If they work until age 50, they’ll lock in lifelong pensions. That’s about 8 years away, and despite neither of them having six-figure incomes, they can already call themselves millionaires.

What is the likelihood they’ll be multimillionaires by the time they turn 50? Will that be enough to retire early with their relatively modest pensions, only one of which will be inflation-adjusted?

The fact that the author would like to reduce her workload while raising two young children also factors into the questions above. Let’s dig a little deeper and see how we can help this couple navigate the next decade or so.

If you’re interested in participating in one of three interview series, please download the most appropriate form for your life situation: FIRE Starter, FIRE Crossroads, or Post-FI Notes. To see other posts in the series, visit our Q&A archive.

 

 

Getting to Know You

 

Where are you on your financial independence journey? Have you crossed the halfway point in terms of net worth and/or passive income?

We are just over the halfway mark to our financial independence number, with currently $1.1M invested in the stock market. We are eight years away from early-ish retirement (at age 50), with our investment income supplemented by dual pensions.

 

Tell us about your household. How many people and at what ages? Are you supporting anyone outside of your home? Where do you live?

My husband and I are in our early 40s, and we have two elementary-aged kids (kindergartner and 2nd grade).

We do not financially support anyone outside our home besides getting take-out dinner every Tuesday night for an elderly neighbor. Her take-out dinners of choice include any meal with chiles rellenos or carne seca. We live in the Southwest, so her (and our) taste buds are quite happy with the options.

 

In what field are you working? How is your career going? What do you like best and least about your chosen profession?

I am a college professor who only has teaching/service responsibilities (no research), married to a program manager who works for the federal government. My base annual pay is $90k, and my husband’s annual salary is $80k.

I love that outside of my in-person teaching responsibility (for two hours per week), I have complete autonomy over when and where I work. I am in a rather unicorn situation with a very supportive department chair, great colleagues, and rising enrollments in our program.

In addition to feeling like I’m making a real impact for the next generation by teaching skills-based courses, I also love that working during the summer is my choice. I have been taking advantage of the opportunity to earn extra compensation the last few years by electing to teach (fully online and asynchronous) courses during the summer term (earning an extra $30,000 to 40,000 per year through this work).

Of course, there are parts of my jobs that I don’t like – grading can be tedious, a greater proportion of students are stressed out and less engaged than they were pre-pandemic, and people outside of my college aren’t always collegial. [PoF: Then why do they call it college? ;)]

 

Do you feel you’ve come to a crossroads of sorts? If so, tell us about it. What options are you contemplating?

I’m wondering if it makes sense to still trade my time for the extra earnings. It’s not hard work to teach the summer courses given that I’ve got the curriculum already developed, but it does take time to prep (in the spring), communicate with students (during the summer), and grade (also occurring in summer). Do I want to continue to trade my time for money?

My husband likes the extra cash but is more than happy to support me in an even-chiller summer schedule. The kids have a summer camp that they love and would continue to participate in so they wouldn’t necessarily notice any change in my responsibilities. We’ve vacationed for three weeks every August, and this can continue with or without the summer teaching role given that the courses are fully online and asynchronous.

This is the crux of the crossroads I’m facing in this season of life. Do I continue to trade my time for the cash given that it’s relatively easy money to earn (but definitely not passive) or do we have enough in our investment accounts (plus future pension income) to give up this extra work?

 

Investing

 

How is your nest egg invested? Approximately what percentage is allocated to stocks, bonds, real estate, and alternatives?

The mentioned $1.1M nest egg is invested in the stock market – 88% is in VTSAX and S&P 500 index funds; 9% is in international index funds; the remaining 3% is in bond funds.  All new money goes into VTSAX / S&P 500 so that percentage continues to grow.

As mentioned, both my husband and I are eligible for pensions, which is why we feel comfortable with our current allocation, given that we expect to have fixed income in retirement.

The estimated income will be about $22,000 per year beginning at age 50 for me (no inflation adjustment) and $15,000 per year (eligible for inflation adjustments) at age 60 (deferred retirement) for my husband.

 

Are your investments primarily in tax-deferred, Roth, or “taxable” post-tax accounts?

Thirty percent of our $1.1M investments are in tax-deferred accounts, 36% in Roth, and the remaining 34% is in a taxable brokerage account.

Currently, the tax-deferred accounts available to us include a 403(b) and 457(b) (for me), and TSP (for my husband). We max out all three of these accounts at the moment – however, if I decide to drop the summer teaching, we’d need to revisit this situation for cash flow. (Or maybe we’d continue to contribute to tax-deferred accounts because of the tax advantages and withdraw what’s needed from our brokerage account – thoughts on this?)

We also max out our Roth IRAs annually.

After these investments, and living and enjoying life, there’s about $1,000 t0 $10,000 ‘left over’ (post-expenses) annually and we stick that into our taxable account. The taxable brokerage account got pumped up from the days before we had access to the 403(b) and 457(b) and the beauty of compounding interest.

Of note, our only debt right now is our mortgage – we have a 2.85% interest rate, so we aren’t keen to pay off our mortgage any sooner than we have to (we have 28 years left on the note). We ignore our home’s value when considering our net worth given that we need somewhere to live and it’s the perfect size/location for us right now.

We also have a $30,000 emergency fund in a high-yield savings account.

 

Do you have investments in an HSA? How about 529 Plans?

We have a modest amount in a HSA ($16,000). This value will continue to grow as we stuff the max allowed in each year (we hope to not need to withdraw until later in life).

Each of our two kids has about $20,000 in their 529 Plans. We put in about $5,000 in each account each year to take advantage of the state tax benefit. It’s also important to note that if I continue working at my institution until retirement age (which I qualify for at age 50), then the kids will be able to attend any in-state school at a significant discount (the cost of tuition would drop to about 25% of the sticker price). Of course, the kids are too young right now to have any idea if they’ll have an interest in the in-state schools, though we will encourage it.

Each kid also has about $5,000 in a UTMA. We invested that money before we pivoted to putting money in the 529 accounts after we came to understand our state’s tax advantages of saving in this type of account.

 

 

What has been your best investment?

My best investment was to begin investing early in my life. I opened (and began maxing) a Roth IRA at 23, and my husband and I opened a brokerage account at 26. The initial funds we invested in were not optimal (not awful, but also not great), but we learned and shifted to index funds and Vanguard (from a financial advisor with high fees) by 2012.

 

Your worst investment?

We invested $6,000 in a friend’s business over ten years ago. All these years later, we haven’t seen a dime (well, we did get a t-shirt), and the friend isn’t even involved anymore (having sold out themselves). The business is doing okay, but there aren’t any dividends nor can we find someone to buy our shares. We treat this investment on our balance sheet as being worth $0.

I also owned 100 or so Netflix shares back in 2005 – this was in the era of Blockbuster and when they still mailed out DVDs. If I had held on to those shares instead of selling them for a loss in 2006, I could have made a pretty penny (especially if I had sold last year before the bear market set in).

 

 

Into the FIRE

 

Numerically, what is your FI goal?

Our FI goal is $2M in investment accounts by age 50. This is also – not coincidentally – the age that we lock in our pensions.

 

When do you suspect you will achieve financial independence? Will you retire from your career once you’re comfortably FI?

We have the golden handcuffs – needing to work at our current employers until age 50 so that we qualify for the pensions, pension-subsidized healthcare, and so that the kids qualify for the discounted university tuition benefit.

Note: my husband will be doing a deferred retirement and will be eight years short of qualifying for life-long federal healthcare; the pension-subsidized healthcare is my state benefit and goes until 65 when I’m eligible for Medicare.

I sometimes contemplate working longer because of the effect it would have on my pension. For example, if I work until 55 years of age, I then hit a magic combination of years of service plus age that jumps the pension to about $50k per year. The doubling of the pension makes me wonder if I should stick around, but then I think it’s probably a scarcity mindset impact that’s influencing that thinking.

When I start down this line of thinking, I remind myself that this is a ‘problem’ that I can consider closer to age 50, when I’ll have a fuller picture of the state of the world, including our nest egg, health statuses, kids’ trajectories, family situations, pension viability, etc.

 

What are your post-FI plans? How will your life change? What do you look forward to the most?

Post-FIRE plans include more time for bike riding, pie making, and — once the kids are out of high school and launched — multi-month trips full of slow travel.

I simply look forward to being fully in charge of my day and week. Did this response just answer the question about the crossroads regarding summer teaching? Hmmm…

 

Have you made any major changes in your lifestyle or investments to accelerate your FI path?

My husband and I are fortunate that we have always valued spending money on similar things – those things being experiences with loved ones, which translates to funds spent on trips, pool memberships, dinner with neighbors, etc.

The major change that we are now contemplating doesn’t do anything to accelerate our FI path – in fact it does the opposite – as giving up summer teaching and the extra compensation means reduced investment savings.

 

 

Are you facing any unique challenges making FI or RE more difficult?

I sometimes dream of doing other work (exploring industry vs being in higher education) but those golden handcuffs (and the flexibility of my job) always keep me from exploring options seriously.

Another really great ‘challenge’ to have – I have very long-living grandparents as does my husband. Given our family history, we expect to live into our 100s. When running my numbers, I always input 107 as my expected last year, which I imagine is longer than many consider living.

 

What advice do you have for others who are seeking financial independence?

Advice for others is to understand that you will make mistakes. The best thing to do is to learn and adjust when needed, moving forward with kind thoughts for the person you were.

 

Finally, is there anything under the sun that you’d like some help with? The hive mind would be happy to weigh in.

Does the hive think we are set to coast?

Can I give up the summer teaching and the related extra comp?

If I do give up the extra income, should we reduce our tax-deferred contributions to make up the cash flow OR keep maxing those accounts and take out money as needed from our taxable brokerage account?

 

 

PoF: Catch all the future interviews from those just getting started, at a crossroads, or at the end of their FI journey with a free subscription to Physician on FIRE.

 

 

 

I thank today’s interviewee for sharing their story, and I’ve shared my feedback privately with them. I wouldn’t want my opinions to influence yours. Please give your take and answer any questions they have had in the space below!

Again, if you’d like to partake in a future Q&A, please download a FIRE Starter, FIRE Crossroads, or Post-FI Notes interview form.