My financial future in 3 minutes

[Anonymous]

Hello let me start off by saying I'm absolutely addicted to this forum, I recently stumbled upon it and am loving the money and finance and job and career forums. This is my current financial plan, please critique it and give me any feedback.

My wife and I are are 24 years old and currently live in Utah, I am stationed at Hill AFB (I'm a E-4 in the airforce) I've been in the military for 2 years now, and will need 18 more for my pension. My wife and I currently pay a mortgage (2.7%@30/yr. fixed rate) on our home worth $325,000.00 and owe 220,000.00. Now here is where things get a bit interesting. We have 132,000 currently invested into mutual funds (70% VTSAX and 30% VFWAX) and between the two of us we make around 72,000 a year which will only go up, we're currently placing 2,500.00 a month into our mutual funds. We have no debt, other then the house. We don't contribute to any retirement plans as our employers don't match 401k's and we're getting a better return invested in funds (military tsp doesn't match at 6% like fed does). Now here is my plan, let me know what you think.

I plan on staying in the military for 18 more years and retiring with a full pension that will generate around 4k a month by 2032, I will also have medical benefits through the VA for the rest of my life. By this time we should have around 2,000,000.00 invested in our mutual funds (I haven't counted for tax or inflation) these numbers are based off a 9% return contributing 2500 for 18 more years (realistically our return is a lot higher than 9% though I'm low balling it). At this point I will be transitioning out of the military, and being a landlord has always been a dream of mine, with the 2 million dollars I would hope to spend at least half on duplexes. I would hope to purchase around 7-10 duplexes at $150,000.00 (we don't plan on purchasing in DC so this price is realistic hehe). Which would hope to generate at a minimum $1500.00 a month a piece, on the low side of things I would be making $126,000.00 managing homes that my wife and I own (like I said, we don't plan on living in DC, so this is a fairly substantial income coupled with my pension for being partially retired).

Oh - forgot to add, no plans for children in the future and my wife is also employed. (HHI 72,000)

[Anonymous]

The plan sounds good, the numbers are optimistic. A 9% return would be great but is unlikely even over 18 years. Scarily you are too young to have lived through even the 2008 crash. Yes we've recovered, but the average return was certainly impact by a C. 40% drop in value.

Also you need to factor in some decent maintenance costs, vacancy costs, rental fees, etc. on those duplexes, which will reduce your income.

[Anonymous]

Agree 9% as a long term return rate is optimistic (and really optimistic if you haven't counted for tax or inflation-- that will probably take at least 2-3 percentage points off your return). Also, - you are planning to net $1500 after mortgage, maintenance, vacancies? That sound optimistic to me but I haven't run the numbers.

[Anonymous]

p.s. there are lots of early retirement blogs/forums out there (like mr. money moustache). You could also check out the bogleheads forum but they are very conservative and will probably give you a worst case critique of your plan (which you may or may not want)

[Anonymous]

Awesome, thanks for the tip on the early retirement blogs. You know I thought a 9% return was pretty conservative for a 100% stock portfolio mutual fund.

08:43 - I hope to purchase the duplexes out right, to avoid paying a mortgage. I didn't factor vacancies, and maintenance costs, because I plan to offset those negatives with my pension.

[Anonymous]

You should be investing in a Roth IRA or a TSP for the tax advantages.

[Anonymous]

Health insurance through the VA kills people. Should probably figure you'll pay for the insurance through your wife's job.

[Anonymous]

I agree with the Roth. There is no limitation due to your income levels and you save more because you pay taxes on it now rather than in retirement. That's $11k this year (5500 each for you and spouse) you could be saving. Do vanguard index funds and you're set.

You also don't mention an emergency fund so even though it's a lower return, you may want to have 20k or so set aside in a cash or money market account so you can access it easily rather than selling mutual funds when there's a need.

you also don't mention cars, but if you anticipate needing one, you would need to account for that as well.

[Anonymous]

I'll chime in and say that at 24 the "no children" plan is probably not something set in stone in the long term. I would anticipate the conversation coming back up as your 30's approach. Planning with kid(s) in mind would be the most conservative approach.

[Anonymous]

First off - very impressive for your age.

Do the ROTH tsp or 401k (if the mgmt fees aren't ridiculous), then Roth IRAs. Reevaluate once your income increases enough to hit the 25% marginal tax rate. Even without the match there is benefit there since your income will be higher in retirement. I would also agree that 9% is aggressive. History has shown 8%, but for calcs like this I would be conservative and use 4-5%.

[Anonymous]

Anonymous wrote:I agree with the Roth. There is no limitation due to your income levels and you save more because you pay taxes on it now rather than in retirement. That's $11k this year (5500 each for you and spouse) you could be saving. Do vanguard index funds and you're set.

You also don't mention an emergency fund so even though it's a lower return, you may want to have 20k or so set aside in a cash or money market account so you can access it easily rather than selling mutual funds when there's a need.

you also don't mention cars, but if you anticipate needing one, you would need to account for that as well.

We both own our vehicles. When you say Vanguard index fund what exactly do you mean, for the roth ira?

[Anonymous]

Our emergency fund is invested into mutual funds, if we ever had an emergency we could figure something out until funds went liquid.

[Anonymous]

Anonymous wrote:Awesome, thanks for the tip on the early retirement blogs. You know I thought a 9% return was pretty conservative for a 100% stock portfolio mutual fund.

08:43 - I hope to purchase the duplexes out right, to avoid paying a mortgage. I didn't factor vacancies, and maintenance costs, because I plan to offset those negatives with my pension.

You think this because your adult life (last 5 years) has been marked by one of the greatest stock market rubs in history. Start the clock a year prior and that 9% return is more like 2% ... which is more like 0% after inflation. Do your calculations with a 4% return and see what they say ... that's probably a more realistic net of inflation long term return.

Also, as PPs have said, you ABSOLUTELY should be funding tax preferred IRA/TSP before putting any money in taxable personal accounts. The $30k per annum you're putting into taxable accounts would be generating the same return in an 401K and would reduce your tax burden by ~$6k+ per year. That's the biggest contributor to your wealth trajectory at this point.

[Anonymous]

Dude, also, learn to live in the present a little. Enjoy life. Not everything needs to be about squirreling things away for the future.

[Anonymous]

Really the military TSP has no match? 20 years from now with inflation you might not like what 150k buys as a townhouse in any market. Think you need to read some books on investment. A mix of investments makes more sense than 100% equities for a variety of reasons. Try A Common Sense Guide to Investing. I don't get the sense you have researched this as you think 9% is conservative.