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Reader’s Question: How should Chris invest?

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Reader's questionsHey Everyone,

Today we have an email from Chris. His household is making a nice income and he’s wondering if there is anything he could do to improve his personal finances. Let’s see if we can help him with some useful advice.

Chris’ Story

My age: 31

Wife’s age: 29

Total take home gross salary of ~$125K.  Sometimes we get extra income from a bonus but I do not like to include that in my planning numbers.

Currently investing per year

  • $32,000 going intopre-tax accounts (max 401K for me plus a 3% match and about 14K for wife.  The 3% match is not in this number)
  • $11,000 total into two Roth accounts


  • $140,000 in long term investments
  • $25,000 in short term investments likeCDs and a Bond
  • $100,000 in checking/savings (I know, this is a lot in checking/savings – That’s why we are here looking for help!)


  • Owe about $103,000 on our house that is worth around $180,000.  Have a low interest 15 yr mortgage with 9 years left on it
  • No other debt – We did have quite a bit of school debt after we both went back and got our master’s.  But thankfully we finished paying that off last year around this time.

Monthly Budget

  • $3,700/month – Includes the extra $200 we pay on the mortgage
  • This will need to increase as we are just about to have our first child
  • We track everything dollar coming in and out

So right now with our vehicles, and deducting taxes for the long term investments, our net worth is around $350,000.

Long term, we are hoping to retire by 50.  We would love to retire earlier so looking forward to some feedback.  As far as income at retirement goes – I’m really not sure.  We don’t plan on having a big expensive house or anything, but we would like to travel and golf, etc.  Also want to be in a position to pay for the kids college, etc. We plan to have two kids.

So looking for thoughts on how we are doing number one and some other ideas of what to do next.  I feel like the long term investments we are doing OK on, but if we retire at 50, we won’t be able to touch any of that money until 59.5.  Unless of course we take out the Roth principal or if we want to pay the tax penalty, which we definitely don’t want to do.  We are not planning on doing a 529 plan for the child, but that’s because I am still not sold on them since they are for education only.  But then again, we are already maxed in Roth and heavy in checking/savings where we are earning basically nothing in interest.  Also I feel like the monthly budget is high, but have a hard time getting the number down.  We donate a decent amount each month, then groceries do get a bit expensive since we try to buy mostly fresh items.

Live in the Midwest, Great Lakes region.  Cost of living is much lower compared to the west coast.

Joe’s comments

First of all, congratulation on paying off your student loan debts and establishing a great foundation with your personal finance. I think you are doing really well and just need a few little tweaks. Great job on tracking your cash flow too. I think that’s the first step to mastering your finance. Here are my recommendations.

Max out your wife’s 401k

I sent Chris a follow up email and he said his wife is reluctant to increase her 401k contribution because she makes about $40,000 per year. Actually, that’s all the more reason to increase her 401k contribution. She is making less so she needs to save more while she can. I would try to convince her to increase her contribution. It will help reduce their tax liability too.

Come up with a cash deployment plan.

I can see that Chris wants to invest some of his cash position. I think that’s way too much cash to hold at this age. They need to invest while they are young so they can take full advantage of compound interest. Chris needs to come up with a methodical plan for this volatile stock market. Here is an example.

  • Keep $20,000 in cash.
  • Invest $30,000 by dollar cost averaging over 12 months.
  • Invest $10,000 if S&P 500 index drops 10%.
  • Invest additional $10,000 if S&P 500 index drops 20%.
  • Invest additional $10,000 if S&P 500 index drops 30%.
  • Invest additional $10,000 if S&P 500 index drops 40%.
  • Invest additional $10,000 if S&P 500 index drops 50%.

This is just an example and Chris should come up with something he is comfortable with. It’s probably a good idea to stick with low cost index funds for the bulk of this. Also, he should figure out his target asset allocation.

Early Retirement

Chris and his wife have 20 years to work on their passive income so I think they are in a great position. I think they should invest in the stock market and consider rental properties. With 20 years left, I’d say invest in stock that you can hold for the long term. Holding stock for the long term will minimize their tax liability. Once they get near retirement, they can convert some of those to dividend paying stocks and high yield bonds to help fund early retirement.

Chris also should try being a landlord and see if he is good at it. Maybe when they move, they can rent out their old home and see if it works out. If he is not cut out to be a landlord, he can sell and move the money to REIT or stock.

Early Retirement withdrawal option

Here is an option that Chris might now know about. Early retirees can access their retirement funds without paying the penalty by using the IRS rule 72(t). This could be a good option if their retirement accounts are in a really good shape when they’re 50. There are some downsides, though. If he retires at 50 and use rule 72(t) to access his retirement fund, he would need to keep withdrawing every year until he is 59.5.  I think this is a good way to convert your retirement account to the taxable side because you won’t have to pay much tax after you take early retirement. I have not done this so everyone will need to keep reading until I try it. (Maybe in 14 years or so…)

Extra payment on mortgage

It’s always a good thing to pay down your loan. However, I would consider putting that $200/month toward his wife’s 401k instead. It’s probably not worth making extra payments if the interest rate is low.


Congratulations on your first child! Life will be totally different very soon. Your cost of living will increase, but you will get some extra tax benefit too. Lifestyle inflation is inevitable, but try to minimize it. I think you are doing great so far and retiring in 20 years is a good possibility. You just need to keep saving and investing. Good luck!

Do you have any advice for Chris and his wife?

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{ 39 comments… add one }

  • Ernie Zelinski January 29, 2016, 1:41 am

    Since I am so erratic in my earning and investment strategies, I would be a poor source for financial advice, aside from the obvious.

    But I like to share other people’s advice about advice, some of which follows:

    “Nobody can give you wiser advice than yourself.”
    — Cicero

    “He who builds to every man’s advice will have a crooked house.”
    — Danish proverb

    “To profit from good advice requires more wisdom than to give it.”
    — Unknown wise person

    “If you can separate good advice from bad advice, you really don’t need any advice.”
    — Unknown wise person

  • JC @ Passive-Income-Pursuit January 29, 2016, 2:04 am

    Congratulations to Chris and his wife most importantly on their child and secondly to being in great financial shape. I didn’t see it mentioned above but I think one thing the two of you really need to work out is whether your wife is going to be a stay at home mom or not. If her gross salary is $40k then the numbers could work out financially that it would be a wash. Day care alone would eat up a good portion of her take home pay. Just something to consider. If she does plan to be a stay at home mom then I would probably hold off on many any significant financial moves until at least 3 months after the baby arrives. That would give y’all plenty of time to transition to living fully on one income, her being a stay at home mom and adjust to the higher expenses of having a newborn.

    Assuming your current situation continues into the future with no changes except the addition of a child then the plan would be different. The $100k in cash seems quite high and I like Joe’s plan of setting aside a certain amount to dollar cost average over a year and then having more set aside to invest at once if there’s big dips in the market. The only thing I’d add to that is that should there not be a 10% dip+ in the markets then make sure to move those funds into the dollar cost average pile during the next year to make sure you get them invested. Sitting in cash isn’t going to be good over the long run.

    Also, just to take emotion out of it make the dollar cost average withdrawals automatic so you don’t hesitate because the markets are declining. It’s almost always a good thing when you can take yourself out of the picture.

    I know you said that your home is on a 15 year fixed with $103k left and a low interest rate. But another option could be to try and pay down the mortgage note faster through additional payments and using some of your cash. It might not generate the best return you could get considering your low interest rate but if your mortgage is completely eliminated that would free up whatever your mortgage payment is in monthly cash flow to build up savings and invest. If the mortgage payment is $700+ per month I’d probably consider it because that would free up 19% of your monthly budget. This move really depends on your own preferences because like I said it’s not going to generate the best long term return but being rid of that debt could be something that you value higher.

    Congrats again and I wish y’all the best!

    • retirebyforty January 29, 2016, 10:36 am

      That’s a good point about being a stay at home mom. I think one child shouldn’t impact their finance that much. With 2 children, the cost of daycare could be pretty expensive.

      • Chris January 29, 2016, 12:02 pm

        Thanks for the reply and info!
        Regarding the stay at home for my wife – That is not in the plan, she is planning to stay working so we shall see what happens once the baby is born.
        For the mortgage – I was thinking very similar to what you mention. The cash in the bank is earning low interest so paying off more of the mortgage made at least some sense. While the rate is only 2.875%, it seemed like a better option than just leaving the money sit.

    • spudguy February 3, 2016, 12:36 pm

      I don’t think it’s very sound advice to pay down your mortgage or pay off your house in the absence of understanding your current (and projected future) tax situation.

      Mortgage interest can be a significant tax deduction, so if it’s part of your Itemized Deductions, that’s a writeoff of ~$3k a year. For some people, their combined federal and state tax levels puts them around 50%. You’re surely not there today, but even if you’re paying 1/3 to the government, it’s like the mortgage rate is closer to 2%, tax adjusted.

      Putting money in an investment that nets 2% after-tax should be doable. Hence – my logic would be to NOT put the cash to pay down the mortgage. In fact, you should put it into a 529, as others advise.

      On the topic of the 529, based on what I hear you say, I can’t see any reason you would NOT want to do it. You clearly already have a college savings goal in mind, and there is no better tax-advantaged approach than funding a 529. One tip on that is you could put all of your college savings into a single 529 account for your firstborn, and you can carve off a portion of it (at any future time, as long as you are the custodian) to child #2 in a tax-free transaction. It’s a good hedge in case Child #1 decides not to go the college route. I could write more on this topic, but it’s getting too long as a comment.


  • Pennypincher January 29, 2016, 2:48 am

    Chris-I’m no expert, but here’s what’s worked out well for me. Hold on to the Roth IRAs and keep feeding into them if you can. This will be the last $ you’ll pull from, tax free, in retirement. Because of the long term horizon of the Roth IRAs, it should be heavy into stocks for growth.
    I’d stick w/index funds there. What ever you can stomach and still sleep at night, risk-wise. Remember, it’s long term-so no panic selling when the market goes nuts. Buy and hold. Don’t touch it. Over a certain amount in Vanguard accounts and you get free yearly professional investment advice-from Certified Financial Planners/Advisors. They are amazing, super helpful, lowest cost-just sayin’! Read good investment books when possible, then you’ll know you’re on the right track.
    I would try to max out the 401ks if and when possible. I would get a good CPA to do your taxes. They will also give good advice @ tax time for your investments. Shop around, some charge hourly, some charge by your income and/or total assets-so ask. Ask him or her what’s best-paying off the mortgage or taking the tax advantage.
    I’d go Coverdell Savings Plan for the kids college costs. A lot of scholarships (free money!) is not determined by your income, but by grades, test scores, etc. So many parents see scholarship offers regardless of how much income they bring in-good news! Let your kids help pay for college, they’ll appreciate it so much more AND colleges want to see kids working. With college savings, kid’s income and savings, your liquid cash account, paying college bills will be less painful when the time comes.
    I’m w/Joe on the S&P 500. I love all of Vanguard’s index funds. Stay away from high priced investment companies AND never buy a “product” type investment, like an insurance policy,etc. that involves big fees/costs. You both seem busy, so keep things manageable and simplify where you can, (index!). Congratulations, you’re on your way!

    • Chris January 29, 2016, 12:07 pm

      We are definitely planning on keeping the Roths – Great for retirement to have the separation between the taxable and non taxable accounts.
      For the CPA – We did go that route about two years ago – We pay a little more but definitely the better route.
      I will definitely look into the college savings you mention, this is great and I have never heard of it.
      And like you mention, I really agree and like the thought of from you and Joe about the S&P and will definitely be moving on something asap.

  • StudMuffin January 29, 2016, 3:37 am

    First off, congrats on the little one coming your way. When my daughter was born my Mom sent me a card that said “Life as you knew it is now over.” True dat, but in a very good way.

    As someone who gets stressed out if I owe anyone a dime, I’d take most of that checking account $$$ and apply it to the mortgage. Not only will he sleep better at night knowing that he owes people less money, but whatever interest rate he’s paying isn’t zero, which is what his checking account is earning.

    Other than that, there are many different ways to skin the cat. His current plan ain’t bad.

  • Brandon January 29, 2016, 4:52 am

    Your current situation is so close to my own right now that it is almost freaky. I’m 30, my wife is 29, we bring in about 133K last year including some rental income. My net worth is around $350K too. The only difference is that I’m planning on retiring at 40. The key here is to setup some sort of passive type income. Right now I’m pulling in around 13-16K extra from some rentals and I’m working on a deal right now that will push it closer to 32K per year. Don’t forget that if you want to retire early you are going to need money outside of a 401K/IRA/Roth IRA like passive income or something in a taxable account you can draw from before you turn 59.5. Oh and one last thing, it’s a small thing, I would immediately stop putting extra money down on your house. In my opinion you are throwing away money, remember opportunity cost. Good luck with your quest for financial freedom!

    • Chris January 30, 2016, 5:16 am

      Brandon, good points. I have been looking at houses/condos for rental opportunity for about 4 months. I just need to find something and actually pull the trigger on it. Someone mentioned below the option of moving then renting out our current home, that is really what I would love to do. Its in a neighborhood that would pull in a nice rental amount and if it didnt work out, I would have no issue selling.

      Great work on your net worth and rentals, sounds like you are on your way to retire by 40. Good stuff!

  • Dave in Sunny FL January 29, 2016, 6:41 am

    Chris indicates that he is not in favor of funding a 529 plan for his future child’s college education, because it is “only for education.” I think that this is the wrong way to approach the issue. In our state, Florida, we are able to secure prepaid tuition for our young children at today’s rates. I have no expectation that we could out-earn the rate of increases in college tuition over time. So, locking in that expense now made a lot of sense to us.

    • Josh January 29, 2016, 7:13 am

      Prepaid tuition is intriguing. Is it only good at certain universities? If your child doesn’t gain admission, do you get the money back? What if they want to pursue other goals like entrepreneurship or work overseas instead of college?


  • Mike H. January 29, 2016, 7:01 am

    I think Joe has nailed what to do with your extra cash (I’d stop paying the extra amount on the mortgage and throw it into the markets somehow). Don’t forget to keep some on hand for baby expenses! I just have three areas of advice:

    1. Transfer your savings to an interest-yielding savings account as soon as possible (if it’s not already there). Ally is around 1% these days I think. That amount of money should be earning interest, even if it’s just 1%. From there, you can invest as you see fit.

    2. Consider your stance on the 529 (I’ve also been told that Coverdell ESAs are a good vehicle, but I don’t know as much about them) to see if you’d like the tax savings and the nice pot of tuition payments in 18 years, but that’s AFTER you max out your wife’s 401(k).

    3. If you’re planning on retiring early, you’ll need taxable accounts or income-producing assets (like real estate), and because your time horizon is shorter for your taxable accounts, you’ll need to fund them more aggressively.

    The 72(t) rule is something that’s open to you, but I generally don’t recommend it; it takes away a lot of flexibility. Great job so far! I’m about your age, and you’re way ahead of me.

    • Chris January 30, 2016, 5:21 am

      We did start putting the money into a higher interest account and we did choose Ally. I just havent moved all of it yet. We have a few different accounts at different banks so I just need to finish up. I agree, 1% is better than the .005 or whatever it is at the bank,

      I need to keep reading up on the 529. It has so many positives but I keep talking myself out of it. So will definitely take your advice (and most others) to up the wifes retirement, then we can figure out what to do next.

      Thanks for the comments!

  • David January 29, 2016, 7:30 am

    If you are wanting to contribute to your kids’ college and are pretty sure that you will have 2, I would consider setting up 2 529 accounts with part of that 100k you have. If you setup the 529 accounts now with you & your wife as the beneficiaries, you can change the account over to a relative (your kids) later without any sort of penalties. You could then get a big jump on their college as it gives even longer for compounding to work its magic. Before doing that, make sure it works with whatever 529 account you invest in. It worked with my state’s 529 account.

    If your interest rate on the home is good, then I would not be putting extra money towards that. With 9 years remaining on the loan, you would have that paid off well before early retirement and could use the extra cash now to invest. If you don’t want to do it that way, then I would accelerate the payments and get it paid off sooner. Maybe use some of that 100k you have sitting in savings to get it paid off soon. That way you can start investing the entire mortgage payment earlier. Either way would make sense to me and would just need to be decided by what would make you and your wife more comfortable.

    After the 529 investments and any used for a large house payment, I would set aside about 20k for an emergency fund (unless you consider your CDs & Bonds an emergency fund) and then put the rest into investments. Either all now, or automated investements.

    I wouldn’t necessarily max out your wife’s 401k. As long as your adjusted gross income is below 110,000, any more in the 401k to me isn’t necessary. I use 110,000 because that is the point where the $1,000 child tax credit starts to phase out. I keep our income under that level and then at the end of the year I can choose to put more money into an IRA, Roth IRA, or our taxable account depending on our tax situation for the year.

    Like an earlier comment mentioned, if your wife is going to want to be a stay at home mom, that may change some decisions. You may then want to pay off the house right away with that 100k so that it will free up some cash flow when she is no longer working.

  • Leigh January 29, 2016, 7:43 am

    I’m apparently the contrarian! I’m totally fine with them having $100k in cash. Well, maybe not quite $100k. $100k is 27 months expenses. And really, they have $125k in cash because they have another $25k in CDs and bonds. So they have a 34 month emergency fund.

    It sounds like Chris and his wife are missing their next long-term financial goal and I wouldn’t reallocate the cash until they do that. I would, however, be maxing out her 401(k) so long as she is working. If they’re pooling both of their incomes into one checking account, then it shouldn’t matter that she is getting paid less. I would also be looking into 529s. Do they want to pay for their kid(s)’s college education? If so, I might take $14,000 (or the gift tax exclusion limit) and open a 529 for their kid once it’s born.

    After that and the kid is six months old (for stability of expenses), I would set aside 6 months of expenses, say $25,000 (rounded up a bit) in cash. I would then put $75,000 (the rest of the cash money) into a taxable stock market / helping to max out the wife’s 401(k) / some at the mortgage if you want. I would be hesitant to put so much into your mortgage though since the property value isn’t that high compared to your incomes and you have a good liquid buffer. Depending on your risk tolerance, I would either invest all of the $75,000 immediately or I would invest it in the weekly sum of about $1,400/week. How much room do you have to save after-tax each month? What are you doing with that money? I would also make sure that you have your savings in an online bank earning around 1% like Ally Bank or Alliant Credit Union.

    • Chris February 13, 2016, 9:20 am

      Leigh –

      Great inputs and advice. I agree with your approach. For the risk side, we are probably going to lean towards the monthly or a quarterly amount like someone else mentioned, instead of investing all at once.

      For the after tax each month – Not that much now the baby is here. (He was just born so I have not been on the site at all in the last two weeks)…I am putting aside about 800 per month in the budget for daycare so that will pretty much clean us out after tax each month since the Roths are another about 1K per month. And for the savings in a 1% ish account, we are doing that so at least we are making a little bit. Thanks again for the input!

  • freebird January 29, 2016, 9:32 am

    According to my records my net worth was almost exactly the same as Chris’s on my 30th birthday. My gross W2 income at that time was 84K. My net worth was mostly in taxable brokerage accounts, plus a combination of tIRA/401k/cash balance pension (rolled into 401k years later), and less than 10K in checking. My brokerage accounts were probably around 60% stock and 40% cash; I never liked bonds much. The IRA was maybe half stock and the 401k was all stock. No real estate, and no other possessions of significant value.

    So Chris’s AA (asset allocation) would be 140k stock/125k cash/77k(net) real estate or 41%/37%/23% while mine was 197k stock/164k cash/0k real estate or 55%/45%/0%. Except for the real estate part we look pretty similar in terms of AA. Spending-wise, excluding taxes I think mine was about $1000/mon at that time with 2/3 of that being rent. So I guess I was nearly financially independent (33x annual spend) even back then due to my low living expenses? It took me another decade to reach FI based on the median household spend, I was willing to live tiny to reach FI sooner but I wasn’t going to stay that way after retiring!

    I think due to life choices Chris may see more of a challenge reaching FI than I did. Not only will two children likely add large to spending, but if his wife decides to be a SAHM, the loss of income would be a major headwind. I think the way out is three-fold: first reduce spending, second find a way to increase income (or accept a longer time-horizon at work), and third tilt the AA towards equity to aim for faster growth. You’ll have to decide how best to combine and trade off these moves– for me Door#1 and #3 would be my first and second choices.

  • Sarah January 29, 2016, 11:58 am

    We are a lot older but had kids about the same time as Chris. We made a goal of paying off our house before our first one went to college and then using the amount we were paying for the mortgage to pay for college. We never set up a 529 but had funds set aside for college if we needed to use it. We now have a junior in college and have never touched those funds. Have just paid for it out of current income. Course, college in 18 years is going to be more expensive than it is now.

    There is no better feeling than knowing your house is yours and no one can take it from you for not paying your mortgage!

    Also, we have friends who have had 529 plans and they have not worked out so well. A friend had a daughter going to college in the fall of 2009. The 529 plan should have reallocated the funds to more conservative investments since she was getting close to college. They did not (or at least not enough) and the 529 plan lost 30% of it’s value in 2008/2009. We like to control our money so that is why we chose to skip the 529.

    • Pennypincher January 30, 2016, 11:03 pm

      Regarding the 529 college plan, I heard from a good source that they are expensive and to stay away from them. In our state, I recall a lot of parents lost considerable savings in these accounts-cannot remember the details. There are plenty of other places to park college funds. Sorry to plug them again, but Vanguard can help you out in this department.

    • Chris February 13, 2016, 9:24 am

      Sarah –
      Congrats on paying off that house and getting the kids college taken care of without touching other funds. That is fantastic!

      We are feeling the same in that we would rather have the house paid off before the little man grows up and heads to college, and like you, im still not sure on that 529. We shall see. The other wrench that will come into the mix is we will likely need to move if we have another child. Bright side is, like someone else mentioned, we are planning to keep this house and use it as a rental. Thanks for the comment and good work!

  • Vawt January 29, 2016, 12:41 pm

    Chris and his wife are in tremendous shape. They should be commended for being so great with money (30 year old me is a little jealous, current me is proud they are ahead of where I was 8 years ago).

    I agree the first change to make is they should max out his wife’s 401k first. If you are functioning as a team, it doesn’t matter if her take home is smaller, you are sharing the checking account funds. I don’t think you have to jump into being a landlord, though.

    Babies aren’t as expensive as you think if you buy only the necessities. At your current pace, you will not have to wait until age 50 to retire. I would be surprised if your weren’t financially independent by age 40!

    If you move some cash into a taxable investment account (or use Betterment or a robo advisor), that money might grow enough to not need to take principal out of the Roth’s later down the line. Keep plugging extra funds into that account and your cash reserves (I also tend to pay extra on the mortgage, though I know I should invest instead).

    Keep on saving and if having more cash in the bank helps you sleep better at night, don’t change it. The mathmatically optimal solution is not always the best solution for you.

    • Chris February 13, 2016, 9:30 am

      Vawt –
      Thanks for the great words! Dont be a little jealous, just get those savings and investments rolling! We did recently update the wife’s 401K so that is now set at the max. It wasn’t hard to convince her after reading everyone’s comments on here. She said “well i guess its about time”…Good stuff.

      Still on the fence on the landlord part. I am looking for rentals, but the best case would be to keep our house if we move and try it out that way. We shall see.

      I agree on the babies being not as expensive part. There are so many ways to save money, really just taking the same methods we use on ourselves and apply to the kids – We have friends who also agree and basically say they are as expensive as you want to make them.

      I sure hope you are right about being 40 and FI. Hard work and diligence is the only way we will get there. Thanks for the comments and info!

  • Stockbeard January 29, 2016, 12:47 pm

    I’ve read strong points in favor of not spreading dollar cost averaging investments on a period longer than 6 months. I can’t find the website anymore, but the point was that statistically, since the market on average always goes up, by spreading on a long period such as 12 months, you are losing on opportunity to invest earlier and make more.

    I’d suggest some additional research for people looking to spread their investment over time.

  • mary w January 29, 2016, 3:19 pm

    Definitely max out DW’s 401k. At your income you need the tax savings.

    If you are VERY conservative consider paying off the house and then funneling that monthly payment into the market. (Not what I would do because I’m not very conservative).

    If you are moderately conservative, pay enough extra on the house so that its paid off the earliest you think you might retire. If moderate or aggressive then don’t put an extra dime toward paying off that stellar interest rate.

    I like Joe’s idea of easing into the market over the next 12 months.

  • Michelle January 29, 2016, 6:48 pm

    I would do one or some of the following:

    1) 529 College fund, it can be tax deductible in some states. It’s transferable and can be used in educational purpose only. I opened the accounts for my 2 kids because it’s tax deductible in my state.

    2) Annuity, I had some cash sitting back in 2009, opened an annuity account for a guaranteed 5% interest. I can’t take them out before 59 1/2, else there will be a 10% penalty. But it grew nicely.

    3) Buy rental properties. Property management fee generally runs from 7%-10% of rent collected; but personally, I think it’s worth the headache.

    Congrats and good luck!

    • Conrad January 30, 2016, 9:56 am

      I wouldn’t recommend buying annuities at your age. Had Michelle put that money in stock index funds in 2009 it would have tripled and she could access it before 60. Also, 529s may not be a great option if your state doesn’t offer a tax deduction.

    • Chris February 13, 2016, 9:33 am

      Michelle –

      Good ideas. We are still figuring out the 529s but I do have a feeling they are in our future.

      For the annuity, we really dont know much about them, I will have to do some legwork to see if they would be a good fit for us. I have no idea!

      And the property rentals – Working on it!

      Thanks for the comment!

  • Thias @It Pays Dividends January 31, 2016, 5:51 am

    Congrats on you and your wife’s first child Chris! My wife and I had our first child approximately 10 months ago as well! From our experience, the extra cost related to my daughter has been minimal so far. A big thing for us that kept costs down was within 2 months of my wife going back to work, she decided that she wanted to stay home full time with her so that cut day care costs out.

    If you are interested in paying for your child’s college later in life, I would open up a 529 plan the first year as well and start contributions, no matter how small. As with retirement savings, it is good to give compound interest as much time as possible to work. Good luck!

    • Chris February 13, 2016, 9:36 am

      Thias –

      Congrats on the child! It is really an amazing feeling. Our little guy came just the other week and it has been fantastic! The plan right now is for my wife to stay working. If she did stop, it would cut the daycare costs, but would be a huge hit financially for us. at roughly 30% of our current take home, that would be a hard hit. Will have to wait and see how she feels, ultimately we will do what is best for her and the family.

      Thanks for the comment and best of luck with the child!

  • Doug Carey January 31, 2016, 2:12 pm

    As a friend of mine once said, “buy stocks when you are most afraid.” We’re not there yet, but when it seems like all hope is lost for the market, buy at that point and you will be set fore retirement. I also believe in strong dividend payers such as Johnson & Johnson and Exxon. After 20 years of dividends the principal becomes nearly meaningless and the income is all that matters.

    • retirebyforty February 1, 2016, 10:19 am

      I like JNJ too. I’m looking to pick up a few shares this year if the market continues to decline.

    • Chris February 13, 2016, 9:39 am

      Doug –
      Couldn’t agree more. We have a couple great dividend stocks right now as well. While they are taking a bit of a beating, the dividend pays very well. I like the idea of adding more of these type stocks to the portfolio. That buy time may be on its way soon.

  • Joel January 31, 2016, 3:01 pm

    I know some may disagree, but I’d pay off the house ASAP. I can’t tell you the freedom you feel when that happens. My wife is able to stay home, and I just don’t feel the stress anymore, despite the fact that I paid off a 15 year 3% loan. Peace of mind is worth a couple points of interest lost! Due to stock market fluctuations, I have begun to invest in real estate as well as the market. I’m working on my third property – here in the midwest, it’s fairly easy to find some cheaper properties with good cash flow. Something to think about. I’m about 10 years ahead of you, with 2 kids 11 and 14 now. Life changes so much, and it’s not getting any cheaper! Good luck!

  • spudguy February 3, 2016, 12:48 pm

    Hey Chris, here’s my general take.

    – You’ve got a great head start, and are in better shape than the majority of Americans. Congrats on that important achievement.

    – I would suggest that you can’t evaluate if you’re truly on track or not, unless you have defined what assets and supportable cash flow you will actually need for your target retirement date.

    – If you retire at age 50, you’ll want to evaluate what your costs are likely to be at that point in time. Yes, you’ll want some apportionment for hobbies and such as you outline, but what you’ll *really* need is coverage in a health plan for your family. Unsubsidized plans for a family of 4 probably run at about $1k per Month *today*, not including deductibles and such. I’d be conservative and think about what you’ll really need. Will you be content to retire in your current home?

    – I use the following framework to chart my personal plans. I look at the asset draw I believe I’ll need, in the location I intend to retire, at the time I need to do it. I then look at the post-tax monthly expense flow I will need to support that by modeling a 3.5-4% draw rate of my composite *investible* assets. I emphasize investible, in that my then-current home doesn’t count in the pool, because the house you live in can’t be fractionally liquidated to pay for a year’s expense.

    – I guarantee you will need to do a lot of modeling and scenario planning when kiddo #1 and kiddo #2 both arrive. I would advise talking with some experienced folks on the implications (hint: it tends to push out retirement further than initially hoped).

    – Happy to counsel more. These are summary comments only…

    • spudguy February 3, 2016, 12:51 pm

      – I forgot to add: Are you certain your current home will be all you ever need for your expanded family? My experience is that a lot of couples soon realize they need a larger place after having 1-2 kids, or want to move to a better school district with inevitably higher costs.

      • Chris February 13, 2016, 9:43 am

        Spudguy –
        Great information. It sounds like you are well on track and have a solid plan and foundation for what you will need. Definitely may need to seek you out for some additional advice.

        Regarding the home – You are correct, we are probably going to move if we (planning on it) have a second child. We would not plan on going overboard though, probably a few more square feet and we would look for something with the best value. This is all up in the air right now, but definitely could see us moving at some point in the future.

        Thanks again for your comments, this is great information.

  • Brian February 8, 2016, 10:49 am

    With a 20 year time horizon, rental properties are the perfect way to deploy that cash. Glad to see you recommended that for them!

    The only difference in my opinion – I like to encourage people to not attach the idea in their mind to being a landlord forever. That can be daunting and stop people from taking action. Rather, run the numbers with a property manager in place, I’m sure they still give a good enough result. They can try being the landlord, but not feel like that is a requirement for it to be successful.

    • retirebyforty February 8, 2016, 4:11 pm

      I second this. Being a DIY landlord can be a lot of work. We plan to transition to property manager at some point or just go with REIT..

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