Author Topic: No return from money under the mattress - what should I do with it?  (Read 3593 times)

stickynotes

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Hi All - Would love your thoughts on a brewing household question.

We're only mini-mustachians. We're frugal and we make good incomes, but we don't have any plans to retire immediately. What we would like is two things: (1) to know we  *could* retire anytime we wanted and (2) make sure we're not missing some savings vehicle or tax break we're going to trip on in ten years and kick ourselves over.

So here are the top-secret stats:

  • Married, mid-thirties, joint HHI $310K (+bonus, but we don't count it)
    $30K (net) from rental properties after mortgages, maintenance & repair accrual
    Primary residence mortgage, 30-yr fix @4%, appraised for $1.1M, mortgage outstanding $540K. Mortgage payments $3100 (we wash this with rental income so effectively we live for free)
    Monthly expenses $5000 (mostly travel, we accrue monthly)
    401K + SEP IRA maxed every year
    Roth IRA maxed, now ineligible.
    Maxed 529 (for future mini-mmm, coming this summer)
    $1.15M liquid savings (includes 401Ks) - mostly in low cost index funds, some mutual funds
    6 month emergency fund, in cash
    No debt, no student loans, no car payments
    Keep additional $50K on hand for rental repair emergencies, in cash

We live pretty far below our income. For the past couple of years, we've been buying property. But we think we're exposed enough and we're at the limit of what we can manage ourselves. Our biggest unknown is private school and my inlaws, who might need a little economic outpatient support at some point in the future (I'm not paying for them to play golf, but I can't let them starve). If we want to stay in our area, we're probably going to have to pony up for private for the mini-mmms. At $23K/year, that's a little spendy. How do we save for that? And since we don't even have kids yet, what should we do with the rest of the 'stache?

Would love your thoughts.





 


4alpacas

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Re: No return from money under the mattress - what should I do with it?
« Reply #1 on: March 13, 2015, 03:47:02 PM »
Quote
Roth IRA maxed, now ineligible.

http://www.bogleheads.org/wiki/Backdoor_Roth_IRA

waltworks

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Re: No return from money under the mattress - what should I do with it?
« Reply #2 on: March 13, 2015, 09:23:15 PM »
You can retire anytime, if that's the main question. Time to start posting in the post-FI forum, honestly. You have a money firehose going, investing in anything vaguely legit (read: not bitcoin or rubles) you want will work fine.

Sounds like you have much less of a handle on what you want for your life (and your kids), though. So I'd stop thinking about the money so much and think about bigger questions. Just the fact that you are already mid-30s and want but don't have kids is ringing alarm bells - if that's a priority, you need to make it a priority. Getting pregnant is not a slam dunk, especially mid-30s and on.

A small quibble, you don't "live for free" because you have income from real estate that pays about as much as your mortgage. I could dig ditches, or invest in bonds, or have rentals, or whatever, and the income is just income. You can choose to spend it on an expensive house, or bitcoins/rubles, or not spend it. Don't use this "wash" term, it's crap. Money is fungible.

To sum up: stop thinking about the damn money. You do not have a money problem. You have a WTF do I want from life problem.

-W
« Last Edit: March 13, 2015, 09:26:20 PM by waltworks »

Chrissy

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Re: No return from money under the mattress - what should I do with it?
« Reply #3 on: March 13, 2015, 11:36:29 PM »
Taxable investment account.  It's not clear to me whether you have one or not... is that covered in your $1.15M liquid savings section?  A taxable account could cover private schooling and parental EOC, since both are long-term goals.

You say Mini MMM is coming this summer, but later you say you don't have kids.  Are you pregnant now?  Or will you start trying this summer?

BTW, how much slush do you have every month that doesn't go into tax-advantaged accounts or expenses?

stickynotes

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Re: No return from money under the mattress - what should I do with it?
« Reply #4 on: March 14, 2015, 06:23:14 AM »
Thanks guys so much for the replies.

a) I think we do have a life problem. We have never really considered the idea of retiring early. I don't really know what we would do and we both love our jobs. But I think we're both addicted to concept of "freedom to choose to work", if that makes sense.

b) I am pregnant - we're having our first kid in June - hence the macro money agonizing and 'what-are-we-doing-with-our-lives' questions.

c) We pull around $5K/month into savings, plus an additional $1.5K that goes to the rental maintenance account in case something major happens. For the past 7 years we've been saving it and then plunking 30% down (for investment properties), but now we're just keeping cash, which seems stupid.

d) Fair point on the rental income. Our goal when we started with rental properties was to figure out how to "live for free" - we were sort of horrified when our friends started moving back in with their parents in their twenties and we never wanted that to be us. But your point is totally valid, it all goes into one pot.

e) The only taxable investment accounts we have right now are the 401K, SEP IRA and 529 (all maxed out annually). Do we have any other options?

f) I think what makes us different from a lot of Mustachians is that we could live a lot cheaper in someplace like CO, but we love our city and don't want to leave. Plus, we're pretty heavily invested here at this point and we can't make ourselves pay a property management company 10% to do what we think we can do better. We also get so much joy from travel and we don't want to give that up.

g) So if I were going to summarize - we should just start putting it in a regular, non-taxed advantaged account? Sometimes I think those tax-advantaged accounts are such a crutch. It's like I'm not conditioned to put money outside them. 

waltworks

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Re: No return from money under the mattress - what should I do with it?
« Reply #5 on: March 14, 2015, 10:30:35 AM »
Just dump the money in VTSAX or something, then. And congratulations! I bet you'll have a *totally* different perspective on this in a year. For us, having kids took us from "retiring sounds boring" to "fuck we need to save money so we don't have to go to stupid work" in about a year. It's a big transition.

-W

Chrissy

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Re: No return from money under the mattress - what should I do with it?
« Reply #6 on: March 14, 2015, 10:56:28 AM »
c) We pull around $5K/month into savings, plus an additional $1.5K that goes to the rental maintenance account in case something major happens. For the past 7 years we've been saving it and then plunking 30% down (for investment properties), but now we're just keeping cash, which seems stupid.

e) The only taxable investment accounts we have right now are the 401K, SEP IRA and 529 (all maxed out annually). Do we have any other options? 

g) So if I were going to summarize - we should just start putting it in a regular, non-taxed advantaged account? Sometimes I think those tax-advantaged accounts are such a crutch. It's like I'm not conditioned to put money outside them.

c)  It sounds like you have $1.5k/mo that has been going to properties and your property emergency fund, but now you could put that into a taxable account.

e)  Those are tax-advantaged accounts, not taxable.  I don't know if those are your only options; you might look into a SIMPLE IRA or Solo 401k.

g)  Yes, a regular investment account to provide for the other goals.

Bearded Man

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Re: No return from money under the mattress - what should I do with it?
« Reply #7 on: March 14, 2015, 02:05:10 PM »
Let the in laws move into one of your rentals and pay a low amount of rent while you buy more properties and let THEM manage it in exchange for lower rent, gain the tax benefits; you do them a favor, they are doing you a favor. Send the kids to public school. Let the money you would have spent on private school go to a trust fund that they get when they turn 30 or 40 or so. That will server them better than a private school K-12 education will.