Good Afternoon fellow Mustachians,
Mr. and Mrs. MapleFarmer will be completing a one year professional excursion abroad in the next few years and anticipate saving at least an additional $120k during the period. Appreciate your ideas on how best to deploy this capital to generate semi-passive income so that at least one of us can transition from our current 50-70 hr/week employment to another professional pursuit, at potentially lower income.
Life Sit: Married couple filing jointly, early 30s, no children (two anticipated within five years, sooner if you ask Mrs. MapleFarmer). When in the U.S., we live in D.C., and we intend to return following the one-year assignment, so that one of us can maintain our employment and retain health care benefits as we begin to expand our family. We live in an area with good public schools and would likely stay in our current home if we remain in D.C.
Gross Income: Currently $175k, $85k for him, $90k for her. During the year abroad, that income will increase by ~50%. All income is fully taxable (including D.C. "state" income tax).
Pre-tax deductions: Both max out our TSP (401k), $36k total. Both have deductions for health, ss, fica, etc. Specific amounts aren't likely to impact your response to our query.
Roth: Both max out Roth IRAs, $11k total.
Rental Inc: Own a home with separate rental unit that generates $1,400 per month income (45% of mortgage). When abroad, we anticipate making necessary repairs or renting the entire home, which would more than cover the mortgage and maintenance. We will have no housing costs abroad. After mortgage interest ~($16,000) and depreciation ~($16,000) (among other things), we likely generate a loss of ~($2,400) if fully rented.
Adjusted Gross Income: $143k for 2015, this will increase as a result of the additional $100k-$120k income for the year (hence the need to minimize tax exposure).
Taxes: $21k Fed, $11k State, based on 2015 data. Will also increase based on increased income for the year.
Current expenses: Our savings rate is 35%, post-tax. Top spending categories are mortgage, travel, food, and home maintenance, including lots of DIY projects. We use google fi, have broadcast tv, local internet, etc. Bike to work daily, rarely use uber, rarely drive locally.
Mortgage: $487k balance (purchased for $695k in 2014) 30 yr fixed, 4.375%. Total PMT $3,100. P&I $2,621, Tax $400, Insurance $75.
Assets: $340k + home
Cash - $30k
TSP - $230k total, Mrs. $120k, Mr. $110k
Roth - $50k total
Old 401k - $30k
Home, ~$800k. No plans to sell.
Liabilities: Just the mortgage. Pay CCs in full. Have access to 100k heloc for liquidity, seldom use, always pay in full.
Specific Question(s): We anticipate a windfall of at least $120k (on top of our current salary and savings) as a result of this one-year, one-time professional opportunity. We recognize this is not a life-changing amount of income, but it could be leveraged to create a revenue stream that would enable at least one of us to leave our gov't employment and forgo the pension. Doing so would empower us to pursue an advanced degree, reduce/eliminate future childcare costs, contribute to a start-up, pursue a passion, take the time to build a small business, have more time for our marriage, pursue other rewarding professional experiences, etc. We considered using the money to pay down the mortgage, refinance, and reduce our monthly living expenses but at 4.375% pre-tax, we believe there are better ways to use this money.
a. How do you suggest we minimize tax burden (income will be spread over twelve months spanning two tax years)/offset this income?
b. What investments would you consider to generate semi-passive cash flow? We have experience with real estate investing and would be comfortable investing in more affordable markets but are also open to other vehicles.
c. For those of you who are planning to transition/have recently left a stable career (and lucrative pension for those willing to stay for 20 more years), what are the key decision points that enabled/will enable you to walk away? If you had a clearly crafted plan, did your execution closely resemble your plan?
d. For those who walked away without a firm plan, what would you recommend to others considering doing so?
e. What collective wisdom do our fellow Mustachians have to offer that we have failed to consider?
Thanks!
Mr. and Mrs. MapleFarmer