Author Topic: Single mom semi-retired?-- help with where to invest cash savings  (Read 1503 times)

RadRabbit84

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Life Situation: 35 year old single mom with a 2-year old, I file head of household, do not take any childcare tax credits since my kid is never in childcare. We live in California.

Gross Salary/Wages: Self-employed and work from home. My income is incredibly variable across the year, but I estimate I will make approximately $26,000 before business expenses of about $4,000.

Individual amounts of each Pre-tax deductions I project that I will be able to write off approximately $4,000 for business expenses in 2018. I also plan to make a contribution to my IRA this year, of approximately $5,000 or as much as I can afford. Iíll make the contribution to my Roth IRA if my net income is below $22k, or I will make it to my traditional IRA if my income is above that amount, so that I can use it as a tax deduction on my income so my family can remain on Medi-Cal which has an eligibility income maximum of $22,108. I think this is correct, based on some basic research I have done, but please correct me if I am wrong!

Other Ordinary Income: I receive $900 a month in child support from my sonís father. These funds are not included in my taxable income per IRS rules.

Qualified Dividends & Long Term Capital Gains:  Not very significant. I had about $50 in interest, $20 in dividends and $800 in capital gains in 2017, and would expect something similar in 2018.

Rental Income, Actual Expenses, and Depreciation: None.

Adjusted Gross Income: Projecting approximately $27,800 in 2018, of which only $17,000 should be subject to IRS taxation (given that the recipient is not taxed for child support).

Taxes: I havenít calculated them for 2018, but I expect fairly minimal given current low income; in previous years, I was married so that past information would not be very relevant here.

Current expenses:
Rent: $500
Utilities (electric, gas, water, garbage): $120
Internet: $71
Grocery: $350 (mainly organic)
Restaurant/snacks while out: $50
Gas: $90
DMV annual renewal: $13
Car service: $26
Massage and acupuncture: $195 (This is the only time I get a break, considering that I am always with my kid 24/7 or working.)
Clothes/shoes: $25
Child clothes/shoes: $50 (I try to shop at thrift stores for both of us, but good-quality shoes for wide feet are impossible to get used)
Child educational books, toys, activities, swim lessons: $180
Cell Phone: $35 (I have ting so it is often less, my last bill was $25, but it is often closer to $35)
Rental Insurance: $11
Car Insurance: $62
Roth IRA: $458 (planning on making the deposit at the end of year, depending on total real income for the year)
Vacations/ travel (1-2 trips a year to visit family and friends): $100
Dentist and out of pocket medical: $60 (This is mainly dental, as our medical expenses are currently under Medi-Cal, so we have no premium and minimal out-of-pocket costs).
Business Expenses: $168 (this is additional to the % of my housing costs that I can deduct for my home office)
Miscellaneous: $40
Savings (currently just going into regular bank savings account, will put as much as reasonable into sonís 529 college savings at the end of the year): $200 (this is more on months when I get bonus money from relatives for birthdays, Christmas, etc.)
Total: $2804

Expected ER expenses: Close to the above at $2,000 a month (minus business expenses, savings, and Roth IRA contributions).

Assets:
Bank: $200,000 across savings and CDs. This is getting almost no interestóso bad, I know, but it was being held onto for a down payment on investment property. I have since decided not to buy any real estate since there is not much locally that seems to work out beneficially according to the calculations that people on this forum propose for investment real estate, and I donít feel comfortable buying property that I couldnít get to easily in an emergency, even with a management company.
Rollover IRA: $100,000 (using Schwab Intelligent Portfoliosóprojected balance of almost a million in 2035.)
Roth IRA: $40,000 (split about 50-50 between SCHA and SWPPX)
SEP IRA: $75,000 (split about 50-50 between VGTSX and VOO)
Car: An old beater, currently worth around $3,000. Not great gas mileage, but I drive around 5,000 miles a year and mainly bike for errands around home.
(I am also likely to inherit over a million in property/cash when my parents pass. They are currently in their 70s and likely to live long, healthy lives into their 90s. I am not counting on this inheritance in my calculations, but it does provide me with some level of additional financial reassurance.)

Liabilities: None.

Specific Question(s): Iím looking for advice on what I should specifically do with my cash, as well as any feedback on where my current retirement funds are, since I can move them around (however, I do need to keep my taxable income under 22,108 this year since we are on Medi-Cal). I am not risk-adverse and can weather large drops in my savings with the stock market (mostly because I donít really monitor my accounts often and I have no time to follow the news).

I want to mainly stay home with my kid, so Iím not maximizing my income. If I was to move to a big city (and leave my low-cost rental situation), I could likely make about $100,000 a year, but would have to put my kid in daycare full time and my expenses would also skyrocket. I would prefer to keep my expenses low (and my income low) and spend as much time as possible with my kid. I currently work about 10 hours a week from home (mainly when my kid sleeps) so I do not need to put her in childcare. Iím thinking if I can keep my current spending within my current income and not touch my savings (and put my cash savings somewhere where it can grow better), then I should be able to fully retire in 15 years or so? Does my current plan seem reasonable?

Thanks in advance for reading and any feedback!

onlykelsey

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Re: Single mom semi-retired?-- help with where to invest cash savings
« Reply #1 on: August 04, 2018, 11:20:34 AM »
Welcome!  I don't have much advice to give, but I do wonder how predictable the $900/month is.  I know California law is unique in this, but what would happen if he were to be disabled? take a lower-paying job?  Say "FU" and run?  I would definitely adjust my plan for the rest of my money based on the answer to those questions.

I also wonder what your insurance situation is.  Have you looked in to life or disability insurance?  It may be worth considering, and then worth figuring in to your plans.  I also feel like you should consider adding some padding to your post-RE budget for health insurance, but maybe that is just me being pessimistic. 

As for the 200K, the classic answer here is to invest in low-fee index funds a la VTSAX.  That's mostly what I do. I'd put in as much as is not in a CD now, then put the CD money in as they mature, except for maybe 20 or 30K which I'd keep in savings or maybe some in a money market set up.

MrThatsDifferent

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Re: Single mom semi-retired?-- help with where to invest cash savings
« Reply #2 on: August 04, 2018, 04:15:26 PM »
Well, youíre doing quite well actually. When I first saw your income, I was concerned but your assets arenít that bad. As suggested, Iíd move that money in the bank account to a Vanguard account. Youíve got a net worth of around $400k now. If invested money doubles every 10 years, thatís $800k. Your expenses are for retirement are $24k a year, so you need $600k. Boom, youíre there! And then some.

Obviously when your child is in school youíll be able to work more if you choose, which you may want to to help with his college. Otherwise, I think youíre set up well and should be able to retire weíll before 15 years, if you want to.

Good luck!

Oh and I would do as suggested above, take $20k and put in a high interest savings account with minimal fees solely as emergency funds. Invest the rest and let it grow.

MDM

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Re: Single mom semi-retired?-- help with where to invest cash savings
« Reply #3 on: August 04, 2018, 04:39:21 PM »
Taxes: I havenít calculated them for 2018, but I expect fairly minimal given current low income; in previous years, I was married so that past information would not be very relevant here.
If your 2018 income matches what you expect, your AGI will be below $22K but you might still contribute as much to a tIRA as you have in interest, dividends, and capital gains. 

What that does it get your AGI down to the same as your earned income, and gets you the maximum Earned Income Credit.  From a quick look using the case study spreadsheet, you would save ~18% (2% from CA and 16% from the EIC) on those tIRA contributions.

cchrissyy

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Re: Single mom semi-retired?-- help with where to invest cash savings
« Reply #4 on: August 04, 2018, 05:18:12 PM »
you're in good shape!


as far as contributing to IRAs, it sounds like you haven't considered a SEP or SIMPLE IRA for your self employment income.  The limit for a SEP is 25% of your annual business profit, so in this case 1/4 of $22k = $5500. This comes off your income like another business expense and is *in addition* to the $5500 you can put in your traditional or Roth IRA. You have until april to deal with this but in your shoes I'd do it right now for 2018 and again in 2019, as soon as you're sure what your income will be.

I agree with the others who say your bank money should be in a normal brokerage account. Set aside an emergency fund ($20k? about 1 year's expenses?) and put the other 180k in something boring like the total market index. If you don't have a normal schwab brokerage account yet, I'm sure you can get one online quickly as an existing customer. There won't be any fees.

lhamo

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Re: Single mom semi-retired?-- help with where to invest cash savings
« Reply #5 on: August 04, 2018, 05:39:01 PM »
Re: maintaining your eligibility for Medi-Cal, if the system there works the same as it does here in WA, since you are already on the program you should not be kicked off due to irregular investment income that occurs less than two months in a row.  So technically as long as you are only getting quarterly or less frequent dividends on your investments, you should be able to stay on the program even if that investment income technically would put you above the yearly income totals.  I would make an appointment with a Healthcare Navigator to verify that this is the case in CA, but that is what I was told by mine here in WA.

I also have a lump sum I need to get invested, and am leaning toward putting it in a Vanguard fund that only pays annual dividends.  That way I only need to report the extra income once a year.  I'll space any Roth conversions we decide to do out as well.

RadRabbit84

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Re: Single mom semi-retired?-- help with where to invest cash savings
« Reply #6 on: August 04, 2018, 08:04:58 PM »
Welcome!  I don't have much advice to give, but I do wonder how predictable the $900/month is.  I know California law is unique in this, but what would happen if he were to be disabled? take a lower-paying job?  Say "FU" and run?  I would definitely adjust my plan for the rest of my money based on the answer to those questions.

I also wonder what your insurance situation is.  Have you looked in to life or disability insurance?  It may be worth considering, and then worth figuring in to your plans.  I also feel like you should consider adding some padding to your post-RE budget for health insurance, but maybe that is just me being pessimistic. 

As for the 200K, the classic answer here is to invest in low-fee index funds a la VTSAX.  That's mostly what I do. I'd put in as much as is not in a CD now, then put the CD money in as they mature, except for maybe 20 or 30K which I'd keep in savings or maybe some in a money market set up.
Thanks for the advice. If the child support decreased or cut off, I recognize that I would need to change my spending and I think I could do that reasonably at that point— or by increasing my income. I’ll also look into life insurance and post-RE health insurance— good points.


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RadRabbit84

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Re: Single mom semi-retired?-- help with where to invest cash savings
« Reply #7 on: August 04, 2018, 08:06:22 PM »
Taxes: I haven’t calculated them for 2018, but I expect fairly minimal given current low income; in previous years, I was married so that past information would not be very relevant here.
If your 2018 income matches what you expect, your AGI will be below $22K but you might still contribute as much to a tIRA as you have in interest, dividends, and capital gains. 

What that does it get your AGI down to the same as your earned income, and gets you the maximum Earned Income Credit.  From a quick look using the case study spreadsheet, you would save ~18% (2% from CA and 16% from the EIC) on those tIRA contributions.
Thanks for this information— I’m going to look into it!!!


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RadRabbit84

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Single mom semi-retired?-- help with where to invest cash savings
« Reply #8 on: August 04, 2018, 08:07:45 PM »
I really appreciate everyone’s replies and advice. I’ve been struggling for a while, and I feel so blessed to have stumbled into this wonderful community!
« Last Edit: August 04, 2018, 08:09:57 PM by RadRabbit84 »

RadRabbit84

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Re: Single mom semi-retired?-- help with where to invest cash savings
« Reply #9 on: August 04, 2018, 08:08:53 PM »
you're in good shape!


as far as contributing to IRAs, it sounds like you haven't considered a SEP or SIMPLE IRA for your self employment income.  The limit for a SEP is 25% of your annual business profit, so in this case 1/4 of $22k = $5500. This comes off your income like another business expense and is *in addition* to the $5500 you can put in your traditional or Roth IRA. You have until april to deal with this but in your shoes I'd do it right now for 2018 and again in 2019, as soon as you're sure what your income will be.

I agree with the others who say your bank money should be in a normal brokerage account. Set aside an emergency fund ($20k? about 1 year's expenses?) and put the other 180k in something boring like the total market index. If you don't have a normal schwab brokerage account yet, I'm sure you can get one online quickly as an existing customer. There won't be any fees.
Thanks for the morale booster. And your advise sounds solid and reasonable for the $200k!


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RadRabbit84

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Re: Single mom semi-retired?-- help with where to invest cash savings
« Reply #10 on: August 04, 2018, 08:11:15 PM »
Re: maintaining your eligibility for Medi-Cal, if the system there works the same as it does here in WA, since you are already on the program you should not be kicked off due to irregular investment income that occurs less than two months in a row.  So technically as long as you are only getting quarterly or less frequent dividends on your investments, you should be able to stay on the program even if that investment income technically would put you above the yearly income totals.  I would make an appointment with a Healthcare Navigator to verify that this is the case in CA, but that is what I was told by mine here in WA.

I also have a lump sum I need to get invested, and am leaning toward putting it in a Vanguard fund that only pays annual dividends.  That way I only need to report the extra income once a year.  I'll space any Roth conversions we decide to do out as well.
Thanks so much for this information. I’ll try to get an appointment with a healthcare navigator soon. I’m so new to all of this, that this kind of advise is so helpful. And so appreciated!!!!


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lhamo

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Re: Single mom semi-retired?-- help with where to invest cash savings
« Reply #11 on: August 05, 2018, 08:14:22 AM »
Thanks so much for this information. Iíll try to get an appointment with a healthcare navigator soon. Iím so new to all of this, that this kind of advise is so helpful. And so appreciated!!!!


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No problem -- happy to help.  People have a lot of outdated ideas about how Medicaid works, based on pre-ACA stuff or how it still is in states that didn't opt in to the expansion.  For those in expanded states it can be a great program.  I am so glad I made the initial appointment with a navigator -- I was going in to put my DD on our ACA plan when she told me we qualified.  No asset test, they only look at current monthly income.  Blew me away.  And has saved us thousands of dollars.

Calvawt

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Re: Single mom semi-retired?-- help with where to invest cash savings
« Reply #12 on: August 06, 2018, 08:46:35 AM »
when you make the appt, ask about Denti-Cal as well.  We serve 70%+ Medi-Cal patients and are able to provide dental services as well.  Not sure if there is a separate enrollment process, but at least you know you likely qualify.  Finding dentists who take Denti-Cal is another story though....

mamabear18

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Re: Single mom semi-retired?-- help with where to invest cash savings
« Reply #13 on: August 08, 2018, 12:42:20 AM »
Wow! First of all congrats on all that saving and I am so impressed that are doing all you can to stay at home with your son. Itís nice to see that when most people would go the daycare route. My husband stays home with our 2 kids- we live in CA too so I understand your situation.  I have a 4 year old boy- have some shoes ( gently used) and new that I can send you. Iíve just been holding on to them- was going to sell them but would rather give them to you. Also have clothes, toys etc. if you are interested-  I live in LAarea- could drop them off at a public library or send to a P.O. box if they take packages.