Anna and her husband have volatile income, but Anna thinks that having 18 months of living expenses is unnecessary. She’s torn between paying off her student loans ($30,000) or investing the money. Mentally, she always figured she would pay off her debt first, but wouldn’t investing pay off in the long run?
Charlotte and her husband are taking a phased approach to financial independence, where they need to bridge two gaps before they each turn 59 ½. How can they calculate how much they need at each phase?
Elle has a retirement plan in place, but her company is adding a Roth 403(b) option soon. Should she stay the course or adjust her strategy in these last five years before retiring?
Sara wants to purchase land and build her dream house by refinancing her rental property and turning her current home into a second rental. How can she improve this plan?
Joe Saul-Sehy, my friend and former financial planner, joins me to tackle these questions on today’s episode.
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Anna asks (at 3:10 minutes): My husband and I live in the Seattle area. My husband is a real estate agent, and I am a loan processor for a private mortgage company. I earn about $50,000 to $60,000 annually, depending on my bonuses.
Over the last few years, my husband’s income has grossed between $120,000 to $150,000 annually. He just hired a showing partner for $40,000 per year who will assist him in showing homes, and who we hope will help him increase his production.
We’ve been paying off debt so we haven’t invested, despite wanting to. Currently, the only debt we have is our house, our cars and my student loans. My student loans are about $30,000 at 6% interest. My payments are $350 a month and I have nine years left. We currently have $150,000 in savings, which is about 18 months of living expenses – not including the showing partner’s salary. I also have a few thousand dollars in a 401k.
Obviously, we don’t need 18 months of reserves, so we’re considering our options.
First, I’ve considered paying off my student loans in one sweep. But with our variable incomes and the added liability of my husband’s showing partner, I’m unsure if the benefit of paying off the loans outweighs the risk of taking $30,000 from our savings.
I’ve also thought about making regular payments on my student loans and investing that $30,000 in index funds. That would result in $30,000 less in our savings and we’d still have $350 a month in student loan payment. I wonder if the investment would pay off and be more beneficial in the long run versus using that $30,000 to get rid of a $350 a month payment.
Our overarching goal is to fund our retirement. In my mind, the last step before investing was paying off my student loans.
I am wondering if I should skip that step and just go for it. What advice do you have?
Elle asks (at 21:32 minutes): I have about $600,000 in a 403b Vanguard retirement account. I make $85,000 annually from my W-2 and clear $11,000 annually from my rental property.
My husband makes $63,000 annually from his W-2 and his rental, combined. He has about $100,000 in a simple IRA and together, we have $80,000 in our Roth IRA’s.
He maxes out his contribution and I contribute 5% of my salary to gain a company match of 10% of my salary. I’m 54 and my husband is 55 years old.
We’re cash flowing our child through college at about $13,000 per year and any extra income goes to paying off our remaining mortgage balance of $110,000. We have no consumer debt.
I’d like to have the mortgage paid by the time I retire – I still have an additional $30,000 on a rental property that I’ll let ride over the next 6 years since it has a 2% interest rate.
We’re also building a 2-3 year cash reserve in taxable brokerage accounts so that it can float us through any poor return years in our retirement, but we’ll focus more on this after our child graduates from college.
I’m planning on leaving the workforce around 58 or 59 and let my account grow as my husband continues to work. He won’t be contributing the max to his simple IRA at that point. Instead, he’ll contribute enough to get his 3% employer match.
I don’t think we’ll need to tap into my 403b at 59 ½; I can work part-time. When he’s 63, we’ll start collecting our own social security and collect no more than 4% annually from our retirement accounts.
My company is now adding a Roth 403b option in January of 2022. Should I change my investment strategy and start contributing to the Roth, and possibly even increase this distribution?
Additionally, I think we’ll certainly need to use our investments during retirement and most of our estate will include properties to be sold upon death, for our children’s benefit. What do you think is my best strategy for building funds during my last five years of work?
Charlotte asks (at 42:57 minutes): My husband and I are striving to reach financial independence by December 2025. He will have just turned 50 and will be eligible for a partial pension.
Then, we’ll sell everything and begin our slow travel journey around the world. Because of his age, there will be a ten-year gap between when we hit FIRE and when he turns 59.5 and can start using his retirement savings.
There will be another 6 years until I can start taking withdrawals from my retirement savings. Our FIRE plan includes: His pension, our index funds, rental income from our Airbnb properties – we currently own 1 and plan on expanding to 3 or 4 – and will have at least a year in cash reserves.
With the pension, index funds, and Airbnb, we’ve already hit our annual FIRE budget of $103,000. We can live more cheaply than where we’ve set that budget because we can take advantage of geo arbitrage. With these phases to our retirement plan and the different pieces of our financial puzzle, how do we calculate how much we need? And how do they connect to each other?
Sarah asks (at 56:50 minutes): My family and I live in a home worth $300,000 and we owe $90,000, which should be paid off in 7-8 years. We also own a rental house worth $180,000, according to Zillow. We owe $40,000 on the rental and it should also be paid off in 7-8 years.
The property we were looking at is 13 acres and is currently listed for $139,900. Our plan is pay $40,000 cash and refinance the rental property. We’d pay off the remainder of the loan. This would reset the loan to 15 years and require an out-of-pocket expense of $350 a month.
When our current residence is paid off in 7-8 years, we would like to build and move into the home on the land that we purchased. We then would rent out the current home and have two rental homes, one of which would be paid off.
We plan to pay the new mortgage with what we currently have allotted for the mortgage, plus our rental income. I’d love to hear any thoughts or any recommendations on our plan.
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