Ken is sending his financial situation into the GRS ether to see what you have to say. Here's a snapshot of his finances:
I thoroughly enjoyed reading your article “What Next” and the “Ask the Readers: What is the Next Step?” because that is my situation. I have been struggling for the past year to figure out where to focus my attention.
- I am married with no children. My wife and I are 43 and 40 (respectively).
- We own a home (a duplex, with my mother-in-law in one side and us on the other). We have $188,000 with 25 years on a 30-year mortgage. My current estimate is the house is worth about $205,000.
- We own a second duplex. This was our first home bought about eight years ago. We tried to rent it out at first, but we had too many renter issues and gave up being landlords (currently have a relative living on one side who pays $300 rent and takes care of the property and utilities). We owe $142,000 on this property, and current market value is around $100,000. (There have been several units similar to ours sold at $95,000 to $100,000 in the past few years, dramatically bringing the market down. We have been making double payments trying to get the principal down to sell it.)
- We currently have about $50,000 in the bank, which is about six month' worth of expenses.
- We have three cars (one of which my mother-in-law drives) — all three are paid off.
- I have a student loan with a balance of $7,000 at a 2.5 percent rate.
- I max out my 401(k), but my wife's employer does not offer a 401(k) (and we make too much to do tax-free IRA contribution for her or to do a Roth IRA).
- I have recently converted a term life insurance policy to a universal life policy with a paid-in-advance (PIA) rider (so I am paying $500/month premium) and was looking to do the same with my wife.
I have thought about doing a few things financially, but have been a little stuck with what to do.
- Pay off student loan. This is an obvious one. We just finished paying off my wife's 2010 car, which had a higher interest rate (so I will likely do this soon)
- I have also thought about Treasury bond laddering; EE bonds double every 20 years. Since we can't contribute to a 401(k) for my wife, we could buy $15,000 worth of EE bonds each year. In 20 years she will be 63, we could cash in and use $15,000 for living and reinvest the other $15,000, until a time when we will need the whole $30,000 income.
- Set up a universal life policy with PIA rider for her and over pay the premium (this is from the “bank on yourself” method — but we would target to not touch until retirement, then use the money as tax-free income).
- Put more money toward the second house to get rid of it sooner.
Ken has four suggested courses of action for his “next step.” Which path do you think he should take, or do you suggest an alternate route?
Author: Ellen Cannon
Ellen Cannon was the editorial director of the financial services sites at QuinStreet from 2010-2015. She has covered personal finance for magazines and websites for more than 20 years, including five years as managing editor of Bankrate.com. She lives in South Florida with her kitty and sunshine.