Author Topic: Case Study: Consolidating and what to do with the extra...  (Read 1402 times)

Janelle

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Case Study: Consolidating and what to do with the extra...
« on: August 10, 2017, 11:23:24 PM »
Hello MMM community! I've been reading the forums for a while, and am finally ready to get some real advice from all the amazing folks here. I can't wait to hear what you all recommend!

Background:
DINK – live in the highest COL possible, and we both commute to different colleges.
Me, 35 working on PhD,
DH, 32 working on MA

Our income has been highly variable in the last two years since we’ve both been getting through school. Info below includes what we will be making this year, rather than an average of past years. Our original goal was to break even upon completion of grad school, and we are well on our way to do that and then some, so I figured maybe we could start thinking about saving and investing more, since we have areas we could trim and goals to aim for after school is done.

Long term goals: Finishing our respective school programs has been a major bucket-list endeavor, and should be complete in 1.5 years if all goes well, 2 years if things take longer than planned. Once we graduate, our plan is to both get higher paying jobs (aiming to both get jobs in the $100k range, and this should be reasonable based on the current job market in our fields) and to move into a van or cabover camper and save 90% of our paychecks. This is admittedly mostly to see if we can do it and for the adventure rather than for the savings, but we hope to quickly build up our real estate, investment portfolios, and other passive incomes so that we can do some world travel a-la Arebelspy.

Budget:
Fixed Monthly Expenses
Rent: 1550
Power: 30 (monthly average, never goes higher than 40, sometimes as low as 25)
Phones: 23 (two republic wireless phones…thanks for this tip, MMM community!!)
Internet: 60 (cheapest rate we could get)
Car Insurance: 92 (covers two cars and two drivers)
Dog Food: 100 (rescues aged 9 and 10. Adopted when they were each 1 year old)
Laundry: 30
Gym: 90 (for two people; not non-negotiable, but something we get much value out of)

Variable Monthly Expenses
Food: 400 (highly variable based on how careful we are; has ranged from 700 to 200)
Gas/Commute: 320 (we’ve done the math many times, the lower rent we pay is worth the commute compared to what we would find closer to our schools, although we would always revisit this if it became worth it. We just haven’t found any other option).
Clothes: 40
Misc: 100 (again, highly variable, but last year’s average was right at 100)

Total: 2835

Projected Future School Expenses
Me: 850 in fees for 3 more semesters (2550)
DH: 4344 for 4 more semesters (17,376)

Total: 19,926

Liabilities/debts:
None.

Net Income (after health insurance):
Me: 3600 monthly (57,600 I get paid 8 months out of the year, potential for summer income)
DH: 3200 monthly
Right now, we live on DH’s paycheck, have a little left over, and put all my paycheck into the money market to pay for school fees.

Assets for short-term goals:
Money Market Account: $3,400 (all my paychecks go here, and we use this to pay school fees and as an emergency fund. Low balance now due to new semester, just paid fees, and because of a $2,000 dog vet emergency)

2011 Honda CRZ valued at $5,000
2005 Chevy Silverado valued at $3,500 (we don’t really consider these as assets, though, since we plan to keep them until they no longer run. Chevy sits in the driveway until we need to move big shit, and we just use the Honda and public transit for commuting to and from work/school).

Total: 3400, Needed: 19,926 (will be saved with my paychecks in 5.5 months)

Assets for medium term goals:
CD from high school: $1,630 @ 1.01%, matures 11/17 (serves as back-up emergency fund)
Savings Bonds from when I was little: maybe 500? (need to be moved into something else)

Total: ~$2000

Assets for old age:
Teacher’s retirement pension: $39,388 accrued acct balance (best I can tell) Not sure how to consider this as an asset. I have 9 years of time vested in this, but retired from teaching to do grad school full time. The convoluted algorithm used to calculate benefits is super confusing.

Crappy 403B annuities (two separate accounts): $13,084 and $12,030 (these were indexed annuities I started contributing to when I was 27 and stopped contributing to when I was 30)

Fidelity 401K account: $779 (gives me the option to cash out, roll over, or do something else with it in the next few months, since it is below the minimum)

Total: ~$65,281


The Questions:
1. What should we do about consolidating my “old age” assets? I hate those annuities. Should I try to roll them over into something else now that I quit teaching? Should I leave them alone? How do I consider the pension in the net worth?

2. Any advice on what we should be doing with the leftovers of DH’s paycheck? If we are careful, we can eek out about 100-200 extra a month from that. Shift it to the MM account or contribute to 401K or other…maybe a roth IRA?

3. Where should the savings bonds and CD go? I’ve had these funds forever, and they make almost nothing in interest, so there has to be something better I could be doing with them.

4. By February of next year, we will have saved enough to cover the rest of our school fees for the next two years. After that point, what suggestions are there for investing the rest of the money? Ideally, those paychecks would go toward a down payment on some real estate we can eventually rent out.

*Side note, our future plans do not include having kids. We intend to be DINK until FIRE and beyond :)

Thanks in advance!!


MDM

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Re: Case Study: Consolidating and what to do with the extra...
« Reply #1 on: August 11, 2017, 07:16:02 AM »
1. What should we do about consolidating my “old age” assets? I hate those annuities. Should I try to roll them over into something else now that I quit teaching? Should I leave them alone? How do I consider the pension in the net worth?
Yes, get out of the annuities ASAP if you are past the surrender fee time.

Quote
2. Any advice on what we should be doing with the leftovers of DH’s paycheck? If we are careful, we can eek out about 100-200 extra a month from that. Shift it to the MM account or contribute to 401K or other…maybe a roth IRA?
4. By February of next year, we will have saved enough to cover the rest of our school fees for the next two years. After that point, what suggestions are there for investing the rest of the money?
See Investment Order.

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3. Where should the savings bonds and CD go? I’ve had these funds forever, and they make almost nothing in interest, so there has to be something better I could be doing with them.
You might consider one of these online banks: http://www.magnifymoney.com/blog/earning-interest/best-online-savings-accounts275921001       

MrsWolfeRN

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Re: Case Study: Consolidating and what to do with the extra...
« Reply #2 on: August 11, 2017, 07:56:44 AM »
Go to treasury.gov and look up the value and interest rate on your savings bonds. I have some from the 90s that are  paying 4-6%, Also check to see if there is a point where they are guaranteed to double. Some issue years have a guarantee so even if the rate is 1%, you will get a lump sum after a certain number of years. For the ones you decide to sell, keep in mind that interest is only added once every six months, so you want to time it so you don't lose several months of interest.

I would get rid of the annuities and also the CD once it matures. The annuities can be rolled over into a tIRA at Vanguard. Use the CD money plus any surplus to fund a Roth IRA. You can pull Roth contributions (but not the earnings) at any time if there is an emergency.

MrsWolfeRN

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Re: Case Study: Consolidating and what to do with the extra...
« Reply #3 on: August 12, 2017, 07:58:36 AM »
I forgot to mention that certain issues/years of bonds are tax-exempt if used for higher education.

Janelle

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Re: Case Study: Consolidating and what to do with the extra...
« Reply #4 on: August 12, 2017, 09:31:38 AM »
Thanks both of you for these suggestions! Would the tax break on the bonds be significant enough to use them for school fees? I believe that's what they were for but they've been sitting in my parents' closet for my entire life. I'll have to  dig them out next time I visit and do some research. I imagine there's no such thing as rolling a savings bond over into something else...

Wrt the annuities, any advice on where to start? All the paperwork I have on them don't show whether or not I can do something with them. There was a thread on this somewhere in the forums, but I can't seem to find it.

If I move the CD to a Roth, do I pay interest on the earnings?

MrsWolfeRN

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Re: Case Study: Consolidating and what to do with the extra...
« Reply #5 on: August 12, 2017, 11:01:11 AM »
With the bonds, it all depends on the series and year they were issued. Most are exempt from state but not federal tax, but certain years are exempt from federal tax if used for education. The website lays out which years are which. Your first step is to see what you have. You can type in the serial number to find the current value, interest rate, and when interest will be paid

I have never dealt with annuities.

I don't know if you can move the CD to a Roth without cashing it out first. The interest will not be very much. I would just cash it once it matures and then start a Roth with Vanguard. Read J Collins stock series in the meantime to learn about different " buckets".

Lobo

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Re: Case Study: Consolidating and what to do with the extra...
« Reply #6 on: August 13, 2017, 01:03:21 AM »
Since the annuities are in a 403b - are they actual annuities or are they the commingled annuity-like savings products offered in many tax advantaged retirement plans.  You should be able to get information about the annuity product from the 403b sponsors website.

Janelle

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Re: Case Study: Consolidating and what to do with the extra...
« Reply #7 on: August 14, 2017, 02:32:41 PM »
One is a tax sheltered annuity, and the other seems to be an annuity-like savings product. After doing some digging, I am learning that both are earning in the 2% range and I am unable to dig up what the fees are. I know some kind of agent gets a fee from them, but it's nowhere to be seen what that is. Uugh!

Tried to roll them over to an IRA, but it's not going well.

Baby steps...


MDM

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Re: Case Study: Consolidating and what to do with the extra...
« Reply #8 on: August 14, 2017, 02:59:52 PM »
One is a tax sheltered annuity, and the other seems to be an annuity-like savings product. After doing some digging, I am learning that both are earning in the 2% range and I am unable to dig up what the fees are. I know some kind of agent gets a fee from them, but it's nowhere to be seen what that is.
Did you purchase them through an individual, or did you do everything online without talking to a person?

If there was a person involved, tell that person what information you want.  E.g., surrender fee schedule if any; exact formula for calculating annual interest credited to you, given whatever is needed as formula inputs; etc.

See also Mom made a mistake? Annuities - Bogleheads.org.