Looking for multiple sets of eyes to review

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
coachd50
Posts: 96
Joined: Sun Oct 22, 2017 10:12 am

Looking for multiple sets of eyes to review

Post by coachd50 » Sun Oct 22, 2017 2:44 pm

Hello, and thank you for reading my first post. Any feedback would be great.
I am just looking for additional thoughts and ideas regarding my investing portfolio as well as financial situation.

Background info:
Single Early 40s Teacher (meaning income not expected to significantly increase like in other professions) 11 years of service credit. Potentially looking to retire at around 57 with 25 years of service credit.

Financial Info
Liabilities:
House. Bought House for $165,000 in 2008. Put $33,000 down and borrowed $132,000. It appraises at about $200,000 now. Refinanced original mortgage in 2012 to lower rate from 5.35% to 4.00% with zero closing costs. Will owe $80,000 on that note on November 1st. 30 year mortgage.
Home Buyers Credit- $4,000 Must repay $500 a year when paying taxes. 0% interest.

Assets:
Checking Account : Generally carry a balance between $2,500 and say $4,000
Online Savings Account : $10,000
Fidelity taxable Brokerage Account : $73,000
Fidelity Roth IRA : $70,500
Social Security Alternative : $1,200
Teachers Retirement Pension Contributions : $45,000 (I track my contributions, but obviously this is not liquid cash)

Cash Flow Info
Current Gross Yearly Salary: between $51,000 and say $61,000 depending on extra curricular activity pay. As mentioned, not anticipating any significant growth from these numbers. In fact the past 3 years may end up being the highest (around $62k on average) of career because of extra curricular income.
Monthly breakdown : This breaks down to about $3,100-$3,800 a month after tax from July - May, and about $6,000 in June if Summer school is taught.
Cash Outflows
Generally spend about $1,100 a month on general living expenses (food, entertainment, utilities, dining, etc) Use a credit card for most things and pay off each month.
House Note: $1,220 each month. Breakdown is about $260 to Home Owners Inurance and Property Tax, about $579 principle and interest, and currently pay $386 extra principle payment. Also have paid an extra $2,000 or so to principal at the end of each year for the last few years.

Retirement Info
Member of the State Teachers Retirement Plan. This means extremely reduced if not zero Social Security benefit payments upon retirement.
Estimated Monthly Income from Teachers Retirement Plan at 25 years service credit (retiring at around 57 in 2032) $3,1000 a month. At 30 years credit (62 years old) estimated benefit is about $3,900 a month.
No real good employer based retirement investment options. High fee 457 or 403b plans that when I looked last time, didn't have any real attractive options. So I have funded my own Roth IRA and max the contributions at $5,500 a year.

Fidelity Account Allocation Breakdown
Brokerage Account $73,000 About a 70/30 Mix
---FUSVX Spartan 500 Index $42,000 (57%)
---FHIGX Fidelity Municipal Income $22,500 (31%)
---FSSPX Fidelity Small Cap Index Fund $8,000 (11%)
--Cash $100.

Roth IRA $70,500 About an 85/15 Mix
---FUSVX Spartan 500 Index $32,000 (45%)
---FSEVX Fidelity Extended Markets $17,800 (25%)
---FSITX Fidelity US Bond Index $10,700 (15%)
---FSIIX Fidelity International Index $9,800 (14%)

Thoughts? Observations? Comments?
Last edited by coachd50 on Sun Jan 07, 2018 4:37 pm, edited 2 times in total.

User avatar
in_reality
Posts: 4529
Joined: Fri Jul 12, 2013 6:13 am

Re: Looking for multiple sets of eyes to review

Post by in_reality » Sun Oct 22, 2017 8:01 pm

coachd50 wrote:
Sun Oct 22, 2017 2:44 pm
High fee 457 or 403b plans that when I looked last time, didn't have any real attractive options.
Are you sure there isn't a relatively cheap S&P 500 fund?

Helo80
Posts: 761
Joined: Sat Apr 29, 2017 8:47 pm

Re: Looking for multiple sets of eyes to review

Post by Helo80 » Sun Oct 22, 2017 8:37 pm

coachd50 wrote:
Sun Oct 22, 2017 2:44 pm
No real good employer based retirement investment options. High fee 457 or 403b plans that when I looked last time, didn't have any real attractive options. So I have funded my own Roth IRA and max the contributions at $5,500 a year.


First off, depending on what said "high fees" actually are, it still may be advantageous for you to contribute. Second, until you do post what funds and ERs are, there is a chance you are missing a good fund or two. Sometimes people have started off with how terrible their 401k is, and then it turns out it's a pretty darn good one.

So, I would highly encourage you to take the time to post all of your fund options and let the board sound off and vet any avenues to maximize your return.

KlangFool
Posts: 10657
Joined: Sat Oct 11, 2008 12:35 pm

Re: Looking for multiple sets of eyes to review

Post by KlangFool » Sun Oct 22, 2017 8:41 pm

in_reality wrote:
Sun Oct 22, 2017 8:01 pm
coachd50 wrote:
Sun Oct 22, 2017 2:44 pm
High fee 457 or 403b plans that when I looked last time, didn't have any real attractive options.
Are you sure there isn't a relatively cheap S&P 500 fund?
+1.

It might be worthwhile for the OP to contribute to 457/403b in order to get Earned Income Tax Credit or Saver's Credit.

KlangFool

Helo80
Posts: 761
Joined: Sat Apr 29, 2017 8:47 pm

Re: Looking for multiple sets of eyes to review

Post by Helo80 » Sun Oct 22, 2017 8:45 pm

KlangFool wrote:
Sun Oct 22, 2017 8:41 pm
in_reality wrote:
Sun Oct 22, 2017 8:01 pm
coachd50 wrote:
Sun Oct 22, 2017 2:44 pm
High fee 457 or 403b plans that when I looked last time, didn't have any real attractive options.
Are you sure there isn't a relatively cheap S&P 500 fund?
+1.

It might be worthwhile for the OP to contribute to 457/403b in order to get Earned Income Tax Credit or Saver's Credit.

KlangFool
Another +1

Was going to come back and say that even an S&P500 fund at 30 basis points, which would make BHers a bit salty, is not going to break the bank or make a 457 or 403b not worthwhile.

coachd50
Posts: 96
Joined: Sun Oct 22, 2017 10:12 am

Re: Looking for multiple sets of eyes to review

Post by coachd50 » Sun Oct 22, 2017 9:39 pm

Most of the investment options are annuities. There are some mutual fund options with Valic The cheapest Expense Ratio I have found is 34 basis points, through the Valic Stock Index Fund. (VSTIX) According to the prospectus, it is an S&P 500 index fund. I currently pay just 4 basis points for my Fidelity s&P 500 index fund.

Correction, I may be able to invest in some Vanguard Life Strategy Funds, which appear to have expense ratios around 15 basis points.

There will be no match in any contributions, just to clarify.

McGilicutty
Posts: 159
Joined: Tue Dec 13, 2016 5:24 pm

Re: Looking for multiple sets of eyes to review

Post by McGilicutty » Sun Oct 22, 2017 9:48 pm

ERs for tickers mentioned in original post obtained from Yahoo! Finance:

(FUSVX) Fidelity 500 Index Premium -- 0.05% ER
(FHIGX) Fidelity Municipal Income -- 0.46% ER
(FSSPX) Fidelity Small Cap Index Investor -- 0.19% ER
(FSEVX) Fidelity Extended Market Index Premium -- 0.07% ER
(FSITX) Fidelity US Bond Index Premium -- 0.07% ER
(FSIIX) Fidelity International Index Investor -- 0.19% ER

coachd50
Posts: 96
Joined: Sun Oct 22, 2017 10:12 am

Re: Looking for multiple sets of eyes to review

Post by coachd50 » Sun Oct 22, 2017 9:58 pm

McGilicutty wrote:
Sun Oct 22, 2017 9:48 pm
ERs for tickers mentioned in original post obtained from Yahoo! Finance:

(FUSVX) Fidelity 500 Index Premium -- 0.05% ER
(FHIGX) Fidelity Municipal Income -- 0.46% ER
(FSSPX) Fidelity Small Cap Index Investor -- 0.19% ER
(FSEVX) Fidelity Extended Market Index Premium -- 0.07% ER
(FSITX) Fidelity US Bond Index Premium -- 0.07% ER
(FSIIX) Fidelity International Index Investor -- 0.19% ER
Thank you for posting that.

User avatar
Watty
Posts: 14581
Joined: Wed Oct 10, 2007 3:55 pm

Re: Looking for multiple sets of eyes to review

Post by Watty » Sun Oct 22, 2017 10:20 pm

coachd50 wrote:
Sun Oct 22, 2017 2:44 pm

Single Early 40s....

Potentially looking to retire at around 57 with 25 years of service credit.

.....

Refinanced original mortgage in 2012 to lower rate from 5.35% to 4.00% with zero closing costs. Will owe $80,000 on that note on November 1st. 30 year mortgage.
It would be good to check to see what sort of 15 year mortgage you could get and if you would be comfortable with the payments.

A 15 year mortgage would get the house paid off right about the time when you want to retire. There are all sorts of opinions about when to pay off a mortgage but at least for me having a paid off house when I retired made my numbers work a lot better.

With the money in the taxable account another option would be to use some of that and get a five or seven year ARM for the rest and get the rest paid off real soon.

student
Posts: 2670
Joined: Fri Apr 03, 2015 6:58 am

Re: Looking for multiple sets of eyes to review

Post by student » Sun Oct 22, 2017 10:31 pm

I suggest that you take a look at the health of your pension plan. For example, take a look here to see whether they have any info about your plan. http://publicplansdata.org/

coachd50
Posts: 96
Joined: Sun Oct 22, 2017 10:12 am

Re: Looking for multiple sets of eyes to review

Post by coachd50 » Sun Oct 22, 2017 10:54 pm

Watty wrote:
Sun Oct 22, 2017 10:20 pm
coachd50 wrote:
Sun Oct 22, 2017 2:44 pm

Single Early 40s....

Potentially looking to retire at around 57 with 25 years of service credit.

.....

Refinanced original mortgage in 2012 to lower rate from 5.35% to 4.00% with zero closing costs. Will owe $80,000 on that note on November 1st. 30 year mortgage.
It would be good to check to see what sort of 15 year mortgage you could get and if you would be comfortable with the payments.

A 15 year mortgage would get the house paid off right about the time when you want to retire. There are all sorts of opinions about when to pay off a mortgage but at least for me having a paid off house when I retired made my numbers work a lot better.

With the money in the taxable account another option would be to use some of that and get a five or seven year ARM for the rest and get the rest paid off real soon.
While my current note is a 30 year note is due in 2042, if I continue to pay as I described in the original post, it should paid off in about 8 1/2 years from now (2026) or about 5 years prior to my potential earliest retirement.

coachd50
Posts: 96
Joined: Sun Oct 22, 2017 10:12 am

Re: Looking for multiple sets of eyes to review

Post by coachd50 » Thu Oct 26, 2017 9:25 pm

Just a small update on the original info... the financial company that handles the additional retirement vehicles (403b 457) still hasn't gotten back to me regarding the financial options. As I mentioned, I don't think terribly highly of that situation.

MotoTrojan
Posts: 2603
Joined: Wed Feb 01, 2017 8:39 pm

Re: Looking for multiple sets of eyes to review

Post by MotoTrojan » Thu Oct 26, 2017 9:50 pm

Very low international exposure. Consider boosting up closer to 20-25% or eliminating all together for simplicity.

Strong tilt to small-cap (not bad if you understand it).

Is the taxable account intended for retirement? If so, I would consider the two of them a single portfolio, and look into tax-efficient fund placement. Instead of muni's in taxable, you could have more US Bond Fund (I assume it pays higher yield) in the Roth, and then only use taxable for S&P500/Total US and Total International, which are very tax-efficient. Could also further simplify by eliminating small-cap or extended market (similar exposures) and holding just one of them purely in Roth (less tax-efficient).

coachd50
Posts: 96
Joined: Sun Oct 22, 2017 10:12 am

Re: Looking for multiple sets of eyes to review

Post by coachd50 » Sat Nov 04, 2017 10:39 am

KlangFool wrote:
Sun Oct 22, 2017 8:41 pm
in_reality wrote:
Sun Oct 22, 2017 8:01 pm
coachd50 wrote:
Sun Oct 22, 2017 2:44 pm
High fee 457 or 403b plans that when I looked last time, didn't have any real attractive options.
Are you sure there isn't a relatively cheap S&P 500 fund?
+1.

It might be worthwhile for the OP to contribute to 457/403b in order to get Earned Income Tax Credit or Saver's Credit.

KlangFool
Can you expand a bit on this? As I stated in the first post I make between $51,000 and $61,000 a year. Aren't the AGI limits for those credits significantly lower?

KlangFool
Posts: 10657
Joined: Sat Oct 11, 2008 12:35 pm

Re: Looking for multiple sets of eyes to review

Post by KlangFool » Sat Nov 04, 2017 11:02 am

coachd50 wrote:
Sat Nov 04, 2017 10:39 am
KlangFool wrote:
Sun Oct 22, 2017 8:41 pm
in_reality wrote:
Sun Oct 22, 2017 8:01 pm
coachd50 wrote:
Sun Oct 22, 2017 2:44 pm
High fee 457 or 403b plans that when I looked last time, didn't have any real attractive options.
Are you sure there isn't a relatively cheap S&P 500 fund?
+1.

It might be worthwhile for the OP to contribute to 457/403b in order to get Earned Income Tax Credit or Saver's Credit.

KlangFool
Can you expand a bit on this? As I stated in the first post I make between $51,000 and $61,000 a year. Aren't the AGI limits for those credits significantly lower?
coachd50,

You had answered your own question.

<<I make between $51,000 and $61,000 a year. >>

This is your gross income.

<<Aren't the AGI limits for those credits significantly lower?>>

The limit is based on MAGI. It is not based on your gross income. Contribution to 457 and Trad. IRA lowered your MAGI.

If you are interested, do a google search on those 2 credits or use a tax software to forecast whether you qualify for the tax credit if you contribute 18K to 457.

KlangFool

coachd50
Posts: 96
Joined: Sun Oct 22, 2017 10:12 am

Re: Looking for multiple sets of eyes to review

Post by coachd50 » Sat Nov 04, 2017 2:39 pm

@klangfool

Ah, gotcha. You are saying to look into being able to contribute so much that my MODIFIED AGI would be low enough to receive the credit. Thanks for the clarification and the idea. I will look into it.

KlangFool
Posts: 10657
Joined: Sat Oct 11, 2008 12:35 pm

Re: Looking for multiple sets of eyes to review

Post by KlangFool » Sat Nov 04, 2017 4:13 pm

coachd50 wrote:
Sat Nov 04, 2017 2:39 pm
@klangfool

Ah, gotcha. You are saying to look into being able to contribute so much that my MODIFIED AGI would be low enough to receive the credit. Thanks for the clarification and the idea. I will look into it.
coachd50,

There are quite a few folks in your income range posted that it is free money to them. Aka, fair amount of their contribution to 457 ended up as tax credits: refundable and none-refundable. You may just want to start a new topic for this specific question.

KlangFool

coachd50
Posts: 96
Joined: Sun Oct 22, 2017 10:12 am

Re: Looking for multiple sets of eyes to review

Post by coachd50 » Sat Nov 04, 2017 5:48 pm

Helo80 wrote:
Sun Oct 22, 2017 8:45 pm
KlangFool wrote:
Sun Oct 22, 2017 8:41 pm
in_reality wrote:
Sun Oct 22, 2017 8:01 pm
coachd50 wrote:
Sun Oct 22, 2017 2:44 pm
High fee 457 or 403b plans that when I looked last time, didn't have any real attractive options.
Are you sure there isn't a relatively cheap S&P 500 fund?
+1.

It might be worthwhile for the OP to contribute to 457/403b in order to get Earned Income Tax Credit or Saver's Credit.

KlangFool
Another +1

Was going to come back and say that even an S&P500 fund at 30 basis points, which would make BHers a bit salty, is not going to break the bank or make a 457 or 403b not worthwhile.
Helo80 What if I don't have enough income to significantly invest into the 457 or 403b? I currently max out my $5,500 Roth IRA, and I am paying down extra on the House Note each month (my version of "hedging" I suppose)

KlangFool
Posts: 10657
Joined: Sat Oct 11, 2008 12:35 pm

Re: Looking for multiple sets of eyes to review

Post by KlangFool » Sat Nov 04, 2017 6:58 pm

coachd50 wrote:
Sat Nov 04, 2017 5:48 pm
Helo80 wrote:
Sun Oct 22, 2017 8:45 pm
KlangFool wrote:
Sun Oct 22, 2017 8:41 pm
in_reality wrote:
Sun Oct 22, 2017 8:01 pm
coachd50 wrote:
Sun Oct 22, 2017 2:44 pm
High fee 457 or 403b plans that when I looked last time, didn't have any real attractive options.
Are you sure there isn't a relatively cheap S&P 500 fund?
+1.

It might be worthwhile for the OP to contribute to 457/403b in order to get Earned Income Tax Credit or Saver's Credit.

KlangFool
Another +1

Was going to come back and say that even an S&P500 fund at 30 basis points, which would make BHers a bit salty, is not going to break the bank or make a 457 or 403b not worthwhile.
Helo80 What if I don't have enough income to significantly invest into the 457 or 403b? I currently max out my $5,500 Roth IRA, and I am paying down extra on the House Note each month (my version of "hedging" I suppose)
coachd50,

1) You should not be paying down on the housing loan if it costs you a lot of taxes. It is lousy ROI.

2) How does put more eggs into one illiquid basket (house) make you safer? It does not.

KlangFool

coachd50
Posts: 96
Joined: Sun Oct 22, 2017 10:12 am

Re: Looking for multiple sets of eyes to review

Post by coachd50 » Sat Nov 04, 2017 7:23 pm

Klangfool

Couldn't one consider that a level of risk aversion? Rather than putting that into the market, I am paying down on the debt that I owe. It probably amounts to about $5,000 or so extra dollars a year. So while I can see mathematically how the ROI of that $5,000 is not great, I do think it fits my personal goals of debt aversion, as well as level of risk tolerance. I don't really view the house as an asset nor am I looking to sell so the liquidity issue is not one that holds much importance to me at the moment. I have income now, I am currently in a lifestyle with relatively low expenses, and so paying down a known future expense somewhat while maxing out my ROTH and investing another portion of the income into the brokerage account was my plan. Does that make any sense? Keep in mind that was the plan NOT looking at using other retirement vehicles (457 or 403b) but rather just the Roth.

I do understand the tax issue. If contributing that $5,000 plus extra in the tax deferred account can result in "free money" then that is definitely something to consider.

As stated previously, when I first was presented with the 457 and 403b options, (prior to discovering John Bogle and the bogle philosopy, or this site) all that popped out was annuities and high fees. The "advisers" have not returned either of my phone calls since I posted I was going to explore that further (in the post above). So, that is never an encouraging sign. I will try again this week.

Also, thanks to everyone who is helping me analyze and "talk" through this. Please keep any suggestions or ideas or comments coming.

KlangFool
Posts: 10657
Joined: Sat Oct 11, 2008 12:35 pm

Re: Looking for multiple sets of eyes to review

Post by KlangFool » Sat Nov 04, 2017 8:38 pm

coachd50 wrote:
Sat Nov 04, 2017 7:23 pm
Klangfool

Couldn't one consider that a level of risk aversion? Rather than putting that into the market, I am paying down on the debt that I owe.
coachd50,

1) You do not have to put all that $5,000 into the stock market. You should not be 100/0. So, what do you mean by market risk?

2) There is a risk of paying down the debt too. You faced liquidity risk.

Unless and until you are financial independence or retired, paying off the mortgage does not really do anything for you. It may make you feel good. But, the reality is it does not make you any safer. In fact, it exposed you to liquidity risk.

That $5,000 that you cannot access except by selling the house may buy you a few more months of grocery in a recession.

KlangFool

coachd50
Posts: 96
Joined: Sun Oct 22, 2017 10:12 am

Re: Looking for multiple sets of eyes to review

Post by coachd50 » Sat Nov 04, 2017 9:17 pm

KlangFool wrote:
Sat Nov 04, 2017 8:38 pm
coachd50 wrote:
Sat Nov 04, 2017 7:23 pm
Klangfool

Couldn't one consider that a level of risk aversion? Rather than putting that into the market, I am paying down on the debt that I owe.
coachd50,

1) You do not have to put all that $5,000 into the stock market. You should not be 100/0. So, what do you mean by market risk?

2) There is a risk of paying down the debt too. You faced liquidity risk.

Unless and until you are financial independence or retired, paying off the mortgage does not really do anything for you. It may make you feel good. But, the reality is it does not make you any safer. In fact, it exposed you to liquidity risk.

That $5,000 that you cannot access except by selling the house may buy you a few more months of grocery in a recession.

KlangFool
I understand those points, allow me to continue thinking out loud with some counter points?
Regarding the need for liquid funds, My Average Collected checking account balance is about $3,200. I have $10,000 in a Online FDIC insured savings account. I have about $73,000 in the Fidelity Brokerage account with about $22,000 in a Muni Bond fund (30% of the account). I am not including the Roth Account with about $70,000.



That extra $5,000 or so would be going SOMEWHERE correct? Either Checking, Brokerage, Online Savings, Pay down mortgage, or spend. I believe I have put about $9,500 into the Brokerage account over the last 12 months, $5,500 into the Roth, Nothing in the Savings.

KlangFool
Posts: 10657
Joined: Sat Oct 11, 2008 12:35 pm

Re: Looking for multiple sets of eyes to review

Post by KlangFool » Sat Nov 04, 2017 9:45 pm

coachd50 wrote:
Sat Nov 04, 2017 9:17 pm
KlangFool wrote:
Sat Nov 04, 2017 8:38 pm
coachd50 wrote:
Sat Nov 04, 2017 7:23 pm
Klangfool

Couldn't one consider that a level of risk aversion? Rather than putting that into the market, I am paying down on the debt that I owe.
coachd50,

1) You do not have to put all that $5,000 into the stock market. You should not be 100/0. So, what do you mean by market risk?

2) There is a risk of paying down the debt too. You faced liquidity risk.

Unless and until you are financial independence or retired, paying off the mortgage does not really do anything for you. It may make you feel good. But, the reality is it does not make you any safer. In fact, it exposed you to liquidity risk.

That $5,000 that you cannot access except by selling the house may buy you a few more months of grocery in a recession.

KlangFool
I understand those points, allow me to continue thinking out loud with some counter points?
Regarding the need for liquid funds, My Average Collected checking account balance is about $3,200. I have $10,000 in a Online FDIC insured savings account. I have about $73,000 in the Fidelity Brokerage account with about $22,000 in a Muni Bond fund (30% of the account). I am not including the Roth Account with about $70,000.



That extra $5,000 or so would be going SOMEWHERE correct? Either Checking, Brokerage, Online Savings, Pay down mortgage, or spend. I believe I have put about $9,500 into the Brokerage account over the last 12 months, $5,500 into the Roth, Nothing in the Savings.
coachd50,

If we hit a 2008/2009 recession and both spouses are unemployed, how long can you last?

A) House drop by 50% in value

B) Stock drop by 50% in value

C) Let's assume bond stay the same.

D) Both spouses are unemployed.

That $5,000 in the house will not help you. The $5,000 in the brokerage, saving or whatever will extend the survival time a bit longer.

1) If your answer is 5 years, then, go right ahead. Pay down your mortgage.

2) If your answer is 2 to 5 years, it is iffy.

3) If it is less than 2 years, then, it is risky to pay down your mortgage.

What is your annual expense?

KlangFool

coachd50
Posts: 96
Joined: Sun Oct 22, 2017 10:12 am

Re: Looking for multiple sets of eyes to review

Post by coachd50 » Sat Nov 04, 2017 10:02 pm

KlangFool wrote:
Sat Nov 04, 2017 9:45 pm
coachd50 wrote:
Sat Nov 04, 2017 9:17 pm
KlangFool wrote:
Sat Nov 04, 2017 8:38 pm
coachd50 wrote:
Sat Nov 04, 2017 7:23 pm
Klangfool

Couldn't one consider that a level of risk aversion? Rather than putting that into the market, I am paying down on the debt that I owe.
coachd50,

1) You do not have to put all that $5,000 into the stock market. You should not be 100/0. So, what do you mean by market risk?

2) There is a risk of paying down the debt too. You faced liquidity risk.

Unless and until you are financial independence or retired, paying off the mortgage does not really do anything for you. It may make you feel good. But, the reality is it does not make you any safer. In fact, it exposed you to liquidity risk.

That $5,000 that you cannot access except by selling the house may buy you a few more months of grocery in a recession.

KlangFool
I understand those points, allow me to continue thinking out loud with some counter points?
Regarding the need for liquid funds, My Average Collected checking account balance is about $3,200. I have $10,000 in a Online FDIC insured savings account. I have about $73,000 in the Fidelity Brokerage account with about $22,000 in a Muni Bond fund (30% of the account). I am not including the Roth Account with about $70,000.



That extra $5,000 or so would be going SOMEWHERE correct? Either Checking, Brokerage, Online Savings, Pay down mortgage, or spend. I believe I have put about $9,500 into the Brokerage account over the last 12 months, $5,500 into the Roth, Nothing in the Savings.
coachd50,

If we hit a 2008/2009 recession and both spouses are unemployed, how long can you last?

A) House drop by 50% in value

B) Stock drop by 50% in value

C) Let's assume bond stay the same.

D) Both spouses are unemployed.

That $5,000 in the house will not help you. The $5,000 in the brokerage, saving or whatever will extend the survival time a bit longer.

1) If your answer is 5 years, then, go right ahead. Pay down your mortgage.

2) If your answer is 2 to 5 years, it is iffy.

3) If it is less than 2 years, then, it is risky to pay down your mortgage.

What is your annual expense?

KlangFool
Single

As I mentioned in the original post, I would estimate that I spend about $1,100 a month in general living expenses. That is without really keeping to a budget, and just buying whatever I want, whenever I want. I currently pay about $1,200 a month on the mortgage, about $300 being additional principle. At the end of the year, depending on cash, I have also made a one time payment of about $2,000 to principle each year.

WanderingDoc
Posts: 1271
Joined: Sat Aug 05, 2017 8:21 pm

Re: Looking for multiple sets of eyes to review

Post by WanderingDoc » Sat Nov 04, 2017 10:37 pm

KlangFool wrote:
Sat Nov 04, 2017 6:58 pm
coachd50 wrote:
Sat Nov 04, 2017 5:48 pm
Helo80 wrote:
Sun Oct 22, 2017 8:45 pm
KlangFool wrote:
Sun Oct 22, 2017 8:41 pm
in_reality wrote:
Sun Oct 22, 2017 8:01 pm


Are you sure there isn't a relatively cheap S&P 500 fund?
+1.

It might be worthwhile for the OP to contribute to 457/403b in order to get Earned Income Tax Credit or Saver's Credit.

KlangFool
Another +1

Was going to come back and say that even an S&P500 fund at 30 basis points, which would make BHers a bit salty, is not going to break the bank or make a 457 or 403b not worthwhile.
Helo80 What if I don't have enough income to significantly invest into the 457 or 403b? I currently max out my $5,500 Roth IRA, and I am paying down extra on the House Note each month (my version of "hedging" I suppose)
coachd50,

1) You should not be paying down on the housing loan if it costs you a lot of taxes. It is lousy ROI.

2) How does put more eggs into one illiquid basket (house) make you safer? It does not.

KlangFool
+1.

Paying off a house note by adding additional principle payments is almost always a terrible idea. Paying off a house note in this very low interest rate environment is necessarily a terrible idea.

The rate of return from home equity i always zero. Get that money to work better for you.

I have to commend KlangFool here. For the level of misinformation and general disdain for real estate investing on this forum, I am happy that some basic REI principles are not lost.
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) | Don't wait to buy real estate. Buy real estate.. and wait.

User avatar
FiveK
Posts: 5829
Joined: Sun Mar 16, 2014 2:43 pm

Re: Looking for multiple sets of eyes to review

Post by FiveK » Sat Nov 04, 2017 10:59 pm

coachd50 wrote:
Sat Nov 04, 2017 2:39 pm
@klangfool

Ah, gotcha. You are saying to look into being able to contribute so much that my MODIFIED AGI would be low enough to receive the credit. Thanks for the clarification and the idea. I will look into it.
At $56K gross income, and no other pre-tax deductions, the saver's credit doesn't change your marginal rate significantly because you have to contribute so much to reach the credit tiers. In the chart below, read "401k" as "tIRA+403b+457b". You could reach the 50% saver's credit tier but not the EITC. You could run your own scenarios using the personal finance toolbox spreadsheet.
Image

Depending on when you would start your pension, your marginal rate in retirement will be close to the 15%/25% change (under current tax law).

User avatar
Sandtrap
Posts: 5456
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii😀 Northern AZ.😳 Retired.

Re: Looking for multiple sets of eyes to review

Post by Sandtrap » Sat Nov 04, 2017 11:05 pm

WanderingDoc wrote:
Sat Nov 04, 2017 10:37 pm
. . . . . .

I have to commend KlangFool here. For the level of misinformation and general disdain for real estate investing on this forum, I am happy that some basic REI principles are not lost.
+1
Interesting point.
Also commend "KlangFool".
Although perhaps more misinformation and "outside of one's comfort zone" than disdain for REI.
Boglehead concepts can be a powerful ally to REI principals and good business basics. Altogether, a strong force toward the accumulation of wealth.

Mahalo,
j :D

jalbert
Posts: 3912
Joined: Fri Apr 10, 2015 12:29 am

Re: Looking for multiple sets of eyes to review

Post by jalbert » Sat Nov 04, 2017 11:45 pm

Brokerage Account $73,000 About a 70/30 Mix
---FUSVX Spartan 500 Index $42,000 (57%)
---FHIGX Fidelity Municipal Income $22,500 (31%)
---FSSPX Fidelity Small Cap Index Fund $8,000 (11%)
--Cash $100.

Roth IRA $70,500 About an 85/15 Mix
---FUSVX Spartan 500 Index $32,000 (45%)
---FSEVX Fidelity Extended Markets $17,800 (25%)
---FSITX Fidelity US Bond Index $10,700 (15%)
---FSIIX Fidelity International Index $9,800 (14%)
I think you can simplify this and improve the asset location mapping by holding FUSVX and FSIIX in taxable and FSITX, FUSVX, and FSEVX in Roth. You then don't need FHIGX or FSSPX.
Risk is not a guarantor of return.

coachd50
Posts: 96
Joined: Sun Oct 22, 2017 10:12 am

Re: Looking for multiple sets of eyes to review

Post by coachd50 » Sun Nov 05, 2017 12:31 am

jalbert wrote:
Sat Nov 04, 2017 11:45 pm
Brokerage Account $73,000 About a 70/30 Mix
---FUSVX Spartan 500 Index $42,000 (57%)
---FHIGX Fidelity Municipal Income $22,500 (31%)
---FSSPX Fidelity Small Cap Index Fund $8,000 (11%)
--Cash $100.

Roth IRA $70,500 About an 85/15 Mix
---FUSVX Spartan 500 Index $32,000 (45%)
---FSEVX Fidelity Extended Markets $17,800 (25%)
---FSITX Fidelity US Bond Index $10,700 (15%)
---FSIIX Fidelity International Index $9,800 (14%)
I think you can simplify this and improve the asset location mapping by holding FUSVX and FSIIX in taxable and FSITX, FUSVX, and FSEVX in Roth. You then don't need FHIGX or FSSPX.
Why would you lose the Muni und in the taxable and the International in the Roth?

WanderingDoc
Posts: 1271
Joined: Sat Aug 05, 2017 8:21 pm

Re: Looking for multiple sets of eyes to review

Post by WanderingDoc » Sun Nov 05, 2017 1:07 am

Sandtrap wrote:
Sat Nov 04, 2017 11:05 pm
WanderingDoc wrote:
Sat Nov 04, 2017 10:37 pm
. . . . . .

I have to commend KlangFool here. For the level of misinformation and general disdain for real estate investing on this forum, I am happy that some basic REI principles are not lost.
+1
Interesting point.
Also commend "KlangFool".
Although perhaps more misinformation and "outside of one's comfort zone" than disdain for REI.
Boglehead concepts can be a powerful ally to REI principals and good business basics. Altogether, a strong force toward the accumulation of wealth.

Mahalo,
j :D
Cheers! After reading a couple books and perusing here, I am back on including equities full force into my portfolio. As a way to diversify assets. I am only doing this because I have already built a nice real estate nest egg which generates solid extra monthly income and I have enough leftover capital to do both.
I still maintain the notion that if someone wants to obtain financial freedom in anything less than 20 years, you just cannot beat real estate.

Its just simple math. Even if you have an above average income earner, say earning $100K/yr. $20K goes to taxes. I'll even be generous and say they have $23.5K per year to invest in a 401k and Roth IRA. Note that this is a pretty fantastic savings rate. With this example, it would still take DECADES to achieve financial indepedence using the mutual fund approach. This is just an unfortunate truth that is fairly obvious. For someone who wants to work full time and sacrifice their savings to invest in retirement accts, it is absolutely a viable option.
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) | Don't wait to buy real estate. Buy real estate.. and wait.

User avatar
Sandtrap
Posts: 5456
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii😀 Northern AZ.😳 Retired.

Re: Looking for multiple sets of eyes to review

Post by Sandtrap » Sun Nov 05, 2017 1:50 am

WanderingDoc wrote:
Sun Nov 05, 2017 1:07 am
Sandtrap wrote:
Sat Nov 04, 2017 11:05 pm
WanderingDoc wrote:
Sat Nov 04, 2017 10:37 pm
. . . . . .

I have to commend KlangFool here. For the level of misinformation and general disdain for real estate investing on this forum, I am happy that some basic REI principles are not lost.
+1
Interesting point.
Also commend "KlangFool".
Although perhaps more misinformation and "outside of one's comfort zone" than disdain for REI.
Boglehead concepts can be a powerful ally to REI principals and good business basics. Altogether, a strong force toward the accumulation of wealth.

Mahalo,
j :D
Cheers! After reading a couple books and perusing here, I am back on including equities full force into my portfolio. As a way to diversify assets. I am only doing this because I have already built a nice real estate nest egg which generates solid extra monthly income and I have enough leftover capital to do both.
I still maintain the notion that if someone wants to obtain financial freedom in anything less than 20 years, you just cannot beat real estate.

Its just simple math. Even if you have an above average income earner, say earning $100K/yr. $20K goes to taxes. I'll even be generous and say they have $23.5K per year to invest in a 401k and Roth IRA. Note that this is a pretty fantastic savings rate. With this example, it would still take DECADES to achieve financial indepedence using the mutual fund approach. This is just an unfortunate truth that is fairly obvious. For someone who wants to work full time and sacrifice their savings to invest in retirement accts, it is absolutely a viable option.
Absolutely. If one is wise, savvy, humble, patient, courageous, and very very very lucky, it can be a path to substantial wealth. :D

KlangFool
Posts: 10657
Joined: Sat Oct 11, 2008 12:35 pm

Re: Looking for multiple sets of eyes to review

Post by KlangFool » Sun Nov 05, 2017 10:46 am

FiveK wrote:
Sat Nov 04, 2017 10:59 pm
coachd50 wrote:
Sat Nov 04, 2017 2:39 pm
@klangfool

Ah, gotcha. You are saying to look into being able to contribute so much that my MODIFIED AGI would be low enough to receive the credit. Thanks for the clarification and the idea. I will look into it.
At $56K gross income, and no other pre-tax deductions, the saver's credit doesn't change your marginal rate significantly because you have to contribute so much to reach the credit tiers. In the chart below, read "401k" as "tIRA+403b+457b". You could reach the 50% saver's credit tier but not the EITC. You could run your own scenarios using the personal finance toolbox spreadsheet.
Image

Depending on when you would start your pension, your marginal rate in retirement will be close to the 15%/25% change (under current tax law).
FiveK,

OP has 73K in his taxable account plus additional 5K per year of savings to make this happen.

KlangFool

User avatar
FiveK
Posts: 5829
Joined: Sun Mar 16, 2014 2:43 pm

Re: Looking for multiple sets of eyes to review

Post by FiveK » Sun Nov 05, 2017 1:22 pm

KlangFool wrote:
Sun Nov 05, 2017 10:46 am
FiveK,

OP has 73K in his taxable account plus additional 5K per year of savings to make this happen.

KlangFool
Agreed that he likely can do that much. The presence of a pension, marginal saving rate only between 15%-20% for large traditional contributions, etc., make the choice less clear than for many.

coachd50
Posts: 96
Joined: Sun Oct 22, 2017 10:12 am

Re: Looking for multiple sets of eyes to review

Post by coachd50 » Sun Nov 05, 2017 5:40 pm

FiveK wrote:
Sun Nov 05, 2017 1:22 pm
KlangFool wrote:
Sun Nov 05, 2017 10:46 am
FiveK,

OP has 73K in his taxable account plus additional 5K per year of savings to make this happen.

KlangFool
Agreed that he likely can do that much. The presence of a pension, marginal saving rate only between 15%-20% for large traditional contributions, etc., make the choice less clear than for many.
KlangFool and Five K I don't really understand what you two are talking about. Could you expound a bit, or point me in the right direction? Thanks.

User avatar
FiveK
Posts: 5829
Joined: Sun Mar 16, 2014 2:43 pm

Re: Looking for multiple sets of eyes to review

Post by FiveK » Sun Nov 05, 2017 6:34 pm

coachd50 wrote:
Sun Nov 05, 2017 5:40 pm
FiveK wrote:
Sun Nov 05, 2017 1:22 pm
KlangFool wrote:
Sun Nov 05, 2017 10:46 am
FiveK,

OP has 73K in his taxable account plus additional 5K per year of savings to make this happen.

KlangFool
Agreed that he likely can do that much. The presence of a pension, marginal saving rate only between 15%-20% for large traditional contributions, etc., make the choice less clear than for many.
KlangFool and Five K I don't really understand what you two are talking about. Could you expound a bit, or point me in the right direction? Thanks.
The chart in this post: viewtopic.php?p=3604147#p3604147 shows the marginal saving rates for increasing amounts of tax-deferred (aka traditional) contributions. Y-axis numbers are negative because they are savings - if using income on the x-axis the marginal rates would be positive.

In order to reach the saver's credit tiers (the 3 vertical spikes) it takes a large amount of traditional contributions. Thus the marginal saving rates on the traditional contributions aren't as high as they would be for someone who could reach the saver's credit tiers with smaller contributions.

Does that help?

coachd50
Posts: 96
Joined: Sun Oct 22, 2017 10:12 am

Re: Looking for multiple sets of eyes to review

Post by coachd50 » Sun Nov 05, 2017 7:46 pm

I believe I understand. Basically, because my income levels are going to be between the mid $50's to low $60s, I would need to contribute to the full $18,000 to the traditional 403b or 457 plan. And even then, I may not reach the saver credit since the highest AGI allowed is $31,000. Am I correct in assuming that Klangfool's comment about my taxable brokerage account and savings was suggesting that I should use those funds to live off of and contribute the vast majority of my paychecks?

User avatar
FiveK
Posts: 5829
Joined: Sun Mar 16, 2014 2:43 pm

Re: Looking for multiple sets of eyes to review

Post by FiveK » Sun Nov 05, 2017 8:39 pm

coachd50 wrote:
Sun Nov 05, 2017 7:46 pm
I believe I understand. Basically, because my income levels are going to be between the mid $50's to low $60s, I would need to contribute to the full $18,000 to the traditional 403b or 457 plan. And even then, I may not reach the saver credit since the highest AGI allowed is $31,000. Am I correct in assuming that Klangfool's comment about my taxable brokerage account and savings was suggesting that I should use those funds to live off of and contribute the vast majority of my paychecks?
I believe that was indeed Klangfool's meaning, and a fine strategy that can be in the right situation.

jalbert
Posts: 3912
Joined: Fri Apr 10, 2015 12:29 am

Re: Looking for multiple sets of eyes to review

Post by jalbert » Mon Nov 06, 2017 1:01 am

Why would you lose the Muni und in the taxable and the International in the Roth?
You have a large enough Roth space that you don’t need to hold Munis as you can meet your bond allocation in a tax-qualified account. Munis have credit risk, call risk, liquidity risk, and extension risk. People often compare after-tax yields with after-tax treasury or bond index yields, but this is not an apples-to-apples comparison given differing risk profiles. If you want to hold bonds in taxable space, I-bonds or EE bonds would be what I would be inclined to hold.

Holding non-US stocks in a taxable account makes you eligible for the foreign tax credit on taxes paid by the fund to foreign govts. They also tend to be more volatile than US stocks, and holding in taxable space offers tax-loss harvesting opportunities.

On the other hand, non-US equities have a higher dividend yield and lower percentage of dividends qualified for favorable tax treatment, so whether non-US stocks should be held in taxable space or Roth space is not a trivial determination.

A couple of other ideas. Split up asset classes to hold the less tax efficient part in the Roth account and the more tax efficient part in the taxable account. Hold I-bonds, EE bonds, US large cap stocks, developed markets non-US stocks in taxable space, and corporate bonds, emerging market stocks, and small/mid-cap US stocks in Roth space.

For example, if you wanted to hold 70% equities and 30% bonds with 30% of equities being non-US, you might hold:

Taxable:
30% EE or i-bonds
36% S&P500 fund
34% Developed markets stock index fund

Roth:
30% Corporate bond [index] fund
42% S&P500 index fund
20% Extended market US index fund
8% Emerging markets stock index fund

This gives you a tax-efficient placement and holds market-weight positions on all equities. I don’t follow Fidelity offerings enough to recommend funds. You might have to use a brokerage option to get low cost offerings for the Roth assets (or move the Roth account to Vanguard if you prefer to hold mutual funds).

This is just one example. One thing you may want to do if you haven’t already is determine if the Teacher’s Retirement pension has cost-of-living adjustments (COLAs) and that the benefit formula will adjust for inflation by virtue of salary inclusion in the formula. If either of these are not the case, you may want to consider including TIPs or I-bonds in your bond allocation.

Just some thoughts.
Risk is not a guarantor of return.

coachd50
Posts: 96
Joined: Sun Oct 22, 2017 10:12 am

Re: Looking for multiple sets of eyes to review

Post by coachd50 » Sat Nov 11, 2017 8:19 am

Second update....After another phone call, still haven't heard back from the agents because it is "enrollment" period.
Ah..the joys of working in a public school system. But you can see why I didn't explore doing business with this group originally.

coachd50
Posts: 96
Joined: Sun Oct 22, 2017 10:12 am

Re: Looking for multiple sets of eyes to review

Post by coachd50 » Mon Nov 20, 2017 10:42 am

Third update...STILL No call back from any of the agents.

So, I was hoping that someone could provide any comments/insight on my Personal set up as is without looking into the 457/403b ideas.
Than you @klangfool and others for all of your comments and thoughts so far.

User avatar
sergeant
Posts: 943
Joined: Tue Dec 04, 2007 11:13 pm

Re: Looking for multiple sets of eyes to review

Post by sergeant » Mon Jan 15, 2018 2:13 am

coachd50 wrote:
Mon Nov 20, 2017 10:42 am
Third update...STILL No call back from any of the agents.

So, I was hoping that someone could provide any comments/insight on my Personal set up as is without looking into the 457/403b ideas.
Than you @klangfool and others for all of your comments and thoughts so far.
Have you checked with your HR department? That is usually who handles the paperwork on getting employees enrolled in the 457b system.
Lincoln 3 EOW!

coachd50
Posts: 96
Joined: Sun Oct 22, 2017 10:12 am

Re: Looking for multiple sets of eyes to review

Post by coachd50 » Mon Jan 15, 2018 10:16 am

sergeant wrote:
Mon Jan 15, 2018 2:13 am
coachd50 wrote:
Mon Nov 20, 2017 10:42 am
Third update...STILL No call back from any of the agents.

So, I was hoping that someone could provide any comments/insight on my Personal set up as is without looking into the 457/403b ideas.
Than you @klangfool and others for all of your comments and thoughts so far.
Have you checked with your HR department? That is usually who handles the paperwork on getting employees enrolled in the 457b system.
I think you misread. I wasn't asking about help getting set up with a plan. I was asking about my "personal set up" meaning my portfolio, financial info/situation etc. Regardless, I did contact the HR originally, and they said they don't do anything. Just referred me to the company. I also contacted them again when I hadn't heard anything back from any of the agents, but HR never responded. Ahhh...the joys of public school teaching.

coachd50
Posts: 96
Joined: Sun Oct 22, 2017 10:12 am

Re: Looking for multiple sets of eyes to review

Post by coachd50 » Mon Jan 15, 2018 1:38 pm

WanderingDoc wrote:
Sat Nov 04, 2017 10:37 pm


Paying off a house note by adding additional principle payments is almost always a terrible idea. Paying off a house note in this very low interest rate environment is necessarily a terrible idea.

The rate of return from home equity i always zero. Get that money to work better for you.

Just a quick question @wanderingDoc : While I understand the rate of return from home equity is zero, couldn't one say the rate of return from paying off the loan the rate saved from future loan payments?

WanderingDoc
Posts: 1271
Joined: Sat Aug 05, 2017 8:21 pm

Re: Looking for multiple sets of eyes to review

Post by WanderingDoc » Mon Jan 15, 2018 3:29 pm

coachd50 wrote:
Mon Jan 15, 2018 1:38 pm
WanderingDoc wrote:
Sat Nov 04, 2017 10:37 pm


Paying off a house note by adding additional principle payments is almost always a terrible idea. Paying off a house note in this very low interest rate environment is necessarily a terrible idea.

The rate of return from home equity i always zero. Get that money to work better for you.

Just a quick question @wanderingDoc : While I understand the rate of return from home equity is zero, couldn't one say the rate of return from paying off the loan the rate saved from future loan payments?
Nope. Your rate of return on paying off a 4% loan is negative 10%. If you can get a 14% return on that money, your return by adding dead equity to the home is -10%. Also, you lose mortgage interest deduction which lowers the return even more. Also, you are suffering risk of suit the more equity you have in properties. You are safer from creditors and lawyers by having less equity in properties.
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) | Don't wait to buy real estate. Buy real estate.. and wait.

panhead
Posts: 311
Joined: Fri Feb 22, 2013 10:53 am

Re: Looking for multiple sets of eyes to review

Post by panhead » Mon Jan 15, 2018 3:58 pm

WanderingDoc wrote:
Mon Jan 15, 2018 3:29 pm
coachd50 wrote:
Mon Jan 15, 2018 1:38 pm
WanderingDoc wrote:
Sat Nov 04, 2017 10:37 pm


Paying off a house note by adding additional principle payments is almost always a terrible idea. Paying off a house note in this very low interest rate environment is necessarily a terrible idea.

The rate of return from home equity i always zero. Get that money to work better for you.

Just a quick question @wanderingDoc : While I understand the rate of return from home equity is zero, couldn't one say the rate of return from paying off the loan the rate saved from future loan payments?
Nope. Your rate of return on paying off a 4% loan is negative 10%. If you can get a 14% return on that money, your return by adding dead equity to the home is -10%. Also, you lose mortgage interest deduction which lowers the return even more. Also, you are suffering risk of suit the more equity you have in properties. You are safer from creditors and lawyers by having less equity in properties.
This is just wrong in so many ways....
Yes, if you are paying off a 4% loan your return is 4% on that money, minus any tax benefit you get from it (see below)
With the new tax law it is very unlikely in your situation that you will be able to deduct your mortgage interest, you will likely be in standard deduction land, so this doesn't really matter either
Equity in your own home is often VERY protected based on homestead laws of your state. Google this or talk to a lawyer. Some people pay off their home for exactly this reason, for asset protection.

wanderingdoc, I assume you are talking about a 14% return from real estate above. I'm not even going to discuss about whether or not that is realistic. My point is that your comparison isn't a good one as real estate, at least rental real estate, is a job. Sure, sometimes you don't have to do a lot of work, but sometimes you really do. There is real risk of loss, and yes, those rental properties cannot be homesteaded so the equity in them is always at risk.

WanderingDoc
Posts: 1271
Joined: Sat Aug 05, 2017 8:21 pm

Re: Looking for multiple sets of eyes to review

Post by WanderingDoc » Mon Jan 15, 2018 4:12 pm

panhead wrote:
Mon Jan 15, 2018 3:58 pm
WanderingDoc wrote:
Mon Jan 15, 2018 3:29 pm
coachd50 wrote:
Mon Jan 15, 2018 1:38 pm
WanderingDoc wrote:
Sat Nov 04, 2017 10:37 pm


Paying off a house note by adding additional principle payments is almost always a terrible idea. Paying off a house note in this very low interest rate environment is necessarily a terrible idea.

The rate of return from home equity i always zero. Get that money to work better for you.

Just a quick question @wanderingDoc : While I understand the rate of return from home equity is zero, couldn't one say the rate of return from paying off the loan the rate saved from future loan payments?
Nope. Your rate of return on paying off a 4% loan is negative 10%. If you can get a 14% return on that money, your return by adding dead equity to the home is -10%. Also, you lose mortgage interest deduction which lowers the return even more. Also, you are suffering risk of suit the more equity you have in properties. You are safer from creditors and lawyers by having less equity in properties.
This is just wrong in so many ways....
Yes, if you are paying off a 4% loan your return is 4% on that money, minus any tax benefit you get from it (see below)
With the new tax law it is very unlikely in your situation that you will be able to deduct your mortgage interest, you will likely be in standard deduction land, so this doesn't really matter either
Equity in your own home is often VERY protected based on homestead laws of your state. Google this or talk to a lawyer. Some people pay off their home for exactly this reason, for asset protection.

wanderingdoc, I assume you are talking about a 14% return from real estate above. I'm not even going to discuss about whether or not that is realistic. My point is that your comparison isn't a good one as real estate, at least rental real estate, is a job. Sure, sometimes you don't have to do a lot of work, but sometimes you really do. There is real risk of loss, and yes, those rental properties cannot be homesteaded so the equity in them is always at risk.
Was mortgage interest deduction on a primary residence banned with the new law? Nope, you can still deduct $750,000. And 100% of mortgage interest is deductible on rental properties.

The rate of return from home equity is zero. If you put down $200,000 to pay off your mortgage loan, you have just wasted that money. That money is now paying you $0. You did get a one time return of 4%, but you lost at least 11% return on that money. A 15% return investing in real estate is on the very low end. That return would be disappointing for me in a real estate deal, but I wanted to be very conservative with the example.
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) | Don't wait to buy real estate. Buy real estate.. and wait.

panhead
Posts: 311
Joined: Fri Feb 22, 2013 10:53 am

Re: Looking for multiple sets of eyes to review

Post by panhead » Mon Jan 15, 2018 4:41 pm

WanderingDoc wrote:
Mon Jan 15, 2018 4:12 pm

Was mortgage interest deduction on a primary residence banned with the new law? Nope, you can still deduct $750,000. And 100% of mortgage interest is deductible on rental properties.
No, mortgage interest wasn’t banned, but in order to take it you have to itemize. This person is making about $60k/year with a $80k balance on a mortgage at 4%. The likelihood s/he will itemize is almost nil. They can do the exercise to prove this out, but it is highly unlikely
WanderingDoc wrote:
Mon Jan 15, 2018 4:12 pm
The rate of return from home equity is zero. If you put down $200,000 to pay off your mortgage loan, you have just wasted that money. That money is now paying you $0. You did get a one time return of 4%, but you lost at least 11% return on that money. A 15% return investing in real estate is on the very low end. That return would be disappointing for me in a real estate deal, but I wanted to be very conservative with the example.
So, in other words, yes. The return on the extra money thrown at the mortgage is a return of 4%. I agree with you that equity in your home doesn’t continue to pay you (except by reducing amount owed in interest) until the home is paid off, then it’s equal to the rent you would pay to live in your home (minus expenses).

If you are talking about a 15% cash on cash return as being low for rentals, I’m very skeptical, but I won’t say it’s impossible. I’ve found 10% hard to find around here, but that’s only in my neck of the woods. Also, if you are counting appreciation into that 15%, then I’m calling shenanigans.

coachd50
Posts: 96
Joined: Sun Oct 22, 2017 10:12 am

Re: Looking for multiple sets of eyes to review

Post by coachd50 » Thu Jan 18, 2018 2:40 pm

KlangFool wrote:
Sun Oct 22, 2017 8:41 pm
in_reality wrote:
Sun Oct 22, 2017 8:01 pm
coachd50 wrote:
Sun Oct 22, 2017 2:44 pm
High fee 457 or 403b plans that when I looked last time, didn't have any real attractive options.
Are you sure there isn't a relatively cheap S&P 500 fund?
+1.

It might be worthwhile for the OP to contribute to 457/403b in order to get Earned Income Tax Credit or Saver's Credit.

KlangFool
Klangfool and @in_reality
In doing some more research, there is a 1.25% "Mortality and Expense" fee on top of the best ER I could find for a cheap index fund (state street s&p500 with an ER of .25%. So with atleast 1.5% in fees, does it seem worth it based on the other info at the top of the thread to explore tax deferred accounts, given the likelyhood that my pension would probably put me in the same tax rate upon retirement (based on todays tax tables) that I am in today? I am not very well versed with withdrawal strategies (or accumulation strategies either for that matter)

KlangFool
Posts: 10657
Joined: Sat Oct 11, 2008 12:35 pm

Re: Looking for multiple sets of eyes to review

Post by KlangFool » Thu Jan 18, 2018 5:47 pm

coachd50 wrote:
Thu Jan 18, 2018 2:40 pm
KlangFool wrote:
Sun Oct 22, 2017 8:41 pm
in_reality wrote:
Sun Oct 22, 2017 8:01 pm
coachd50 wrote:
Sun Oct 22, 2017 2:44 pm
High fee 457 or 403b plans that when I looked last time, didn't have any real attractive options.
Are you sure there isn't a relatively cheap S&P 500 fund?
+1.

It might be worthwhile for the OP to contribute to 457/403b in order to get Earned Income Tax Credit or Saver's Credit.

KlangFool
Klangfool and @in_reality
In doing some more research, there is a 1.25% "Mortality and Expense" fee on top of the best ER I could find for a cheap index fund (state street s&p500 with an ER of .25%. So with atleast 1.5% in fees, does it seem worth it based on the other info at the top of the thread to explore tax deferred accounts, given the likelyhood that my pension would probably put me in the same tax rate upon retirement (based on todays tax tables) that I am in today? I am not very well versed with withdrawal strategies (or accumulation strategies either for that matter)
coachd50,

Is that annual or one time fee when you purchase the fund?

KlangFool

coachd50
Posts: 96
Joined: Sun Oct 22, 2017 10:12 am

Re: Looking for multiple sets of eyes to review

Post by coachd50 » Thu Jan 18, 2018 6:05 pm

KlangFool wrote:
Thu Jan 18, 2018 5:47 pm
coachd50,

Is that annual or one time fee when you purchase the fund?

KlangFool
[/quote]

From all I can tell it is a yearly fee.
The way it is written in the contract is as follows:
"Each variable investment account is assessed a mortality and expense risk charge. It is a daily charge assessed in an amount equal to a 1.25% annual rate of the average daily net assets of each variable investment account of the variable account."

Post Reply