Hitting 40, prioritizing my investments….

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OnFire
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Hitting 40, prioritizing my investments….

Post by OnFire » Sun Dec 29, 2013 1:03 pm

I am about to hit 40, my wife is 34 and am trying to figure out where to prioritize my investments dollars. My wife is a dentist who owns her own practice. Here is a rough patchwork of where I am putting my investment dollars:

My Roth IRA $5.500 Balance $45K
Her Roth IRA $5,500 Balance $50K
My 457B $5,000 Balance $69K
Her 401k $11,000 Balance $60K
Son #1 529 Age 3 1/2 $600 Balance $6K
Son #2 529 Age 2 $600 Balance $4K


I have a modest 3 BR 2 BA ranch in a nice neighborhood, but my sons will have to go to a private high school if they want to stay away from the drugs and gangs, there really is no other option. I live in the City of Chicago and I am required to live within the city limits for my employment as a firefighter/paramedic. I am planning on spending $10K a year of private high school tuition. I am halfway to my pension.

In addition to the above, I plan on opening two Coverdell ESA's for the boys and fully funding them, to the tune of $2K a year each. That will bring my total investments to close to $33K a year, or approximately 16% annually. Where , if anywhere should I prioritize additional investment funds?

Mortgage on primary residence: : $163K at 4.125% for an additional 28 years
Mortgage on rental house: : $130K at 4.25% for an additional 16 years - Currently rented and self-sufficient
Wife' student loans: : $130K at 1.5% for an additional 23 yeas

Car #1 Currently leased second hand $400 a month for an additional 12 months, I can buy it at the end of the lease for $19K, it will Blue Book for $25K I have $8K saved for it now, I will want the $2K extended factory warranty. 90% sure I am going to keep this car, a 2012 GMC Acadia.
Replacing Car #2 2006 Jetta with 70K miles. Just had to do $2000 in maintenance on it. Wife has a trusted mechanic who says this is about where maintenance gets crazy expensive. Trying to eek 1-2 more years out of this 8 year old car. I was looking at a 1-2 year old Ford Fusion Hybrid for $25K. No savings for this car.

Emergency funds are at $2K, plus $45K in credit card lines, (no current credit card debt) plus Roths. Both jobs are EXTREMELY stable. It's not like we are real estate brokers.We are talking about a third and last child, to be born late this year or early next year. Still up in the air. Life insurance, disability, and $1Mil in umbrella insurance policies are taken care of.

Where to put any additional investment funds? Emergency should be closer to $10-15k, I know, but I am STILL trying to maximize this years Roth's. About $3k away from that.

So where to? Kids education? 401Ks? Cash for cars? Prepaying mortgages? Seeing as how I am short on Roth's, max those out then hit the emergency fund? But then where? I could also buy a higher percentage of my wife's practice. She owns 25% currently, and earns that percentage of her yearly practice profits. Could also try to pre-pay college here in Illinois.
Where are all the customers yachts? | | “The most powerful force in the Universe is compound interest.” -Albert Einstein

Dave76
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Re: Hitting 40, prioritizing my investments….

Post by Dave76 » Sun Dec 29, 2013 2:10 pm

I don't know about prepaying for college. They might not want to go to college.

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zebrafish
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Re: Hitting 40, prioritizing my investments….

Post by zebrafish » Sun Dec 29, 2013 2:28 pm

So where to? Kids education? 401Ks? Cash for cars? Prepaying mortgages? Seeing as how I am short on Roth's, max those out then hit the emergency fund? But then where? I could also buy a higher percentage of my wife's practice. She owns 25% currently, and earns that percentage of her yearly practice profits. Could also try to pre-pay college here in Illinois.

I think there is some information missing here. How much will this private school cost? Might you move to a different place where your kids could go to public school? How much does the wife make in the practice? How much would buying more of the practice cost? Does your wife's practice require you to have a large cash buffer?

Expensive private school and then paying for college may really be detrimental to your long-term financial health. My general impression is that your retirement is somewhat underfunded at the current time.
Last edited by zebrafish on Sun Dec 29, 2013 5:44 pm, edited 3 times in total.

bhsince87
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Re: Hitting 40, prioritizing my investments….

Post by bhsince87 » Sun Dec 29, 2013 2:34 pm

Just my opinion of course, but I would beef up the emergency fund ASAP. In theory, part of your Roths could count there, but I personally prefer better liquidity. Especially considering you’ve got several automobiles and houses to take care of.

Next for me would be saving up cash for future auto purchases, and then maxing out 401ks.

The potential to increase ownership in your wife’s practice sounds intriguing, but I have no knowledge of how such arrangements work financially.
BH87

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zebrafish
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Re: Hitting 40, prioritizing my investments….

Post by zebrafish » Sun Dec 29, 2013 2:39 pm

Agree that you need a very healthy emergency fund. Your wife's practice arrangement may make this need even greater, I don't know.

Also agree with putting retirement in first priority given that you seem slightly underfunded there at current time.

Personally, I would not lease/finance another car. I would save and pay cash to free up monthly cash flow. I would probably not purchase a 25K car in your position. I would argue that 25K car is kind of pricey given your other vehicle, financial situation, and income. Are you going to drive a nice car or send your kids to private school? If I had to pick between these two, I would pick the latter.

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Re: Hitting 40, prioritizing my investments….

Post by Grt2bOutdoors » Sun Dec 29, 2013 3:19 pm

Your sons are 3 and 2, respectively - you will not need $10K or even $20K per year until 10 and 11 years from now. Your focus should be on your emergency fund which you don't list and I'm hoping you don't need to use the Roth to do so. A Roth is very valuable tax-free space, once you withdraw from it you can never get those deposits back in. Don't prepay anything - just save.
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Twins Fan
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Re: Hitting 40, prioritizing my investments….

Post by Twins Fan » Sun Dec 29, 2013 3:26 pm

Just looking at things there, it seems like quite an imbalance from debt to retirement savings. As in, looks like you two will carry quite a bit of debt right up until retirement... and keep on taking more debt with car payment after car payment, private schools, and whatever else. Yes, the long term debt is all fairly low interest, but it will be around for a long time. I would work on plusing up the savings or knocking down some debt before worrying about college savings.

stan1
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Re: Hitting 40, prioritizing my investments….

Post by stan1 » Sun Dec 29, 2013 3:30 pm

Agree you need more than $2K in emergency funds (unless you have another $5-10K+ in checking accounts that you aren't counting as part of your emergency fund).
Even with secure jobs you need more liquidity than $2K. Don't fall back to the lines of credit if you need some repairs on the houses or cars.

dgdevil
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Re: Hitting 40, prioritizing my investments….

Post by dgdevil » Sun Dec 29, 2013 4:32 pm

OnFire wrote: I am halfway to my pension ... in Illinois.


Not much you can do about it, but the Illinois pension system ain't exactly stable.

Many worry that Chicago is slipping down the same path to insolvency (as Detroit). The Windy City also has a structural deficit, unmanageable pension obligations and poor credit-worthiness.

http://www.economist.com/news/united-st ... 926868bbc2

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4nursebee
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Re: Hitting 40, prioritizing my investments….

Post by 4nursebee » Sun Dec 29, 2013 4:45 pm

What is max your wife can contribute to her retirement plans? I recall self employed have the ability to save a lot more than ordinary folk.
4nursebee

charder
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Re: Hitting 40, prioritizing my investments….

Post by charder » Sun Dec 29, 2013 9:55 pm

Even with all of the information you provided, I feel like I'm a bit in the dark. It sounds like you both have terrific professions, but your financial situation makes it appear that cash flow is tight. The car situation seems a mess. Leasing is no bueno. And I'm not sure why a trusted mechanic is telling you your Jetta with 70K miles is in trouble. In 2013, a maintained car should be able to hit 200K. 70K is nothing. And at this point private high school should probably be considered a luxury that cannot be afforded. Instead, complete your emergency fund, max out the 401K, and see if you can open a similar account for your wife. Hopefully by the time boys are nearing high school, the cash will be flowing in the right direction.

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OnFire
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Re: Hitting 40, prioritizing my investments….

Post by OnFire » Mon Dec 30, 2013 1:50 am

Sorry if i seemed unclear. I am halfway to my pension with 9 years on the job. Pension is 50% of my final salary. right now my salary is $90K. I brought home 113K with training incentives and overtime. So if I retire at the minimum age, which is 50, I will have a pension worth $45K a year for the rest of my life. If I hang on to maximum pension, which is $75%. will have a pension of $67K year for life. It goes up 2 1/2% a year for every year past 20 years of service. If I get promoted to Lt., my base salary will go to $110K, and if I make it to captain, it will be around $125K. (I plan to become both, but it's competitive tests 5-10 years from now.) So, if I make Capt and put in 30 years, my pension will be $90K for the rest of my life. It's worth it to stay. Even if my pension is shaved, we are in a much better situation than Detroit. I agree my savings is low for my age, but I got a late start, not really saving aggressively until 31. I think $110k in eight years isn't too bad. It's also one of the reasons I haven't poured all I can into the equivalent of my 401K, a 457B.

My wife makes about the same, not exactly sure, but between $110-125K. Cash flow is tight, and we've recently introduced an allowance for each of us. It seems to be working somewhat. My wife owns 25% of her practice. She usually brings home between $7-11K in a "bonus", which is 25% or the practice's profits for the year. Due to self-employment laws, she can't own more than 50% of her practice without messing up her taxes and such. The 7-10 dentists all own each others practices instead. She paid $110K for it about 4 years ago.

The point is, at 39, I am too old to start over. Many municipalities limit the age you can transfer to a new department.

I agree emergency funds funds are low at only $2K. In reality, the $8K in the car fund is a current emergency fund. I hope to save up a bit more of an emergency fund n the next 12 months. I have been battling my wife over our savings rate. Every time I recommend increasing our saving, she counters that she wants a vacation, or a new car, or what have you. The lease was a second hand lease. The original leasee put $5K down up front on the car to reduce the lease payments. It was only a 25 month lease. I leased the car with the knowledge that it would be worth significantly more than the pay off. I also sold me paid off car to pay off debts I incurred to purchase the house we will be in for the next 20 years.


Living in Chicago, I don't really have an option about the private school I went there 25 years ago. I have been to the local public high school in a professional manner as a paramedic. I picked up one of my co-workers sons on a CTA bus, He had been shot in the chest twice with a 9mm. My son will not be attending the school. The private high school is $10K a year x4 years times two sons, so $80K. I figure college to be about $100K per kid, so I am looking down the barrel of $280K of future education costs.
Where are all the customers yachts? | | “The most powerful force in the Universe is compound interest.” -Albert Einstein

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zebrafish
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Re: Hitting 40, prioritizing my investments….

Post by zebrafish » Mon Dec 30, 2013 11:58 am

To me, it sounds like one of your biggest problems is that you and your wife are really not on the same page financially. This will make it difficult to make a lot of traction. I'm definitely no expert on how to achieve this, but I think that agreeing and working together on big picture items like long-term financial goals, how much to contribute to retirement, how much to save for education/college, etc. are important in getting to a better place. Perhaps finding some common/mutual goals can get you moving in the same direction.

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