Michelle makes $190,000 and is going to switch to a career that pays $40,000 on average. To prepare for this lower salary, she’s selling her current home and buying a different one. Should she pay off her new home with the proceeds from the old one? Or should she invest her profits?
Kristen is 32, and she and her husband want to retire in less than 20 years. They make too much to contribute to a Roth IRA. Should they use back door Roth conversions to speed along their path to early retirement?
Anonymous lives in a high cost-of-living area and is wondering where to keep her down payment and emergency funds. Should she use I-bonds, TIPS, or some combination of these two?
In today’s episode, former financial planner Joe Saul-Sehy and I tackle these tough situations.
Enjoy!
Do you have a question on business, money, trade-offs, financial independence strategies, travel, or investing? Leave it here and we’ll answer them in a future episode.
Michelle asks (at 4:41 minutes): I’m 33 years old and make $190,000. I’m planning to make a career change in 3-4 years that would change my annual salary to $40,000.
I am selling my old primary residence and I should pocket about $500,000. My initial plan was to pay off my new primary residence, with enough leftover for a 12 month emergency fund. I would then be able to bank the next 3 years at my higher salary in investments and savings until I make the career change.
I’m now having second thoughts about my plan.
I’m wondering if I was overreacting to having a high level of debt and my overreaction was to pay off all of my personal debt. Now, I’m wondering if I should try to make more money by investing the $500,000 in the market or in other real estate instead of paying off my house.
Before I switch careers, I need to pay off my primary residence or supplement my income by $60,000 to $70,000 in order to afford the house.
Kristen asks (at 22:33 minutes): I’m 32. My husband has a pension and we plan on retiring when he is 53 and I am 51.
My husband will be taking home roughly $95,000 with his pension. We’re hoping to live off the salary, allowing compounding in our retirement accounts until we can withdraw at 59 ½.
I’m not sure if we’ll start different careers or work part time once we hit retirement age. Most likely, our contributions will stop when we retire.
In addition to his pension, my husband has $119,000 in a deferred compensation plan and he contributes $14,000 a year. I currently have $106,000 in my rolled over, traditional IRA and my Roth 401K is at roughly $60,000. I max out both accounts yearly in our traditional IRA and our Roth 401K.
When our incomes were lower, I didn’t think to put our annual contributions into a Roth IRA. Instead, the traditional Rollover has been receiving contributions for at least 5 years now. However, we are now at the max income limit that the Roth IRA allows so we will have to do a back door Roth conversion.
Should I open a Roth IRA and start the back door conversions or convert any of the traditional IRA funds over to a Roth since it will grow tax free? Am I diversified enough between the traditional IRA’s and Roth 401k’s accounts?
Anonymous asks (at 43:12 minutes): We’re holding a large amount of cash in a high yield savings account for an emergency fund and also for a down payment on a house.
We live in a high cost of living area so the down payment is probably going to be well over $100,000, and inventory is extremely low right now. We don’t know when we’ll actually find something that we want to buy – we don’t want to rush into buying something that’s not suitable for us.
I am thinking about putting some of this money in I-bonds, TIPS, or both. We are looking to protect our capital from inflation drive erosion.
We don’t want to put this money in the stock market because we already have significant money in retirement and non-retirement accounts and we don’t know when that house is going to come up and we need to have liquidity for emergencies.
I’d like help thinking through I-bonds vs TIPS and how we allocate between the two.
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