrote: Fri Jan 08, 2021 1:44 pm Seems like a heavy lift.

As a CT teacher, you haven't been paying into Social Security. If you pay into Social Security for 30 years, your benefit won't be reduced by the Windfall Elimination Provision.
Can you expand on what you mean when you say a heavy lift? I understand that my plan is aggressive but if it has shortcomings, I'd like to find them out more specifically.

And even though I do have 6 years of pre-teaching employment in Social Security, I'm not planning on Social Security for any part of my retirement savings.

Thanks for the input!
Outside of real estate, you have $180k in tax deferred assets that you can't access without penalty until age 59.5. (That's why the 457b might be helpful as you can access it earlier). You have another $60k in non-deferred. That's good for age 32, but it's hard to see how you will accumulate enough assets by age 43 to cover your expenses.

My recommendation is to do a budget, in today's dollars, of what it would cost to be living in retirement. Hint: It will be about the same as it costs you now with the addition of healthcare costs, which will be significant (and those will rise as you age).

I don't recall you mentioning any income streams between 43 and 60, so multiply your retirement budget by at least 25, maybe 30 or 35 (considering penalties and taxes on withdrawals from deferred savings) to determine how much you'll need to accumulate to pull this off. Do the same thing at age 60, subtracting your projected pension from the living expenses - but maybe only multiplying by 25 or 30 since there wouldn't be early withdrawal penalties.

The house is where you live, not really part of net worth unless it produces income. If you sell it, you'll have to add rent to your budget.

Retired teacher here.
Monsterflockster
Posts: 733
Joined: Thu Nov 21, 2019 12:03 am

Re: 32 y/o teacher checking in...early retirement possible?

Post by Monsterflockster »

nsherman2006 wrote: Fri Jan 08, 2021 2:12 pm
Monsterflockster wrote: Fri Jan 08, 2021 1:58 pm
How much does your employer pay into medical insurance? My district pays about 18k and individuals pay another 4K-12k depending on your plan.

Family? Kids?

You have 75k in your 403b. If you max you’ll be assuming some crazy growth over the next 10 years.
I'll have to look into insurance. I know I'm only paying around 2-3k per year.

I do plan on having kids, but if the current relationship works out I believe that the second income added in will more than make up for any costs, and my goal is to continue this path so that I could retire and have more time for family.

I have 180k between 403b and IRA, and am contributing 25k/yr toward the combination, so I don't think it's crazy to think that in 10 years that combined balance should be around $500k. To clarify, I'm looking for $500k between the two, not in each one.

Thanks!
Something to consider... is your S.O. cool with you “retiring” while they work another 20-25 years? Are you assuming she will supplement your retirement? Will you have separate finances?

Kids are expensive.

As for turning that 250k into 500k in 10 years... That’s doubling what you put in. And time in the market matters. Your contributions 1 year out won’t have the growth as year 10. Have you run the numbers on this?
manatee2005
Posts: 1803
Joined: Wed Dec 18, 2019 9:17 pm

Re: 32 y/o teacher checking in...early retirement possible?

Post by manatee2005 »

nsherman2006 wrote: Fri Jan 08, 2021 1:10 pm Hello!

I posted a portfolio for review 4 years ago and got some great advice, but am now motivated to move up my retirement age from 58 to 43, which requires some shifting of my investment strategies. I'm not sure I will retire if I'm able to at 43, but I want to have the option. I'm sure that if I do retire, I will find some sort of enjoyable pastime that earns me some money (maybe flipping houses). Anyway, I'd love to have y'all take a look at my current standing and plan and let me know what you think:

Emergency funds: Usually 3-5 mos. expenses in checking

Debt: ~$110k Mortgage, 7 years remaining, 2.79%

Tax Filing Status: Single

Tax Rate: 22% Federal, 5% State

State of Residence: CT

Age: 32

Income: $70k/yr salary, ~$25k yr rental income

Current Portfolio:

-$105k in IRA (67% Roth, 33% Traditional)
--54% in FZROX (Fidelity Total Market)
--28% in FZILX (Fidelity International)
--18% in FXNAX (Fidelity US Bond)

-$75k in 403b (60% Roth, 40% Pre-tax)
--55% in VIIIX (Vanguard S&P 500)
--28% in RERGX (American Funds EuroPacific Growth)
--17% in VBTIX (Vanguard Total Bond)

-$60k in taxable Fidelity account (should be increasing to $190k soon with house sale)
--20% in cash
--80% in individual stocks

-$620k in real estate (should be decreasing to $485k soon with house sale)
--$190k primary residence ($110k mortgage balance on this one)
--$160k 2-family rental, generating ~$18k/yr net income
--$135k single family rental, generating $9k/yr net income
--$135k previous residence, pending sale

Net worth roughly $750k

Current Contributions:

-Max 403b at $19.5k/yr (just switched to 100% Pre-tax)
-Max Roth IRA at $6k/yr
-$24k/yr to taxable Fidelity account

Saving roughly $50k/yr

Current Expenses:

-$20k/yr for mortgage/taxes (7 years remaining)
-$20k/yr for car/food/personal

Expenses roughly $40k/yr

Additional Potentially Relevant Information:

-I am contributing to a teacher’s pension, which assuming I work until age 43 (20 yrs service) and begin collecting at age 60, will pay 40% of my top 3 years. For now, assuming 40% of 90k, I expect this to provide $36k/yr once I reach age 60.

-I will be able to purchase health care through my school after retiring at the rate they pay, if no other options are available at that point.

-My house is fairly small and recently renovated (new roof, solar panels, new kitchen, new bathroom), so I am anticipating no significant expenses in the short term, but it has a well/septic so I want to be prepared for replacement costs if necessary.

-My car is relatively new and owned outright (2017 Chevy Bolt), so I anticipate very low cost of ownership for the short term, and expect to replace it with a similar used, electric car upon its demise.

-I have a budget surplus (currently $5k/yr, should grow over time) that I anticipate will cover large car/house expenses in the medium/long term.

-I intend to sell the 1-family rental when the current lease expires and purchase another 2-4 family rental, which may require an additional $50-$100k from my taxable account

-My house will be paid off in 7 years, which should reduce my annual expenses to ~$25k/yr. I plan to increase my savings rate at this point.

-My goal by age 43 is to have at least $500k in 403b/IRA, at least $500k in taxable investments, and at least $500k in real estate both housing me and generating income.

-I currently have a girlfriend who out-earns me and is also financially stable, so if any family changes happen in the near future, I expect that the financial impact will be relatively easily absorbed with a second income.

-I intend to have 2 redundant sources of income between ages 43-60: Gains on my taxable account (intending to avoid drawing it down), and rental income. The goal will be to use the rental income as my primary source of revenue, but the investment gains can provide a safety net in the case of vacancy or unexpected expenses.

Questions:
1. Do you have any advice, critique, or feedback related to my investment allocation or contribution strategy?

2. Am I overlooking anything that may require altering this plan?

3. What, if anything, would you do differently in my position?
No, it's not possible. Almost all of your net worth is in real estate.
PowderDay9
Posts: 402
Joined: Fri Oct 12, 2018 12:29 pm

Re: 32 y/o teacher checking in...early retirement possible?

Post by PowderDay9 »

You have a great savings rate and a good balance between your investments and real estate. A lot can change in the next 11 years and who knows if you'll be able to retire at 43. Market returns will have a big impact. I'd say just keep up the high savings and you'll be able to retire early, probably in mid to late 40s.

It looks like the RERGX has a bit of a high expense ratio. I'd look for something lower cost or move that money into the SP500. If you need more international then buy it in the IRA.

Definitely do the 457. If you still have money for taxable then but index funds rather than individual stocks.
Topic Author
nsherman2006
Posts: 14
Joined: Wed Jun 14, 2017 11:53 am

Re: 32 y/o teacher checking in...early retirement possible?

Post by nsherman2006 »

Thanks all for the input! Definitely helps to throw a little cool water on the plan, but all of this info is very helpful!

I've edited my original post to account for changes made. I've opened a 457 and set that to max, so I'm hoping that between the 457 and taxable (starting at $190k and contributing $19.5k/yr), I should be able to get close to the $500k mark in 11 years.

Again, the plan is to purchase a second rental property (once the single-family that is currently rented is sold), that should bring my net rental income each year up to over $30k, which is 1.5x my current non-housing expense level. However, this may result in a dip into my taxable account that will make hitting $500k in taxable/457 a bit harder. However, I will have 4 years post-mortgage to accelerate savings if I am not on track to hit $500k.

Thanks to all of your reasonable input, I think I'll strive for a retirement a bit later than 43 unless the cards fall in my favor, but thanks for the input. The 457 tip alone is game-changing!
Post Reply