Author Topic: Help - Advice Needed  (Read 2145 times)

Unique User

  • Pencil Stache
  • ****
  • Posts: 648
  • Location: NC
Help - Advice Needed
« on: February 08, 2014, 11:25:11 AM »
Sorry this is long, I canít figure out whether we are doing the right things or not.  I kept adding things as I wrote, thank you to anyone for reading!

Situation
DH will be 52 this year, Iím 8 years younger.  We have a 12 year old daughter that we want to help with college. It is very important to us that she has no debt when she graduates.  We expect her to finish in 4 years as she has the brains to start with some AP credits and we don't expect to give her the option, but may change our minds.  DH will be 62 her senior year of college. 

Current Financial Picture:
$372k in 401ks, Roth IRAs, employee stock plans, etc.
$118 in money market
$260k (approximately) in equity in two rental properties and our former residence (also rented) - those mortgages total about $500k for all three.

We are finally at a period of stability and are adding about 60k per year to 401ks, etc which is around 50% of our after tax income and another $20k+ in principal payments.  Bonuses also go to savings but those are variable and arenít included in the $60k.

Unknowns
DH company (large Fortune 500) relocated us to Midwest from East Coast last year for a promotion, just found out his division will be going away.  His job annoys him to no end.  We do not like where we moved to and do not want to stay here.  He does not have a degree, but thinks he has a good chance to stay with the company just no idea what, where, how.   

I was just promoted to a manager and at some point Iím sure the company will be sold.  Whether I have a job at that point is unknown.  The company is 100% virtual so if DH is moved, my job goes with us, a HUGE plus.  I have a BA from a very well known, academically challenging university. 

Summary
My calculations show that we will have plenty to retire on the day we write the last tuition check for college assuming we can continue the same savings rate for the next 5 years, so we need to be employed for next 9 years.  After that, we do intend to continue doing something, but don't really know what that something would be.  DH doesn't like his job, but we have no idea what to do about it.  His boss is very supportive of further movement up in the company, but who knows, both he and his boss could be unemployed by the end of the year.  We are a bit behind in retirement savings as we spent several years living in a resort town and were self employed.  We had a blast, but didnít really build up much in lieu of savings. 

I know I need to put a substantial part of the $118k toward mortgages, but can't figure out how much.  One is at $118k, so think I could wipe it out in less than 2 years.   What is holding me back is that DH and I had a lot of trouble finding work when we first started looking 5 years ago.  I realize that we were living in a small coastal city with very few good jobs.  We didnít really think about that when we moved there, just moved somewhere we liked that had a couple big employers, pretty naÔve.   Thought we wouldnít have an issue finding jobs, only to find employers donít seem to like people that had been self employed for 15+ years or who are changing careers (DH).  After I got that first job (commission only and the only one I was offered) I filled out endless applications to work retail over the holidays and add to our income, I never got a single call. 

So, are we on the right path?  Should I not be so nervous about finding jobs now that we have been employed for last 5 years?  If he loses his job, we will move back to the south, just will choose a larger city when we move.  Neither of us are engineers or anything that would assure us future employment, but we work hard, always have great performance reviews and have both been promoted.   The doom and gloom about people being long term unemployed and going through all their savings scares the heck out of me.  DH being 52 without a degree and unemployed scares me.   The trouble we had to land our first jobs scares me, the fact that I couldnít even get a call to work retail scares me. 
« Last Edit: March 06, 2015, 09:12:54 AM by Unique User »

shuffler

  • Bristles
  • ***
  • Posts: 320
Re: Help - Advice Needed
« Reply #1 on: February 08, 2014, 12:40:04 PM »
My calculations show that we will have plenty to retire on the day we write the last tuition check for college assuming we can continue the same savings rate for the next 5 years
Did I understand this right?
Year 1-5:  Continue saving as your are now; $60k to investments + $20k to mortgages
Year 6-9:  Pay for college as first priority, excess funds go to investments and mortgages
Year 10+: (Semi-)Retired

I know I need to put a substantial part of the $118k toward mortgages, but can't figure out how much.

I don't think this is a foregone conclusion.  You didn't tell us the rate on your mortgages, nor how much income is being generated from the tenants.  A low mortgage rate would mean it would be better to invest your money elsewhere.  Insufficient income from the rentals would mean you might be better off selling the properties.

So, are we on the right path?
You have achieved quite a good rate of savings; you're definitely on the right path there.  Keep it up!  You should feel good about this.  Not only are you saving at a good rate now, but it also gives you flexibility and room-in-the-budget in case you do lose one  of your incomes.

In my opinion, the two riskiest things in your plan are:

(1) The chance of either/both of you losing your jobs.  Because you're saving at a good rate now, it seems like you'd be able to continue to pay bills, etc., but it would reduce your ability to save, and therefore extend your future date of retirement.  The way I would approach this for myself would be to run the numbers on a bunch of scenarios.  Build a spreadsheet that allows you to simulate losing one of your incomes in year #1, year #2, etc., and see how that affects the outcome.  Then you can develop strategies for coping with a situation like that, such as reducing expenses, asking your daughter to take on some portion of her college costs, etc.

(2) Whether or not you'll truly have "enough" after year #9.  We don't know your details (expenses, particularly), so I can only say that the numbers & timeline feel a little tight to me.  Though if your semi-retirement includes part-time work, maybe that'd make it less tight than I imagine.

You may also have a large unknown in the cost of college for your daughter.  Do you have a feeling for what sort of school, and what the cost would be?  Is she likely to be able to land scholarships?

Apart from that, and not that you really asked for it, here are some things I would look into doing if I were you:
*  529 plan for your daughter?
*  Get that $118k in the money-market working for you.  Possibly in the mortgages, but more likely in the market.
*  Employee Stock Plans - I sell all my employee-stock-plan shares immediately after purchase (at the discounted price).  It's a matter of diversification.
* Traditional IRA may be a better plan for you than Roth IRA, depending on your tax-bracket now vs. where you expect to be in retirement.

Unique User

  • Pencil Stache
  • ****
  • Posts: 648
  • Location: NC
Re: Help - Advice Needed
« Reply #2 on: February 08, 2014, 02:59:33 PM »
Thanks for replying!

Did I understand this right?
Year 1-5:  Continue saving as your are now; $60k to investments + $20k to mortgages
Year 6-9:  Pay for college as first priority, excess funds go to investments and mortgages
Year 10+: (Semi-)Retired 


That is correct.  But maybe I should clarify, we don't really plan to retire at that point, just have the freedom to work when and how we want and not have to stay in a job that we don't like.  I think we'd both be bored if we didn't do something. 

In terms of mortgages, two are commercial mortgages at 5.25% and 4.25%.  The one I want to pay down is at 5.25%.  My former home is at 2.85%.  We're between $200-$350 a month short, depending on if any repairs or maintenance were needed.  I don't like the hassle (DH was the one that thought rental property was a good idea), but since $20k a year is going to principal, I don't think it would make sense to sell right now.

You are correct, the scariest thing for me is one or both of us losing our jobs.  I'd like to think we could get new jobs, but that is the part that has me paralyzed.  We spend about $55k to $60k per year, there is definitely some fat that we know we could cut, but given our savings rate, we haven't.  We have no other debt than the mortgages, my car is newer model that we paid cash for. 

I have no idea about college for our daughter.  She is smart and tests scores are always very high, but she is not a future valedictorian.  For every state we live, she will say that is where she wants to go to college and she always focuses on the flagship university for that state.  I read somewhere that high ACT scores can allow out of state students to qualify for in-state tuition, I probably need to look into that at some point.   As for other scholarships, I haven't really thought about it. 

For the other things, we do have a 529 plan for her, there is only about $10k in there right now though.  We converted our Traditional IRAS to Roth IRAs when the market tanked and we were unemployed.  I think right now we make too much to qualify for the Traditional IRA route since we both have 401ks at work.  We don't have that much in employee stock plans, one is from a prior company that I worked for fresh out of college and the other is DHs current company.  We only have about 10k in his, but do have an amount taken out each month since his company matches 20%.  The other is a Fortune 100 that pays nice dividends that keep getting reinvested.   

Thanks again, it is always easy to look and make suggestions from the outside, but hard when you are living it.  I second guess myself all the time.