Respectfully Looking for Advice

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John57
Posts: 2
Joined: Wed May 30, 2018 10:01 am

Respectfully Looking for Advice

Post by John57 » Mon Jun 11, 2018 1:46 pm

I appreciate your time and assistance.
I am 57 years old and my spouse is 60 years old
My spouse and I both work at a Fortune 1,000 company with NO pension but excellent medical / dental / vision and a 4% 401K match
My spouse wants to stop working at 62 and I would like to stop working at 64 (or sooner if possible)
At age 67 I expect to receive $2,700 per month in Social Security
My Spouse expects to receive $1,800 a month in Social Security at age 67
We have a $220,000 Mortgage with a home value of $300,000 - P.I.T.I.I. equals $1,500 / month (4.125%)
Two vehicles with a principal owing of $65K. Both monthly payments total $1,000 / month. One vehicle is at 3.25% and the other is at 4.5%
We have $470,000 in a savings account earning little or no interest and $50,000 in a 1 year CD earning 2%
$80,000 in an inherited IRA
I have $60,000 in a work 401K / $8,000 a year in ROTH contributions + $2,600 company match
Spouse has $25,000 in a work 401K / $8,000 a year in ROTH contributions + $3,000 company match
How should I best manage my money going forward?
Should I pay off my house and cars?
Thanks again!
John57

bloom2708
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Location: Fargo, ND

Re: Respectfully Looking for Advice

Post by bloom2708 » Mon Jun 11, 2018 4:46 pm

Welcome to Bogleheads.

You are in the right place to improve your situation. How did you get to 57/60 with so little in 401ks/IRAs and no pensions? Not trying to be blunt, just an observation.

I think you are right to start making a plan. What are your annual expenses? Will SS cover your monthly expenses?

The mortgage and the two car loans are a bit alarming as compared to the size of your portfolio. Also you are not really in the market, so your cash is losing ground daily in this up, up, up market.

I think you need to get in "gazelle intense" mode. You need to get some of that $470k working in a reasonable 50/50 or 60/40 asset allocation. I would preserve capital and not pay off the cars. You may want to think if these cars are in your best long term/medium term interest. I love cars, but it is too much when you are in that ~5 years hoping to retire range.

I am thinking one of you is going to be working longer than you hope want unless you can turn the corner pretty quickly.

Hopefully others will dispute my general comments. Maybe I'm interpreting things incorrectly. One good thing is you are here and there are many, many smart people (smarter than me by a mile) to help and give you guidance.

Welcome again!
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

dbr
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Re: Respectfully Looking for Advice

Post by dbr » Mon Jun 11, 2018 4:57 pm

John57 wrote:
Mon Jun 11, 2018 1:46 pm
I appreciate your time and assistance.
I am 57 years old and my spouse is 60 years old
My spouse and I both work at a Fortune 1,000 company with NO pension but excellent medical / dental / vision and a 4% 401K match
My spouse wants to stop working at 62 and I would like to stop working at 64 (or sooner if possible)
At age 67 I expect to receive $2,700 per month in Social Security
My Spouse expects to receive $1,800 a month in Social Security at age 67
We have a $220,000 Mortgage with a home value of $300,000 - P.I.T.I.I. equals $1,500 / month (4.125%)
Two vehicles with a principal owing of $65K. Both monthly payments total $1,000 / month. One vehicle is at 3.25% and the other is at 4.5%
We have $470,000 in a savings account earning little or no interest and $50,000 in a 1 year CD earning 2%
$80,000 in an inherited IRA
I have $60,000 in a work 401K / $8,000 a year in ROTH contributions + $2,600 company match
Spouse has $25,000 in a work 401K / $8,000 a year in ROTH contributions + $3,000 company match
How should I best manage my money going forward?
Should I pay off my house and cars?
Thanks again!
John57
Probably the best thing to do at this point is some estimating using retirement models such as FireCalc ( www.firecalc.com ) and several others.

A general result of such modelling is to say you can spend about 4% of your initial invested assets per year, increased by inflation. For you that might be 4% of $700k or $2800/mo. That plus the SS gives you $7300/month give or take a bunch. The modeling can account for how much you also save until you stop working and also take out for lump sum spending, allows when SS starts, etc.

The critical step is to assess your planned expenses including taxes.

It doesn't seem to make any sense to have $470k in savings and owe $65k on cars. Pay it off. You will probably have people advising to pay off the mortgage as well, but that can be discussed. You can run models with and without balance owing on the mortgage.

You also need to have a reasonable asset allocation. 50/50 stocks/bonds is a good neutral point once you are retired and maybe even this close to retirement.

vested1
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Re: Respectfully Looking for Advice

Post by vested1 » Mon Jun 11, 2018 5:16 pm

One of your main concerns should be health care expenses from retirement to when Medicare kicks in. You didn't mention if your employer(s) cover you until Medicare age, or if you have to transition to Cobra or ACA. In most cases, dental and vision are no longer covered by employer plans once Medicare kicks in.

From the outside it seems that your strategy is both overly conservative (cash) and overly aggressive (high mortgage to value and very high car payments). If you provide your income and your estimated expenses in retirement you will get better advice.

The first thing I would do is to max out all 401k accounts starting immediately. Your cash in savings, even if converted to a taxable account is out of proportion to your tax advantaged savings. I would max out the tax advantaged before maxing out the Roths.

I would also devise a plan now for how you intend to bridge income to your FRA's, at the very least, since you mentioned the amounts expected at FRA (PIA amounts) it is assumed that you plan on waiting until then to file. Consider delaying your own SS benefits for an additional 3 years to age 70 for a higher COLA protected, more favorably taxed income source with a higher survivor benefit.

ExitStageLeft
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Re: Respectfully Looking for Advice

Post by ExitStageLeft » Mon Jun 11, 2018 5:17 pm

Hello and welcome to the forum!

There's a great book that covers the basics of saving for retirement titled If You Can, available for free as a PDF at https://www.etf.com/docs/IfYouCan.pdf

It's written by Dr. Bill Bernstein for his daughter and her peers, so it has a focus on young investors. But it has a lot of good information about how to successfully save for your retirement that is relevant no matter your age.

delamer
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Re: Respectfully Looking for Advice

Post by delamer » Mon Jun 11, 2018 5:21 pm

Your first step should be to figure out what your expenses will be in retirement. Ultimately, your goal needs to be that your income is at least as large as your expenses.

Expenses should include mortgage, property tax, insurance, utilities, food, transportation, health insurance and other medical dental, etc. They should also include income taxes and irregular expenses, like home maintenance and new cars.

You didn’t say how much longer the mortgage or car payments will last. Obviously, if the mortgage is going to be paid off in 5 years that is a totally different situation than if you have 25 years left.

It might make sense to pay off the cars, but paying off the mortgage would put too much of your net worth into the house. Owing $65K on cars is a lot; it is more than 10% of you liquid assets. Plan on keeping those cars for a long time.

You also need to get make a plan to get your savings invested more aggressively. You’ll need to take some risk to make your money last for your retirement. If you have at least 30% of your assets in stocks in retirement, then you can withdraw 4% per year (adjusted for inflation annually) and be almost certain that you won’t run out of money.

dharrythomas
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Re: Respectfully Looking for Advice

Post by dharrythomas » Mon Jun 11, 2018 5:35 pm

I'd pay off the cars and the house. That frees up $30,000 of annual cash flow for investing now and lowers you spending requirement. Leave the $50K in the emergency fund, put the rest of the cash into Tax Managed Balanced Fund, max both 401(K)s, and also max out Roth IRAs. Switch the 401(K) to traditional and invest the tax savings in the Tax Managed Balanced Fund monthly.

Good luck.

Easy Rhino
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Location: San Diego

Re: Respectfully Looking for Advice

Post by Easy Rhino » Mon Jun 11, 2018 5:59 pm

As already mentioned, you should get an idea of what your desired retirement annual spending level, and compare it to your current annual spending.

How did you end up with so much in your savings account, and so little in retirement accounts? There may be some behavioral issues (like fear of investing?) that need to be addressed in order for you to sleep at night.

The cars feel expensive to me. I'm a pretty cheap guy. Would you be able to "downsize" one or both of them? Sell them and switch to a cheaper mode of transportation, even if just a cheaper car?

rgs92
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Re: Respectfully Looking for Advice

Post by rgs92 » Mon Jun 11, 2018 6:06 pm

It looks like you have over $520,000 in cash equivalents. That is far too much. You should probably go to a 50/50 stock/bond allocation overall.

basspond
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Re: Respectfully Looking for Advice

Post by basspond » Mon Jun 11, 2018 11:53 pm

You have way to much car debt making $140k combined. I would pay off the 4.5% interest and pay off the other in a year. You might also want to go down in car. Also try to get your house paid off before you retire. Next is to take a stock on what your risk tolerance is. You were so focused on not losing money that you have been blindsided by the no returns of cash. Dollar cost average into the stock market for the next 6 months with all but $10k of your cash. Good luck.

FOGU
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Re: Respectfully Looking for Advice

Post by FOGU » Tue Jun 12, 2018 5:13 am

How should I best manage my money going forward?
Spend a lot less. Save a lot more. Invest.

Sell the cars.

It's getting late.
~ Don't just do something. Sit there. ~

JoeRetire
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Joined: Tue Jan 16, 2018 2:44 pm

Re: Respectfully Looking for Advice

Post by JoeRetire » Tue Jun 12, 2018 5:56 am

John57 wrote:
Mon Jun 11, 2018 1:46 pm
At age 67 I expect to receive $2,700 per month in Social Security
My Spouse expects to receive $1,800 a month in Social Security at age 67
You should consider delaying at least your benefits until 70. Possibly your spouse should delay as well.
We have $470,000 in a savings account earning little or no interest
Why wasn't this invested?
How should I best manage my money going forward?
You need to estimate your expenses once retired first, before you can decide how best to pay for it.
You may need to consider working longer.
Should I pay off my house and cars?
Probably not. It doesn't look like you can afford that and still have enough liquid assets remaining.
Last edited by JoeRetire on Tue Jun 12, 2018 6:48 am, edited 1 time in total.

fundseeker
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Re: Respectfully Looking for Advice

Post by fundseeker » Tue Jun 12, 2018 6:42 am

basspond wrote:
Mon Jun 11, 2018 11:53 pm
You have way to much car debt making $140k combined.
Where does the OP say how much he and she make? I couldn't find that part.
FOGU wrote:
Tue Jun 12, 2018 5:13 am
How should I best manage my money going forward?
Spend a lot less. Save a lot more. Invest.

Sell the cars.

It's getting late.
+1 for this! It is time to start saving all that you can. And, that is waaaay to much in cars when you have so little in retirement.

Also, if some how you end up talking to some non-Boglehead advisor and he recommends that you buy some tempting annuity with your cash to guarantee you some nice monthly income, turn and run away!

teddytimtam
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Re: Respectfully Looking for Advice

Post by teddytimtam » Tue Jun 12, 2018 6:52 am

1) Get rid of your car loans and buy used cars in cash. Recommend spending $30k total. You can always upgrade in the future with extra cash.
2) I would personally pay of your home loan today
3) Remaining cash = (470+50) - (220 home +30 cars) = $270k; I would invest in 50/50 stock/bonds at your age.
4) Continue to invest with extra savings/Income until retirement

basspond
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Re: Respectfully Looking for Advice

Post by basspond » Tue Jun 12, 2018 3:33 pm

fundseeker wrote:
Tue Jun 12, 2018 6:42 am
basspond wrote:
Mon Jun 11, 2018 11:53 pm
You have way to much car debt making $140k combined.
Where does the OP say how much he and she make? I couldn't find that part.
Simple math. The OP says they have a 4% match and the company match is $5,600 ($2,600 and $3,000). $5,600/.04 = $140,000.

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sergeant
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Re: Respectfully Looking for Advice

Post by sergeant » Tue Jun 12, 2018 3:47 pm

Lots of good information has already been stated but we need your expected expenses to really nail it.

I think your spouse may need to work more than two more years. If she goes five more and you knock out seven more that will go a long way. If during these years you implement some of the above suggestions you will be set.


If absolutely nothing else at least put the cash into Vanguard MM, don't get sold a variable annuity, max retirement accounts, and pay off all debt through cash flow before anyone retires.
Lincoln 3 EOW!

fundseeker
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Re: Respectfully Looking for Advice

Post by fundseeker » Wed Jun 13, 2018 5:53 am

basspond wrote:
Tue Jun 12, 2018 3:33 pm
fundseeker wrote:
Tue Jun 12, 2018 6:42 am
basspond wrote:
Mon Jun 11, 2018 11:53 pm
You have way to much car debt making $140k combined.
Where does the OP say how much he and she make? I couldn't find that part.
Simple math. The OP says they have a 4% match and the company match is $5,600 ($2,600 and $3,000). $5,600/.04 = $140,000.
You should get the Boglehead helper award for going the extra mile! :) I didn't consider that you did your own math to get the amount.

John57
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Re: Respectfully Looking for Advice

Post by John57 » Thu Jun 14, 2018 12:08 pm

Thank you very much to everyone for taking the time to thoughtfully reply to my post.

As suggested, here is some additional information;

Our current combined annual income is approximately $120K per year
We have 28 years remaining on our 30 year fixed rate mortgage at 4.125%
Our total car debt is $65K with 6 years remaining
Our estimated monthly expenses in retirement (without house and car payments) are $3,400

Thank you again to everyone for your sound advice.

John57

delamer
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Re: Respectfully Looking for Advice

Post by delamer » Thu Jun 14, 2018 1:09 pm

John57 wrote:
Thu Jun 14, 2018 12:08 pm
Thank you very much to everyone for taking the time to thoughtfully reply to my post.

As suggested, here is some additional information;

Our current combined annual income is approximately $120K per year
We have 28 years remaining on our 30 year fixed rate mortgage at 4.125%
Our total car debt is $65K with 6 years remaining
Our estimated monthly expenses in retirement (without house and car payments) are $3,400

Thank you again to everyone for your sound advice.

John57
So your total expenses are about $6,000/month. (Does that include income taxes and irregular expenses?)

Put together a spreadsheet that shows your expenses and income sources (salary and Social Security) each year beginning the year your spouse wants to retire through when you both have turned 67.

For each year, subtract your income from your expenses. (Once the cars are paid off, reduce your expenses by $12,000.) The difference is what you’ll need to withdraw from your savings that year to maintain your lifestyle.

Once you determine the total withdrawals, you’ll know how much you’ll need to have set aside to cover expenses until you both have claimed SS. The remainder of your savings can be withdrawn at a rate of 4% (adjusted for inflation) once you are getting SS.

That should give you a target for how much you need to have in savings to support your current lifestyle.

I am not sure if your retirement goals are obtainable. You need to be investing more aggressively.

And you’ve dug yourself a hole with the high car payments and a 30-year mortgage at your ages. Most savvy financial people wouldn’t take out a car loan of more 3 to 4 years. If you can’t afford the payments with the shorter loan, then you can’t afford the car.

Give serious thought to finding a cheaper house.

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Hawaiishrimp
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Re: Respectfully Looking for Advice

Post by Hawaiishrimp » Sat Jun 23, 2018 11:27 am

Welcome to BH.

Here's my suggestions:
1. Sell both cars and get something you can pay cash with. You have too much cars.
2. Max out 401k in both acounts.
3. Max out Roth IRA in both accounts.
4. Leave 3 months cash as emergency fund and move the rest to VTSAX.
5. Live below your means and save like your life depend on it, c'os it does.
I save and invest my money, so money can make money for me, so I don't have to make money eventually.

togb
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Re: Respectfully Looking for Advice

Post by togb » Sat Jun 23, 2018 9:41 pm

Welcome.
My observations echo what you've heard; it's very late in the game to not have more set aside. Your desired retirement dates might not be realistic.

Those car loans are big-- really big-- and worse yet you are paying interest on them. (It's not uncommon to have 0% financing these days or 1.9% MAX)
Unless those fancy cars are incredibly important to you, rethink it. Or decide which you want more, retiring at target dates, or driving those expensive cars. Up to you.

You are very new into a mortgage, so I assume you're not planning to pay it off before you retire. But you also don't have the retirement/savings to support yourself in retirement without heavy reliance on SS. SS should be a safe bet but some people beleive those benefits could be reduced. Personally I don't know but always want something up my sleeve.

Most of what you have seems to be in cash, not working for you. I'd look to invest, not for a quick killing but at least to make sure that what I had accumulated was outpacing inflation. And I'd start maxing both 401K's, plus Roths outside of work. And then saving after tax. I'd be pretty nervous to retire without doubling that portfolio, or very close.

But we don't see your whole picture..... run i-orp or other models, see how it comes out. Your results may turn out better than I'm thinking.

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