Author Topic: Where do I go from here...  (Read 1285 times)

Retiring_early_in_EastTN

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Where do I go from here...
« on: February 27, 2019, 02:48:43 PM »
I am a 42 year old first time poster and long term lurker. Trying to figure out where to store excess emergency fund and if anyone has any suggestions on where to go from here.

I currently have no debt. No cc, no car, etc....I own my house clear and one rental house that clears about $450 a month.
I have 51k in a Roth
6K in a 403b
1k in a 401K
272k in a taxed brokerage account
20K in 2.46% cd
32k in 1.86% money market I consider my emergency fund

I currently contribute $550 a month towards my ROTH and $200 to the brokerage account. (My work offers no matching fund and I will only rely on my own savings and social security for retirement. 

My question is, since I have very little monthly expenses and I live on a very modest income,what should I do with the excess in my money market? It seems high to keep that much cash on hand. Even though the security is nice I feel it could become expensive security down the road. Also, any suggestions on my current scenario as I look to the future. My goal is to continue to work, but not full-time work. Of course, this heavily depends on the markets and healthcare, but I am looking for any ways to improve. I am married and we contribute to the joint expenses of the maintaining the house which helps me to keep my expenses low.

Thanks in advance.

ender

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Re: Where do I go from here...
« Reply #1 on: February 27, 2019, 06:21:05 PM »
What do you spend per year?

That's the biggest question honestly; if you spend $10k/year you can retire! If you spend $1M/year, you're screwed ;-)

Reynolds531

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Re: Where do I go from here...
« Reply #2 on: February 27, 2019, 06:59:02 PM »
I'd be more concerned with your ror on that rental house.

BeardedAccountant

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Re: Where do I go from here...
« Reply #3 on: April 13, 2019, 04:19:37 AM »
Assuming that when you say Roth you're referring to a Roth IRA, and not a Roth 401(k) or something like that, you might want to watch those contributions. 2019 contribution limits to a Roth IRA are only $6,000 if you're under 50. At $550 per month your going to be contributing $6,600 by the end of the year.

Trifele

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Re: Where do I go from here...
« Reply #4 on: April 13, 2019, 07:32:37 AM »
Specifically to the question about the cash in your money market account, we would need to know what your expenses are.  You say they are "low", so that $32k might be on the high side for a cash/emergency account?

Emergency fund amounts are a personal decision (I know people that do one month's expenses, and people that do two years', and everything in between).

Whatever figure you land on you should take the excess cash and invest it, unless you have some other short term plan for it. 

FatFI2025

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Re: Where do I go from here...
« Reply #5 on: April 13, 2019, 12:34:39 PM »
I keep most of my EF in a short term treasury ETF that is yielding about 2.4%. Right now that's the same as some high yield savings accounts, so if you're going to move your money, I'd first look into those.

In terms of long-term tradeoffs, $32K isn't a huge amount. Let's say you could reasonably lower that to $12K ($2K/mo x 6 mo) and invest the $20K difference at 10% before tax. That's a difference of $1,628/yr. If you compound that at 10% annually, in ten years the difference is $24K. Not a huge amount but nothing to sneeze at either.

I think @ender 's point is that saving $750/mo and a NW around $350K isn't going to get you to FIRE very quickly unless you are spending <$1000/mo. Increasing your savings rate should be of more interest than optimizing your EF investment IMO.
« Last Edit: April 13, 2019, 03:07:56 PM by FatFI2025 »

the_gastropod

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Re: Where do I go from here...
« Reply #6 on: April 13, 2019, 12:40:48 PM »
Mr. Money Mustache’s latest YouTube video is actually about emergency savings. Check it out: https://m.youtube.com/watch?v=tFpJrqp0l_4

FIREby35

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Re: Where do I go from here...
« Reply #7 on: April 13, 2019, 07:13:42 PM »
In your position, you might want to think about the concept of "The Point of Retirement Inevitability." Link below:

http://frugalvagabond.com/the-point-of-retirement-inevitability/

For me, I raced toward a big stash. All the while I was building a business that fit my life like a glove. With a job like that, I didn't feel the need to "retire." So, I have let my prior savings be, I add to my 401k each year and then I don't consider I need to save anymore. So, as long as I have enough cash for my daily expenses and I can let my savings compound over a few decades, I figure I am more than good.

With your 250k+ in investments and savings, two homes and a $450 per month cash flow you might be at the point of retirement inevitability. If you can work for your daily expenses and let your savings grow on their own then you should be in a solid position. If you aren't there yet, keep saving until you are.

Good luck.

Retiring_early_in_EastTN

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Re: Where do I go from here...
« Reply #8 on: July 09, 2019, 10:05:07 AM »
Yes, definitely agree 32K is too high. I find 10K is a more realistic number. and that easily, easily covers 6 months worth of expenses.  I have neglected to do anything with these number the past couple of months and just letting everything ride. I have thought about putting 30K into my brokerage account. It is managed and the fees about about 1.15%. What are other options for the 30K? My brokerage account is now up to about 285k.


Specifically to the question about the cash in your money market account, we would need to know what your expenses are.  You say they are "low", so that $32k might be on the high side for a cash/emergency account?

Emergency fund amounts are a personal decision (I know people that do one month's expenses, and people that do two years', and everything in between).

Whatever figure you land on you should take the excess cash and invest it, unless you have some other short term plan for it.

mistymoney

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Re: Where do I go from here...
« Reply #9 on: July 09, 2019, 10:40:40 AM »
do a vanguard account with much lower fees.

Retiring_early_in_EastTN

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Re: Where do I go from here...
« Reply #10 on: July 09, 2019, 10:46:34 AM »
So this is going to sound incredibly naive, but how do I go about doing that. I've looked them up and do I do this on their website or through my broker? I've decided to move about 30k into something somewhere leaving me with a comfortable (in my opinion) emergency savings.

Retiring_early_in_EastTN

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Re: Where do I go from here...
« Reply #11 on: July 09, 2019, 10:50:05 AM »
And do I know what Vanguard account is right for me?

mistymoney

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Re: Where do I go from here...
« Reply #12 on: July 09, 2019, 11:22:09 AM »
you can open on the vanguard site, link an account such as checking, and fund the vanguard account.

I'll leave the recommended fund to others, but usually an sp500 index is a sure bet.

Retiring_early_in_EastTN

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Re: Where do I go from here...
« Reply #13 on: July 09, 2019, 11:25:39 AM »
Thank you in advance to any recommendations!

kendallf

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Re: Where do I go from here...
« Reply #14 on: July 09, 2019, 12:47:40 PM »
For some thoughts about investment allocations (what stocks/funds you are going to buy in your brokerage account), maybe read JL Collins' stock series.  Spoiler: one/a couple of broad based index funds are probably sufficient and more efficient than your current high fee setup.

https://jlcollinsnh.com/stock-series/

As far as transferring what you have to a low cost provider like Vanguard, for the taxable account you want to try and transfer your existing stocks/funds if possible to avoid selling them all now and paying the capital gains tax hit all at once.  This is called an "in kind" transfer.  Vanguard can help with this.

General account transfer info:
https://investor.vanguard.com/account-transfer/

When you've transferred, then you can work toward an investment strategy that might include simplifying what you hold.  If you have losers, you can sell them and claim the losses.  If you have gains in funds/stocks that nevertheless have expensive fees or don't fit your investment strategy, you can sell them gradually to minimize your capital gains taxes.  If your income is low, you might do this selectively to capture "basis" i.e. avoid more tax later.  For instance, if your earned income puts you in the 15% bracket or lower, you can sell investments you've held long term (1+ years) and pay zero capital gains tax.

The Go Curry Cracker blog has some excellent info on optimizing this; start with this post:

https://www.gocurrycracker.com/never-pay-taxes-again/



erutio

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Re: Where do I go from here...
« Reply #15 on: July 09, 2019, 01:11:29 PM »
Yeah, it does sound like you are naive, but it's OK!  We all start out somewhere.  What you seem to have going for you real well is a low spending rate and high savings already.

You should post a Case Study.
Some things right off the bat. 
1) Is your spending ~20k per year? If you job security is good, it seems your emergency fund is way too high.  With 270k in your brokerage account, you can basically use that as your emergency fund.  The worst that can happen is having to sell off a few thousand dollars in the brokerage account when the markets are low.  However, having your 50k from your MM and CD in your brokerage instead easily offsets that with more time in the market.  You should have a checking account which floats 1-3 months of your expenses, but you won't need an emergency fund with an after-tax brokerage account as high as you have.
2)  Your brokerage sucks.  1.5% is too high for someone who has found these forums.  I second the advice to transfer to Vanguard.  You can start with the JLcollins series above.  A simple 3 fund portfolio with total stock market index, total intl market index, and total bond index would also work. 
3)  Do you have a 401k or 403b through your job now?  Even though you say they don't match, if you still have access to it, consider maxing it now.  You can then spend down your MM account, and effectively "transfer" your funds from your MM account to your work pre-tax retirement account.  What I mean is, for every dollar you need to spend for expenses for the year, use your money in the MM account.  Contribute that money which would have appeared on your paycheck, to your 401k/403b. You will end up saving more money this way as it is pre-tax also.


aetheldrea

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Re: Where do I go from here...
« Reply #16 on: July 10, 2019, 09:46:33 AM »
I would consider a HELOC or credit cards or your Roth account or a 401k loan as your emergency fund and put that 52k you have in cash into the stock market. You say it might get expensive in the future, but it already cost you 10k this year alone.
Keeping all that money in cash is drastically increasing your risk of working extra years before retirement. Financial dependence on your employer is the opposite of security.