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New here..critique my progress?
Old 07-30-2015, 09:43 AM   #1
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New here..critique my progress?

Hello everyone. I'm 38, single and don't have children. I'm a high earner, but divorce a few years ago set me back a bit. I'd like to retire altogether in my late 50s, but I'd also like to cut back in work hours over the next few years...anyone care to critique what I have going on?

403(b): $212k
NW Mutual investment account: $250k
Fidelity acct: $25k
physical gold: approx $10k

Mortgage: $389k remaining (3.375%)
Heloc: $48k remaining (4.75%)
Student loans: $48k remaining (2.5%)

Monthly, I put $7k into my NW Mutual account. My 403(b) is maxed out. I am trying to pay off the Heloc by paying $1900 per month...should be done with that in about 28 months. I pay $500 per month on my student loans.

I also have a State Farm whole life policy (15 pay life) that costs me about $980 per month...long story but it's through my bro-in-law agent and I don't really like it...but I plan on taking the money out as soon as the cash value equals what I have put into it.

I typically net about $18k per month with salary and overtime. After all payments are made, I don't have much left each month. Am I being overzealous with the Heloc payments? Should I up my mortgage payment from the minimum? I haven't worried much about the student loans since the interest is so low.

Ideally, when the Heloc is gone, I'd like to raise my mortgage payment by at least $500 per month. It's a 15 year, and I have 12 left. Just $500 extra per month would knock a couple of years off the payoff.

Any suggestions would be much appreciated! Thank you.

Justin
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Old 07-30-2015, 10:16 AM   #2
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Good grief, that whole life policy... Get rid of that thing ASAP. I don't know the details of it, but punch... punch fast.

IMO, if you're going to pay something down, pay it down. At 4.75% guaranteed "return" on the extra payments, a case can definitely be made for paying the HELOC down quickly. If it were me, I'd take the $700 per month to NW (and the $980/mo!!! to insurance) and apply that to the HELOC. This is exactly what DW and I did when we bought our current home right before we married and had our assets together and had a roughly ~$100k HELOC (at ~6%) to help. We paid that sucker off in 14 months, only funding IRAs, TSP, and her 403(b) and cutting spending in other places to help.

One thing I notice: no IRA? Back door a Roth - make non-deductible contributions to traditional, back door them to the Roth. (I *think* you could still do this at your level) Max IRA, 403(b)... Anything else above those investments goes to HELOC. Once HELOC is down, save like a madman and don't worry about extra payments to your mortgage/student loans.

My $0.02.
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Old 07-30-2015, 10:43 AM   #3
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Yeah, I know...the whole life plan wasn't a good idea. The problem is it takes those things quite a while to generate cash value. I've had it a couple of years, and it's only worth about $11k right now. I'd take a pretty big hit if I squashed it right now. I have just been pretending it doesn't exist, and telling myself that when I'm 50 it will be worth $200k or so. I will only be taxed on money made above what I put into it. I jokingly tell my bro-in-law that I'm cashing it to buy a Ferrari

I am putting $7000 per month into my mutual fund account at Northwest Mutual, not $700. Too much? Would it make more sense to knock it down by $1k or so until the HELOC is paid off?

I'm not really familiar with the IRA, but it seems like I earn too much to contribute..at least that is what I assume. I will have to do some research.

You wouldn't increase the mortgage payment, even once the HELOC is paid and I have a little extra to put on it? I wouldn't even notice $500 per month, and it would take a few years off the payments.

Thank you for your advice!!
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Old 07-31-2015, 12:03 AM   #4
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i would be paying 7k / mo on the heloc as that is a guaranteed return of 4.75%
i would not pay a cent extra on the mortgage as it is super low interest.
same with student loan.
once heloc is paid off start pumping money into vanguard mutual funds after fully funding your 401k and / or iras.
and dump the life insurance asap. your not married & have no kids so there is zero reason for it.
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Old 07-31-2015, 10:40 AM   #5
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I agree with the others, paying down debt is more beneficial now than increased savings. Here is what I suggest: instead of the $7K to your NW savings, put that to pay off HELOC quick. That is instant return on the money as others stated. Then take that $7K available (plus the small HELOC payment amount), and put that toward a Roth IRA, assuming you are maxing out any pre-tax savings already. One thing that is beneficial to you, is the mortgage interest deduction to help offset some income, which comes off the top tax rate which is high for you. Let Uncle Sam (and your state?) help you out a bit, so having some mortgage while you are working is OK. So your effective interest rate on the mortgage is in low 2% range.

Yes the whole-life is bad, and you know it, so it might be worthwhile to do a calculation as to whether to bail now vs wait it out.

Student loan being so low of interest it can wait, just pay the required monthly payment until it is gone.

Best thing you can do now is stay on aggressive debt paydown and savings increases. Only by having a nice nestegg and little debt will you make the ER goal. The divorce may have been a bump in the road, but you can overcome it with the high savings rate.
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Old 07-31-2015, 10:47 AM   #6
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I agree with what the others have said, doc


Pay off that heloc and get a prenup next time.
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Old 07-31-2015, 10:53 AM   #7
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I typically net about $18k per month with salary and overtime.
Justin
Wow, I thought most salaried employees didn't get paid for overtime. You appear to have a nice gig. If it lasts, you should easily be able to jump ship in your 50s.

I'd like to know more about the NW Mutual account and its associated fees. That could cost you a lot of $$ in the future vs. a low-cost index method of investing.
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Old 07-31-2015, 11:07 AM   #8
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Sorry, yes.... Take all that NW money and pay down the HELOC. I personally wouldn't worry about your mortgage because that rate is relatively low, but once the HELOC is gone, maybe put some additional toward it if you want.

I'd go HELOC - then invest.

I'm pretty sure you can still do non-deductible traditional IRA contributions and then back doors into a Roth. $5500 per year of tax free growth is nothing to sneeze at IMO.

Also agree with above that says do the math about getting out of whole life now. With your earnings, you might be able to absorb the hit now for long term benefit. The poker adage goes: don't throw good money after bad!
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Old 07-31-2015, 11:09 AM   #9
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Wow, I thought most salaried employees didn't get paid for overtime. You appear to have a nice gig. If it lasts, you should easily be able to jump ship in your 50s.
I'm guessing he's a MD working for a not-for-profit
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Old 07-31-2015, 01:27 PM   #10
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Ditch the whole life. If you're single and don't have children then life insurance is a waste unless there is something you haven't told us. Take the $11k current CSV and consider the loss is a lesson in life, but it is not worth putting additional cash flow into it when that $980 a month can be used to pay down debt or invested.

Specifically what is the "NML investment account"? Another life insurance product? or some sort of variable annuity? or something else? While I worked in the industry and hold NML in high esteem, it isn't clear if this product is suitable for your situation.

No emergency fund? I would ditch the whole life and pit the proceeds in a 1% online savings account until you have 3-6 months of expenses built, then set up a taxable mutual fund account with Vanguard and invest it in a good no-load index fund.
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Old 07-31-2015, 01:36 PM   #11
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Ditch the whole life. If you're single and don't have children then life insurance is a waste unless there is something you haven't told us. Take the $11k current CSV and consider the loss is a lesson in life, but it is not worth putting additional cash flow into it when that $980 a month can be used to pay down debt or invested.

Specifically what is the "NML investment account"? Another life insurance product? or some sort of variable annuity? or something else? While I worked in the industry and hold NML in high esteem, it isn't clear if this product is suitable for your situation.

No emergency fund? I would ditch the whole life and pit the proceeds in a 1% online savings account until you have 3-6 months of expenses built, then set up a taxable mutual fund account with Vanguard and invest it in a good no-load index fund.



A big +1 on this... some of what I was going to say....

But, to expand on the thought of the life policy... I will round it to $1K.... so, you are putting $1K in per month... but how quickly is that cash value going up I would bet that it is NOT $1K... so it is costing you MONEY to keep it... very unwise IMO... you made a stupid mistake and now do not want to own up to it... the loss is already there... and it will not increase faster than the money you are putting into it.... (BTW, I had a whole life policy when I got out of college... took me a little over a year to figure out that it was a bad investment.... but when I did, I cashed out immediately)..... so, do not throw good money after bad... put that money to better use....



I also assume that when you say you are spending the $18K, that includes all your investments? How much are you actually spending to live?
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