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Hello from Smalltown USA
Old 07-20-2017, 08:19 PM   #1
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Hello from Smalltown USA

Good evening! Been lurking for the past few months and have learned a great deal within the forums thanks to you all.

I am 32, married to my DW who is a SAHM to our 2 darling children. Would love to be done with w*rk by 45. Within the past 5 years I have gone from an annual salary just over $30k to $82k now. I strive to max out my 401k and IRA every year, my wife has no desire for a spousal IRA she would rather invest in a taxable account. One of the main things I am currently looking at is the ratio of savings vs paying off the mortgage and car debt. We still live in the same house we purchased when I made $30k a year, which is great because our property taxes are only $700 a year. However, 9 years ago it also came with a 5.5% interest rate . Currently, we owe just over $53k and it is valued at $62k and somewhere around 20 years left on the mortgage. I have looked at refinancing on a few occasions, however with such a small mortgage I haven't had much luck. My monthly house payment with taxes and insurance is $456 a month, which lets us travel and live like kings in rural town USA. We also have a car with $18k on the loan at 1.99%. Since the interest is low, I had no intentions of paying off early. No other debts.

As for assets, we currently have:
401k - $183,000 (60% large US equity, 25% international equity, 15% small/mid US equity)
traditional IRA - $19,000 VTSAX
taxable account - $11,000 VTSAX
Cash - $6,700
HSA - $2,000 money market fund
Kids 529 plans - $9000 combined

Does it make more sense to continue to plow money into investments, or should I be aggressively paying the mortgage off at the current rate, losing time in the market until the mortgage is wiped out? Thanks for listening
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Old 07-20-2017, 09:28 PM   #2
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I wasn't aware that loans under $100,000 and especially under $50,000 were hard to get (but my googling confirms it).

Hmmm, I'm not a big fan of pre-paying a mortgage in this low rate environment, but it does look like you are stuck with 5.5%. But that's not so awful on a fairly small amount, and you don't have the taxable money to just get rid of it either. And for someone with 2 kids and a home and reliant on one income, you don't have a lot of emergency fund money. I wouldn't pay it off until you have plenty of liquidity. Then take another look?

You should probably also check that you have a good amount of term life insurance, as the only bread-winner. If something were to happen, could your wife find good employment? Just some other things to consider.

-ERD50
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Old 07-20-2017, 11:04 PM   #3
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Drive that car till the wheels fall off, Live like kings later, live like prince's now, dont buy another new car till you have 1 million dollars. Stop funding the 529 fund till you have 6 months spending in the bank. Stay in that house for as long as you can. Keep us posted, your already knocking them dead, keep up the good work.
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Old 07-21-2017, 06:02 AM   #4
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Here's a thought. Bump up the mortgage payment to $500/month effectively creating additional principal reduction of about $500 per year. That alone will cut a few years off your years remaining to final payoff. Use a calculator to figure out just how many months. The additional $44/mo shouldn't affect your budget. I agree with BCG that you should have a larger emergency fund. I would shoot for 9 months.


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Old 07-21-2017, 06:21 AM   #5
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While it would be nice to have a lower interest rate on that mortgage, I can understand that it might be hard to refinance. I wonder if it might be more feasible to refinance to a 10 or 15 year mortgage? perhaps through a credit union?

In any event, over a 20 year period your stock investments should return more than 5.5% so I would stay the course if you can't refinance. Or another alternative might be to just start making payments that will extinguish the mortgage over a period of your choosing. For example, t's say that you decide that you want to be mortgage free in 13 years when you a 45. If your current balance is $53k and your interest rate is 5.5%, then your principal and interest payment would be $476.30 (before property taxes and insurance).... but I would keep the mortgage and put the difference in taxable investments... you can always later chose to liquidate the taxable investments and pay off the mortgage... or use the taxable investments for college, emergencies, etc.

To be done with work in 13 years at age 45 seems aggressive given where you are today unless your expenses are super-low... have you analyzed your plan using Quicken Lifetime Planner or Firecalc?
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Old 07-21-2017, 08:28 AM   #6
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On the house I would send an extra 456 twice a year to try and cut some interest off the front end. With your income and a family of four,very low property taxes and a small payment you can't be getting a tax advantage from the interest. I can't actually agree that your returns will be a solid 5.5 for the next 20 years.

How old are your kids? If you do manage to retire and your income goes down while they are college age.. there might be a lot of student aid available. If they have 529's that money will cut the assistance level.
Another comment from somebody rural, I see lots of houses like the one you live in and it's a given that they require more maintence and repairs as they age..another concern is that the area around these low prices homes can start to decline as your older neighbors don't put money in the homes, more are rented out and people just want bigger newer homes. It's quite possible to average 3-4000 K a year just trying to keep the house from falling apart.

You are doing well but I agree you need more cash for an emergency fund, a minimum of 6 months car and house payments and living expenses. A sad fact about these small towns is if you lose a good paying job it can be difficult or impossible to find another. Of couse I don't know what you mean by smalltown, our big town is around 20K and we have many rural towns of 750-1000 people.
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Old 07-21-2017, 06:15 PM   #7
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We live in a town of 1200 people. We are established here and don't plan to move, I could stay in my current residence until I die with the occasional updates. I appreciate the thoughtful responses, I really never thought of my emergency fund falling short but bumping it up to 24k (approx 6 mo expenses) is doable. Definitely would take some pressure off if anything were to happened to the furnace, a/c, etc.

I think I need to look into refinancing at a credit union, if that falls through, throwing a few extra payments twice a year sounds like a fine plan.

Retiring at 45 is definitely a stretch goal and may or may not happen, as my kids who are now 8 and 7 seem to keep getting more expensive as they play more sports and school activities. My wife does not necessarily bring in an income, however I am willing to work a few more years in order to keep her as a SAHM and homemaker, it makes my life so much easier between her involvement with kids activities and coming home to a clean house, clean clothes, and dinner on the table when I get home from work.

I'll be poking my head in here from time to time, and will keep everyone posted of my progress. Thanks guys!
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Old 07-22-2017, 04:31 AM   #8
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Quote:
Originally Posted by ERD50 View Post
You should probably also check that you have a good amount of term life insurance, as the only bread-winner. If something were to happen, could your wife find good employment? Just some other things to consider.

-ERD50
When looking at the term insurance, be sure to check the amount of SS survivor with dependents benefits wife would collect until kids are 18. Many people over insure because they leave this out. The benefit is quite generous.

Biggest problem is DW being in black out between youngest kid hitting 18 and her age 60. Of course, there would be many years for the retirement/taxable account money to grow. But still a concern if her skill set is not a high income generator in the work place.
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Old 07-22-2017, 04:38 AM   #9
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You know, you could semi-retire and do something PT at age 45-something you enjoy and gives you a flex schedule allowing travel, etc. Even a few hundred dollars a month will allow you to maintain your standard of living without needing a 3-4% draw down of your savings/retirement funds. You only need it until SS kicks in for one or both of you.

I am guessing you are unhappy at work, or by the everyday w*rk schedule. PT w*rk could help with that and allow you to bail out earlier than otherwise.
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Old 07-22-2017, 09:16 AM   #10
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I love your life style in a small rural town. Small towns are great to raise kids and you can be involved in so many great causes living in rural America. Good for you!

My advise would be to continue to save LBYM. Some great advise from others and I really like the PT job idea. I would bet you would have NO problem finding some kind of PT work. Good luck.
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Old 07-22-2017, 10:26 AM   #11
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Wecome aboard, I also live in a small town of about 1400 people.
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Old 07-22-2017, 12:55 PM   #12
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When we bought our house, we had part of it financed in a HELOC at ~8%, eyes wide open going in. We paid that sucker off in about 13 months, and then started socking money away aggressively outside of our 403b/IRA accounts. The nice part was that we had adjusted our life and spending to make sure we paid down the high rate first, so it was really easy to continue socking money away after that, and we've been doing so for the last five years since paying off the HELOC. The rest of our mortgage is under 2.8% so we let it ride.

My personal opinion would be to pay down a 5.5% interest rate mortgage, then accelerate after-tax saving once it's paid off. Also advantageous given what many think is a value-starved stock market at this point. Of course, that's completely relative to your investing horizon. YMMV.
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