I have questions about money. LOL. I know nothing.

[sugarbear]

I considered an AE but honestly, whatever. 

I am newly divorced, living in a very HCOL area. I am house poor.

I own my home. My mortgage is $2600 and I take in $1300 rent each month (Built an apartment for my exH, which will be rental income when he moves out. It's how I can afford to keep the house).

I am a teacher and at $90k per year, take home enough to cover my bills and save about $300/month. My budget is pretty pared down but I can certainly cut some extra spending.

I have about $670k in various brokerage / retirement accounts.

Some of that I could cash out at a very low cost basis, as I inherited it recently. 

I'm 44.

My question is, if nothing else changes, how much wiggle room do I have in my retirement funds. I am saving some per year, but if you just look at my retirement from my job, it falls way short of what I should be saving. 

Can I afford to sell some, in order to take my kids on vacation? Or am I destined to live paycheck to paycheck now so that I can have a decent retirement? 

[icedcoffee]

I would not sell any retirement for a vacation. If it's a tax advantage account you will pay huge fees to withdraw it for a vacation. I'd look to cut spending to save for a vacation instead.

[sugarbear]

Apr 26, 2021 12:30:19 GMT -5 icedcoffee said:

I would not sell any retirement for a vacation. If it's a tax advantage account you will pay huge fees to withdraw it for a vacation. I'd look to cut spending to save for a vacation instead.

That I get. This particular money isn’t even “retirement” as much as “investments that have been given to me.” I guess that’s my question— do I NEED to save every penny?

[bee20]

Fortunately/Unfortunately you look to be right on track for retirement so don't really have much wiggle room for a cash out.

Assumptions:
You currently make and spend around 90k/year and would spend similarly in retirement
You'll retire at 65

Things that Could make this better:
-Do you get free healthcare in retirement from your teacher contract?
-Is there a pension?
-Are you currently saving a heavy % of your income for retirement?

Things that could make this worse:
-Have you and your ex saved for college for the kids?
-Is your $300/mo savings sufficient for major home repairs or is it likely you'll need to generate a fund for those or finance them?

If you want to provide more detail I'll show my math so you have an idea of where you are.

[goldengirlz]

I think we need a few more details. How much of that sum is invested in tax advantaged retirement funds and how much of those savings are in regular brokerage accounts? And are you asking about withdrawing money or saving less going forward?

I think your retirement looks great for your income. If you had half of what you have, most calculators would still say you’re on track. However, I would not cash out any of it if it meant paying a penalty. I do however think you can sell some of the shares that are in a non-retirement brokerage account. I’d be strategic about it, but it seems like you could afford to skim some off the top.

Your other option is to leave your current savings untouched but just save less going forward.

[icedcoffee]

Apr 26, 2021 12:35:01 GMT -5 sugarbear said:

Apr 26, 2021 12:30:19 GMT -5 icedcoffee said:

I would not sell any retirement for a vacation. If it's a tax advantage account you will pay huge fees to withdraw it for a vacation. I'd look to cut spending to save for a vacation instead.

That I get. This particular money isn’t even “retirement” as much as “investments that have been given to me.” I guess that’s my question— do I NEED to save every penny?

Got it.  I mean, if I were to guess I'd say you are a little behind or on track on retirement.  There are calculators you can use online to determine.  But I don't think it's totally unreasonable to sell a small amount for a nice family vacation.  

Do you have a fully funded emergency fund?

[sugarbear]

Apr 26, 2021 12:42:16 GMT -5 icedcoffee said:

Apr 26, 2021 12:35:01 GMT -5 sugarbear said:

That I get. This particular money isn’t even “retirement” as much as “investments that have been given to me.” I guess that’s my question— do I NEED to save every penny?

Got it.  I mean, if I were to guess I'd say you are a little behind or on track on retirement.  There are calculators you can use online to determine.  But I don't think it's totally unreasonable to sell a small amount for a nice family vacation.  

Do you have a fully funded emergency fund?

No, I don't. I would be forced to sell something.

I definitely need to speak to a financial advisor.  I hear you on selling actual retirement-- I've read enough MM to know that is a terrible idea. But it's difficult to gauge from the online calculators how I'm doing, especially when I factor in my house, which I will definitely sell eventually.

[smock]

Oh man, MM sets high standards for retirement savings. You've got more than 7 times your annual income in savings with at least two decades to go before you retire, which puts you ahead of track with any calculator I've seen. I'd feel totally comfortable taking some of the inheritance money out to create an emergency fund or go on a family vacation. Warning: I have a lot less than 7 times my income in retirement. 🤫

[suzubell]

So you personally pay $1300/month of your mortgage?

[bee20]

If you're willing to cash in on your house once the kids are gone that's a big help and might give you more wiggle room now. Are you thinking of moving to a lower COL area or just something smaller in the same area?

If you're going to a financial advisor it would be worth having numbers for how much equity you have today, and what prices you're seeing today for the types of housing you envision living in later. From there, you can sketch out how much extra nest egg you might have in 20 years. It's very possible this would be more than your current investments although hard to say how much more real estate can rise in VHCOL areas.

I personally use my house equity as a buffer for long-term care. You might think about what you might want at that phase of life (you would be deciding between saving more now to have a nicer place or cashing in to rely on taxpayer funded options which can be harder to find an acceptable level of care...see the other threads we've had).

[sugarbear]

Apr 26, 2021 13:29:19 GMT -5 suzubell said:

So you personally pay $1300/month of your mortgage?

Yes, and half of all utilities. When my exH moves out, this could change depending on the rental market but I'm guessing if anything, I will get MORE than what he is currently paying me.

[lilypad1126]

Ok, so I don't know if it's the right thing, but I'd totally spend some money on a vacation. Not like a $10,000 vacation, but I'd still spend some. I know, I know, we all need to retire with millions of dollars, but I think taking an inexpensive vacation right now is probably worth it.

[dragon's breath]

As a teacher, do you have a pension? How much of your income will it realistically replace? When do you plan to retire.

Personally, your numbers are pretty great if you have a pension, and you could elect to ease back on your retirement plan contributions if you wanted.

PDQ:

...

end pdq

I'd really go through your priorities and expenses to see what you could easily cut back on without experiencing any pain. Then I'd start to look harder at the ones I didn't really want to reduce, but didn't really contribute to what I want in my life.

Do you/will you get any child support on the kids? Will you/do you get to file as Head of Household instead of single?

I would have no qualms cashing out a couple thousand of the inheritance to go on a great vacation. I spent $12k to take my son on a 5 week European vacation the summer before his senior year (could have saved a ton by going off-season, but 5 weeks is a long time away from school at that age).

Actual expenses in retirement should be decreased if you're healthy, at least for the early years before old-age care. It's usually the fun stuff that requires income being close to the same. You won't be raising kids, you won't be putting money into retirement accounts, you won't be paying SS taxes, you might not have a mortgage, etc. Sure, stuff can happen that changes everything, but I don't think a nice vacation right now would completely swing the results of a future event.

[ohgillian]

Look. Personally, after all you guys have been through? I'd take some of the recently-inherited funds and do a vacation.

I agree with everyone who asked about a pension; that is a big factor.

But either way, take a vacation.

[hocus2]

You have a lot of cash so it is unlikely a 4 figure withdrawal for a one time vacation is going to make that much difference. However I would probably defer vacations until your X moves out and your can find a new renter. Being a landlord is very challenging so I think having a cash buffer until that settles will be helpful. I always worry what would happen if your tenant doesn't pay you. Eviction is a pain in the butt.

Do you teach over the summer either in summer school or private tutoring? I know a lot of camps hire teachers too. That might be a better way to get money for a vacation. I don't know how that would work with childcare but would be my first thought. Our teacher just announced she's tutoring on zoom all summer. If we didn't have camp I absolutely sign up.

[sugarbear]

Apr 26, 2021 14:13:13 GMT -5 hocus2 said:

You have a lot of cash so it is unlikely a 4 figure withdrawal for a one time vacation is going to make that much difference. However I would probably defer vacations until your X moves out and your can find a new renter. Being a landlord is very challenging so I think having a cash buffer until that settles will be helpful. I always worry what would happen if your tenant doesn't pay you. Eviction is a pain in the butt.

Do you teach over the summer either in summer school or private tutoring? I know a lot of camps hire teachers too. That might be a better way to get money for a vacation. I don't know how that would work with childcare but would be my first thought. Our teacher just announced she's tutoring on zoom all summer. If we didn't have camp I absolutely sign up.

I don't.
I actually work all summer to plan the next school year so that my teaching days are 8 to 3:30, without bringing work home (that's the goal, anyway).

I also own a company with my brother that has been impacted by covid and SHOULD bounce back (we make a specialized equipment for a sport, and universities make up the bulk of our customers). I do not pull cash out of the company and generally don't consider it part of my retirement plans, just because it's hard to know what will happen. 

dragon's breath, I do not have a pension. I have a retirement account that has barely over $100k through my employer. 

[sometimesrunner]

I would absolutely pull some funds for a vacation. You have plenty of money--enjoy the time with your kids.

[aspentosh]

I think you're fine to lower your savings for a bit in order to have some fun. Kids are only young once, and having recently gone through a divorce, you deserve some fun.

I don't know that I'd take money out of my savings accounts, but maybe if it weren't a ton.

[wildrice]

I don't even need all the details to say, go on vacation. YOLO and all that. I'm not saying take out 20k and blow it on a 5 star resort in the most expensive place you can think of, but certainly you have plenty of money available to do something fun with your kids. Maybe even more than once

Saving for retirement is important, but so is living. You don't know what the future brings and your kids are only kids for so long.

[plutosmoon]

Sell some stock and take a vacation. I'm also recently divorced, right around your age, my finances are also tight, but part of my monthly budget is vacation savings. The divorce and subsequent circumstances have been very hard on my child, vacations and small trips are very special and important to us, I prioritize them. Enjoy this time with your kids.

[ellipses84]

I know people who’ve retired early and lived on the interest from investment income in that amount, taking on odd jobs or monetizing their hobbies during a recession. For inheritance, I always recommend taking some and doing something meaningful with it. Spending $2500-$5000 on a vacation now if you can pull it out penalty free isn’t going to make or break you in retirement. Talking to a financial advisor and making the most of you investment is going to literally pay off for you. You may be better off moving more funds to retirement accounts, but I’d keep an e-fund in a more accessible/ no penalty investment account. I worry that a lot of your budget relies on a renter and child support, both of which are not guaranteed. I wouldn’t necessarily stop or lower 401k contributions because you should always take advantage of a match and it can reduce your tax liability. I don’t think you are behind for retirement considering your income and assets.

[vmars]

I would 100% take a nice vacation. I want to travel when I am young and able to enjoy it more. Life is too short, if the pandemic has taught me anything it is that.

[Roc A Bee]

I’d 100% take a vacation.

Who are these people who think those with $700k saved and think you can’t afford a vacation? I’m so confused!

[mlkgls]

Life is short and there are no guarantees. Obviously don’t go overboard with spending, but take a little and go have some fun with your kids.

I would then come back and sit down with a financial advisor to get a better overall, big picture perspective. You’re above the 4x salary at 45 benchmark, but how much wiggle room do you have in your monthly budget if your EH/renter doesn’t pay, taxes go up, a large home repair pops up, etc. She/he can help prioritize additional savings for college and retirement. 

[lacey]

I’d take the vacation! I’d also work with a financial advisor to figure out how to get some money pulled out to have a cash emergency fund.

[dr.girlfriend]

sugarbear, It's late, so sorry if this isn't super-coherent, but I would break this into three parts:

1. Am I where I should be for retirement now, and how much of that was due to the inheritance making up the gap?

2. What do I want to do over the next summer, even if it's a short-term loss in funds?

3. Is my budget sustainable going forward?

I think #1 and #3 are the biggest issues for me. If you made it to age 44 and only saved about $100k for retirement on your own, and the rest is due to splitting assets in the divorce or the inheritance (these are just examples, I don't know your full story), I worry that retirement is not "built in" to your budget, including the affordability of your mortgage and your extra cash going forward. Second, I worry that home is not affordable on your salary, although the rental income might help.

I think right now you're probably just getting your bearings, and it's okay if you are operating in the red for a little while during this adjustment period. But, in a few months, I would definitely come back to this board with more specific budget figures and see if we can help you figure out your single-parent budget.

[audry80]

Go on vacation. Life is too short.

Memories are priceless IMO.

[goldengirlz]

Apr 26, 2021 22:07:52 GMT -5 mofongo said:

Apr 26, 2021 12:42:16 GMT -5 icedcoffee said:

Got it.  I mean, if I were to guess I'd say you are a little behind or on track on retirement.  There are calculators you can use online to determine.  But I don't think it's totally unreasonable to sell a small amount for a nice family vacation.  

Do you have a fully funded emergency fund?

How is she behind??? 

She’s referencing our MM haiku:

How is your e-fund?
You’re behind on retirement.
You should cut cable.

[icedcoffee]

Apr 26, 2021 22:07:52 GMT -5 mofongo said:

Apr 26, 2021 12:42:16 GMT -5 icedcoffee said:

Got it.  I mean, if I were to guess I'd say you are a little behind or on track on retirement.  There are calculators you can use online to determine.  But I don't think it's totally unreasonable to sell a small amount for a nice family vacation.  

Do you have a fully funded emergency fund?

How is she behind??? 

🤷‍♀️. Those calculators always say you need 12 million in retirement by the time you’re 35 or you’ll need to survive on chef boyardee. 😂

[icedcoffee]

Apr 26, 2021 23:57:49 GMT -5 goldengirlz said:

Apr 26, 2021 22:07:52 GMT -5 mofongo said:

How is she behind??? 

She’s referencing our MM haiku:

How is your e-fund?
You’re behind on retirement.
You should cut cable.

LOL to be fair I did say she should go on a vacation as long as she’s not selling from a tax advantaged account. I just suggested a normal vacation instead of a $10,000 Bora Bora adventure.

I agree life is short. I just prefer vacations to be funded from short term savings, but things don’t always work out that way.