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I am a 70 year old single male in excellent health with a 23 year old son. My 94 year old mother has her own funds that cover her living expenses which includes a house I have an interest only loan on that I will own free and clear on her passing.
I have a federal pension with the Civil Service Retirement System and Social Security that includes the Federal Employees Health Benefit plan and Medicare. Assisted living (should a future need arise) in this area is around $4300 a month, well within my pension.
Currently my total monthly expenses comprise 50% of my gross income. That percentage will fall to 19% in 2015/2016 when a car loan and HEL I have are paid off. I am saving 13% ($1000) monthly of my gross income. After all expenses, savings, taxes, insurance, etc, 19% (around $1300) of my gross income is excess.
I have an (medical) emergency fund ($50K) that would cover 12 months worth of my total monthly expenses in a credit union money market account.. I also have ($50K) invested in Vanguard Target Retirement Income fund (VTINX). I also have a cash reserve of $13K in my banks checking/savings accounts. This is where my $1K a month of savings go.
A little background. I have been terrible with money all my life until a couple of years ago. Being in a government job with a known fixed income has made that an easy trap to fall into. I went through decades of living beyond my means on credit cards and loans, going from periods of crazy spending to periods of austerity until I could get caught up and then start all over again. I inherited $50K two years ago from my father and decided it was time to change; have not looked back. I consolidated all debt except my car in a $90K (yes you read that right) 5 yr HEL at 2.9% interest; the car loan is also at 2.9% interest. Together these two loans have a $1580 monthly payment and both will be paid off at the end of 2015. I have no credit card debt. I also have a 5% mortgage my mom carries. I make interest only payments of around $935 on this mortgage. The mortgage will terminate when I inherit the house. I have become a pretty conservative spender and love saving money [now], i'm also a conservative investor. I have no current intent to spend any of the two $50K lumps of money mentioned above for anything other than a really serious emergency and eventually to leave it to my son. I intend to try and build that cash reserve in checking/savings account to a sufficient level to cover all costs of purchases, repairs, etc not covered by normal monthly budget. I have no earned income and am not eligble for any tax advantaged accounts other than tax exempt bond funds. I am in the middle of the 25% tax bracket.
I've been on the BH's forum for about a month and am starting my fourth book.
What are my goals? Answer: 1. Never barrow money again. 2. Save enough money to cover unforseen costs. 3. Pass as much as I can to son.
What would I use emergency funds for? Answer: A life treatening medical situation.
What would I use the $50K in VTINX for? Answer: Nothing.
What would I use Cash Reserve for? Answer: Everything else.
What am I concerned about, whether rational or not? The heighth of the market; time since last major pullback; interest rates going up; general state of countries political and financal condition; in the event of a crash how many years to recover and how that should impact what I do with current VTINX money?
Question #1: What do you think of what I have set up?
Question #2: Considering my pension and what I have described – how much should I put in the cash reserve before I move monthly savings to an investment?
Question #3: Do I have too much in that medical emergency account?
Question #4: Am I too conservative with the $50K in VTINX? Would I be better off putting the money in a more aggressive three fund portfolio with the bond portion in Tax Exempt Muni Bond Fund?
- Posts: 105
- Joined: 12 Mar 2013
It looks like you are in a very good position and will probably be fine no matter what comes along. Congratulations for taking control of your life so you can be in this position now.
It sounds like your income can cover replacements and repairs as needed.
You mention Assisted Living, but nursing home care or care to remain in your own home would possibly be twice that. Even so, you would probably have enough to last several years.
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- Joined: 1 Mar 2009
Thanks, BL. After a 153 views I'm glad someone took the time to respond!
Obviously I didn't write this up very good or I would have had better responses. Maybe I should amplify a little. The $50K in VTINX is money I seriously want to leave to my son. But considering how life events always seem to come along at the wrong time; Target Retirement Income fund is the most aggressive I felt I could get with that money to protect it and still get a fair return over many years, in addition to weathering a major decline. Long term I also am going to have to deal with the possibility of relocating from AZ to MS; or trying to live part year in both places, so there are issues down the road.
I've tried to structure myself to prevent slipping back into my old ways. I want all my spending to come out of my check account or ready cash. I really want the money in my Emergency Fund to be just that - emergency. The money level in Ready Cash is the issue; that and when, if ever, do I stop putting monthly savings in ready cash and maybe put it into the VTINX fund. Considering that a new(used) car would be $10K-$20, a major house or auto repair could easily be $4K to $5K, how much to carry in that cash account is the question.
Considering my pension situation and the fact I don't need protection from loss of income; I wonder If I should move a portion of the dollars in the $50K emergency fund into ready cash. I think if it was at about $25K I would be happy at that level. I could then DCA my monthly savings into VTINX until I spent down the cash account to whatever my floor was, then moving monthly savings back to cash reserve. I think I'm getting to far into the weeds here.
- Posts: 105
- Joined: 12 Mar 2013
Welcome to the Bogleheads and congrats on being in such a great financial situation.
Splais wrote:Question #1: What do you think of what I have set up? I think you are doing a great job by getting rid of your debt. Your financial plan seems to be sound and it is great that you are building wealth even in retirement since you plan to pass down an inheritance.
Question #2: Considering my pension and what I have described – how much should I put in the cash reserve before I move monthly savings to an investment? I think the year's worth of expenses is very reasonable.
Question #3: Do I have too much in that medical emergency account? To me it seems that the $50K is probably about right for you.
Question #4: Am I too conservative with the $50K in VTINX? Would I be better off putting the money in a more aggressive three fund portfolio with the bond portion in Tax Exempt Muni Bond Fund? You can take as much or as little risk as you like since your pension and social security cover your expenses. Me, I'd probably just go 50% stocks/50% bonds in your position with a three fund portfolio, but there is nothing wrong with being more conservative or more aggressive. You've picked a darn good fund to go with by the way. You could do a whole lot worse, but probably not much better.
Showing up at the donut shop at 5 am to get them hot out of the oil is an example of successful market timing.
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- Joined: 8 Feb 2011
- Location: Louisiana
You need to put the money where you are comfortable with it and won't do anything rash if stocks go down, etc. Perhaps put some of your short-term cash into short-term CDs that would be harder (but not too hard) to cash out unless you really needed it. I-Bonds would work if you are comfortable with dealing with online account. You could be saving for the next car so you don't ever go into debt for a car again.
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- Joined: 1 Mar 2009
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