Author Topic: Suggestions For Long Term Goals/Plans  (Read 3090 times)

DMAC

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Suggestions For Long Term Goals/Plans
« on: February 02, 2016, 05:19:57 PM »
Hi, I'd like to get some ideas as to what long term goals I should be shooting for or really any ideas on long term strategies for my financial situation. 

I'm 33 yrs old, married with twin 18 month old boys.  BS is Business Management, MBA with finance emphasis, currently employed as a financial analyst.  My ultimate goal is to retire at 55.  Here is my financial situation.
- 95k salary
- 150k in 401k (contribute 10%, employer matches 10% for a total of 20%, mainly in index funds)
- 20k in Roth IRA
- 50k in brokerage acct
- 20k in 529s for boys
- Primary residence mortgage 370k, market value 550k
- Rental property mortgage 100k, market value 150k, cash flows 200/mo
- Rental property mortgage 180k, market value 250k, cash flows 400/mo
- No other debt

It helps me stay focused when I have goals to shoot for.  I've seen a lot of people set goals based on net worth, considering my current situation, what net worth should I be shoot for in the next 5, 10, 15 yrs?  Any other ideas for goals?  Also, if this were your situation, what are some long term strategies you would employ?  Would you divest any of the properties?  Purchase more properties?  Focus on building cash reserves?  Etc.  To retire by 55 I'm thinking I'll need about 2.5M in cash or combination of cash and rental income that gets me about 100k annually.  There are a number of ways to get there, just looking for ideas.  Thanks!

GrowingTheGreen

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Re: Suggestions For Long Term Goals/Plans
« Reply #1 on: February 02, 2016, 08:16:14 PM »
I think you're doing fantastic! That 10% match is doing you wonders.

Goal-wise: what about getting your 401k up higher?

Personally, I worry about taking on such a large amount of debt when you pick up more than two properties. I realize that a lot of others don't have these same fears as I do though. If it were me, I'd just let the mortgages pay themselves off and focus on investing in the stock market. I'm sure there are others out here who will disagree with me on the rentals and I'd like to hear their POV.

DMAC

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Re: Suggestions For Long Term Goals/Plans
« Reply #2 on: February 03, 2016, 10:53:15 AM »
I think you're doing fantastic! That 10% match is doing you wonders.

Goal-wise: what about getting your 401k up higher?

Personally, I worry about taking on such a large amount of debt when you pick up more than two properties. I realize that a lot of others don't have these same fears as I do though. If it were me, I'd just let the mortgages pay themselves off and focus on investing in the stock market. I'm sure there are others out here who will disagree with me on the rentals and I'd like to hear their POV.

I've been considering upping my 401k contribution but have a couple reservations.  First, if my plan is to retire at 55 I'll need access to funds outside of my tax advantaged accounts so maybe I should increase my brokerage account holding instead.  And secondly, I'm not currently maxing out my Roth IRA and think I should do that before I up my 401k contributions.  Any thoughts?

I also have a hard time dealing with (mentally) the amount of debt tied to the rental properties.  Sometime I think it would be nice just to sell all my properties and buy a single primary residence and live mortgage free!  But that would certainly hurt my potential to increase my net worth.

aFrugalFather

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Re: Suggestions For Long Term Goals/Plans
« Reply #3 on: February 03, 2016, 11:10:39 AM »
Well, you can always do a ROTH conversion ladder to get your money out earlier (e.g., at 55) so that shouldn't be an issue right?

I'm not a real estate guru but I'd be worried about having two properties with such low cash flow.  A big expense like foundation, roof, etc. could really wipe out all your gains.  Just my 2 cents.  Have you been to the biggerpockets forums much and done a hard look at the return on your properties? 

You don't say how much your expenses are and if there are any anticipated life events that you may want to plan for like elderly parents or more kids?

cats

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Re: Suggestions For Long Term Goals/Plans
« Reply #4 on: February 03, 2016, 11:36:40 AM »
Hi, I'd like to get some ideas as to what long term goals I should be shooting for or really any ideas on long term strategies for my financial situation. 

I'm 33 yrs old, married with twin 18 month old boys.  BS is Business Management, MBA with finance emphasis, currently employed as a financial analyst.  My ultimate goal is to retire at 55.  Here is my financial situation.
- 95k salary
- 150k in 401k (contribute 10%, employer matches 10% for a total of 20%, mainly in index funds)
- 20k in Roth IRA
- 50k in brokerage acct
- 20k in 529s for boys
- Primary residence mortgage 370k, market value 550k
- Rental property mortgage 100k, market value 150k, cash flows 200/mo
- Rental property mortgage 180k, market value 250k, cash flows 400/mo
- No other debt

It helps me stay focused when I have goals to shoot for.  I've seen a lot of people set goals based on net worth, considering my current situation, what net worth should I be shoot for in the next 5, 10, 15 yrs?  Any other ideas for goals?  Also, if this were your situation, what are some long term strategies you would employ?  Would you divest any of the properties?  Purchase more properties?  Focus on building cash reserves?  Etc.  To retire by 55 I'm thinking I'll need about 2.5M in cash or combination of cash and rental income that gets me about 100k annually.  There are a number of ways to get there, just looking for ideas.  Thanks!

Just looking at your home and rental property values, I'm guessing you don't live in a super high COL area, so I am curious why you think you need a retirement income of $100k/yr....isn't that about 2x "average" household spending in the US?  Perhaps one goal could be looking at your current spending and evaluating options for cutting it by 5/10/15%, etc?  This would allow you to both save more and also reduce how much you need to retire (maybe retiring at 50 would become an option!).

DMAC

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Re: Suggestions For Long Term Goals/Plans
« Reply #5 on: February 03, 2016, 04:42:12 PM »
Well, you can always do a ROTH conversion ladder to get your money out earlier (e.g., at 55) so that shouldn't be an issue right?

I'm not a real estate guru but I'd be worried about having two properties with such low cash flow.  A big expense like foundation, roof, etc. could really wipe out all your gains.  Just my 2 cents.  Have you been to the biggerpockets forums much and done a hard look at the return on your properties? 

You don't say how much your expenses are and if there are any anticipated life events that you may want to plan for like elderly parents or more kids?

I've heard of a Roth conversion ladder, but wasn't quite sure of the mechanics of it, after looking into it I think that would work!

Yes, I admit the two properties don't cash flow well for investment properties, but they were originally bought as primary residences so I became an "accidental landlord" for both of them.  They are both less then 10 yrs old and one is a condo covered by an HOA so I don't expect any major expenses, and I do carry insurance on both of them.  But that is definitely something I looking for feedback on, does it makes sense to keep the properties?  Is there some kind of sweet spot as far time frame that I should think of unloading them?  Thanks for your input.

Outside of a mortgages my wife and I are very frugal with expenses of less than $500 a month.   My parents are in a good financial situation and I would anticipate a six figure inheritance down the road, but I don't consider that in my financial planning.

DMAC

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Re: Suggestions For Long Term Goals/Plans
« Reply #6 on: February 03, 2016, 04:50:11 PM »
Just looking at your home and rental property values, I'm guessing you don't live in a super high COL area, so I am curious why you think you need a retirement income of $100k/yr....isn't that about 2x "average" household spending in the US?  Perhaps one goal could be looking at your current spending and evaluating options for cutting it by 5/10/15%, etc?  This would allow you to both save more and also reduce how much you need to retire (maybe retiring at 50 would become an option!).

Yes, I live in a relatively low cost of living area.  I set the goal of 100k in retirement for a couple of reasons.  First, health costs, I'm a type 1 (insulin dependent) diabetic.  Right now I'm in good health, but watching my father who is also a type 1 diabetic deteriorate so quickly after he hit 60 made me think more of my future health costs.  Secondly, and some what related to the first, knowing my health will deteriorate rather quickly, my wife and plan to enjoy our retirement to the fullest while we can.  We plan to travel extensively and I plan to do a lot of golfing while I can :)  I doubt we will actually spend a full 100k in a year but I'd like to know it is an option if we wanted to.

Focusing on expenses is a great idea, I've been so focused on the revenue side of things I probably don't track expenses as well as I should.

ender

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Re: Suggestions For Long Term Goals/Plans
« Reply #7 on: February 03, 2016, 06:36:08 PM »
Quote
- Rental property mortgage 100k, market value 150k, cash flows 200/mo
- Rental property mortgage 180k, market value 250k, cash flows 400/mo

How are you calculating these cash flows?

The way these are written is raising my "not actually cashflow positive" senses.

bearkat

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Re: Suggestions For Long Term Goals/Plans
« Reply #8 on: February 04, 2016, 07:49:36 AM »
Quote
First, if my plan is to retire at 55 I'll need access to funds outside of my tax advantaged accounts so maybe I should increase my brokerage account holding instead.  And secondly, I'm not currently maxing out my Roth IRA and think I should do that before I up my 401k contributions.  Any thoughts?

You should verify this yourself with your company and the IRS, but I'm pretty sure that...
If you retire from your job between 55-60, you can access that job's 401k without penalty before 60. Therefore you don't even have to worry about a roth ladder if you really want to wait until 55 to retire.

DMAC

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Re: Suggestions For Long Term Goals/Plans
« Reply #9 on: February 04, 2016, 09:29:06 AM »

How are you calculating these cash flows?

The way these are written is raising my "not actually cashflow positive" senses.

I calculate it pretty simply taking my rents less 25% for maintenance less the total mortgage (p+i, taxes,ins, hoa, etc)

So for propertery #1
1800(rent)-450(maintenance)-950(total mortgage)  = 400 cash flow

Property #2
1100(rent)-275(maintenance)-625(total mortgage)  = 200 cash flow

I realize there are some that use a higher % for maintenance, but these are relatively new homes that haven't required anything thus far outside of cleaning and paint touch ups between tenants.

Is there another way I should be calculating it?

cats

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Re: Suggestions For Long Term Goals/Plans
« Reply #10 on: February 04, 2016, 10:32:34 AM »
Just looking at your home and rental property values, I'm guessing you don't live in a super high COL area, so I am curious why you think you need a retirement income of $100k/yr....isn't that about 2x "average" household spending in the US?  Perhaps one goal could be looking at your current spending and evaluating options for cutting it by 5/10/15%, etc?  This would allow you to both save more and also reduce how much you need to retire (maybe retiring at 50 would become an option!).

Yes, I live in a relatively low cost of living area.  I set the goal of 100k in retirement for a couple of reasons.  First, health costs, I'm a type 1 (insulin dependent) diabetic.  Right now I'm in good health, but watching my father who is also a type 1 diabetic deteriorate so quickly after he hit 60 made me think more of my future health costs.  Secondly, and some what related to the first, knowing my health will deteriorate rather quickly, my wife and plan to enjoy our retirement to the fullest while we can.  We plan to travel extensively and I plan to do a lot of golfing while I can :)  I doubt we will actually spend a full 100k in a year but I'd like to know it is an option if we wanted to.

Focusing on expenses is a great idea, I've been so focused on the revenue side of things I probably don't track expenses as well as I should.

Fair enough on needing to plan for health care costs and wanting to live it up while you can.  I'd still suggest some focus on expenses if you aren't scrutinizing them too closely now--you may find quite a bit of "waste" that you can trim without impacting your quality of life.  Given what you've mentioned about your health concerns, it sounds like you would get a lot of value out of being able to retire even earlier than 55.  Perhaps calculate your current expenses and then figure out how much you would need to cut back by in order to retire by 54, 53, 52, etc., then set a goal of cutting expenses by that much each year (or six months or quarter or even month, depending on how quickly you want to move on it).  There are lots of tips for living a frugal and fulfilling life on these boards, take a look around and decide which ideas might be most easily implemented by your family, then go from there!