Federal Government: FERS + TSP + Social Security (\"Three Legged Stool\")

[rohitkhannaesq]

Hey all, I was curious what you financial savvy folks thought of my wife's situation and on how much money we are stashing away and whether it is necessary to do as much as we are doing:

She is a 36 year old psychiatrist at the VA since 2012 in a no-income tax state and makes about $225,000 per year including performance pay.  She currently maxes out her TSP at $18,000 and gets a reasonable match of about $9,000 every year.  Further, as Federal employee, she participates in the FERS (pension) program.

Other relevant data:

I'll bring in about $70,000 per year in business income (Attorney, 36 years old)

Assets

$183,000 in TSP

$18,000 in Solo-401k (to be done on yearly basis starting April 2018)

$14,500 in Joint Taxable ($500 per month)

$680 in Robinhood Stock Trading app ($100 per month with FB, BND, VXUS, and VTI) - it's a "play account" so to speak.

$5,500 in Backdoor Roth for her (to be done on yearly basis starting December 2017)

$5,500 in Backdoor Roth for me (to be done on yearly basis starting December 2017)

$6,750 HSA (to be done on a yearly basis beginning either January 2018 or January 2019 - we're having twins this fall, so want to make sure mom and twins are okay before switching to a HDHP)

Debt

$266,000 Mortgage for a house worth $550,000 (less than 15 years left @ 2.75% fixed rate)

$173,000 Federal Loans for her @ 2.75% fixed rate with PSLF (estimated forgiveness 09/2026 with about $70,000 forgiven)

$16,000 in Private Loans for her @ 5.00% variable (scheduled to be paid off by 12/2019)

$83,000 in Federal Loans for me @ 3.75% fixed rate (scheduled to be paid off by 09/2026)

$28,000 in Private Loans for me @ 4.75% variable (scheduled to be paid off by 12/2019)

Kids

$6,750 in 529 for toddler ($250 per month)

$400 in Prepaid State University Program for toddler ($198 per month until graduation)

Will begin same setup for each twin once they arrive.

So, I ran some numbers using Personal Capital, which is highly recommended, and once we are firing on all cylinders, we will be socking away nearly $70,000 per year (TSP, Solo-401k, BD Roth for her, BD Roth for me, HSA, Joint Taxable, Robinhood) plus the kids' 529 and Prepaid College.  My wife never envisioned herself working for VA (she completed a child/adolescent psychiatry fellowship), but, she's pleased with the PSLF, lots of vacation, adjustable schedule, great health benefits, etc.  There is a big possibility that she may continue at the VA for her entire career.

The big kicker is the FERS pension program and social security (2 of the 3 stools in a Federal Employee's retirement plan).  We calculated that with her FERS and Social Security alone would net her $72,000 and $60,000, respectively, if she and I retired at 62.  I know that Social Security shouldn't be relied upon, but let's just say it will be there for this scenario.  That's $132,000 per year just for HER.  That doesn't include my social security benefits, my solo-401k, our BD Roths, our HSA, and her TSP.  Keep in mind by the age of 62 (in the year 2042), our house will have been paid off for 11 years.  All of our student loans will be paid off and our 3 kids will be out of the house and (hopefully) on their own.  I estimated that our spending will be about $85,000 per year to live in extreme comfort.

My question is this:  are we, dare I say, socking away too much?  It's not like we "need" the money that we are socking away as our house and student loan payments are reasonable and we are able to take regular vacations and do fun stuff.  Is it necessary to sock away $70,000 per year to reach our goal if FERS pension and Social Security alone will provide us plenty of income?  Not socking away $70,000 will allow greater liquidity for us i.e. more awesome food and vacations!

I'll shut up and listen.  Cheers!

 

[Hank]

Stay the course. You two are making good use of the qualified funds available to you. I might bump the 529 up a little. (We're putting away a little over $700 per month per kid on pretty similar combine income to you guys.)

How many years of service will your wife have at age 57? I'd consider retiring at 57 or 60 from the federal government rather than waiting until 62. On the flip side, I'd wait until age 70 to have the higher earning spouse (her) claim Social Security.

Keep in mind that all of this is based on current rules. The rules for Social Security and federal retirement almost certainly will be different by the time you guys retire.

Your wife will have at least five years with the VA and more likely ten if she's staying for PSLF. That means she'll qualify for a deferred pension at 62 even if she leaves federal service for private practice.

For planning purposes, I'd expect to receive FERS, perhaps with less cost of living adjustment or maybe even without a COLA. I wouldn't plan on receiving Social Security, but consider it gravy for however much you might receive.

[StarTrekDoc]

MHC at VA is challenging but very rewarding if you can steer clear of the admin headaches as the years pass.

Stay the course at this young age.  You'll find with three little ones as they push through grade school years kid cost creep starts piling on.  Use these 5 years to sock away as much as possible and allow compound earnings to do heavy lifting.  You're anchored with them little so really not worth the Disney trips at that age.

5 years to vest for FERS pension,  10 years for PSLF hopefully will be there when that comes due in 9 years  an SS at retirement.

-I presume an Emergency Fund is done, Term Life insurance to cover all three kiddos and mortgage and debt.

-FIRE is possible at your current savings, but your MRA is at least 57 and you'll take a hit on FERS so would have to depend on TSP.  Factor in taxes, + health insurance 30% your share until Medicare age.

-The $85,000 may not get you too far even in Low COL areas.  <--- double check the itemization of all your daily expenses (we use quicken and double check with fidelity retirement calculator)

Strap in for a ride for her on CPRS.  VA announced a no-bid contract to Cerner and transitioning out of CPRS.  That's going to be crazy.

[q-school]

You are not so king away too much compared to people on this site. Not enough for kids education, depending on how much you want to support them.

Northwestern, ivy leagues are currently at 68k all in per year of undergraduate. I see that both of you had substantial educational loans (as did many of us here).
Probably need to up that part significantly if you intend to cover all of undergraduate for private schools.

Kids cost increase dramatically as they age.
With twins and a toddler, you may be paying 210k in one single year for college costs if they were all in college next year, and we still haven't considered what the number will be in 18 years. If you don't up the 529 contribution the amount you currently spend on Mortgage will be spent on college.

The amount of the pension sounds big but remember to adjust for inflation. The retirement budget of 85 is fine but that will need to be adjusted for inflation and taxes.

You are saving fine so no worries but not saving too much--in relation to people on this board.

Saving too much depends on what you want to leave your children and a lot of luck. Your current projections are based on assumptions that both work and remain healthy which isn't always the case. People go part time, job environments change, people's wives insist on getting doctor houses. Stock markets adjust. Basically you have been working only during the good stock market years.

We don't know cost of health care, especially if retirement occurs early.

Tl;dr--you guys are saving just fine, but not excessive.
Come back in ten years. If you have 3 million in invested assets then you can reasses whether you are saving too much.