$500k saved at 29 still felt like it’s not enough

[FIRE hopeful]

Hello all I’m about to hit the $500k mark (at almost $400k now) in savings by the end of this year provided my business stays afloat as it has been doing all year (which based on projections, it seems it will). I have $215k in a brokerage account invested in a good mix of mutual funds and blue chip equity positions (AMZN, T, DIS, JPM, GOOG, APPL, UNH, AVGO, FB) which pay solid dividends. $25k in a SEP IRA, and the rest in cash or on the way in business transactions that have been signed and sealed just not yet delivered. I am debating whether or not to pay my house (townhome) off as I have a $165k mortgage left on it or to put more money into my portfolio. The plan with the house is to live in it perhaps without a mortgage until my wife and I have kids and at least start our family in it until they get a little older then get a new mortgage on a new, slightly bigger house with a yard and rent this one out to cover the new house’s mortgage we’re up about $50k on it right now. My wife is a school teacher with students loans that are on track to be forgiven through PSLF (we checked with an independent student loan lawyer to make sure because we can’t trust FedLoan to give us accurate information) in about 5 years. My business has a shelf life that I believe it will dry up in 1-2 years due to changes in legislation so the plan is to accumulate as much as possible now before switching into a job in the public sector to work the next ten years, give my investments time to mature, then get my loans discharged through PSLF as well. Is this a solid plan? Is $500k saved to accomplish my goals enough? Should I pay off my house? Please let me know what you all think

 

[Omalley]

Amazing progress for age 29! Probably need more information to help analyze the mortgage paydowns. Hearing that your business income may end in the next couple of years you may want to keep cash on hand and not paydown the mortgage early.

 

[FIRE hopeful]

Payment is $1,300 monthly and we have a 3.25% interest rate on the mortgage 27 years left to go on the term

 

[michelek]

It takes money to make money (as they say) so look for new opportunities that will grow the capital and you’ll be golden

 

[The Cosmic Avenger]

Time is your biggest asset right now, so while we did pay off our mortgage early, we also saved as aggressively as we felt we could. If I could do it over again, I'd max out my retirement savings first, then after that split any excess money between the mortgage and taxable investments. That's what I recommend for you, FIRE hopeful, max out Roth IRAs and any other tax-advantaged retirement accounts now. Once that's done, you can pay off the mortgage early.

That is, assuming you have an emergency fund; a homeowner without an easily accessible cash reserve is IMO unprepared for the inevitable big, unpredictable expenses of home ownership. The last thing you need is to have all your money tied up in retirement accounts and then have an emergency expense that puts you into high-interest consumer debt.

 

[njhowie]

With 3.25% mortgage, you should keep it and never pay it off until you sell the place. Maybe pay it down to 80% level (if you haven't already) to eliminate PMI if you are paying it.

 

[N02L84ER]

With 3.25% mortgage, you should keep it and never pay it off until you sell the place. Maybe pay it down to 80% level (if you haven't already) to eliminate PMI if you are paying it.

+1
Congrats on your progress so far!

The CosmicAvenger's advice is good, but for early retirees having money available in tax efficient taxable accounts for the period from retirement to age 59.5 makes financing that period much easier. I would (and did) put any extra money into tax efficient taxable accounts.

 

[The Cosmic Avenger]

+1
Congrats on your progress so far!

The CosmicAvenger's advice is good, but for early retirees having money available in tax efficient taxable accounts for the period from retirement to age 59.5 makes financing that period much easier. I would (and did) put any extra money into tax efficient taxable accounts.

Excellent point, I'm at the point where I am starting to think about the SS/Medicare bridge, and I'm lucky that I have a small taxable account that I inherited. I'm still going to try to shift gears a bit more to prepare, but I plan on working at least another 5 years or so. This is exactly why I want to have another fee-only, fiduciary FA checkup, but my last one doesn't seem to be active any longer!

 

[FIRE hopeful]

With 3.25% mortgage, you should keep it and never pay it off until you sell the place. Maybe pay it down to 80% level (if you haven't already) to eliminate PMI if you are paying it.

Thanks for the advice everyone. If I can bleed this into next year I might have close to three quarters of a million ($750k) by the end of 2020 but that is where the gravy train will likely end of not a little sooner. I also have $200k in student loans. Should I hold onto my money, find a government job and let my money grow for ten years before getting them discharged or pay them off next year assuming the saving projections hold up?

 

[cathy63]

Don't you have to make payments on the student loans during the 10 years while you wait for them to be discharged? In fact, shouldn't you already be making payments on them? If you're earning more on your investments than the interest rate on the loans, then there's no need to rush to pay them off early.

Also, why do you assume you can just get a government job if you want one? You might have a good reason for thinking that it'll be easy, and maybe it will, but in my experience, getting hired by most government entities is a lot harder than it looks. It can also be a really frustrating and difficult work environment for a previously successful entrepreneur. Ten years is a long time to suffer.

 

[njhowie]

I also have $200k in student loans. Should I hold onto my money, find a government job and let my money grow for ten years before getting them discharged or pay them off next year assuming the saving projections hold up?

Now that is something to place more emphasis on paying down/off.

As far as the 10-year thing with the government job, it is a very good deal. For payoff of $200k, obviously it's the same as taking on an extra $20k a year of salary. I'm not sure if you take the forgiveness if the IRS will charge you taxes on the amount forgiven. I would check in to that. Obviously paying the tax on $200k is better than paying $200k, however, it could tip the scales somewhat if you have the opportunity for a higher paying job. HOWEVER, you need to be extremely careful and be very meticulous doing it. Read this article which came out recently and how they have rejected most every claim which had folks doing what they were supposed to be doing.

https://www.forbes.com/sites/zackfr...s-rejected-again-for-student-loan-forgiveness

The other thing to consider is that while you start the 10-year plan now, what if they terminate the program before you reach 10 years? Additionally, should one of the progressive democrats like Bernie or Elizabeth get elected, they claim they will pay off all student loan debt. So, it is likely to your benefit to not pay more than your minimum payment for another couple years to see how the election plays out next year and what might transpire on this front. With this plan, since none of the candidates gave complete details and it's only theoretical at this point, in this case too, the IRS might come for taxes on the amount forgiven.

 

[njhowie]

Don't you have to make payments on the student loans during the 10 years while you wait for them to be discharged?

Yes, you must "make 120 eligible on-time payments".

 

[FIRE hopeful]

Don't you have to make payments on the student loans during the 10 years while you wait for them to be discharged? In fact, shouldn't you already be making payments on them? If you're earning more on your investments than the interest rate on the loans, then there's no need to rush to pay them off early.

Also, why do you assume you can just get a government job if you want one? You might have a good reason for thinking that it'll be easy, and maybe it will, but in my experience, getting hired by most government entities is a lot harder than it looks. It can also be a really frustrating and difficult work environment for a previously successful entrepreneur. Ten years is a long time to suffer.

Yes but given the comparable difference in salary to amount owed, the payment will likely be around $100 if not a little less. The beauty of PSLF is there is no tax bomb at the end. I was going to a initiate a “spray and pray” method of finding a government job. I have an advanced degree (think medicine, law, engineering) so I figured I can apply to be a public school teacher, a lateral move into a government agency in my field of work or even if I’m working a lower paying job at my local recreation center or something. With a hypothetically paid off house and minimal student loan payments, the amount earned can allow me to cover living expenses and continue to contribute (albeit a very minimal contribution) to my retirement and savings accounts. I hope my line of thinking makes sense. Please let me know if I’m missing something in this planning stage thanks again!

 

[exnavynuke]

What is the timeline for getting a new job in reality? 1-2 years before your current income goes away and some undetermined period of time trying to get that not guaranteed job in the public sector makes me lean towards keeping money on hand or reducing your bills. How's your cash flow situation going to be in work dries up in 6 months instead of 2 years and it takes you another 6+ months to find a new source of income?

 

[ncbill]

Thanks for the advice everyone. If I can bleed this into next year I might have close to three quarters of a million ($750k) by the end of 2020 but that is where the gravy train will likely end of not a little sooner. I also have $200k in student loans. Should I hold onto my money, find a government job and let my money grow for ten years before getting them discharged or pay them off next year assuming the saving projections hold up?

You're still young enough to join the National Guard, which would take care of up to $50,000 of federal student loans:

https://www.military.com/education/money-for-school/student-loan-repayment.html

https://www.nationalguard.com/student-loan-repayment

IIRC, if you want to transition to a federal job military service helps.

 

[ponyboy]

Im not really sure what your goals are? Is $500k enough to retire in 10 years? Probably not, even with growth. Keep working at your business, do not count on your student loans to be forgiven.

Did you willingly take the student loans out? They werent forced on you? Then why wouldnt you want to pay them back? You borrowed money and now you're hoping they are forgiven Interesting.

 

[MooreBonds]

I have an advanced degree (think medicine, law, engineering) so I figured I can apply to be a public school teacher, a lateral move into a government agency in my field of work or even if I’m working a lower paying job at my local recreation center or something. With a hypothetically paid off house and minimal student loan payments, the amount earned can allow me to cover living expenses and continue to contribute (albeit a very minimal contribution) to my retirement and savings accounts. I hope my line of thinking makes sense. Please let me know if I’m missing something in this planning stage thanks again!

As someone who's soon-to-be-ex-wife is a school teacher, I can warn you that "simply teaching" is NOT something you should simply assume you can waltz right into and clock your 10+ years. While there is a nice pension for most, you might get a very rude awakening as to what many schoolrooms are like (even in "AAA"-rated school districts). It doesn't matter if you look at the departments and teachers not getting along...the giant issue of students completely disrespecting teachers (several teachers have been fired because students know how to "play the game" and make accusations - so it is truly the inmates running the asylum), principals going out of their way to side with parents/students and not caring about how their transferring/firing decisions impact teachers that are oftentimes presumed guilty...

Also, I used to think about your overall strategy of "just get any ol' job once I hit FI"....but, I realized that EVERY job you have will never be a true dream job. Why? Because you have bosses. You have co-workers. You have the public to deal with. You have employees working under you. You have working environments. There is a very very slim chance you could find the elusive 'perfect job' that is not just an ok task-list, but also great bosses/co-workers/underlings/public/environment...but the odds are greatly against you. So, having said that: think long and hard about keeping that higher paying job for just a few years vs having to slave away for 7-10x as long at a job that pays squat and has just as many issues as that higher paying job that you wanted to walk away from.

And trust me - once you hit that FI point, and you realize that you could truly walk away from the job if you wanted, there is a true psychological benefit that does help make those issues seem not as bad. So that high paying position may not be quite as bad once you are empowered to be able to leave if you truly had to or wanted to.