| Almost no Debt, now what to do with extra money? |
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Pennstater
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| Almost no Debt, now what to do with extra money? |
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We are a couple, 46 and 50 with no kids.
Need advice on personal finance situation.
Debt: $50K at 5.3% remaining on mortgage
Home value $250K
Household operating budget per month. Approx $2500- 3000 including mortgage
401K = $116k
currently saving 3% each of us, the min. to get the corporate match.
Income $80k approx per year including both salaries.
own two fairly new vehicles and a pleasure boat worth 20k with no payments
own retirement property (land only) outside of US value $20K, no payments
Plan to build 100K home on property to retire
Savings/checking account total $16k includes (emergency fund)
Checking earns no interest, savings earns 1% approx.
So, what should we be doing with extra money each month? Paying off the mortgage? Or saving money. If saving money, how much in what type of account. I'm familiar with saving 9 months in an emergency fund, we have $16k almost that amount, already saved.
Is there something we are missing?
Looking forward to your replies..
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Sun May 29, 2011 5:56 pm |
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serenamp
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| Flexibilty |
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I'm not a financial guru but just from reading and my experience I'd hesitate to pay off a house you don't intend to keep.
1) It would make 250,000 of your money very hard to access in the event of an emergency.
2) What if you've paid it off and your home value decreases? and then you're stuck selling and eating money?
I'd save the money but how I've no idea.
My mom and dad, my dad's typical salary was 300,000 yearly, always put money into CD's and had the interest roll over into easily accessible accounts but that was the early to late 90s and I'm sure CDs earned a little better than they do now. I don't know if this is still an intelligent plan. They did eventually pay off and own their home, own two lots of land in other areas and at one time own four cars.....two being mine and my sisters. They also held stock in the company that my dad worked for for many years before starting his own company in the late 80's.
Again just more questions to throw in. Hope you get some great responses.
Rereading it I still think having a rather large hunk of your money tied up in possessions is a little frightening. Land, House, Boat, Cars. I'd want a little more free floating money just in case. All those things may be hard to get out of in case you really needed it and you could wind up eating money by just having to try to sell it quick.
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Sun May 29, 2011 7:38 pm |
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serenamp
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| International |
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Also I dont' know what country you're planning on retiring to, but the exchange rate of the dollar may affect your decision. Since you're essentially focused on retiring. Is it worth looking into investment outside of the us or conversion of your dollar to help benefit you in the long run?
Again just more questions from reading.
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Sun May 29, 2011 8:36 pm |
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oldguy
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The thing that really stands out is the low $116k retirement fund - often couples your age, your income, would want to keep over $500,000 there. You may be retiring in 10 years, I would invest as much as possible.
The $16,000 in savings is plenty, I would quit adding to than and try to do whatever you can to build up your investment accounts - the 401k, the Roths, a taxable account. It looks like you might have $25,000/yr or more available to invest - if you can invest that for 10 yrs you could build the $116,000 investment account to about $700,000 if you use 10% to 12%/yr funds.
No, don't prepay the mortgage, retain the use of that capital for investing.
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Mon May 30, 2011 12:32 am |
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serenamp
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| questions |
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again wouldn't the amount needed for retirement depend on retirement location? and value of the dollar there?
I think my mother, who managed our money, always had a real fear of not having access to money when she needed it, and they weren't near retirement age.
Keeping so much in cash in banks helped during time periods that my father was in between company contracts, and helped my mom actually have access to money during my parents divorce, which lasted a long time and got messy.
I think it's mindset. Do you want to accumulate a lot more money or are you ok with just having enough to enjoy your retirement. How's healthcare in the nation you plan on retiring to?
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Mon May 30, 2011 1:11 am |
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coaster
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What jumped out at me as well is what old guy mentioned: the retirement fund. And you're not that far away. if you want some really scary numbers: a retirement account with a principal value of 1.5 MILLION dollars is only going to throw off about $40,000 in income.
And serenamp brings up some really good points to consider as well. Especially the point about the exchange rate; something most people wouldn't factor in, and the way the dollar's going, might prove to be an unpleasant surprise.
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Mon May 30, 2011 1:39 am |
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Pennstater
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retiring to a very small, not resort area in Mexico. Expenses will be minimal.
Plan to stay in current home another 15 yrs min.
I hear what you're saying about the home value decreasing. It's already been decreased from a high of $450K. We live in one of the worst markets, it can only go up I think.
Good note about are we trying to accumulate more $ or just live with what we have. We're not trying to live the life of the rich and famous, just comfortable.
Also, about tying up the cash, we must have a home to live in and 2 cars, The boat and retirement property are extra, yes. So, are you saying the ratio is showing too much cash tied up and not liquid enough? If we increase 401K savings rate this will tie up more cash. Right?
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Mon May 30, 2011 1:50 am |
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khygeljones
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In this economy, I'd say, put aside cash. Horde cash if you can. Set aside cash to make sure that you can keep those debt obligations at least a few years out, should you happen to lose your income-power today.
Joseph Smith
http://www.taskforce-1.com
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Mon May 30, 2011 7:12 am |
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oldguy
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quote:
We're not trying to live the life of the rich and famous, just comfortable.
Also, about tying up the cash, we must have a home to live in and 2 cars, The boat and retirement property are extra, yes.
Well - two near-new cars, a boat, a retirement property, and a $450k house is considered living 'Large' in most places. Remember, you're age 50 and only have $116,000.
A common money trap in the US seems to be late-model cars - we buy a pair of cars for $60,000 and 4 years later thay are worth $10,000. That's a $50,000 loss just on depreciation - and then you pay another $24,000 for gas for that 4 years. Do you see why millionaires often drive older cars?
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Mon May 30, 2011 3:32 pm |
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Pat Morris
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I would recommend increasing your retirement funds.
At your income level, you should each be eligible to put money into a Roth IRA. You could also increase your 401k contributions, even if there is no employer match.
Since you want to build a new house on the land in Mexico, you could also start saving the $100,000 necessary to build that house.
Patricia S. Morris, Esq., CFP
Personal Bill Paying Services, LLC
http://personalbillpayingservices.com/blog/
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Mon May 30, 2011 9:55 pm |
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coaster
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quote:
Originally posted by Pennstater
So, are you saying the ratio is showing too much cash tied up and not liquid enough? If we increase 401K savings rate this will tie up more cash. Right?
I think you're plenty liquid. You should be less liquid and more solid.
Ouch, OK, that was bad. Sorry.
But you do have enough readily-available funds. I think what you need is more money that's working for you: money that's growing and compounding.
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Tue May 31, 2011 4:55 am |
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littleroc02us
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A good rule of thumb that I use to see if I'm on track for retirment is this formula, Age X Gross yearly salary divided by 10=Amount you should have saved for retirement. You should have $384,000 right now if I take the average of your ages which is 48.
Romans 13:8 “Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.”
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Tue May 31, 2011 1:20 pm |
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serenamp
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| more money |
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While the dollar still converts to a good number of pesos you're still going to need more money than you have to retire there.....even living moderately. Although housing, the cost of building housing, and labor are less expensive, quite a few consumer goods, particularly when you find yourself buying appliances, electronics, and the like to fill your house, are actually more expensive....just because a dollar equals more pesos doesn't mean that the goods are cheaper.....they're just in peso amounts that would equal or exceed their dollar ones here in the United States.
While socking away more money, however you think is best here, while you're preparing for retirement. I'd also be monitoring and getting advice from financial planners and expats in Mexico. Be careful of falling into the idea of "I'm an American Living Abroad" and going wild. Live frugal there, like a regular mexican family does. I think this is really true about traveling there too....and make sure to factor in the costs of visiting family back in the US...if you plan on it.
Since you're thinking retirement globally....treat your dollars and investments that way too, and watch out for odd sticky financial charges during your relocation process. Will you have to pay yearly for visas to live there? What type of visa do you plan on getting? Cost of bringing your own goods into the country if you plan on it? Your cars? and boat? In the beginning at least you'll have to include a note with your visa to keep your imported car. Are you planning on actually becoming a Mexican citizen? to avoid the visa issues? If so check to see if you can in fact still own the property you're buying, remember that you can't own an imported car if you've become a mexican citizen....boat? Do you plan on selling them here in the US and buying new there....then you'd want to have saved for the cost of the new cars and boat too...which are usually a little pricier. Car insurance?
Again just more questions. I'd question everything you do to live here and check and double check how that's going to transfer to your life in Mexico. I think only then can you get some idea of what you need for retirement. I'd get help from not only expat americans but also mexican americans, who typically, (especially in border town areas) learn to make the best of both worlds. Most drive back to Mexico for healthcare, buy clothing in the US, enjoy the cheap liquor Mexico sells, cheaper services, buy their electronics in the US. Learn how they make it work to their advantage, and be open to embracing the culture.
I was shocked that foods actually sold out in grocery stores the first time I traveled, which was to Ojinaga.  Best wishes to you both! What an adventure!
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Tue May 31, 2011 3:04 pm |
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