34y/o feeling behind, recent military separation

[Centsavr]

Hi guy and gals! I'm new here, so sorry if i posted in the wrong place, but i recently had a life change and need some advice.

I'm 34yo and my 2 kids are teenagers already. I feel like i'm behind since i only have $22,000 invested. I was recently medically discharged from the Army after 17 years of service due to an injury in Iraq and will receive $4,300/mo adjusted for inflation indefinitely. I was also granted ssdi of $2,600/mo and have two rental properties with rents totaling $3,400/mo. My wife and kids were given medical benefits for life as well as education benefits for college. I live in a lcol and my expenses including investing and mortgages totals $7,000/mo
How do you think I should look at my current situation? What are some things I should do?

I also have an emergency fund of $20,000
I owe 250k on my mortgages on properties and theyre worth around 730k combined. I have no other debt.

[Fru-Gal]

I don’t know why you think you’re behind when you have guaranteed income for life?

That’s all those of us who live off 4% of our stash are trying to achieve.

Perhaps invest a portion of your guaranteed income in a low-cost index fund such as VTSAX or VTI or FZROX?

There may be tax implications if your income is from a pension or disability — not sure you can have an IRA with that. But you can still invest.

Seems to me you are set for life.

(Assuming this is not a troll post. When did you leave Iraq deployment?)

[Dave1442397]

The $4,300 + $2,600 = $6,900 a month of guaranteed income. Using the 4% rule ($6,900 x 12 x 25), that's the equivalent of having $2,070,000 invested, so you're pretty much ahead of most people already.

[SweatingInAR]

You seem to be doing well from this information. The only missing piece is if your rental properties are cashflow positive. You get $3400/month in rent, but how much goes back out for those mortgages? Are you keeping up with maintenance?

If the rentals are a hassle, I would consider selling them. If that $480k of equity was converted into VTSAX it would be estimated to provide $19,200 per year by the 4% rule.

If you want more detailed responses, you should do a proper case study:
https://forum.mrmoneymustache.com/case-studies/how-to-write-a-'case-study'-topic/

[Centsavr]

They're not really a hassle. I lived in them for 5 years, so already replaced all the major stuff like electrical, plumbing, roof and ac. I've owned one since 2014 and the other since 2017 and have only had one "headache" which was an eviction. Other than that a call every few months about a minor water leak or whatever that quickly gets fixed. Around $1,900/mo in expenses, the rest is cashflow. Would it be better to sell? On one i owe 45k and the other 85k so i figured i'd just rent them and i'll have much better cashflow once i own them outright.

[Centsavr]

I don’t know why you think you’re behind when you have guaranteed income for life?

That’s all those of us who live off 4% of our stash are trying to achieve.

Perhaps invest a portion of your guaranteed income in a low-cost index fund such as VTSAX or VTI or FZROX?

There may be tax implications if your income is from a pension or disability — not sure you can have an IRA with that. But you can still invest.

Seems to me you are set for life.

(Assuming this is not a troll post. When did you leave Iraq deployment?)

I deployed awhile back, but recently transfered to national guard where I was supposed to serve my remaining years till retirement, but they said i should have been medically discharged a long time ago but no one ever mentioned or helped me through the process so i kept chugging along.

How much of my income do you think i should invest? 25% ?

[rebel_quietude]

I think Dave1442397 laid out the most important principle - you are set for life. Which is what the pension and disability + healthcare is intended to ensure in the first place.

$82k a year indexed to inflation, and I'm assuming your kids are eligible for significant college grants or post-9/11 GI Bill monies as well. When you pay off your rentals - if they're worth the hassle - you're making closer to $102k.

The only thing you have to do - and I say this with love - is not be an idiot.

Sounds really easy. You've gotten this far by using common sense. However, as I'm sure you've seen, it can really mess with people to lose their sense of purpose, and the community associated with service. On top of that, you're working through whatever shit happened while deployed.

So, set a budget that shaves off $100 bucks a month. Determine the percentage of investments by your goals - how much more do you want to live on than the 102k, and what is the value to you of having that money now or later? Throw whatever percentage you decide into VTI - you don't need a balanced portfolio with the equivalent of $2M invested in guaranteed income.

Then get a therapist you like, if you don't already have one. Get as healthy as you can.

If I were you, I would focus in enjoying the few remaining years you have with your kids at home. Transition from "row, row, row," to "breathe." And thank you for your service.

[Centsavr]

I appreciate your response. I guess i'm just nervous because although they did say it was permanent, I do worry if it actually is, so I have a hard time determining how much my "number" to save should be. I've got the discipline portion down, I'm not super thrifty, but it's at a happy median I would say. My expenses are 70k a year and that's including investing and paying for mortgages and taxes.

[Laura33]

Hi guy and gals! I'm new here, so sorry if i posted in the wrong place, but i recently had a life change and need some advice.

I'm 34yo and my 2 kids are teenagers already. I feel like i'm behind since i only have $22,000 invested. I was recently medically discharged from the Army after 17 years of service due to an injury in Iraq and will receive $4,300/mo adjusted for inflation indefinitely. I was also granted ssdi of $2,600/mo and have two rental properties with rents totaling $3,400/mo. My wife and kids were given medical benefits for life as well as education benefits for college. I live in a lcol and my expenses including investing and mortgages totals $7,000/mo
How do you think I should look at my current situation? What are some things I should do?

I also have an emergency fund of $20,000
I owe 250k on my mortgages on properties and theyre worth around 730k combined. I have no other debt.

You are not behind; in fact, you've already won the game!  You just don't have flashy assets like people can easily count.  Instead, you chose to serve, and your "payment" for that included a lot of long-term benefits with no flash to them at all.  And in the end, all of that substance is going to serve you and your family much better than all the flash in the world.

If I read this correctly, you have $4,300 + $2,600 + $3,400 =$10,300 in monthy income, and $7,000 in monthly expenses.  Plus you have health care and college covered, which are two giant black holes of money that most people have to worry about.  All of that means that you are set and can never work another day in your life if you choose to. 

If you wany to further protect yourself and your family against future problems (like, say, one rental becomes unrentable, or your benefits get slashed), then all you need to do is take that $3,000/mo. extra and invest it in something like VTSAX.  That will build very, very quickly.  And as you noted, your tenants will continue to pay down the mortgages on your rentals, which over time will significantly decrease your monthly expenses, as well.  You already have enough saved to make it more than 6 months if all of your income streams were cut off tomorrow.  If you can consistently put that excess into a brokerage account, and keep paying down the mortgages, you will be surprised how quickly your safety net builds up.  And all of that assumes that you never work a single additional day for pay in the next 50+ years.

I think the bigger question is what do you want to do?  You have been through a lot over the past 17 years, but now you have the freedom to do whatever you want for the next 50 or 60 years.  So what do you want to do with all that life you have left?   

[Freedomin5]

If you want to increase your own nest egg because you don’t trust the continuity of the government’s payout, then invest any extra income into a non-taxable or taxable account. Based on the numbers you provided, that should be around 30k a year.

You’re definitely not behind though. Just looking at your properties, they’re contributing 480k to your net worth. When you add your 20k EF and 22k investments, you have a net worth of 522k, which is quite good.

[Centsavr]

I understand that if my expenses are covered by my income, which they are, that i'm pretty much retired. I guess due to the uncertainty of it all, I don't feel comfortable calling it done. I feel like I need to have a nest egg, just not sure how much. And since my net worth is tied to my properties, I feel like somehow it's not as valid, especially when i hear finance gurus saying not to include property values in your net worth.

As far as what I want to do, I enjoy hiking, reading, gardening, and volunteering in my local community. I would also like to get bigger into fitness, yoga, and cooking as well as being a more involved parent.

[Freedomin5]

They say not to include your primary residence in your net worth, because you can't eat it or live off it. You can include investment properties because you can always sell them and live off the proceeds.

But if you do not feel confident in your government's ability to provide for you and your family for the rest of your/their lives, then there is nothing wrong with building up your own nest egg.

[Dicey]

I would definitely suggest you let the mortgages ride. Take any extra cash flow and do what @Laura33 said.

BTW, I love that you say you only have $22k invested, then you casually let slip that you have a $20k EF. You are doing so much better than you give yourself credit for.

You have definitely won the game. You can soften the transition by calling it a sabbatical, a break, or my fave, a Smoke Break. Credit to @couponvan for that one.

You don't have to do anything right now. In fact, given the timing, why not pretend you're a kid again and have the whole summer off? Go play and have a great time. When fall comes around, you can think on it a little more.

[Centsavr]

That's what I was thinking, to let the mortgages ride, esp because my interest rates are each below 4%. And i didn't feel like 42k was much for having not invested the many years i was in the military.

But you do make a great point, i'll take the summer off and regroup.

Two of my properties have a detached house of 600sqft that can generate another ~$7-800each if rented, i just need to invest around 35k in each to get them up and running, not sure if that's worth doing.

[rebel_quietude]

As far as what I want to do, I enjoy hiking, reading, gardening, and volunteering in my local community. I would also like to get bigger into fitness, yoga, and cooking as well as being a more involved parent.

I don't know you, and I don't know your circumstances; but I know a bit about Soldiers, and we don't always handle retiring well.

The above is an EXCELLENT list of things to focus on, once you're done spending a few hours figuring out what you're going to auto-contribute to VTI / VTSAX.

I'd also recommend Coursera "The Science of Well-being," or "The Happiness Lap" podcast.

This is what concerns me:  "I guess due to the uncertainty of it all, I don't feel comfortable calling it done."

Please consciously examine whether your feelings of monetary insufficiency are truly a representation of your financial risk profile, or the result of a mindset that believes your value to the world comes mostly from your work.

The former is easily remedied by an appropriate savings allocation as Laura33 described. The later can start you down a dark path, if you can't identify alternate sources of fulfillment and identity.

Build a routine. Expend effort on behalf of the people who need you.

Apologies, I'll stop beating the dead horse now.

[Centsavr]

My feelings are mostly due to lack of liquid assets, and having a family to support. That'll probably change as i get 100k+ in investments.

Thanks for the coursera suggestions, ill check it out! I'm a lifelong learner-type.

[Dicey]

Whoops, I meant to batsignal @Nords.

[Paper Chaser]

Thank you for your service and sacrifice! Go out and enjoy life!

I do think there's wisdom in finding a new way to serve. You've been in a very structured, disciplined environment for many years. Suddenly having lots of freedom can be a huge change. I think it makes sense to look for new ways to serve and help others now that you've earned more financial freedom. Take care of yourself and others.

[Centsavr]

Thanks,
I agree and I've already found organizations that I can volunteer with, but also my kids school keeps me busy.

[AMandM]

I have nothing to add to the financial advice you've already received, but I would warmly urge you to spend a lot of time with your kids. Especially since you were deployed, it may take some time to get to know each other again. Summer vacation is almost here; do stuff together that allows for conversation but doesn't necessarily require it. Hike, read, garden, do chores, run errands, play games, grill out, go swimming, etc.

[Laura33]

I understand that if my expenses are covered by my income, which they are, that i'm pretty much retired. I guess due to the uncertainty of it all, I don't feel comfortable calling it done. I feel like I need to have a nest egg, just not sure how much. And since my net worth is tied to my properties, I feel like somehow it's not as valid, especially when i hear finance gurus saying not to include property values in your net worth.

First, most "financial gurus" are blowhards begging for clicks to maximize their own income.  I guarantee that 90% of them know less than you do -- and I don't know you at all, other than by the financial decisions you've reported here, which have been very very good despite what you seem to see as your lack of knowledge/insecurity about it all.  Do you have any idea how few 34-year-olds are able to retire comfortably if they want to???  That's not because some magic fairy bestowed a giant firehose of cash on you; it's the cumulative effect of all of the small good decisions you made over the past 17 years.  Regardless of how much research/reading you've done, or formal learning in financial things, your gut instincts have drawn you to some very good choices that have put you and your family on a very secure financial footing. 

I hope that Nords checks in to give you some real sense of how "safe" those various payments are, so you have a more solid knowledge base to plan from.  I just really, really want you to feel good and positive about where you are.  I imagine that's hard right now because of the stress of the past 17 years and the major nature of the changes you've dealt with recently.  I also imagine it has to be hard to go from someone who has always worked his ass off to support his family to depending on payments from someone else that you don't control -- particularly if the physical/mental damage that earned you that disability rating makes you question your ability to jump back into another job if those outside payments go south.  So just be patient and kind with yourself, and talk to friends/therapists/other military retirees if you need to to work through all of this.  At the very very very least, you have earned the right to time away to regroup, and your good decisions in the past have put your family in a position to take that time, without having to worry about making any big decisions until you are ready to.  So take all the time you need to figure out a new version of normal -- that could be the summer, or it could be years.  Luckily, there's no rush.  Once you do that, your head will be in a better place to plan for the next 60 years.

On the substance of real estate, as Freedomin5 noted, that applies to your primary residence, not rental properties.  With rental properties, there are only two things to avoid:  (1) don't double-count them (i.e., you can consider the equity as part of your net worth, or you can consider the income they generate in figuring out your annual income needs, but you don't want to count the rental income and then also include the equity in your 4% calculations); and (2) make sure to consider all associated expenses in figuring out how much they're worth (e.g., if you're looking at net worth, subtract out the costs of selling them; of you're looking at income, consider things like vacancies and periodic new roofs and such). 

[Nords]

Thank you for the tag, @Dicey!

I'm 34yo and my 2 kids are teenagers already. I feel like i'm behind since i only have $22,000 invested. I was recently medically discharged from the Army after 17 years of service due to an injury in Iraq and will receive $4,300/mo adjusted for inflation indefinitely. I was also granted ssdi of $2,600/mo and have two rental properties with rents totaling $3,400/mo. My wife and kids were given medical benefits for life as well as education benefits for college. I live in a lcol and my expenses including investing and mortgages totals $7,000/mo
How do you think I should look at my current situation? What are some things I should do?

I also have an emergency fund of $20,000
I owe 250k on my mortgages on properties and theyre worth around 730k combined. I have no other debt.

That's what I was thinking, to let the mortgages ride, esp because my interest rates are each below 4%.

I think everything’s going to be fine.  I’ll start with the mortgage debt.

We’re also carrying a mortgage in our retirement (3.5% for 30 years) and over the last 20 years we’ve earned a compound annual growth rate of 9%/year in a total stock market index fund.  If you’re comfortable with breathtaking volatility (like April 2025’s market whipsawing) or can ignore it for the long term, it makes sense to borrow at less than 5% and invest in a total stock market index fund.

It works even better with military pensions & VA disability compensation because you’re borrowing against a very reliable stream of income that rises with inflation, and using it to pay off debt at a fixed interest rate.

Around $1,900/mo in expenses, the rest is cashflow. Would it be better to sell?

My spouse and I have been landlords for 28 of the last 31 years.  I’m over it but she feels tremendous senses of sentiment & security.  (She grew up helping her parents with their rentals.)  Rental income also diversifies you from the stock market and other asset classes.

Landlord for as long as you find it challenging & fulfilling.  When the fun stops, then cash out and pay the taxes. 

I appreciate your response. I guess i'm just nervous because although they did say it was permanent, I do worry if it actually is, so I have a hard time determining how much my "number" to save should be. I've got the discipline portion down, I'm not super thrifty, but it's at a happy median I would say. My expenses are 70k a year and that's including investing and paying for mortgages and taxes.

As others have mentioned, your expenses are less than your income and you’re receiving annual inflation-fighting cost-of-living adjustments on the income.  Financially—math and logic— you’re fine.

I’m guessing that you either have a military disability pension (Chapter 61) and/or your VA disability rating is 100% permanent & total.  Neither DoD nor the VA will change that in the future, and the majority of retirees raise their annual spending at less than the rate of inflation.  For the rest of your life, your income is highly likely to grow faster than your expenses.

If you’re not already working with a Veteran Service Officer, then talk with one at your local VA office or clinic about the taxes on your income.  I haven’t kept up with the taxation of DoD’s disability pensions, and you already know that VA disability compensation is tax-exempt.  (VA disability compensation is not even reported to the IRS.)  I’m pretty sure that SSDI continues until you reach your Social Security Full Retirement Age, or at least until you start SS.  A VSO can help you with that research too.

If you’re not already on your state’s website for their Department of Veteran’s Affairs, you might be eligible for additional benefits— like no property taxes on your primary residence and no annual vehicle registration fees.

My spouse and I are also both receiving military pensions, and over the last 23 years my pension has grown over 77%.  (Three of those year were even 0 COLAs.)  We’re deliberately spending down our taxable account and our Roth IRAs in our 60s (with philanthropy & gifting) because we can project that our wealth will grow even faster when we start Social Security at age 70.
 
If you want, you could consider your $8400/month of net income as the dividends from a portfolio of I bonds or TIPS.  (It’s an imperfect analogy, but it’s good enough for asset allocation discussions.)  With their current yields of 3.98% and 2.65% you’d have the equivalent investments of $2.5M in I bonds or $3.8M in TIPS.  Better still, your “dividends” will keep up with the Consumer Price Index and they’re the most secure bonds you can buy.

With your bond-like income and your low-interest mortgages, you could choose to invest most of your savings (for the long term of at least 10 years) in a total stock-market index fund.  You’d want to keep a cash stash to replace a rental’s HVAC or hurricane/hail-damaged roof, but you could always choose to sell some of your equities to cover those emergent expenses.

From the emotions of behavioral financial psychology, if it helps you sleep better at night, you could build up some investments in a taxable account.  (Military pensions, VA disability compensation, and SSDI are not earned income for Roth IRA contributions.)  If your spouse has earned income then in 2025 you could contribute up to $7000 of her income into your spousal Roth IRA.

I’m not sure how much you’d want to save & invest for your comfort.  You certainly should enjoy your quality of life now with as much family travel and other experiences as you can.  You could either “save & invest what’s left over after spending” or choose to save/invest 10% and decide if that adversely impacts your quality of life. 

You could set up a few savings goals of a fantasy vacation, or paying for a kid’s wedding, or simply gifting them in their 20s & 30s.  You’d be sharing part of their inheritance with them while you’re all still alive to enjoy it together.

I understand that if my expenses are covered by my income, which they are, that i'm pretty much retired. I guess due to the uncertainty of it all, I don't feel comfortable calling it done. I feel like I need to have a nest egg, just not sure how much. And since my net worth is tied to my properties, I feel like somehow it's not as valid, especially when i hear finance gurus saying not to include property values in your net worth.

As far as what I want to do, I enjoy hiking, reading, gardening, and volunteering in my local community. I would also like to get bigger into fitness, yoga, and cooking as well as being a more involved parent.

In 1988, Paul Terhorst wrote “Cashing In On The American Dream.”  (It’s one of the first financial-independence books of the Baby Boomer generation.)  In there he recommends that after quitting work, you make no new long-term commitments for two years.  Just enjoy time with your family and experiment with different activities that you think could be challenging & fulfilling.  Keep trying different things every month or few.  Eventually you’ll find activities that light you up and you’ll settle into your new groove.

Two of my properties have a detached house of 600sqft that can generate another ~$7-800each if rented, i just need to invest around 35k in each to get them up and running, not sure if that's worth doing.

That looks like a great project for your new free time, and it has a return on investment too.

Check your ZIP code’s zoning & permit requirements, do the math, and enjoy the additional net cash flow.

[Centsavr]

Yes i'm at 100% p&t so it's very likely to pay out indefinitely. The SSDI i'm not so sure, but probably will as well.

Definitely planning on keeping the rentals for awhile. Since I don't really "need" the money, i'm also okay with any fluctuations in the market, i know itll all level out and ill come out ahead in the end.

Correct, the income from VA compensation is not taxable and not even reported on income tax. The Social security on the other hand, is. After earnings of over 32,000 annual including one-half of social security payments but its only on 50% of benefit if earning $34,000 or less, any more than that and i'd pay taxes on 85% of it. Taxes have never been my strong suit, so maybe i need to hire a cpa or maybe i just need to read more on this blog.

[Centsavr]

Maybe I need to start a new question, but i'm curious what the best tax strategy is for my situation? I wouldnt want to invests stoo much then be pushed into a higher bracket down the road if my current income already covers my expenses.

[Fru-Gal]

A big reason most of us who are FIRE are worried about tax brackets is because we are getting our healthcare via the ACA. If you are getting your healthcare from the VA for the rest of your life then yes you can pay higher taxes when you make more money, but it’s perhaps not as big of a deal.

The other area of concern that can happen is with Required minimum distributions (RMD) of IRAs after age 70 something (can’t remember the age). But again you possibly don’t have an IRA and won’t have one because an IRA is based on earned income. Long-term capital gains is the lowest form of taxes so investments are pretty good in that respect.

The good news is you are now seeing that you are actually in a very good situation. All of these are the kind of problems you have when you have won the game!

[Dicey]

What Fru-Gal said.

[PhilB]

I know nothing about US taxes, but as others have said, you have already won the game, so the real trick now is to find a way of thinking about your finances that makes you happy.

One possibility might be to mentally separate out the rental business from the pensions, such that the pensions are there for you and your family to live on, whilst the rentals are there to build wealth for the future, with the excess rent over the mortgage payments invested either in the stock market, or more properties (if that's your thing).  That might help you give yourself permission to spend the pension.

[Nords]

Maybe I need to start a new question, but i'm curious what the best tax strategy is for my situation? I wouldnt want to invests stoo much then be pushed into a higher bracket down the road if my current income already covers my expenses.

Taxes have never been my strong suit, so maybe i need to hire a cpa or maybe i just need to read more on this blog.

You're in good shape. 

If you decide to use a CPA then you'd want to find one who has a deep understanding of rental properties-- both the ones you're currently landlording and the two you might be adding. The CPA can help you maximize your deductions and your depreciation in both areas. 

More importantly, working with a CPA this summer/fall gives them the time to help educate you on organizing your finances (to minimize the time they spend shuffling your files and spend more quality time on your tax returns) as well as boosting your knowledge.  They'd rather talk to you in the next few months (their relatively quieter time of year) than have you drop by in January to start a new account (as they ramp up to 100-hour tax-season workweeks).

Another option-- worth what you pay for it-- is Volunteer Income Tax Assistance on a military base or somewhere else in your community.  It's free but the tax preparers have a short training program and then hit-or-miss knowledge.

If possible, you could try to prepare your own returns (in parallel with a CPA or a VITA preparer) to optimize your knowledge on your personal income-tax issues using the interview features (a hundred questions) of software like TurboTax.  Nobody will care as much (or learn as much) about your income taxes as... you.

The taxes you pay are based on your adjusted gross income (the number at the bottom of the first page of form 1040), so you're essentially paying income tax on your net rental income, your Social Security deposits, and any employment income earned by you and your spouse.

Because of all of your inflation-fighting income streams, you don't need to invest in a lot of cash (paying interest on your deposits) or bonds (paying taxable dividends).  You can keep at least 50% of your investment asset allocation (and preferably 90%) in equities which might pay little or no dividends... their value comes from long-term growth and holding for the long term (>10 years).

If you invest in exchange-traded funds, and if they're in a large index like the S&P500 or the total stock market, then they're very tax-efficient.  Unlike mutual funds, ETFs rarely pay out capital gains (unless you sell shares) and any dividends they pay are usually qualified dividends which are mostly taxed at long-term capital-gains rates of... 0%.  You'd have to really pile up the dividends before you ended up in the 15% capital-gains rate.

Even when you total up your income, you take a standard deduction of roughly $29,000... that goes a long way toward minimizing your taxable income. 

Once you've figured out your tax bill, you probably have a few years of child tax credits to deduct from the total taxes due.  I don't think that income taxes are going to be a big part of your budget.

[Centsavr]

A big reason most of us who are FIRE are worried about tax brackets is because we are getting our healthcare via the ACA. If you are getting your healthcare from the VA for the rest of your life then yes you can pay higher taxes when you make more money, but it’s perhaps not as big of a deal.

The other area of concern that can happen is with Required minimum distributions (RMD) of IRAs after age 70 something (can’t remember the age). But again you possibly don’t have an IRA and won’t have one because an IRA is based on earned income. Long-term capital gains is the lowest form of taxes so investments are pretty good in that respect.

The good news is you are now seeing that you are actually in a very good situation. All of these are the kind of problems you have when you have won the game!

That's a good way to look at it. The ACA is not of concern to me since we have CHAMPVA and I have the VA and Medicare.

[Centsavr]

I know nothing about US taxes, but as others have said, you have already won the game, so the real trick now is to find a way of thinking about your finances that makes you happy.

One possibility might be to mentally separate out the rental business from the pensions, such that the pensions are there for you and your family to live on, whilst the rentals are there to build wealth for the future, with the excess rent over the mortgage payments invested either in the stock market, or more properties (if that's your thing).  That might help you give yourself permission to spend the pension.

That's what I'm having trouble with is spending. I know lifestyle creep is huge, and I don't want to fall into that. But at the same time, should I continue saving $2,000+ per month? I just feel like I need to continue saving because i'm still young and compound interest still has the power to help me out if I just save save save.

[Centsavr]

Maybe I need to start a new question, but i'm curious what the best tax strategy is for my situation? I wouldnt want to invests stoo much then be pushed into a higher bracket down the road if my current income already covers my expenses.

Taxes have never been my strong suit, so maybe i need to hire a cpa or maybe i just need to read more on this blog.

You're in good shape.

Thanks for the detailed help Nords,

I was thinking of hiring a CPA for this year, then in future years try and handle it on my own. I think with the standard deduction, my married filing jointly, and paying taxes on only the net rent income and a portion of social security, the child tax credit, it should be awhile before I hit the >$96,700 15% LTCG tax. So i'll do something like VTI in a taxable brokerage, that's good right?

If you decide to use a CPA then you'd want to find one who has a deep understanding of rental properties-- both the ones you're currently landlording and the two you might be adding. The CPA can help you maximize your deductions and your depreciation in both areas. 

More importantly, working with a CPA this summer/fall gives them the time to help educate you on organizing your finances (to minimize the time they spend shuffling your files and spend more quality time on your tax returns) as well as boosting your knowledge.  They'd rather talk to you in the next few months (their relatively quieter time of year) than have you drop by in January to start a new account (as they ramp up to 100-hour tax-season workweeks).

Another option-- worth what you pay for it-- is Volunteer Income Tax Assistance on a military base or somewhere else in your community.  It's free but the tax preparers have a short training program and then hit-or-miss knowledge.

If possible, you could try to prepare your own returns (in parallel with a CPA or a VITA preparer) to optimize your knowledge on your personal income-tax issues using the interview features (a hundred questions) of software like TurboTax.  Nobody will care as much (or learn as much) about your income taxes as... you.

The taxes you pay are based on your adjusted gross income (the number at the bottom of the first page of form 1040), so you're essentially paying income tax on your net rental income, your Social Security deposits, and any employment income earned by you and your spouse.

Because of all of your inflation-fighting income streams, you don't need to invest in a lot of cash (paying interest on your deposits) or bonds (paying taxable dividends).  You can keep at least 50% of your investment asset allocation (and preferably 90%) in equities which might pay little or no dividends... their value comes from long-term growth and holding for the long term (>10 years).

If you invest in exchange-traded funds, and if they're in a large index like the S&P500 or the total stock market, then they're very tax-efficient.  Unlike mutual funds, ETFs rarely pay out capital gains (unless you sell shares) and any dividends they pay are usually qualified dividends which are mostly taxed at long-term capital-gains rates of... 0%.  You'd have to really pile up the dividends before you ended up in the 15% capital-gains rate.

Even when you total up your income, you take a standard deduction of roughly $29,000... that goes a long way toward minimizing your taxable income. 

Once you've figured out your tax bill, you probably have a few years of child tax credits to deduct from the total taxes due.  I don't think that income taxes are going to be a big part of your budget.

[Nords]

Thanks for the detailed help Nords,

I was thinking of hiring a CPA for this year, then in future years try and handle it on my own. I think with the standard deduction, my married filing jointly, and paying taxes on only the net rent income and a portion of social security, the child tax credit, it should be awhile before I hit the >$96,700 15% LTCG tax. So i'll do something like VTI in a taxable brokerage, that's good right?

You’re welcome!   

And you’re right about your income-tax bracket for LTCGs. 

Depending on the CPA, you may find that you spend more time managing the relationship than managing your taxes.  A good CPA educates all year long instead of just preparing returns by 15 April.  Either way, after one tax season you’ll be ready to start doing your own returns.

VTI is very tax-efficient. 

A tiny, tiny portion of VTI’s dividends comes from REITs (which Vanguard considers to be a tiny tiny part of the total stock market).  I think REIT dividends are taxed at personal income-tax rates, but I also think that VTI’s REIT dividend amount is about 1.5 percentage points of the 1.7% annual dividend of the entire ETF… in other words about 0.03% of the total VTI annual dividend. 

It’s a difference that you’ll see on a 1099-DIV brokerage statement, but it’s not significant.

Because my spouse and I have two military pensions plus a rental property (and I have some VA disability compensation), we invest very aggressively.  Our time horizon is >10 years so we have both of our Roth IRAs as well as our taxable account all in VTI.

[Dicey]

I'm going to second Nord's advice about investing aggressively. DH has a Defined Benefits Pension with COLA. We have long, low mortgages on our rental properties. We don't need a lot of bond exposure to keep our investment returns steady. Neither do you.