When To Cancel Term Life Insurance

I have been thinking about this lately as I recently turned 40,  kids are getting older, assets continue to grow and we are putting a decent dent towards our debt balance.

We each have a 2 year old $1m 20 year term policy,  plus 1x year salary from my employer, an automatic benefit.  I am pretty confident that if we both died today,  our life insurance coverage, $64.5k combined balance in 529s, $615k+ in liquid assets and our home value ($290kish), minus our total debt ($105.5k) would cover our passing, taxes, home, kids, dog and caregiver expenses until they became independent adults.

I love that we sleep well at night with such coverage. That said, at $1,236.6 per year for both of us, these cost a decent chunk of money especially over 20 years!  How long do I need these for?!

I am pretty sure we don’t yet have enough money to go without insurance but, it is a good time to start putting a more robust plan of action to determine when that magic day may be.

Next year, we will begin a yearly assessment to decide if we keep or cut. Here is a list of the guiding  (but open to adaptation as needed) criteria I have compiled so far:

What do we want life insurance for?

  • Cover gap for pre and post retirement expenses for a surviving spouse.
  • Cover gap for loss of income towards our dog (assuming 15 year lifespan) and children’s expenses, before they become independent if one spouse dies.
  • Cover for dog, child expenses, and their caregiver until kids are independent (here we will assume age 26) in the event that we are both gone.

One parent dies scenario

We anticipate both lower expenses and adjusted retirement goals. While there is the money addition from one policy, we also need to consider taxes and the loss of one income over time (or potentially two at least temporarily, depending on the emotional state of the surviving spouse  – even writing this is making me want to cry!).

We would cancel the second insurance if assets could cover in full:

  • Passing costs for surviving spouse (should be low since we want to be put in a recycled bottle that turns into a plant, but I digress… that is an entirely new post…).
  • Dog costs assuming 15 year total lifespan, but not replacement costs.
  • Legal fees for custody or estate transfer for kids and caregiver, should second spouse die.
  • Taxes from inheritance for kids and new care provider.
  • Mortgage balance, property taxes and home insurance until youngest child turns 21 (adjust age as they  grow and we get a better feel for where they are going).
  • Balance for any other outstanding debt.
  • College savings funded to 100% of 4 year public American university (room, books, board, etc) for each child or whatever is left of their college attendance if in progress.
  • Assets to provide for basic living expenses for kids and provider until they each reach age 21, adjusted for inflation.
  • Assets to provide for travel, entertainment and extracurricular activities until each reaches 21, to a similar level that they enjoy today, adjusted for inflation.
  • Fun asset money for kids as a good bye gift when they each turn 16 (enough for a beat up car each with insurance for a few years or something similar of their choosing).
  • Non-employee sponsored health insurance costs for kids through age 26, should that be needed if second spouse dies or is no longer working.
  • Adjusted FIRE goals for surviving spouse (70% of couple FIRE goals).
  • Long term care and health insurance for surviving spouse.

Parents are both alive, but with substantial savings

We will consider cutting our insurance if our assets cover the expenses from above scenario, with the following adjustments:

  • Passing costs for both parents vs one
  • Adjusted figures for two people for taxes on more accounts, FIRE, health and long term care for both spouses.
  • Adjust for age of kids and future needs.

Next steps

This year, we will begin putting actual numbers on the above line items for scenario planning so that starting in 2019 we can figure out how far off we are from ditching our insurance. Should keep me geekily entertained for a while!

I hope that as the very worse case scenario, we have to keep the insurance through the end of the 20 year term (18 to go) vs having to get even more life insurance for longer at a higher cost!

How about you, how do you assess insurance needs and when to quit it?

 

 

 

 

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Our 2017 Monthly Budget – $75k Per Year

Let’s talk budgets

I am completely at awe of bloggers spending under $30-40k a year (with kids!) and still looking like they are living it up! For us, getting down from $100kish to that $75kish a year in expenses has been relatively easy (first year we hit that was last year), but I am not sure we can want to go any lower right now without crossing the ‘this is not that fun anymore’ territory.

Yes I know I sound like a whiny-pants, but I am going to go ahead and own that because this is how I want to live my life as long as I can afford it. There.

For those of you on a similar journey, I am sharing the average monthly budget we follow (some months is more or less on each bucket, but generally it ends like this on average), in case it is helpful to you.  Note that after following the below for a few more years, mainly to help us establish new spending habits from what we were used to, we will move to a budget that simply focuses on savings (first bucket), core fixed expenses (second bucket) and other (third bucket) to simplify things.  Maybe that works better for you already – whatever works, just make sure you are checking that you are staying on track!

So with that, here goes…

Category Amount Notes
Mortgage $1,600 Includes $250 extra for principal to pay off in 7 years
Utilities/cell phone $400 Includes pest control and cell phones
Groceries $550 Food outside restaurants
Restaurants $250 Self explanatory
Extra $600 Includes 1x month house cleaning, massage and netflix
Car expenses $650 Car payment (4 years to go), registration and maintenance
Medical expenses $50 Co-pays, my insurance is paid through employer pre tax
Insurance $200 Life (x2) and car insurance
Vacation/travel $1,000 The Travel Travel part of our life!
Kids $500 School lunches, extra curricular classes, summer camps
Dog $250 Vet, food and overnight stays when we vacation
Replacement fund $150 Household things (attic fan, heater, etc)
Charity $50 Excludes donations and time volunteering
Total Monthly $6,250
Yearly $75,000

 

Yes, this is a cushy budget but I am finding this to be OUR number to maintain our perfect family balance between early retirement saving and fully living  and enjoying the experiences we want today.

While last year we hit this budget for the first time (came a little under), this year we have already over spent a little, mainly because we added fancy stuff like massages and home cleaning 1x month (hey, don’t hate!), but also because of unfortunate things like our computer dying and need to cut some dangerous trees, and a few other random issues, boo!

If we continue at current spend levels we will end at around $78k – so let’s hope plan so that we can reign it in and finish strong and avoid admitting public defeat!

What about savings?

With this level of spending, assuming we are both employed at current salary levels, we get to max our 401ks and HSA, and still put away around $6k (give or take) per month for our post tax brokerage account. Keep in mind we already front-loaded our 529s for as much as we wanted to add as of last year, so that has allowed us to put more money into our brokerage account and even add a little to our replacement fund.

Speaking of replacement funds – in 2018 we need to really trim things down on lux categories a little more or earn more money so that we can add a replacement vehicle fund (goal under $12k Leaf or something comparable in about 2-4 years to replace our older car).

What’s next?

First, we need to keep that spending down as I stated. Now, if we do go down to one income in a few months, we will temporarily trim the extra mortgage, the cleaning fee and, GASP a little bit on travel (down to $8k vs $12k per year). This would also mean instead of saving so aggressively, we would only be able to put away about $1,500 to brokerage per month or less, until we are able to replace that second income, though I could still max my pre-tax accounts. Still, not bad!

We are going to be monitoring kids expenses as they get older and may be interested in more classes or experiences, which may push budget higher. As for the opportunity areas, we should pay off our car in 4 years ($450 per month- 0% interest), and be in a better position to save more once the house is paid off (currently about $100k left in mortgage – with extra principal pay off is 7 years).

And no, we are not getting rid of our lovely rescue dog. She enhances our life so much and pushes us to be even more active. Once she passes though, we shall not get a new pet so this is it!

Tell me your dirty little secrets – what does your budget look like? Where do you splurge and what is hardest to cut?

A Year Later ….

This blog was born about a year ago and man, have things changed since! I have been thinking about how much harder it was to get to the first $100- $200k compared to how much faster things seem to be moving after we crossed the $300-400k line. Granted, our journey is a little strange as we kept taking random time off work and spending a lot of what we saved but, the end result in terms of asset accumulation is still is pretty interesting.

Obviously our strong focus on FIRE for about 1.5 years now, much larger dual incomes after a period of unemployment and work breaks have helped as much as the incredible market ride as of late which has propelled this forward. It does make it super fun to see that even small gains amount to a lot more $ these days compared to even last year. I have to remember to breath when it does the same when market decides to explore negative territory :).

Let’s revisit what I wrote a year ago, when the FIRE dream was just starting:

As of August 2016, our investable assets stand at $335k. I guesstimate that about $200k of this came from our savings from 2001 until 2009. We did not save anything from then until about 2012 really, the rest was saved from late 2013 to today. Our 529s ended 2015 with about $5k. Today (August 2016) we have a combined $26k balance for both kids, much of which was added this year as we started a super funding strategy.

A Year Later…

Assets: Liquid assets stand $525.2k. It is strange to see the market still going up and I keep reminding myself to stay the course when/if the correction comes. Our home has about $135k in equity assuming about 10% expense costs between real estate fees and random taxes, so total net worth is about: $660,000. Woot!

It is crazy to look back and see that exactly a year ago – August 2016, our assets stood at $335k – that is $190k dollars difference in one year! Check out this progression, feels almost surreal (liquid assets only, excludes 529s – those we count separate as money we won’t have available):

  • 2001 – 2009: $200k (8 years!)
  • 2009 – 2016: $335k (7 years to add an extra $100k+)
  • 2016 – 2017: $525K (1 year, $190 added! yikes!)

Debt: $125.1k, still on track to end at $118k without issues.

529 combined: $54.7k combined. A year ago our combined balance here was $26k! Huge accomplishment especially given how much we also saved for our retirement.

Expenses YTD: $42.9k. It is going to be a nail-biter ending within the $75k or under goal as we have a few unaccounted for car related expenses and a few other things to consider. I remain cautiously optimistic.

Lastly, I poked around the Social Security Website to figure out what my expected benefit would be if I worked for 8 – 10 more years, assuming the thing can still pay 100% of benefits. I figured it would be something like $1,800 per month or slightly more, which is not bad, especially considering that I am assuming best case scenario we get 60% of that or really (and what I actually base my FIRE plan on), nothing at all. Still fun to poke around with the numbers. 🙂

Hope your year is going well but most importantly that you are out there LIVING!

How are things going with you? At what point in your savings did you start feeling like things were really snowballing? How long did it take you to make each $100k?

September 2016, Progress Report

September 2016‘s market got a little scary but then bounced back. I am bracing myself for more crazy in the coming months. A huge highlight this month –  we maxed out our other 401k, woot!

All in all, another solid month, we are right on track so far. Here is the summary YTD:

Income* Expenses Assets 529s Debt
September $127.7k $57.9k $355.4k $34.2k $140.2k

Our assets grew by $9.4k while expenses came in at $5.8k (very good considering our trip that took about $1.5k of that! Creating habits is REALLY working!).We now have about 5k of these assets in cash, which we really did not have before. People are right – it gets addictive almost and I feel strange leaving things ‘out of the market’ but a little buffer is good, plus we are considering an alternative investment at this point (just considering) so this helps with options.

Our kids’ college funds grew a bit less than normal as we contributed only $2,650 (vs other months that I was putting about 5k to super fund and be done by the end of the year with a $25k balance for each), and the earnings stayed pretty flat otherwise.

Debt is getting there, we contributed a few extra hundred bucks, but is still not making as much progress as other areas, and that is ok as it is by design.

All in all – three months to go to end the year (wha?! how did that happen!?), almost at goal, very exciting to see progress!

How did you go this month? Did you panic when the market tanked?

Will & Life Insurance

With so much planning about living and retirement, it is a little disheartening to talk about planning for when we are no longer here. While my husband and I have started some estate planning, we have not gotten around to getting that notarized and I must say it makes me stressed so hopefully we can complete that soon and get all our documents in order. This is a big goal in 2018.

Now, as for life insurance – we currently have 2 young kids and each of us parents have a $1 million dollar policy, plus a 1x our salary policy from our work (as benefit). We were recently discussing when to stop having this insurance. Check more on that rationale here.

How about you – what is your plan? Do you have a will, a guardian for your kid(s) or pets and a plan for your assets? How about life insurance?

Gah!

Expenses Goal – from $100k+ to $60k

You spend how much?

When I first started reading about financial independence, I came across this post from Mr Money Mustache from 2011 entitled: Exposed! The MMM Family’s Actual Spending. 

This was the bottom line:

Total of Everything: $30,500
Total excluding Mortgage: $26,885

How does my family compare, I wonder? (family of 4 vs 3). Holy crap, I nearly fell off my chair when I discovered that from 2012 – 2015 we spent over $100k per year. WHAT!? Why?! I mean sure we moved, we got 2 cars for the first time ever ($16k total, cash), got kids on private school (no more as of next year as they are older and can attend public school), furniture for our new house, and some fancy pants vacations without caring for miles or points usage for the most part, etc. Still what the heck were we doing?!

Our incomes (here) at that point were not even CLOSE to sustaining this lifestyle. Thank goodness I found that blog and re-focused myself (to be fair, I was having some serious post partum depression and was getting my act together, so I had other things on my mind. Now I am totally ready, no excuses!).

After picking my jaw from the floor, I started reading every possible financial independence blog (these ones my favorites) and sat down with my husband to make a plan. We immediately cut out things that were not essential (cable, for example), starting making most of our meals at home vs eating or ordering out and called our insurance company to negotiate a better rate, which we got.

We created a path that would allow us to live more frugally. Much like when running, we did not want to go from 5 miles to a marathon in a day, so we set out to do a plan that would allow us to cut expenses gradually so that we could adjust to our new (hopefully sustainable) habits without that much pain.

The Goal

We have a pretty solid plan for saving and investments, but now we needed a goal for ourselves for the next 5 years in terms of spending. Here is where we landed (as of Summer 2016). We pledge to spend (ignoring inflation):

  1. $80k in 2016We beat this! We came in a little under $75k!
  2. $75k in 2017 – Barely, but achieved!
  3. $70k in 2018 –  Failed! $75,575. $75k seems our ideal expense range!
  4. $65k in 2019
  5. $60k in 2020

I will update our progress as we go, where we cut, what hurt and what was easy. I am fairly confident we can hit $80k and $75k this year and next  – but I am seriously questioning our ability to go lower than that. I know this is very doable when reading other blogs out there, but you know, I like my traveling and first world privileges.

Will we make it? Will we totally fail or quit? Let’s see how far we can go! Check our our progress reports here.

For further inspiration, I keep checking Justin’s Root of Good amazing posts like these  which put my expenses to shame….

How about you, what is your goal?!

Resources

Summer 2016.

Travel Resources:

Here are a great list of travel blogs and sites that you may enjoy in regards to traveling, specifically with a family.

Want to learn about points and miles? Check out Million Mile Secrets and The Points Guy.

Overwhelmed with credit card/miles and don’t know where to start? I started with Marriott Card (best benefit is 7 nights + x amount of miles to most major airlines), Chase Sapphire Card and Starwood American Express (not sure how much longer this one will be around). These seemed the most flexible for me until I learned more.

Hotels.com and Rocketmiles.com for hotel reservation if you are not using a specific travel rewards card or hotel chain.

Car rental? Try  Autoslash.

Different ways the world talks about Continents. The 5 to 7 Continent models.

College Planning:

If you are just getting started investigating 529s and general cost of college, I encourage you to start here. Probably the best site I found so far. It helped me a lot with my initial planning.

Financial Independence:

Getting started on your own path to financial independence? I encourage you to watch this eye opening PBS documentary called The Retirement Gamble. Then, take a read through these articles, which I re-read often for encouragement. Why “Earn More” vs “Save More” Is The Wrong Debate, The Shockingly Simple Math Behind Retirement, Zero to Millionaire in Ten Years, How We Reached Financial Independence in Our 30s, and A Millionaire Is Made 10 Bucks at A Time.

The blogs that I mention here are the ones I most often read regarding early financial independence.

For a very simple how to guide for saving and investments, I really love this The Simple Path to Wealth. I particularly love that he is writing this to leave as a manifesto for his daughter. He also writes about rent vs own issue very eloquently. Another excellent article on rent vs buy by Afford Anything blog here.

The Mad Fientist is also filled with all sorts of great information and tools. And this blog post on The Road to financial independence is a great read.

Financial Management:

I use mint.com to track my day to day spending and Personalcapital.com to track my investments and assess my 401k plan fees.

As for investing, I am partial to Vanguard index funds.

Simple yet effective interest calculator.

Inflation calculator.

Teaching kids about money resources