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Are we financially okay?

Posted: Sat Aug 17, 2019 9:17 pm
by takeabiteoflife
Me 48 yo, DW 46 yo, 11 yr old, 8 yr old
We live in a VHCOL area in East Coast
Monthly expenses are ~$13,000-14,000 per month (~$6K for mortgage and property tax)

Investments:
Cash/MM/CD - $2M @ ~2% interest rate or ~$40K interest income/yr
Stocks - $2M (~$1M in 401K/ROTH/IRA and about $125K in 529)
Bond - $100K
Mortgage Debt of $800K (equity of ~$600K) @ 4%

Wife was just laid off and got 3 months of severance. It’s unclear when she'll find another job and for what level of compensation.
I really enjoy my job in financial services and gross income is $200K per year with potential for 15% annual cash bonus.
We do not plan to move to a LCOL area since we love our neighborhood and great public schools.
Plan would be to still max my 401K (4% employer match) but try to breakeven or be slightly negative on one income.

We obviously need to work on our asset allocation and were hoping for a market selloff for a better entry point.

Are we financial secure as long as my income stream is steady?
What are your suggestions to be more financially secure?

Re: Are we financially okay?

Posted: Sat Aug 17, 2019 9:49 pm
by wilked
Your outflow ($14k/month) exceeds your inflow ($200k salary)

You are not ok

You need to get that $14k/month down to less than $10k / month. You didn’t provide a budget but I would suggest that you can’t afford your house

Re: Are we financially okay?

Posted: Sat Aug 17, 2019 9:49 pm
by WoodSpinner
OP,

I think you will get by just fine! :D

Enjoy life!

WoodSpinner

Re: Are we financially okay?

Posted: Sat Aug 17, 2019 10:39 pm
by Tdubs
You have $2M in after-tax accounts? You could pay the mortgage off now and still have $1.2M in cash?

You're good.

Re: Are we financially okay?

Posted: Sat Aug 17, 2019 10:46 pm
by fortfun
takeabiteoflife wrote: Sat Aug 17, 2019 9:17 pm Me 48 yo, DW 46 yo, 11 yr old, 8 yr old
We live in a VHCOL area in East Coast
Monthly expenses are ~$13,000-14,000 per month (~$6K for mortgage and property tax)

Investments:
Cash/MM/CD - $2M
Stocks - $2M
Bond - $100K
Mortgage Debt of $800K (equity of ~$600K)

Wife was just laid off and got 3 months of severance. It’s unclear when she'll find another job and for what level of compensation.
I really enjoy my job in financial services and income is $200K per year with potential for 15% annual cash bonus.
We do not plan to move to a LCOL area since we love our neighborhood and great public schools.
Plan would be to still max my 401K (4% employer match) but try to breakeven or be slightly negative on one income.

We obviously need to work on our asset allocation and were hoping for a market selloff for a better entry point.

Are we financial secure as long as my income stream is steady?
What are your suggestions to be more financially secure?
You are in financial services asking us :) Please don't tell me you work for Edward Jones.

Re: Are we financially okay?

Posted: Sat Aug 17, 2019 11:05 pm
by FiveK
takeabiteoflife, welcome to the forum.
takeabiteoflife wrote: Sat Aug 17, 2019 9:17 pm Me 48 yo, DW 46 yo, 11 yr old, 8 yr old
We live in a VHCOL area in East Coast
...income is $200K per year with potential for 15% annual cash bonus.
Monthly expenses are ~$13,000-14,000 per month (~$6K for mortgage and property tax)
Assuming $215K gross salary and $51K income taxes (FICA, federal, and state), that's about $13.5K/mo after-tax income.

Your large cash buffer does allow you to maximize 401k and other tax-advantaged investments for many years.

How long have you been waiting for a market selloff? You can probably do better than the world’s worst market timer - what do you think?

What are you considering for asset allocation? See Three-fund portfolio - Bogleheads if you want some ideas. Consider the format in Asking Portfolio Questions - Bogleheads.org if you want more detailed investment suggestions.

Consider the format in How To: Write a "Case Study" Topic if you want more detailed cash flow (spending) suggestions.

Re: Are we financially okay?

Posted: Sun Aug 18, 2019 7:33 am
by toocold
I think you are fine with your current situation. You are cashflow neutral give your current expenses, but you have a healthy investment cushion. If you were to lose your job, however, you'll need to make changes.

Re: Are we financially okay?

Posted: Sun Aug 18, 2019 8:05 am
by HomeStretch
I think you are okay for right now if you can remain cash neutral until your spouse finds another job. But consider reining in most discretionary spending until spouse has a job.

Agree with using cash reserves to continue to fund your 401k and IRAs. If you are saving for college, I would stop making contributions until spouse is employed.

Has spouse applied for unemployment insurance if eligible?

Your asset allocation is about 48% equity and 52% fixed income. I suggest you reinvest some cash into more bonds. Ideally your fixed income holdings would have more bonds than cash and CDs.

Mortgage rates have come down. Is refinancing a cost savings option?

You have a significant net worth and high expenses in a HCOL area. Have you done any retirement projections to determine your “number” and see how close you are to it?

Re: Are we financially okay?

Posted: Sun Aug 18, 2019 8:17 am
by JoeRetire
wilked wrote: Sat Aug 17, 2019 9:49 pm Your outflow ($14k/month) exceeds your inflow ($200k salary)
:confused

Re: Are we financially okay?

Posted: Sun Aug 18, 2019 8:22 am
by Jack FFR1846
wilked wrote: Sat Aug 17, 2019 9:49 pm Your outflow ($14k/month) exceeds your inflow ($200k salary)

You are not ok

You need to get that $14k/month down to less than $10k / month. You didn’t provide a budget but I would suggest that you can’t afford your house
If you're assuming $200k is before taxes, then yes. Certainly, wife needs to get a job soon. Personally, I'd accept absolutely anything to keep $$ coming in and look for a better job. Your cash savings will keep you going just fine. You simply won't be saving anything.

Re: Are we financially okay?

Posted: Sun Aug 18, 2019 8:28 am
by bloom2708
JoeRetire wrote: Sun Aug 18, 2019 8:17 am
wilked wrote: Sat Aug 17, 2019 9:49 pm Your outflow ($14k/month) exceeds your inflow ($200k salary)
:confused
If you take out pre-tax 401k and cost of benefits and taxes, take home pay is likely less than spending.

A good savings rate, too much house and $800k left to pay down. I would say the OP is "completely normal" with high incomes and high spending. Is "normal" good enough? That is the question that can only be answered by the OP.

Re: Are we financially okay?

Posted: Sun Aug 18, 2019 8:51 am
by OnTrack2020
OP, how much interest income are you bringing in per year from your MM/CD accounts? I'm assuming it's a fairly good amount.

Re: Are we financially okay?

Posted: Sun Aug 18, 2019 2:26 pm
by delamer
You could go on indefinitely as you are, without saving another penny. (Although you probably don’t want to spend $500,000 on your kids’ college expenses).

At your ages, a 3% withdrawal from your portfolio (inflation adjusted) is sustainable for a very long time. So that’s $60,000/year.

As you inferred, the key is whether you continue to be employed at your current salary.

Assuming you plan to pay for your kids’ college expenses (at least in part), consider putting some of the cash into a 529 plan. If you get a state tax deduction, so much the better.

Otherwise, I wouldn’t make any changes until your wife’s employment situation is clarified.

Re: Are we financially okay?

Posted: Sun Aug 18, 2019 8:24 pm
by takeabiteoflife
Thanks for the feedback, everyone.

We will look and see how we can shave some expenses.

Interest income should be about $40k this year.

Mortgage is @ 4%, will look into refi.

Within the stock portfolio, about $125K is 529.

When we rebalance our portfolio, will probably put cash into a Vanguard index fund given its low fees.

Re: Are we financially okay?

Posted: Sun Aug 18, 2019 9:28 pm
by Olemiss540
You have a net worth near 5 million dollars.

Yes. You are most definitely financially OK.

Re: Are we financially okay?

Posted: Sun Aug 18, 2019 9:42 pm
by veindoc
takeabiteoflife wrote: Sat Aug 17, 2019 9:17 pm Me 48 yo, DW 46 yo, 11 yr old, 8 yr old
We live in a VHCOL area in East Coast
Monthly expenses are ~$13,000-14,000 per month (~$6K for mortgage and property tax)

Investments:
Cash/MM/CD - $2M
Stocks - $2M
Bond - $100K
Mortgage Debt of $800K (equity of ~$600K)

Wife was just laid off and got 3 months of severance. It’s unclear when she'll find another job and for what level of compensation.
I really enjoy my job in financial services and income is $200K per year with potential for 15% annual cash bonus.
We do not plan to move to a LCOL area since we love our neighborhood and great public schools.
Plan would be to still max my 401K (4% employer match) but try to breakeven or be slightly negative on one income.

We obviously need to work on our asset allocation and were hoping for a market selloff for a better entry point.

Are we financial secure as long as my income stream is steady?
What are your suggestions to be more financially secure?
Why do you have so much in cash? I would pay off the house today and create some breathing room. How much are your property taxes?

Re: Are we financially okay?

Posted: Sun Aug 18, 2019 9:48 pm
by Bfwolf
delamer wrote: Sun Aug 18, 2019 2:26 pm At your ages, a 3% withdrawal from your portfolio (inflation adjusted) is sustainable for a very long time. So that’s $60,000/year.
I think you have mistakenly seen the OP's portfolio as having a value of $2,000,000. It's actually north of $4,000,000. A 3% withdrawal rate of that is $120,000 a year.

OP, you are completely fine. Even if your wife NEVER got a job and you just worked til you're 65, you'd be fine. Don't forget you guys will both get SS someday!

Your wife should take her time to find the right job at the right pay, and then you won't have to work til you're 65. :)

Re: Are we financially okay?

Posted: Sun Aug 18, 2019 11:42 pm
by rocket354
takeabiteoflife wrote: Sun Aug 18, 2019 8:24 pm Thanks for the feedback, everyone.

We will look and see how we can shave some expenses.

Interest income should be about $40k this year.

Mortgage is @ 4%, will look into refi.

Within the stock portfolio, about $125K is 529.

When we rebalance our portfolio, will probably put cash into a Vanguard index fund given its low fees.
You have an $800k mortgage at 4% while you have $2MM in cash, MM and CDs? I'm sure those instruments pay much less than 4% after-tax. Even if you deduct the interest, which I assume you do at those levels, you will still be behind.

Pay off your mortgage rather than keeping so much in cash and equivalents. Then you will have a significantly reduced monthly expense, and can be perfectly fine on one income where you are for as long as you want. And you will still have $1.2MM to move into the stock market/bonds whenever you are ready to jump.

Re: Are we financially okay?

Posted: Mon Aug 19, 2019 12:17 am
by sawhorse
What are you spending so much on? You said $6k a month on mortgage and property tax, so if you're spending $13-14k a month, that means you're spending an additional $7-8k. I also live in a high cost area and understand why the mortgage/tax expense is so high, but what is all the other money going to - do you have a lot of medical expenses?

You're okay now at this level of spending, but I'm concerned about the long term. If your wife doesn't get a job, and you insist on maintaining the same budget, you will eventually not be okay if you want to pay for their college.

Re: Are we financially okay?

Posted: Mon Aug 19, 2019 5:55 am
by MikeG62
takeabiteoflife wrote: Sat Aug 17, 2019 9:17 pm Me 48 yo, DW 46 yo, 11 yr old, 8 yr old
We live in a VHCOL area in East Coast
Monthly expenses are ~$13,000-14,000 per month (~$6K for mortgage and property tax)

Investments:
Cash/MM/CD - $2M
Stocks - $2M
Bond - $100K
Mortgage Debt of $800K (equity of ~$600K)

...Are we financial secure as long as my income stream is steady?
What are your suggestions to be more financially secure?
Can you share how much of these investments are in tax deferred vs. tax free (Roth) vs. taxable accounts? I think that impacts the analysis and recommendations.

Definitely look to refinance if you can - whether now or over the next few months or quarters. Keep in mind that your wife losing her job could impact your ability to do that (whether you'd qualify at all or what the interest rate might be). Maybe better to hold off till she has secured new employment?

Without your wife's salary, it appears you have negative monthly cash flow. Having said that, you appear to have plenty of cash to cover the gap (until she finds something else) - assuming that cash is accessible (in taxable accounts). If in your shoes, I'd belt tighten a bit at least until she get another job. You may close a bit of the gap and also pressure test (revisit) your spending pattern (only good things can come from that).

Your AA is pretty conservative for your age. Understand your reluctance to dial up your exposure to equities in the current environment. Over time you probably need to address that a bit.

Can you break down the cash/MM/CD bucket. How much in each category and earning what kind of rates? Answer may impact whether to make a partial pay-down of your mortgage or if you refinance whether to lower your mortgage balance in that process.

More insightful responses can be given if you share the above information.

Re: Are we financially okay?

Posted: Mon Aug 19, 2019 6:34 am
by CyclingDuo
takeabiteoflife wrote: Sat Aug 17, 2019 9:17 pm
Investments:
Cash/MM/CD - $2M
Stocks - $2M
Bond - $100K
Mortgage Debt of $800K (equity of ~$600K)

Wife was just laid off and got 3 months of severance. It’s unclear when she'll find another job and for what level of compensation.
No brainer here - especially with your wife's layoff. Use $800K of your cash/MM/DC to retire the mortgage debt.

Re: Are we financially okay?

Posted: Mon Aug 19, 2019 7:22 am
by basspond
takeabiteoflife wrote: Sat Aug 17, 2019 9:17 pm Are we financial secure as long as my income stream is steady?

What are your suggestions to be more financially secure?
Yes, you are financially secure.

Payoff mortgage In under 5 years and work on budget so your yearly negative position is no more then $80k.

Do not break the bank on children’s college, cars, and other expenses.

Open college personal accounts for your children. Match what they put in and they can only touch their money until they graduate.

Re: Are we financially okay?

Posted: Mon Aug 19, 2019 7:25 am
by 3funder
rocket354 wrote: Sun Aug 18, 2019 11:42 pm
takeabiteoflife wrote: Sun Aug 18, 2019 8:24 pm Thanks for the feedback, everyone.

We will look and see how we can shave some expenses.

Interest income should be about $40k this year.

Mortgage is @ 4%, will look into refi.

Within the stock portfolio, about $125K is 529.

When we rebalance our portfolio, will probably put cash into a Vanguard index fund given its low fees.
You have an $800k mortgage at 4% while you have $2MM in cash, MM and CDs? I'm sure those instruments pay much less than 4% after-tax. Even if you deduct the interest, which I assume you do at those levels, you will still be behind.

Pay off your mortgage rather than keeping so much in cash and equivalents. Then you will have a significantly reduced monthly expense, and can be perfectly fine on one income where you are for as long as you want. And you will still have $1.2MM to move into the stock market/bonds whenever you are ready to jump.
+1

Re: Are we financially okay?

Posted: Mon Aug 19, 2019 7:30 am
by cherijoh
takeabiteoflife wrote: Sat Aug 17, 2019 9:17 pm Me 48 yo, DW 46 yo, 11 yr old, 8 yr old
We live in a VHCOL area in East Coast
Monthly expenses are ~$13,000-14,000 per month (~$6K for mortgage and property tax)

Investments:
Cash/MM/CD - $2M
Stocks - $2M
Bond - $100K
Mortgage Debt of $800K (equity of ~$600K)

Wife was just laid off and got 3 months of severance. It’s unclear when she'll find another job and for what level of compensation.
I really enjoy my job in financial services and income is $200K per year with potential for 15% annual cash bonus.
We do not plan to move to a LCOL area since we love our neighborhood and great public schools.
Plan would be to still max my 401K (4% employer match) but try to breakeven or be slightly negative on one income.

We obviously need to work on our asset allocation and were hoping for a market selloff for a better entry point.

Are we financial secure as long as my income stream is steady?
What are your suggestions to be more financially secure?
It sounds like you need to get discretionary spending under control if your monthly expenses of $13K - $14K do not already include taxes (and likely even if they do). I am assuming that your salary and bonus were based on the gross numbers and before your 401k contributions and withholding for other benefits. It would be very helpful if you gave more details on your current budget. See my example below:

Gross Salary: $200K (A)
401k contribution: $19K (B)
Other benefits withholding: $xx (C) <-- do you have sufficient life insurance and disability?
Tax Withholding: $xx (D)
Take Home Pay: A - (B+C+D)

Bonus: $xx <-- what has your bonus actually been the last few years?
Other Income (Interest, Dividends, etc.): $xx

Expenses:
Mortgage & Taxes: ~ $6K (does this also include HO insurance?)
Other Insurance (not covered by payroll w/h - i.e., auto, umbrella, individual life insurance, etc.) :
Utilities (water, gas, eletric):
Phone, Cable & Internet:
Commuting Expenses (car, public transportation, parking):
Food & Household products:
Eating Out (work lunches, Starbucks, family dinners, etc.):
Housecleaning & Lawn Services:
Kid expenses (after school care, sports & Hobbies, camp):
Clothing & Laundry/Drycleaning):
Personal Care & Wellness (gym, haircuts, spa services, etc.)
Travel & Entertainment:
Miscellaneous & Gifts:
Charitable donations ($):
Other:

Re: Are we financially okay?

Posted: Mon Aug 19, 2019 7:43 am
by Bacchus01
veindoc wrote: Sun Aug 18, 2019 9:42 pm
takeabiteoflife wrote: Sat Aug 17, 2019 9:17 pm Me 48 yo, DW 46 yo, 11 yr old, 8 yr old
We live in a VHCOL area in East Coast
Monthly expenses are ~$13,000-14,000 per month (~$6K for mortgage and property tax)

Investments:
Cash/MM/CD - $2M
Stocks - $2M
Bond - $100K
Mortgage Debt of $800K (equity of ~$600K)

Wife was just laid off and got 3 months of severance. It’s unclear when she'll find another job and for what level of compensation.
I really enjoy my job in financial services and income is $200K per year with potential for 15% annual cash bonus.
We do not plan to move to a LCOL area since we love our neighborhood and great public schools.
Plan would be to still max my 401K (4% employer match) but try to breakeven or be slightly negative on one income.

We obviously need to work on our asset allocation and were hoping for a market selloff for a better entry point.

Are we financial secure as long as my income stream is steady?
What are your suggestions to be more financially secure?
Why do you have so much in cash? I would pay off the house today and create some breathing room. How much are your property taxes?
Alternatively, I would never advise paying off the house. Your cash reserve gives you huge flexibility.

Refinance it.

Re: Are we financially okay?

Posted: Mon Aug 19, 2019 8:37 am
by 8foot7
Bacchus01 wrote: Mon Aug 19, 2019 7:43 am
veindoc wrote: Sun Aug 18, 2019 9:42 pm
takeabiteoflife wrote: Sat Aug 17, 2019 9:17 pm Me 48 yo, DW 46 yo, 11 yr old, 8 yr old
We live in a VHCOL area in East Coast
Monthly expenses are ~$13,000-14,000 per month (~$6K for mortgage and property tax)

Investments:
Cash/MM/CD - $2M
Stocks - $2M
Bond - $100K
Mortgage Debt of $800K (equity of ~$600K)

Wife was just laid off and got 3 months of severance. It’s unclear when she'll find another job and for what level of compensation.
I really enjoy my job in financial services and income is $200K per year with potential for 15% annual cash bonus.
We do not plan to move to a LCOL area since we love our neighborhood and great public schools.
Plan would be to still max my 401K (4% employer match) but try to breakeven or be slightly negative on one income.

We obviously need to work on our asset allocation and were hoping for a market selloff for a better entry point.

Are we financial secure as long as my income stream is steady?
What are your suggestions to be more financially secure?
Why do you have so much in cash? I would pay off the house today and create some breathing room. How much are your property taxes?
Alternatively, I would never advise paying off the house. Your cash reserve gives you huge flexibility.

Refinance it.
He'd still have 1.2M in cash after paying it off. How much flexibility do you need, really? If he were cash poor I'd totally agree with you but mathematically it makes no sense to have 2.5 times your mortgage balance in cash earning half of what you are paying on your loan.

Re: Are we financially okay?

Posted: Mon Aug 19, 2019 8:40 am
by 8foot7
takeabiteoflife wrote: Sat Aug 17, 2019 9:17 pm Me 48 yo, DW 46 yo, 11 yr old, 8 yr old
We live in a VHCOL area in East Coast
Monthly expenses are ~$13,000-14,000 per month (~$6K for mortgage and property tax)

Investments:
Cash/MM/CD - $2M
Stocks - $2M
Bond - $100K
Mortgage Debt of $800K (equity of ~$600K)

Wife was just laid off and got 3 months of severance. It’s unclear when she'll find another job and for what level of compensation.
I really enjoy my job in financial services and income is $200K per year with potential for 15% annual cash bonus.
We do not plan to move to a LCOL area since we love our neighborhood and great public schools.
Plan would be to still max my 401K (4% employer match) but try to breakeven or be slightly negative on one income.

We obviously need to work on our asset allocation and were hoping for a market selloff for a better entry point.

Are we financial secure as long as my income stream is steady?
What are your suggestions to be more financially secure?
OP, I'd look to reduce your monthly expenses by about half of what your wife previously brought in take-home. That will give you some breathing room. You clearly have the option to be done saving at this point. You're almost certainly just fine, but I'd recommend being a bit proactive and seeing if there's a way to cut about half of your wife's previous take-home pay until she finds a job -- and if she doesn't, you're still ok.
Obviously paying off the mortgage takes care of that. Then you're fine.

Re: Are we financially okay?

Posted: Mon Aug 19, 2019 8:44 am
by FoolMeOnce
Cash flow neutral with $4.1 million in the bank? Why are you even asking? Of course you are "financially okay."

Re: Are we financially okay?

Posted: Mon Aug 19, 2019 8:52 am
by tivattom
Sell your house, quit your job. Move to Ohio, buy a house with cash and live like a king. I'm only partially joking.

Re: Are we financially okay?

Posted: Mon Aug 19, 2019 8:57 am
by cherijoh
sawhorse wrote: Mon Aug 19, 2019 12:17 am What are you spending so much on? You said $6k a month on mortgage and property tax, so if you're spending $13-14k a month, that means you're spending an additional $7-8k. I also live in a high cost area and understand why the mortgage/tax expense is so high, but what is all the other money going to - do you have a lot of medical expenses?

You're okay now at this level of spending, but I'm concerned about the long term. If your wife doesn't get a job, and you insist on maintaining the same budget, you will eventually not be okay if you want to pay for their college.
Yes, with those asset levels, I wouldn't expect any financial aid packages. And $125K in 529 is pretty meager for 2 kids their ages - especially considering the OP's net worth.

The other thing to be concerned about is if there is anything close to a repeat of the Great Recession with the job market, stock market, and housing market tanking at the same time. Financial services companies are notorious for layoffs when the economy tanks. OP is of the age where if he's laid off during a recession, he will likely find it difficult to find another job paying anything near an equivalent salary. I live in Charlotte, NC and one of the worst hit neighborhoods in 2007-09 was a gated community on Lake Norman with lake front $1M houses. Most of those homeowners had previously had high salary jobs at one of the banks in town.

I'm pretty sure OP is either in NYC area or Boston, which are the two VCOL cities on the east coast with a high concentration of financial services jobs. Both those real estate markets were hit hard when the housing bubble burst and it took a long time to bounce back. See this historical graph of the Case-Shiller home price index. During a recession, $1M+ houses are hard to move.

All in all, some not so painful trimming of the budget now will alleviate the possibility of more Draconian budget trimming later.

Re: Are we financially okay?

Posted: Mon Aug 19, 2019 9:48 am
by wolf359
wilked wrote: Sat Aug 17, 2019 9:49 pm Your outflow ($14k/month) exceeds your inflow ($200k salary)

You are not ok

You need to get that $14k/month down to less than $10k / month. You didn’t provide a budget but I would suggest that you can’t afford your house
I'm not sure I understand this logic. OP has $2 million in cash.

If OP spends $14k/month, and assuming cash is returning 2%, that $2 million reserve will last 13 years. That should be sufficient time for wife to find a job.

If the cash reserve runs out, OP has an additional $2 million in stocks that will be compounding during that timeframe.

And OP still has a job which covers most of the monthly spend. With that fact alone, the $2 million cash reserve can probably last indefinitely. (It generates $40,000/year interest all on its own.)

OP spends a lot more than I would, but they're financially okay.

Re: Are we financially okay?

Posted: Mon Aug 19, 2019 10:01 am
by cherijoh
wolf359 wrote: Mon Aug 19, 2019 9:48 am If OP spends $14k/month, and assuming cash is returning 2%, that $2 million reserve will last 13 years. That should be sufficient time for wife to find a job.

If the cash reserve runs out, OP has an additional $2 million in stocks that will be compounding during that timeframe.

And OP still has a job which covers most of the monthly spend. With that fact alone, the $2 million cash reserve can probably last indefinitely. (It generates $40,000/year interest all on its own.)

OP spends a lot more than I would, but they're financially okay.
For the moment. As I posted earlier, financial services is notorious for layoffs and OP is at the age where a layoff could be the kiss of death for finding another job at the same salary. And contractions in jobs in financial services tends to be correlated with bear markets and recessions, so the stock portfolio could shrink at the same time.

If the OP can stay at neutral and not dip into nest egg they should be okay, especially if wife eventually goes back to work. But it sounds like they want to stay at same spending level and be a 1-income family. I'd also expect expenses to ramp up as the kids get older. IMO, now is the time to get a handle on where all that money is going and to see if they can do some trimming without sacrificing their quality of life.

Re: Are we financially okay?

Posted: Mon Aug 19, 2019 10:03 am
by delamer
Bfwolf wrote: Sun Aug 18, 2019 9:48 pm
delamer wrote: Sun Aug 18, 2019 2:26 pm At your ages, a 3% withdrawal from your portfolio (inflation adjusted) is sustainable for a very long time. So that’s $60,000/year.
I think you have mistakenly seen the OP's portfolio as having a value of $2,000,000. It's actually north of $4,000,000. A 3% withdrawal rate of that is $120,000 a year.

OP, you are completely fine. Even if your wife NEVER got a job and you just worked til you're 65, you'd be fine. Don't forget you guys will both get SS someday!

Your wife should take her time to find the right job at the right pay, and then you won't have to work til you're 65. :)
You are absolutely right; my mistake re: the portfolio balance.

I agree with your comments about the OP’s financial status.

I will stick with my caveat about not spending $500,000 on the kids’ educations though.

Re: Are we financially okay?

Posted: Mon Aug 19, 2019 10:17 am
by softwaregeek
Definitely refinance your mortgage. I just closed one at 3.25 with a relationship mortgage deal. Someone just closed at just over 3.0. There is a thread on this that I started. You will have to move about a million in assets to their discount brokerage.

The assumption that your wife will never get a another job is wrong. Even if it is not a fancy or prestigious job she can find something. That let's you shield more income from tax and brings in a little extra. And expenses may go down if your wife is not working. Most dual income hnw families outsource a lot. Yard work, cleaning, child care etc. This would go away.

Re: Are we financially okay?

Posted: Mon Aug 19, 2019 10:35 am
by wolf359
cherijoh wrote: Mon Aug 19, 2019 10:01 am
wolf359 wrote: Mon Aug 19, 2019 9:48 am If OP spends $14k/month, and assuming cash is returning 2%, that $2 million reserve will last 13 years. That should be sufficient time for wife to find a job.

If the cash reserve runs out, OP has an additional $2 million in stocks that will be compounding during that timeframe.

And OP still has a job which covers most of the monthly spend. With that fact alone, the $2 million cash reserve can probably last indefinitely. (It generates $40,000/year interest all on its own.)

OP spends a lot more than I would, but they're financially okay.
For the moment. As I posted earlier, financial services is notorious for layoffs and OP is at the age where a layoff could be the kiss of death for finding another job at the same salary. And contractions in jobs in financial services tends to be correlated with bear markets and recessions, so the stock portfolio could shrink at the same time.

If the OP can stay at neutral and not dip into nest egg they should be okay, especially if wife eventually goes back to work. But it sounds like they want to stay at same spending level and be a 1-income family. I'd also expect expenses to ramp up as the kids get older. IMO, now is the time to get a handle on where all that money is going and to see if they can do some trimming without sacrificing their quality of life.
I'm not going to disagree with you that they need to get a handle on their spending and do some trimming, especially since that spending level was originally established while there was a second income going on.

But that 13 year clock I mentioned doesn't kick in UNTIL the OP loses his job. And while the stock portfolio might well shrink simultaneously with the OP losing his financial sector job, they won't need to tap it until the cash reserves are exhausted. And if they insist on continuing to spend $14,000/month for more than a decade without any job, then there's no help for them anyways.

Financially they're fine. Their cash position is losing to inflation. If they restructure their portfolio, their $4 million could support them for 30 years with neither of them working.

That 13 year runway would put the OP well into their 60's when they would be considering retirement. If they trim their expenses, the wife doesn't need to return to work. They need a little more to cover taxes, their lifestyle creep, and their youth, but they're getting close to having enough for retirement now.

Re: Are we financially okay?

Posted: Mon Aug 19, 2019 11:26 am
by cherijoh
wolf359 wrote: Mon Aug 19, 2019 10:35 am I'm not going to disagree with you that they need to get a handle on their spending and do some trimming, especially since that spending level was originally established while there was a second income going on.

But that 13 year clock I mentioned doesn't kick in UNTIL the OP loses his job. And while the stock portfolio might well shrink simultaneously with the OP losing his financial sector job, they won't need to tap it until the cash reserves are exhausted. And if they insist on continuing to spend $14,000/month for more than a decade without any job, then there's no help for them anyways.
You are right. I was thinking that they would be shrinking the cash stash starting now, but the monthly shortfall probably wouldn't be that much. Although I'd still like to know if the $13k - $14K includes or excludes taxes. For some reason, lots of people ignore taxes when they start looking at current spending as a baseline for how much they will need to draw from retirement accounts. Especially if initially they are drawing down taxable before switching to a traditional tax-advantaged account.

Re: Are we financially okay?

Posted: Mon Aug 19, 2019 11:28 am
by NoFred
8foot7 wrote: Mon Aug 19, 2019 8:37 am
Bacchus01 wrote: Mon Aug 19, 2019 7:43 am
veindoc wrote: Sun Aug 18, 2019 9:42 pm
takeabiteoflife wrote: Sat Aug 17, 2019 9:17 pm Me 48 yo, DW 46 yo, 11 yr old, 8 yr old
We live in a VHCOL area in East Coast
Monthly expenses are ~$13,000-14,000 per month (~$6K for mortgage and property tax)

Investments:
Cash/MM/CD - $2M
Stocks - $2M
Bond - $100K
Mortgage Debt of $800K (equity of ~$600K)

Wife was just laid off and got 3 months of severance. It’s unclear when she'll find another job and for what level of compensation.
I really enjoy my job in financial services and income is $200K per year with potential for 15% annual cash bonus.
We do not plan to move to a LCOL area since we love our neighborhood and great public schools.
Plan would be to still max my 401K (4% employer match) but try to breakeven or be slightly negative on one income.

We obviously need to work on our asset allocation and were hoping for a market selloff for a better entry point.

Are we financial secure as long as my income stream is steady?
What are your suggestions to be more financially secure?
Why do you have so much in cash? I would pay off the house today and create some breathing room. How much are your property taxes?
Alternatively, I would never advise paying off the house. Your cash reserve gives you huge flexibility.

Refinance it.
He'd still have 1.2M in cash after paying it off. How much flexibility do you need, really? If he were cash poor I'd totally agree with you but mathematically it makes no sense to have 2.5 times your mortgage balance in cash earning half of what you are paying on your loan.
Yes just pay it off you’re beyond needing financing. Then as long as your monthly mandatory expenses are low you’re totally fine. You can always lower discretionary when the other shoe drops (you are also laid off.)

Re: Are we financially okay?

Posted: Mon Aug 19, 2019 1:44 pm
by Vanguard Fan 1367
I had some cash when the 2007-2009 crash hit. I took that cash and paid off a rental property mortgage. I agree with those who suggest paying off the house.

Re: Are we financially okay?

Posted: Mon Aug 19, 2019 2:14 pm
by Jebediah
FoolMeOnce wrote: Mon Aug 19, 2019 8:44 am Cash flow neutral with $4.1 million in the bank? Why are you even asking? Of course you are "financially okay."
Exactly. OP is well beyond OK.

You've got 4.7 million net worth. You spend 160K a year. That's a 3.4% withdrawal rate. Not only are you ok, you're close to being able to retire (3% or less SWR recommended at your age). Cut spending by 20K a year-- just pay the mortgage off?-- and you're there (able to retire).

Re: Are we financially okay?

Posted: Mon Aug 19, 2019 3:20 pm
by Golf maniac
I would think the cash investments are earning no where near the mortgage interest rate. Why not pay off mortgage to reduce expenses? If they need a mortgage later (highly doubtful) they can get a mortgage within 30 days to get additional liquidity.

Re: Are we financially okay?

Posted: Mon Aug 19, 2019 3:58 pm
by MikeG62
Jebediah wrote: Mon Aug 19, 2019 2:14 pm
FoolMeOnce wrote: Mon Aug 19, 2019 8:44 am Cash flow neutral with $4.1 million in the bank? Why are you even asking? Of course you are "financially okay."
Exactly. OP is well beyond OK.

You've got 4.7 million net worth. You spend 160K a year. That's a 3.4% withdrawal rate. Not only are you ok, you're close to being able to retire (3% or less SWR recommended at your age). Cut spending by 20K a year-- just pay the mortgage off?-- and you're there (able to retire).
One should not include equity in their primary residence in computing their WD rate. WD rate should be based upon financial/invested assets. Along the same lines, the kids 529 accounts should be likewise excluded.

Also, without knowing how much of this money is in tax deferred accounts, it's hard to know what the tax impact would be in getting at these funds (thus the reason I asked upthread).

Retiring early would add expenses relating to health care. For a family of four, that would easily surpass $30K annually in premiums alone (plus OOP's).

IMHO, it's premature to consider the OP as financially ready (or near financially ready) for retirement.

Re: Are we financially okay?

Posted: Mon Aug 19, 2019 4:23 pm
by takeabiteoflife
I've made edits to the original post to provide more details:

Investments:
Cash/MM/CD - $2M @ ~2% interest rate or ~$40K interest income/yr
Stocks - $2M (~$1M in 401K/ROTH/IRA and then $125K in 529)
Bond - $100K
Mortgage Debt of $800K (equity of ~$600K) @ 4%

Despite being negative cash flow until DW finds a job, we would ideally prefer to continue maxing out my 401K and investing in 529 (maybe $1-2K/month) as part of putting more cash into stocks. Is that a bad idea?

Also, we will try to examine our expenses and see if we can reduce it by $2-3K/month.

Thanks for all the advice!

Re: Are we financially okay?

Posted: Mon Aug 19, 2019 4:28 pm
by Jebediah
MikeG62 wrote: Mon Aug 19, 2019 3:58 pm
Jebediah wrote: Mon Aug 19, 2019 2:14 pm
FoolMeOnce wrote: Mon Aug 19, 2019 8:44 am Cash flow neutral with $4.1 million in the bank? Why are you even asking? Of course you are "financially okay."
Exactly. OP is well beyond OK.

You've got 4.7 million net worth. You spend 160K a year. That's a 3.4% withdrawal rate. Not only are you ok, you're close to being able to retire (3% or less SWR recommended at your age). Cut spending by 20K a year-- just pay the mortgage off?-- and you're there (able to retire).
One should not include equity in their primary residence in computing their WD rate. WD rate should be based upon financial/invested assets. Along the same lines, the kids 529 accounts should be likewise excluded.

Also, without knowing how much of this money is in tax deferred accounts, it's hard to know what the tax impact would be in getting at these funds (thus the reason I asked upthread).

Retiring early would add expenses relating to health care. For a family of four, that would easily surpass $30K annually in premiums alone (plus OOP's).

IMHO, it's premature to consider the OP as financially ready (or near financially ready) for retirement.
Agreed re the home equity. I forget that most people don't include imputed rent on home equity in their expense accounting. I do it but safe to assume the OP does not.

But imagine they pay off the mortgage. Assume 1K a month for property taxes. Now their expenses are down to 100K and net worth is 3.3m. Add 20K for healthcare and subtract 200K for college and they're at a 3.9% SWR (120K expenses/3.1m NW). Not retirement ready but getting there.

Regarding cap gains taxes, I always assume it's a wash vs social security.

Re: Are we financially okay?

Posted: Mon Aug 19, 2019 4:41 pm
by FoolMeOnce
takeabiteoflife wrote: Mon Aug 19, 2019 4:23 pm I've made edits to the original post to provide more details:

Investments:
Cash/MM/CD - $2M @ ~2% interest rate or ~$40K interest income/yr
Stocks - $2M (~$1M in 401K/ROTH/IRA and then $125K in 529)
Bond - $100K
Mortgage Debt of $800K (equity of ~$600K) @ 4%

Despite being negative cash flow until DW finds a job, we would ideally prefer to continue maxing out my 401K and investing in 529 (maybe $1-2K/month) as part of putting more cash into stocks. Is that a bad idea?

Also, we will try to examine our expenses and see if we can reduce it by $2-3K/month.

Thanks for all the advice!
Yes, I think it makes sense to use cash/interest/dividends for spending to allow continued contributions to tax-preferred accounts.

Re: Are we financially okay?

Posted: Mon Aug 19, 2019 5:14 pm
by MikeG62
Jebediah wrote: Mon Aug 19, 2019 4:28 pm
MikeG62 wrote: Mon Aug 19, 2019 3:58 pm
Jebediah wrote: Mon Aug 19, 2019 2:14 pm
FoolMeOnce wrote: Mon Aug 19, 2019 8:44 am Cash flow neutral with $4.1 million in the bank? Why are you even asking? Of course you are "financially okay."
Exactly. OP is well beyond OK.

You've got 4.7 million net worth. You spend 160K a year. That's a 3.4% withdrawal rate. Not only are you ok, you're close to being able to retire (3% or less SWR recommended at your age). Cut spending by 20K a year-- just pay the mortgage off?-- and you're there (able to retire).
One should not include equity in their primary residence in computing their WD rate. WD rate should be based upon financial/invested assets. Along the same lines, the kids 529 accounts should be likewise excluded.

Also, without knowing how much of this money is in tax deferred accounts, it's hard to know what the tax impact would be in getting at these funds (thus the reason I asked upthread).

Retiring early would add expenses relating to health care. For a family of four, that would easily surpass $30K annually in premiums alone (plus OOP's).

IMHO, it's premature to consider the OP as financially ready (or near financially ready) for retirement.
Agreed re the home equity. I forget that most people don't include imputed rent on home equity in their expense accounting. I do it but safe to assume the OP does not.

But imagine they pay off the mortgage. Assume 1K a month for property taxes. Now their expenses are down to 100K and net worth is 3.3m. Add 20K for healthcare and subtract 200K for college and they're at a 3.9% SWR (120K expenses/3.1m NW). Not retirement ready but getting there.

Regarding cap gains taxes, I always assume it's a wash vs social security.
OK, I see your rationale and see where you are coming from.

Having said that, as am early retiree myself, I think $20K on healthcare for a family of four is way too low. My DW and I spend $17K on premiums alone, plus OOP's. Last year we spent $25K in total and it's just for the two of us. So I would up the estimate for healthcare - maybe closer to $35K or more. Also, T&E in retirement likely to be a large step-up from pre-retirement level. We spend many times more in retirement on T&E than we spent pre-retirement. I would expect that the combination health care and T&E to way more than swamp the savings from paying off the mortgage.

In terms of taxes, we don't know where these financial assets are housed. My guess is a large portion is in tax deferred, so potentially significant income taxes due as funds are withdrawn to pay expenses.

Just my thoughts 4 years into retirement on how things tend to play out.

Re: Are we financially okay?

Posted: Mon Aug 19, 2019 5:17 pm
by lakja
You’re fine. I’d disregard the people advocating paying off the $800k on your mortgage. That’s a great way to lose your liquidity, plus who knows how much longer you’ll be in the house. $800k is generating around $16k/year, which would put a nice dent in your mortgage payment. I would however refinance. Jumbo loans are currently at a 1/4 point lower than conventional, so you can probably get a no cost refinance for 3.25% on a 30-year, around 2.75% with a couple points on a 15-year, based on my findings last week. Only down-side would be you wouldn’t be able to deduct interest over 750k, so maybe consider putting some cash down to bring it below 750k to further reduce cash flow for the mortgage.

I’d focus on your wife’s emotional state and make sure she’s doing well. She can take her time finding a new job, and should spend time updating her resume/LinkedIn and focusing on networking connections to find her next landing spot.

You guys are doing extremely well, and you’re probably in the top 1% of your age group with your savings. Great job.

Re: Are we financially okay?

Posted: Mon Aug 19, 2019 7:07 pm
by willthrill81
Jebediah wrote: Mon Aug 19, 2019 4:28 pm
MikeG62 wrote: Mon Aug 19, 2019 3:58 pm
Jebediah wrote: Mon Aug 19, 2019 2:14 pm
FoolMeOnce wrote: Mon Aug 19, 2019 8:44 am Cash flow neutral with $4.1 million in the bank? Why are you even asking? Of course you are "financially okay."
Exactly. OP is well beyond OK.

You've got 4.7 million net worth. You spend 160K a year. That's a 3.4% withdrawal rate. Not only are you ok, you're close to being able to retire (3% or less SWR recommended at your age). Cut spending by 20K a year-- just pay the mortgage off?-- and you're there (able to retire).
One should not include equity in their primary residence in computing their WD rate. WD rate should be based upon financial/invested assets. Along the same lines, the kids 529 accounts should be likewise excluded.

Also, without knowing how much of this money is in tax deferred accounts, it's hard to know what the tax impact would be in getting at these funds (thus the reason I asked upthread).

Retiring early would add expenses relating to health care. For a family of four, that would easily surpass $30K annually in premiums alone (plus OOP's).

IMHO, it's premature to consider the OP as financially ready (or near financially ready) for retirement.
Agreed re the home equity. I forget that most people don't include imputed rent on home equity in their expense accounting. I do it but safe to assume the OP does not.

But imagine they pay off the mortgage. Assume 1K a month for property taxes. Now their expenses are down to 100K and net worth is 3.3m. Add 20K for healthcare and subtract 200K for college and they're at a 3.9% SWR (120K expenses/3.1m NW). Not retirement ready but getting there.

Regarding cap gains taxes, I always assume it's a wash vs social security.
I agree that paying off the mortgage makes the most sense (and that the OP's situation is great). The OP will still have over a million in liquid assets after doing so. It makes no sense to borrow $800k at 4% only to then lend it out at 2%.

Re: Are we financially okay?

Posted: Mon Aug 19, 2019 8:45 pm
by Bfwolf
takeabiteoflife wrote: Mon Aug 19, 2019 4:23 pm Despite being negative cash flow until DW finds a job, we would ideally prefer to continue maxing out my 401K and investing in 529 (maybe $1-2K/month) as part of putting more cash into stocks. Is that a bad idea?
It's a good idea. Do it!

Re: Are we financially okay?

Posted: Mon Aug 19, 2019 9:59 pm
by Jebediah
MikeG62 wrote: Mon Aug 19, 2019 5:14 pm
Jebediah wrote: Mon Aug 19, 2019 4:28 pm
MikeG62 wrote: Mon Aug 19, 2019 3:58 pm
Jebediah wrote: Mon Aug 19, 2019 2:14 pm
FoolMeOnce wrote: Mon Aug 19, 2019 8:44 am Cash flow neutral with $4.1 million in the bank? Why are you even asking? Of course you are "financially okay."
Exactly. OP is well beyond OK.

You've got 4.7 million net worth. You spend 160K a year. That's a 3.4% withdrawal rate. Not only are you ok, you're close to being able to retire (3% or less SWR recommended at your age). Cut spending by 20K a year-- just pay the mortgage off?-- and you're there (able to retire).
One should not include equity in their primary residence in computing their WD rate. WD rate should be based upon financial/invested assets. Along the same lines, the kids 529 accounts should be likewise excluded.

Also, without knowing how much of this money is in tax deferred accounts, it's hard to know what the tax impact would be in getting at these funds (thus the reason I asked upthread).

Retiring early would add expenses relating to health care. For a family of four, that would easily surpass $30K annually in premiums alone (plus OOP's).

IMHO, it's premature to consider the OP as financially ready (or near financially ready) for retirement.
Agreed re the home equity. I forget that most people don't include imputed rent on home equity in their expense accounting. I do it but safe to assume the OP does not.

But imagine they pay off the mortgage. Assume 1K a month for property taxes. Now their expenses are down to 100K and net worth is 3.3m. Add 20K for healthcare and subtract 200K for college and they're at a 3.9% SWR (120K expenses/3.1m NW). Not retirement ready but getting there.

Regarding cap gains taxes, I always assume it's a wash vs social security.
OK, I see your rationale and see where you are coming from.

Having said that, as am early retiree myself, I think $20K on healthcare for a family of four is way too low. My DW and I spend $17K on premiums alone, plus OOP's. Last year we spent $25K in total and it's just for the two of us. So I would up the estimate for healthcare - maybe closer to $35K or more. Also, T&E in retirement likely to be a large step-up from pre-retirement level. We spend many times more in retirement on T&E than we spent pre-retirement. I would expect that the combination health care and T&E to way more than swamp the savings from paying off the mortgage.

In terms of taxes, we don't know where these financial assets are housed. My guess is a large portion is in tax deferred, so potentially significant income taxes due as funds are withdrawn to pay expenses.

Just my thoughts 4 years into retirement on how things tend to play out.
17K is pretty brutal, sorry to hear that. We (wife and myself) pay 11K in what I thought was considered a high cost ACA state (maybe not). What is T&E?

Re: Are we financially okay?

Posted: Tue Aug 20, 2019 6:59 am
by MikeG62
Jebediah wrote: Mon Aug 19, 2019 9:59 pm
MikeG62 wrote: Mon Aug 19, 2019 5:14 pm
Jebediah wrote: Mon Aug 19, 2019 4:28 pm
MikeG62 wrote: Mon Aug 19, 2019 3:58 pm
Jebediah wrote: Mon Aug 19, 2019 2:14 pm

Exactly. OP is well beyond OK.

You've got 4.7 million net worth. You spend 160K a year. That's a 3.4% withdrawal rate. Not only are you ok, you're close to being able to retire (3% or less SWR recommended at your age). Cut spending by 20K a year-- just pay the mortgage off?-- and you're there (able to retire).
One should not include equity in their primary residence in computing their WD rate. WD rate should be based upon financial/invested assets. Along the same lines, the kids 529 accounts should be likewise excluded.

Also, without knowing how much of this money is in tax deferred accounts, it's hard to know what the tax impact would be in getting at these funds (thus the reason I asked upthread).

Retiring early would add expenses relating to health care. For a family of four, that would easily surpass $30K annually in premiums alone (plus OOP's).

IMHO, it's premature to consider the OP as financially ready (or near financially ready) for retirement.
Agreed re the home equity. I forget that most people don't include imputed rent on home equity in their expense accounting. I do it but safe to assume the OP does not.

But imagine they pay off the mortgage. Assume 1K a month for property taxes. Now their expenses are down to 100K and net worth is 3.3m. Add 20K for healthcare and subtract 200K for college and they're at a 3.9% SWR (120K expenses/3.1m NW). Not retirement ready but getting there.

Regarding cap gains taxes, I always assume it's a wash vs social security.
OK, I see your rationale and see where you are coming from.

Having said that, as am early retiree myself, I think $20K on healthcare for a family of four is way too low. My DW and I spend $17K on premiums alone, plus OOP's. Last year we spent $25K in total and it's just for the two of us. So I would up the estimate for healthcare - maybe closer to $35K or more. Also, T&E in retirement likely to be a large step-up from pre-retirement level. We spend many times more in retirement on T&E than we spent pre-retirement. I would expect that the combination health care and T&E to way more than swamp the savings from paying off the mortgage.

In terms of taxes, we don't know where these financial assets are housed. My guess is a large portion is in tax deferred, so potentially significant income taxes due as funds are withdrawn to pay expenses.

Just my thoughts 4 years into retirement on how things tend to play out.
17K is pretty brutal, sorry to hear that. We (wife and myself) pay 11K in what I thought was considered a high cost ACA state (maybe not). What is T&E?
We live in NJ. DW has a silver level plan and I have a bronze HSA. If I had the better silver plan, our premiums would increase another $2K. I actually thought our premiums were low. I've seen others post that they are paying 50% more (in premiums).

T&E = Travel and Entertainment. We spend several times more on T&E then on any other single expense category. I would think someone living in a $1.4 million home is (would) not (be) taking vacations that cost $5K per week - more likely 3 times that. And if they are retired and taking a number of these a year, it would add up quick.