I’m no finacial advisor, but you should reasses how you look at your IRA. You said it was in the stock market. If so, you’ve lost “value” but haven’t lost shares (unless you’ve sold it or shifted to less volatile funds). Hopefully you have time to allow the shares to recover their value and grow beyond. Keep in mind, the market goes up, it goes down but on “average” it trends up. Some years your shares are worth more, and some years they’re worth less. When do you want to buy new shares? When they’re worth less or when they’re worth more?
When do you want to buy goods for your house, when they’re offered at a discount, or when they’re in demand and priced high?
You pay more per share when they’re riding high. If you take you’re money out now, you really will lose $7,000. The real issue is how long you have before you need to start drawing down your shares. Anything over 6 years and most folks I’ve read would recommend leaving the money in there. I would expect this year will be another losing year (election years are always questionable). But if you have time and can stomach some risk, now’s a good time to buy IMHO.

I am Trent’s age, support a wife and child with another on the way with just my income. My income is just slightly above the median for my state. Not that this matters, but I also do not have a Ph.D. I’ve been working in my industry since I was 18 and attended night classes @ college while working full time.

We’ve managed to do this by living a modest lifestyle, and careful management of what we have.

7% yield after taxes consistently is way too high. Where did you get those numbers? Did you take fees into consideration? Even Vanguard charges them.

If you can make 7% after taxes, you should take more money out of your home at 6.5% mortgage rate and invest it for 7%. You’d be stupid not to.

I think 4% after taxes is more realistic. Check the numbers. 4% also means that conservative investments are only a protection against inflation.

Another tip from me is check out the early retirement calculator at http://firecalc.com/, it helps to determine how much money you need for retirement.

Keep up the good work,
Fubek

Let’s see: $15,500 + $12,000 = $27,500.

Hmmm…. My 403b gets $14,404 a year. According to the figures I cooked up for yesterday’s post at my site, I could in theory set aside $33,244 a year (= 100% net pay from side job + maximum possible savings from net salary of main job + 403b savings & match totaling 14% of main job salary). To do so would require me to continue working two full-time jobs. First, though, I will have to pay off the 2nd mortgage, which will take until next December.

If my side job were to drop down to a more sane 50% FTE workload (which it probably will), I would be able to set aside $26,524 a year, ASSUMING utility bills do not rise significantly, gasoline prices stay where they are, food costs do not continue to rise, and the recent county property tax revaluation yields a significant drop in tax bills. That is on a total income well above average with a lifestyle I think of as frugal and my friends regard as ascetic.

My income from the first job is well above the state’s median. It puts me in the “upper middle class” when measured by that online tool that’s supposed to tell you what your financial status is (sorry — I forget the URL but it’s been featured on several blogs & news sites). Both incomes combined presumably would jack me into the high-income category. I live frugally and have no debt except a small 2nd mortgage that will be paid off by December.

In 2010, I certainly will not retire with almost $2 million. Had we not been faced with the recession we now see barreling toward us, I might have retired with nearly $1 million, but at this point I think that is extremely unlikely. In fact, thanks to the mismanagement of the US economy at the federal level, I don’t expect to be able to retire. Period.

Lisa

There’s also the income from this site, which I’d guess might be between 4k and 8k.

Even at that amount, saving 26k/yr still restricting. I know that firsthand.

Um, yes. That’s the way Trent said it was. Re-read this section:

The first step in figuring things out is to determine exactly what I’ll need. Do I want to replace my living expenses alone – which would mean that I’d have enough to live, but wouldn’t be very protected against inflation – or if I want to replace my whole salary, giving me a lot of breathing room. **The actual number I’ll probably need is somewhere in the middle – enough to maintain some growth, but not my current salary.**

Let’s say I shoot for $50,000 a year in today’s dollars – in 25 years. Given 4% inflation between then and now, I’d need an income of $133,291.80 then. If I invest it in a stable fashion, I should be able to rely on returns of 7% annually. meaning I need to shoot for $1.9 million in investments in 25 years.

If we were to tack on a 10% monthly payment for a mortgage, and 2% times 2 for each child’s college fund, you’d then have a whopping 5% to feed and clothe yourselves, or around 50 dollars a week for a family of four, and I haven’t even tacked on electricity, cell phones, gas, etc.

Frankly, I think this example is whacked. It isn’t realistic. The only way it works is if you have determined that the 50K equivalent is what you feel you need at retirement, but your current income is signficantly higher.

…there’s no tax implication because my standard deductions for all of my dependents are substantially more than the house interest…

You’re gonna want to check that, Trent. If you mean literally, the “standard deduction,” it’s not affected by your dependents. If you are referring to the standard exemption for dependents, you still get that exemption whether or not you take the standard deduction.

So I hope you mean that your standard deduction (for married filing jointly, I assume) is a lot more than your house interest and any other Schedule A deductions. If so, carry on, I’m just picking on your wording.

Those distributions aren’t for the faint of heart. Once you start, you need to continue for 5 years or you get hit with taxes and early withdrawal fees. And since you need to amortize your sum for your entire life, this method doesn’t work for many early retirement scenarios. But it’s worth checking if it will work.

We have a similar life plan mapped out (but in Australian dollars) and I am just wondering how you intend to cover your children’s education in the future. It’s a growing trend over here to send children to private schools, both for accessibility to resources and opportunities, which for us adds up to $9,000 per year and our kids are 5 yrs and 6 yrs (and our school is mid-range price-wise). I have estimated this amount will be $12,000-ish per year when they are in high school. We are planning ahead for these costs which are not insignificant…but is difficult to know what vehicle to use.

My question is do you have the same sort of needs and how do you intend to manifest this future investment. I hope that is not too impertinent a request – just wondered how you are plotting these costs in your life map.

Kind regards and just love your blog – every morning it gives me renewed interest and motivation to save more and spend less.

Lorraine