Are we on track to retire early? 30 + 33 SoCal currently setting aside 28k per year.

Submitted by workingforgoldie t3_11elfdk in personalfinance

30M married to 33F right now in Southern California and my life goal is to retire early. I'm not talking about retire at 40 or anything. Just not 62.

We make around 150-160k together. No kids, no plans.

Monthly take home ~7500

Bills ~3800 (rent+phone+insurance+utilities+internet+auto loan and registration)

Expenses are 720 a month budgeted (car, household, groceries expense).

Recreational is 600 a month. This includes subscriptions, hobbies, eating out, and gifts like wedding or birthday gifts.

Savings are 1400 a month. 300 gets set aside for long term, emergency, and travel (each). Then, 500 for house. The long term is stuff like fridge or washer/dryer. Really big purchases. We just slowly set aside money for them. The houses here are like 800k so $500/month seems like way too little since we want to avoid a low down payment.

Retirement is 1083.34 a month to max out both Roth IRA for the year. I also have an additional 7200 per year for 401k + match, along with maxing out the HSA at 7750 a year. This doesn't take anything out of that 7500 take home pay as it's pretax money being withheld.

So total retirement per year is 27,950

Roth IRA: 6500 Roth IRA 2: 6500 401k: 7200 HSA: 7750 We currently have around 68k in retirement

22k in 401k 20k in Roth IRA 6k in Traditional IRA (was a rollover 401k) 20.5k in HSA We also have 15k in investments that were basically for retirement, as I don't plan on selling until years and years later. I mainly invest in index funds but have a few individual stocks. Doing poorly though but I'm in it for the long term so no worries there. I currently put in about $50 a week into an index fund.

For savings, we are saving 16,800 per year

3600 for long term purchases 3600 for emergency 3600 for travel 6000 for house The long term, emergency, and travel do get depleted when they are used. The house is just slowly building. We currently have:

1300 Long Term 1200 Emergency 2300 Travel 23.5k House The long term was recently depleted due to moving. The emergency was depleted due to some hospital visits. The travel was depleted due to an international trip. No issues with that as I save up for it so I can spend it when needed. But it's low right now so hopefully nothing big comes up in the next few months.

Anyway. I keep looking at our finances and think we are doing poorly. At this rate, we'll never buy a house. Which doesn't matter too much for us. The only reason we want a house is to stop moving every few years. We don't care for a house otherwise.

The main goal is to retire early. I'd happily put aside that $500/month that I am for a house into something else if that's the best action. I also am uncertain about my $50/week investments. On paper it sounds like a good move. But is it too little?

I was doing the math and at my current age of 30, if I continue the current rate in retirement, that would be ~900k at age 50. 52 would reach the 1M mark. 60 would reach the 1.5m mark.

I've been monitoring my expenses for a while and for 2022, we spent on average 2300 per month for expenses and recreation. We spent 12k last year for Long Term, Emergency, and Travel expenses. 1k/mo average doesn't say much as they are spontaneous. Bills were 750/mo, and rent was 2k. Rent and bills are higher now but I accounted for that.

But when we retire, we will still probably be renting since I don't see myself getting a house by then. Maybe we can, but would we want to buy a house or would we rather use that down payment to retire earlier? Not sure. But let's say it's 3k rent. Then if all expenses are the same, that's about 6k per month not including any long term/emergency/travel. I still am unsure what to estimate for that, but let's say 2k. Double now because we are retired and old and probably have health issues. That's 8k a month we would need to pull out every single month. 96k a year. At that rate, we would be depleted in 12 years.

I feel like I'm doing something wrong. Or am I not and I just have to retire at 59 to be able to deplete at 80, which is around when we'll probably die. Should I just invest that $500/mo towards retirement instead of a house? Or just invest it now until ~10 years later to maybe buy a house? I'm a bit lost on where I stand in retirement and home buying.

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Rave-Unicorn-Votive t1_jaeq9l0 wrote

>We also have 15k in investments that were basically for retirement...I currently put in about $50 a week into an index fund.

Don't put retirement money in a taxable brokerage when you have tax-advantaged space on available.

>So total retirement per year is 27,950

You're saving ~17%, which is more than the 15% minimum but far from the 30-40-50%+ that FIRE folks save.

Your incomes are low for SoCal but being DINKs helps to offset that a bit. You have to choose between saving for retirement or a house when you're sub $100k (each) in SoCal.

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workingforgoldie OP t1_jaeqr0e wrote

Should I instead just up my 401k contribution instead of the 50/wk into the index fund?

I guess if those are the options I'd rather do retirement over a house, so that would be upping my 401k contribution by 700/mo? (50/wk from index fund -> 401k and 500/mo from house -> 401k). That would be ~17% to ~22.7%.

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Rave-Unicorn-Votive t1_jaes0ad wrote

> Should I instead just up my 401k contribution instead of the 50/wk into the index fund?

If that money is really for retirement, yes.

>I guess if those are the options I'd rather do retirement over a house, so that would be upping my 401k contribution by 700/mo? (50/wk from index fund -> 401k and 500/mo from house -> 401k)

That's less of a math decision than the previous question but if you don't want to split your focus (which if you do at your current income will likely feel like treading water because you won't make big strides in either direction) then, yes, go all in on retirement.

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workingforgoldie OP t1_jaetkse wrote

This might be a completely separate discussion but would it be possible to focus on the house, buy in ~10 years, and then when we are ready to retire, sell the house to rent instead?

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Rave-Unicorn-Votive t1_jaeuqni wrote

You could. Some people prefer the dedicated retirement savings rather than the house-as-retirement savings but if you go into it understanding you need to sell the house to access the money I think that's a better way to approach it than the more common "but we won't have a house payment in retirement" strategy.

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workingforgoldie OP t1_jaezm7l wrote

Thank you. So what I got from all of this is to not focus on both a house and retirement. One or the other.

Now I need to research the house + sell for retirement approach. If that is feasible, that would save us a lot of stress moving every few years. That alone might be worth the trade off of a few years of retirement. Gotta think about it more.

One more thing I was thinking of while changing my 401k contribution - if I put everything in my 401k, I won't be able to pull anything out until 59.5. In that situation wouldn't I want to have some in non-tax-advantaged investments if I wanted to retire early? Unless I just retire at 59.5+. Which might be the case due to income anyway.

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Super_Mario_Luigi t1_jaer5wn wrote

You have 68k in retirement in socal by early 30s. I don't see any indication you can retire early. If you continue to invest a lot and grow you salary, I am hopeful for you. Sometimes plans are more aspirational than reality. You'll need 1-2 mil type of numbers to retire early.

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alwayslookingout t1_jaexfl9 wrote

Your annual expenses are ~$61K/year right now. If you want to retire early you’ll need about $1.5M invested at a 4% SWD to keep that lifestyle.

If you keep up your current investment of $1.5K/mo ($28K/12) you’ll reach this $1.5M in 20 years at 10% return. That’s assuming nothing changes at all in your income and expenses of course.

So it is possible to retire early. How early is anybody’s guess.

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[deleted] t1_jaep3ii wrote

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workingforgoldie OP t1_jaeqgik wrote

So a little less than double up our retirement savings?

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[deleted] t1_jaes2lf wrote

[deleted]

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workingforgoldie OP t1_jaesqn0 wrote

Will play around with the budget a bit but I think the main goal is to just get better jobs at this point. I don't think our standard of living will get more expensive but the most I can see us doing right now is 40k per year. Thank you for your input.

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ivydesert t1_jaeuaeu wrote

You can expect more than a 3% return from your investments.

The number you're looking for to retire is 25x your expenses. Don't overcomplicate it by trying to estimate what things will cost by then. Inflation will have driven the price of everything up, but the return from your investements should far exceed the rate of inflation.

Maybe you're saving too much for the wrong things. If you don't have a healthy emergency fund, make this your top priority. Keep making your retirement contributions, but all other cash that would go into other buckets should go into this one instead.

It sounds like you have a lot of savings goals, so it may feel like your money is spread thin. Saving up for a down payment on a home will take some time, but other things like affording larger appliances may be getting in the way of your other goals. Maybe it's time to reassess your priorities and figure out when and which goals you want to achieve first, then do the math on how long it will take to get there.

Do you own your larger appliances? If not, don't worry about this goal yet until you near a point where you do (e.g. when you buy a house) since your landlord will take care of repairs and replacements for you. If you do own them, maintenance will come from your emergency fund. I wouldn't consider these things "long term" by any means, and for more expensive purchases like these you can always look to short-term financing in a pinch. For example, I've seen 0% interest rates on appliances if you pay them off within 12 months (YMMV).

I get the feeling that you like to plan for the future, which is good. However, it can reach a point of obsession once you start to realize how many inevitabilities there can be. Save yourself the mental burden by simply building a healthy emergency fund that you can turn to when things go south. Just focus on building it back up whenever you do.

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workingforgoldie OP t1_jaewgza wrote

>If you don't have a healthy emergency fund, make this your top priority.

The emergency fund was recently depleted. It was around 10k but I had some huge medical bills recently.

> If you do own them, maintenance will come from your emergency fund.

I have it set so maintenance for appliances would come from the long term. Emergency is more like health or really big emergencies like we hit an expensive car and gotta pay for it. If my fridge breaks and we don't have enough in "Long Term" then I'm not really worried enough to touch my emergency fund for it. We can get a mini fridge or something. But that's why I have it split into two. Otherwise, if I'm spending emergency money on appliance repairs or something, I would just have $600 into "Emergency" and it would accomplish the same thing.

The Long Term is a catch all kinda thing for major purchases. Like moving expenses came out of long term. It's really just a savings for big things I expect to come eventually. This was recently high too but moving was very expensive.

I do think the $300/mo in emergency right now is a bit low, but I can just move some long term into it or even the ~20k I have saved up for a house into it if something does happen that fast. For now I'll probably just do $0 in long term and $600 in emergency because we just moved and there really is nothing we have for a long term purchase.

>It sounds like you have a lot of savings goals, so it may feel like your money is spread thin

Yeah I think this hit the nail. I want to save up enough for an emergency. I want to save enough to be able to move out when our lease ends. I want to save up enough to get a house. I want to save up to retire early. Can't do it all on this income unfortunately.

Definitely fine with not getting a house though. The house was just because we hate moving. That's really it. Moving is expensive and tiring.

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