49 and wondering where to put our money.

[Sinkorswim]

So here is our situation:

I'm 49 and my wife is 48.
$460k in 401k in vanguard SP500
$160k in Roth in vanguard SP500
$8000 in pensions when I turn 65
$36k in SS when wife and I turn 62
we have a rental that we owe $68k at 5.875%
Rental income $18k per year
Our house we owe $63k at 2.85%
We can live on $75k per year when the kids are out of the house. I am looking to retire in 4 years at 53 but the wife wants to work until she is 55. Before I retire I want to pay the balance off on the rental so we can use that as income and not dip into savings as much. We plan on not paying the house off early because the interest is so low. We currently add $40k per year to our 401k and $4k to our Roth. I ran the firecalc with our info and it says were 100% on track for 53.

So here are my questions:
Would you pay the rental off or invest the money?
Would you start putting money in a bond account?
Would you stop the Roth deposits.
Should I have a good size cash account to keep our income below $61k so our health care is cheaper?



Thanks in advance for all your suggestions. I am not able to talk to any coworkers about this or family because nobody seems to plan for their retirement. I find this really odd and was delighted to find this wonderful forum today.

 

[freedomatlast]

The first question I have is, what are you going to use to suppliment the rental income to get to your $75K/yr spending level between the time you retire and when SS, pension, and 401K withdrawls begin?

 

[Sinkorswim]

The first question I have is, what are you going to use to suppliment the rental income to get to your $75K/yr spending level between the time you retire and when SS, pension, and 401K withdrawls begin?

After the wife retires we were going to tap into her 401k at 55 or do a 72t on mine.

 

[pb4uski]

Since you don't have any taxable savings or fixed income I think it would make sense to make paying off the rental property mortgage a priority.

Fixed income is a tough area these days but at your age it would be prudent to start building a fixed income component to your retirement savings with new money (contributions). If your 401ks offer a stable value fund that may be a good option. Many of us are wary of bond funds, especially long-term bond funds these days, because of interest rate risk and likely declines in value when interest rates rise as the economy recovers.

Usually it is best to have your fixed income in tax-deferred accounts so you could change your contributions to those to be going into fixed income and have any taxable savings be to equities. The other advantage of this is when you ER if you are in a low tax bracket that qualified dividends and long-term capital gains are tax-free.

I would continue the Roth and build up your taxable savings to carry you from ER to 59 1/2 and avoid the need for a 72t.

 

[Senator]

I paid off a much higher rental balance, at 5.5%.

Pay it off within 3 years. If you get $18K from the rental, use 100% of it for payoff. If you cannot afford to do that, you either do not make $18K, or you are spending too much.

The rental mortgage is a bond account. At 5.875%. Paying off the mortgage is like investing at 5.875%.

Keep the Roth and 401K deposits.

You do not says what your income is now, but the more you get rid of expenses, the easier it will be.

 

[Sinkorswim]

Since you don't have any taxable savings or fixed income I think it would make sense to make paying off the rental property mortgage a priority.

Fixed income is a tough area these days but at your age it would be prudent to start building a fixed income component to your retirement savings with new money (contributions). If your 401ks offer a stable value fund that may be a good option. Many of us are wary of bond funds, especially long-term bond funds these days, because of interest rate risk and likely declines in value when interest rates rise as the economy recovers.

Usually it is best to have your fixed income in tax-deferred accounts so you could change your contributions to those to be going into fixed income and have any taxable savings be to equities. The other advantage of this is when you ER if you are in a low tax bracket that qualified dividends and long-term capital gains are tax-free.

I would continue the Roth and build up your taxable savings to carry you from ER to 59 1/2 and avoid the need for a 72t.

Thanks for your reply. Can you withdrawal from a Roth before you are 59 1/2?

 

[Sinkorswim]

I paid off a much higher rental balance, at 5.5%.

Pay it off within 3 years. If you get $18K from the rental, use 100% of it for payoff. If you cannot afford to do that, you either do not make $18K, or you are spending too much.

The rental mortgage is a bond account. At 5.875%. Paying off the mortgage is like investing at 5.875%.

Keep the Roth and 401K deposits.

You do not says what your income is now, but the more you get rid of expenses, the easier it will be.

Thanks for the reply senator. We currently have a income of $160k between the wife and I. We are able to live on $81k after taxes. I figure that's pretty good for a family of 5.

Keep the suggestions coming. I greatly appreciate it.

 

[Sunset]

Thanks for your reply. Can you withdrawal from a Roth before you are 59 1/2?

Check on this, but I think you can if you have opened it 5 or more years ago and all withdrawals are tax free. However, I hope you are not thinking of using the Roth to pay off the rental as that would be bad.

 

[Sinkorswim]

Check on this, but I think you can if you have opened it 5 or more years ago and all withdrawals are tax free. However, I hope you are not thinking of using the Roth to pay off the rental as that would be bad.

I did some reading on Roth IRA withdrawals and basically in my situation I can not withdrawal before I'm 59 1/2 without a 10% penalty. My financial adviser suggested saving the Roth for last after the 401k. So for now I'm thinking of going the 72t route to withdrawal money from the 401k starting when we retire.

 

[pb4uski]

You can withdraw contributions tax-free and penalty-free at any time. The 10% penalty only applies to withdrawals of conversion or earnings (growth in the Roth IRA).

See:
Roth IRA Withdrawal Rules
Understanding The Two 5-Year Rules For Roth IRA Contributions And Conversions | Kitces.com
The Roth IRA Mistake - Forbes

Roth IRAs come with a special rule: you can withdraw the amount you’ve contributed at any time penalty-free and tax-free. The catch is that you have to have proof of how much you’ve contributed over the years.