Does this sound like a good financial plan?

[SGP20162016]

Could you please tell me what you think of this?

My fiancé (getting married in a few months) makes $68k and I make $120k. We both work in education, so we have a pension that we put 7.5% of our pay towards. We both also max out our ROTH IRAs. I have $30k in mind amdhe is just starting his. We are also going to start putting $800 (combined) a month into our 403bs. We work in education and our employer doesn’t match.

We have a mortgage of $273k on a home that’s worth $350k. We have no consumer debt. We have $15k in an emergency fund.

I have a rental property that I owe $118k on that’s worth $190k. I put $300-$500 extra on the mortgage for our primary residence each month and I put an e tea $250 a month on the investment property.

We are 37 and 39 and we would like to retire early (55ish).

Our hope is to agressively pay down the mortgage until 100k remains for what is owed. At that time, we should be able to sell the investment property and net about $100k from the sale.

We would then take the $100k from the investment property and pay off the home we live in. From my calculations, it should take around 6-8 years.

After that, we would save much more money in our retirement funds and probably downsize our home when we retire.

We do not plan on having kids, but my fiancé has s daughter and he put $70k away for her college years...she is 7 and he doesn’t plan on contributing anymore to that.

Also - our bank accounts are not linked or shared until we get married.

Please let me know your thoughts or if you need more info.

Thanks!!

[kork13]

(Caveat: Since you're getting married very soon, I'm going to just treat your plans as if you're already married to keep it simple. But keeping your financial lives separate until marriage is definitely smart)

A few thoughts in no particular order:
1) Overall, looks good. No non-mortgage debt, mortgages are well under control, and you have great incomes. You have 15-20 years until you're hoping to retire, which gives you plenty of time to round out your finances for retirement.
2) What are your total average monthly expenses? Given your incomes & primary home mortgage, I'm guessing $15k only accounts for maybe 2 months of expenses. You might consider boosting that up to at least 3 months, or up to 6 months of expenses.
3) At what ages do you become eligible to start receiving payouts from your pensions? Will you need to cover anything between the time you retire at 55 & when the pensions kick in?
4) Retirement plans look to be in a decent place going forward (~18% of gross income going toward retirement), but given your ages & current balances, you are a smidgen behind. As you're able to, it wouldn't hurt to increase your 403b contributions whenever possible in order to help "catch up." Does your employer contribute anything to the pension plan? Or is it no employer contribution at all, to neither the pension nor the 403b? And just to confirm, the 7.5% going to your pension is coming out of your pay, not counting any employer contribution? I'm assuming that is the case.
5) It sounds like you're already living together, is that the case? Or does he have a separate home as well that will join in the mix post-nuptials?
6) Looks like a solid plan for his daughter. Is that invested in a 529 plan? If it's invested decently at all, it should at least double by the time she goes to college.
7) I like the house payoff plan, as well as the idea of downsizing after retirement. Downsizing makes sense anyway, since his daughter will be off to college by then. Just be sure to save/invest whatever extra money comes in when you downsize.
8) Does the rental home produce any income above expenses? Where is that money going? You might consider either plowing it all into the rental's mortgage to accelerate it further, or otherwise drawing it off & using it to supplement your income while simultaneously boosting your 403b contributions (again, the light retirement accounts are the most worrisome issue that I'm seeing for you).
9) If/when you're able to be maxing out ALL of your retirement options (pension, Roth IRAs, 403b's, etc.), start throwing money into taxable investments as well. You'll need some cushion between retirement and having full access to all of your retirement income streams.

Looks good to me! Great job to this point, focus on building up your retirement accounts moving forward, and otherwise just enjoy life & teach your students to make smart choices to be productive human beings. The world thanks you.

[Jluke]

I would stop putting the extra $250 on the rental property and direct that to your primary home. For an extra $550-750 per month.

Actually I would contribute more to retirement NOW instead of paying all of that extra to mortgages. Reason: you plan to downsize anyways so what’ is the point of a paid off home you do n’ot plan to live in.

edit: apostrophes do not show up.
edit2: now they are.

[snafu]

1st, congratulation on having a well thought out plan. I presume you keep current on market range for rentals in your community.

[SGP20162016]

Thank you so much for your responses! Here are some added details to answer Kork13's questions...

2) What are your total average monthly expenses? Given your incomes & primary home mortgage, I'm guessing $15k only accounts for maybe 2 months of expenses. You might consider boosting that up to at least 3 months, or up to 6 months of expenses.

Our total monthly expenses are $3,200. I forgot to add that we basically live off of my income and save my fiance's. We have his income split into his 403b, ROTH IRA and various sinking funds. One of his sinking funds is $250 monthly toward our emergency fund. Our goal is $20,000.

3) At what ages do you become eligible to start receiving payouts from your pensions? Will you need to cover anything between the time you retire at 55 & when the pensions kick in?
We can start collecting at 55, but there will be a penalty. The current formula is that they average your 3 highest years of pay and then give you 80% per year of that amount for the rest of your life. At 55, they percentage is lower - but we would be ok taking that cut as long as we are able to save enough in the meantime to supplement it.

4) Retirement plans look to be in a decent place going forward (~18% of gross income going toward retirement), but given your ages & current balances, you are a smidgen behind. As you're able to, it wouldn't hurt to increase your 403b contributions whenever possible in order to help "catch up." Does your employer contribute anything to the pension plan? Or is it no employer contribution at all, to neither the pension nor the 403b? And just to confirm, the 7.5% going to your pension is coming out of your pay, not counting any employer contribution? I'm assuming that is the case.

Our employer does not contribute anything to the pension plan or 403b. However, we could probably increase our contributions another $200 a month combined.

5) It sounds like you're already living together, is that the case? Or does he have a separate home as well that will join in the mix post-nuptials?
Yep, currently living in sin. Haha!

6) Looks like a solid plan for his daughter. Is that invested in a 529 plan? If it's invested decently at all, it should at least double by the time she goes to college.
Nope, they are fairly aggressive stocks...but he will be more conservative as we get closer to when she is college aged.

8) Does the rental home produce any income above expenses? Where is that money going? You might consider either plowing it all into the rental's mortgage to accelerate it further, or otherwise drawing it off & using it to supplement your income while simultaneously boosting your 403b contributions (again, the light retirement accounts are the most worrisome issue that I'm seeing for you).

The rental income covers the HOA, taxes, insurance and mortgage. There is no surplus. I have a lovely family there who has been renting for years and I really don't want to up the rent on them at this point. And the amount they pay is very average in the area.


As far as why pay off the house if we don't plan on living here forever...well...to be honest, I just want to know what it feels like to own a home outright and not have to owe anyone anything. If we decide to stay in the home longer (we do love it), then maybe we will. That is one thing I most likely will not budge on.

Thank you all so much again!

[LivingAlmostLarge]

Sounds like a good plan. I think that consider instead keeping rental and paying that first then primary residence?

[ryan_themoneyguy]

This sounds like a great financial plan, and I hope your family is doing well! Having no consumer debt is such an achievement and has set you up to work toward your retirement and savings goals. How did/has COVID impacted the rent you charge your tenants for the rental property? Has the current housing market changed your plans for your primary residence?

[srblanco7]

The rental income covers the HOA, taxes, insurance and mortgage. There is no surplus. I have a lovely family there who has been renting for years and I really don't want to up the rent on them at this point. And the amount they pay is very average in the area.

Overall, the plan seems very solid. If you're in breakeven mode with the rent vs. HOA, taxes, insurance, and mortgage, then any repairs to the rental would represent a "loss"? With the caveat that I'm not a real estate expert, I'd ask you to consider if you'd be better off selling the rental in the near term, and using the cash flow to pay down your primary residence and 403b catch-up contributions as has been suggested.

[myrdale]

If you did not own the rental property, but instead had $100k in the bank, would you buy one? If not, I'd go ahead and sale it. I think rentals would be great extra income, but if that's not in your long term plan go ahead and nix it.

You should be able to live off of either income stream well enough and throw the other one full force into the remaining mortgage. I think you'll be mortgage free sooner than you expect.

Occasionally I regret not starting the IRA until after the house was paid off, but that is in the past. In hind sight, I think I'd put more towards retirement, at least maxing the IRA and then attack the mortgage.