Lazy Man often gives us a look into his financial life, so I decided to do the same. I’ll be a little (a lot) more vague than Lazy Man, but will hopefully give you a slightly different viewpoint.
[Editor’s Note: The idea of a midlife financial checkup is an extremely good one. I need to do my own one of these.]
At 43 years old, I’m roughly halfway through what Sam Miller refers to as “this horrible, rotten slog toward rigor mortis”. It seems like this might be a good time to see how I’m progressing. Let’s take a look as some aspects of my financial life.
Employment is a big piece of the financial puzzle. A year ago, when I found myself on the brink of being pushed out of a job I had been at for twenty years, I had my first real encounter with imposter syndrome. What if I wasn’t worth what my current employer was paying me? What if I was 10% overpaid? Or 20%? or 30%? Or what if my particular role wasn’t in demand in my metro area?
A year later, I’m much more confident about my abilities and my future. I went from being a somewhat above average employee at my previous job to being a substantially above average performer at my current gig. Part of this is because the new job allows me to use more of my skills than the old one. Another factor is that my old team had been in place for years and had many high performing veteran employees, whereas my new team was only established a couple of years ago, and is largely staffed with fairly inexperience employees. In essence, I went from being a small fish in a big bowl to a big fish in a somewhat smaller bowl.
My boss is fairly young, and I think he could stay in this role for quite a few years. That bodes well for me, because we have a good relationship, and I like the dynamic he brings to the team. We’re both sports fans – something that really shouldn’t matter, but does allow for pleasant small talk.
There’s no such thing as a sure thing, but I think I’m as well positioned as I could be. Additionally, the new position is allowing my to use my accounting knowledge (which I had never used in my old job), making me more marketable if I have to look for another job.
That’s only half the employment equation, though. My wife is a CPA who works for a large university in the area. She also has substantial experience in public accounting, so she has a lot of marketable experience. Quite honestly, she’d have an easier time finding a job with comparable pay than I would, because while nearly every company needs accountants, not every company needs business analysts.
Immediate cash flow
How are we doing day to day? Are we able to cover our immediate expenses with our income? A lot of people live paycheck to paycheck. Happily, that does not describe us. Despite some heavy expenses (BASP, I’m talking about you), we’re creating positive cash flow – covering our immediate expenses and leaving some left over to invest.
We’ve also had a couple of infusions of cash in the last couple of years – an inheritance from my mom’s estate and then my severance payment from my older employer. Combined, they were the equivalent of a year’s worth of salary for me. Not enough to retire on, but enough to give us financial flexibility. These were one-time blips on the financial radar, but very helpful.
We live on a quiet street in a quickly growing (but still quiet suburb). Since we live in Iowa, this means that housing is more affordable than the coasts or major metro areas. Our house is less than 15 years old, has almost 1500 square feet on the main floor, plus almost 1200 finished square feet in the basement. Additionally, we have an unfinished storage area of about 200 square feet.
We have a 15 year mortgage that we’ll pay off just as the youngest kid graduates from college. The mortgage, interest, and escrow are barely above 10% of our gross wages.
Our oldest kid is in fifth grade, and her brother is in third grade. My wife and I are both first generation college students. I worked myself through college, which allowed me to graduate with “only” $25,000 in student loans (in 1997 dollars). My parents weren’t able to assist me financially.
Our kids will be more fortunate. We been contributing to 529 plans for them for years, dumping a substantial chunk of change into the accounts each year.
There’s a strong chance the kids will go to the local university. That will help us in a couple of ways – the tuition will be cheaper than a private school, and they could conceivably commute (15-20 minutes) to campus. That would save us approximately seven billion dollars.
Additionally, both kids are excellent students, so I have my fingers crossed that they might land some merit-based scholarships. The need-based financial aid I received as a student is unlikely, due to our presence in the middle class.
You might be wondering if this is the same university my wife works for, and whether there is a tuition waiver for the children of employees. The first answer is yes (the university that is the in-state rival of my alma mater). Unfortunately, the second answer is, at the moment, no. There’s always the chance that things could change, but we’re definitely not counting on it.
Which brings us to the elephant in the room – retirement planning.
First, I’ll openly admit that we’re not maxing out our contributions. Honestly, kids are expensive, and we want to stay somewhat flexible with our current finances.
We each do contribute a pretty hefty amount each month, though. My wife’s employer also kicks in about 10% of her salary to her retirement account. My current employer puts some money into both a defined contribution pension and a 401K. Currently, they contribute a total of 7% of my salary, and this will grow a bit over time. I also have a defined benefit pension from my old employer than will pay me slightly more than 20% of my current salary when I reach age 62.
So, even though we aren’t maxing out our contributions, the total of our contributions, our employers’ contributions, and the pension from my old employer create a fairly sizeable next egg than will continue to grow in the two decades I have left in the work force.
One other thing to note is that when I’m 57, our expenses should drop dramatically, as our youngest kid will be graduating from college and our mortgage will be paid off. That will give us the opportunity to dump extra money into our retirement plans in our final years in the workplace. There’s a catch-up provision for many retirement plans (including 401K) that allow people 50 or older to contribute an extra $6000 beyond the normal limits. If you’re in this age range and are in the position to make extra contributions, look into the catch-up provision.
All these plans are great, but an untimely death of myself or my spouse could wreak havoc on the family, both emotionally and financially. The emotional side would be awful to work through, but we’ve planned for the financial impacts. We have enough term life insurance to effectively replace our income through the age of retirement. So if one of us shuffles off this mortal coil earlier than expected, it shouldn’t completely derail the family’s financial train.
Keeping my eye on the ball
Another factor is that I’m keeping a close eye on things. I track the growth our 529s against the projected costs of college. I project the balances of our various accounts at the time of retirement, and estimate what our expenses will be. I have a set of projections that include social security and another set that doesn’t – and rely more heavily on the projection that doesn’t include social security.
Overall, we’re in good shape. If our salaries continue to move along their current paths and our investments follow historical trends, we should be able to live a comfortable, if not luxurious, retirement.
Have you done your own financial checkup? How are you doing?