Need Advice

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
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Topic Author
BalancedJCB19
Posts: 213
Joined: Sat Jul 13, 2019 11:30 am

Need Advice

Post by BalancedJCB19 »

Hi All,

I need some advice whether I should borrow or lessen my 401k and save up for home upgrades.

Income Me - $70,000.00 per year
Income Wife - $30,000.00 per year
Debt - $3,000.00
Savings outside of 401k and IRA - $2,500.00 (In simple savings account)
All investments are in tax deferred 401K nothing in taxable accounts
IRA - $941,178.89
401k - $43,125.13
Combined amount $984,304.02
My IRA was rolled over from my old 401K when I got outsourced
My 401K is with the new company which I only started two years ago
I get a 3% match in my 401k with new company
House - I own the house outright (paid off mortgage 5 years ago)
House is worth is about $525K
I just started maxing my 401K out (which I believe is $24,000 per year because of my age)
HSA Account - $12,000 (I didn't count this in my 401K and IRA amount) - I contribute $7,000 per year

I am 56 years old and I just started doing some upgrades to my house, new floors in two bedrooms, recessed lighting, new half bathroom and new interior doors (total of 5), new deck (All these have been completed so far). I want to continue to do the rest of the floors in the entire house, plus the remaining projects which are new kitchen, new bathroom (full), plus new windows. With the rough estimates our contractor is giving us, I'm guessing $50 or 60K should be the amount I need for the rest of these upgrades. I plain to stick with this contractor because so far, I'm very happy with the work.

If I lessen my 401K enough to get the match, I could save this in two to three years or I can take out a loan now and start immediately.

My wife is 60 and she really desires this so I would like to make her happy, but she is not demanding it to be done this second. At our age, I want her to start enjoying it now.

Hope I gave you guys enough information to help me decide. Also, my job seems currently stable all things considering but who really knows. As you can see, IMHO I did well considering my low salary. What would you folks do, if this was your decision to make. Thanks in advance for any info or opinion you may want to add.

P.S. My flexible plain is to retire between 62 and 65. My wife plains to work until I retire.
runner3081
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Joined: Mon Aug 22, 2016 3:22 pm

Re: Need Advice

Post by runner3081 »

Delete, nevermind.
HomeStretch
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Joined: Thu Dec 27, 2018 3:06 pm

Re: Need Advice

Post by HomeStretch »

BalancedJCB19 wrote: Sat Oct 24, 2020 7:44 am At our age, I want her to start enjoying it now
I need some advice whether I should borrow or lessen my 401k and save up for home upgrades.
If I lessen to my 401K enough to get the match, I could save this in two years or I can take out a loan now and start immediately.
I am generally a proponent of paying cash for home renovations. Given your ages, time it will take to do the work and your net worth, I can understand a loan in your case so you can do the work now and start enjoying the results sooner. Consider a HELOC as a lending option in case you need to borrow for cost overruns as you don’t have much outside of your retirement accounts to absorb additional costs.

Do you expect the market value of your home to increase due to the improvements?

Are you and your spouse close to financial independence? Have you calculated your annual expenses in retirement and retirement income (such as social security, pension) to determine how many years of net expenses you have saved for retirement in your portfolio?
Debt - $3,000.00

Savings outside of 401k and IRA - $2,500.00 (In simple savings account)
What is the nature and interest rate on the debt?

Is the $2,500 in savings your emergency fund? How many months of living expenses does this represent if you and spouse were unemployed?

You have done a great job saving but you have very little saved outside of tax-deferred accounts. Consider reducing your 401k contributions to the amount needed to receive the full employer match. Contribute instead to Roth IRAs for you and spouse. If you are eligible, the 2020 limit at or over age 50 is $7k each. The contributions grow tax free and are accessible for withdrawal in an emergency (though I am not advocating you withdraw). Also, you and spouse will start the 5-year clock if these are you first Roth IRA accounts.
I just started maxing my 401K out (which I believe is $24,000 per year because of my age)
$26,000 is your limit for 2020 - $19,500 limit for employee deferral and $6,500 for catch-up contributions for participants age 50+.
Last edited by HomeStretch on Sat Oct 24, 2020 8:37 am, edited 1 time in total.
toocold
Posts: 167
Joined: Sun Jul 23, 2017 9:17 am

Re: Need Advice

Post by toocold »

I'm conservative, so I would reduce 401k contributions to match and save up to pay for your house upgrades. I think getting a loan would not be wise, in case you lose your job. Exactly how big of a risk depends on your spend rate.
dandinsac
Posts: 209
Joined: Sat Jul 30, 2016 8:34 am

Re: Need Advice

Post by dandinsac »

Work with your contractor to determine which projects should be done together, how long they will take, and which order is best to do them in. This will give you a rough “cash requirement” by month. To fund this work, I recommend that you lower your 401K contributions to only get the match, continue to maximize the HSA, and use the rest for the projects. You will get enjoyment from the improvements.

If you believe you have a stable job, then I would start the projects sooner. Use a home equity line of credit to fund the projects where you don’t have savings. I did this with a kitchen renovation and paid about $500 in interest over the 6 months while it was being done. To get started, there wasn’t a lot of cost at first, so I paid this with savings. When the project was getting close to completion, I used the HELOC, which I then paid off over the following 6 months.

Good luck!
Topic Author
BalancedJCB19
Posts: 213
Joined: Sat Jul 13, 2019 11:30 am

Re: Need Advice

Post by BalancedJCB19 »

Thanks everyone! You gave great advice, I just have to figure a few things out.
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Watty
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Joined: Wed Oct 10, 2007 3:55 pm

Re: Need Advice

Post by Watty »

BalancedJCB19 wrote: Sat Oct 24, 2020 7:44 am What would you folks do, if this was your decision to make.
I would get a home equity line of credit(HELOC) to use to pay for the remodeling. You will not need all the money at once so you can just draw on the line of credit as you need the money. Credit unions are often a good place to get a HELOC

It would be good to get it set up for a lot more than the $60K that you will need for the remodeling. An advantage of having a larger HELOC is that you may have a few years when you will need to manage your income to keep it low enough to get an Affordable Care Act subsidy until you can both get on Medicare.

My situation is a lot different but when I bought my current house we knew that the kitchen needed to be remodeled and budgeted for that and had funds set aside for that. We procrastinated and did not actually do the kitchen remodel for about five years and when we finally did we really kicked yourself for not doing it sooner so we could enjoy it sooner.

You have a contractor you are happy with which is a very important so if I was in your situation I would go on get a loan to do the remodeling now.
BalancedJCB19 wrote: Sat Oct 24, 2020 7:44 am If I lessen my 401K enough to get the match...
If you do this then also look at your tax brackets. I would suspect that you are near the borderline of 12% and 22% federal tax bracket so it would be good to contribute enough to the 401k to just barely get down to the 12% federal tax bracket.

You seem to have ample funds in your 401k and IRA so it would look reasonable to me to cut back on your 401k contributions as long as you still get all of the employer match and you don't get into the 22% federal tax bracket.

Somewhere in your plans if you ever have the chance to make Roth contributions in the 12% federal tax bracket then then that would likely be a good choice too.
Topic Author
BalancedJCB19
Posts: 213
Joined: Sat Jul 13, 2019 11:30 am

Re: Need Advice

Post by BalancedJCB19 »

Great reply Watty. I appreciate your input. Your's and the other great replies gave me a lot to ponder.
Topic Author
BalancedJCB19
Posts: 213
Joined: Sat Jul 13, 2019 11:30 am

Re: Need Advice

Post by BalancedJCB19 »

Update, thought long and hard and I decided to lessen my 401k just a bit and save up for the repairs. I can't let my guilt about not making my wife happy derail what I worked so hard for all these years. A house is just a house and we will get there.

Thanks again!
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