Pretty Sure We’re Never Retiring...Need Advice

[Supermint]

Hi there. I’m looking for some anonymous advice from people who have given much more thought to money and retirement than my husband and I have. I’m to receive about $45k in a small inheritance soon, and I have so many options of where to apply it that I’m just...stuck.

I now have about $200k in my 401k at 48 years old. Three years ago, I took out $100k to pay for a sweet piece of property; 5 acres with a 1/2 acre pond that we built our home on. The land is worth at least $130k. We have a $400k mortgage at 4.75 interest for another 27 years, with approximately $150k - $200k in equity. My husband has never saved and only last year began contributing to a 401k; he has a total of $12k at 50 years of age.

We owe the IRS $750 a month (current balance is $25k), have $11k in credit card debt, a personal loan for $12k (12%i) that I don’t remember why we needed, another loan for $20k that holds my SUV as collateral at 8%, a loan for the top of the line appliances that my husband wanted in the home with a remaining balance of $22k at 9% interest (we couldn’t include it in the mortgage without having to bump up to a jumbo loan). We have a tractor with a balance of $15k. We also purchased a vacation club membership for $25k (like a timeshare).

To top all this craziness off, I was laid off from my job in December which paid me $150k/ a year. My husband, who didn’t earn much income at all for our first 6 years of marriage, is the sole provider now, thankfully making $118k/year. Our mortgage is $2720. However, he is obsessed with getting his pilot’s license (~$11k) and ultimately, would like to build his own GA plane ($200+) in the shop he built on our property (value = $35k; cost was less than $5k). I don’t want to squash his dreams, but I think saving for retirement is more important.

I’ve gotten to the final round of interviews a few times already but landing a job is taking much longer than it has in the past. We have two elementary aged children and all of this has me thinking, we are on the brink of disaster at all times. I grew up quite poor (so did my husband) and do not want to live paycheck to paycheck again.

So, what would you do with the $45k? It’s not going to make much difference I think...Very depressing.

 

[SnowballCamper]

Sounds like you need a debt reduction plan... I would use something like this
https://www.nerdwallet.com/blog/finance/what-is-a-debt-avalanche/

And that article has the nice feature of mentioning the alternative method, smallest first (regardless of interest rate). Paying off higher interest first will cost you less, but you have to find the plan that you WILL FOLLOW (not yelling, just emphasis). So I recommend putting the whole 45k against the highest interest loans, asap.

But it will all be useless until the spending is below the income.

 

[PartIrish]

Supermint, you and your husband can retire someday, but it will take a complete change of mindset from compulsive spending to avid saving. I would start by using the $45K inheritance to pay off the debt with the highest interest rates--even 8 percent interest on a debt is robbing you of your future. Then, roll that extra money into the remaining debt. It will take a couple of years, but you can do it. If retiring is important to you, it has to be more important than acquiring stuff. I'd sell the five acre lot and after paying off the loan, use any remaining funds to pay off more of your consumer debt. Finally, one of you needs to stay on top of your taxes; anyone capable of earning $150K/year should be able to figure out (or hire out) tax payments.

One or both of you has a spending problem, and it will take education and self restraint. Maybe the Dave Ramsey Financial Peace course would turn things around. Good luck.

 

[Souschef]

Sounds like you need a debt reduction plan... I would use something like this
https://www.nerdwallet.com/blog/finance/what-is-a-debt-avalanche/

And that article has the nice feature of mentioning the alternative method, smallest first (regardless of interest rate). Paying off higher interest first will cost you less, but you have to find the plan that you WILL FOLLOW (not yelling, just emphasis). So I recommend putting the whole 45k against the highest interest loans, asap.

But it will all be useless until the spending is below the income.

IMO, you need to go to a financial counselor to get you going in the right direction. I agree there is a bunch of craziness going on, because neither of you has got any financial sense. I know this sounds harsh, but to give you an example:
You owe the IRS $25K, but buy a vacation package for $25K
You borrow against your 401K to buy property that you cannot use
Your husband is talking about building a plane but does not even have a pilot's license. Home built planes run between $25K and up.
My short advice is to pay off the credit card than tear it up, and pay off the 12% personal loan. Keep the rest of the inheritance for emergencies.

 

[Aiming_4_55]

It's good that you are writing things down and asking out loud/text. Hold the line on spending for only bare essentials for now. That means NO to pilot license and GA plane.

Look at all your higher interest debt and apply inheritance $$. From what you listed, it appears that could be credit card $11k @ ?? interest, personal loan $12k @ 12%, appliances $22k @ 9%. Pay as much off as possible on the higher rates. Not sure about interest rates on the tractor $15k, vacation club $25k, SUV $20k or IRS $25k ...about $85k more in debt

Dump the vacation club membership, they are usually a losing situation.

How much is the SUV worth? Can you sell and buy a cheaper car?

Good luck.

 

[aja8888]

Those two elementary school children are going to be a huge cost center alone, especially if you want them to drive cars and go to college.

I would focus on debt reduction and only necessary spending until this mess is under control.

 

[Newventurer]

I think Snowball gave you good advice...my only comment is that when I read your thread I notice a number of times where you mention the value of something vs. the cost, as if this was cash available to help you out of debt. Of course unless you are willing to sell these things their value is somewhat meaningless. I am afraid you are right - staying on this road you are on, you will never retire, and perhaps much worse.

 

[Gumby]

Your debt to income ratio is 5 to 1. That is not sustainable.

First, pay the $11k credit card debt (rate unspecified, but likely >12%), the $12k 12% personal loan, and the $22k appliance loan at 9%. That will give you a little breathing room on the monthly expenses and will really help you dig your way out. Then put your credit card in the freezer.

Second, tell your husband to knock it off with the pilot stuff. He can't afford it.

Third, look into selling your time share. Any money you get should go to reducing debt. Highest interest rate first.

Fourth, don't ever skip on paying your taxes again. It's ultimately not worth it.

When you do get a new job, focus on eliminating all debt but the mortgage. Then save until it hurts.

 

[Another Reader]

I'm going to take a contrarian position here. Until you can stop the overspending, the dollars you throw at your debt will only get replaced by new debt. In your shoes, I would put it all in your retirement. Max out the 401k at work when you get the next job and contribute the maximum to your IRA's for 2019 and 2020. Put the rest of the money in an account under your name only. It's a separate asset, not comingled.

You and your husband need to find a way to stop the spending. No, you won't buy new appliances. No to the airplane. Sell the property for the $130k if you can get that or less if you can't. Take the proceeds and pay off all the consumer debt and those folks at the IRS. If you have anything left, put it into savings. Then refuse to sign up for any more debt. If your husband won't quit spending, get your name off all the credit accounts.

I don't think he has the mindset to benefit from Dave Ramsey, but I would give it a try. If your husband won't change, you are going to have to make some difficult decisions. Separation or divorce might be the only way to extricate yourself from this mess if he won't see the light.

 

[Mdlerth]

St Peter don't ya call me cause I can't go, I owe my soul to the company store

I agree that you're not retiring any time soon. You've got a lot of debt to work down, so you're going to need to keep earning for a good number of years.

But it may give you confidence to hear that I didn't have a particularly auspicious FIRE start either. I was in my early 40s with a mere pittance in my 401k, 5 kids still to put through college and since DW had been a SAHM for almost 20 years we were a stereotypical paycheck-to-paycheck household. But we started to get more serious about it and I just retired at 61.

Another encouraging data point is that apparently you have a skill set that commands a high compensation. Once you re-employ, you and DH should be in a good position to pay down the mortgage, CCs, IRS, etc., while still maxing out your savings.

But hear me now and believe me later: you've got at least 10 years - maybe more like 15 - of hard saving/debt-reduction ahead of you, so get used to the idea of belt-tightening. Your post lists a lot of legacy spending that I would consider purely discretionary. The First Rule of Holes is: When you're in one, stop digging. Put that GA plane idea on the back burner. Likewise, that vacation club sounds like an impulse buy; it may be water under the bridge but you need to guard against making those sorts of purchases in the future. They are major no-nos if you want to achieve financial independence. Hint: when you come to this forum, only read the threads on saving and investing; the Blow That Dough threads are off-limits!

I anticipate that you'll encounter resistance from your DH if he has grown accustomed to both the easy spending lifestyle and the accumulated debt. For a couple to reach FIRE (or even FIRL) it will take both parties to buy into the discipline. Conduct all conversations on this issue with as much patience and love as you can muster. It would be a shame for competing ambitions of husband and wife to stir up resentments. I'm in a minority on this board in thinking that your marriage is more important than your finances, but I believe that love can find a way. Good luck!

 

[Retired Expat]

I am with Gumby. Use the inheritance to pay off the high interest debt. Sell the time share, sell the sweet piece of dirt that may or may not be worth what you thing it is and generates no income..

Stop living beyond your means and start living below your means and generate retirement savings . Oh yeah hubby has to forget his pilots license. An incredibly expensive hobby! Generally change his way of thinking.. Buy a new appliance when the one you have dies..

I would go one step farther and sell your $550,000 to $600,000 home and buy a $300,000 home or build a kit home on your land, but put the money back in the 401k. Stop paying at least 2 grand a month in principal and interest and start saving. You have a 27 year mortgage and your husband is 50? Clearly he doesn’t intend to retire...

I know it all sounds harsh but having experienced Financial Independence and retirement i can tell you the sacrifice is worth it. I was also where you were and it was the pits...

Idea of a financial counselor is good but you may both need a marriage counselor or therapist to change your relationship with money and spending. My ex and I did and you may have noticed it is ex. My finances recovered and blossomed in these past years of high returns, hers not so much...

You have 15-20 years to turn this all around and build up a retirement nest egg. You can do the math on what that means and how much you think you will need. It isn’t rocket science but it can be damn hard work and disappointing to not get what we want when we want it. Deferring desires is part of growing up I am afraid.

 

[Supermint]

I edited the original post to clarify that the property is where we live; not separate.

Also, though I’d taken out an extra $20k for tax purposes when I bought the property that year, I evidently didn’t have my employer take enough out for income taxes all year and I made $180k that year.

I should also note that we have already paid down $25k in other credit card debts this year, unfortunately using the kids’ college savings funds I’d set up and contributed to for the last 5 years. I used to be much better at managing money and clearly need to learn to say no.

I feel like an idiot but appreciate your kindness as I reevaluate our situation. We are happily married otherwise.

 

[Another Reader]

Nobody is going to college and you will be eating cat food under the bridge in retirement if you continue down this road. You took money out of college savings to pay credit cards? Ugh. And it made no difference - the spending just continued, right? At some point you won't be able to find the money to pay the bills in front of you and you might have to file bankruptcy to deal with all the judgments.

"No" is the critical word, but both parties have to say it. If it's just you, it won't work. You will have an angry, resentful spouse. He has to buy into the plan or your plan is DOA.

 

[Sunset]

OP - when you took out the $100K from the 401K to buy the land, was it a loan ?

One thing nobody has mentioned is the $45K inheritance is not community property, so if the marriage is rocky, it would be best for you to keep it in your name only.

 

[NotYourAverageJones]

I am not going to sugar coat this because I am not THAT person. Take what you want and leave the rest! Here goes, because you asked.

Speaking from my own experience. My DH and I met 20 years ago. Both were coming off 2 divorces that financially wiped us both out to zero. We had about $40k in debt between the 2 of us. We "thought" we were in happy marriages, but then LAYM (living above your means) happened and it killed that happiness and broke our marriages apart. Today, we have amassed a mid 7 figure portfolio, will receive 2 pensions and have a secure retirement to look forward to. So nothing is impossible when you put your minds to it. But you have to want it bad enough to do the hard work, even when everyone else you know is spending like a drunk sailor on shore leave!

Reading your post I'd say you have bigger issues than where to apply your $45k. I agree with the person who posted that it really doesn't matter what you do with your inheritance, because unless you AND your spendthrift hubby STOP this type of reckless spending behavior, you will keep doing the same stuff you are doing to self destruct your futures and your marriage could end up looking like our original ones did.

You BOTH need to sit down and get to the bottom of the why before you can figure out the how...WHY do you think you live like you do with the minimal financial resources you have? Why is having things and spending money more important than setting yourself up for a secure retirement? Why are you putting more undo stress on you and your kids lives LAYM?

You say you have a happy marriage, but I can attest "money problems in a marriage will destroy your relationship faster than most other issues." Almost every couple we know who got divorced will now admit that money (not nearly enough to survive or just enough to way overspend buying status) played a major factor. Plus, I'd imagine your financial stress is palatable to your 2 young kids. Don't be fooled to think they are not watching and listening to you both. Kids learn what they live and you owe it to them to get your **** together so they can see what success and hard work looks like from 2 of their biggest teachers in life. Saving for college for them must be on hold, until you get your financial house in order. They can apply for grants or college loans and go to a community college for the first 2 years. You can't (successfully) take a loan for your retirement and you can't save for their future to the determent of your own.

Sit down with DH and get a signed, written spending & savings plan in place. Commit to following it to the letter and if one of you feels the urge to spend, stop, walk away and call the other for emotional backup. Then go back and read your plan again and get back on track. Get rid of the credit cards, you can't be trusted to make good decisions there. Focus on spending way less and getting rid of the burden of your debts first before you focus on saving. You may need to sell the house and downsize to position your family better for success. Tell DH he will have to down his dreams of flight until your financial nightmare is put to rest. You need to take whatever job you can get right now until you find one that is similar to what you had, even if it pays way less. No job is beneath you at this point and it's always easier to find a job when you have one. You need the money and it's really good to show those kids that even if stuff gets tough in a marriage, you must keep going and work together to solve it! Good luck.

 

[Amethyst]

OP, I can't improve on the advice already given. I would just like to remark that when people sigh and say"we can never retire," Nature is laughing. While some people can keep on working into old age, most cannot. Nature, the economy, or both, catch up in the end.

So, you will have to retire some day. What's discretionary, is in what style you will retire. Indebted and trying to get by on S S., Or comfortably and on your own terms? Since it doesn't sound as if there's a rich relative waiting to die and bail you out, your other option is to take some or all of the advice here. Best of luck, it's a real struggle to deal with unemployment on top of everything else on your plate.

 

[Dtail]

You have come to the right forum to receive honest to the point advice.
We all hope you can start turning things around.

 

[prudent_one]

If you don't have an emergency fund to cover 6 months of essential spending, hold on to that $45K now that you're down to one income. Since you didn't say your job loss prevents you from paying the bills, I assume the one income is enough to keep current on all your debt and living expenses. I hope you're not using the credit card to fill any gap there

I just want to encourage you to come to terms with your situation. Let's be frank - your family has a very serious debt/spending problem and it's going to require commitment and change. Yet, it's not hopeless and there's no reason to feel like "why should we have to live like we're poor again?" - the fact is you have been living like you were much wealthier than you were, and now things need to be put back in equilibrium.

What you have going for you is the awareness that you are in a hole. Some people never do. If that motivates you to make the big changes needed to fix things, that's great. That would mean cut spending, sell things you don't need, and steer all available funds (beyond your emergency fund) to paying down that high-interest debt. Can you take a retail or similar job while continuing to look for a job like you had? Second job for husband? Maybe that sounds drastic, but you need to get going.

I would imagine due to the job loss you've already cut all non-essential spending. As soon as you land a job, write down a plan to get your finances back in order - a month-by-month scorecard with a finish date so you have something to track against. I just don't think it's realistic to try to do that now while you're dealing with an income that just went from $268K to $118K.

 

[DrRoy]

It's good that you are writing things down and asking out loud/text. Hold the line on spending for only bare essentials for now. That means NO to pilot license and GA plane.

Look at all your higher interest debt and apply inheritance $$. From what you listed, it appears that could be credit card $11k @ ?? interest, personal loan $12k @ 12%, appliances $22k @ 9%. Pay as much off as possible on the higher rates. Not sure about interest rates on the tractor $15k, vacation club $25k, SUV $20k or IRS $25k ...about $85k more in debt

Dump the vacation club membership, they are usually a losing situation.

+1

 

[The Cosmic Avenger]

Lots of good advice so far. I recommend reading more on how to change your mindset, and then your approach to spending, as it's not as easy as just following a piece of advice. If you can get your husband to read even one of these books, so much the better:


Your Money or Your Life by Vicki Robin and Joe Dominguez

The Millionaire Next Door by Thomas J. Stanley and William D. Danko


Those are the essentials, IMO, but there are lots more suggestions in this thread.

 

[Montecfo]

I kind of doubt that us telling you how to use that inheritance to pay down debt will help much in the long-term. You need a complete change of habits.

Google "Dave Ramsey". I think you need to take a course like his to learn to change your mindset and get out of debt.

Most of us are savers or married to savers. You guys are both spenders. You need some external help to address that, in my opinion.

 

[bizlady]

Put the money in an account in YOUR NAME ONLY. Don't agree to anymore spending. Consider counseling to discover why you both feel the need to spend. Money does not buy happiness. Each of you needs to decide what is more important --stuff, or the welfare and happiness of your family and yourselves.

 

[njhowie]

We owe the IRS $750 a month (current balance is $25k), have $11k in credit card debt, a personal loan for $12k (12%i) that I don’t remember why we needed, another loan for $20k that holds my SUV as collateral at 8%, a loan for the top of the line appliances that my husband wanted in the home with a remaining balance of $22k at 9% interest (we couldn’t include it in the mortgage without having to bump up to a jumbo loan). We have a tractor with a balance of $15k. We also purchased a vacation club membership for $25k (like a timeshare).
...
So, what would you do with the $45k? It’s not going to make much difference I think...Very depressing.

On the contrary - can make a very big difference.

With the $45k:
1. Pay off $11k credit cards - at what, maybe 20%
2. Pay off $12k 12% personal loan
3. Pay off $22k 9% appliance loan

The above will save you $500+/month.

As far as the vacation club membership - if it's Disney (which it may be since you called it "vacation club"), sell it today. You can likely get your full $25k back or more. With that $25k, pay off the IRS.

Tell your husband that until you get settled in another job, he's just going to have to put his dream on hold and not put any additional money in to the plane or anything else - you're on austerity for the time being.

Your situation is not the end of the world - just regroup, and move forward. Your tastes have been too big for your budget, but that doesn't mean you can't make things right going forward.

 

[CRLLS]

Husband never saved for retirement until he was 49. Husband wants to learn to fly. Husband wants to build a plane. Husband deeded top of the line appliances. I see a pattern here. You can't remember what a 20K loan was for. I can only imagine how you got 25K behind with the IRS. Somehow I don't think it was all him. Together you earned 268K but only managed to save 212k for retirement by now. Time to put on your big person pants and learn how to say "no" to your husband. And not just no, but "Hell No".

As many here will tell you, It is not what you earn, but what you spend. You will most likely get a new job. After a few months, if you don't sell your house by then, at least refinance. I don't see anything out of whack with a 2,700 mortgage if you were earning that 268K. That is, as long as other financials are in check, which they are not.

FWIW, in your current situation, I would not pay down anything at the current time. I would use the 45K as a supplement/safety net. I would guess that you are not making ends meet with the only the 118K income, but getting further into debt. Time to tread water instead of getting deeper. When you land that new job, that is the time to think about paying those debts down.

You have some tough times ahead trying to restructure your combined spending habits. it can be done if you both have the same goals.

 

[The Cosmic Avenger]

As far as the vacation club membership - if it's Disney (which it may be since you called it "vacation club"), sell it today. You can likely get your full $25k back or more. With that $25k, pay off the IRS.

Oh, and your debt repayment should be treated as an emergency, at those levels and rates, if you want to dig yourself out and do some serious saving. Don't worry about taking a "loss", reframe it as a consumable (whose value will be zero after a year if you don't sell) that is not as important as your goal. Think about the freedom from debt and worry that debt repayment will buy, it will be much more relaxing than going a vacation with the millstone of that debt around your neck, trust me! Sell it for whatever you can get, even if it's less than $25K.