Author Topic: Paying off all my debts but the house? Now what?  (Read 2508 times)

AardvarkPuppies

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Paying off all my debts but the house? Now what?
« on: April 18, 2020, 06:50:13 AM »
Hey everyone!  Long time MMM reader and lurker but first time posting.  I would love to get some feedback from like minded individuals to see if I'm missing anything. I am currently on paternity leave and figure this was a good time to finally post.

Life Situation: I am 33 and wife is 36.  We have two children ages 5 and 1 month.  I work as a firefighter and my wife has stayed at home since she first became a mother.  Currently live in Missouri.  We are a little bit unique in that I absolutely love my job and I do not wish to retire early and I have an excellent pension.

Gross Salary/Wages: Base salary is 67k.  I have historically worked significant amounts of overtime and last year I had my best year at making 100k while still having good work/life balance.  My oldest will be starting Kindergarten this fall and we have discussed me not working overtime on the weekends any longer to have quality time with the kids with the oldest being in school M-F.  I am not sure how much this will ultimately affect my salary but I think I should still be able to gross 85k-90k fairly easily.

Pre-tax deductions
     Health and dental insurance:  $4612
     HSA - $5900 + $1200 employer contribution = $7100
     Pension contribution - 4% - $3566

Adjusted Gross Income: Estimated AGI for estimated income this year is $74450

Annual Taxes:
     Federal: $1563
     State:  $1040
     FICA: $4873
     Medicare: $1140

Current Monthly expenses:

     Mortgage P&I: $1415
     PMI: $80
     Property taxes: $451
     Homeowner's Insurnace: $80
     HOA: $42
     Utilities (Natural Gas, Electric, Water and Sewer): $250
     Cell Phones x 2: $50
     Internet: $33
     Disney Plus: $13
     Auto Insurance: $49
     Auto Maintenence, Tags, Taxes: $71
     Fuel: $125
     Diapers: $60
     Gym Membership: $42
     Union Dues: $93
     Groceries: $650
     Dining out when there's no COVID: $50
     Station expenses (food, cable/internet, group funding condiments and coffee, uniforms) - $125
     Life Insurance - $38
     Kids activities and sports: $38
     Household consumables, toiletries, etc: $100
     Clothing, shoes: $69
     Home Maintenance: $24
     Dog Care for old dog: $68
     Gifts and Christmas: $104
     Misc: $145

Total Expenses $4479
     
Expected ER expenses:  Wife and I would like a small travel trailer and bum around the country camping most of the time.

Assets: 
    Cash: $19,000
    457: $7,500 (I just recently stopped contributing to this.  Their fees suck)
    tIRA: $23,000
    HSA: $2500
    529:  $2200
    Pension Income:  At full retirement age of 55 in today's dollars I could expect an annual pension income of $49,000/year with 2%
    COLA/year

One paid off 22 year old sedan that I love and one paid off 12 year old SUV for the wife.

Liabilities:
   $330k mortgage, just closed on ReFi for 30 years at 3.125%.  Home value is $355k.  I know.  I have a clown house.  But we love it.
   $16,500 in student loans @ 3.39%.   Payment is $482/mo.  If paid minimum payment, would be done in about 3-4 years I'd guess. 


Current Question
 
My current plan has been once I receive my escrow refund from the refi as well as my stimulus payment and my "skipped" mortgage payment from the refi to just pay off my student loans.   It's been a long time coming and I hate making that payment.  I know the interest rate is low, but $482 a month is a big payment.  That would leave me with around $10k in cash by June. 

My current retirement plan is work until 55 and draw my pension.  At the moment, my employer will continue paying their share of my health insurance until I qualify for Medicare.  I'd be surprised if I kept that.   I can make the premium payments from my HSA.   

With the student loans paid off, I have been considering just putting everything else into a Roth and 529 for the kid's college.  I could manage $10k a year into a roth for me and the wife and $2700 a year into the 529.  A Roth makes sense to me as my tax liability is quite
low with the child tax credits and I will have a fair amount of taxable pension income when I retire.

OR, I could put more into my house and bank more on my pension income with a paid off house.  I'm not really leaning this way as my rate is so low.

OR I just say YOLO and put $4-5k a year into the Roth and spend more time traveling and less time working?  Stop working OT all together and try to lean retire at 55 and trust the pension?  If I don't work OT, I only work an average of 8 days a month anyway.  That would feel like retirement.

I appreciate thoughts and input!


LWYRUP

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Re: Paying off all my debts but the house? Now what?
« Reply #1 on: April 18, 2020, 08:44:27 AM »
Not surprising on this website, but I vote for the Roth & 529 plan and not the YOLO plan.  That pension is great, but you don't have a big stash of other assets and it would be helpful to keep building them up for a few years.

Attitudes differ on this, but I want to have saved tuition + room and board at the flagship state university for each child.  Anything above that is gravy, but that's a baseline goal for me.  Just tuition is still only $10k for year but living expenses bump that up to $30k per year or $120k total or for me $360k for all three kids (adjusted for inflation, but not a big deal if assets are reasonably invested).  Now if they can get scholarships or part time jobs that would be best, but honestly if they were financially responsible (which both my wife and I were from like 7 onwards -- I think it was just hardwired) I'd tell them to put their savings in a Roth IRA or in a security deposit fund so they start out with an emergency fund in the bank already. 

That's not a requirement anyone should feel obligated to do.  But particularly if you like your job and plan to do it until 55, it's something you should consider before you decide to YOLO.  You'll still have time later for that if you wish. 

Steeze

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Re: Paying off all my debts but the house? Now what?
« Reply #2 on: April 18, 2020, 09:03:08 AM »
Personally I would max your Roth before the 529 - never know if you will even use the 529. Kids could have a full ride or become a police officer or something. Keep maxing those Rothís until you retire. As far as the 457 - I would also max that out if you can, even if the fees suck, even if that means some OT.

I paid off my student loans early and donít regret it. I also paid off our house early and donít regret it. Mathematically unsound choices, but my overhead is crazy low now and my cash flow is great. In your shoes I would kill the student loans In one lump sum even though that is not the mantra here. I wouldnít prepay the mortgage at all - but I would save up until I had 20% down and would pay up to kill the PMI. Then I would save up to kill the mortgage in one lump sum by retirement day.

AardvarkPuppies

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Re: Paying off all my debts but the house? Now what?
« Reply #3 on: April 18, 2020, 09:33:08 AM »
Correct me if I am wrong, but in this scenario:

Let's say I put in the max for a roth and spousal roth to 12k a year.  In 13 years if my oldest decides to go to college and we are able to help, I technically could withdraw up to the contribution amount which would be $156k to help her pay for college without a tax penalty?  That's purely hypothetical.  I wouldn't ACTUALLY do that, but it's possible, yes?  I think we will have options with scholarships and my wife and I are going to try to influence 2 years of community college and then 2 years at a major university.

I think you guys are right in confirming what I've deep down known all along.  It probably better to continue to get after it at work and sock the OT money away then take gambles on our future.  I have a tremendous advantage in that OT shifts are not torture for me and I generally enjoy them.  I've been on the job for 7 years now and I'm always excited to go into work.

I'd rather have way too much money in retirement than be in a crap position and not have any recourse or have to take a second job in retirement which I definitely would be disappointed about.  On an average overtime year, I really think I should be able to max my HSA and get pretty dang close to maxing a Roth, spousal Roth, and my 457 and would put my savings rate at 41%.  I think that's pretty decent for a single income with two kids and a brand new home.

 

ysette9

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Re: Paying off all my debts but the house? Now what?
« Reply #4 on: April 18, 2020, 10:15:56 AM »
As you know better than others here, being a firefighter is a dangerous, physically demanding job. Even if you love it you may not have the luxury of working until 55. You should always prioritize your retirement savings as well as make sure you have good disability insurance.

LWYRUP

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Re: Paying off all my debts but the house? Now what?
« Reply #5 on: April 18, 2020, 10:41:11 AM »
Correct me if I am wrong, but in this scenario:

Let's say I put in the max for a roth and spousal roth to 12k a year.  In 13 years if my oldest decides to go to college and we are able to help, I technically could withdraw up to the contribution amount which would be $156k to help her pay for college without a tax penalty?  That's purely hypothetical.  I wouldn't ACTUALLY do that, but it's possible, yes?  I think we will have options with scholarships and my wife and I are going to try to influence 2 years of community college and then 2 years at a major university.

I think you guys are right in confirming what I've deep down known all along.  It probably better to continue to get after it at work and sock the OT money away then take gambles on our future.  I have a tremendous advantage in that OT shifts are not torture for me and I generally enjoy them.  I've been on the job for 7 years now and I'm always excited to go into work.

I'd rather have way too much money in retirement than be in a crap position and not have any recourse or have to take a second job in retirement which I definitely would be disappointed about.  On an average overtime year, I really think I should be able to max my HSA and get pretty dang close to maxing a Roth, spousal Roth, and my 457 and would put my savings rate at 41%.  I think that's pretty decent for a single income with two kids and a brand new home.

Yes, it is possible to use roth contributions for college and your plan is a great one.  I use a 529 because I get a deduction on my very high state taxes for doing so, up to $5k a year per child.

For a while I was funding more than that, but I decided to stop for the reasons mentioned above (what if your kid gets a scholarship and you save too much) so now I just max the state deduction each year and call it a day. 

A quick google search showed me this:  Contributions to Missouri AND non-Missouri 529 plans of up to $8,000 per year by an individual, and up to $16,000 per year by a married couple filing jointly, are deductible in computing Missouri taxable inc

That's a better deal than you will get from your Roth, so you should consider splitting contributions between the the 529 / Roth  / 457.  I'm guessing you'll spend at least some money on college in 15 years.

AardvarkPuppies

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Re: Paying off all my debts but the house? Now what?
« Reply #6 on: April 18, 2020, 11:03:23 AM »
As you know better than others here, being a firefighter is a dangerous, physically demanding job. Even if you love it you may not have the luxury of working until 55. You should always prioritize your retirement savings as well as make sure you have good disability insurance.

You are very correct.  We average probably .5% of our department leaving on a disability retirement every year.  While I would be somewhat taken care of if I became disabled on the job, I would not be if it happened off duty.  When I tried to get a supplemental LTD policy a few years ago, I was not insurable.  If I left my employment, I would have immediate access to my 457 without penalty.  It would be good to have a big chunk to rely on if that happened.  Sometimes we pretend like we won't ever become injured.

Correct me if I am wrong, but in this scenario:

Let's say I put in the max for a roth and spousal roth to 12k a year.  In 13 years if my oldest decides to go to college and we are able to help, I technically could withdraw up to the contribution amount which would be $156k to help her pay for college without a tax penalty?  That's purely hypothetical.  I wouldn't ACTUALLY do that, but it's possible, yes?  I think we will have options with scholarships and my wife and I are going to try to influence 2 years of community college and then 2 years at a major university.

I think you guys are right in confirming what I've deep down known all along.  It probably better to continue to get after it at work and sock the OT money away then take gambles on our future.  I have a tremendous advantage in that OT shifts are not torture for me and I generally enjoy them.  I've been on the job for 7 years now and I'm always excited to go into work.

I'd rather have way too much money in retirement than be in a crap position and not have any recourse or have to take a second job in retirement which I definitely would be disappointed about.  On an average overtime year, I really think I should be able to max my HSA and get pretty dang close to maxing a Roth, spousal Roth, and my 457 and would put my savings rate at 41%.  I think that's pretty decent for a single income with two kids and a brand new home.

Yes, it is possible to use roth contributions for college and your plan is a great one.  I use a 529 because I get a deduction on my very high state taxes for doing so, up to $5k a year per child.

For a while I was funding more than that, but I decided to stop for the reasons mentioned above (what if your kid gets a scholarship and you save too much) so now I just max the state deduction each year and call it a day. 

A quick google search showed me this:  Contributions to Missouri AND non-Missouri 529 plans of up to $8,000 per year by an individual, and up to $16,000 per year by a married couple filing jointly, are deductible in computing Missouri taxable inc

That's a better deal than you will get from your Roth, so you should consider splitting contributions between the the 529 / Roth  / 457.  I'm guessing you'll spend at least some money on college in 15 years.

I agree.  My wife is pretty adamant that there's at least something there for the kids if they need it.  I do not anticipate funding their entire college education, but we would like to give more help than we got, which was none.

I will have to look into what combination makes the most sense.  My missouri tax liability is also very small so while there is a benefit, I do not know if it warrants the risk of not being used for us to invest a ton into it.  I appreciate the insight!





LWYRUP

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Re: Paying off all my debts but the house? Now what?
« Reply #7 on: April 18, 2020, 12:44:56 PM »
As you know better than others here, being a firefighter is a dangerous, physically demanding job. Even if you love it you may not have the luxury of working until 55. You should always prioritize your retirement savings as well as make sure you have good disability insurance.

You are very correct.  We average probably .5% of our department leaving on a disability retirement every year.  While I would be somewhat taken care of if I became disabled on the job, I would not be if it happened off duty.  When I tried to get a supplemental LTD policy a few years ago, I was not insurable.  If I left my employment, I would have immediate access to my 457 without penalty.  It would be good to have a big chunk to rely on if that happened.  Sometimes we pretend like we won't ever become injured.

Correct me if I am wrong, but in this scenario:

Let's say I put in the max for a roth and spousal roth to 12k a year.  In 13 years if my oldest decides to go to college and we are able to help, I technically could withdraw up to the contribution amount which would be $156k to help her pay for college without a tax penalty?  That's purely hypothetical.  I wouldn't ACTUALLY do that, but it's possible, yes?  I think we will have options with scholarships and my wife and I are going to try to influence 2 years of community college and then 2 years at a major university.

I think you guys are right in confirming what I've deep down known all along.  It probably better to continue to get after it at work and sock the OT money away then take gambles on our future.  I have a tremendous advantage in that OT shifts are not torture for me and I generally enjoy them.  I've been on the job for 7 years now and I'm always excited to go into work.

I'd rather have way too much money in retirement than be in a crap position and not have any recourse or have to take a second job in retirement which I definitely would be disappointed about.  On an average overtime year, I really think I should be able to max my HSA and get pretty dang close to maxing a Roth, spousal Roth, and my 457 and would put my savings rate at 41%.  I think that's pretty decent for a single income with two kids and a brand new home.

Yes, it is possible to use roth contributions for college and your plan is a great one.  I use a 529 because I get a deduction on my very high state taxes for doing so, up to $5k a year per child.

For a while I was funding more than that, but I decided to stop for the reasons mentioned above (what if your kid gets a scholarship and you save too much) so now I just max the state deduction each year and call it a day. 

A quick google search showed me this:  Contributions to Missouri AND non-Missouri 529 plans of up to $8,000 per year by an individual, and up to $16,000 per year by a married couple filing jointly, are deductible in computing Missouri taxable inc

That's a better deal than you will get from your Roth, so you should consider splitting contributions between the the 529 / Roth  / 457.  I'm guessing you'll spend at least some money on college in 15 years.

I agree.  My wife is pretty adamant that there's at least something there for the kids if they need it.  I do not anticipate funding their entire college education, but we would like to give more help than we got, which was none.

I will have to look into what combination makes the most sense.  My missouri tax liability is also very small so while there is a benefit, I do not know if it warrants the risk of not being used for us to invest a ton into it.  I appreciate the insight!

Depending on things like fees and current vs. expected future tax rates, you might find the most logical thing to do is (1) max the Roths, (2) fund the 529s up to the level that makes your wife comfortable you will have "something" when kids are 18 and (3) balance in 457.

My 457 has high-ish fees so while I like and use the tax advantaged space, it's less valuable than Roth & 529 to me. 

AardvarkPuppies

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Re: Paying off all my debts but the house? Now what?
« Reply #8 on: April 21, 2020, 06:55:20 AM »
As you know better than others here, being a firefighter is a dangerous, physically demanding job. Even if you love it you may not have the luxury of working until 55. You should always prioritize your retirement savings as well as make sure you have good disability insurance.

You are very correct.  We average probably .5% of our department leaving on a disability retirement every year.  While I would be somewhat taken care of if I became disabled on the job, I would not be if it happened off duty.  When I tried to get a supplemental LTD policy a few years ago, I was not insurable.  If I left my employment, I would have immediate access to my 457 without penalty.  It would be good to have a big chunk to rely on if that happened.  Sometimes we pretend like we won't ever become injured.

Correct me if I am wrong, but in this scenario:

Let's say I put in the max for a roth and spousal roth to 12k a year.  In 13 years if my oldest decides to go to college and we are able to help, I technically could withdraw up to the contribution amount which would be $156k to help her pay for college without a tax penalty?  That's purely hypothetical.  I wouldn't ACTUALLY do that, but it's possible, yes?  I think we will have options with scholarships and my wife and I are going to try to influence 2 years of community college and then 2 years at a major university.

I think you guys are right in confirming what I've deep down known all along.  It probably better to continue to get after it at work and sock the OT money away then take gambles on our future.  I have a tremendous advantage in that OT shifts are not torture for me and I generally enjoy them.  I've been on the job for 7 years now and I'm always excited to go into work.

I'd rather have way too much money in retirement than be in a crap position and not have any recourse or have to take a second job in retirement which I definitely would be disappointed about.  On an average overtime year, I really think I should be able to max my HSA and get pretty dang close to maxing a Roth, spousal Roth, and my 457 and would put my savings rate at 41%.  I think that's pretty decent for a single income with two kids and a brand new home.

Yes, it is possible to use roth contributions for college and your plan is a great one.  I use a 529 because I get a deduction on my very high state taxes for doing so, up to $5k a year per child.

For a while I was funding more than that, but I decided to stop for the reasons mentioned above (what if your kid gets a scholarship and you save too much) so now I just max the state deduction each year and call it a day. 

A quick google search showed me this:  Contributions to Missouri AND non-Missouri 529 plans of up to $8,000 per year by an individual, and up to $16,000 per year by a married couple filing jointly, are deductible in computing Missouri taxable inc

That's a better deal than you will get from your Roth, so you should consider splitting contributions between the the 529 / Roth  / 457.  I'm guessing you'll spend at least some money on college in 15 years.

I agree.  My wife is pretty adamant that there's at least something there for the kids if they need it.  I do not anticipate funding their entire college education, but we would like to give more help than we got, which was none.

I will have to look into what combination makes the most sense.  My missouri tax liability is also very small so while there is a benefit, I do not know if it warrants the risk of not being used for us to invest a ton into it.  I appreciate the insight!

Depending on things like fees and current vs. expected future tax rates, you might find the most logical thing to do is (1) max the Roths, (2) fund the 529s up to the level that makes your wife comfortable you will have "something" when kids are 18 and (3) balance in 457.

My 457 has high-ish fees so while I like and use the tax advantaged space, it's less valuable than Roth & 529 to me. 

I ultimately have decided to make the contribution into my 529 vs. a Roth.  For some reason the thought of putting it into the Roth made me feel uneasy like I would potentially resent having to use it on education expenses instead of using it on my own selfish retirement.  We will likely be able to cover around 1/3 of our kids estimated expenses.

At this point with a lot of excessive thinking about it, I've decided to just max out one Roth to leave aside some money to save cash in the budget.  We also want to live just a little with camping trips with the kids.  So my savings rate is going to be a very unmustachian 25%, but I've decided I'm okay with that for now.  The goal is to eventually bump that up to both Roths as well as 457 contributions as I get contract raises and hopefully promote one more time.

Granted I last my full career and draw my regular pension, I should have estimated living expenses $10,000 a year less (conservative) than my pension income, so I feel decent about the plan for me.

LWYRUP

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Re: Paying off all my debts but the house? Now what?
« Reply #9 on: April 21, 2020, 07:17:33 AM »
As you know better than others here, being a firefighter is a dangerous, physically demanding job. Even if you love it you may not have the luxury of working until 55. You should always prioritize your retirement savings as well as make sure you have good disability insurance.

You are very correct.  We average probably .5% of our department leaving on a disability retirement every year.  While I would be somewhat taken care of if I became disabled on the job, I would not be if it happened off duty.  When I tried to get a supplemental LTD policy a few years ago, I was not insurable.  If I left my employment, I would have immediate access to my 457 without penalty.  It would be good to have a big chunk to rely on if that happened.  Sometimes we pretend like we won't ever become injured.

Correct me if I am wrong, but in this scenario:

Let's say I put in the max for a roth and spousal roth to 12k a year.  In 13 years if my oldest decides to go to college and we are able to help, I technically could withdraw up to the contribution amount which would be $156k to help her pay for college without a tax penalty?  That's purely hypothetical.  I wouldn't ACTUALLY do that, but it's possible, yes?  I think we will have options with scholarships and my wife and I are going to try to influence 2 years of community college and then 2 years at a major university.

I think you guys are right in confirming what I've deep down known all along.  It probably better to continue to get after it at work and sock the OT money away then take gambles on our future.  I have a tremendous advantage in that OT shifts are not torture for me and I generally enjoy them.  I've been on the job for 7 years now and I'm always excited to go into work.

I'd rather have way too much money in retirement than be in a crap position and not have any recourse or have to take a second job in retirement which I definitely would be disappointed about.  On an average overtime year, I really think I should be able to max my HSA and get pretty dang close to maxing a Roth, spousal Roth, and my 457 and would put my savings rate at 41%.  I think that's pretty decent for a single income with two kids and a brand new home.

Yes, it is possible to use roth contributions for college and your plan is a great one.  I use a 529 because I get a deduction on my very high state taxes for doing so, up to $5k a year per child.

For a while I was funding more than that, but I decided to stop for the reasons mentioned above (what if your kid gets a scholarship and you save too much) so now I just max the state deduction each year and call it a day. 

A quick google search showed me this:  Contributions to Missouri AND non-Missouri 529 plans of up to $8,000 per year by an individual, and up to $16,000 per year by a married couple filing jointly, are deductible in computing Missouri taxable inc

That's a better deal than you will get from your Roth, so you should consider splitting contributions between the the 529 / Roth  / 457.  I'm guessing you'll spend at least some money on college in 15 years.

I agree.  My wife is pretty adamant that there's at least something there for the kids if they need it.  I do not anticipate funding their entire college education, but we would like to give more help than we got, which was none.

I will have to look into what combination makes the most sense.  My missouri tax liability is also very small so while there is a benefit, I do not know if it warrants the risk of not being used for us to invest a ton into it.  I appreciate the insight!

Depending on things like fees and current vs. expected future tax rates, you might find the most logical thing to do is (1) max the Roths, (2) fund the 529s up to the level that makes your wife comfortable you will have "something" when kids are 18 and (3) balance in 457.

My 457 has high-ish fees so while I like and use the tax advantaged space, it's less valuable than Roth & 529 to me. 

I ultimately have decided to make the contribution into my 529 vs. a Roth.  For some reason the thought of putting it into the Roth made me feel uneasy like I would potentially resent having to use it on education expenses instead of using it on my own selfish retirement.  We will likely be able to cover around 1/3 of our kids estimated expenses.

At this point with a lot of excessive thinking about it, I've decided to just max out one Roth to leave aside some money to save cash in the budget.  We also want to live just a little with camping trips with the kids.  So my savings rate is going to be a very unmustachian 25%, but I've decided I'm okay with that for now.  The goal is to eventually bump that up to both Roths as well as 457 contributions as I get contract raises and hopefully promote one more time.

Granted I last my full career and draw my regular pension, I should have estimated living expenses $10,000 a year less (conservative) than my pension income, so I feel decent about the plan for me.

Sounds like a great setup to me 👍

I'm more of a "boglehead" type than a pure FIRE devotee myself.  I'm on track to be done somewhere between 40-50 and am not too bothered about exactly when as long as I'm keeping pace.  For most people, balance is the optimal solution.

Laura33

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Re: Paying off all my debts but the house? Now what?
« Reply #10 on: April 21, 2020, 07:49:55 AM »
First, it sounds like you are in a good position and have a good head on your shoulders.  When you evaluating which is the better of several good choices, you have already won, so congratulations. 

My biggest concern for you is appropriately protecting your downside risk, which means identifying what might happen and figuring out a plan to mitigate those risks (yes, I am a total ray of sunshine).  For example:  disability.  You aren't eligible for LTD, which sucks.  So what that means is that you need significantly more money in accessible savings/investments to be able to tide you over; you also need to be thinking of some alternate job plan if you need to support an earlier-than-expected retirement.  As you know already, you have a very physically-demanding job.  And as you start to get older, the body starts to get less forgiving as all those little ways you misuse your body start to add up.  All it takes is one ruptured disc or something like that -- you'd certainly be able to continue working, but probably not as a firefighter.  So what's the backup plan?  Would you go back to school for some sort of retraining; would your wife go back to work, and if so would she need more school/retraining; and if so, how would you cover that?  Etc.  No need to make dramatic changes, of course, but those sorts of concerns suggest that you may want a bigger EF and/or to put your extra cash somewhere you can get it without penalty (e.g., maybe the Roth is better after all, because you can withdraw the contributions).

Also make sure you are considering longer-term irregular costs in your budget and putting some aside each month for that.  Your cars will need new tires and periodic $$$ service, and you will eventually need a new(er) car; the house will need a new dishwasher and roof and HVAC and 800 other things; etc.  If you budget for that kind of stuff every month, you don't need to worry when those expenses pop up.

Finally, it's a good idea not to make any big plans about career or OT or anything like that right now, because at this point, you don't yet know what life is going to be like when your oldest starts school.  Maybe there will be extra expenses that you're not even thinking of now -- field trips, school supplies/fees, peer-pressure purchases, after-school activities and lessons, etc. -- and you'll decide that you want to continue working a lot of OT to cover those extra costs.  Or maybe you find you really, really miss all the extra time with your girl now that she's in school all day, and you decide you want to stop with the weekend OT so you get the time you want with her.  Or maybe in 10 years you're just done with the firefighting; as much as you love it now, you don't know who you'll be in 10-15 years.  Again, the best thing you can do is sock away as much as you can right now, while you have so much OT available and you're really enjoying your job so much, so that if your goals or priorities change in a few years, you have the financial freedom to make whatever decision you want.

(Oh, and finally-finally:  stop spending your HSA on current medical bills.  That is by far your best supplemental retirement account)

AardvarkPuppies

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Re: Paying off all my debts but the house? Now what?
« Reply #11 on: April 21, 2020, 08:46:19 AM »
First, it sounds like you are in a good position and have a good head on your shoulders.  When you evaluating which is the better of several good choices, you have already won, so congratulations. 

My biggest concern for you is appropriately protecting your downside risk, which means identifying what might happen and figuring out a plan to mitigate those risks (yes, I am a total ray of sunshine).  For example:  disability.  You aren't eligible for LTD, which sucks.  So what that means is that you need significantly more money in accessible savings/investments to be able to tide you over; you also need to be thinking of some alternate job plan if you need to support an earlier-than-expected retirement.  As you know already, you have a very physically-demanding job.  And as you start to get older, the body starts to get less forgiving as all those little ways you misuse your body start to add up.  All it takes is one ruptured disc or something like that -- you'd certainly be able to continue working, but probably not as a firefighter.  So what's the backup plan?  Would you go back to school for some sort of retraining; would your wife go back to work, and if so would she need more school/retraining; and if so, how would you cover that?  Etc.  No need to make dramatic changes, of course, but those sorts of concerns suggest that you may want a bigger EF and/or to put your extra cash somewhere you can get it without penalty (e.g., maybe the Roth is better after all, because you can withdraw the contributions).

Also make sure you are considering longer-term irregular costs in your budget and putting some aside each month for that.  Your cars will need new tires and periodic $$$ service, and you will eventually need a new(er) car; the house will need a new dishwasher and roof and HVAC and 800 other things; etc.  If you budget for that kind of stuff every month, you don't need to worry when those expenses pop up.

Finally, it's a good idea not to make any big plans about career or OT or anything like that right now, because at this point, you don't yet know what life is going to be like when your oldest starts school.  Maybe there will be extra expenses that you're not even thinking of now -- field trips, school supplies/fees, peer-pressure purchases, after-school activities and lessons, etc. -- and you'll decide that you want to continue working a lot of OT to cover those extra costs.  Or maybe you find you really, really miss all the extra time with your girl now that she's in school all day, and you decide you want to stop with the weekend OT so you get the time you want with her.  Or maybe in 10 years you're just done with the firefighting; as much as you love it now, you don't know who you'll be in 10-15 years.  Again, the best thing you can do is sock away as much as you can right now, while you have so much OT available and you're really enjoying your job so much, so that if your goals or priorities change in a few years, you have the financial freedom to make whatever decision you want.

(Oh, and finally-finally:  stop spending your HSA on current medical bills.  That is by far your best supplemental retirement account)

You are correct!

It's not to say that I don't have LTD insurance.  I do and wasn't clear about it early.  It just isn't the greatest, especially for my career field.  If I was to become injured on the job and could not return to work, I would receive a disability pension that pays me out like I worked until I was age 60.  So that would work out for us.  If I became injured off the job and could not return, I do have an employer paid LTD policy that pays me at 60% of base pay for 2 years.  So I do have something in place, it just isn't as much as I like.  I would have to bridge the gap with savings and likely have my wife return to work.  We are both college educated, so we at least have options.  I would likely find a way to go back to school if I wasn't totally disabled, but disabled enough to not be able to go into burning houses any longer.

I budget for the unexpected (although not as much as I would like!), I've been a faithful YNABer for over ten years.  I have a pretty good idea of my irregular expenses and have them broken down in YNAB in a lot more detailed fashion than I posted here.  The cost is fairly low right now as I have a one year old clown home, and outside of putting on roofs, I do all the work myself.  I have a plan in place to sock that money back in after paying off the student loan to have funds available for major home repairs, auto replacement, homeowners deductible, etc.

You are so right about not knowing what life is going to look like come Kindergarten.  Up until now, if I work every weekend, it has never mattered because my family is home 7 days a week.  I'm trying to make conservative estimates and then plan on flexibility to adjust.

Thank you for your thoughtful insight!  I appreciate it.  :)

PS - HOW DID YOU KNOW I SPEND MY HSA ON MEDICAL BILLS???


Laura33

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Re: Paying off all my debts but the house? Now what?
« Reply #12 on: April 21, 2020, 10:26:57 AM »
PS - HOW DID YOU KNOW I SPEND MY HSA ON MEDICAL BILLS???

I'm psychic.

Or maybe it's because you are contributing $7K/yr but only have $2500 currently in the account.  ;-)

seattlecyclone

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Re: Paying off all my debts but the house? Now what?
« Reply #13 on: April 22, 2020, 08:14:53 PM »
You're mostly in very good shape. Your expenses seem to all be very reasonable. You could probably shave a bit off your grocery bill if you put your mind to it, but I've seen much worse. Your base salary should be more than enough to pay the bills, so don't push yourself too hard to pick up overtime shifts while you have a newborn in the house. It's great that you have the opportunity to scale up your income as needed. You might find a better opportunity to pad the kids' college fund once everyone is sleeping normally again.

If you do make it to 55 as a firefighter your pension should be plenty and all your savings will basically be gravy on top. If you don't, it will sure be nice to have some savings. Would certainly be useful to know in advance which way life will go, wouldn't it? :-)

I didn't see anyone else mention social security disability yet, so I just want to point out that exists. It may not be a perfect solution in your case because it only pays out if you're too disabled to work any job, and it's easy to imagine an injury that could force you out of firefighting while still leaving you able to do a lot of other work. Still, something to be aware of as something you have in addition to your other coverage. Try logging on to the social security website to see how much this would be based on your existing earning history. You may be pleasantly surprised. While you're at it look to see what the survivor's benefits would be if you were to pass away. Consider whether this makes any difference in the amount of life insurance you wish to carry.

One medium-term goal I might suggest for you is to get rid of the PMI on your mortgage. While I fully support holding a 3.125% mortgage during the accumulation phase of your financial life, the PMI adds another few percent to the effective interest you're paying on that first chunk of principal. This is probably going to pay off better than accelerating your student loan payments beyond the minimum.

As to investing, I think it's perfectly reasonable to prioritize IRAs and 529s over a high-fee 457 plan, especially if you don't actually intend to make early withdrawals.

Let's say I put in the max for a roth and spousal roth to 12k a year.  In 13 years if my oldest decides to go to college and we are able to help, I technically could withdraw up to the contribution amount which would be $156k to help her pay for college without a tax penalty?

Yes, you can pull out your Roth contributions for free at any time for any reason. It's a lot cheaper to dip into your Roth for education if the 529 doesn't have enough than it is to use your 529 funds for non-education purposes if you end up with more in there than you need or want to spend on college. For this reason I'd generally err on the side of underfunding a 529 and overfunding a retirement account instead of the other way around.

AardvarkPuppies

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Re: Paying off all my debts but the house? Now what?
« Reply #14 on: April 24, 2020, 12:23:37 PM »
You're mostly in very good shape. Your expenses seem to all be very reasonable. You could probably shave a bit off your grocery bill if you put your mind to it, but I've seen much worse. Your base salary should be more than enough to pay the bills, so don't push yourself too hard to pick up overtime shifts while you have a newborn in the house. It's great that you have the opportunity to scale up your income as needed. You might find a better opportunity to pad the kids' college fund once everyone is sleeping normally again.

I would love to spend a little less on groceries!  My current grocery situation is this:  My wife does the shopping, and the cooking.  From the outside looking in, I can see where we could save by buying cheaper/less frozen veggies, less meat, etc., but it's a situation that she does enjoy the convenience of buying things that are easy to make when things are rushed.  Over the years we have reduced our grocery bill from $1000 a month down to our current spending of $650.  Maybe I can discuss it with her and see what she thinks.  But if that falls flat on it's face, I'm not sure if it's a battle that I'm willing to fight. 

I didn't see anyone else mention social security disability yet, so I just want to point out that exists. It may not be a perfect solution in your case because it only pays out if you're too disabled to work any job, and it's easy to imagine an injury that could force you out of firefighting while still leaving you able to do a lot of other work. Still, something to be aware of as something you have in addition to your other coverage. Try logging on to the social security website to see how much this would be based on your existing earning history. You may be pleasantly surprised. While you're at it look to see what the survivor's benefits would be if you were to pass away. Consider whether this makes any difference in the amount of life insurance you wish to carry.


You are correct.  One nightmare is being injured off the job and not being able to return to my job, but could go do another job.  If it happens at work, I'm golden.  I'm also worth a whole lot more dead than alive! 

One medium-term goal I might suggest for you is to get rid of the PMI on your mortgage. While I fully support holding a 3.125% mortgage during the accumulation phase of your financial life, the PMI adds another few percent to the effective interest you're paying on that first chunk of principal. This is probably going to pay off better than accelerating your student loan payments beyond the minimum.

As to investing, I think it's perfectly reasonable to prioritize IRAs and 529s over a high-fee 457 plan, especially if you don't actually intend to make early withdrawals.


This is another thing I have considered.  PMI essentially adds the equivalent of of slightly over .25% to our loan making the rate around 3.41%.  I'm still not sure if I want to contribute much to the principal right now, but it has been something I have been considering. 

I think what makes all this so difficult is I feel like they are all decent options and barring any catastrophes, we should be fairly well set on retirement.  I think what I need to remind myself is that plans are fluid and don't have to be set in stone.

Currently, I've made $11,000 in student loan payments this week which was a big chunk of my savings.  Mathematically, it's the wrong move.  But psychologically, I am just so ready to be done with the payment.  Once my stimulus money comes and I get my escrow refund back, I will be finished with student loans.  Between my wife and I, we have paid off around $50,000 in student loans over the last 4-5 years.

So with the student loans wrapping up, my next order of business is to build my savings account back up to at least $10,000 while making HSA payroll contributions which should take us around 3 months.  I think the immediate game plan is Roth contributions, some 529 contributions, and see what that looks like for us.  I ultimately decided to continue the 529 to a certain extent as it helps me mentally to have at least some money that is absolutely set for education.  I can see where I could potentially feel slightly resentful having to use money that could be for retirement.  Silly, but honest.
« Last Edit: April 24, 2020, 12:25:20 PM by AardvarkPuppies »

AardvarkPuppies

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Re: Paying off all my debts but the house? Now what?
« Reply #15 on: April 25, 2020, 06:35:45 AM »

This is another thing I have considered.  PMI essentially adds the equivalent of of slightly over .25% to our loan making the rate around 3.41%.  I'm still not sure if I want to contribute much to the principal right now, but it has been something I have been considering. 

Aha!  I'm an idiot!  Glad I did some further research on this because the math was not apparent to me.

So since the cost of PMI is a fixed annual cost, you can calculate return on investment (which I wasn't looking at as variable) by:

Annual PMI cost / Balance of amount left until 80% LTV.

So right now, my annual PMI cost is $958.44 and the current amount to get to 80% LTV is $46,500.

958.44/46500 = ~2% + loan interest rate of 3.125% = 5.125%.  That's not awful.

But fast forward to payment 36 and......

958.44/25,578 = ~3.7% + 3.125% = ~6.8%.  Oof!

I can see where this eventually becomes a pants on fire emergency and would be foolish to not pay off.  Calculating this into the total APR of the loan was silly of me, because the PMI is obviously not for the total life of the loan!

And just for funnies, payment 60

958/10501 = 9.12% + 3.125% = 12.25%!!!

I'll gladly plop down 10,501 towards principle to get a 12% ROI. 

SOOOOO, I think I am going to save the EF back up and then kill the PMI. 

PeterRTM

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Re: Paying off all my debts but the house? Now what?
« Reply #16 on: April 27, 2020, 09:58:43 AM »
The most powerful savings tools ranked.

HSA: tax free contribution, tax free growth, tax free withdrawals.  At 65 (you plan to work until retirement) this money can be used for non medical expenses like a retirement account with some limitation.  Do your own research.  Max this and never use it.

Roth:  at your age and tax bracket you should be putting as much into this as you can.  Figure out a way to hire your wife on a 1099 and put 12,000 in per year before contributing to anything else except your HSA (I wish my employer offered a high deductible plan).

457, 401k, 403b, 403g: IF and only IF your employer gives some kind of match in which case contribute as much as you can to maximize the match.  This matching portion is actually the number one most valuable investment you can make.  Anything more than that falls far short of the HSA and Roth.

tIRA:  Donít contribute to this until you have maxed the above three accounts.  Consider converting your existing balance to a Roth.  There will be a tax implication or maybe not considering the current market situation.  You will have to figure out the taxes.  But these dollars are much better off in a Roth at your age.

529:  I would not personally open an account like this.  Do some digging to find an alternative for your kidís education.  Also, your kidís education should be secondary to your retirement.  They can get loans if necessary just like you did.

Your student loan:  pay this off as quickly as you can.  Never borrow money for a liability again. Paying this off should be your top priority.

Your mortgage.  Refi into a 15 year or 20 at least.  Pay MINIMUM payment until you are 40.  At 41 begin overpaying your mortgage.  Aim to have it paid by 50.

At your age the power of compounding interest is incredible.  Save as much as you can while you are young.  At age 31 every dollar you save can potentially turn into 30 dollars.  This is the true cost of purchases you make today.  That $4 Starbucks actually costs you $120.  A new tv for $1000 actually costs you $30,000.  Use this exercise every time you want to make a discretionary purchase.

You are off to a great start!  Keep up the grit and determination!

Peter RTM

Feivel2000

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Re: Paying off all my debts but the house? Now what?
« Reply #17 on: May 06, 2020, 06:48:32 AM »
Quote
Disney Plus: $13

You can share an account with someone. I'm paying less than 1Ä per month :P