DW and I have been having recent talks about exactly what to do with our extra money, what our realistic time horizon is for cutting back on work, what we value spending time/money on, etc. We sit down and have these talks every year or so, but this is our first year with a kid, so we are open to the idea that our goals may shift a bit considering our kid and the one or two more of them we may have. We have done a recent case study, so I won't go completely in depth with our numbers here, but this is the gist of where we are:
-$200k gross income
-Two rental properties that provide $18k cash flow annually after all expenses (we don't touch it currently and it continues to grow in a business account with the goal of purchasing more real estate investments)
-Ability to max out wife's 401k, HSA, IRAs for both of us, a 529 for our kid, and still more left over for taxable investments (~$70k total available for investments; taxable/non taxable)
-Only have mortgage debt and a small amount of student loans at very low interest rates.
If we follow the MMM investment order we are able to reach all 8 steps, but we can't really decide if it's what we want to do. We know that we lower our income tax burden, but we aren't necessarily convinced that we want to put all our money into so many accounts that have so many restrictions. With our current income and the pay increases coming barring any big issues, we could stop working completely and live off passive income if we did the following:
-Invest the minimum amounts to get company match in 401k and HSA.
-Invest all other money into VTSAX with the goal of some day drawing off of it to supplement our income.
-Use money that cash flows from rentals plus some of our Vanguard money to buy a similar rental each year.
In 7 years, at 40 years old, we would have:
-9 rentals giving us ~$80k in cash flow annually.
-$400k+ in VTSAX which would provide another $16k annually at a 4%SWR.
-$300k+ in 401k and HSA.
Sure, we would pay more in taxes now, but we'd have a ton of tax savings and depreciation from the rentals and only have to pay long term capital gains on the VTSAX withdrawals. That doesn't really seem that bad to me. We would be 40 years old and be able to have ~$100k spending annually, have paid down quite a few rentals substantially with the ability to cash out refinance indefinitely and use that for tax free spending if we wanted to. Not really a bad plan in my mind, but in no way does it follow the common investing steps for most FIRE people.
What do you think? Is this a bad idea? Did you FIRE people always follow the MMM investment order? Anyone else doing something similar??
