First, let me add my thanks to all of you who have contributed to this forum. The experience of finding a group of people dedicated to ideas and habits that were only loosely beginning to form in my life is very exciting. It reminds me of how I felt when I ran my first local race. I had watched the elite runners on tv and wished I was lucky enough to have that kind of talent (much like I have wished to have made a fortune already) but considered my speed quite excellent based on all the average joggers (or average consumers) I would pass on my runs. It wasn't until that first race that I realized there was a whole class of seemingly normal people who could run fast (not fast enough to get on tv) and had done it through their own perseverance and smart training techniques. This quickly shifted my perspective from looking backwards at those slower than me to learning from those ahead of me. It's a simple enough analogy but the best comparison I have for what the FI discussion has done for me.
I have a few questions I am struggling with and would greatly appreciate any input from the experienced and clever minds on this forum. While there are already many unique and fascinating stories here, hopefully a look into the finances of two musicians may be interesting to some of you.
So here goes, DW and I are both in our early 30s currently working for the same employer. She makes about 80k and her position is tenured making it very secure (or at least as secure as the financial health of our employer). I am currently making about 75k but my contract is temporary and will likely end in one year cutting our income in half. I judge there is a 5-10% chance I will get the tenure track position I am filling in for. Because of this likely loss of job, I am increasingly eager to develop a good investment plan for the upcoming year. If I don't get the job I will freelance and teach making probably 10-20k per year. Our hope is that it may be realistic to be FI in about ten years. We are not interested in having kids.
Our current finances are the following:
1. $160k and 13+ years remaining of a 15yr 3.5% mortgage on a house worth about $240k
2. $45k student loans at 2.6%
3. $50k in 403b (nonprofit version of 401k) account invested in Vanguard 2045 target retirement fund (VTIVX expense ration 0.18%)
4. $75k in Roth IRA invested in Schwab 2045 retirement account (SWERX expense ratio 0.81%)
5. $95k 30 yr loan at 3% on approx $200k worth of musical instruments (needed until we retire but then could be sold)
6. $40k cash in a savings account making 0.5%
7. Own one 10yr old car and excellent credit rating.
Our monthly spending:
$8000 including debt payments (mortgage, student loans, instrument payment)
$5400 excluding debt payments
In addition to our retirement accounts we have a pension plan and 10 yrs of social security wages which if we retired today would pay about $2500-$3000 (in todays dollars) a month if we retire at 60 as close as I can figure out from the calculators.
Here are the questions I have been debating:
1. What to do with the $40k in our savings account? this money has been our 'emergency fund' but I've been questioning how necessary it is to keep it in cash that is earning essentially nothing. It seems that with the ability to access the money in our Roth accounts without penalty or worse case take out a home equity loan we could cover any unexpected expense. Plus as mentioned before DW essentially cannot lose her job unless the whole organization fails which seems unlikely. We also have fairly extensive health, disability and home insurance.
2. What should I do with our additional savings? I am hoping in the next year to be able to save $50k-$60k. I have been toying with the idea of trying my hand at real estate and buying a $100k-150k house or condo to rent. But with no experience in this area I am hesitant to risk very much on such a project.
3. If we decide not to go this route, where is the best place to distribute our future savings: Roth IRA, 403b or taxable account? It seems to me that with our defined benefit plans plus the amount we currently have in IRAs our cash flow post 60 will be plenty. On one hand I feel like it might be wise to max out our 403b (our employer does not do matching funds) and a traditional IRA because this coming year may be our highest tax rate but on the other hand I don't want to get too much money tied up in accounts that we can't access until our 60s. I like the Roth IRA because of the ability to withdraw before retirement age without penalty but of course it doesn't help our current tax situation and has contribution limits.
4. Lastly, what do you think about these target retirement mutual funds as investments? We bought them when we were just starting out because of the simplicity but I'm now wondering if it is the best option. I have no desire to do any kind of active investing or stock picking but I could see myself learning how to develop a simple ETF portfolio and doing periodic asset allocation.
Any thoughts or pointers to previous threads would be greatly appreciated. I know there are many ways we can cut down on our spending but my first goal is to create a more detailed financial plan.
Thanks!
I have a few questions I am struggling with and would greatly appreciate any input from the experienced and clever minds on this forum. While there are already many unique and fascinating stories here, hopefully a look into the finances of two musicians may be interesting to some of you.
So here goes, DW and I are both in our early 30s currently working for the same employer. She makes about 80k and her position is tenured making it very secure (or at least as secure as the financial health of our employer). I am currently making about 75k but my contract is temporary and will likely end in one year cutting our income in half. I judge there is a 5-10% chance I will get the tenure track position I am filling in for. Because of this likely loss of job, I am increasingly eager to develop a good investment plan for the upcoming year. If I don't get the job I will freelance and teach making probably 10-20k per year. Our hope is that it may be realistic to be FI in about ten years. We are not interested in having kids.
Our current finances are the following:
1. $160k and 13+ years remaining of a 15yr 3.5% mortgage on a house worth about $240k
2. $45k student loans at 2.6%
3. $50k in 403b (nonprofit version of 401k) account invested in Vanguard 2045 target retirement fund (VTIVX expense ration 0.18%)
4. $75k in Roth IRA invested in Schwab 2045 retirement account (SWERX expense ratio 0.81%)
5. $95k 30 yr loan at 3% on approx $200k worth of musical instruments (needed until we retire but then could be sold)
6. $40k cash in a savings account making 0.5%
7. Own one 10yr old car and excellent credit rating.
Our monthly spending:
$8000 including debt payments (mortgage, student loans, instrument payment)
$5400 excluding debt payments
In addition to our retirement accounts we have a pension plan and 10 yrs of social security wages which if we retired today would pay about $2500-$3000 (in todays dollars) a month if we retire at 60 as close as I can figure out from the calculators.
Here are the questions I have been debating:
1. What to do with the $40k in our savings account? this money has been our 'emergency fund' but I've been questioning how necessary it is to keep it in cash that is earning essentially nothing. It seems that with the ability to access the money in our Roth accounts without penalty or worse case take out a home equity loan we could cover any unexpected expense. Plus as mentioned before DW essentially cannot lose her job unless the whole organization fails which seems unlikely. We also have fairly extensive health, disability and home insurance.
2. What should I do with our additional savings? I am hoping in the next year to be able to save $50k-$60k. I have been toying with the idea of trying my hand at real estate and buying a $100k-150k house or condo to rent. But with no experience in this area I am hesitant to risk very much on such a project.
3. If we decide not to go this route, where is the best place to distribute our future savings: Roth IRA, 403b or taxable account? It seems to me that with our defined benefit plans plus the amount we currently have in IRAs our cash flow post 60 will be plenty. On one hand I feel like it might be wise to max out our 403b (our employer does not do matching funds) and a traditional IRA because this coming year may be our highest tax rate but on the other hand I don't want to get too much money tied up in accounts that we can't access until our 60s. I like the Roth IRA because of the ability to withdraw before retirement age without penalty but of course it doesn't help our current tax situation and has contribution limits.
4. Lastly, what do you think about these target retirement mutual funds as investments? We bought them when we were just starting out because of the simplicity but I'm now wondering if it is the best option. I have no desire to do any kind of active investing or stock picking but I could see myself learning how to develop a simple ETF portfolio and doing periodic asset allocation.
Any thoughts or pointers to previous threads would be greatly appreciated. I know there are many ways we can cut down on our spending but my first goal is to create a more detailed financial plan.
Thanks!