Nick is curious: how have my views on wholesalers changed over the years, and why?
Rob and his fiancé are grappling with what to do about her $400,000 of federal student loan debt. Should they pay it off immediately, or bank on a 20-year dismissal?
Daniel recently discovered the financial independence retire early (FIRE) movement and got a job earning $50,000 per year. He wants to househack a duplex to get closer to FIRE, but how the heck can he find anything in this seller’s market?
“Nurse Dreaming of FI” isn’t sure what her family’s next financial move should be. She’s torn between investing extra money into index funds, or using it to buy a fix-and-flip. Her goal is to make work optional. Which path will lead her there?
“Phoebe” and her husband have 457s with the City of Chicago. However, they found out that Illinois has a horrible credit rating. How can they – and should they – protect their funds? How much should they rely on their pensions?
My friend and former financial planner, Joe Saul-Sehy, joins me to answer these questions today.
(Pssst – if you have a question you’d like us to answer, leave it here!)
Nick asks (at 1:20 minutes):
What’s your opinion on wholesalers?
In earlier podcast episodes, you said that you don’t recommend them and that one has never offered you a good deal.
However, in recent episodes, you recommended them for investors who want to look off-market for better deals. Can you provide more context?
Rob asks (at 15:31 minutes):
My future wife and I have different attitudes toward money. She has a debt-free mentality, whereas I prefer to model assumptions in spreadsheets and go with whatever the spreadsheet says is best.
We don’t see eye-to-eye on my fiancé’s student loan debt. She’s a pediatrician who attended one of the most expensive public programs in the country: she has $400,000 in federal student loans at an average rate of 6.7 percent. She will likely earn $200,000 – $250,000 per year, post-residency.
As you probably know, federal loans have a minimum payment of 10 percent of your pre-tax discretionary income, and they’re dismissed – not forgiven – after 20 years. My understanding is that forgiveness programs consist of a conditional payment from one federal body to another, whereas the 20-year dismissal is a stipulation of the loan itself.
At the extremes, we have two options:
- Pay off the loans as quickly as possible
- Pay the minimum balance of the loans until dismissal kicks in
While I hate the idea of letting debt accrue at 6.7 percent interest, I think this option has the best on-paper financial impact to us. I modeled the present-value of the total loan payments with an opportunity cost of two to seven percent. I also included a tax rate of 40 percent of the forgiveness balance at the end, which is treated as a one-time increase in income. I’ve also estimated reasonable salary increases. My modeling suggests a range of $250,000 – $425,000 for the present-value of the loan payments plus the forgiveness tax hit. That means if we had $400,000 to immediately pay off the loans, it would be between a $25,000 benefit and a $150,000 loss.
What should we do?
(As a side note: I’ve been in the workforce longer, so we have plenty of savings in brokerage accounts and retirement accounts. We have liquidity for major purchases, like a home, in the future. Paying off the loans early or refinancing them privately would take public loan forgiveness off the table, and we plan to document everything in case public loan forgiveness is an option.)
Daniel asks (at 29:25 minutes):
I recently landed a new job working for the state of Utah in which I earn $50,000 per year. After discovering the financial independence retire early (FIRE) movement in January 2021, I made sure to set up my 401k, 457, and HSA accounts.
I want to increase my earnings through real estate. I want to househack a duplex, but…the housing market in Salt Lake City is extremely hot. My sister recently offered $125,000 over asking price and was outbid.
As a single guy in his 20s, I don’t need a lot – I’d like both units to each have two bedrooms, and that’s it. How can I find something in this seller’s market? Are there any programs I can take advantage of as a first-time homebuyer?
Nurse Dreaming of FI asks (at 36:42 minutes):
I have a question about our next financial moves.
I’m 39, my husband is 47, and our kids are two and 16 years old. We live in Massachusetts. Aside from our mortgage, we’re debt free. We recently refinanced our mortgage to 2.5 percent on a 30-year term. We owe $300,000 and the house is worth about $550,000.
My husband has disability retirement from a government job. It’s approximately $2,873 net per month (after health insurance is deducted). In the past, he had some side hustles that brought in extra money, but he’s also a stay-at-home dad to our toddler.
I work as a public school nurse on a teacher’s contract. I have a pension, but it’s not amazing. This is my seventh year; I’ll be vested after 10 years. I have $45,000 in investment accounts. I contribute $500 per month to my Roth IRA, and $500 per biweekly paycheck to my 403b (for a total of $13,000 annually). I don’t have access to a 457.
We have $10,000 in an emergency fund and $20,000 earmarked for real estate investing. We also have access to a $75,000 HELOC. After our monthly expenses, we have between $1,000 – $1,500 to save.
I’d like to buy a fix-and-flip as my husband is skilled and has the time to renovate a small, local property. I’d also love to have a cash flow positive rental. Unfortunately, we live in an expensive area, so I don’t know if this will work out.
My husband’s pension is stable, and I feel behind in saving for my own retirement. Though I love my job and I enjoy having each summer off, my goal is to make work optional as soon as I can. At our age, would you dump this extra money into index funds, or should we find a good rental opportunity?
“Phoebe” asks (at 54:11 minutes):
My husband and I both have 457 plans with the City of Chicago, for which we work. Combined, we have $113,000 in these 457s, and the investment options are good. However, after listening to the Ed Slott interview, I realized that we have most of our money in tax-deferred retirement accounts and hardly any in our Roths. We’ve since decreased our deferred contributions and funneled that money into our Roths to save on taxes in the future.
To zoom out, I’m 44 and my husband is 47. We have a total of $196,000 in our traditional IRAs and $19,000 in our Roth accounts, both of which are at Vanguard. Due to how our pension scale works, we need to work until age 62. At that point, we’ll receive a percentage of our income for life. My husband will receive $44,000 and I’ll receive $34,000.
I took Joe’s advice to another caller and looked into the credit rating of our city and state. It was disturbing to see how badly our state fares compared to the rest of the country. Now I’m questioning the wisdom of having so much of our retirement income connected to a city that has such a poor track record.
My questions are:
- How much, if at all, should we factor our pension income into our retirement planning? We’re in a unique position where we don’t pay into Social Security, so we won’t have that to rely on. Instead, we pay into the pension fund.
- Is it possible that these 457s could be at risk, along with the pension? From what I can tell, they aren’t managed directly by the city, but by a firm called Nationwide. If they are at risk, should we stop contributions to our 457s completely and roll them into our traditional IRA at Vanguard?
Resources Mentioned:
- The E-Myth Revisited, by Michael Gerber | Book
- What Professional Poker Taught Me About Running a 7-Figure Business, with Billy Murphy | Podcast Interview
- The Art of Decision-Making, with Annie Duke | Podcast Interview
- Suggested reading: Nine Lies About Work, by Marcus Buckingham and Ashley Goodall
- Leave a question for us to answer on the show!
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