Greetings from the Midwest

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
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Greetings from the Midwest

Post by Cincyguy63 » Sat Jan 20, 2018 8:30 pm

I've enjoyed lurking on this site and decided it was time to introduce myself. I'm in a 54 year old professional working for a MegaCorp Tech company. My DW is a part time Nurse and I have 3 boys (ages: 21 -Jr. College, 19 Frosh College and a 16 year Sophomore HS). I've been a big fan of Dave Ramsey and have followed some / parts of his baby step advice although at times I do feel that I might not be a typically follower.

My wife and I have lived a modest lifestyle relative to our income and we are now setting our sights and goals on a day soon when we can focus on "giving back what has been graciously given to us."

My wife and I do not have the blessings of a pension other than SS. Here's a quick snapshot:

Retirement Cash Flow:
-$1.4M Investment and after tax savings
- $900k pre-tax 401-k

College/ 529: $100k

Home: Zillow Value -$500k
-Outstanding Mortgage: $80k

I've been tracking home expense for over the past 12 months and excluding hard costs associated with the kids, here's the projected retirement costs:

Basic Needs: 65k
Wants (Discretionary): 50k
Wishes (Philanthropy, Generational): 25k

We are working towards paying off 2 car leases (big mistake) this year of which we have 65% of that expenses covered in a cash money market and paying off the mortgage in 2019 or sooner. My plan would be to stockpile cash over the final 2-3 years equal to 2 years of " Basic Needs" and walk away from my career when I turn 59.

I do have a couple of questions:

1. This has been a banner year for investments and because of an IPO and other years at MegaCorp tech companies my post tax investments have a material exposure across 3 companies (35%). My financial advisor has been working over the past 2 years to minimize this exposure through a series of Put/ Calls, Donor Fund (charitable) and other transactions. I've been fortunate to realize a return in the 20%'s in 2017. I'm around 65/35 right now and have a meeting next week to review and adjust my exposure. I still feel bullish in 2018 but am concerned about a hit coming either late 2018 or 2019. Given my plan to cash out of work around 4-5 years from now am I carrying too much risk?

2. Pay off the mortgage or not? As a fan of D Ramsey we've been working hard to pay off all debt of which 2 car leases and the balance of the mortgage are left over. We plan to possibly move to the Denver market over the course of the next 5-8 years and will roll the proceeds of our home sale into something a bit smaller but most likely 200-300k more expensive. Should I plunge more cash into paying off the mortgage or should I just let it ride?

Thanks for thoughts/ feedback.

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Re: Greetings from the Midwest

Post by Raymond » Sat Jan 20, 2018 8:46 pm

Welcome to Bogleheads! :sharebeer

Congratulations on your investments and living within your means - I think Dave Ramsey has great advice for getting out/staying out of debt, but you'll get better investing suggestions on this board.

To get more visibility and more accurate suggestions from the "hive mind" :D, may I suggest you use the format in this thread:

"Asking Portfolio Questions"

and post it in the Investing - Help with Personal Investments forum?
"Ritter, Tod und Teufel"

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Re: Greetings from the Midwest

Post by Cincyguy63 » Sat Jan 20, 2018 8:59 pm

Thank you!

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Re: Greetings from the Midwest

Post by jhfenton » Sun Jan 21, 2018 2:17 pm

Congratulations neighbor! You are in great shape.

I would pay off the mortgage. At this point, especially with the reduced or eliminated tax deduction--I don't know if you'll be able to itemize this year, we won't--the spread between the cost of the mortgage and what you can get in a bond fund is just too high. I'd pay off the mortgage and then adjust my asset allocation to something I was comfortable with without the distortion of the leverage from the mortgage.

65/35 is a perfectly reasonable allocation in your situation. Whether it's right for you is a personal decision. It's about what I expect to carry into retirement, but depending on the situation, I might go a little more conservative for a few years before and after our retirement date. (We're 47 and targeting retirement 62. Our kids are in the 8th and 9th grades.)

John in Norwood

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Re: Greetings from the Midwest

Post by Cincyguy63 » Mon Jan 22, 2018 9:59 am

Thank you neighbor! Norwood is close by!

I wanted to amend to my last post. I look at retirement or FI as a point by which your nest egg generates a sustainable amount of money to cover your Needs, Wants and Desires. I've been tracking current expenses with Mint over the course of the past 18 months and have a decent line of sight into what and where my money goes to today. My 2 biggest cost areas are my home and the support of my teenage boys. My intent would be that those costs would be relieved or materially reduced once I enter ER. I have studied my expenses and have taken a SWAG at what these expenses would look like (in today's dollars). Here's a compilation of my monthly projected expenses if I would retire in 4-5 years:

-Auto (Insurance, Service and Gas): $360
-Utilities (G/E, Cell, Cable, Water) : $614
-Entertainment (Movies, Subscription Services, Streaming Services): $155
-Food (Groceries and Dining Out): $1,132
-Health & Fitness (Gym, HI, LTC and Pharma): $1,450 (HI=$900/ LTC=$300)
-Home (if we own a single family/ condo home wo a mortage): $1,364
-Vacation -Lots of movement here! : $2,000-2,500 (most likely the higher side once ER kicks in)
-Gifts/ Charity: $500
-Shopping (clothes/ electronics/ hobbies): $250

Am I missing anything? I get the pharse "To Each His Own" but do these costs seem in line? Right Vacation is lower, Food is 2x that along w/ Auto and Health is lower. Love some feedback.

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Re: Greetings from the Midwest

Post by inthearena » Mon Jan 22, 2018 11:07 am

Welcome to the board from another Cincinnatian! I'm on the opposite end of my career from you, so not a ton of advice to give!
"Whatever you do in life, surround yourself with smart people who'll argue with you." | -John Wooden

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Re: Greetings from the Midwest

Post by bubbadog » Mon Jan 22, 2018 11:45 am

Congrats and welcome! It appears you are in good shape.

I am a fellow Cincy Boglehead.

I am 51 years old and also have a 65/35 AA in a three fund portfolio.

I would probably get rid of the mortgage if I were you. :sharebeer

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Re: Greetings from the Midwest

Post by soccerrules » Mon Jan 22, 2018 11:48 am

My situation is fairly close to yours with a few minor differences. BUT You have 2X the assets that I have. Nice job with savings and apparently living below your means.
your questions.
1) I am at 65/35 as well, but no FA. (left them 8mo ago). One simple fact pushed me over the edge to DIY/Index investing and leave the FA. If you feel you can retire and then withdrawal 4% from your investments to live on. If you are paying your FA 1% AUM, that is 25% of your withdrawal rate. You will need $2.875M to have a SWR of 4% up to your Wants level of $115, and $3.5M for the full boat. That is $28K and $35K you are paying the FA. That is a good chunk of your Wants or all of your Wishes. (This does not take into consideration SS benefits)
2) How much longer on your mortgage ? It can not be too long with only $80k left. I have about $90K and will be done in less than 6 years if I pay it out normally. What is your interest rate ? -- not sure it will make a big difference either way to keep or payoff. I would have it paid off before you retire though.

There are several BH's that bring up the following thought which is a good way to think about ER.
2 part retirement (pre SS and post SS) At 59 you will have 8-11 years pre SS that you need to consider. also Health insurance until 65. If you delay SS until 70 you will need $1.265M to cover $115K for 11 years (no growth). If you will receive $50K a year in SS (including spousal), you will need $1.625M at 70 to cover the $65K differ (65K /.04=$1.625M). $1.265M + $1.625M = $2.875M.

Looks like you might be OK, but you should run the numbers through modeling programs like firecalc.
Don't let your outflow exceed your income or your upkeep will be your downfall.

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