Eric reached financial independence a few years ago but he hesitates to quit his job. What the heck is a Roth conversion ladder and how can he overcome his psychological barriers?
Another anonymous caller and his wife earn $300,000. He feels like they should be financially independent but they’re far from it. What’s going on?
An anonymous caller is dealing with guilt over spending a large cash gift. What’s the best use if she doesn’t have an obvious financial goal to throw at it?
Former financial planner Joe Saul-Sehy and I tackle these three questions in today’s episode.
P.S. Got a question? Leave it here.
Here are the details:
Eric asks (at 01:50 minutes): My wife and I reached Financial Independence a few years ago in our mid-forties. I want to transition from full-time employment but I’m grappling with logistical and psychological barriers.
We have $2.1 million in investments, including $1.5 million in tax-deferred retirement accounts. In addition, we have a paid-off home worth $1.1 million.
At a 4 percent rate, we can withdraw $86,000 a year. I estimate we’ll spend $80,000 to $90,000 per year. In addition, we’ll have occasional one-time bills for home repairs, emergencies, and other unexpected expenses.
I intend to continue earning part-time income as a consultant, coach, and teacher in my field, along with volunteering in our local church community. My goal is to optimize my work-life balance and be a great husband and dad.
My wife is especially nervous about making this transition, and I want to ease her concerns before making any big decisions.
How can we minimize taxes and penalties for early withdrawal in our pre-tax retirement accounts? Our $600,000 in taxable investments are unlikely to sustain us until we’re 59 ½. I’ve heard of the Roth conversion ladder, but I’m not familiar with the details.
My other questions are psychological.
How do we handle the emotional impact of switching from saving to spending? What if the market takes a big hit after we quit our jobs? What if we incur large, unexpected emergency expenses?
Are we truly ready to retire?
Anonymous Caller 1 asks (at 34:38 minutes): My wife and I live in a high-cost-of-living area and earn $300,000.
What are some ways we can increase the gap between our income and our spending, so that we can pay off our credit cards and increase our savings rate?
Our mortgage is $2,000 a month, our kids’ daycare costs $3,200 a month and we spend $15,000 to $16,000 in property taxes.
We don’t have car payments, but our credit card balance hovers anywhere from $2,200 to $2,700 a month. We don’t pay in full, and we’re okay with it.
We contribute $600 a month to our taxable brokerage accounts, invested in a Schwab dividend index fund. The income is not to a point where we’d want to use it for living expenses.
With 15 hours to spare from a busy 35-hour workweek, what are some ideas you have to increase our monthly income to give us an extra $750 to $1,000 cushion?
I’ve read that our combined household income is enough to be financially independent, but I don’t feel we’re anywhere near that. Are we missing something?
Anonymous Caller 2 asks (at 57:20 minutes): In the last few years, I’ve received several generous cash gifts totaling $80,000. I struggle with how to think about this money. I’m grateful, but I’m also ashamed I didn’t earn it and I want to use it wisely.
I’ve thought about putting it into retirement, or my house, or using it as a rainy day fund. What I’d really like to do is take a $5,000 trip every two or three years to create some meaningful memories.
One thing I’m sure about is I don’t want to rely on it to pay bills.
I’m 39 and single, with no kids. I earn $66,000 as a teacher. I’m not in debt, but I’m not saving much.
I have $34,000 in a high-yield savings account and $126,000 in retirement. I contribute 10 percent to my 403b and 5 percent to a Roth IRA. My employer contributes an additional 5 percent.
My house is worth $180,000 with $140,000 remaining on a 30-year mortgage, fixed at 4.375 percent.
Money is often discussed in terms of where it needs to go, but what if I don’t have a set timeline? How would you figure out how much to spend and at what rate?
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