What to do next? advice please

[Deleted]

Hi all, just wanted to get some feedback on my next financial moves.

Quick background. Me and my wife are 34 and no children and no plans for children.

We have a combined income of 190k and both of us have very stable jobs.

We are maxing both 401k's and both Roth IRA's currently and my wife is a teacher and has a pension.

I have a taxable mutual fund (YACKX) that we recently opened and is worth $7300. I am contributing 1k a month to this account. This is the start of our retirement home savings!

We also have 10k in a savings account.

Current goal is retiring at 52 as my wife gets full pension at that point.

I am about to pay off a line of credit that we have on the house that was used a few years back to prevent pmi. I am going to keep the LOC open for emergencies as I can draw 63k on it.



Net income per month is about 9k.

Here is a few other numbers:

House Loan: Guessing worth 220k but who knows but we aren't moving anytime soon. Mortgage has 9.5 years left on at 3.875 fixed and a balance of $132k and monthly payment is $1550.

Car Loan: 22k at 3.9% and has 3 years left on it.

These two items are our only pieces of debt now.

Our other car is 11 years old and has 125k miles on it but is well taken car of and I think I can get 200k out of that car which should be 3 - 5 more years.


Paying off this line of credit is really going to free up $600 to $1,000 extra a month that I have been using to reduce it's balance.

At first I was leaning towards paying down the car loan so if our other car blew up we would only have 1 car payment but I am starting to now lean towards the mutual fund so if we do need the money we can access it.

I am very proud of our position right now but trying to figure out what to do with this extra cash!

Dave

[The J]

Put it in the mutual fund. Your 3.9% loan is a keeper loan -- no need to prepay. If something happened to your other car, and you needed to buy another, you could easily afford the car payment by simply reducing the amount that goes to the mutual fund then. If you're prepaying the car loan, you're effectively making two car payments at a time anyway.

[Gardening Grandma]

Cut your cable, stop eating out so much, do you really need a landline AND a cell phone?

Just kidding...;-)

[Deleted]

Thank you for the laugh grandma! I know, I almost feel guilty posting when I read some of the other situations but I still like advice about what I am thinking and this is a good place for that!

Dave

[Savoir Faire-Demogague in NJ]

I agree with what The J has posted.

One thing that jumps out at me is your lack of financial assets. I was expecting you to say you had $300,000 in investments that are outside your 401K/Roths.

I am single and have roughly 1/2 of your net income. Yet I have $2000 burning a hole in my pocket each month, this inspite of having the monthly expenses of a vacation home that has a mortgage.

Seems to me you have numerous leaks in your monthly spending.

[Deleted]

Hi Savoir, we have about 300k in our retirement investment accounts but we had focused the last couple years on eliminating some debt. We have been at that income level for I guess about 2 years now. I agree that we want to improve our financial assets so that is why we recently opened the brokerage account and set it on automatic pilot.

Dave

[Savoir Faire-Demogague in NJ]

Oki-doki... ridding yourselves of the debt was good...but still, only $600-$1000 per month extra? Your mortgage payment is only $1550... what are you spending the other $7500 on each month?

[Deleted]

Oh I see, I am sorry I didn't understand. Right now we are already contributing 1k a month to the brokerage account. Once I eliminate the balance on the LOC, I am going to add another 1k to that contribution I think. So that will put us at 2k a month into the brokerage account.

That should put us at an average surplus of an extra 1k every month in our checking account. I just keep that as a buffer for extra spending or extra saving depending on the month.

I just did a quick calculation based on your feedback and this 2k a month into our brokerage account puts us at a 40% automatic savings rate (retirement and the brokerage account) based on gross per month.

Did that answer your question or did I confuse it more? lol

Dave

[Savoir Faire-Demogague in NJ]

Yup... I still see a lot of unaccounted for spending.

I put roughly the idential percentage into retirement and taxable savings each month, yet I have 1/2 the net income.

Not busting your chops, just tossing something out to ponder.

[Deleted]

I agree with SF. You are obviously in a good place financially, but to retire at 52 takes a lot of money and not a lot of time to accumulate it.

[Deleted]

Bust away that is why I am here!

I don't disagree that we could probably reduce some spending around cable, golf, and travel. But also trying to find a balance of fun and savings, which can be tough for me sometimes! lol

We are also foodies so we probably spend more on food but we love to cook.

Dave

[Gardening Grandma]

I'm curious as to your other financial goals, besides retiring at 52.. Shorter term?

Also, have you figured out a target retirement savings in order to actually retire at 52?

[skubikky]

"I don't disagree that we could probably reduce some spending around cable, golf, and travel. But also trying to find a balance of fun and savings, which can be tough for me sometimes! lol"

Based on your numbers IMHO you two are doing very well. What kind of work do you both do? Retiring at 52 is quite young. What do you see yourselves doing for the 30 years that follow that?

I'd suggest dabbling in whatever it is that interests you that could be pursued over the long haul. Often I hear people say that they'll do this and that when they retire but if they've not actually tried it, the chance that they'd do it later is slim.

I see myself continuing to ride horses when I retire but I won't be able to do the things I do now as much 15 years from now.

[Deleted]

My wife is a 1st grade teacher and I am a software consultant. I would love to take a shot at trying to qualify for the Sr PGA tour but who knows.

We both love to travel so that would probably be part of retirement. We want to probably move to a climate of no snow and my wife would like the ocean close as she grew up near the ocean. We are in Colorado now and love it here but don't want snow when we retire. We don't need a big place so that mutual fund is not only for our next house which would be the last but also retirement. We are also involved in our local animal shelter so I have a feeling where ever we are, we would help with the dumb friends league.

I figure her pension will supply us with 50k a year so that helps quite a bit. Once our current house is paid off that will be another 1200 (minus escrow) a month that goes straight to savings.

Short term financial goals are usually things we can handle within our checking account. A trip here or a trip there.

Dave

[Deleted]

Best of luck with retiring at 52, you seemed to be in a great financial position to do so.

[Deleted]

Your wife gets a full teacher's pension at 52?

[phil5185]

Yeah, an extra $1000/m in Checking for misc is pretty loose - and it almost certainty will get spent, it's part of the human condition. If wealth-building is the goal, have that auto-deposited, that causes you to go thru the thought process of 'going over budget' and retrieving the money from another account. (That doesn't mean that you shouldn't blow money, you earned it, you should enjoy the fruits).

The loans that you have are <5% so it is better utilization of income to retain the loans and use the cash for longterm investments.
You didn't mention the rate on the LOC - but if it is 'low & long', it too should be retained and the money should go to 'low & long' wealth building.

YACKX looks like a good fund, managed by a BYU Grad, Yackman, who has degrees in math, econ, and an MBA. One con - he has about a 10% fund turnover - in a taxable fund you get an annual tax bill for cap gains even tho you sold nothing. Not a big deal now, but when you have $500k in it, you will pay annual taxes on $50k of unrealized profits - and in your tax bracket that will noticeable. That is why many investors use unmanaged index funds in their taxable accounts.

[Deleted]

Archie, yes my wife gets it at 52 because that will be 30 years of service. She has been in the school district since we graduated college and we thought we would move around but we love it here so we haven't and don't plan to.

Thank you Phil and I agree about the extra 1k in checking. I want to get a few months removed from contributing the 2k to the fund and see if that extra 1k is an accurate estimate. We also use the 1k to save up for a trip here and there. We have pretty much everything automatically withdrawn so we are pretty good about not going over to often.

Thank you for the feedback on the YACKX fund. I will keep that in mind as we move forward, as that could develop into an issue for sure.

Dave

[Deleted]

Apr 1, 2011 12:26:07 GMT -5 @daveandjen29 said:

Archie, yes my wife gets it at 52 because that will be 30 years of service. She has been in the school district since we graduated college and we thought we would move around but we love it here so we haven't and don't plan to.


Dave

Wow.

[phil5185]

We are in Colorado now and love it here but don't want snow when we retire.

That's funny, we retired 12 years ago - we drive up to CO to see snow. Went ice skating on the Lake at Keystone in Jan, beautiful area.

Once our current house is paid off that will be another 1200 (minus escrow) a month that goes straight to savings.

A mortgage is personal preference, more emotion than math. But mathematically, you may not want to pay off real estate. Eg, if you borrow an extra $50k against a house, it costs about $268/m ($97,000 over 30 yrs). And place the $50k lump sum in an $11%/yr fund for 30 yrs, it is $1,100,000. If you pay off the $50k and invest at $268/m, you will have about 50% less.

[Deleted]

Was that "wow" for us or sarcasm of the pension system? lol I didn't want to start a political conversation, I just working within the system!

Dave

[Deleted]

CO is the best area if you want snow in your life at all. It is a great area. I just want to be able to play golf year round at retirement!

Basically our thoughts on the house was to balance it with our other investing. So yes it is very conservative to pay off the house but we were trying to balance it with our regular savings and then when we retire and sell the house hopefully that is over 200k that we can help use for the early retirement. We also were using the LOC as our major emergency fund if we needed it, we can access 63k right away.

Dave

[Deleted]

And I should mention I am not prepaying on the mortgage. I am just letting it run its term of 9.5 more years.

[Deleted]

Apr 1, 2011 12:34:18 GMT -5 @daveandjen29 said:

Was that "wow" for us or sarcasm of the pension system? lol I didn't want to start a political conversation, I just working within the system!

Dave

Just wowing in general. That is a nice benie to have.

[Deleted]

Yes it is a nice benie to have. She doesn't contribute to SS but it is a really nice benie. Our pension system in CO is in good shape too which is nice.

[azphx1972]

You guys are killing it income wise, so great job there! 52 seems like a really aggressive retirement date though. Have you estimated how much you will need to retire at that age? I think it will help if you can try to get your expenses down as much as possible now, so that you get used to living on less, which will have a double whammy effect on your retirement savings.

www.getrichslowly.org/blog/2011/03/23/living-below-your-means-is-like-saving-for-retirement-twice/

[Deleted]

I have estimated that we will need about 100k in retirement income to match exactly where we are now which we live a very nice life. That is subtracting the 40% savings and also our mortgage payment from our current "expenses". With my wife's pension of about 50k a year, we need to produce about 50k of income or so from our investments. I figured a number a while back of around $2.5M to $3M but I haven't done it in a while and was more focused on just socking away what we could right at the moment.

I pretty much have not even figured SS for me and whatever it is that will probably just be poker money when I take it.

Dave