What's my next move? Clearly a novice at investing.

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me112964
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Joined: Wed Jan 13, 2016 11:12 am

What's my next move? Clearly a novice at investing.

Post by me112964 » Tue Oct 03, 2017 2:55 am

Age 53, wife age 51
Income of 380000$ pre tax
Mortgages #1 primary residence $220000 at 2.875, currently paying $5000.00/mo
Mortgage #2 vacation home $170000 at 3.125% currently paying $6000.00/mo
No credit card debt
Two kids in college, education already covered
Savings of $500,000 after recent lump sum non qualified deferment payout of $350000 from job change (after taxes)
401 k maxed out with $800,000 currently

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CyclingDuo
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Re: What's my next move? Clearly a novice at investing.

Post by CyclingDuo » Tue Oct 03, 2017 7:16 am

me112964 wrote:
Tue Oct 03, 2017 2:55 am
Age 53, wife age 51
Income of 380000$ pre tax
Mortgages #1 primary residence $220000 at 2.875, currently paying $5000.00/mo
Mortgage #2 vacation home $170000 at 3.125% currently paying $6000.00/mo
No credit card debt
Two kids in college, education already covered
Savings of $500,000 after recent lump sum non qualified deferment payout of $350000 from job change (after taxes)
401 k maxed out with $800,000 currently
We wouldn't say you are a "novice" being that you have $800K built up in your 401K, plus your children's education has been funded, you have real estate, and you have savings of $500K. Throw in your annual salary, and you should be able to continue to build your wealth quite easily.

What questions do you have? You only asked in the thread title "What's my next move?' which we are assuming has several sub-questions attached.

Are you a dual income household? Are both of you maxing out your pre-tax contributions? What about HSA? Have you thought about additional tax deferred options? What about taxable account investing? What's left over after all expenses from the monthly income to be able to invest/save? What's your asset allocation in the 401K?

Typical format suggested for making your post with questions would be here:

viewtopic.php?f=1&t=6212

me112964
Posts: 42
Joined: Wed Jan 13, 2016 11:12 am

Re: What's my next move? Clearly a novice at investing.

Post by me112964 » Tue Oct 03, 2017 7:40 am

Dual income family, my income at 260000, wife at 120000.
Looking to invest the savings toward retirement at age 60
Not sure what investments I should be looking at. Goal is 2.5 million in retirement/investment accounts trying to minimze tax burden. Would like a retirement income between 120-130,000

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CyclingDuo
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Re: What's my next move? Clearly a novice at investing.

Post by CyclingDuo » Tue Oct 03, 2017 8:46 am

me112964 wrote:
Tue Oct 03, 2017 7:40 am
Dual income family, my income at 260000, wife at 120000.
Looking to invest the savings toward retirement at age 60
Not sure what investments I should be looking at. Goal is 2.5 million in retirement/investment accounts trying to minimze tax burden. Would like a retirement income between 120-130,000
The format - typically here at BH - would be for you to break out the current investments you already have in the 401K before anyone can provide any guidance, suggestions, opinions.

Here's the link again that Laura set up:

viewtopic.php?f=1&t=6212

Other things would include information on your stated goal of retirement income between $120-130K in terms of the make up of that figure. Does that include any pension income from you or your wife? Assuming it includes SS for both of you.

Either way, your current liquid assets (401K and Savings) total $1.3M. It's going to have to double in 7 years to make your goal of $2.5 M by age 60. A good chunk of that will come from contributions over the next 7 years. If you both max out your 401K's at $24K each for contributions, that's $48K a year. What percentage match do your employers provide? Most here would suggest at least saving 25% - if not more to reach your goals in 7 years. With the kids out of the house and college paid for, it's a good time to switch to stealth super-saver mode to reach those goals just 7 years away.

Your current Asset Allocation is unknown at this point by all of us viewing since you have not filled out your 401K information. Are you at an allocation of 70/30; 60/40; 50/50 currently between bonds and stocks? Will the vacation home remain in your ownership? Any thoughts on producing income by renting it out when you are not using it?

Have you read the "Getting Started" page?

https://www.bogleheads.org/wiki/Getting_started

How about the Wiki page links?

https://www.bogleheads.org/wiki/Main_Page

https://www.bogleheads.org/wiki/Getting_started

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ruralavalon
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Location: Illinois

Re: What's my next move? Clearly a novice at investing.

Post by ruralavalon » Tue Oct 03, 2017 11:20 am

me112964 wrote:
Tue Oct 03, 2017 2:55 am
Age 53, wife age 51
Income of 380000$ pre tax
Mortgages #1 primary residence $220000 at 2.875, currently paying $5000.00/mo
Mortgage #2 vacation home $170000 at 3.125% currently paying $6000.00/mo
No credit card debt
Two kids in college, education already covered
Savings of $500,000 after recent lump sum non qualified deferment payout of $350000 from job change (after taxes)
401 k maxed out with $800,000 currently
me112964 wrote:
Tue Oct 03, 2017 7:40 am
Dual income family, my income at 260000, wife at 120000.
Looking to invest the savings toward retirement at age 60
Not sure what investments I should be looking at. Goal is 2.5 million in retirement/investment accounts trying to minimze tax burden. Would like a retirement income between 120-130,000
Please post additional details in this format "Asking portfolio questions". Also are either or both of you eligible for a significant pension, and does your 401k allow Roth contributions? Please simply add all of this to your original post using the edit button, it helps a lot if all of your information is in one place.

The first moves are to (1) consider an appropriate asset allocation, (2) make sure that you are both making use of tax-advantaged accounts, and (3) see that both of you are using the most diversified lowest expense funds available in those accounts. Further steps would include (4) using very tax-efficient stock index funds in a joint taxable account.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

SimplicityNow
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Joined: Fri Aug 05, 2016 10:31 am

Re: What's my next move? Clearly a novice at investing.

Post by SimplicityNow » Tue Oct 03, 2017 1:38 pm

I don't think a 125k/yr spend is sustainable on 2.5M . That is a 5% withdrawal for a period of potentially 30+ years. Many use 4% as a max and some of the studies on earlyretirementnow.com dispute a number that high.

As stated we need more information.

delamer
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Joined: Tue Feb 08, 2011 6:13 pm

Re: What's my next move? Clearly a novice at investing.

Post by delamer » Tue Oct 03, 2017 1:50 pm

SimplicityNow wrote:
Tue Oct 03, 2017 1:38 pm
I don't think a 125k/yr spend is sustainable on 2.5M . That is a 5% withdrawal for a period of potentially 30+ years. Many use 4% as a max and some of the studies on earlyretirementnow.com dispute a number that high.

As stated we need more information.

But the OP and his wife will have substantial Social Security benefits, so the whole $125,000 does not need to come from investments. EDIT: The SS will not be available at 60, so that does need to be reflected in his plan.

However, there is a difference between having $125,000 in income and having $125,000 to spend after taxes. So the OP needs to be clear on what his goal really is.

OP - you should consider reading the Boglehead books on investing and retirement noted here: https://www.bogleheads.org/RecommendedReading.php

SimplicityNow
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Joined: Fri Aug 05, 2016 10:31 am

Re: What's my next move? Clearly a novice at investing.

Post by SimplicityNow » Tue Oct 03, 2017 3:50 pm

delamer wrote:
Tue Oct 03, 2017 1:50 pm
SimplicityNow wrote:
Tue Oct 03, 2017 1:38 pm
I don't think a 125k/yr spend is sustainable on 2.5M . That is a 5% withdrawal for a period of potentially 30+ years. Many use 4% as a max and some of the studies on earlyretirementnow.com dispute a number that high.

As stated we need more information.

But the OP and his wife will have substantial Social Security benefits, so the whole $125,000 does not need to come from investments. EDIT: The SS will not be available at 60, so that does need to be reflected in his plan. Perhaps. From his information we don't even know if they have jobs that they contributed to social security.

However, there is a difference between having $125,000 in income and having $125,000 to spend after taxes. So the OP needs to be clear on what his goal really is. Agreed

OP - you should consider reading the Boglehead books on investing and retirement noted here: https://www.bogleheads.org/RecommendedReading.php And a book or two on asset allocation.

delamer
Posts: 2939
Joined: Tue Feb 08, 2011 6:13 pm

Re: What's my next move? Clearly a novice at investing.

Post by delamer » Tue Oct 03, 2017 5:50 pm

SimplicityNow wrote:
Tue Oct 03, 2017 3:50 pm
delamer wrote:
Tue Oct 03, 2017 1:50 pm
SimplicityNow wrote:
Tue Oct 03, 2017 1:38 pm
I don't think a 125k/yr spend is sustainable on 2.5M . That is a 5% withdrawal for a period of potentially 30+ years. Many use 4% as a max and some of the studies on earlyretirementnow.com dispute a number that high.

As stated we need more information.

But the OP and his wife will have substantial Social Security benefits, so the whole $125,000 does not need to come from investments. EDIT: The SS will not be available at 60, so that does need to be reflected in his plan. Perhaps. From his information we don't even know if they have jobs that they contributed to social security.

However, there is a difference between having $125,000 in income and having $125,000 to spend after taxes. So the OP needs to be clear on what his goal really is. Agreed

OP - you should consider reading the Boglehead books on investing and retirement noted here: https://www.bogleheads.org/RecommendedReading.php And a book or two on asset allocation.

From OP's reply:

"Dual income family, my income at 260000, wife at 120000."

me112964
Posts: 42
Joined: Wed Jan 13, 2016 11:12 am

Re: What's my next move? Clearly a novice at investing.

Post by me112964 » Wed Oct 04, 2017 12:02 pm

No pension, anticipate 4700/month in SS, small annuity of 800$/mo. I gues my question is what to do with the savings. Can't decide between mortgage payoff/taxable investment/treasury bond or any combination.

Have 80/20 401k with 80% in vanguard index funds, varied.

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CyclingDuo
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Re: What's my next move? Clearly a novice at investing.

Post by CyclingDuo » Wed Oct 04, 2017 1:22 pm

me112964 wrote:
Wed Oct 04, 2017 12:02 pm
No pension, anticipate 4700/month in SS, small annuity of 800$/mo. I gues my question is what to do with the savings. Can't decide between mortgage payoff/taxable investment/treasury bond or any combination.

Have 80/20 401k with 80% in vanguard index funds, varied.
So you will have $66,000 (before taxes) coming in via the SS and the Annuity. At what age(s) were you planning on taking SS? The stated income goal of $120,000 - $130,000 per year (you still have not mentioned if that need is the before taxes, or after taxes amount).

Going with what you stated, you'll need to draw down $54,000 - $64,000 annually to fill in the income gap from your retirement savings once the full SS is in swing. Currently, that saved amount is $1.3M and the draw down would begin in 7 years. Since you won't be able to take SS until later, you have some "gap years" to account for where the draw down from your 401K and savings will be higher than the $54-64K.

Suffice it to say, that the $500K you have sitting in savings at the moment is going to have to be put to work at some point in order for you to reach your goals. You probably won't get a large cheerleading section here to pay off the two mortgages right now based on the interest rates you have on those loans and the tax breaks they provide vs. the dismal interest rates available in treasuries right now. It's not an easy call in terms of investing the money out right compared to paying off one of the mortgages with the unknown of returns going forward. But certainly worth considering on the vacation home since it has the lower loan amount remaining, the highest interest rate of the two, and the highest monthly payment of the two. Based on your salary, 35% of your current income is going to the two mortgage payments. We would be afraid of lifestyle creep on anything over 28% going to housing, and feel that if you at least paid off the vacation home mortgage you would drop down to a more realistic percentage of income going to housing expense. With that change, you could put more money to work for the key metric that you need to retire - liquid assets for retirement.

If you did service at least the one of the loans, then, a combination Asset Allocation of Stocks/Bonds for the remainder of the savings that needs to be put to work seems to make prudent sense. One that you can continue to contribute to on a regular basis with the cash flow that used to go to the mortgage as well as boosting your savings to build your investment account to support you in retirement. Taxable account investing means you want the most tax efficient investments, so the TSM and Total International Index funds would work well as would Muni Bonds (Vanguard has a Muni Bond Fund - as do others). You most likely - with your time horizon only 7 years away - would want to adjust the 80/20 AA in your 401K to increase the bond portion as that is a pretty aggressive AA in your 50's and with such a short time frame.

If it were us and in your position and salary, with $1.3M currently saved, and a target of 7 years until retirement, needing to fill gap years before taking SS - we would be trying to sock away $100K+ every year between now and then in hopes of reaching a goal of having enough assets to be able to afford to retire in 7 years. Or we would sell one of the homes. Or we would do all of that and if the goal was not met, just work longer.

Lots of ways to get there in terms of the "combination" you are thinking about, but increasing the liquid assets you will have at your disposal when you hit age 60 is going to be the key metric to get you there. I wouldn't bank on the investments doubling or more between now and then, but I would bank on your human capital and ability to rake in the income, cut back on expenses and super save between now and then.

Can you save $100K-$130K a year from now until then?

delamer
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Joined: Tue Feb 08, 2011 6:13 pm

Re: What's my next move? Clearly a novice at investing.

Post by delamer » Wed Oct 04, 2017 1:51 pm

When will the mortgages be paid off using your current payments, which I assume include extra principal? What about if you revert to the minimum payment?

As far as your $2.5 million savings goal, when are you planning on taking Social Security? Depending on that, you'll have anywhere from 2 to 8 years with no SS and another 4 to 12 with only partial SS (since your wife is younger).

Whatever the case you'll need a lump sum to cover your expenses until you have all your SS. Then the balance of your savings will need to cover roughly $60,000/year at a 4% withdrawal rate (or about $1.5 million).

How much are you able to put toward savings/mortgage principal each month? I wouldn't sacrifice savings to paydown the mortgage on your principal home, given the low rate.

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ruralavalon
Posts: 11350
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Location: Illinois

Re: What's my next move? Clearly a novice at investing.

Post by ruralavalon » Wed Oct 04, 2017 1:59 pm

me112964 wrote:
Tue Oct 03, 2017 2:55 am
Age 53, wife age 51
Income of 380000$ pre tax
Mortgages #1 primary residence $220000 at 2.875, currently paying $5000.00/mo
Mortgage #2 vacation home $170000 at 3.125% currently paying $6000.00/mo
No credit card debt
Two kids in college, education already covered
Savings of $500,000 after recent lump sum non qualified deferment payout of $350000 from job change (after taxes)
401 k maxed out with $800,000 currently
me112964 wrote:
Tue Oct 03, 2017 7:40 am
Dual income family, my income at 260000, wife at 120000.
Looking to invest the savings toward retirement at age 60
Not sure what investments I should be looking at. Goal is 2.5 million in retirement/investment accounts trying to minimze tax burden. Would like a retirement income between 120-130,000
me112964 wrote:
Wed Oct 04, 2017 12:02 pm
No pension, anticipate 4700/month in SS, small annuity of 800$/mo. I gues my question is what to do with the savings. Can't decide between mortgage payoff/taxable investment/treasury bond or any combination.

Have 80/20 401k with 80% in vanguard index funds, varied.
I think it's wise to be debt free by the time of retirement.

Will your standard mortgage payments pay off both mortgages by age 60?

If not put enough on the mortgages to assure pay off by your retirement date at age 60.

If so (given the interest rates at 2.875% and 3.125% on the mortgage notes) I suggest the next move could be taxable investing in very tax-efficient stock index funds.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

aristotelian
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Re: What's my next move? Clearly a novice at investing.

Post by aristotelian » Wed Oct 04, 2017 2:59 pm

In your tax bracket, the most impactful thing you can do is take full advantage of available retirement accounts. Any chance of a second 401k? If one of you is self employed you could double your pretax savings with a Solo 401k. Backdoor Roth would seem to be a no brainier.

me112964
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Re: What's my next move? Clearly a novice at investing.

Post by me112964 » Wed Oct 04, 2017 6:24 pm

Thanks all, Great advice.

We plan on taking SS at 66 for her 70 for me. Thought is that we maximize my SS payment as I will likely meet the 35 year of max contirbution.

Plan to cover gap years with saving and sale of one home. (And part time work which can generate 100,000$

Home with 3.125 mortgage will be paid in 29 months. Home with 2.875 done in 48 mos.

Missing piece is a 300,000 business property the we pay rent to our LLC which can also be sold for gap years or used as a rental property at 25-30,000$ /yr.

Looking for what to do with the savings account. We can likely contribute another 4000 monthly from income. Besides what we pay for mortgages, we live modestly, two inexpensive cars looking to put >150000 miles on each, no real "toys" travel very cheaply and don't eat out much.

me112964
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Joined: Wed Jan 13, 2016 11:12 am

Re: What's my next move? Clearly a novice at investing.

Post by me112964 » Wed Oct 04, 2017 6:26 pm

Oh, and the 120000-130000 is before taxes

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roymeo
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Re: What's my next move? Clearly a novice at investing.

Post by roymeo » Wed Oct 04, 2017 6:56 pm

Assuming you don't otherwise change your mind about the rate you're paying your mortgages (and I have no opinion on that):
Wouldn't it make more sense to push the extra mortgage payments onto the highest rate loan so it gets paid off sooner?
Once that's gone you can shift to the lower primary residence one. PLUS that way once the first is paid off you have less of a monthly obligation should some sort of emergency strike.
The sewer system is a form of welfare state. | -- "Libra", Don DeLillo

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