Our $101K "Problem" <--that much in cash savings

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runner9
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Location: Ohio

Our $101K "Problem" <--that much in cash savings

Post by runner9 » Mon Jul 03, 2017 7:04 am

In November, 2014 we paid off our mortgage, which was our only debt. We had about $22K left after that. That number has steadily grown in the nearly 3 years since and today topped $101,000. It’s made up of Checking, Savings and 2 CDs. (There’s also $10K in ibonds I’m not counting in the total.)

We have no massive purchases on the horizon so this number, without any changes, will probably just continue to grow. We have a few small home improvements planned, like $3K for windows, $2K for doors, probably $10K in the next year for a bathroom but nothing to really change the upward trajectory of our cash balance.

A little about our current situation:
Emergency funds: Last 12 months all expenses total $43K; last 6 months is 27K.
Debt: None, cars and house are paid off
Tax Filing Status: Married Filing Jointly
Tax Rate: 15% Federal
State of Residence: Ohio
Age: upper 30s
Desired Asset allocation: 100% stocks
Desired International allocation: 50% of stocks

Have 2 defined benefit plans with Ohio STRS.

Current Assets:
2 Roths at Vanguard total $167k
We contribute $11K combined annually

Her 457b at Ohio457 totals $95K
She contributes $18K annually

Our only child is 7 and has an Ohio 529 with $30K
We contribute $3K annually

Ideas I’ve had over the last few months:

1. Open a taxable account: my wife is very leary of this, we could try to talk through it more. I think we could balance our 100% stocks in retirement with something safer that generates some income taxed better for us in the 15% tax bracket than the approx. $1K in interest Ally is paying us this year, taxed as regular income.

2. Open a second 457b for me: that’s tax deferring more and I want to use all the 15% tax bracket we can now. I don’t want to be in my mother’s position: widowed with RMDs near $50K a year; the government taking about 32% with Fed and State combined.

3. Contribute more to our son’s 529 plan. He is an only child, I don’t really want to end up with a balance when he graduates. At 7 who knows where he’ll end up; we can always contribute more from other accounts at that time. The $10K in ibonds is right now also for his college.

4. Catch up on the home improvement list. There are a few larger projects that we dream of doing one day, like a new detached garage that doesn’t flood when it rains, has more storage and a straight, non-sagging roof. A few rooms we want to redo inside but I’d like our son to be a little older and calmer so he’ll take care of stuff a little better. EDIT: the house roof is 2 years old, the garage is detached and old, see the post 6 down for more details. It's not in danger of falling over or anything.

Other ideas, suggestions?
Last edited by runner9 on Mon Jul 03, 2017 7:58 am, edited 1 time in total.

cjcerny
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Re: Our $101K "Problem" <--that much in cash savings

Post by cjcerny » Mon Jul 03, 2017 7:12 am

Why is your wife against opening a cash account? I have 200k in cash outside of my retirement accounts (I inherited cash) and it isn't criminal or scary. Tax is the only downside, and it's pretty minimal if you invest in Vanguard's Total Stock Market index fund and just leave it alone. I just keep more bonds in my tax advantaged accounts.
Last edited by cjcerny on Mon Jul 03, 2017 7:13 am, edited 1 time in total.

aspiringlawyer
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Re: Our $101K "Problem" <--that much in cash savings

Post by aspiringlawyer » Mon Jul 03, 2017 7:12 am

That much cash is a great problem to have. I would suggest doing a combination of 1,3, and 4. What makes your wife nervous about having a taxable account?

ZenInvestor
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Joined: Thu Jun 18, 2015 1:35 pm

Re: Our $101K "Problem" <--that much in cash savings

Post by ZenInvestor » Mon Jul 03, 2017 7:18 am

A couple points.

1: you are not 100% stocks. In fact, you are 27.8% cash with the remainder in stocks. I excluded the 529 from this math. If your intention is to exclude your 12-month emergency fund from your AA, you are still about 15% cash.

2: at the 15% tax bracket sticking with Total Bond Market fund in taxable is perfectly acceptable. No need for muni's until you are in the 25% bracket.

3: your $101k is losing ~$2k per year in purchasing power while generating ~$1k per year of growth. Not a judgement, just math.

Finally opinion: I keep ~4 months expenses worth of cash and equivalents, then I invest in taxable accounts with the majority of my bond holdings being in taxable (Intermediate muni, im in the 33% bracket). My taxable ends up being about 50/50 stock and bond mix. This structure provides for me the liquidity I feel i need, while delivering growth that over time should out pace inflation.

EDIT: FIX THE ROOF AND THE FLOODING FIRST!!!!!!
Last edited by ZenInvestor on Mon Jul 03, 2017 7:26 am, edited 1 time in total.

indexonlyplease
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Re: Our $101K "Problem" <--that much in cash savings

Post by indexonlyplease » Mon Jul 03, 2017 7:19 am

I would state catch up on home improvements before they become larger problem and you don't have the cash.

Then what ever is left over invest in the market matching your AA or open a better cd paying more interest.

Having cash now is good to fix problems.

aristotelian
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Re: Our $101K "Problem" <--that much in cash savings

Post by aristotelian » Mon Jul 03, 2017 7:45 am

1. Fix the roof
2. Put excess cash in taxable brokerage account. Invest conservatively if she is uncomfortable in stocks.
3. Contribute to your 457. Deferring as much as possible is a great benefit. However, in 15% bracket, you might also consider Roth option if available.
4. You could consider I-Bonds which you could use to defer taxes for yourself or put toward college for your kid.

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runner9
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Location: Ohio

Re: Our $101K "Problem" <--that much in cash savings

Post by runner9 » Mon Jul 03, 2017 7:57 am

OP Here: Thanks for the advice so far, here's a little clarity on my roof comment:

House roof was new in July, 2016.

The garage is detached and built in 1954. Like most of the community the foundation wasn't correct and so the slab is cracked with some points an inch or 2 higher than the next section. This means that when we get a lot of rain or melting snow the back few feet of the garage can get up to 3 inches of water. This drains away or I just a big broom and push it, slightly uphill, out the front of the garage onto the driveway where there's a drain.

The ridge board in the garage is undersized and if you look at the garage from far back it bows in the middle, but not horribly. The home inspector over 10 years ago when we bought the house told us this, said to not use the roof beams for storage of anything that's heavy, which we do.

I do have a couple sharp turns to get into my garage space because of our house. A new garage would have a single double car door which would move my car over a few feet.

There is an original tree just behind the garage that's in good shape.

ZenInvestor
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Re: Our $101K "Problem" <--that much in cash savings

Post by ZenInvestor » Mon Jul 03, 2017 8:00 am

Why does your roof sag if its new? I dont understand.

Edit: Ok so the garage roof sags, and the garage floods. I got it.

JW-Retired
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Re: Our $101K "Problem" <--that much in cash savings

Post by JW-Retired » Mon Jul 03, 2017 8:06 am

runner9 wrote: 1. Open a taxable account: my wife is very leary of this, we could try to talk through it more. I think we could balance our 100% stocks in retirement with something safer that generates some income taxed better for us in the 15% tax bracket ..........
Why leery? Does she think you will take up day-trading stocks?

You already have a "taxable account" in the saving account and CDs. You pay tax on the meager interest at your marginal tax rate. If you had a brokerage account you could invest in stock mutual funds and the qualified dividends you earn would be tax free given your 15% bracket. And no more than 15% if/when you get to a higher bracket.

Balance your 100% stocks with some bonds in the 457b tax-deferred accounts.

see wiki https://www.bogleheads.org/wiki/Tax-eff ... _placement
JW
Retired at Last

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Watty
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Re: Our $101K "Problem" <--that much in cash savings

Post by Watty » Mon Jul 03, 2017 8:10 am

As others have said go on and fix up your house. Most of the things you mentioned are repairs that will need to be done sooner or later.

runner9 wrote:2. Open a second 457b for me: that’s tax deferring more and I want to use all the 15% tax bracket we can now. I don’t want to be in my mother’s position: widowed with RMDs near $50K a year; the government taking about 32% with Fed and State combined.
Check to see if you have an option for Roth 457b. If so you could contribute money to that.

There are endless opinions about if Roth or regular retirement accounts are best for a specific person but in the 15% tax bracket a Roth is usually not a terrible choice and often a good choice.

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Kenkat
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Re: Our $101K "Problem" <--that much in cash savings

Post by Kenkat » Mon Jul 03, 2017 8:27 am

What I did when I had the luxury of too much cash - i.e., before kids - is to keep about 3 months income in cash in a money market or savings account; once that was funded I started in a bond fund like Total Bond Index or Intermediate Tax Free Bond and kept another 3 months income there. Once that was "filled up", I put remaining money in a taxable equity fund account, trying to focus on tax efficient funds where possible. So I have a tiered approach where there's money I can get to if needed but earning a better return because I hopefully WON'T need it.

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F150HD
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Re: Our $101K "Problem" <--that much in cash savings

Post by F150HD » Mon Jul 03, 2017 10:04 am

runner9 wrote:
The garage is detached and built in 1954. Like most of the community the foundation wasn't correct and so the slab is cracked with some points an inch or 2 higher than the next section. This means that when we get a lot of rain or melting snow the back few feet of the garage can get up to 3 inches of water. This drains away or I just a big broom and push it, slightly uphill, out the front of the garage onto the driveway where there's a drain.
a new garage would be a no brainer to me. Dont know what part of the country you're in, but, in the mid-west a home w/out a functioning garage would be tough to sell (winters) and decrease the homes value. Garages aren't that pricey either and I'm guessing on a sale you'd easily get your $$ back out of it. Could even put one w/ an apartment above it to rent or whatnot (possible income generation or AirBNB idea).

Grt2bOutdoors
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Re: Our $101K "Problem" <--that much in cash savings

Post by Grt2bOutdoors » Mon Jul 03, 2017 10:14 am

Improve your home since you are living there and it's already paid for, at least you can enjoy it. And this, even if you choose not to do it IS not a problem, count your lucky stars that you do not fall victim to consumerism like some of my relatives and now only wish they had that kind of cash in the bsnk. What is cash? Cash is advanced peace of mind, cash equals options at your leisure not someone else's, that is most likely how your wife thinks about it, and guess what? She's right. Thank your lucky stars you found someone like that. Happy Independence Day, indeed!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

mega317
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Re: Our $101K "Problem" <--that much in cash savings

Post by mega317 » Mon Jul 03, 2017 12:35 pm

15% bracket, saving 32k/year in tax-advantaged plus another 80k over 3 years in cash? You're doing great!

When you say desired allocation 100% stocks, does your wife agree? Because you ain't there. If you don't have an investment policy statement, you could develop one, together.

letsgobobby
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Joined: Fri Sep 18, 2009 1:10 am

Re: Our $101K "Problem" <--that much in cash savings

Post by letsgobobby » Mon Jul 03, 2017 1:08 pm

your desired asset allocation is 100% stocks but you are only 72% stocks. why the discrepancy? what do you plan to do about it?

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Meg77
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Re: Our $101K "Problem" <--that much in cash savings

Post by Meg77 » Mon Jul 03, 2017 2:43 pm

runner9 wrote:In November, 2014 we paid off our mortgage, which was our only debt. We had about $22K left after that. That number has steadily grown in the nearly 3 years since and today topped $101,000. It’s made up of Checking, Savings and 2 CDs. (There’s also $10K in ibonds I’m not counting in the total.)

We have no massive purchases on the horizon so this number, without any changes, will probably just continue to grow. We have a few small home improvements planned, like $3K for windows, $2K for doors, probably $10K in the next year for a bathroom but nothing to really change the upward trajectory of our cash balance.

A little about our current situation:
Emergency funds: Last 12 months all expenses total $43K; last 6 months is 27K.
Debt: None, cars and house are paid off
Tax Filing Status: Married Filing Jointly
Tax Rate: 15% Federal
State of Residence: Ohio
Age: upper 30s
Desired Asset allocation: 100% stocks
Desired International allocation: 50% of stocks

Have 2 defined benefit plans with Ohio STRS.

Current Assets:
2 Roths at Vanguard total $167k
We contribute $11K combined annually

Her 457b at Ohio457 totals $95K
She contributes $18K annually

Our only child is 7 and has an Ohio 529 with $30K
We contribute $3K annually

Ideas I’ve had over the last few months:

1. Open a taxable account: my wife is very leary of this, we could try to talk through it more. I think we could balance our 100% stocks in retirement with something safer that generates some income taxed better for us in the 15% tax bracket than the approx. $1K in interest Ally is paying us this year, taxed as regular income.

2. Open a second 457b for me: that’s tax deferring more and I want to use all the 15% tax bracket we can now. I don’t want to be in my mother’s position: widowed with RMDs near $50K a year; the government taking about 32% with Fed and State combined.

3. Contribute more to our son’s 529 plan. He is an only child, I don’t really want to end up with a balance when he graduates. At 7 who knows where he’ll end up; we can always contribute more from other accounts at that time. The $10K in ibonds is right now also for his college.

4. Catch up on the home improvement list. There are a few larger projects that we dream of doing one day, like a new detached garage that doesn’t flood when it rains, has more storage and a straight, non-sagging roof. A few rooms we want to redo inside but I’d like our son to be a little older and calmer so he’ll take care of stuff a little better. EDIT: the house roof is 2 years old, the garage is detached and old, see the post 6 down for more details. It's not in danger of falling over or anything.

Other ideas, suggestions?
1. A taxable account is certainly the next step once all your goals are met and you're maxing out all tax deferred space. But you aren't yet. It also enables you to do tax loss harvesting to lower your tax burden even more when markets fluctuate. I'd keep international stock index funds in there to minimize turnover and taxable yield and so you can take advantage of the foreign tax credit.

2. You should open the 457b for you and max it out. Once you retire you can convert traditional balances to roth little by little before RMDs start. Many retirees (esp early retirees) have plenty of room to make these conversions and pare back their traditional balances a bit. But all things considered, your mother's position is one most retirees would envy.

3. Even most state schools cost $80K+ for four years including books, room, board, and tuition. I would ramp this up a bit if you are planning to pay for his college. If he gets grants or scholarships you are allowed to take that amount out of the 529 penalty free.

4. You certainly have the cash to make these improvements.

5. How about maxing out a Health Savings account if you have access to one?

6. Are there any additions that would enhance your family's lifestyle? A hobby your son wants to explore, a gym your wife would like to join? Maybe set aside some of this excess for an extra weekend getaway or two, or a monthly date night?

I would do a little bit of all of these. You are accumulating cash at a rate of just over $2k per month on average, so the first step is to deploy that to slow the cash swell. If it were me I would probably start maxing out a 457 plan for you and set up and max out an HSA if you can, which is $6750. That takes care of your extra $24K a year that is currently going to cash. With the tax savings, you have enough to bump up 529 savings to $5K or $6K a year as well.

Now you just have to figure out what to do with the $100K already in cash. Make your improvements, take an extra vacation this year, then open a brokerage account and set up a monthly automatic contribution of $1000 or so. Now your cash balance will be slowly dwindling instead of slowly rising.
"An investment in knowledge pays the best interest." - Benjamin Franklin

letsgobobby
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Re: Our $101K "Problem" <--that much in cash savings

Post by letsgobobby » Mon Jul 03, 2017 3:17 pm

I disagree with Meg here. in the 15% bracket, and expecting two pensions in the future, I think $11k Roth, $18k pretax, and the remainder taxable is an excellent balance.

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