Cash poor, retirement fund rich

[Sniggle]

Not young, but certainly dreaming of retirement. I am in this weird place where my retirement savings are over $2 million, but I tend to just eek by each month on my salary. I am not saving a huge amount, about 15% in various places (401k, HSA, ESPP), but most of my modest income ($140k) is consumed with day to day costs. Yes, I know most reading this are thinking it is a spending problem, and you may be right, but we do not life extravagantly.

The weird thing is that once I retire in a few years I will have more money coming in than I do now.

I am thinking about this mainly because I am looking to buy a piece of land, and I am having to do a cash out refinance on my house to build the war chest.... frustrating when sitting on $2 million.

Guess this is more of a rant than anything else.

 

[pb4uski]

I think that you are saying that once you are retired that between pensions, any SS and retirement account withdrawals that you'll be bringing in more than $140ka year?

If so, perhaps you can dial back on retirement savings now

 

[ivinsfan]

If this is more then a rant we can't really help you without a few more details....if it's simply a rant, yes you do have a spending problem.

 

[Bamaman]

I assume you live in the far northeast corner of West Virginia. If so, your county's average median family income is $66k. There could be a chance you've got some expenses that could be cut.

Don't feel like the Lone Ranger with substantial 401K/IRA's and minor cash flow problems. It's very common. But you appear to be in the position to make some lifestyle changes.

I've got property taxes due on 2 houses with a big Christmas Visa bill coming. And my cash is in a CD coming due the first of February. Somehow things will get paid.

 

[Sunset]

....... I tend to just eek by each month on my salary. I am not saving a huge amount, about 15% in various places (401k, HSA, ESPP), but most of my modest income ($140k) is consumed with day to day costs. .....

...

..... Your income is over 2x the median household income

"Median household income was $68,703 in 2019, an increase of 6.8 percent from the 2018 median of $64,324 (Figure 1 and Table A-1).."

https://www.census.gov/library/publications/2020/demo/p60-270.html

 

[The Cosmic Avenger]

How will you have more money coming in in retirement than you do now? $140K out of $2M is 7%, a very high and likely unsustainable withdrawal rate (WR). Do you have a pension, or are you planning on taking SS soon, and what will those be? Because I wouldn't worry about the refi if those can cover it, better to keep your money invested in the long term.

 

[scrabbler1]

The first thing I would do is stop contributing to my retirement savings plans. Looks to me you have already won the game there with your $2M savings.


When I was planning my ER back in 2006-2008, I had 2/3 of my portfolio in retirement savings and 1/3 in taxable (non-retirement) savings. I needed to reverse that split. While suspending my retirement savings contributions wasn't nearly enough (I was able to transfer half of the entire retirement savings when I left the company, without a huge tax bite), it did help move me toward my goal.


My goal back then, and it remains today, is to get me from my ER age (45 at the time) to age ~60 when I will begin having unfettered access to my rollover IRA.

 

[Gumby]

I see it a little differently from some of the earlier posts.

If you are saving approximately 15% ($21k) per year out of your $140k salary, then your all-in spending is $119k (including all taxes). If you take out the 7.65% of your $140k salary that goes to FICA/Medicare (or about $10k), you'll need about $109k per year coming in. I assume the statement that you will have more income in retirement than you do now, means that you'll have at least $60k in SS and/or pension. ($140k - $80k ( 4% of $2 million) = $60k). If that is the case, you are fortunate indeed and, depending on your age and pension eligibility, appear to be financially ready for retirement right now.

However, that doesn't help with your immediate cash needs. I don't have any great suggestions there. For the 2-3 years prior to my retirement, I cut back on our 401k/403b/457 contributions (just enough to get us under the 24% tax bracket) so I could build up some after tax cash. You might consider doing that. In 3 years, at your current savings rate, you'd have about $50k in cash (~$21k per year x 78% [you're in the 22% bracket] x 3 years = ~$50k).

Or you could just retire and take a draw on you pre-tax accounts sufficient to meet your needs, again depending on your age.

 

[ivinsfan]

I dunno Gumby, OP say they are doing a cash out refi on their home to buy a piece of land...so they pretty much have no non retirement money put away.

OP will you make any income off this land or will it just cost you money in taxes and such.

 

[Markola]

It’s been said that spending is like a gas - unchecked, it expands to fill every space.

OP, you are clearly good at long term savings but I wonder if you have room to improve your short term expense management? If you set a modest goal to find, say, $500/month to cut out of expenses, I bet you could and that it would be satisfying. Shop for better insurance rates, pay off credit cards or other loans, discontinue little recurring subscription charges that aren’t adding value, change cell phone plans, etc.

 

[38Chevy454]

Some things I noticed.
1. Modest income of $140K is not modest, that's way above average.
2. If you have so much in savings, why not retire now?
3. What is purpose of the land purchase?
4. Will your budget in retirement be the same as current?
5. Agree that you seem to have high spending, without details provided on budget.

 

[ivinsfan]

I went back a read of few of the OP posts and he provides a ton of details. Maybe he could cut and paste link them to this thread.

I think the land might be for the 900K house he wants in retirement but a month ago he said they were just casually looking for a spot to retire in..

 

[Time2]

If this is more then a rant we can't really help you without a few more details....if it's simply a rant, yes you do have a spending problem.

I'm in agreement, I went and looked up cost of living where you are and found your area is about 7% more expensive than where I live. I can easily live on $50k. I do this even though I have assets that would allow double that. I need some lessons on how to blow that dough!
https://www.bestplaces.net/cost_of_living/zip-code/west_virginia/kearneysville/25430

 

[OldShooter]

Agree. The majority of American families would be delighted to have the problem of "eking by" on $140K.

Re cash out, we are doing one of those now to build a new lake home. Once we move into the new one we will sell the old one and pay off the mortgage. All of our money is in tIRAs at this point and we don't want to withdraw money for a temporary need.

 

[Music Lover]

Not young, but certainly dreaming of retirement. I am in this weird place where my retirement savings are over $2 million, but I tend to just eek by each month on my salary. I am not saving a huge amount, about 15% in various places (401k, HSA, ESPP), but most of my modest income ($140k) is consumed with day to day costs. Yes, I know most reading this are thinking it is a spending problem, and you may be right, but we do not life extravagantly.

$140K isn't modest...$50K is modest, and there are a lot of people on this site who live very comfortably on less than that.

Tell us your expenses...there are plenty of people here more than willing to let you know where they think you are overspending.

 

[cyber888]

I agree with this. You've saved well for the Future. Now, deal with the Present and cut back on retirement savings to deal with expenses now. Life is a balance between future and present. You have allocated all to the future, but little to the present.

The first thing I would do is stop contributing to my retirement savings plans. Looks to me you have already won the game there with your $2M savings.


When I was planning my ER back in 2006-2008, I had 2/3 of my portfolio in retirement savings and 1/3 in taxable (non-retirement) savings. I needed to reverse that split. While suspending my retirement savings contributions wasn't nearly enough (I was able to transfer half of the entire retirement savings when I left the company, without a huge tax bite), it did help move me toward my goal.


My goal back then, and it remains today, is to get me from my ER age (45 at the time) to age ~60 when I will begin having unfettered access to my rollover IRA.

 

[Sniggle]

Let me add a little.

- The land will be to build a house for retirement. Both the DW and I want to retire to a house that fits us perfectly, and building seems like the way to go. My approach is to buy the land first, spend about 1.5 years making all the decisions that are needed around the house, then getting it built to coincide with when I want to retire, in 2024 (Heck, I want to retire now, but could not make the sacrifices to make it happen. Buying a piece of land is usually a cash deal, especially with the market as it is today.

- It kills me to do the cash out. I moved my mortgage to a 15 year about 7 years ago, and seeing the principle go down quickly has been great. But I had no other way to get a $200K war chest, unless I wanted to raid the retirement funds and pay a 10% penalty. The only positive is that the rate for the cash out refi is actually slightly lower than the rate for the 15 year (2.875 vs. 3), and the lender pretty much paid the closing costs.

- DW has horses

- I will have $60k in pension, not including SSN.

- After all deductions, I bring home (net) $2600 every 2 weeks, or around $68000 annually, with anywhere between an extra $12K net in bonus, usually (although this year may not be so good).

- Standard expenses, monthly:
- Mortgage (+ I + PT) - $2300
- Cable/internet - $150 ($230-$80 megacorp for INT)
- Electric - $100
- Propane - $250
- Cell phone - $70
- Insurance (auto, life, Umb) - $300
----------------------------
$3170 going out each month, excluding food and misc.

- Difference ($6500-$3200) - $3300. This is a little bigger than I expected, as I had not run through the numbers in a while. Maybe I need to figure out where that money goes? I am guessing $1200 goes to food in the month, but that still leaves a lot left. hmmmm.....

- I guess I do need to figure out where that money goes. I have always been casual about money, except for the need to sock it away in savings, which I have done and managed very closely all my working life. I kinda know how much is in the checking account, and hope that there is enough to cover the bills. I will look if I am unsure, and do admit that over the last few years I have had to take out small loans from the 401k to bridge between December and tax refund to make ends meet. Yes, not the best strategy, and probably an anathema to most on this site, as so many of you know down to the dollar where your money goes. I need to do better.

- New Years resolution - I will track my family budget, figure out where the money goes, and hopefully make adjustments to expenditures. If I find a piece of land, I hope to do things to get it ready, to include putting up fencing before the building begins.

I do apologize for starting this thread, but it has been kinda cathartic and has caused me re-examine my situation. All good stuff.

 

[The Cosmic Avenger]

- DW has horses

OK, you're going to need about 3x as much as you planned for then....

 

[ivinsfan]

So you lower your home equity to 100K to finance a 200K piece of bare land.

So when you build you are going backwards and will owe a minimum of 800K plus on a monthly house payments, plus increased taxes? When you say the dream place will cost 900K does that include the price of the land? ...does this really seem like the road to ER?

 

[skipro33]

Borrow on your 401K. Pay back is via paycheck deduction with the 'interest' on the loan going back into your own account. When you retire, you don't have to pay back the remainder, it's now considered a draw. No penalties involved for this early access to your retirement funds/401K.
I did this, borrowed $50K to finish building a house while I was working, then retired shortly after done. This also eliminated any mortgage going into retirement as well. If I didn't have that expense, the extra money would have just been extra cash in my checking account as I worked out my draw schedule for my retirement savings.

 

[OldShooter]

... I do apologize for starting this thread, but it has been kinda cathartic and has caused me re-examine my situation. All good stuff.

No apologies necessary and I think your revised plan to do some more detailed tracking and analysis is the right one.

In years past I would have recommended Quicken, but it has become a $ubscription. There are lots of similar tools around, so there is no reason to voluntarily put Quicken's hand in your pocket. I would look for one that will download transactions from checking, credit card, and investment accounts. That eliminates a lot of dog work that might eventually erode your determination to use the tool.

Oh, and when you set up your spending categories, be sure to isolate the hor$e$ expenditures into separate accounts. That's retirement spending you'll want to watch carefully.

 

[Time2]

I do apologize for starting this thread, but it has been kinda cathartic and has caused me re-examine my situation. All good stuff.

No need for any apology.

We just hope the responses, made you realize you are living large and need to get that under control before you retire and find you can't live as you thought you might.
I don't like the idea of a $900k home with a $2M Net Worth. The $60k pension and $30k? SS helps a lot, but jumping from a $260k home to $900k home? What's going to be so special about living in the $900k home? That will put you in the top 1.2% of your area. That looks like about $5k a year in property taxes. Median home price in your area is $212k.

 

[Dash man]

A $900,000 home on $2M in savings that tax has to be paid on, plus $140,000/yr spending that is likely to go up with a new home? Higher taxes, utilities, landscaping, maintenance, decorations and furnishings will add costs. I would not be comfortable with that. You could retire with a lower standard, but I’d be afraid to without major changes.

 

[skipro33]

Borrow on your 401K. Pay back is via paycheck deduction with the 'interest' on the loan going back into your own account. When you retire, you don't have to pay back the remainder, it's now considered a draw. No penalties involved for this early access to your retirement funds/401K.
I did this, borrowed $50K to finish building a house while I was working, then retired shortly after done. This also eliminated any mortgage going into retirement as well. If I didn't have that expense, the extra money would have just been extra cash in my checking account as I worked out my draw schedule for my retirement savings.

I forgot to add, there are lower interest rates on your 401K loan if it's for a mortgage. I don't know the specifics, such as if it must be on your primary residence or not, for example. All I know is that it allowed me to assist funding my forever home without cutting the corners I would have otherwise.
I'd suggest you sell your current home now, rent, then build your forever home while you are still employed as well. Any unforeseen funding or banking would then be able to consider your income through employment rather than retirement.

 

[Sniggle]

- I have made peace with having a mortgage in retirement. I will have enough fixed income incoming, to more than cover a relatively large mortgage. I could always pay it off quickly by puling from the retirement funds, but if the rates stay low (below 4%) when we lock on the new house I would see no point in doing that.

- I am not talking a mansion. Looking at plans for a 2500-sq. ft. ranch with basement, changes made to suit our needs, designed to minimize energy costs and keep us warm and cozy.

- Some people want to retire to travel, some folks want to retire to a beach, the DW and I want to retire to a house that that will work for us into our 80's. I saved all my life to be in this position. I figure all in $900k, including land, fencing, horse barn. So, yes, from a mortgage perspective I am going way backwards into retirement.

- Yes, horses. Word to the wise.....never get in a relationship with someone who loves horses. I am now 29 years to late to that realization.