What now?

[Unique User]

We are 2 earners, 48 and 55 with a 16 year old and a dog.  We had a pain of a rental property that we unloaded this year, will have to pay $10k in capital gains which is not counted since I’ll pay from the biz account, but we’re just glad it’s gone.  Income just hit that this year, we had a couple years with steep increases.  I don’t see that we’ll go much higher – this is definitely the peak and seems kind of unlikely to me anyway.  We’ll be able to see the approx. $1k in rental income per month, was always eaten up in the third property before.

I feel like we aren’t doing badly after I took stock in 2010 – then we were at $80k in income and maybe $400k in assets.  Couple things I’m unsure about:

1.    If college will be around $24k, we only have 1.5 years saved. I can use Roth IRA contributions and continue to fund 401ks and it seems like we could also cash flow based on current income.
2.   We’d like to quit mid 2021, sell all the houses, buy an RV and see the US for a year or two.  I’d like to think we can earn enough to pay for expenses and not tap into any funds until end of 2024.  I have the germ of a plan, but it’s not well thought out.  Expenses less mortgage is $3,500 – plus there is another $450 in teen expenses and $180 in life insurance that will be gone at some point. 

Questions are:
1.   What do I do with the approx. $2k extra a month we will have starting in January? Fund college?  Taxable accounts?  Use some for more travel (our passion?).  We also will have $1k a month in rental income that I don't know what to do with either. 
2.   What to do with rental properties, one used to be my house and has needed work lately.  Should we sell the rental properties now and just suck it up on taxes?  Husband thinks we should sell and 1031 into a duplex that we rent with the intention of eventually moving into, but we have no idea where we want to live.  Just do the easiest thing and keep them (my personal fav as I don't have time to think about what to do with them)?
3.    Is that too much in cash, what do we do with it?
4.    Does quitting in mid-2021 seem realistic?

Income
Gross = $174k plus $15k in bonuses in 2017 (bonuses not guaranteed)
After Tax  = ~$150k
401k x2 = $42,000 (both maxed, 5% and 3% employer matches, his goes up to 9% next year)
Roth x2 = $12,000
ESPP = $3,200 (switched jobs, had to wait to enroll in new plan)
HSA = $6,750
Net = $86,450

Assets
His 401k and IRAs-$388,812
My 401K and IRAs-$357,607
Other (three ESPPs, Putnam)-$125,467
Cash - $89,000
Two Rental Properties-$478,000  (#1 rent $1,650, mortgage T&I $1,280, #1 rent $1,150, T&I $160)
Two Rental Properties Loans-($175,459)
Primary House-$375,000
Primary House Loan-($253,687)
Total $1,380,740
Not Counted - College funds - $36,000

Expenses
Monthly Net = $7,204
Health/dental/vision insurance-$338
Limited FSA Contribution-$126
Life insurance-$183
Groceries/wine/sundries/toilet paper/etc-$545
Restaurants/take-out - $65
Entertainment-$35
Haircuts and personal care-$40
Gifts and holidays-$100
Clothes and dry cleaning-$45
Mortgage, taxes, insurance & HOA-$1,670
Electric, gas, water, propane, cable, netflix, internet -$350
Car (gasoline, taxes, license, insurance) -$150
Dog (kennel, prescriptions, food)-$75
miscellaneous-$40
House Cleaning - $200
Auto repairs/maintenance-$75 (7 year old Rav4, 90k miles)
Medical-$180
Travel-$400 (Trip to Cuba, two trips to visit family, two regional college visit trips)
Charity-$100
Teen Activities, Entertainment, Makeup, Clothes, Etc.-$125
Teen Sports Team & Tournaments/Tutoring-$125
Teen School Europe Trip-$215
Left = $2,022 per month

House upgrades ate all the left $2k a month this year as we refinished wood floors, refaced cabinets and repaired years of outside and inside neglect.  The house is pretty much done at this point with the exception of may need a new HVAC, it is all repainted, wood rot done, 30 year old carpet replaced, etc. 

Cringing for the face punches. We’ve had some lifestyle inflation, like housecleaners, but I work 60 hour weeks and I think (?) we can afford it.  The grocery line includes all food, toiletries, toilet paper, cleaning supplies, etc.  I’m too lazy to separate.  Our water and power are expensive – we get killed with an over $100 a month water bill even though we have low usage.  Medical was high this year, included one ER bill when the teen was on her own out of state which was ridiculous. No cell phone charges as our companies pay for these, second car is a company car so no cost there either.  Other things like clothes seem high, but we’ve gone for years with spending nothing and wardrobes are worn out.  Teen just got a job and she is a consumer – expecting her line to go down as she funds some of her own ridiculousness.  She is an only and likes to hit us with "needs" when we are out. 

[MDM]

Questions are:
1.   What do I do with the approx. $2k extra a month we will have starting in January? Fund college?  Taxable accounts?  Use some for more travel (our passion?).  We also will have $1k a month in rental income that I don't know what to do with either. 
2.   What to do with rental properties, one used to be my house and has needed work lately.  Should we sell the rental properties now and just suck it up on taxes?  Husband thinks we should sell and 1031 into a duplex that we rent with the intention of eventually moving into, but we have no idea where we want to live.  Just do the easiest thing and keep them (my personal fav as I don't have time to think about what to do with them)?
3.    Is that too much in cash, what do we do with it?
4.    Does quitting in mid-2021 seem realistic?

1. Seems you are doing most of the usually suggested things.  Do either of you have access to a mega backdoor Roth?

2. Limited experience with rentals so deferring to others.

3. It's a little on the high side, but not at all ridiculous.  If you can use a mega backdoor Roth, the current cash account could be used for living expenses while putting a large amount into Roth accounts.

4. What sayeth the simple "Time to FI?:" calculations in the case study spreadsheet and, more importantly, more sophisticated tools such as ones mentioned in Best and/or Recommended Retirement Calculator - Bogleheads.org?

[KungfuRabbit]

Elaborate on college, $24k per year or total, how many years?  Big difference between state and private and trade schools.

For the cash there is one option many people may disagree with. I'm assuming you don't want to put it in the stock market since there is short term risk of losses (if that's wrong, put it in broad ETFs). If you really plan on selling the houses in a few years you could use the cash to pay down the mortgage. It would be a very safe place and you'd "make" a guaranteed 4% return while it's there, way better than a standard 0.01% savings account or 1% CD right now.

[reeshau]

One thought on disposition of the rentals:  you wonder what to do with them, and would like to keep them.  But your first retirement dream is RV'ing across the country for a year or two.  Are you managing these yourself today?  At the very least, you need to look into a management company to do this for you.  (and have trust established with them before you leave)  At worst, if you think rentals are a pain, wait till you have long-distance rentals.  In some cities, it's not allowed--a local agent is required.  But for sure, distance won't stop late night repair calls, showings for new tenants, inspection headaches, etc.

It seems that, given these thoughts together, 2021 is right around the corner.  I think you either need to close this chapter in your life or configure this business to be successful without you nearby or readily available.  (which could be the case, since your RV dreams are short-term; a management company could be reversed or modified when you return)  Remember, many of the best places to go with an RV have no cell phone service!

[Unique User]

MDM - Thanks for the links, I'll check those out.  I'm unsure and to be honest totally confused as to how a mega backdoor roth works.   I don't think either of us have that option, but I'll look. 

KungfuRabbit - for college our two state schools are $24k per year.  Our income and assets mean no subsidized loans for her so unless there are scholarships - which she is applying for a bunch of random ones that have to do with girls in STEM and golf - we expect to pay the full amount. 

Reeshau - We are managing the rentals ourselves today and both are in a city two hours away from us.  We had long distance rentals for two years (several states away) and I hated it.  You are right, I need to work toward a resolution.   I hate the idea of paying capital gains and realtor fees, but maybe it just has to be done.