Bob split a $350,000 windfall between savings and paying down his mortgage. But now he’s wondering if he made a good choice. Can Paula and Joe do the math to justify his gut-driven decisions?
Julia wants to tap the equity from a second home to buy a third home in Texarkana, Texas. Is this a good plan?
Joey Jr. wants to retire early, put two kids through college and buy a vacation home within the next five years. How can he afford to do it all?
An anonymous caller wonders if $1 million is a good budget for a retirement pad.
Former financial planner Joe Saul-Sehy and I tackle these four questions in today’s episode.
P.S. Got a question? Leave it here.
Bob asks (at 01:04 minutes): What would you do with a $350,000 windfall?
When we received ours, we used half to pay down our primary residence, and put the other half in a high-yield savings account.
In hindsight, I’m wondering if we made the right choice. Would you have done the same? How would you think through this? What calculations would you make?
For context, my wife and I purchased our primary residence last year for $850,000. We have a $650,000 mortgage with a five percent fixed interest rate.
We’ve maxed out our retirement accounts, we have good savings, and we’re otherwise conservative investors.
The options we considered were:
- Dump it all into the house.
- Dump it all into a high-yield savings account with the same interest rate in question: five percent.
- Do a partial version of Option 1 and 2
- Invest in the market
Which 5 percent is more valuable?
Ostensibly the interest rates are the same. But I assume there’s more value in paying down the mortgage because of how amortization works.
Though we ultimately went with our gut, I’m wondering how you’d answer this from a purely mathematical standpoint?
Julia asks (at 12:14 minutes): I received a job offer in Texarkana, Texas. If the job works out, I’d like to buy a $200,000 house there in three to six months.
I’d like a property with a few acres to add some mobile homes for rental income. My spouse would continue to live in our paid-off property in Florida.
We also own a rental property in Georgia on a 15-year mortgage with a 2.25 percent fixed interest rate. This is where the down payment for the new house would come from.
What’re your overall thoughts on my purchase plan? And Joe, are there any good parts of town you’d recommend?
Joey Jr asks (at 29:12 minutes): My family and I are facing several big transitions over the next few years.
I’d like to retire in two years, buy a vacation home, and plan for $375,000 in out-of-pocket college tuition costs.
With so many disparate goals, what and how should we prioritize?
I’m a 48-year-old special category federal employee. I can retire with a first pension at age 50. My salary is $180,000 with a gross take-home pay of $100,000 after withholdings.
My pension will gross $50,000 a year after withholdings and will drop $10,000 a year once I’m eligible for Social Security at age 62.
My wife recently switched jobs that brought her salary down from $105,000 to $80,000 a year. This’ll give her more time to spend on a 10-month-old coaching business that’s yet to earn a profit.
We have $1.35 million in traditional IRAs and 401ks, $170,000 in Roth IRAs, $530,000 in a taxable brokerage and $167,000 in cash.
Our primary residence is worth $800,000 with a $440,000 mortgage at 2.875 percent. We also have a $48,000 car loan at 4.49 percent.
I want to retire at 50, take six months off, and return to part-time or volunteer work without worrying about my income. My wife plans to continue working for another five to ten years.
We also want to buy a vacation home or cabin on the coast of Maine.
I have several questions:
- Should we pay off the $48,000 car loan? The difference in interest rates on the car loan and our savings account is minimal.
- Because of my pension, should we invest more aggressively than our current mix of 85 percent stocks and 15 percent bonds in our retirement accounts?
- With the looming college expenses and my wife’s drop in fixed income, should I delay retiring?
- Should we delay purchasing the vacation home?
I’m having trouble estimating our future living expenses with so many life changes on the horizon. How should I think through this?
Anonymous asks (at 48:38 minutes): How much house can a single mother afford without running out of money in retirement?
My mom is a 62-year-old widow with $3 million saved up. Her financial advisor’s growth goal for her portfolio is six percent per year.
Her annual expenses are $80,000 and she’s receiving $500 per month from Social Security.
When she turns 67, she plans to take my dad’s Social Security, which’ll give her $3,000 a month.
She wants to live within walking distance of the beach but this can get expensive. Above the cost of the house, I estimate an additional $20,000 to $30,000 per year in HOA fees, property taxes, and insurance.
Is $1 million a reasonable number to budget for a house? And should she buy in cash or get a mortgage?
Her financial advisor recommended a mortgage because it’d allow for a larger nest egg to draw from for monthly expenses. She’d also be able to refinance if rates went down.
But she’s leaning towards paying cash for peace of mind. With interest rates as high as they are, isn’t that the better financial decision anyway?
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