by Matt Fildes
This past week, I’ve done some thinking on what life after debt will be like once all my student loans are paid for. It’s actually something I think about quite often, well not really think per se, more like daydream. So this past week I started formulating plans of what I’m hoping to accomplish. I know a couple things I want to do for sure:
- Take a vacation. Not entirely sure where, yet, but I would love to do a 4 or 5 night stay at Universal Studios Orlando. I’m a big theme park guy and I haven’t been here in 15 or so years. From what I’m hearing about the new Harry Potter lands and all the money Universal is investing, the park is on par with Disney, or may even be better. I’m going under the assumption that for me and GF, it’s going to cost about $5,000, which I should be able to save up within a couple months of being debt free.
- I want to save up a larger emergency fund is a cash account. I just don’t know how much. Rule of thumb is 3-6 months of expenses. My expenses are quite low, so I’m looking at keeping $5,000 in this emergency fund. I have $2,000 right now, so having that extra $3K will definitely give me more piece of mind.
- I want to increase how much I put into paying off my mortgage. But I only want to do it by a slight margin. I’m paying $150 a week currently to make a monthly payment of $600. I’d like to increase my payments to $200 a week.
- I’m going to decrease my 401K contribution to the minimum (4%) to get the company match. I’ll use a fairly good portion of my after tax income to fund an investment account for a, hopefully, early retirement. I’d like to do between $300-$400 a week. This is a big one, since I want to save up a pretty large nest egg, but there’s a ton I feel like I’m putting off (like home renovations) that I could do with an extra $400 a month.
- I’ll definitely going to increase our fun having and my week allowance.
It seems like I have more plans than paycheck right now, so I’m going to really look at this and determine what my future priorities are. I’ve felt that I’ve wanted to early retire for a few years now, and that hasn’t changed. Thinking about it, I think retirement may be the wrong word to use here- I really just want to feel that I have options and choices- where, when, how much and if I want to work. Of course saying all this, I don’t have any children at the moment either. It’s easy to sit here and think of all these nice things to do being a non-married, childless adult. All this could change in an instant!
AS for my debt payments made in the last week, here it is:
| Loan Name | Interest Rate | Original Balance- May '09 | Current Balance | Total Paid Off | Paid Since Last Week |
|---|---|---|---|---|---|
| Sallie Mae 01 | 5.25 | $27,837.24 | $23,719.92 | $4,117.32 | $57.03 |
| Sallie Mae 02 | 4.75 | $22,197.02 | $18,604.04 | $3,592.98 | $47.52 |
| Sallie Mae 03 | 7.75 | $20,692.10 | $0.00 | $20,692.10 | $0.00 |
| Sallie Mae 04 | 5.75 | $10,350.18 | $4,455.68 | $5,894.50 | $854.91 |
| Sallie Mae 05 | 5.25 | $6,096.03 | $0.00 | $6,096.03 | $0.00 |
| Sallie Mae 06 and 07 | 4.75 | $6,415.09 | $0.00 | $6,415.09 | $0.00 |
| Sallie Mae- DOE 01 | 5.25 | $5,000.00 | $0.00 | $5,000.00 | $0.00 |
| Sallie Mae- DOE 02 | 5.25 | $3,000.00 | $0.00 | $3,000.00 | $0.00 |
| AES | 6.8 | $9,000.00 | $0.00 | $9,000.00 | $0.00 |
| TOTALS | $110,587.66 | $46,779.64 | $63,808.02 | $959.46 |
Am I missing something? Why would you decrease your retirement contributions? When the debt is paid off you will have a lot of extra cash flow for the dream things.
As I understood it, he would be decreasing his 401k contribution and putting it towards an investment account with the purpose of early retirement.
YES! This is at least what the retirement adviser told me to do based on my plans. I’m not 100% sold on the idea, so that goal is really a placeholder with the intent of saving quite a bit more than I am right now.
I’m still a year and some months away from actually doing anything so for it’s worth, I had a conversation with a retirement specialist, in which I shared my future plans. He told me to limit my contributions in the 401k to the minimum to get the company match. Then I would take my after tax income and start funding a non-retirement investment account so I would have penalty free access to my money when I wanted to start withdrawing. I haven’t done enough research on my own to fact check him yet. Angie mentioned below to DO max out the retirement contributions, so it’s like I’m getting advice from all angles, which isn’t a bad thing. I just have a lot more research to do in the near future.
Before saving in a brokerage account I would max out your Roth IRA and contribute to a 401k up until you are fully out of the 25% tax bracket. That is, unless your plan to early retirement is through real estate investing and landlording. Which it may be since houses appear to be dirt cheap in your area.
Don’t just write off retirement accounts if you want to retire early. There are ways to take it out early. Also consider that you will likely be in a lower tax bracket when you “retire” or slow down. So if your taxes are 25% now, they may likely be 15% or lower later on. So even with a 10% penalty its not a deal breaker. The big difference is your money will be growing tax-free while you leave it untouched. Just a thought. Definitely check out MMM forum if you haven’t already. There are some brilliant people there that have thought through a lot of different scenarios.
I haven’t check out his forum, so I definitely will.
If you read my response to Maureen, a retirement specialist told me pretty much the opposite of what you’re saying. I’m not saying you’re wrong since he told me he hasn’t dealt with anyone looking to retire as early as I would liek to. I haven’t done enough research on my end to really determine what I’m going to do and set it in stone. I’m really quite scattered brained right now thinking about it all. The silver lining of all this is that I have plenty of time to think about before anything happens, lol.
Thanks for your comments, Angie. I really appreciate your point-of views.
Yes, definitely check out the forums then! There are some very brilliant people who have already navigated this. Depending on your risk tolerance and anticipated goals (semi-retire to a “fun” job, travel long-term, live off rental income, etc.) the strategy could look completely different!
Most folks there are way too intense in saving for DH and I. I only wish we could be so dedicated but its tough to get two people on the same path. One thing for sure though, I definitely would not take a financial planners advice on early retirement. 99.9% of their client base is people who are just trying to figure out if they can retire ever. Plus, if they had figured it out ER they wouldn’t be working at financial planning!
No judgement but could 4 days in Orlando at Universal studios really cost 5k?
Maybe, maybe not. On Universal’s website, they have the vacation planning calculator. A few weeks go, I used this to see what it would cost if we were to a really high end trip- Royal Pacific Hotel, with the dining plan, 5 days of parks tickets, etc… and it came out to right around $3,200 with the flight. So… with spending money and all else included, it could be $5,000. I’m sure I can get better deals working with a travel agency. That $5,000 is really just me doing worst case scenario.
Universal Orlando Harry Potter is amazing. I was just there in May. They did a great job with those two parks (Hogsmeade and Diagon Alley are in two separate parks). Even if you went top on hotels, etc., you don’t need to spend $5k.
Your right, I don’t need to spend $5,000. I based that number on doing a “spared no expense” vacation. I plugged that 5K number in as a worst case scenario (well, in this case, it’d be a most money spent scenario, lol). Once I really start planning, I’m sure that number will get whittled down.
Wont that be a nice problem to have?
Absolutely!
You are going to have to be making these decisions for real sooner than you think the way you are knocking these debts out!!!! I think $5K is a little high for the trip – we took a week-long trip to Disneyland with both parks for 4 and spent almost that so I think for just you & GF it won’t be near that much….unless you are a hotel snob like I am and will only stay in the park 🙂
Hahaha. I would like to stay in the parks at Universal. Do you listen to the DIS Unplugged podcast? They did a Universal show recently where the team thought that the Portofino Hotel was the best hotel in Orlando. If that’s the case, I’d love to experience it and see what it’s about.
Can you write a post about your retirement savings philosophy? It feels very scattered. I believe that last year, you liquidated an account to focus on debt repayment. Then you re-started an account at more than the company match. Now, you think that you will drop down to the company match in the future. Maybe a meeting with a financial adviser would be beneficial when you are debt free. (One that you pay by the hour, not one with commissions.)
Given the interest rates on your debt, I agree with your current saving for retirement. These are years that you will not get back for saving.
You’ re right, Tenn! When you write it out the way you did, it is VERY scattered. I would say that it’s a direct reflection of me being really internally scattered on the issue. With so many philosophies on the subject, I guess I’m not sure what to believe. I replied to Maureen above that I did actually meet with a retirement adviser recently that gave me the advice to throw all my money at a non-retirement account, which is why I added that goal in (which I should have explained better). I’m doing the company 401k at 10% now since I DO want to save as much as I can (comfortably) and still pay off debt. I don’t have enough to put in an investment account on the side since the commissions would eat it away quicker that I could recoup those costs. I feel I would have enough once I’m out of debt. Make sense?
You gave me my idea for my post next week. Thank you so very much 🙂
Also, you should not be paying any commissions!! I cannot stress that enough. That’s the main reason why you should stay away from financial advisers. Easiest way is to open a Vanguard brokerage account. Choose some ETF’s or index funds with your risk tolerance or allocation level. The fees should be be low (1% or lower. <.5% preferably). If you don't know what ones to pick, choose the generic index fund, VTSMX until you have more time to reallocate. Its a generic total stock market SP500 index fund (mix of various stocks to make the fund stable). It generall follows the trend of the SP500 earnings minus the 0.17% fee) Takes less than 5 minutes! I think the minimum is only $1,000 and once you get to 10,000 the fees get lower. Once you have it open, I'm sure you will find it as addicting to add money to as your student loan extra payments. It would definitely be a good substitute when your loans are paid off. I'm actually using this as a way to stash my extra loan payments since my interest rates are below 5%. The goal is to get my brokerage account balance equal to (and then surpass) my student loan balance.
I put all my money into this fund for now. I have plans to reallocate in the future but its a great way to jump in and have something easy. Set it and forget it.
Awesome! Thanks for the advice. I’ll look into all of this over the weekend.
Thanks for the detailed reply. I wonder if there would be a way to split between a retirement account and non-retirement account. My husband and I each aim for about 15% of our income into retirement savings. That may change as life throws us its roadblocks, but for now it feels like the ‘right’ thing to do.
I always loved dreaming about life after debt. That was always one of my favorite pastimes 🙂 I know there’s so much you want to accomplish and life could change but you will find balance when you get there.
One of my favorite vacations ever was to Universal Studios and it cost us less than $1000 for 8 nights. We stayed in a townhome community, split the cost with another couple ($300/ea. for 8 nights!), the townhome had it’s own private little pool too! Then gas, food, and tickets to the theme park (which you can find many deals on!) I don’t see how 4-5 nights to Universal would cost $5,000! Granted we went years ago before the Harry Potter additions, but still….$5000?! Check out http://www.disneyneighbor.com/ – we stayed at Windsor Hills, about 15 minutes from Universal. Full kitchen was great, because we didn’t have to eat out every meal. Just a thought. I’m always down for a theme park vacation, but $5,000 would have me staying home lol.
In any other time of my life, it would have me staying home too, lol. I used the Universal vacation planner to see what it would cost if I “spared no expense”, like what my dream vacation would consist of (on-site hotel, dining out every meal, top of the line amenities, etc). It came out to about $3,200, which included the airfare. With spending money, boarding our dogs, etc… I could see it costing $5,000. I hope by using a travel agency, or planning appropriately, it wouldn’t cost near $5,000.