Author Topic: Making bold moves, call me crazy  (Read 2485 times)

pixeldollars

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Making bold moves, call me crazy
« on: August 21, 2014, 09:06:46 PM »
Yep I've got issues. I'm single, no kids, learned late about money. I don't really care for the stock market, my pop always told me it was gambling (he died broke). Paying interest drives me crazy. And I can't stand that my stupid little IRA account doesn't make anything and my Vanguard Money Market (VMRXX) is just a box to watch my money shrivel. I'm very enthusiastic about the pathway to success offered by MMM way, it makes sense on all levels. I'm risk averse because I've been working  f o r e v e r as a paramedic , and I haven't saved anywhere near enough money, and the money I have is stagnant. I really, really like the idea of cashing out my IRA, paying the frickin' taxes on it, use the balance to kill off a 401 k loan and pay my mortgage down, and then refi with a 15 year fixed. All the while chipping away at the wasteful areas of my life in a calm and workmanlike manner. Wow am I excited about this! Wow is it a dangerously risky idea!. The thing is , it would cut my monthly payments by about $700 a month for the next couple years (life of the 401K loan) and $200 thereafter (on the new 3.5% 15 yr fixed) so I'd have xtra $ to pay the house off. Part of my problem is philosophical: How long am I gonna live anyway? If I am alive do I really want to envision a future where I'm hoping to be making so little that its optimal to cash out the IRA in little increments. If I had something to invest in that I believed in, something that was actually good for the Earth, maybe I'd look at it differently, but for now I just want to burn the IRA get the whole tax thing over with, stop worrying, and put myself on a path of debt free home ownership. I've attached a cash flow.
Other pertinents:
1) 60 y.o.
2) IRA = 118,000
3) 401K =15,000 (less 12,000 loan)
4) house value 300K
5)401K offers Schwab products (Schwab Managed Retirement Trust 2010 thru 2050 CIIV
    and Vanguard VINIX,VPMAX,VIEIX,VTSNX,VBTIX,VMRXX
Any helpful suggestions?
I am quite resourceful, have many practical skills and creative talents. I intend to make a graceful transition into a career that is even more creative, fun, and rewarding with a lot more free time. Thanks for allowing me to share this personal puzzle. I'm happy to provide more bizarre details if helpful.

Glenstache

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Re: Making bold moves, call me crazy
« Reply #1 on: August 22, 2014, 12:20:35 AM »
Two valid, but different ways of looking at this.

1) use a spreadsheet to calculate your net worth at 10 years out using the plan above, assuming you stay your existing course, or take a conservative but proactive investment strategy. Money market accounts are effectively losing money against inflation. If you are very risk averse, this could include bonds and other "safe" investments. The $$ amount at the end would be the decider. A part of this might include looking at the long term returns on socially responsible mutual funds that align with your ideals and what you believe in (not just the returns on the last couple of years that have been above average).

2) This option is more emotion driven, and based on what will make you feel comfortable. Having lower monthly expenses can be less stressful, can allow other options (there is an opportunity cost to *any* path), and shifts your resources into reducing debt. If after some serious thought, this is what will make you most comfortable, and will make you sleep best at night, then perhaps that is the way to go.

I expect that many of the people on this board would question the assertion that the stock market is gambling. Yes, there is risk and people who day trade or attempt to time the market have lost their shirts, or done well... and in many cases this can be indistinguishable from gambling. This is still different than gambling in a casino or the lottery in which the statistics of the game are overtly designed such that the House wins and the average patron loses. However, use of index funds and other vehicles are designed to distribute risk such that you effectively get an average return of the slice of the economy that represents. In this case the House (aka, the market) is designed to pay the patron at the rate the economy is growing (more or less). This is why it produces somewhat predictable returns over the long run. To some degree you father was right, but there is more to it than that. Smart investing is a long game and therefore terribly boring.

Personally, I am more in camp 1. That's just how my brain is wired. But, if 2 is your way to go, it is still worth working through option 1 to make an informed decision. There are numerous example of people on this board and MMM himself making choices not simply based on returns, but on what makes them feel secure/happy. This prevents the fate of doing the math later and wishing you'd chosen a different course of action. Good luck whichever way you choose to allocate your resources.

pixeldollars

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Re: Making bold moves, call me crazy
« Reply #2 on: August 22, 2014, 07:53:49 AM »
Thank you Glenstache for the kind and thoughtful advice. I will make that 10 year spreadsheet in an attempt to apply some rationality to my decision. Compounding interest is powerful, but intuition and emotion are mighty forces as well. I withdrew  all my IRA funds  yesterday in preparation for the aforementioned 'bold move'. Seeing my little 118K moved to a bill pay account, just sitting there as a tiny helpless and quivering pile of electronic money waiting to be pillaged by state and federal taxes was a sobering experience! I'd accepted the idea of closing my eyes and paying the federal tax, but danged if I hadn't forgotten to calculate the state tax chunk as well! Hence the wisdom of applying a step by step rational approach such as the one you are so sagely advising. I intend to wait until I keep that appointment that I made with a CPA for next Thursday , so I'm dealing with real numbers.  I like your suggestion to explore socially responsible investments as well. Part of the reason that I'm so impatient is that my 911 job is so difficult and energetically demanding, I'm eager to segue into a life that nurtures my health and creativity. It is a relief to have the all encompassing  Mustachian system to apply to my decision making processes.  Go team! For now I'll put things on hold till I get that 10yr spreadsheet. Glad I have the option of putting that IRA right back where I found it if I choose to do so in the next 60 days. Knowledge is power. Thanks for taking the time to share your insights.