I would appreciate a check on my thinking. I’ve been reading and enjoying MMM, feeling the kindred spirit of this community, as I’ve been living my whole life in alignment with these philosophies. However, I find myself in a very new financial situation – a family inheritance put us in position where we have choices with our finances. After much reading and thinking and figuring, I’ve put together the following financial plan, and that’s where I’d like you fellow Mustachians' thoughts and comments. I’m trying to be brief so I don’t waste anyone’s time, so if you need more information, just ask. Thank you, for your time and suggestions.
We are a family of 3 – My hubby is 61, I (wife/mom) am 51, and our son is 13. All of our parents have died within the last 5 years, and the (un-expected and generous) inheritances have settled. Hubby is retired from the Federal Government, after paying off our home with inherited monies. I have worked in the Environmental field for over 30 years, albeit as a sole-proprietor on a project by project consultant basis since my son was born 13 years ago. I/we have been working together on putting together a financial plan with our monies to ensure security in our later years, our son gets through college, and that we can also spend and enjoy some of our money today (on life experiences, travel, etc.). Bottom line is we want to be financially responsible for our old-age, main bread-winner (hubby) is retired, son’s college years 5-9 years away (he’ll start college in 5 years, go 4 years or more) and I feel like our big expenditure years are now while our son is home and in college.
Here’s our Current Financial Assets and Percentages in each of my categories:
Rental Property (inherited) $420,000 58%
Cash (need for next 5-6 yrs.) $138,333 19%
Safer Stocks or Bonds (5-10 yrs horizon) $119,046 16%
Longer term investments > 10 yr. horizon) $48,136 7%
Total = $725,515 100%
My biggest question has to do with my categories and percentage of monies in each. There’s a philosophy that says you shouldn’t put ANY monies into the stock market that you’ll need within 10 years; and then another philosophy that says you could at least try to invest to beat inflation but not take too much risk, etc.
Based on our income/expense spreadsheet that calculates this draw every year until I’m 90, I feel we do not need to take much risk other than to beat inflation and not lose money. We’d also like experience in the market to be able to invest wisely when sell the rental house (by my income/expense spreadsheet, approx. 12 years from now).
Hubby and I have talked about this at length, and we do not want to look at or manage our money daily – we want to have a plan (asset allocation), monitor how it’s doing, and make adjustments when needed, hopefully at the most once or twice a year.
Particulars:
The rental property ($420k) is in a very desirable location and will appreciate yearly (at least at the rate of inflation). The current renters have been with the house for over 20 years, and there are no problems. Current renters may want to be there indefinitely – they are in their early 60’s. We have a year to year contract with them.
Cash ($138k) is/will be held in basic savings account (currently earning 0.12%). Based on our income/expense spreadsheet, we are going to need to draw between 20 – 25k from our savings acct. for these next 10 years. Our yearly draw from savings drops precipitously after the college years.
The 5-10 year horizon monies ($119k – monies needed in 5-10 years – should be like $125k, but we only have $119k right now) are currently sitting in cash in retirement accounts.
The > 10 years monies are actually just my (wife/mom, age 51) Roth/Ira accounts, and don’t want to touch ‘till I’m 59½, which is roughly 10 years from now. They, too, are sitting in cash.
These assets do not include our residence, which is paid for, and values around $300k. We don’t plan to move from here until we absolutely have to.
Should we invest any of our monies in the market to at least beat inflation? Should we be more aggressive with some and/or safer? If so, how much and for which time horizon? With these answers, the next question would be to determine specific investments/stocks/bonds/REITs/indexes/etc. within each of these categories.
I’ve been tracking about 25 index funds in different sub-categories for about 6 months now, and even though the market is at a high right now, at least for the longer term investments, we’re ready to start investing.
Since I have my head in these numbers all the time, I’m not sure if I’m providing all the information you need to respond…..thanks again, for any comments.