Personal Finance Advice and Education! (6 Viewers)

[Cjw_55106]

Does his company offer 401k loans? There’s no tax issue and while I wouldn’t recommend not letting your 401k money do what it’s supposed to do the loan is a better way to get money now if you have the means to pay it back. If no to having the ability to pay that loan back then buying a house is a bad idea. If it’s a matter of needing the money to get a much better loan then it might be worth it.

A 401k is similar to a car loan for whatever the amount is you take out. I think it’s limited to something like $50k. The interest rate should also be real low in today’s market but it’s likely a 5 year loan. The good part is the interest is what you pay to yourself. Your entire payment each month/pay period goes into your 401k so at least you are putting it all back in. If the stock market tanks then you come out ahead and if it jumps you’ll lose out on the gains of what you haven’t paid back. One other potential gotcha is that if you leave that company, you either pay the remainder back or get hit with taxes and penalty. That obviously lessens with each payment so if you leave a company 3 years into a 5 year loan you have let’s say 40% left so not as big a whack and at that point maybe enough savings to just put the money back in with no taxes/penalty.

Anyway, I’d look into a loan so you aren’t getting taxed with a potential 10% penalty.

I’ll ask him about the loan option. I would have to assume a loan for say, 30k Would probably cost him a decent amount of money every month to pay back. Again, I’m not sure how much.

 

[wilked]

I have no idea what his personal finances are, but I’m not sure I totally agree with this. If he’s currently paying $2200 a month for rent but is not able to save $20-$30,000 for a down payment, I wouldn’t say that automatically means he can’t afford a house where his payment might be 1800 a month. 

You know what happens as a homeowner? Boiler bites the shed and now you’re on the hook for $5k to heat the house. Or the roof leaks. Or this, or that. That is why you need to demonstrate the ability to save before buying a home. 
 

Your scenario above, the renter likely comes out ahead on a cash flow basis since they don’t have to do any maintenance or upkeep or tailoring of the house to the spouses wishes 

 

[stbugs]

You know what happens as a homeowner? Boiler bites the shed and now you’re on the hook for $5k to heat the house. Or the roof leaks. Or this, or that. That is why you need to demonstrate the ability to save before buying a home. 
 

Your scenario above, the renter likely comes out ahead on a cash flow basis since they don’t have to do any maintenance or upkeep or tailoring of the house to the spouses wishes 

Ok Debbie Downer. Sure the worst stuff could happen but a $250k loan is less than $1000 right now for 30 years. Looking at rents for similar houses here in not so expensive NC, you are talking $1200 a month more in rent for that same 3-4 bedroom house.

I don’t know his finances but it’s not so cut and dry and maybe they have a furnace not a boiler. Good to get an inspection and get the roof/furnaces/heat pumps/AC inspected. 

 

[wilked]

It’s not Debbie downer, you can call it that tho. It’s about discipline and the demonstrated ability to save and not live paycheck to paycheck. 
 

raiding the 401k for a down payment shows lack of patience and lack of big picture knowledge (sacrifice the long term for the short term). This is all from limited info but these are the signs to watch out for 

 

[stbugs]

It’s not Debbie downer, you can call it that tho. It’s about discipline and the demonstrated ability to save and not live paycheck to paycheck. 
 

raiding the 401k for a down payment shows lack of patience and lack of big picture knowledge (sacrifice the long term for the short term). This is all from limited info but these are the signs to watch out for 

Just joking but my point does stand that with the current interest rates, monthly mortgage payments can be a lot less (less than half) than rent for the same house. I do agree that it could be a bad sign, which is why I’d recommend the loan if anything as it forces him to pay it all back. I think the market is likely to be more sideways the next few years so might not be horrible long term.

 

[SFBayDuck]

I have no idea what his personal finances are, but I’m not sure I totally agree with this. If he’s currently paying $2200 a month for rent but is not able to save $20-$30,000 for a down payment, I wouldn’t say that automatically means he can’t afford a house where his payment might be 1800 a month. 

You know what happens as a homeowner? Boiler bites the shed and now you’re on the hook for $5k to heat the house. Or the roof leaks. Or this, or that. That is why you need to demonstrate the ability to save before buying a home. 
 

Your scenario above, the renter likely comes out ahead on a cash flow basis since they don’t have to do any maintenance or upkeep or tailoring of the house to the spouses wishes 

I'm slowly working to save for a down payment, but this is kind of the scenario I'm in - but change the rent to $3,300 and the house payment to <$2,500 (moving to a more affordable area).  If I'm saving up to $1,000/month in housing costs every month, I'll be able to build up some of that buffer for when the boiler "bites the shed" (never heard that phrase before, a regional thing?).

Instead of taking money out, how do we feel about reducing the amount contributed to a 401K to help save for a down payment?  Even taking into consideration the loss of the immediate tax benefit, I could stop maxing my contribution and shift an additional $750+ a month into savings, while still contributing (at a minimum) enough to get the company match.  I'm hesitant to do that, but another way to look at is that putting money toward home ownership would diversify my "investments" outside of just the stocks/bonds in my retirement accounts.

 

[wilked]

Usually used in the past tense (bit the shed, switch the beginning of the words). Hard to use it in the future tense  

look, I was there too. 20% was a bit more than $100k for me, more than a years salary at that time. Not easy to save for. You mention you would save then move to a lower cost area. What we did was move to a lower cost area (renting) and put the savings toward down payment. I’d say if gone ownership is important and you are focused on a short term goal reducing 401k spend is justified (don’t go to zero, but take it down to 6 percent or so). 
 

My wife and I made a rule that we consult on any purchase over $50. It worked, we stopped spending on things. Stopped going out for the most part, basically tightened the belt for a year and saved $2500/month. It was enough to get out there and the discipline stuck for the most part 

 

[Cjw_55106]

Thanks all for the conversation. Looks like he is looking into some down payment and closing cost loan program that would give him up to 17K for 4%, paid over 10 years.  

 

[-OZ-]

I'm slowly working to save for a down payment, but this is kind of the scenario I'm in - but change the rent to $3,300 and the house payment to <$2,500 (moving to a more affordable area).  If I'm saving up to $1,000/month in housing costs every month, I'll be able to build up some of that buffer for when the boiler "bites the shed" (never heard that phrase before, a regional thing?).

Instead of taking money out, how do we feel about reducing the amount contributed to a 401K to help save for a down payment?  Even taking into consideration the loss of the immediate tax benefit, I could stop maxing my contribution and shift an additional $750+ a month into savings, while still contributing (at a minimum) enough to get the company match.  I'm hesitant to do that, but another way to look at is that putting money toward home ownership would diversify my "investments" outside of just the stocks/bonds in my retirement accounts.

Never lose the match, but as long as you're otherwise on track, there's nothing wrong with prioritizing your home for a bit and reducing contributions.

 

[Buckna]

Does his company offer 401k loans? There’s no tax issue and while I wouldn’t recommend not letting your 401k money do what it’s supposed to do the loan is a better way to get money now if you have the means to pay it back. If no to having the ability to pay that loan back then buying a house is a bad idea. If it’s a matter of needing the money to get a much better loan then it might be worth it.

A 401k is similar to a car loan for whatever the amount is you take out. I think it’s limited to something like $50k. The interest rate should also be real low in today’s market but it’s likely a 5 year loan. The good part is the interest is what you pay to yourself. Your entire payment each month/pay period goes into your 401k so at least you are putting it all back in. If the stock market tanks then you come out ahead and if it jumps you’ll lose out on the gains of what you haven’t paid back. One other potential gotcha is that if you leave that company, you either pay the remainder back or get hit with taxes and penalty. That obviously lessens with each payment so if you leave a company 3 years into a 5 year loan you have let’s say 40% left so not as big a whack and at that point maybe enough savings to just put the money back in with no taxes/penalty.

Anyway, I’d look into a loan so you aren’t getting taxed with a potential 10% penalty.

Depends on the 401K provider, but some do provide 401K loans for home purchases with longer terms than the normal 5 years. Mine provides one where the terms are for 20 years. The pitfalls of course are missing out on that money being in the market, but also that 401K loans have to be paid back early if you leave your job.

With mortgage rates and lending standards where they are right now, a low down payment option is pretty easy to qualify for.

Edited to remove the bit about 2nd mortgages.

 

[Chadstroma]

Never lose the match, but as long as you're otherwise on track, there's nothing wrong with prioritizing your home for a bit and reducing contributions.

Yup. Agreed. 

It amazes me when people don't take this money. It is like they were told "Hey, we are going to give you a raise" and they respond "Nah, I am good bruh, thanks". Always put in at least the min to get the matching money from your employer. 

@SFBayDuck as for the down payment, keep in mind a few things. First, know what you need. You can get as low as 3% down on conventional loans (perhaps 5%) and 3.5% on FHA. You do not need 20% down etc. Second, common sources for down payment beyond savings are tax refund money, retirement accounts and family gift funds. For the retirement money since you already obviously have a retirement account, check with the administrator of the 401k to see what options there are for you on that to consider. Third, I would definitely do what you are thinking so you can go from renting to owning. Most Americans wealth is actually their homes. If you are renting, you are not building that wealth and instead building the wealth of your landlord. Put another way, every money you spend $3,300 on rent is $3,300 you will never see again while if you are paying a mortgage a bit of that payment is paying principle down which creates equity (wealth) and historically, property appreciates in value over time even with lows and highs averaged out to about a 5% rate of return creating more equity (wealth). I would make the homeownership the highest priority/goal for yourself. 

 

[Chadstroma]

Depends on the 401K provider, but some do provide 401K loans for home purchases with longer terms than the normal 5 years. Mine provides one where the terms are for 20 years. The pitfalls of course are missing out on that money being in the market, but also that 401K loans have to be paid back early if you leave your job.

With mortgage rates where they are right now, it probably would make more sense to do a piggyback loan or 2nd mortgage or down payment assistance type program though.

Most DPA's SUCK big hairy monkey balls and cost you WAY much more money than you get over time. The piggyback or 2nd mortgage isn't like it was pre-2008 when you could do a 80/20 purchase or something. 3/3.5% of the purchase and you are in the game. Avoid DPAs. 

 

[Buckna]

Most DPA's SUCK big hairy monkey balls and cost you WAY much more money than you get over time. The piggyback or 2nd mortgage isn't like it was pre-2008 when you could do a 80/20 purchase or something. 3/3.5% of the purchase and you are in the game. Avoid DPAs. 

Very good point actually, I’ll edit my previous comment.

 

[-OZ-]

. Most Americans wealth is actually their homes. If you are renting, you are not building that wealth and instead building the wealth of your landlord. Put another way, every money you spend $3,300 on rent is $3,300 you will never see again while if you are paying a mortgage a bit of that payment is paying principle down which creates equity (wealth) and historically, property appreciates in value over time even with lows and highs averaged out to about a 5% rate of return creating more equity (wealth). I would make the homeownership the highest priority/goal for yourself. 

  You're right but man this was a negative for us. We did well when selling our first house back in 06, but it wasn't until I turned 40 in '16 that we finally bought another.  We've only chopped 10% off the mortgage in 4 years, but the supposed value increased 20%. (Spot on with your 5% statement). 

 

[Tom Hagen]

If using a 401k loan as a down payment, does the home mortgage lender factor the repayment into cash flow or ratio calculations? Just curious, I never really thought about it before.

 

[culdeus]

If using a 401k loan as a down payment, does the home mortgage lender factor the repayment into cash flow or ratio calculations? Just curious, I never really thought about it before.

No as you aren't required to pay it back.  (this might not be true in all states).  

 

[stbugs]

Yup. Agreed. 

It amazes me when people don't take this money. It is like they were told "Hey, we are going to give you a raise" and they respond "Nah, I am good bruh, thanks". Always put in at least the min to get the matching money from your employer. 

@SFBayDuck as for the down payment, keep in mind a few things. First, know what you need. You can get as low as 3% down on conventional loans (perhaps 5%) and 3.5% on FHA. You do not need 20% down etc. Second, common sources for down payment beyond savings are tax refund money, retirement accounts and family gift funds. For the retirement money since you already obviously have a retirement account, check with the administrator of the 401k to see what options there are for you on that to consider. Third, I would definitely do what you are thinking so you can go from renting to owning. Most Americans wealth is actually their homes. If you are renting, you are not building that wealth and instead building the wealth of your landlord. Put another way, every money you spend $3,300 on rent is $3,300 you will never see again while if you are paying a mortgage a bit of that payment is paying principle down which creates equity (wealth) and historically, property appreciates in value over time even with lows and highs averaged out to about a 5% rate of return creating more equity (wealth). I would make the homeownership the highest priority/goal for yourself. 

So true on the equity. Part of my retirement plan is using the should be $400k in equity for the retirement home. Probably be a similar price but hopefully mortgages aren’t sky high.

Our move for retirement, not stopping work just moving after kids are in/already out of college, isn’t that far away. Any thoughts on interest rates a few years out? Was wondering if looking for a temporary rental type property now at crazy low rates would be smart. Don’t want two houses/huge down payment, so just thinking of options. Maybe a HELOC for down payment and just get retirement house at really low rate or as second home is that an issue?

 

[SFBayDuck]

look, I was there too. 20% was a bit more than $100k for me, more than a years salary at that time. Not easy to save for. You mention you would save then move to a lower cost area. What we did was move to a lower cost area (renting) and put the savings toward down payment. I’d say if gone ownership is important and you are focused on a short term goal reducing 401k spend is justified (don’t go to zero, but take it down to 6 percent or so). 

We've talked about doing this as well.  Since I'm in an industry where I can work remotely, even pre-pandemic, I can take my current comp plan up there and really crank up the savings.  It's not my first choice, but we're open to that if we don't have the down payment set aside yet.

Never lose the match, but as long as you're otherwise on track, there's nothing wrong with prioritizing your home for a bit and reducing contributions.

Oh for sure.  Earlier in my sales career when I worked with youngsters on their first or second job out of college, I would pull them into a conference room during their first week and basically make them sign up for the 401K at a level to at least take advantage of the match.  Show them a little math about how little it would impact their take home, the free money, and the concept of compounding and I was pretty close to 100% in getting them to sign up.  I wish someone had done that for me when I was 23, as I don't think I started saving until 26-27, and didn't maxed it out until I was in my 40s.

Yup. Agreed. 

It amazes me when people don't take this money. It is like they were told "Hey, we are going to give you a raise" and they respond "Nah, I am good bruh, thanks". Always put in at least the min to get the matching money from your employer. 

@SFBayDuck as for the down payment, keep in mind a few things. First, know what you need. You can get as low as 3% down on conventional loans (perhaps 5%) and 3.5% on FHA. You do not need 20% down etc. Second, common sources for down payment beyond savings are tax refund money, retirement accounts and family gift funds. For the retirement money since you already obviously have a retirement account, check with the administrator of the 401k to see what options there are for you on that to consider. Third, I would definitely do what you are thinking so you can go from renting to owning. Most Americans wealth is actually their homes. If you are renting, you are not building that wealth and instead building the wealth of your landlord. Put another way, every money you spend $3,300 on rent is $3,300 you will never see again while if you are paying a mortgage a bit of that payment is paying principle down which creates equity (wealth) and historically, property appreciates in value over time even with lows and highs averaged out to about a 5% rate of return creating more equity (wealth). I would make the homeownership the highest priority/goal for yourself. 

Thanks, that's good to keep in mind.  Even moving to a cheaper area here on the West Coast, 20% is $80K-$100K+, which is pretty daunting.  

Doesn't help that my girlfriend lost her job this week 

 

[Buckna]

If using a 401k loan as a down payment, does the home mortgage lender factor the repayment into cash flow or ratio calculations? Just curious, I never really thought about it before.

Every one I’ve ever talked to in the past doesn’t include it as it’s money you owe to yourself so it doesn’t hurt DTI, etc.

 

[-OZ-]

So true on the equity. Part of my retirement plan is using the should be $400k in equity for the retirement home. Probably be a similar price but hopefully mortgages aren’t sky high.

Our move for retirement, not stopping work just moving after kids are in/already out of college, isn’t that far away. Any thoughts on interest rates a few years out? Was wondering if looking for a temporary rental type property now at crazy low rates would be smart. Don’t want two houses/huge down payment, so just thinking of options. Maybe a HELOC for down payment and just get retirement house at really low rate or as second home is that an issue?

That's almost exactly our plan. 

The houses we like where we want to move are roughly $100-200k more than our current place, and my commute will go from 20 minutes to 45ish. Hopefully teleworking will be prominent. But that's 9-12 years away

 

[Chadstroma]

So true on the equity. Part of my retirement plan is using the should be $400k in equity for the retirement home. Probably be a similar price but hopefully mortgages aren’t sky high.

Our move for retirement, not stopping work just moving after kids are in/already out of college, isn’t that far away. Any thoughts on interest rates a few years out? Was wondering if looking for a temporary rental type property now at crazy low rates would be smart. Don’t want two houses/huge down payment, so just thinking of options. Maybe a HELOC for down payment and just get retirement house at really low rate or as second home is that an issue?

It is hard to predict rate tomorrow let along a few years out. That being said the Fed basically has committed to keeping the Fed rate down through 2023. I haven't seen the same statement for buying mortgage backed securities but the expectation is that they will continue to do so along with it. So, for the next couple of years we should see very low rates. 

I would take advantage of the current rates and refi the existing house with a very low rate. Depending on how much you have left, maybe a lower term to get an even lower rate and kill that debt off quickly or another 30 years to keep your payments down- really depends on your approach and goals. You will likely need to tap into equity if you do a shorter term while if you refi into another 30 having more cash flow to build up a savings meant for the down on the new home. How you structure the buying of the other home will be hard to say now. You will want to buy the retirement home as your primary so you get the best rates vs second home as you will get hit with a little higher rates on second. Doing a HELOC to unlock equity is an option for sure though. I don't think you need to decide on that now as much as making sure the current home is set. 

 

[BroncosFan07]

First time posting in this thread and I apologize for how long it is but I value the opinions of the posters in this thread and have been reading for years.   

Does it makes sense for me to pull 100k out of my IRA and use the Cares Act relief to avoid the 10% early withdrawal penalty?   

I'm 37 and have a wife and 3 children ages 1, 3, and 5.   In 2019, we had our 3rd child which caused us to have to upgrade both of our vehicles to make room for 3 car seats and they were high mileage anyway.   I make a very good salary and my wife makes good money, however she dropped down to working 3 days a week because my job is time consuming and it's been a blessing for her to be able to take on most of the daycare drop off/pick-up and get everything done around the house on M/F.   She started a side business that is bringing in about $500 per month in extra income and fills up her 2 days of the work week that she's off.   Our bank account shrunk dramatically over the past 16 months since we've been paying 3 daycare bills and added 2 car loans.   We also have a nice house with a big mortgage payment (at a very low interest rate thanks to recent refi) and my wife has a school loan that costs $500 per month and has 3 years of payments left.   The school loan is at 2%, and both of the card are 4-5% interest rates.   In 4 years, we will no longer have 3 daycare bills, 2 car loans, and the school loan so our financial stability will be great at the time.  However, for the time being, we are very strapped for disposable cash and have been for the past 2 years.   We knew that bringing on the kids would cause short term sacrifices so for the past couple of years, we have cut a lot of luxuries that we have.  We decided that having the kids close in age was more important to us than spreading out the daycare bills and financial stress.   I have no regrets on that decision and could live the next few years in the same manner and we would be okay.

However, 2020's Covid situation has brought on a unique opportunity.   Due to some well-thought out investing and mostly luck in my 401k, our retirement accounts have more than doubled this year and I already had a healthy retirement plan that was going to allow both my wife and I to retire comfortably in our early 60's.   Now my retirement account is about 5 years ahead of where I thought it would be so my wife and I know that we should be "rich" once we turn 59.5.   Obviously bad things can happen to anybody in life and this story could change unexpectedly.  So our dilemma is that we know in 22 years, we'll be wealthy, however currently we are living on a very, very tight budget and not really doing anything fun or enjoyable (we haven't bough clothes in years, we rarely eat out and when we do we pick the cheapest thing on the menu, we haven't traveled much, we cut cable, etc).

Since my job temporarily reduced my pay this year, we qualify to withdraw up to 100k per person without facing the 10% fee.  I know we'd still have to pay regular income taxes on the money, however I can choose to spread the value of the tax (let's call it 24k) over the next 3 years and can even delay paying the taxes until year 3 and then at that time choose to repay the money or pay the taxes then.  Of course in the mean time, I'll use the bulk of that 100k to invest so somewhere conservatively.   

My thought process is that our current budget will essentially break even if we continue to live our conservative lifestyle.  However, would it be a bad idea to spend 5-10k of that money each year to treat our family to a vacation, or eat better food, or have date nights and not be stressed about the cost of the babysitter and the date?  I have ran the numbers many times and every output says that NO scenario makes sense if the goal is to maximize our money.   

My wife has stated on a couple of occasions "you tell me how lucky we were with the stock market this year and how it will make us rich in retirement, but what is the point when we feel poor now.   Why not use the blessings to live comfortably now in our hardest times (curse you daycare bills!)?

What would you do?   

 

[Chadstroma]

We've talked about doing this as well.  Since I'm in an industry where I can work remotely, even pre-pandemic, I can take my current comp plan up there and really crank up the savings.  It's not my first choice, but we're open to that if we don't have the down payment set aside yet.

Oh for sure.  Earlier in my sales career when I worked with youngsters on their first or second job out of college, I would pull them into a conference room during their first week and basically make them sign up for the 401K at a level to at least take advantage of the match.  Show them a little math about how little it would impact their take home, the free money, and the concept of compounding and I was pretty close to 100% in getting them to sign up.  I wish someone had done that for me when I was 23, as I don't think I started saving until 26-27, and didn't maxed it out until I was in my 40s.

Thanks, that's good to keep in mind.  Even moving to a cheaper area here on the West Coast, 20% is $80K-$100K+, which is pretty daunting.  

Doesn't help that my girlfriend lost her job this week 

If in CA or even WA- let me know when you get closer and I can help. (I am licensed in CA and my brokerage is in WA) We could go over the specific numbers and figure out the best for you. 

Sorry about your girlfriend. Hopefully she can find something new soon. 

 

[Chadstroma]

If using a 401k loan as a down payment, does the home mortgage lender factor the repayment into cash flow or ratio calculations? Just curious, I never really thought about it before.

Conventional guidelines and I believe same with government backed but not as sure do not have them impact your DTI or anything essentially because it is your money that you are paying yourself back on. 

I will say though that literally yesterday in one of the broker groups I am in on FB a broker said that an underwriter (from a lender I don't use) just said that it was an updated COVID guideline that it does. I think that is BS because I haven't seen that change and a bunch of other brokers chimed in saying the same. So the possibilities are that: 

A) This UW is mistaken and instead of admitting the mistake has doubled down with making up guidelines or is so mistaken they have no clue they are so wrong. 

B) It is a lender overlay. Overlay's are things that the lender adds to the basic guidelines (rules everyone has to play by) to a loan program so that means it is a lender specific thing and this UW didn't realize that it was an overlay change for COVID and not a guideline change. 

C) This UW is right and myself and 10 other brokers are wrong. That none of us saw this change to guidelines or haven't come across it until now. 

Chances are very, very, very high that it is A or B. 

 

[Chadstroma]

First time posting in this thread and I apologize for how long it is but I value the opinions of the posters in this thread and have been reading for years.   

Does it makes sense for me to pull 100k out of my IRA and use the Cares Act relief to avoid the 10% early withdrawal penalty?   

I'm 37 and have a wife and 3 children ages 1, 3, and 5.   In 2019, we had our 3rd child which caused us to have to upgrade both of our vehicles to make room for 3 car seats and they were high mileage anyway.   I make a very good salary and my wife makes good money, however she dropped down to working 3 days a week because my job is time consuming and it's been a blessing for her to be able to take on most of the daycare drop off/pick-up and get everything done around the house on M/F.   She started a side business that is bringing in about $500 per month in extra income and fills up her 2 days of the work week that she's off.   Our bank account shrunk dramatically over the past 16 months since we've been paying 3 daycare bills and added 2 car loans.   We also have a nice house with a big mortgage payment (at a very low interest rate thanks to recent refi) and my wife has a school loan that costs $500 per month and has 3 years of payments left.   The school loan is at 2%, and both of the card are 4-5% interest rates.   In 4 years, we will no longer have 3 daycare bills, 2 car loans, and the school loan so our financial stability will be great at the time.  However, for the time being, we are very strapped for disposable cash and have been for the past 2 years.   We knew that bringing on the kids would cause short term sacrifices so for the past couple of years, we have cut a lot of luxuries that we have.  We decided that having the kids close in age was more important to us than spreading out the daycare bills and financial stress.   I have no regrets on that decision and could live the next few years in the same manner and we would be okay.

However, 2020's Covid situation has brought on a unique opportunity.   Due to some well-thought out investing and mostly luck in my 401k, our retirement accounts have more than doubled this year and I already had a healthy retirement plan that was going to allow both my wife and I to retire comfortably in our early 60's.   Now my retirement account is about 5 years ahead of where I thought it would be so my wife and I know that we should be "rich" once we turn 59.5.   Obviously bad things can happen to anybody in life and this story could change unexpectedly.  So our dilemma is that we know in 22 years, we'll be wealthy, however currently we are living on a very, very tight budget and not really doing anything fun or enjoyable (we haven't bough clothes in years, we rarely eat out and when we do we pick the cheapest thing on the menu, we haven't traveled much, we cut cable, etc).

Since my job temporarily reduced my pay this year, we qualify to withdraw up to 100k per person without facing the 10% fee.  I know we'd still have to pay regular income taxes on the money, however I can choose to spread the value of the tax (let's call it 24k) over the next 3 years and can even delay paying the taxes until year 3 and then at that time choose to repay the money or pay the taxes then.  Of course in the mean time, I'll use the bulk of that 100k to invest so somewhere conservatively.   

My thought process is that our current budget will essentially break even if we continue to live our conservative lifestyle.  However, would it be a bad idea to spend 5-10k of that money each year to treat our family to a vacation, or eat better food, or have date nights and not be stressed about the cost of the babysitter and the date?  I have ran the numbers many times and every output says that NO scenario makes sense if the goal is to maximize our money.   

My wife has stated on a couple of occasions "you tell me how lucky we were with the stock market this year and how it will make us rich in retirement, but what is the point when we feel poor now.   Why not use the blessings to live comfortably now in our hardest times (curse you daycare bills!)?

What would you do?   

I am a big believer in avoiding touching retirement money with the exception of moving from renting to owning a home (as I just mentioned above) or some other 'investment' move where you are looking to use that money to make more money (start a business for example). Beyond that, I am not a fan other than the hard position of 'no other choice' for financial reasons. 

I did some volunteer work helping go buy the groceries for elderly who were not as mobile a number of years back. Living in subsidized housing and scrapping by on their social security checks... watching them decide to the penny what to spend on grocery that week to get by. Heartbreaking. The thing is, you hit an age that you can't make more money or maybe you can but you are spending your retirement years as a greeter at WalMart (my heart breaks a bit every time I see this but then I just hope they do it because they want to keep busy kind of thing). 

Protect that money. Having enough now vs having enough in retirement is two different things and having a cushion in retirement to me is golden. Having more than you need in retirement is a blessing. Plus, if you truly have more than you need as you get closer to retirement age.... retire early!!! 

BTW, I am preaching what I live. I had a number of rough years from the Great Recession with unemployment and underemployment. Then I dug a hole deeper with education loans to try to make myself more employable. And we really never fully recovered (though I am making good progress now). We never touched any of our retirement money and we haven't gone on a real vacation for... heck.... 8 years? 

 

[stbugs]

It is hard to predict rate tomorrow let along a few years out. That being said the Fed basically has committed to keeping the Fed rate down through 2023. I haven't seen the same statement for buying mortgage backed securities but the expectation is that they will continue to do so along with it. So, for the next couple of years we should see very low rates. 

I would take advantage of the current rates and refi the existing house with a very low rate. Depending on how much you have left, maybe a lower term to get an even lower rate and kill that debt off quickly or another 30 years to keep your payments down- really depends on your approach and goals. You will likely need to tap into equity if you do a shorter term while if you refi into another 30 having more cash flow to build up a savings meant for the down on the new home. How you structure the buying of the other home will be hard to say now. You will want to buy the retirement home as your primary so you get the best rates vs second home as you will get hit with a little higher rates on second. Doing a HELOC to unlock equity is an option for sure though. I don't think you need to decide on that now as much as making sure the current home is set. 

Thanks. I was thinking about changing my current mortgage length (I got a 30) down to 15 years just to pay it off sooner or at least build equity faster. I’ve got enough cash for another down payment but 90% is invested and the cash is more for college payments so wasn’t wanting to use that when I’d rather use the equity that I’d plan on using anyway.

Rephrasing question since you already answered that. How do you make sure that the second home is considered the primary home? The most important thing, I think, is getting the best long term (30) rate on the retirement home. Such cheap money right now. If got enough cash to make a 20% deposit but I’d rather tap the existing home to maintain that cash without having to sell the current house right away.

 

[Desert_Power]

OK, I pulled the plug on the advisor that wanted 1.3% yearly.

Any advice on the robo-advising services? 

When I was looking for a family member, Vanguard does an advisory for .3% and obviously will steer you to their very low cost funds. That may be worth looking into.

 

[BroncosFan07]

 We never touched any of our retirement money and we haven't gone on a real vacation for... heck.... 8 years? 

Does this part bother you?   I'm worried about letting life pass by and waking up at 60 and realizing I'm retired and have more than enough money to retire and wishing I had more memories or special events with my family.  

Here are two scenarios that I have been asking myself as I go through this decision.

1.   Would it be better to live paycheck to paycheck for the next 5 years with constant stress and retire at 58 or be financially stress free for the rest of my life but retire at 63?  

2.   If I made a big win in the Powerball for 100k, would I max out my retirement options (529, 401k, Roth) to make sure that the winnings all made it to retirement or would I keep it readily accessible. I'd probably put 90k in an investment account with the intent to leave it for 1+years to avoid capital gains on earning and keep 10 of it in a CD/high interest savings account that could be accessed within the next 12 months.

 

[Chadstroma]

Thanks. I was thinking about changing my current mortgage length (I got a 30) down to 15 years just to pay it off sooner or at least build equity faster. I’ve got enough cash for another down payment but 90% is invested and the cash is more for college payments so wasn’t wanting to use that when I’d rather use the equity that I’d plan on using anyway.

Rephrasing question since you already answered that. How do you make sure that the second home is considered the primary home? The most important thing, I think, is getting the best long term (30) rate on the retirement home. Such cheap money right now. If got enough cash to make a 20% deposit but I’d rather tap the existing home to maintain that cash without having to sell the current house right away.

In general, a primary home is the place you spend the majority of your time through the year, should be a reasonable distance from work (if still working) and you need to occupy it within two months of closing. 

A second home is a place you must spend some time through the year there (say a couple of weeks) that you have exclusive control over and is not a rental, timeshare, or under a property management agreement. 

My understanding was that you would be moving to the new house? Or did I read that wrong?

One thing to keep in mind on the shorter term, if the term is longer than when you want to make this move keep in mind your min payment will be higher. That may end up being an issue as your DTI will be higher. If your income is sufficient then not a problem. But if you are pushing it then you would want to flatten the payment out over a longer term. 

 

[stbugs]

Does this part bother you?   I'm worried about letting life pass by and waking up at 60 and realizing I'm retired and have more than enough money to retire and wishing I had more memories or special events with my family.  

Here are two scenarios that I have been asking myself as I go through this decision.

1.   Would it be better to live paycheck to paycheck for the next 5 years with constant stress and retire at 58 or be financially stress free for the rest of my life but retire at 63?  

2.   If I made a big win in the Powerball for 100k, would I max out my retirement options (529, 401k, Roth) to make sure that the winnings all made it to retirement or would I keep it readily accessible. I'd probably put 90k in an investment account with the intent to leave it for 1+years to avoid capital gains on earning and keep 10 of it in a CD/high interest savings account that could be accessed within the next 12 months.

I’m not quite in @Chadstroma‘s boat for doing nothing but I don’t like the taking money out for vacations and such. A couple thoughts:

1. How about a 401k loan? You are basically forced to pay it back over time and you don’t owe taxes or have a penalty.

2. Is it worth your wife working for 3 kids in day care? She’s already making money while at home. Could she still do that and maybe earn a little more while watching the kids? 3 day a week work doesn’t seem like it would bring home enough. For instance, are you paying taxes on the $500 a week and is that $500 a week profit? According to Google, average day care costs per infant is $15k a year. Maybe a multi kid discount but still $40k a year. I think you can get some tax savings but still seems like making say $60k a year means 100% working just for day care.

3. Also, if the 401k has done great, how about ratcheting it down to just get the matching amount. That would instantly provide take home cash and not screw up retirement too much since you said this year put you way ahead.

 

[Chadstroma]

Does this part bother you?   I'm worried about letting life pass by and waking up at 60 and realizing I'm retired and have more than enough money to retire and wishing I had more memories or special events with my family.  

Here are two scenarios that I have been asking myself as I go through this decision.

1.   Would it be better to live paycheck to paycheck for the next 5 years with constant stress and retire at 58 or be financially stress free for the rest of my life but retire at 63?  

2.   If I made a big win in the Powerball for 100k, would I max out my retirement options (529, 401k, Roth) to make sure that the winnings all made it to retirement or would I keep it readily accessible. I'd probably put 90k in an investment account with the intent to leave it for 1+years to avoid capital gains on earning and keep 10 of it in a CD/high interest savings account that could be accessed within the next 12 months.

Yes and no. I mean, we could live leaner than we do and have made much more progress financially, so don't let me give you the impression that I don't enjoy life. Would I have loved to take some real vacations? Sure. The thing that bothers me about not has been my kids 9, 7 and soon to be 5 haven't gone on a vacation really (my daughter did when she was 1 but that doesn't count). The other thing is not having seen my family/friends as much (I am in Illinois and they are in So Cal) but I have gone out there a few times (not vacation) and them here. I am looking forward to doing something next year though. So, I understand the family special time for sure. 

I don't think there is a 'right' answer per se here. I am just generally very against raiding retirement accounts as principle. Not only for what I mentioned before but also what I have seen and conversations I have had etc over 20 years of being in banking/financial services. I don't like to blur that line. 

 

[-OZ-]

 we haven't gone on a real vacation for... heck.... 8 years? 

I get it, but there's just no way I'm passing on opportunities to make memories with my kids. That doesn't necessarily have to be vacations, but that one week at the beach in October is very much worth it. (Knock on wood, no hurricanes )

 

[stbugs]

In general, a primary home is the place you spend the majority of your time through the year, should be a reasonable distance from work (if still working) and you need to occupy it within two months of closing. 

A second home is a place you must spend some time through the year there (say a couple of weeks) that you have exclusive control over and is not a rental, timeshare, or under a property management agreement. 

My understanding was that you would be moving to the new house? Or did I read that wrong?

One thing to keep in mind on the shorter term, if the term is longer than when you want to make this move keep in mind your min payment will be higher. That may end up being an issue as your DTI will be higher. If your income is sufficient then not a problem. But if you are pushing it then you would want to flatten the payment out over a longer term. 

Moving in a sense of getting the cheaper mortgage yes. Real moving no, but we both work from home (pre CV) so no job location distance that people would suspect.

I think income wise we should be fine. Not worried about that. Due to buying the last house at a great time and not being young, our current mortgage (balance not payment) is actually less than our combined salaries and my taxable accounts are also more than the mortgage. Since the mortgage interest isn’t tax deductible (maybe Biden?), I figured a shorter term would be the equivalent of just paying it down faster since we don’t plan on being here more than 5-10. Basically just reducing interest and partially because the loan rate would also drop. I just ran the numbers for where I am and bumping to a 15 year would bump my payment up $500 but my principal pay down would be almost $700 more a month. So a net extra 50% return on every payment. At the end of year 5, the extra principal is almost $800 more so a 60% return on the extra payment each month. Seems crazy to not do it.

 

[Chadstroma]

I get it, but there's just no way I'm passing on opportunities to make memories with my kids. That doesn't necessarily have to be vacations, but that one week at the beach in October is very much worth it. (Knock on wood, no hurricanes )

Ya, we do plenty of things like this. From little things that cost nothing (we didn't do as much this summer because COVID but like last summer going to new parks for them to play at.... though we found one this summer in neighboring town just put in last year that is a total Ninja Warrior park and they were thrilled) to doing things that are fun and cost some coin from a little bit of coin, apple or strawberry picking (going apple picking next weekend) to more money like a day at Dave and Busters or water park.... it is important for me to create experiences and memories for them for sure. Like I said, we could have lived leaner and made more progress for sure. I guess we have found a balance of where we are not spending a ton but still getting the kids to do things. 

 

[-OZ-]

Does this part bother you?   I'm worried about letting life pass by and waking up at 60 and realizing I'm retired and have more than enough money to retire and wishing I had more memories or special events with my family.  

Here are two scenarios that I have been asking myself as I go through this decision.

1.   Would it be better to live paycheck to paycheck for the next 5 years with constant stress and retire at 58 or be financially stress free for the rest of my life but retire at 63?  

2.   If I made a big win in the Powerball for 100k, would I max out my retirement options (529, 401k, Roth) to make sure that the winnings all made it to retirement or would I keep it readily accessible. I'd probably put 90k in an investment account with the intent to leave it for 1+years to avoid capital gains on earning and keep 10 of it in a CD/high interest savings account that could be accessed within the next 12 months.

 

We invested as much as possible for a while. Just this year I've taken my foot off the gas a bit and just go with the plan. That plan is to max both Roth IRAs and the TSP, put $500 monthly into 3 other accounts. But where I used to try to squeeze the bank accounts and not go out to eat other than once a week and not spend otherwise so we could invest more, now we just set the autopilot investing and stop worrying.

For your questions, just my opinion. 1. I'll work until 63 if it means less stress. With more stress I might not make it to 58. 2. Straight into my house fund. 

 

[Chadstroma]

Moving in a sense of getting the cheaper mortgage yes. Real moving no, but we both work from home (pre CV) so no job location distance that people would suspect.

I think income wise we should be fine. Not worried about that. Due to buying the last house at a great time and not being young, our current mortgage (balance not payment) is actually less than our combined salaries and my taxable accounts are also more than the mortgage. Since the mortgage interest isn’t tax deductible (maybe Biden?), I figured a shorter term would be the equivalent of just paying it down faster since we don’t plan on being here more than 5-10. Basically just reducing interest and partially because the loan rate would also drop. I just ran the numbers for where I am and bumping to a 15 year would bump my payment up $500 but my principal pay down would be almost $700 more a month. So a net extra 50% return on every payment. At the end of year 5, the extra principal is almost $800 more so a 60% return on the extra payment each month. Seems crazy to not do it.

Yea, don't commit mortgage fraud to save a few bps on rate. 

 

[stbugs]

I get it, but there's just no way I'm passing on opportunities to make memories with my kids. That doesn't necessarily have to be vacations, but that one week at the beach in October is very much worth it. (Knock on wood, no hurricanes )

Yep. I know chad discussed being laid off before so that’s going to play a part. I’ve been lucky (knock on wood), but I can understand. When my wife was stay at home for over a decade, it wasn’t easy. Amazing the difference.

Our week trip around the 4th is usually the most fun week of the year since we go with friends and have a beautiful place right on the beach. It’d be nice to be really rich and live there year round!

 

[stbugs]

Yea, don't commit mortgage fraud to save a few bps on rate. 

Probably right. If it’s a lot then kid 3 may just have to go to a new school. The paying down of principal was on the current mortgage versus refinance to shorter term.

 

[-OZ-]

Yep. I know chad discussed being laid off before so that’s going to play a part. I’ve been lucky (knock on wood), but I can understand. When my wife was stay at home for over a decade, it wasn’t easy. Amazing the difference.

Our week trip around the 4th is usually the most fun week of the year since we go with friends and have a beautiful place right on the beach. It’d be nice to be really rich and live there year round!

After 17 years of being a SAHM, my wife starts work next week. Part time, might cover her Roth IRA for the year. But it's something with future growth potential.

 

[stbugs]

After 17 years of being a SAHM, my wife starts work next week. Part time, might cover her Roth IRA for the year. But it's something with future growth potential.

I used to laugh at my wife (not always directly) when she worked a little part time and acted like it meant she could spend more. I always ended up in the negative on those really short contracts because she still had way more time to spend than the $5k she brought in for the year. Once my last son was in kindergarten, she went back full time and that was definitely a game changer. I’d say over the past 4 years she’s ended up bringing in more than me and I’ll be honest, I’m OK with being a kept man in a few years. I’ve been grinding since I was 18. Outside of college, haven’t had any free time outside of vacations. So looking forward to retirement.

I wish we had Roth’s. I never bothered with the 401k version because our tax rates now are much higher than the should be later. We don’t qualify for the Roth’s right now. Definitely want to see if we can do that back door thing if say I stop working.

 

[SFBayDuck]

Good topic @BroncosFan07, and something that's been on my mind a lot recently as well.  As I've stated up thread a bit, I've pretty much done the "right thing" financially for the last 11 years or so, particularly when it comes to saving for retirement.  But I look at my parents, and wonder.  At 72 years old my dad suffered a traumatic brain injury, which required surgeries and led to months of speech and occupational and physical therapy.  Thankfully he's largely recovered, but he went from a super sharp guy (was still a working psychologist) who played tennis several times a week and did a 100 mile bike ride at age 70, to at age 77 not having any motivation to do much of anything.  My mom worked hard as well and retired about 2 years ago.  And now they've spent year 3 of their retirement stuck at home during the pandemic, with who knows how much longer of this.  They cancelled an Australia/NZ trip that they had been planning for years.  They can barely even see family and grandkids, just some brief outdoor visits. So all that hard work and savings, and for various reasons they can't even enjoy the benefits.  Of course it could be a lot worse, and it is for a lot of people, I totally get that.  At least they are still relatively healthy and financially secure. 

So whether it's scaling back on savings to live a bit more comfortably as you're considering or just wanting to "live a little", lately I'm having a tough time wanting to stay financially disciplined.

 

[-OZ-]

I used to laugh at my wife (not always directly) when she worked a little part time and acted like it meant she could spend more. I always ended up in the negative on those really short contracts because she still had way more time to spend than the $5k she brought in for the year. Once my last son was in kindergarten, she went back full time and that was definitely a game changer. I’d say over the past 4 years she’s ended up bringing in more than me and I’ll be honest, I’m OK with being a kept man in a few years. I’ve been grinding since I was 18. Outside of college, haven’t had any free time outside of vacations. So looking forward to retirement.

I wish we had Roth’s. I never bothered with the 401k version because our tax rates now are much higher than the should be later. We don’t qualify for the Roth’s right now. Definitely want to see if we can do that back door thing if say I stop working.

We'll see how she does, but for 23 years together she's never been a big spender. She'll spend more now than ever before, but that's mostly the kids, DIY projects around the house (most of which I like) and weekly dinners with the girls, which has been good for her. The dinners probably add just over $100 / month, so I'm okay with it. 

I'd love it if she made more than I do. I'd settle for 5-10 years where she makes half my salary. Then we retire fully.

I've suggested we make her income the family fun money, she seems on board with that budget. 

 

[Tiger Fan]

Pulling money out of retirement funds will always be the easy thing to do b/c you can physically see the money in the account.  Just dont' do it.....ever.  Sure there might be some outlier situations where the math works out....but those are outliers.  You will be much better off over the long term by having the discipline of saving the money for the down payment vs. pulling the money out of retirement.

Even a 5% down payment and having a 2nd mortgage covering the other 15% will be well worth it in the long term.  The compound interest of that money growing over time is well well well well well well worth it.

 

[Buckna]

First time posting in this thread and I apologize for how long it is but I value the opinions of the posters in this thread and have been reading for years.   

Does it makes sense for me to pull 100k out of my IRA and use the Cares Act relief to avoid the 10% early withdrawal penalty?   

I'm 37 and have a wife and 3 children ages 1, 3, and 5.   In 2019, we had our 3rd child which caused us to have to upgrade both of our vehicles to make room for 3 car seats and they were high mileage anyway.   I make a very good salary and my wife makes good money, however she dropped down to working 3 days a week because my job is time consuming and it's been a blessing for her to be able to take on most of the daycare drop off/pick-up and get everything done around the house on M/F.   She started a side business that is bringing in about $500 per month in extra income and fills up her 2 days of the work week that she's off.   Our bank account shrunk dramatically over the past 16 months since we've been paying 3 daycare bills and added 2 car loans.   We also have a nice house with a big mortgage payment (at a very low interest rate thanks to recent refi) and my wife has a school loan that costs $500 per month and has 3 years of payments left.   The school loan is at 2%, and both of the card are 4-5% interest rates.   In 4 years, we will no longer have 3 daycare bills, 2 car loans, and the school loan so our financial stability will be great at the time.  However, for the time being, we are very strapped for disposable cash and have been for the past 2 years.   We knew that bringing on the kids would cause short term sacrifices so for the past couple of years, we have cut a lot of luxuries that we have.  We decided that having the kids close in age was more important to us than spreading out the daycare bills and financial stress.   I have no regrets on that decision and could live the next few years in the same manner and we would be okay.

However, 2020's Covid situation has brought on a unique opportunity.   Due to some well-thought out investing and mostly luck in my 401k, our retirement accounts have more than doubled this year and I already had a healthy retirement plan that was going to allow both my wife and I to retire comfortably in our early 60's.   Now my retirement account is about 5 years ahead of where I thought it would be so my wife and I know that we should be "rich" once we turn 59.5.   Obviously bad things can happen to anybody in life and this story could change unexpectedly.  So our dilemma is that we know in 22 years, we'll be wealthy, however currently we are living on a very, very tight budget and not really doing anything fun or enjoyable (we haven't bough clothes in years, we rarely eat out and when we do we pick the cheapest thing on the menu, we haven't traveled much, we cut cable, etc).

Since my job temporarily reduced my pay this year, we qualify to withdraw up to 100k per person without facing the 10% fee.  I know we'd still have to pay regular income taxes on the money, however I can choose to spread the value of the tax (let's call it 24k) over the next 3 years and can even delay paying the taxes until year 3 and then at that time choose to repay the money or pay the taxes then.  Of course in the mean time, I'll use the bulk of that 100k to invest so somewhere conservatively.   

My thought process is that our current budget will essentially break even if we continue to live our conservative lifestyle.  However, would it be a bad idea to spend 5-10k of that money each year to treat our family to a vacation, or eat better food, or have date nights and not be stressed about the cost of the babysitter and the date?  I have ran the numbers many times and every output says that NO scenario makes sense if the goal is to maximize our money.   

My wife has stated on a couple of occasions "you tell me how lucky we were with the stock market this year and how it will make us rich in retirement, but what is the point when we feel poor now.   Why not use the blessings to live comfortably now in our hardest times (curse you daycare bills!)?

What would you do?   

Interesting question, hard to answer as well. I am actually contemplating something similar as I have unique tax situation (large business loss this year, partly due to COVID) that will reduce my wife and I’s combined taxable income significantly and drop us down into a much lower tax bracket. In my case I am working with my CPA before I make a decision.

Not raiding the retirement is generally going to be the best advice as already mentioned. There are some middle ground options though. For one, you don’t have to take the full 100k, you also don’t have to take it at just one time, you could cut back on new contributions to free up cashflow as already mentioned. 401k loan was mentioned as well as an option to consider that may keep you more “honest” since forced to pay it back. I would definitely consult a tax preparer though on the implications, the CARES Act was pretty hastily thrown together, there are still some provisions that aren’t even defined yet. 

 

[-OZ-]

Pulling money out of retirement funds will always be the easy thing to do b/c you can physically see the money in the account.  Just dont' do it.....ever.  Sure there might be some outlier situations where the math works out....but those are outliers.  You will be much better off over the long term by having the discipline of saving the money for the down payment vs. pulling the money out of retirement.

Even a 5% down payment and having a 2nd mortgage covering the other 15% will be well worth it in the long term.  The compound interest of that money growing over time is well well well well well well worth it.

"So easy even a tiger fan gets it"

 

[stbugs]

We'll see how she does, but for 23 years together she's never been a big spender. She'll spend more now than ever before, but that's mostly the kids, DIY projects around the house (most of which I like) and weekly dinners with the girls, which has been good for her. The dinners probably add just over $100 / month, so I'm okay with it. 

I'd love it if she made more than I do. I'd settle for 5-10 years where she makes half my salary. Then we retire fully.

I've suggested we make her income the family fun money, she seems on board with that budget. 

Nice. My wife is, a spender. She’s more than made up for it so I can’t complain and we do enjoy things so there’s that. When she switched jobs we used part of her sign on bonus to do a family trip to Mexico with friends (now divorcing unfortunately) and the kids freaking loved it. All inclusive so a step up from the HHI trips, which she’s paid for the past two years . I will say that she does work her ### off so again, I admire that.

I honestly enjoy discussions like these around finance and stock better than my job. It’s not even close. I think I’m just burned out, but we are socking away a ton in our 401ks so I’m good for a bit. I’ll be glad when the 401ks get close to my IRA. At that point, we should be good and I can just do my investing thing full time.

 

[D_House]

OK, I pulled the plug on the advisor that wanted 1.3% yearly.

Any advice on the robo-advising services? 

Z: I don’t use them but robo-advisors have a decent rep. Generally they use index funds/ETFs and will auto-rebalance and some also tax loss harvest (in taxable accounts) for you. They are more likely to provide value than an advisor that charges a 1.3% AUM fee and tries to sell you whole life.

 

[BroncosFan07]

I’m not quite in @Chadstroma‘s boat for doing nothing but I don’t like the taking money out for vacations and such. A couple thoughts:

1. How about a 401k loan? You are basically forced to pay it back over time and you don’t owe taxes or have a penalty.

2. Is it worth your wife working for 3 kids in day care? She’s already making money while at home. Could she still do that and maybe earn a little more while watching the kids? 3 day a week work doesn’t seem like it would bring home enough. For instance, are you paying taxes on the $500 a week and is that $500 a week profit? According to Google, average day care costs per infant is $15k a year. Maybe a multi kid discount but still $40k a year. I think you can get some tax savings but still seems like making say $60k a year means 100% working just for day care.

3. Also, if the 401k has done great, how about ratcheting it down to just get the matching amount. That would instantly provide take home cash and not screw up retirement too much since you said this year put you way ahead.

Thanks for the feedback.  Hare are my comments and follow up questions for these points.  Also, wanted to add that if we took the money out, it wouldn't be just for vacations.  Vacations would be one of the biggest expenses we have but really it would just to be less strapped everywhere.  The money would be a safety net incase we eat out too many times, use the babysitter too much, have unplanned medical expenses, etc.  Right now we are very careful about our money and break even.  If we relaxed a little, we could miss our budget by $400-$500 each month and at the end of the year learn that we spent 6k more than we earned.  The 100k would be used to support the 6k we need.   I have about 3 months in savings for emergencies that is not part of any of this discussion.  I never want to use the 6k out of the emergency fund.  I already had to tap into it twice in 2019 because we blew an engine twice 6 months apart on the same vehicle (lemon - and it's been traded in for a low mileage used car now).  

1.  I'm curious to learn more about a 401k loan.  I thought I read at one time you could only get a 401k loan to cover new home purchases or other limited categories.  I also recall that you can only take 1/2 of your vested balance, which wouldn't be ideal for me since I haven't been at my new company long enough to have much of a 401k balance.   90% of my retirement money was from the previous employee's 401k that I rolled over to a Fidelity IRA account.   Are there any "catches" to a 401k loan other than you pay back the loan monthly and the interest goes into your account?

2.  $500 after tax a month for my wife's side job.   I live in Missouri and daycare is below average cost so the 3 of them cost $31k.  My wife makes just over 40k working 3 days a week so after taxes hit that, it's virtually break even for her to watch the kids.  Also, she needs the 2 days a week in order to do her side job.   Having the kids home 5 days a week would probably drop the $500 per month savings.   The biggest factor in her keeping her 3 days a week job is because its a great job and she still gets adult interaction and she has the ability to go back to 4 days or 5 days in the future if she would ever want to (I hope she never has to).   Also, we shed 1 daycare in a few weeks so her working 3 days a week provides considerable more money than the soon to be 2 daycares.  I've already factored getting 1 daycare bill back into our situation that gets us income to expenses to break even for a month.

3.  I already did this 16 months ago when baby #3 was born.   It was a rough 2019 because we closed on a new house but had to pay 2 mortgages, had the 2 car engines blow for about 10k in expenses, had to go from no car loans to 2 car loans because of baby #3 and needing room for car seats, and also all of the money around the birth of the child.   We are back on track in 2020, but 2019 was a year I was very thankful to have that emergency savings.

 

[BroncosFan07]

Good topic @BroncosFan07, and something that's been on my mind a lot recently as well.  As I've stated up thread a bit, I've pretty much done the "right thing" financially for the last 11 years or so, particularly when it comes to saving for retirement.  But I look at my parents, and wonder.  At 72 years old my dad suffered a traumatic brain injury, which required surgeries and led to months of speech and occupational and physical therapy.  Thankfully he's largely recovered, but he went from a super sharp guy (was still a working psychologist) who played tennis several times a week and did a 100 mile bike ride at age 70, to at age 77 not having any motivation to do much of anything.  My mom worked hard as well and retired about 2 years ago.  And now they've spent year 3 of their retirement stuck at home during the pandemic, with who knows how much longer of this.  They cancelled an Australia/NZ trip that they had been planning for years.  They can barely even see family and grandkids, just some brief outdoor visits. So all that hard work and savings, and for various reasons they can't even enjoy the benefits.  Of course it could be a lot worse, and it is for a lot of people, I totally get that.  At least they are still relatively healthy and financially secure. 

So whether it's scaling back on savings to live a bit more comfortably as you're considering or just wanting to "live a little", lately I'm having a tough time wanting to stay financially disciplined.

This is really what I was trying to get at.   I've pinched pennies my entire life and had a ton of luck with investing.   I've delayed getting knee replacements for 11 years now because I didn't want the financial expense and didn't want to miss time at work and miss my chance to impress someone for the next promotion.   I've always enjoyed high levels of stress since my work adds a lot however now that you add in having young kids and being so tight on money, my health is starting to sacrifice and I'm not combatting the stressful by doing things that I enjoy in life as much as I should.   My dad retired 3 years ago at age 62 and he seems pretty miserable in retirement.  His knees were just replaced, he had to have an ankle fused, and he needs to get his hip replaced once his knees recover.  On top of that he has high blood pressure and is diabetic and had quadruple bypass open heart surgery 20 years ago.   He has way more money than he needs in retirement and will eventually pass away without barely tapping into his balance.   I don't want my story to be like my dads.  

 

[Random]

This is really what I was trying to get at.   I've pinched pennies my entire life and had a ton of luck with investing.   I've delayed getting knee replacements for 11 years now because I didn't want the financial expense and didn't want to miss time at work and miss my chance to impress someone for the next promotion.   I've always enjoyed high levels of stress since my work adds a lot however now that you add in having young kids and being so tight on money, my health is starting to sacrifice and I'm not combatting the stressful by doing things that I enjoy in life as much as I should.   My dad retired 3 years ago at age 62 and he seems pretty miserable in retirement.  His knees were just replaced, he had to have an ankle fused, and he needs to get his hip replaced once his knees recover.  On top of that he has high blood pressure and is diabetic and had quadruple bypass open heart surgery 20 years ago.   He has way more money than he needs in retirement and will eventually pass away without barely tapping into his balance.   I don't want my story to be like my dads.  

As someone who spent my first 15+ working years pinching pennies and taking way too few (and cheapish) vacations, nothing has been more rewarding for the family than blowing up our vacation budget.  Annual trips overseas, national parks, cruises in the winter (kids love them).

My advice is to find something you enjoy and splurge on that, rather than just blowing money on anything and everything.