Author Topic: Help me and my dad devise a plan!  (Read 1229 times)

sdubz

  • 5 O'Clock Shadow
  • *
  • Posts: 1
Help me and my dad devise a plan!
« on: December 02, 2017, 12:28:35 AM »
Hi there!

I admit I have been bad with my finances, but I am ready to make a huge lifestyle change and this blog and community has encouraged me. My situation is that I am 30 years old and my father is 65. The goal is to wipe out his debt together and get me set up on a road to financial freedom and him on a steady path for retirement.

Father's situation:
65 years old and retired
$400,000 in 401k
$146,000 debt at 3%

Gets $800/month ss from mom's death and takes out of 401k to pay rest of expenses
Expenses per month are $1800
He is waiting to begin his SS in 2-3 years, which would give him $2300/month

My Situation:
28 years old
$4000 savings acct
$16,000 index fund
$62,000 rollover IRA
$20,000 401k
$4000 cc debt
$6000 car loan at 2.9%

income is $10k/month after taxes
expenses are $4,376

I am beating myself up because I do not have any substantial savings and plan to live very frugally to change that. The expenses I listed for myself is my trying to become frugal for the first time. I will work on reading the blog to get better at cutting expenses, but this is a realistic start for me.

I look forward to your feedback and thoughts! I am ready for any and all criticism and advice. Bring it on!

former player

  • Magnum Stache
  • ******
  • Posts: 4424
  • Location: Avalon
Re: Help me and my dad devise a plan!
« Reply #1 on: December 02, 2017, 02:23:00 AM »
Welcome.

I don't think you should beat yourself up too much.  At 30 (or 28?) you already have $100k saved with $10k in debt: that is a lot better a lot earlier than many people, including a lot of people when they join the forums.  And that sweet income of $10k a month after taxes will help you to ramp the savings up very quickly.  The generally recommended investment order for all that cash is here -

https://forum.mrmoneymustache.com/investor-alley/investment-order/

If you have special circumstances or questions, ask away!

As to your dad, I guess the question is: what are the payoff terms for the debt?  And how is the 401k invested?  If your dad is only taking $12k a year out of a fund of $400k he is only taking out 3%, which should mean that the fund is at least stable and probably growing, and so easily able to cover the repayments for as long as they are in place (although that does assume that the debt repayment is included in his $1800 monthly expenses).  Usually the advice is that invested funds will grow at more than 3% which would mean that there is no financial advantage in taking money out of the 401k to pay off the debt.  Your dad could then start paying the debt down more aggressively when he more than doubles his income by taking his social security.  But I do recognise that there are reasons other than the purely financial for paying off the debt sooner which might apply.

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5013
Re: Help me and my dad devise a plan!
« Reply #2 on: December 02, 2017, 04:59:57 AM »
Your father is not in a bad position, if his expenses really are $1,800 a month, including debt repayment, and that debt is at a fixed interest rate.  He has $400,000, from which he needs to draw $1,000 a month, plus enough to pay income tax on the withdrawals.  At a 4 percent withdrawal rate, he could apply the safe withdrawal rate of 4 percent, and likely be just fine.  That's $16,000 a year, or $1,333.  Many states do not tax Social Security income, and his taxes should be fairly low anyway at that income level.  Once he decides to take his own Social Security, his cash flow should improve and the withdrawals from the 401 (k) will drop.

However, at his age, he should be on Medicare.  He will need to pay the Medicare Part B premium, plus Medigap insurance.  I'm concerned that the $1,800 does not include the health insurance and the debt repayment.  You might benefit from doing a case study on his income and expenses.

You need to pay off your credit card debt ASAP.  With over $5,000 a month left over after your new expenses, that check should be written ASAP.  You would probably benefit from doing a case study as well.

MrThatsDifferent

  • Handlebar Stache
  • *****
  • Posts: 1522
Re: Help me and my dad devise a plan!
« Reply #3 on: December 02, 2017, 12:54:30 PM »
Ok, hereís my thoughts. Move this into a case study. Then, introduce this site to your Dad. You both need to read through the main articles and look at the forum. Each of you post your own case study. Your Dad needs some good ideas now, but heís best to answer and take control. As for you, honestly, if I was your age, with your income, knowing what I know now, I would take a 2 month break from my savings and investing and wipe out that 10k debt and then never carry debt again (unless itís a mortgage).  Going forward, pay off your cc on time, every time. Then get back to your savings plan following the investment order.

Oh, and try to figure out exactly how old you are ;-)

Laura33

  • Handlebar Stache
  • *****
  • Posts: 2275
  • Location: Mid-Atlantic
Re: Help me and my dad devise a plan!
« Reply #4 on: December 04, 2017, 08:50:23 AM »
Not sure why you think you guys are in bad shape.

Your dad's debt is at a very low interest rate -- I assume this is a mortgage on his home, and it is fixed at 3%?  If so, it is extremely likely that the market will return far more than 3% over the life of the mortgage, so his best course would likely be not to rush to pay off that debt at all, because he's making more money leaving it invested in his 401(k).

What is the monthly payment on that debt, and is that included in his $1800/mo expenses?  If the payment is included in his expenses, he is golden:  he needs $12K/yr from his investments for the next 2-3 years; with a $400K portfolio, if it is invested at least half in stocks and mutual funds, he should be able to draw up to $16K/yr, which is more than enough to cover his expenses and his (fairly low) taxes on those withdrawals; and in 2-3 years, SS alone will provide him more money than he actually needs.  If the debt is not included in his expenses, then he will need to dip a little more into his 401(k) over the next few years, and the SS might not entirely cover his expenses, but it will still cover the vast majority, and with $400K to start, again, he should be in very good shape.

You are as well.  You're 30 and you have $100K saved!  And you make enough money to jack up your savings rate dramatically pretty quickly.  That is a very, very good start. 

Tl;dr:  Stop the panicking and self-flagellation.  You guys are both in very good shape.  Focus on cutting your expenses and learning about investing and reading as much as you can, and you will be in even better shape than your dad in no time.