Financial Planning Checkup

Financial Planning Checkup

There are many resources online with guidelines to gauge how we’re doing in terms of Financial Planning. I’ve heard colleagues and family grumble that the milestones are unrealistic. It definitely helps to start early and save as much as possible for as long as possible, and we’ve seen that a household with the median income could achieve millionaire status in a previous article. However, we each need to look at our own situation to determine when we can retire.

The question isn’t at what age I want to retire, it’s at what income

George Foreman has some great tools like mortgage calculators and even a 72(t) calculator that we covered before. Here is a comprehensive article on that has detailed budgeting tips by age, including real world samples based on average income and expenses. It also touches on other savings goals like tuition and saving for a home. My wife and I focus a lot on our aggressive retirement budget, but we could use help on controlling expenses. 🙂

The Bankrate article references the Fidelity Investments recommended milestones for retirement saving:

  • At least one times your salary by your 30th birthday
  • Three times your salary by your 40th birthday
  • Six times your salary by your 50th birthday
  • Eight times your salary by your 60th birthday

Where do we stand in terms of this benchmark? We are currently at almost 10x our gross annual salary in retirement savings, so we are tracking ahead of schedule (we’re both under 50). In our case, we want to retire “early”, so we need to make sure our retirement income will cover our expenses, including the period before we reach age 59 1/2 when we can tap our tax-sheltered accounts (401ks and Roth IRAs) without penalty.

The bulk of our net worth is in tax sheltered accounts, so we have been working on building up our passive income in taxable accounts, but we didn’t start until the last few years. It’s unlikely that we’ll reach enough passive income in taxable accounts to bridge the gap to age 59 1/2. We will continue to supercharge both our retirement and taxable savings, and even used the 2020 Cares Act to withdraw funds to reallocate some money into our taxable bucket. This plan is still evolving and for now we are mitigating the substantial tax hit by recontributing the first 1/3 of our withdrawals for 2020.

We are also looking at other options like the Rule of 55, 72(t), and a Roth Conversion Ladder. We will probably end up using some or all of these methods as well, but the key will be crunching the numbers to find the point where our revised income from part time jobs and passive sources is greater than our revised budget. One conventional rule of thumb is that we should generate 80% of our previous income during retirement. I think it’s better to err on the side of caution, but for us we are putting almost 33% to retirement savings. Once we retire, we don’t need to save any more, so we could probably get by on less. 🙂

The next big ticket items are our mortgage and tuition. As part of our home mortgage planning, we have a few years left on our 15 year mortgage. We also have a 10 year second mortgage that has several years left. We currently pay tuition for our daughter’s private high school, and she is about to apply to college, so at least a few more years looming. We will see how the tuition works out and evaluate whether we should pay off one or both mortgages early, which would really free up our budget and provide clarity on our timelines.

How are you tracking in your Financial Planning? If you’re already retired, how did your actual retirement budget work out compared to expectations? Reach out or share in the comments below.

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~$Retirement Nerd🤓

Disclaimer: I am not a financial planner and content on this site is meant to provide food for thought, not professional advice. I share my experiences to show what worked so far and what didn’t, YMMV. Please consult your financial advisor or tax professional as needed.

By $Retirement Nerd

$Retirement Nerd is in his late 40s and looking to retire in the next few years.

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