Burnt Out in Boston is switching their focus from financial independence to taking a mini-retirement. How can they financially and mentally prepare for this leap?
Matthew is torn: should he and his wife – both 26 – max out their Roth IRAs and then save up for a rental property, or simply save cash for the rental and worry about their Roth later?
Jake and his wife want to retire in five years, at which point they’ll have 14 years before they can access their 401k funds. To help bridge that gap, Jake wants to know: what should their asset allocation look like for their taxable brokerage account?
This year, Kim’s employer enrolled all employees into a “fully funded indemnity program combined with a nationwide direct primary care membership.” What the heck is this program, and how might it impact Kim’s finances?
Finally, Deva and her husband are fed up with their messy tenants. They’re kind and responsible, but they’ve left the yard a mess. They have a clause in the lease that addresses this, so beyond that, what can they do?
My friend and former financial planner, Joe Saul-Sehy, joins me to answer these questions on today’s show. Enjoy!
Burnt Out in Boston asks (at 2:43 minutes):
Ever since discovering your interview with Mrs. Frugalwoods, I’ve wanted to reach financial independence as soon as possible. However, working for years on end and being at a demanding biotech job has made me realize a mini-retirement may be a better goal.
I’m not sure how to swing this, though. How do I adjust my mindset and my goals to make room for a mini-retirement? Are there any calculators that can help me? I want to run through my numbers and ensure that I’m financially ready to make this leap.
Here’s some background: I earn $70,000 per year, I’m 24, and I try to keep my cost of living very low by staying with family. In case this arrangement goes south, I have a six-month emergency fund which includes rent and security deposits. I have $40,000 in Federal student loans, and I’m about to pay off my car. I’m also saving for a househack, for the dual purpose of cash flow for FI and lowering my expenses. I live in an expensive city, so this goal might have a longer timeline.
Matthew asks (at 18:05 minutes):
Should we max out Roth IRAs and then save cash for a rental property, or just save cash for the rental and worry about the Roth later?
Here’s our situation: My wife and I are 26 and we make around $100,000 per year. We can save around $2,500 to $3,000 per month.
Last year, we got married and purchased a duplex, which we househack. This drained our cash reserves to $20,000 – that’s all we have, so we don’t want to touch it. But the duplex is going so well that we’re itching to buy more rentals.
Our goal is to have enough cash flow from rentals that work becomes optional. I enjoy my job, but my wife is a nurse who’s under a lot of stress, and she would eventually like to stop working. If we can only save between $30,000 – $35,000 per year, is it better to split this money towards our Roth IRAs and a downpayment? Or should we focus solely on saving for a rental?
For context, we have $82,500 in retirement savings between her 401k, both of our Roth IRAs, a deferred compensation plan, and my pension. I have a Finance degree, and I calculated that if we don’t contribute any more to our retirement savings, it can grow anywhere from $700,000 to $1.2M, depending on interest rates and our future.
What do you think we should do?
Jake asks (at 29:12 minutes):
My wife and I plan to retire in 2026, at age 46 and 45, respectively. Our 401k’s are in great shape, and we won’t need to touch that money until age 59.5. We’re confident that the 401k balance will be enough to carry us through the rest of our retirement. My question is: what we can do between 45/46 and 59.5 to set ourselves up for long-term success?
We have $500,000 in a taxable brokerage at a 90 percent equity/10 percent fixed-income ratio. (It’s mostly in VTSAX for equities and VTBLX for bonds.) We contribute between $80,000 and $100,000 per year into this account, and plan to continue this contribution for the next five years.
Additionally, we both have access to Restricted Stock Units as part of our compensation. The balance of our RSU’s is $235,000. To reduce the risk of being overly indexed in one company, we always sell the units that vest once per year and move the money to our taxable account.
Assuming a conservative five percent annual return, we’ll have around $1.2M in our taxable brokerage when we retire. This doesn’t include any stock that we’ll have left to keep for the dividend or sell as we go through early retirement.
We also plan to save $150,000 in cash towards the end of our careers, which we’ll use to pay ourselves in case of a bear market or a market dip during retirement.
As we inch towards 2026, how and when should I start to increase exposure to fixed-income in those taxable accounts, and where should I put that money? As we put more money into our taxable brokerage, rather than focus on the 90/10 split, should I buy more bonds? If so, what types of bonds? I want to limit our tax implications in early retirement and set ourselves up for long-term success. We want to avoid selling equities in a down market and instead focus on ways we can make income until the market rises again.
Kim asks (at 48:38 minutes):
Starting January 1, my company automatically enrolled its employees into a “fully funded indemnity program combined with a nationwide direct primary care membership”. I’ve tried to research this program and how it works, but I’m coming up empty and no one at my workplace can explain it. To unenroll, we’re required to fill out a form within 60 days after January 1.
Further, if you have this plan, less is paid out to social security each paycheck. I’m unable to figure out its tax implications or potential impact on social security income. Apparently, there’s more in the take-home pay, but we’ve only been provided with a generic pay stub example – no explanations.
This used to be an optional program, and I can only assume that this program benefits my employer – I think they’re trying to find ways to decrease losses during the pandemic (I work for a non-profit nursing home rehab facility).
I understand that this is a type of primary healthcare plan, but it’s in excess to our regular employer provided health plan. Do you have any insight on this?
Deva asks (at 55:40 minutes):
Five years ago, my husband and I purchased a primary residence with a cabin on the property. We live in the cabin, and the main house is rented out…to slobs. They’re using a greenhouse as a storage unit where things are growing moldy and appliances are strewn across the yard. They are great, kind people who pay their rent on time, and they’re low-maintenance in terms of management, but they’re clearly not keeping the property in good condition.
When we renewed their lease last year, we pointed out a clause that states that the property needs to be kept in good shape. We asked them to remove the appliances and tidy up, and they agreed, but nothing has happened since. We don’t want to kick them out, but we’re wondering what the inside of the house looks like if the outside looks this bad. They have pets and kids!
How can we effectively communicate with them? What language can we use in our lease to ensure that the property is kept in better condition?
Burnt out in Boston’s question:
- VIP List | Afford Anything
- 7 Expensive Rental Property Mistakes to Avoid | Afford Anything
- 7 Habits of Highly Effective People | Book by Stephen Covey
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