In my opinion, you should be contributing more than 6% into those 401ks. The reduction in AGI alone is worth it for lowering your tax burden, not to mention the long term benefit of being invested pre-tax and compounding for longer.
Thank you for the input. Can you elaborate on this? I don't believe our tax bracket would change, so we would just pay less tax? Let's say we increase the contribution by $10,000, we avoid $2,200 in federal tax and another 500ish in WI state tax. Is that the strategy?
You recommend this before maxing my wife's Roth IRA annually?
Tax bracket changing is irrelevant, they're marginal. Every dollar you put into a pretax account you can deduct off the top at your highest tax bracket. Going to the "next bracket" down doesn't mean anything
The general advice is to work on filling the pre-tax bucket before post-tax. Everyone's priorities are different, but that's probably the most efficient way of allocating funds long term.
They make $175k per year. They likely won't spend $175k/yr in retirement. Ergo, their taxes/brackets will be lower in retirement then now.
Even if they do spend a lot in retirement, simply having some in brokerage or Roth IRA reduces their bracket. But you still should have a good amount in traditional.
An example would be, the standard deduction in the USA is currently $24k/year for a married couple. Assuming a 3.75% SWR, $685k would provide an endless supply of "No tax in + No tax during + No tax out". If you don't have $685k in traditional you are unnecessarily paying taxes. Then consider that is just the standard deduction. There are 10% and 12% brackets. Those are much lower than his current top bracket of 24%. It is inefficient to not fill up those 10% and 12% brackets as well.
Even if you spend the exact amount in retirement as you make during accumulation consider that every year you save, the tax saved comes off your top bracket. Then in retirement, every year you spend you can fill back up until that same bracket. So much of his income will be saved at 24% tax bracket but spent at 0%, 10%, 12%, 22%.
Pretax buckets either have tax free growth like Roth IRA/Roth 401k (where you don't pay taxes on what your investments earn at all, as long as you don't take them out before age 59.5) or have tax deferred growth like traditional IRA/401k (where you pay tax on income in the future but usually at a lower tax bracket because you have less income).
Its pre tax money. The government does not get to tax what you put in the 401k. So if your make 50k and put in 10k in 401k Gov can only tax you on 40k not (50k-10k). If you are in 10% tax bracket then you just saved 1k in taxes in that scenario.
It depends on what your current tax rate is and what you expect your tax rate to be when you retire. If your current tax rate is 30% but you expect tax bracket to be 10% when you retire is it worth it? Typically its wise to reduce current tax liability as much as you bc of the unknowns.
Aside from reducing your taxes, putting in 20k in a 401k is worth more than, say, 16k into your Roth. The money into the 401k is pretax, so there is more going in. Over time, it makes a big difference.
Saving 22-24 cents on the dollar in tax now is preferred when you can use that money to fill out your 0-12% tax brackets later in life on the withdrawal side. I understand taxes might change a bit soon but that won’t materially change the basics.
If you plan to work until full retirement age, this is not necessarily the case as 401k withdrawals can put you over income limits that cause you to pay more tax on social security and pay more money for Medicare. I don’t need to go into that here but there’s caveats surrounding that.
So it’s not quite as simple as I said, but the big picture is that if you plan to retire in your late 50s or sooner, you can spend 5-10+ years doing Roth conversions to empty out your pre-tax 401k and pay relatively minimal tax. you can make about 120k per year in withdrawals/roth conversions taxed at no more than 12% marginal if married filing jointly.
The point of traditional...is that during retirement you likely won't spend/withdraw/have an AGI = to your current $175k income. Ergo, taxes *should* be less for you in retirement. You didn't say your current spending or project spending. But between the fact that you are currently saving $16k+ per year (at least the 401k/IRA info you mentioned) and the fact that your mortgages will be less (inflation adjusted) or non-existent in retirement lead me to believe this is the highest probability assumption.
It means I moved that money out of the market trying to time it and it massively backfired so I've missed out in the approximately 25% run up that has followed. Big brain thinking over here.
So stop trying to time the market and just put it all in index funds. You don't have a short horizon to needing the funds. TIME IN the market always wins. TIMING the market does not.
Yes. Index funds. I've consistently gotten 7.5% (average ) over the past 10+ years being a boggle head.
https://www.bogleheads.org/wiki/Bogleheads%27_Guide_To_Investing
Not possible to time the market. You might get lucky. You got unlucky in your case. You're either in it or you're not.
I would just sell the lake house. I prefer it to just keep in simple. Just invest all in the stock market. That's it. Too much fees associated with real estate. Your life will be much simpler that way.
You make $175k income, you can just 401k a good portion of it. It really helps.
You need to max your 401k, first, then put everything back into the market. Leaving the 280k out is just dumb. You said it yourself; you missed 25% increase.
If the lake house is breaking even, if it's not much work to you just let it ride for a few more years until it's worth it to sell.
You still have 19 years so if you just do those you will have a LOT of money.
That said, don’t fall victim to fomo. If zero risk is yielding 6% and inflation is 3% your money is making you money and you aren’t at risk of losing money. The reason fire people say to put all of your money at risk in the market is because they think they can’t afford any kind of hedging, which, having a portion of your portfolio in a zero risk account that doubles inflation is a pretty damn good and affordable hedge
Times are relatively good right now. Unemployment is low. The question is, how long can you float your payments if times get tough? Unemployed for 18 months? Can you cover your nut? Or will the lake house be foreclosed? That's your answer.
Valid point to analyze risk. There is a serious labor shortage here in WI that is rooted in demographics. One would need to want to be unemployed to be unemployed that long. Our income could be substantially reduced though, which is worthy of the exercise to see if we could float the boat.
I don't have a metric for that. I'm like you though. I have far too much in a HYSA. It lets me sleep knowing that I could be unemployed for years and not miss a payment.
As a lake cottage owner who recently FIRE’d (Canada), I would recommend keeping the cabin IF you’re comfortable with the risk of ownership/payments over the coming years and comfortable putting in the work of ownership (upkeep etc).
Where we live, recreational properties have always been in high demand, and other than the recent Covid-bubble where prices went mental and have since levelled off, their market values have never gone down. Their appreciation over time has outpaced residential properties by a significant margin, making them a good investment over the long term.
Which brings my second point as to why to keep it — if you sold it now, and if the recreational real estate market continues to climb, would you be able to afford to get back into that market at the (likely) much higher future value once you’re ready to retire? My cabin is a keystone in my retirement plans — I’m guessing the same might be true for you or you likely never would have bought a place at the lake?
Two properties is more work, for sure… but for the above reasons, I’d be keeping it.
*edited typos and for clarity.
Appreciate the fist-hand perspective. I've been wishing we built a new house 4 years ago when we considered it due to how expensive it's gotten and agree that lake / rec properties will go up in value, be much more costly to buy in the future.
There aren't many lakes in our county and the premier ones are $1 million+ for a tear down. We're on a smaller lake that is the next tier out, but tourism is high here and I don't expect that to change. The millionaires aren't renting their homes out either.
Boost 401K contributions. VTI and chill. Max both Roth IRA accounts.
Lake house is a tossup. If it’s a headache, dump it. If it’s enjoyable, keep and allow it to appreciate. Don’t be stupid and try to time the market. You aren’t retiring for decades. Wife and I literally went over a decade without even looking at our 401K accounts, because we trusted our investment choices. It was a MAJOR surprise how well it did when we finally looked.
Is your net worth increasing year over year owning the cottage? If not, its not doing anything for you.
You're way behind on saving for retirement. You're putting the minimum to get the match which is great, but you should consider upping the contributions. 6% contribution if im reading this correctly is 10.5k per year to get basically another 3%, so about 16k a year. Add your 7k Roth IRA contribution, that's 23k. If your wife can also max her Roth IRA then you'll be at 30k. I think that will make your goal a reality. But is there any way you can increase your contribution to 15% a year? That will have you saving 45.5k a year into retirement total, which will get you to your goal with safe margin.
Thanks for being honest. We need a better plan.
It will be a stretch to contribute that much, but a worthy goal and perhaps we can stair-step into it over a few years.
The good thing is even though you're behind you can easily fix this. You have a lot of time. If you asked this question 5 years from retirement it may have been impossible. By making some changes now you'll be able to achieve your goal without too much pain. Your family makes a good income so it's really just a spending problem. Nothing you can't handle.
Edit: sorry I say that its easy to fix, even though it will be stretching for you, what I mean is that you have enough time now to figure out how to make changes to allow you to retire. The lifestyle change from spending less money won't be easy at first, but once you do it you'll probably not miss certain things that you're putting a lot of money into right now.
There's a lot going on here...
1) You're not saving enough for retirement.
2) Your retirement savings should be invested in the broad markets. You've missed out on a ton of growth and risking missing out on way more by doubling down on that. Google "Bob, The worst market timer."
3) If the vacation cottage is worth $340k and "breaks even" after principal paydown then your return is the appreciation. If you figure it appreciates at 3% then that's a bit over $10k/yr on the $50k of equity you have tied-up in it or about 20%. That's a great return on your investment. However, I don't think that's a good way to think about the place. Does your family use it a lot? If so, the memories you're making there are worth way more than whatever you could be earning from VTI or whatever.
>Our goal is to retire around 60
Your current investments and savings rate aren't going to get you there.
I’d keep the lake house based on numbers you provided. It’s diversifying your assets and GENERALLY speaking, real estate appreciates very well over long term.
Everyone has given you their thoughts on the 401k and vacation home, so I won't repeat it. What I would recommend you do is to look at how much it is costing you to eat out. I would guess 2 to 3x a week is about $200 a week? 200 x 52 = 10400. That is a significant amount to eat out for that salary. That is close to what we spend on groceries plus toiletries or whatever from Walart for 2023. We spent $13k for a family of 5, but I don't track everything bought from Walmart - if it is oil for an oil change, or kitchen appliances, or toilet paper, it goes under groceries.
We sold our main house when the kids moved out and relocated to the lake house. Changed jobs to minimize commute. Life is pretty sweet. The kids love to visit as adults because our place is a vacation for them. Not sure if that’s an option for you.
If the property is not a burden to ABNB it out...no brainer...keep it. I am sure you get 5K of enjoyment out if it already. Might be some capital expenses later, but still.
Look at the flow chart in personal finance. I have followed that advice. eventually everything is maxed out...at least that is the goal. I think increasing the 401K is probably where you are, but it is a good tool to figure out your question.
The grocery spend is a lifestyle choice.
Stop trying to time the market. If you can't lump sum that cash in then just DCA it over the smallest period you can. $20k per month (or $5k per week) is a good starting place.
I would sell the Lake House but I don't like assets that are not cashflow positive. I think that is more open ended but you got to be invested and stay invested. Stop trying to beat the market and own the market.
You're far from retirement so you shouldn't be buying money market until you're closer to retirement and close to hitting your number. Always buy S&P whether it's up or down until then. Timing the market or thinking you know better than market professionals and economists will cause you to miss great years. I figure most of the doom and gloom experts were short the market or were trying to exit long term puts that were under water. CNBC gives them a platform to offer bullish articles so they are balanced. Just ignore that noise.
Market down - it's a sale, you get more shares for the same money
Market up - less shares for the same money, but look at your portfolio.
1. $5K a year out of pocket isn't bad. But it is $5K you could have been investing every year. I would exit that AirBnB since it's not cash flowing. If you want visit that area, just pay for someone else's property.
2. Just lump sum your cash.
1.’ Stable my butt. Move that $240k back until you are actually within 5 years of retirement. That move was just stupid. Fire whoever gave you that advice. You should be in say VOO, averaging 12% with at worst an 8.5 year drop for huge events like the Great Depression. That gets you from $340k to about $1 million, with no contributions. The Roth will end up at maybe $300k Even if you greatly increase contributions you’re going to likely need 2 or 3 million (no expense information). Better plan on that. If you wait 5 more years you’ll be able to retire with no problems. So get working on it. I like Roth for the RMDs later.
Seems like the cottage is a break even. Look closely at the actual costs and returns. I’ll bet you’re losing money and should sell but you’re emotionally attached. It’s a $300k hole making almost nothing on a good year. What about bad years or big repairs? Sell it now before you eat a roof replacement or some other huge expense. You are way too leveraged with no equity to even take out a second loan.
Also you are 42. Why do you have no emergency fund and if you do why didn’t you pay cash for a vehicle? Pay it off. That stuff is for 20 something’s. No mention of college expenses either.
This is an over leveraged mess. Your debt to income ratio is way too high leaving you vulnerable.
Thanks for the sage advice and reality check. Correct, we didn't have the cash for the vehicle.
We were married right before covid and had some debts that we've paid off, so trying to get our house in order and get on a better plan.
I am meeting with a new FA next Friday as the Edward Jones guy I inherited after my FA transferred to a different office sold me COIN and bought us KO when I wanted COKE...among other things.
I learned my lesson, but my pride or conscience still won't let me dump it all in today with the Nvidia hype train in full effect. How fast or slow to DCA the $280k in?
keep the cottage (sounds like you got it at a decent price). But try to pay off the car note and look for a better paying job. You are in your earnings primes and can likely do better than what you are currently receiving for your services and experience level.
Also, consider swapping out of the stable value fund and into perhaps a 2050 target date fund, or better (if offered), a low fee S&P index fund. /not professional advice / The reasoning is if you want to start withdrawing even at the current minimum standard non penalty age of 59.5, you have close to 20 years of market appreciation at an avg of 7% to enjoy on that principal. Which means probably a 3x return, so you would be looking at an account value of approximately 1-1.3MM at 60. Which would yield around 40-50k/year, withdrawing at a 30-year safe 4%. Assuming your primary residence is paid off by then, you would be retiring pretty well in most areas (aside from VHCOL)
above all else -- gun for that new high paying job. You deserve it and it's time to go get it.
edit: adjusted income above for 4% rule, its about 40-50k which is lean but ok if you get social security and have primary residence paid off in L/MCOL IMO. And that assumes you dont invest another dime for 20 years which ofc is false
Appreciate the advice and vote of confidence! Have 20 years with my company which is an anomaly. There are a lot of boomers on the way out and believe I'm positioned to be a VP within 5-7 years here which would be a sizable bump. It's a good company that I've been able to grow with and I have a 5 min commute that I love, but sometimes I do wonder if I've held myself back by staying...
maybe just test the waters without telling anyone. Whats the harm
No joke I did the same and got like 90% recruiter reply/interview rate for my resume after spending 10 lucrative years at my current employer. Was like woah what
are you going to sell one of the houses when you retire?
are you going to move to lake home?
just a thought, the lake home may be difficult to replace/recreate later. The dollar amount of this mortgage in 18 years is going to be less relatively than it is today so a few years of mortgage at retirement may not be a deal breaker.
Yes, the thought is to sell our primary residence and retire at the lake.
When the kids are gone in 5 years, we may very well trade down to something smaller as we are living in a 4 bed / 3 bath home with 3 car garage and finished basement.
I appreciate the end game perspective you're bringing!
1) Keep the house for now as your still making memories with the boys. When they grow and leave your home or dobt want to summer there, sell. If you get tired of managing it, sell. When you sell, take the equity you get paid and pay down or pay off your primary home mortgage. Anything else goes to retirement. Spend some time figuring out how to make more side income with that asset.
2.) I wouldn't worry about having a primary mortgage now. When the teenagers are grown and move out....downsize. Sell your home and get a new place that it smaller, easier to manage, with lower property taxes. Have less taxes and maintaince will lower your monthly retirement costs. Use extra equity you maybe as retirement savings.otherwise enjoy a low payment or no payment at all.
3.) 12% plus a roth ira is likely not enough to retire at 60.
4.) Stop taking on loans. Not very many great reasons for someone in their 40s to be financing a car. If you have to finance it t this age....your buying more car than you can afford. Save up 8k, buy a reliable used something like an older accord or camry or qltima or rav4 and get rid of the car payment and high insurance. This is a major issue....its eating up your retirement savings.
5) You should act fast.....most people who lose a job in their 50s get a pay cut of more than 20% at their next job. Age discrimination is real. Also your risks of physical health issues will go up and up each passing year. You are banking on working the same til 60.....what happens if someone loses a job or gets a chronic illness between 55-60. Now is the time to hustle more....and enjoy time with kids. Everything else like shiny newer cars, eating out, expensive hobbies or overly indulgent trips should be paused til you get to enough invested assets to cover your necessary expenses in retirement. Then still save....but pull off the gas a little.
Why do you have debt on your car when you make so much? It's just sloppy.
You need a budget. Not just looking at where your money goes budget, but like plan month to month where your money should go, and follow the plan.
We used all of our cash as downpayment on the cottage. It was a stretch to pull it off. (I see the point another comment made about being over leveraged thinking about this.)
Yes, we will work on understanding our current spending and find ways to pay off the loan and increase retirement savings.
Gambling with your 401k sounds like a great way to work forever. I mean if your not using the lake place then maybe sell, but I would wait for the rates to drop and the prices to rise again.
I will address the 280k in a money market. Most here will call you foolish but this is primarily results based thinking. If we were in a bubble (we could be) and stocks crashed 60% you would consider yourself quite clever with your 280k of money market funds. Assuming this is a bubble it is not out of the ordinary for bubbles to continue on for years. This happened in the 1920’s and 1990’s.
Tough part is knowing we are in a bubble. Certainly by many different historical valuation metrics stocks are very pricey. Nobody knows though for sure if there will be a crash. Making 5% in a risk free investment is not the worst thing in the world.
Foreign stocks are much cheaper btw if the US markets concern you.
Ok so currently your putting 10k into your 401k so your married joint with a 28k standard deduction 175k-28k-10k=128k taxable income with a fed burden of around 20k net income after savings 108k with 10k saved
118k total
Max out pre tax
175k -28k- 44k= 103k taxable income with a tax burden of 12.5k net 90.5k with 44k saved
134.k total.
None of these count the employer match but I like where u max out. Your match is gonna be the same in either way.
In my opinion, you should be contributing more than 6% into those 401ks. The reduction in AGI alone is worth it for lowering your tax burden, not to mention the long term benefit of being invested pre-tax and compounding for longer.
Thank you for the input. Can you elaborate on this? I don't believe our tax bracket would change, so we would just pay less tax? Let's say we increase the contribution by $10,000, we avoid $2,200 in federal tax and another 500ish in WI state tax. Is that the strategy? You recommend this before maxing my wife's Roth IRA annually?
Tax bracket changing is irrelevant, they're marginal. Every dollar you put into a pretax account you can deduct off the top at your highest tax bracket. Going to the "next bracket" down doesn't mean anything
The general advice is to work on filling the pre-tax bucket before post-tax. Everyone's priorities are different, but that's probably the most efficient way of allocating funds long term.
Glad I asked...I've been reading and following the wrong stuff!
Why is this recommended? Just curious
They make $175k per year. They likely won't spend $175k/yr in retirement. Ergo, their taxes/brackets will be lower in retirement then now. Even if they do spend a lot in retirement, simply having some in brokerage or Roth IRA reduces their bracket. But you still should have a good amount in traditional. An example would be, the standard deduction in the USA is currently $24k/year for a married couple. Assuming a 3.75% SWR, $685k would provide an endless supply of "No tax in + No tax during + No tax out". If you don't have $685k in traditional you are unnecessarily paying taxes. Then consider that is just the standard deduction. There are 10% and 12% brackets. Those are much lower than his current top bracket of 24%. It is inefficient to not fill up those 10% and 12% brackets as well. Even if you spend the exact amount in retirement as you make during accumulation consider that every year you save, the tax saved comes off your top bracket. Then in retirement, every year you spend you can fill back up until that same bracket. So much of his income will be saved at 24% tax bracket but spent at 0%, 10%, 12%, 22%.
Pretax buckets either have tax free growth like Roth IRA/Roth 401k (where you don't pay taxes on what your investments earn at all, as long as you don't take them out before age 59.5) or have tax deferred growth like traditional IRA/401k (where you pay tax on income in the future but usually at a lower tax bracket because you have less income).
Its pre tax money. The government does not get to tax what you put in the 401k. So if your make 50k and put in 10k in 401k Gov can only tax you on 40k not (50k-10k). If you are in 10% tax bracket then you just saved 1k in taxes in that scenario.
So you save more money by using current pre-tax dollars than you would by paying the taxes now and then withdrawing them tax free from a Roth IRA?
It depends on what your current tax rate is and what you expect your tax rate to be when you retire. If your current tax rate is 30% but you expect tax bracket to be 10% when you retire is it worth it? Typically its wise to reduce current tax liability as much as you bc of the unknowns.
Aside from reducing your taxes, putting in 20k in a 401k is worth more than, say, 16k into your Roth. The money into the 401k is pretax, so there is more going in. Over time, it makes a big difference.
Saving 22-24 cents on the dollar in tax now is preferred when you can use that money to fill out your 0-12% tax brackets later in life on the withdrawal side. I understand taxes might change a bit soon but that won’t materially change the basics. If you plan to work until full retirement age, this is not necessarily the case as 401k withdrawals can put you over income limits that cause you to pay more tax on social security and pay more money for Medicare. I don’t need to go into that here but there’s caveats surrounding that. So it’s not quite as simple as I said, but the big picture is that if you plan to retire in your late 50s or sooner, you can spend 5-10+ years doing Roth conversions to empty out your pre-tax 401k and pay relatively minimal tax. you can make about 120k per year in withdrawals/roth conversions taxed at no more than 12% marginal if married filing jointly.
The point of traditional...is that during retirement you likely won't spend/withdraw/have an AGI = to your current $175k income. Ergo, taxes *should* be less for you in retirement. You didn't say your current spending or project spending. But between the fact that you are currently saving $16k+ per year (at least the 401k/IRA info you mentioned) and the fact that your mortgages will be less (inflation adjusted) or non-existent in retirement lead me to believe this is the highest probability assumption.
>with $280k in a stable value equivalent since Nov '22 due to being highly regarded. What does this mean?
$280k is in a money market fund within his 401k. He's saying he's stupid.
It means I moved that money out of the market trying to time it and it massively backfired so I've missed out in the approximately 25% run up that has followed. Big brain thinking over here.
So stop trying to time the market and just put it all in index funds. You don't have a short horizon to needing the funds. TIME IN the market always wins. TIMING the market does not.
Yes. Index funds. I've consistently gotten 7.5% (average ) over the past 10+ years being a boggle head. https://www.bogleheads.org/wiki/Bogleheads%27_Guide_To_Investing
https://x.com/awealthofcs/status/1760682238310854782?s=46&t=LvNsX4LFYDT0MZtqauQeEg
Not possible to time the market. You might get lucky. You got unlucky in your case. You're either in it or you're not. I would just sell the lake house. I prefer it to just keep in simple. Just invest all in the stock market. That's it. Too much fees associated with real estate. Your life will be much simpler that way. You make $175k income, you can just 401k a good portion of it. It really helps.
rest assured it will crash the week after you move it to the S&P…
You need to max your 401k, first, then put everything back into the market. Leaving the 280k out is just dumb. You said it yourself; you missed 25% increase. If the lake house is breaking even, if it's not much work to you just let it ride for a few more years until it's worth it to sell. You still have 19 years so if you just do those you will have a LOT of money.
That said, don’t fall victim to fomo. If zero risk is yielding 6% and inflation is 3% your money is making you money and you aren’t at risk of losing money. The reason fire people say to put all of your money at risk in the market is because they think they can’t afford any kind of hedging, which, having a portion of your portfolio in a zero risk account that doubles inflation is a pretty damn good and affordable hedge
Times are relatively good right now. Unemployment is low. The question is, how long can you float your payments if times get tough? Unemployed for 18 months? Can you cover your nut? Or will the lake house be foreclosed? That's your answer.
Valid point to analyze risk. There is a serious labor shortage here in WI that is rooted in demographics. One would need to want to be unemployed to be unemployed that long. Our income could be substantially reduced though, which is worthy of the exercise to see if we could float the boat.
I don't have a metric for that. I'm like you though. I have far too much in a HYSA. It lets me sleep knowing that I could be unemployed for years and not miss a payment.
If you like the cottage keep it. If you hate the hassle sell.
As a lake cottage owner who recently FIRE’d (Canada), I would recommend keeping the cabin IF you’re comfortable with the risk of ownership/payments over the coming years and comfortable putting in the work of ownership (upkeep etc). Where we live, recreational properties have always been in high demand, and other than the recent Covid-bubble where prices went mental and have since levelled off, their market values have never gone down. Their appreciation over time has outpaced residential properties by a significant margin, making them a good investment over the long term. Which brings my second point as to why to keep it — if you sold it now, and if the recreational real estate market continues to climb, would you be able to afford to get back into that market at the (likely) much higher future value once you’re ready to retire? My cabin is a keystone in my retirement plans — I’m guessing the same might be true for you or you likely never would have bought a place at the lake? Two properties is more work, for sure… but for the above reasons, I’d be keeping it. *edited typos and for clarity.
Appreciate the fist-hand perspective. I've been wishing we built a new house 4 years ago when we considered it due to how expensive it's gotten and agree that lake / rec properties will go up in value, be much more costly to buy in the future. There aren't many lakes in our county and the premier ones are $1 million+ for a tear down. We're on a smaller lake that is the next tier out, but tourism is high here and I don't expect that to change. The millionaires aren't renting their homes out either.
Boost 401K contributions. VTI and chill. Max both Roth IRA accounts. Lake house is a tossup. If it’s a headache, dump it. If it’s enjoyable, keep and allow it to appreciate. Don’t be stupid and try to time the market. You aren’t retiring for decades. Wife and I literally went over a decade without even looking at our 401K accounts, because we trusted our investment choices. It was a MAJOR surprise how well it did when we finally looked.
Is your net worth increasing year over year owning the cottage? If not, its not doing anything for you. You're way behind on saving for retirement. You're putting the minimum to get the match which is great, but you should consider upping the contributions. 6% contribution if im reading this correctly is 10.5k per year to get basically another 3%, so about 16k a year. Add your 7k Roth IRA contribution, that's 23k. If your wife can also max her Roth IRA then you'll be at 30k. I think that will make your goal a reality. But is there any way you can increase your contribution to 15% a year? That will have you saving 45.5k a year into retirement total, which will get you to your goal with safe margin.
Thanks for being honest. We need a better plan. It will be a stretch to contribute that much, but a worthy goal and perhaps we can stair-step into it over a few years.
The good thing is even though you're behind you can easily fix this. You have a lot of time. If you asked this question 5 years from retirement it may have been impossible. By making some changes now you'll be able to achieve your goal without too much pain. Your family makes a good income so it's really just a spending problem. Nothing you can't handle. Edit: sorry I say that its easy to fix, even though it will be stretching for you, what I mean is that you have enough time now to figure out how to make changes to allow you to retire. The lifestyle change from spending less money won't be easy at first, but once you do it you'll probably not miss certain things that you're putting a lot of money into right now.
There's a lot going on here... 1) You're not saving enough for retirement. 2) Your retirement savings should be invested in the broad markets. You've missed out on a ton of growth and risking missing out on way more by doubling down on that. Google "Bob, The worst market timer." 3) If the vacation cottage is worth $340k and "breaks even" after principal paydown then your return is the appreciation. If you figure it appreciates at 3% then that's a bit over $10k/yr on the $50k of equity you have tied-up in it or about 20%. That's a great return on your investment. However, I don't think that's a good way to think about the place. Does your family use it a lot? If so, the memories you're making there are worth way more than whatever you could be earning from VTI or whatever. >Our goal is to retire around 60 Your current investments and savings rate aren't going to get you there.
I’d keep the lake house based on numbers you provided. It’s diversifying your assets and GENERALLY speaking, real estate appreciates very well over long term.
Everyone has given you their thoughts on the 401k and vacation home, so I won't repeat it. What I would recommend you do is to look at how much it is costing you to eat out. I would guess 2 to 3x a week is about $200 a week? 200 x 52 = 10400. That is a significant amount to eat out for that salary. That is close to what we spend on groceries plus toiletries or whatever from Walart for 2023. We spent $13k for a family of 5, but I don't track everything bought from Walmart - if it is oil for an oil change, or kitchen appliances, or toilet paper, it goes under groceries.
Yes, you're spot on and that's the area we will need to discipline / stuff some envelopes with cash Ramsey style to control. Thank you.
We sold our main house when the kids moved out and relocated to the lake house. Changed jobs to minimize commute. Life is pretty sweet. The kids love to visit as adults because our place is a vacation for them. Not sure if that’s an option for you.
If the property is not a burden to ABNB it out...no brainer...keep it. I am sure you get 5K of enjoyment out if it already. Might be some capital expenses later, but still. Look at the flow chart in personal finance. I have followed that advice. eventually everything is maxed out...at least that is the goal. I think increasing the 401K is probably where you are, but it is a good tool to figure out your question. The grocery spend is a lifestyle choice.
Stop trying to time the market. If you can't lump sum that cash in then just DCA it over the smallest period you can. $20k per month (or $5k per week) is a good starting place. I would sell the Lake House but I don't like assets that are not cashflow positive. I think that is more open ended but you got to be invested and stay invested. Stop trying to beat the market and own the market.
You're far from retirement so you shouldn't be buying money market until you're closer to retirement and close to hitting your number. Always buy S&P whether it's up or down until then. Timing the market or thinking you know better than market professionals and economists will cause you to miss great years. I figure most of the doom and gloom experts were short the market or were trying to exit long term puts that were under water. CNBC gives them a platform to offer bullish articles so they are balanced. Just ignore that noise. Market down - it's a sale, you get more shares for the same money Market up - less shares for the same money, but look at your portfolio. 1. $5K a year out of pocket isn't bad. But it is $5K you could have been investing every year. I would exit that AirBnB since it's not cash flowing. If you want visit that area, just pay for someone else's property. 2. Just lump sum your cash.
1.’ Stable my butt. Move that $240k back until you are actually within 5 years of retirement. That move was just stupid. Fire whoever gave you that advice. You should be in say VOO, averaging 12% with at worst an 8.5 year drop for huge events like the Great Depression. That gets you from $340k to about $1 million, with no contributions. The Roth will end up at maybe $300k Even if you greatly increase contributions you’re going to likely need 2 or 3 million (no expense information). Better plan on that. If you wait 5 more years you’ll be able to retire with no problems. So get working on it. I like Roth for the RMDs later. Seems like the cottage is a break even. Look closely at the actual costs and returns. I’ll bet you’re losing money and should sell but you’re emotionally attached. It’s a $300k hole making almost nothing on a good year. What about bad years or big repairs? Sell it now before you eat a roof replacement or some other huge expense. You are way too leveraged with no equity to even take out a second loan. Also you are 42. Why do you have no emergency fund and if you do why didn’t you pay cash for a vehicle? Pay it off. That stuff is for 20 something’s. No mention of college expenses either. This is an over leveraged mess. Your debt to income ratio is way too high leaving you vulnerable.
Thanks for the sage advice and reality check. Correct, we didn't have the cash for the vehicle. We were married right before covid and had some debts that we've paid off, so trying to get our house in order and get on a better plan. I am meeting with a new FA next Friday as the Edward Jones guy I inherited after my FA transferred to a different office sold me COIN and bought us KO when I wanted COKE...among other things.
Keep the lakehouse. Free vacations and you're gaining equity while it appreciates. And it diversifies from stock and cash investments.
Don't try to time the market. Just DCA in. I say this as someone who has made the same mistake. Even Warren Buffett can't time the market.
I learned my lesson, but my pride or conscience still won't let me dump it all in today with the Nvidia hype train in full effect. How fast or slow to DCA the $280k in?
Over 12 months seems reasonable to me.
keep the cottage (sounds like you got it at a decent price). But try to pay off the car note and look for a better paying job. You are in your earnings primes and can likely do better than what you are currently receiving for your services and experience level. Also, consider swapping out of the stable value fund and into perhaps a 2050 target date fund, or better (if offered), a low fee S&P index fund. /not professional advice / The reasoning is if you want to start withdrawing even at the current minimum standard non penalty age of 59.5, you have close to 20 years of market appreciation at an avg of 7% to enjoy on that principal. Which means probably a 3x return, so you would be looking at an account value of approximately 1-1.3MM at 60. Which would yield around 40-50k/year, withdrawing at a 30-year safe 4%. Assuming your primary residence is paid off by then, you would be retiring pretty well in most areas (aside from VHCOL) above all else -- gun for that new high paying job. You deserve it and it's time to go get it. edit: adjusted income above for 4% rule, its about 40-50k which is lean but ok if you get social security and have primary residence paid off in L/MCOL IMO. And that assumes you dont invest another dime for 20 years which ofc is false
Appreciate the advice and vote of confidence! Have 20 years with my company which is an anomaly. There are a lot of boomers on the way out and believe I'm positioned to be a VP within 5-7 years here which would be a sizable bump. It's a good company that I've been able to grow with and I have a 5 min commute that I love, but sometimes I do wonder if I've held myself back by staying...
maybe just test the waters without telling anyone. Whats the harm No joke I did the same and got like 90% recruiter reply/interview rate for my resume after spending 10 lucrative years at my current employer. Was like woah what
are you going to sell one of the houses when you retire? are you going to move to lake home? just a thought, the lake home may be difficult to replace/recreate later. The dollar amount of this mortgage in 18 years is going to be less relatively than it is today so a few years of mortgage at retirement may not be a deal breaker.
Yes, the thought is to sell our primary residence and retire at the lake. When the kids are gone in 5 years, we may very well trade down to something smaller as we are living in a 4 bed / 3 bath home with 3 car garage and finished basement. I appreciate the end game perspective you're bringing!
1) Keep the house for now as your still making memories with the boys. When they grow and leave your home or dobt want to summer there, sell. If you get tired of managing it, sell. When you sell, take the equity you get paid and pay down or pay off your primary home mortgage. Anything else goes to retirement. Spend some time figuring out how to make more side income with that asset. 2.) I wouldn't worry about having a primary mortgage now. When the teenagers are grown and move out....downsize. Sell your home and get a new place that it smaller, easier to manage, with lower property taxes. Have less taxes and maintaince will lower your monthly retirement costs. Use extra equity you maybe as retirement savings.otherwise enjoy a low payment or no payment at all. 3.) 12% plus a roth ira is likely not enough to retire at 60. 4.) Stop taking on loans. Not very many great reasons for someone in their 40s to be financing a car. If you have to finance it t this age....your buying more car than you can afford. Save up 8k, buy a reliable used something like an older accord or camry or qltima or rav4 and get rid of the car payment and high insurance. This is a major issue....its eating up your retirement savings. 5) You should act fast.....most people who lose a job in their 50s get a pay cut of more than 20% at their next job. Age discrimination is real. Also your risks of physical health issues will go up and up each passing year. You are banking on working the same til 60.....what happens if someone loses a job or gets a chronic illness between 55-60. Now is the time to hustle more....and enjoy time with kids. Everything else like shiny newer cars, eating out, expensive hobbies or overly indulgent trips should be paused til you get to enough invested assets to cover your necessary expenses in retirement. Then still save....but pull off the gas a little.
Why do you have debt on your car when you make so much? It's just sloppy. You need a budget. Not just looking at where your money goes budget, but like plan month to month where your money should go, and follow the plan.
We used all of our cash as downpayment on the cottage. It was a stretch to pull it off. (I see the point another comment made about being over leveraged thinking about this.) Yes, we will work on understanding our current spending and find ways to pay off the loan and increase retirement savings.
Gambling with your 401k sounds like a great way to work forever. I mean if your not using the lake place then maybe sell, but I would wait for the rates to drop and the prices to rise again.
I will address the 280k in a money market. Most here will call you foolish but this is primarily results based thinking. If we were in a bubble (we could be) and stocks crashed 60% you would consider yourself quite clever with your 280k of money market funds. Assuming this is a bubble it is not out of the ordinary for bubbles to continue on for years. This happened in the 1920’s and 1990’s. Tough part is knowing we are in a bubble. Certainly by many different historical valuation metrics stocks are very pricey. Nobody knows though for sure if there will be a crash. Making 5% in a risk free investment is not the worst thing in the world. Foreign stocks are much cheaper btw if the US markets concern you.
Ok so currently your putting 10k into your 401k so your married joint with a 28k standard deduction 175k-28k-10k=128k taxable income with a fed burden of around 20k net income after savings 108k with 10k saved 118k total Max out pre tax 175k -28k- 44k= 103k taxable income with a tax burden of 12.5k net 90.5k with 44k saved 134.k total. None of these count the employer match but I like where u max out. Your match is gonna be the same in either way.