Author Topic: Loans paid off, e-fund filled. What did you do next?  (Read 3444 times)

KatieSSS

  • Bristles
  • ***
  • Posts: 433
  • Location: DC
  • "Because of your badassity, babe!" - My GoudaMan
Loans paid off, e-fund filled. What did you do next?
« on: May 05, 2014, 02:36:25 PM »
Now that my loans are paid off and my e-fund is almost at the point where I want to stop (6 months of expenses), I've been debating on what to do next. I've been thinking a lot about this MMM quote in that context: "So while I still advise maxing out any tax-deferred savings accounts like the 401k, you’ll also need to invest elsewhere simultaneously. My own strategy was in Vanguard index funds, a paid-off house, and some rental properties, but you will surely find other places depending on your own interests." From this lovely post: http://www.mrmoneymustache.com/2011/11/11/how-much-is-too-much-in-your-401k/

My mind is currently stuck with ideas (Max out the 403b! Max out the Roth IRA! Max out a tIRA! Buy investment property! Save for a down-payment!) that I can't see clearly what is the best next step for me given that I need to find ways of financing retirement between the ages of 45-60 (see MMM's post above).

I'm curious what the rest of you have done once you've hit the stage of no debt and fully-funded e-fund. Did you decide to put less in the 401k/403b and open up other accounts, like conservative index funds or CDs for a home downpayment? Or decide to try getting some income via real estate investments/landlording? I'm interested in where people are a few years down the road from where I am. How is it going? Glad you bought that home or wish you would have invested in the market? I thought about doing a case study post, but I wanted to see what others decided to do instead to give me some examples.

As far as my details, you can learn more about me in my journal. But for the quick and dirty:
Age: 29 (would love to retire by 45)
Gross Income: $55,000
403b w/Fidelity (index funds): Currently contributing 10% of salary; company contributes 12% of salary and it isn't a matching deal. They just put it in there regardless of how much I contribute. Current balance is $15,600
Roth IRA w/Vanguard (index funds): Current balance is $20,000. Not currently contributing.
Other: I want to own a home eventually. I live in a high COL area, so it makes sense to rent right now. But what I wouldn't love to own a condo here and then rent it out later! I can also live on approximately $30,000 in today's dollars in retirement, will be half that if I own a home!

homeymomma

  • Bristles
  • ***
  • Posts: 335
Re: Loans paid off, e-fund filled. What did you do next?
« Reply #1 on: May 05, 2014, 02:45:30 PM »
We don't have access to a 401K, so when we reached this point I opened a Roth IRA for myself and my husband, because it can be withdrawn tax free at a certain age, starting that money growing was my absolute first priority. We max out our Roths before any other investment/savings priorities right now (again, no 401k so this is the bulk of our retirement plan). Then I started a taxable investment account also labeled "retirement" and started saving for a house downpayment.

Another Reader

  • Magnum Stache
  • ******
  • Posts: 4968
Re: Loans paid off, e-fund filled. What did you do next?
« Reply #2 on: May 05, 2014, 02:56:24 PM »
First, it won't be half that if you own a home.  You will have taxes, insurance, maintenance and HOA fees if you go the condo route.

In your shoes, I would write down the list of goals and prioritize them.  Where do you want to be in 2/5/10 years?  Do you want to stay in DC?  Go back to the farm?  Get married, have 2.5 kids and move to the suburbs?  Will you keep the current job long term?  Can you work your way into a job/career that pays a lot more?  Do you want to?  How much will it take to buy that condo?  What down payment will you need and what amount of loan can you qualify for?  All these are questions to resolve at the same time you prioritize your goals.

For now, I would concentrate on retirement accounts.  Up the 403(b) some.  Max out the Roth, because it has a lot of uses and is tax free.  Trust me, there will come a time when you will appreciate the tax free resource.  Save and invest what's left - taxable accounts, CD's, whatever matches the anticipated time you will need the money.  More dollars working for you today mean more choices down the road.  Once you have figured out the goals, where the money goes will fall into place.

I can't really help you with the 30 year old perspective, because mine is about 30 years out of date....


KatieSSS

  • Bristles
  • ***
  • Posts: 433
  • Location: DC
  • "Because of your badassity, babe!" - My GoudaMan
Re: Loans paid off, e-fund filled. What did you do next?
« Reply #3 on: May 05, 2014, 04:27:41 PM »
First, it won't be half that if you own a home.  You will have taxes, insurance, maintenance and HOA fees if you go the condo route.

In your shoes, I would write down the list of goals and prioritize them.  Where do you want to be in 2/5/10 years?  Do you want to stay in DC?  Go back to the farm?  Get married, have 2.5 kids and move to the suburbs?  Will you keep the current job long term?  Can you work your way into a job/career that pays a lot more?  Do you want to?  How much will it take to buy that condo?  What down payment will you need and what amount of loan can you qualify for?  All these are questions to resolve at the same time you prioritize your goals.

Yes, figuring out the answers to some of these questions will help. A lot of the answers are "if…then" though, which makes it hard to plan. For example, I want to get married and have kids, but one can't just make that happen. So, I have to act as if that may happen, not that it will happen. Same with staying in DC. It depends. Right now I'm happy here, but what if my parents get sick? I might have to move closer to the farm and help manage that. So while I understand what you are saying re: answering important questions, I can't answer any of them for certain (except maybe how much it will take to put a down payment on a condo!).

Essentially, what I want to do is be able to work part-time eventually. I enjoy the career I am in, but I would rather not do the 9-5 grind. If I have kids, this would be perfect. If I don't, then it means more time for travel. This is one of those "if…then" that could work both ways. I just need the money to get there :)

KatieSSS

  • Bristles
  • ***
  • Posts: 433
  • Location: DC
  • "Because of your badassity, babe!" - My GoudaMan
Re: Loans paid off, e-fund filled. What did you do next?
« Reply #4 on: May 05, 2014, 04:29:55 PM »
We don't have access to a 401K, so when we reached this point I opened a Roth IRA for myself and my husband, because it can be withdrawn tax free at a certain age, starting that money growing was my absolute first priority. We max out our Roths before any other investment/savings priorities right now (again, no 401k so this is the bulk of our retirement plan). Then I started a taxable investment account also labeled "retirement" and started saving for a house downpayment.

Thanks - I'm curious where many people have put their downpayment money. I've seen several threads on this and some have kept it in CDs and savings accounts, but most in index funds that are heavy towards bonds. Is that what you've done?

Another Reader

  • Magnum Stache
  • ******
  • Posts: 4968
Re: Loans paid off, e-fund filled. What did you do next?
« Reply #5 on: May 05, 2014, 04:53:41 PM »
Not being able to answer those questions suggests you are better off remaining flexible.  If you buy a condo, it should be one that will rent or sell easily if there is a downturn and you have to move.  Do you know how much you can borrow and how much down payment you need to save to get a condo that meets your needs and will maintain its value?  Figuring that out will tell you how much to save annually and how long you will need to save.  If you can do it in five years or less, in your shoes I would stay liquid.  Laddered CD's would be my likely choice.  More than five years, I would look at tying some or all of the money in equity funds or equity and income funds.  More than five years means that your situation may change anyway. 


KatieSSS

  • Bristles
  • ***
  • Posts: 433
  • Location: DC
  • "Because of your badassity, babe!" - My GoudaMan
Re: Loans paid off, e-fund filled. What did you do next?
« Reply #6 on: May 06, 2014, 07:52:13 AM »
Do you know how much you can borrow and how much down payment you need to save to get a condo that meets your needs and will maintain its value?  Figuring that out will tell you how much to save annually and how long you will need to save.  If you can do it in five years or less, in your shoes I would stay liquid.  Laddered CD's would be my likely choice.  More than five years, I would look at tying some or all of the money in equity funds or equity and income funds.  More than five years means that your situation may change anyway.

Yes, I would need $50,000 for a down payment on a decent studio or 1-bedroom condo in DC. The market here never drops significantly, although it did see some fluctuation during the housing bubble crisis. This would mean saving $10,000 in 5 years. I don't know if I can throw that much at just a down payment fund while also contributing to my Roth and 403b. You are probably right that I will need to keep the money in liquid investments. Since I need the flexibility, laddered CDs or a high-yield savings sounds like the way to go.

I'm curious if anyone has decided to rent in a high COL area (like DC, San Fran, NYC, etc...) while owning property elsewhere. I've been tossing around the idea of buying a duplex in a lower COL area and renting it out. This means I could buy property sooner as I would not have to amass such a large down payment and I would start cash flow earlier as well.

Another Reader

  • Magnum Stache
  • ******
  • Posts: 4968
Re: Loans paid off, e-fund filled. What did you do next?
« Reply #7 on: May 06, 2014, 09:03:53 AM »
That's actually fairly common.  I live in Silicon Valley and own a number of rentals in the Phoenix area.  Arebelspy has been investing in Michigan successfully, in a price range someone in your financial position could afford with some savings under your belt.  Arebelspy is your age.  If you haven't read the books listed in the real estate investing thread, get yourself to a library with the list.

KatieSSS

  • Bristles
  • ***
  • Posts: 433
  • Location: DC
  • "Because of your badassity, babe!" - My GoudaMan
Re: Loans paid off, e-fund filled. What did you do next?
« Reply #8 on: May 06, 2014, 09:13:49 AM »
That's actually fairly common.  I live in Silicon Valley and own a number of rentals in the Phoenix area.  Arebelspy has been investing in Michigan successfully, in a price range someone in your financial position could afford with some savings under your belt.  Arebelspy is your age.  If you haven't read the books listed in the real estate investing thread, get yourself to a library with the list.

I've actually been following the real estate threads lately and have some of those books on my to-read list! Since I have $0 saved for a hypothetical investment in a rental property, I have plenty of time to read up and decide if I want to go that route.