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July 27, 2012

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Very good reader profile. My only thought was to avoid lifestyle creep but looks like you have already put that on your mind.

I can see how 500k a year lawyers could get trapped like that! Interesting strategy for financial aid but you have to do what you can to game he system because it doesn't always make sense.

@ Lance I do not see how she is "gaming the system", please detail.

I agree with the last comment in that it's often not what you make but what you keep that matters. I've tried to drive that one above all else into my kid's heads.

I'll admit I'm somewhat surprised that you have so little in your retirement accounts as compared to your salaries even though you admitted to starting late. Is it because you simply didn't consider retirement (i.e. down the road so worry about it later), the divorces drained any ability to fund them, or because you figured the pensions should be enough? So many people I meet don't even get the matching from their employers or worse think (without even running numbers) that social security will cover them. It's disheartening at times.

I'm sure you're glad you've seen the light. I've got two in college and another heading there in the next few years. I do not envy you. Best of luck.

I know it's tempting to include an inheritance in your financial planning, but is that really wise? I would consider it like Social Security where it might exist in the future, but it shouldn't be assumed. Your parents might have a last minute change where they give 100% to a favorite charity instead of you.

Also, you are going to retire once you hit $500K, not including your pension? I have no idea how you will be able to support your current lifestyle on that, let alone travel and/or build a dream house.

Good luck! It will be difficult with so many kids, but keep working on retirement saving. We only have one kid and that's enough for us. I don't envy your college cost at all. It's really nice that some of the kids got scholarship. Your pension will come in really handy if you can stick it out.

This seems to be an example of how divorces can often kill finances, incur lots of expenses such as legal fees, child support, alimony etc., threaten a happy retirement, and are something to be avoided if at all possible. However, as my daughter's experience describes, every divorce is completely different.

My youngest daughter, now 51, divorced her husband of 18 years, 4.5 years ago. I negotiated a settlement with her ex husband that avoided litigation. The father is an ultra high income attorney and assumes responsibility for the two adult boys, one of which is incapable of supporting himself. She received a $2M settlement, a $70K IRA, and $20,000/month alimony for 9 years. I manage her finances - the $2M has grown to $2.73M and is invested in municipal bonds producing $121,716 interest annually, which is all reinvested. She also invests an additional $60K/year. Our plan is that when the alimony ends her income will be about $160K/year free of federal tax and her portfolio will be close to $3.5M.

Thanks to eHarmony.com she is now in a new relationship and lives with an engineering manager with three adult children, a boy & girl away in college & a girl working back East. If I could have picked the perfect husband for her, he would be it, and my daughter agrees. He even used to work at the same aerospace company as myself, but I didn't know him back then. She pays $2K/month rent and buys the food and enjoys living in a beautiful 6br, 6ba home in an exclusive gated community in Silicon Valley. She keeps herself busy finding used books to sell at amazon.com. Yesterday, an out of print $1 book from a library sale sold for $158. When her alimony ends she will likely get married but there will definitely be a pre-nuptial agreement.

@getagrip

DH's retirement savings were divorce fodder.

For my part, I simply didn't contribute to my retirement accounts until a few years ago.

First, I just didn't care about retirement in my twenties because - I'm ashamed to say this now but it's the truth - my family of origin is well off. I've always known that right about the time I reached retirement age and really needed it, I would get a large sum handed to me that had been rolling downhill for several generations. I figured all I needed to worry about was the period between now and then. Really short-sighted and ignorant... I mean, that MIGHT cover health and long term care. It MIGHT. Plus it's selfish: if I soak up the whole pot, what will I be able to pass on to my own kids someday? But that's how I thought when I was young, and that was in addition to the whole invincibility thing we all deal with.

The problem I had with planning in my early 30s was being a single mom. I had the money to do it, but when you go through a divorce you question your judgment in every area of your life (which is probably good), but it also makes you not trust yourself and not place a lot of value on making plans. Because you just got handed a huge piece of evidence that they don't always work out, you know? Even though I didn't get child support back then I could have saved, but I really felt a lot of "why bother planning when it never works out" malaise.

I like this profile. Good recovery, just keep it up. A few comments:

* Not sure the Total Assets of $362k is correct, unless there are things you didn't mention in the profile.
* Make sure you have adequate life and disability insurance on both spouses. With the combined incomes you will be ok, but if you lost an income with 7 kids it would be trouble. Especially with a 2 year old.
* Make sure you have updated wills that reflect the current situation. This is critical with a blended family like yours.
* I also don't see how you could retire with $500k outside IRA's. Would like to see your reasoning, maybe we are missing something.

Interesting profile with a different situation than many folks.

1. I would refinance that mortgage. The 6.5% interest on your mortgage is quiet high given todays low rates. You can get 3.5% pretty easy or go with a 5 year loan from ING for 2.8%. That will save you several thousand dollars even if you do pay it off within 3 years.

2. I would not put your kids college above your own retirement. True you may have $1m waiting for you but it doesn't sound like you even know when you'd get that.
College can be financed with loans and retirement can't.

3. $500k doesn't seem like enough to retire on. Even if you're quite frugal.

4. $180k gross income is too high to contribute full amount to Roth IRAs. Your AGI may not really be $180k as you mention business expenses in your monthly expenses. But make sure you're minding the income limits properly.


The "500k outside retirement accounts" goal amount is for the gap years between when we retire, and when we are able to draw from our 401k and IRA accounts, which we're still feeding.

We really don't "live on" that much of our income. Once college is done and child support, the mortgage, the HELOC, DH's business expenses, child care, bus pass and life insurance are no longer monthly expenses... tithe will go down, and even once you add cell and internet service back in along with health and travel, we'd still be living on less than half our current monthly net income.

@jim: you're right, the AGI is different because of DH's adjustments and our tithe, which is tax deductible.

Since you are late in the game for starting a 529 for your kids, why don't you ask grandma and grandpa to do it? They can gift 13k per person per year and a 529 can help with their state taxes.

I agree with your plan to knock out the mortgages. Perhaps you could have the kids go to a community college for the first two years and then cash flow the rest after that. The kids should be able to get part time jobs to cover the community college costs as well as out of pocket expenses for the 2 remaining years. As your youngest child gets older, your husband can increases his hours and focus the additional earning on retirement.

A few comments/observations:

* You ought to refinance the existing mortgage at 6.5% and the HELOC into a single mortgage. Right now, I'm betting you could get a 30-year fixed at about 3.5% or a 15-year fixed (which might work better given your age and stated goal to retire early) at 3%. Worth at least looking into.

* How on earth do you feed yourself, your husband, your two kids 7 days per week plus three more kids on the weekends, for $400 per month? Wow. When you say you run a lean household, you must mean it. On the other hand, I hope you are not sacrificing quality for cost. Food is an area where many Americans would do better to spend more money and get better food rather than skimp on the cheap stuff which is typically unhealthy. Not saying you do that, but it's something to be cognizant of. And I'm amazed at how low your number is. My family of five has a grocery bill that is pushing $1000 per month these days (and we clip coupons and utilize sales).

* You have a lot of college expenses coming up. I agree with your approach of taking care of your own finances before throwing a ton of money at your kids' college savings, they can get financial aid. But I would urge your kids to be mindful of finances as they go into college. Think long and hard before taking on too much debt for a Liberal Arts degree that doesn't typically have a high payoff. Look for scholarships. And don't be afraid to go the community college route for a couple of years to get basic courses out of the way and save some cash while deciding what they want to do.

* $300 per month on gas seems like a lot, that's about 3x what we pay. You also have a bus pass expense listed. Could you ride the bus more often? Are there other commute options for you (bicycle, carpool/vanpool, etc)? This seems like an easy place where you could squeeze another $100 or $200 per month.

* Given that you have ~$180k in total income between the two of you, it surprises me a bit that I don't see any mention of taxes. I suppose it is part of what nets you down to $8,500 per month. I see you are utilizing your 401(k), two Roth IRA's, and a HSA to minimize taxes, but it might be worth taking a deep dive into other ways you might be able to get more tax efficient.

* My guess is your estate, with 7 kids which are yours/mine/ours, is quite complex. Make sure you have a will and keep it up to date.

"you're right, the AGI is different because of DH's adjustments and our tithe, which is tax deductible."

This is incorrect. Tax deductable is not the same as lowering your AGI. Charitable contributions are itemized deductions and all itemized deductions are subtracted after AGI, not before. If you are using your tithe to determine that your income is low enough to qualify to contribute to a Roth IRA that is not correct.

Great job paying off all the debts but the Mortgage and HELOC- As others have mentioned your Mortgage rate is pretty high- it is definitely worth refinancing if your credit score is good. If you don't want to pay closing costs you can refinance at a slightly higher than market rate but that will be around 4% which will save you around $2000/year over your current mortgage) and the lender will pay all of the closing costs.


$180k/year is a lot of income if you are willing to make lifestyle changes you will be able to save a lot more.

With your complex family situation you need to have very good wills- if you haven't I would make that my #1 priority. Life insurance is another priority if either of you were to die that would be a big gap in income to fill. Given you large income I suspect you also pay a lot in taxes. I would seek professional tax advise from a CPA- I wouldn't be surprised if the tax savings will pay for their cost.

>and we wouldn't take the financial aid hit by having a big pile of money sitting around.

Will it really make much of a difference? Given your $180K (or more when the kids are in college) income I wouldn't expect much financial aid other than loans. I know that there are websites and books on college aid, it sounds like it would really be worth your while to do some research and calculate how much of a difference savings in your name will make. Especially if you refinance to a 4% or lower loan I suspect you could do better investing than paying off the mortgage early.

As for the inheritance I wouldn't bank on it unless it is a 100% certain- if your parents are still alive they could have unexpected health care costs. If they are not then the investment returns could be less than you are predicting, or inflation may take a bit out of it. I would plan for $0 and treat any inheritance as a windfall that way you don't set yourself up for a disappointment. I don't think $500K is really enough to retire on either- even as a stopgap until the pensions kick in when you are used to $180K of income a year. However it could be enough for a semi-retirement- say your husband kept his practice open but takes a month or two off a year the year you both could travel.

-Rick Francis

Thank you for you post. I appreciate your honesty and am glad you and your husband woke up. Some people never do! I like that last comment: "Once you're above the poverty level it really doesn't matter how fantastic your income is or isn't." I'd modify that a little bit to say you need to be a couple of notches above poverty...but it is true that once you have a basic lifestyle, having more stuff or spending more money doesn't add that much to your happiness.

I would also agree that the 500K number is a little low. I realize that's outside whatever you're putting in your 401ks, but I don't think your 401ks are going to have huge balances in them, so even with the 2 put together, I think that probably won't be enough.

Your experience with knowing lawyers who make large incomes who blow it all is supposedly quite common. The research done ont his topic indicates doctors and lawyers are prone to overspending, while engineers are generally good savers and investors. And this blog bears that out, as these profiles are chock full of engineers with $1M or more in assets.

Nothing wrong with paying down the mortgage, but it probably won't help (or hurt) you financial aid wise.

Your children from a previous marriage get to pick whether they use you or their father for the FAFSA. Logically, it should be one with the lower income & savings. But that's something you and your ex-husband will need to work out. Step-parent income doesn't have to be included.

Even on your salary alone, it's unlikely your children will get much other than loans. Maybe once you have 2 or 3 in school at once. My FAFSA is based on one parent earning around 60K and the only aid I get that doesn't have to be paid back is around $1,000 a year.

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