Author Topic: Case Study: Repatriated in the Midwest  (Read 2569 times)

eaj

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Case Study: Repatriated in the Midwest
« on: April 29, 2017, 08:53:35 PM »
Hi folks, we are long time MMM readers and love the idea of retiring early. We’ve read a lot of the MMM posts but are in a little bit of a crossroads. Any advice is very welcome.

About Us:
•   Married with no kids (and no plans for any), both 31 years old. Living in Nebraska with a relatively lcol.
•   We both moved back to the US from Ireland about 6 weeks ago (one of us is from Ireland and the other is from the Nebraska).
•   We usually stick to a strict budget and while our income was quite low in Ireland we have managed to accumulate some assets.

Income & Assets
•   We have a total gross income of $90k per year, roughly $73k after taxes, etc.
•   We sold our house in Ireland and brought our savings with us so we currently have $100k in savings, none of which is invested – this is the area about which we have our biggest question.
•   ~$10k in retirement savings in Ireland.
•   We own our car outright and have no debt of any kind. The car is in good shape and apart from the odd oil change/other minor maintenance should run for a good few years yet.
•   We are currently living with family so have no rent/mortgage.

Costs by month
•   Rent: $0 (currently)
•   Utilities: $100 (contribution towards household)
•   Groceries: $320
•   Health Insurance: $170
•   Gas: $20
•   Pocket money: $120
•   Cell phones: $120
•   Entertainment/Misc: $100
•   Car Insurance: $100
•   Parking: $50 (trying to cut this down but we live a good distance away)
•   Travel fund: $300 (family living in another country means we will always have this cost)

Total: ~$1400 a month, total yearly expenditure is $16.8k per year.

Goals
Our aim is to retire in a relatively lcol country (Spain) within the next 15-20 years (or sooner if possible). Ideally this will be partial retirement with picking up work here and there to cover some of our expenses. Being from and EU country makes it relatively easy for us to move there.

Options
As an introduction to the questions below, we should start by saying that we feel a bit like a blank slate right now. We know index funds are a great way to invest and would hope to put some money towards that but are a little hesitant to throw it all in at one time. While we have family in Nebraska we are not necessarily set on staying here forever. We have moved around quite a bit in our lives and sometimes find it hard to settle in one place for longer than 5 years or so. We are currently living with family, and while not ideal (we both like our own space), it has been going smoothly so far. Our family has told us that we are more than welcome to stay with them long term and so we have included that as one of our options below. So now we get to the options/dilemma.

Option 1
•   Put 50% ($50k) of our savings into a home of our own and get a small mortgage. We can get a decent sized property in a nice area for between $120k and $170k. Mortgage, taxes and insurance would likely result in a monthly cost of $750. I would estimate additional utilities to also increase by $100 per month. In addition to monthly maintenance costs of $150 (very rough estimate) this would increase our total monthly expenditure to $2400. This would leave us with approximately $3600 per month to invest.
•   Put the other 50% ($50k) into index funds, bonds, REIT as a reasonably balanced portfolio.

Option 2
•   Rent (or continue to live with family) and invest 100% of our savings in index funds/bonds/REIT. If we live with family our disposable income would likely be around $4600 per month. If we rent, it would be closer to $3800.
•   If we chose this option we would potentially split out the investment over time i.e. $10k per month until it is all invested. This might provide us with a little flexibility in case we find the home of our dreams. We are also somewhat risk averse and the thought of sinking the whole pot into investments at the one time is a little intimidating.

Option 3
•   Live with family and purchase a property to rent out. I would estimate our monthly outgoings to be similar to option 1 but could likely rent out a small single family home for approximately $900-$1400 per month. It should be able to cover the mortgage and other fees without too many issues. I’m not sure how much of our savings we would use but probably similar to option 1 i.e. 50% in the property and 50% in investments.

The last major question we have is around regular retirement savings (401k, etc). Whether we purchase a home, rent, or continue to live with family, I estimate that we will likely have between $3600 and $4600 as disposable income. We are both meeting our company match in retirement savings (about $11k total including company match). What we are unsure of is how much do we put into retirement savings like a 401k and how much do we put into regular investments that we can access in early retirement? We don’t want to be in a situation where we don’t have enough to keep us going until we are able to draw down regular retirement savings but are also aware of the incentives to invest in retirement accounts.

We would really appreciate any of your thoughts and advice on which option we should choose and how the hell we deal with retirement accounts (they are literally a little foreign to me).

Morning Glory

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Re: Case Study: Repatriated in the Midwest
« Reply #1 on: April 30, 2017, 09:54:35 AM »
Check out the sticky thread at the top of the investor alley section for how to access your retirement accounts early without penalty. You can each put 18,000/year in a 401k and 5500 in an IRA. It depends on your tax bracket whether to go traditional or Roth (there is a thread somewhere on this too). 

Don't buy a house (to live in or rent) unless you plan to stay in Nebraska for more than 5 years, or your family is willing to manage it for you after you move to Spain. If you do choose to buy, why not get a duplex and live in half and rent out the other half?

eaj

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Re: Case Study: Repatriated in the Midwest
« Reply #2 on: April 30, 2017, 03:35:08 PM »
Thanks MrsWolfeRN, I really appreciate you taking the time to respond and for pointing us in the right direction for some of the resources. That is a great idea about the duplex, thanks again for your help! :)

KungfuRabbit

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Re: Case Study: Repatriated in the Midwest
« Reply #3 on: May 02, 2017, 10:00:12 AM »
Why wait 15-20 years?

You have the potential to save over $50,000 / year, not counting asset growth.  Within 6-7 years you'll have half a million $$s, which could sustain $20,000 / year living expenses. If you are willing to work part time as well you could FIRE off that in a LCOL area no sweat.

I wouldn't advise buying anything on your timeline. I'd suggest living with parents until it's not enjoyable / worth it and then move out and rent your own place.