What would you do in my situation?

[CABE]

Hi,

I am new to the forum -- this is my first post -- although I have been reading the blogs and posts on this site for some time.  I both enjoy and respect the views and choices of MMM.

My wife and I (him 42, her 33) have no debt other than our house (about 28 years left at 3.625% -- owe just over $320,000) and our rental.

Topic Title: Would you pay off the rental, max out 401Ks, fund a taxable account to use at age 51, or other to create the most flexibility by age 50/51 for him?

Income: We own a rental that cash flows well -- approximately $10,000/year with minimal expenses over the past 15 years.  We currently earn $125,000/year and typically receive 3.65% COL raises each year.

Current expenses: Our monthly expenses are typically $6100.  Our taxes are low because of three kids, the large mortgage, and because of the rental.

Assets: The rental?
Liabilities: The rental?
We owe just over $136,000 on it at 4.5%.

I will receive a great pension ($5122/month) in 8.5 years that would mostly pay our bills; I enjoy what I do yet when I think in financial terms I would like to create a flexible plan that would allow me to retire from my current job at that time (8.5 years) and either just be dad or work when I choose. My wife would likely keep working although I wouldn't mind creating a situation where she could have lots of flexibility. I realize how fortunate we are to even consider all of this.

We consistently max out our ROTHs (typical lazy three-fund portfolio)(each about the same total, $56000 total) and put money in our 401Ks (good Target options with low costs) (just started maxing his this month with $114200 balance, $17500 for hers because can access earlier, hers can grow).

I want to create a situation where my pension and a bit more ($1000-2000/month) is in place in 8.5 years to create flexibility. We do not live large although we would like to be able to do more and more travelling as our kids get older. Our house payment is good-sized, too. We have three young children (6, 3, 1).

Specific Ways (Questions) of Putting It:
Scenario #1-
I could continue to max my 401K for the tax benefits and accumulation.  I'd have more money, in total, at the age of 51.  Yet I don't think I can access it until...what, 55?  I could draw ROTH contributions in this scenario if needed.

Scenario #2-
I could cut my 401K contribution to $400/month for now and slowly increase it with each COL raise per year.  I'd use the difference (Max 401K now at $1500) so could take $880 difference (1500-400=1100 x 80% for taxes=$880) to pay off rental in 8.5 years.

Scenario #3-
Same as #2 above except use $880 to fund taxable ETF account to accumulate enough money to potentially pay off rental in 8.5 years or earlier.

Or maybe there is a better plan and that's why I'm asking for advice.  I hope all of this makes sense and I appreciate feedback in advance.

[lpep]

I think you'll get more useful responses if you post balances of your investment accounts. You can withdraw your contributions from a Roth IRA penalty-free even before you turn 59, but will that be enough for you? I don't know about 401(k) withdrawals, but I do know you can roll a 401(k) over into a Vanguard t-IRA and then, when you are in a lower tax bracket after you've retired, you can withdraw and put that in a Roth for tax-free growth over the years your wife is still working (hope that makes sense).

Other than that, you sound like you're in really fantastically good shape. I would be nervous relying on one real estate investment to fill out your income, but you have back-up options, especially if your wife keeps working... it sounds like you'll have the pension plus rental income plus wife's income plus Roth withdrawals, so you'll be just fine whatever you do.

[MDM]

CABE, welcome to the forums.

As lpep said, you'll get better replies if you can provide more details.  See http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-'case-study'-topic/.  Read the whole thread.

At the least, start with gross income (both salaries and rental), then list taxes and expenses as you see fit.  Add current assets.

Good luck!

[arebelspy]

Definitely max the 401ks before paying off mortgages that low.

[MDM]

Scenario #1 appears best, especially if cash flow from the rentals and pension will pay your annual expenses.

[CABE]

Scenario #1 appears best, especially if cash flow from the rentals and pension will pay your annual expenses.

Definitely max the 401ks before paying off mortgages that low.

Thanks!  I appreciate y'all taking a minute to read my post.