Topic Title: Reader Case Study - I have what I believe is a unique situation and need help. Quick background for context. I grew up reasonably poor by American standards. While my story isn’t like Kristy Shen’s in “Quit like a millionaire” I certainly understand the concept of scarcity. After a 9-year recovery from a messy divorce that destroyed my finances, my credit, and my sanity, I met my current wife, who had a similar upbringing and divorce situation. Now we’re at a crossroad. Although we are both in a great financial situation, neither of us really know what to do to reach our goals. We always knew what we wanted, but didn’t know it had a name and a community until about 3 weeks ago. We work hard and try to be responsible with our money, but neither of us knew much about investing until a few weeks ago when we started trying to figure out what to do with the extra money sitting in our checking account. My wife got a promotion/hefty raise in 2021 and we recently combined incomes. Now we're lost. Thank you in advance for any help or suggestions.
Life Situation: We filed “married jointly” for 2021. We got married in October of 2021. We recently discovered that we’re now in the 24% tax bracket. We are 44 and 39 respectively. I have 3 adult children and she has 2 elementary school aged kids. We live in Texas, so we don’t have any state tax obligation. We both have college degrees, but no student loan debt.
Gross Salary/Wages: Approximately $280k annually plus potential bonuses. This year, those were around $25k
Individual amounts of each Pre-tax deductions: I have around $600 taken for the state retirement fund each month. This amount is employer matched. She currently doesn’t have anything coming out, but plans to soon.
Other Ordinary Income: Approximately $30k annually, VA disability pay, tax exempt, annual COL increases.
Qualified Dividends & Long Term Capital Gains: N/A
Rental Income, Actual Expenses, and Depreciation: N/A
Adjusted Gross Income: Approximately $310k base annually with additional potential bonuses ($25k in 2021)
Taxes: We’re currently at the 24% tax rate. Our current net pay is approximately $20k per month on average.
Current expenses: Our monthly expenses range from $6k to $8k depending on the month and our travel schedule. We share custody of our 2 youngest with her ex, so many expenses are required and split between both sides. Our mortgage is $2400 per month. We are currently 3 years into a 30-year fixed mortgage with a 3.8% interest rate. We put 20% down, so we don’t have any mortgage insurance tied in. We have 58-68% of our monthly net income available to invest depending on the month.
Expected ER expenses: N/A
Assets: I work as a state employee. We have an employer matched state retirement system, which I currently have around $40k in. I also have an option for a 403(b) and a 457(b) (not employer matched), but haven’t touched them yet. I am retired military, so all of our healthcare is covered by Tricare/VA. I also have a 401k rollover and Roth IRA with maybe a $5k balance between both sitting in an American Funds account
She has a 401k rollover with approximately $82k and Roth IRA with about $48k in a Fidelity account. Her current employer has a 401k match program, but she just went through an acquisition, so she can’t access it for a couple of weeks.
In addition, we have a $36k emergency fund in savings and about $15k parked in our brokerage account we’re planning to invest as early as this week. She has a vehicle valued around $12k that is paid for.
Liabilities: Our house was purchased 3 years ago for approximately $429k. We put 20% down, have a 3.8% interest rate on a 30-year fixed and owe approximately $328k. Ultimately, we plan to sell the house and use the (hopeful) profit to purchase a smaller house or condo in cash when we retire.
I also have a vehicle that I financed before we met. It will be paid off in 2024. It has a remaining principal balance of $18k with a 4.8% interest rate. I plan to drive it till the tires fall off.
**We have a very good credit card. I don’t consider it a liability, but I put it here anyway. It has an insane limit, amazing travel points, travel club access, and low annual fees. We cycle all of our expenses through the card and pay it off every month, so we always have a lot of travel points and great credit scores.
Specific Question(s): Our goal is to fully retire in 2033 once my state retirement fund is fully vested and our youngest gets settled in college. I’ll be 55 and she’ll be 50. I can’t start drawing my state retirement (Should net approx. $3500 a month) till 62 ½. I will still get my VA disability, which is currently an untaxed $2500 per month. It will increase annually based on COL. Our goal is to save around $10k per month for the next 10-11 years. That should put us in the $2.5 million+ range based on an assumption of 7% and the $145k we already have invested. It seems like our income disqualifies us for Roth IRA’s and we’ve moved into the 24% tax bracket. I can max out my 457(b) at $20k annually to try and lower our taxable income, but we’re struggling with how we distribute the rest and how to deal with the taxes. We’re planning on an aggressive 90/10 stock/bond mix in VTSAX and some sort of bond index, but I’m not sure that’s best for our situation.
Our goal is to live off of the 4% (+?) rule once we retire and travel the world as nomadic expats, living in different places for a month at a time. I’ve read at least a dozen books on this and listened to many podcasts, but none of them seem to fit our situation. They are either geared towards 20 somethings or people already retired. We both enjoy what we do and have a good amount of freedom, so we have no issues working for another 10 years. Given our custody agreement, we can’t move the kids anywhere else until they are 18, so we’re stuck here for a while anyway. We’re also worried about saving “too much” if there is such a thing. I know the taxes and RMD’s might become a problem. We also don’t want to screw over our kids with anything after we're gone.
3 specific questions on this case study I think. 1- Most importantly, where should we put our extra money to invest every month for the next decade? 2- What can we do now to avoid getting destroyed by taxes (now and later)? 3- What can we do now to not get killed by RMD’s when we hit that window? 3+- Any other suggestions?