Any gaps in our thinking?

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Topic Author
curious mind
Posts: 26
Joined: Fri Feb 05, 2016 12:25 pm

Any gaps in our thinking?

Post by curious mind »

Looking for community feedback on our thought process.

Ages
Him: 42 yrs
Her: 40 yrs
2 kids: 11 & 7

Income
Him - 200K
Her - 110K

Debt:
100K Mortgage on 400K townhouse
No other debt

Education Expenses
100K for each child in 529. No plans to add more

Current Expenses
95K/yr all in.

NW - 4.5M
2.3M - taxable
1.9M - 401k
340K - Roth
50K - Cash

Allocation
75:25

Future planning
We would like to do the following:
[*]Purchase a bigger place in one of the best school districts for up to 900K. Sell 500K from taxable for down payment and 400K on mortgage.
[*]DW - to quit her job because commute will be too long. She is unlikely to find another job in our new area. Her skills are not very marketable outside of the big city and her work will not allow WFH post-pandemic.
[*]DH - Would like to have the option to try something else in life. Not sure what that is.
[*]Keep the current townhouse as rental. Rent should cover all costs with a little left over.

Financial:
Income: $0
Portfolio - $4M
New Expenses: 130K (105K + 24 for medical premiums for a family of 4)
SWR: 3.25%. Some years it will be 3.875% when we need to replace cars.

In 11 years, once kids are in college, we can downgrade and move back to our paid off townhouse.

Are we insane?
tryingtogetahead
Posts: 153
Joined: Tue Apr 07, 2020 11:45 am

Re: Any gaps in our thinking?

Post by tryingtogetahead »

Sounds like a great idea and you’re certainly more than able to make this happen. Congrats on everything you have done and what you’re about to embark on!
Compound
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Joined: Mon May 26, 2014 1:32 pm

Re: Any gaps in our thinking?

Post by Compound »

With a portfolio worth over $4,000,000, seems as though you have a ton of options available to you... such as any or all of those you outlined.
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JoeRetire
Posts: 15381
Joined: Tue Jan 16, 2018 1:44 pm

Re: Any gaps in our thinking?

Post by JoeRetire »

curious mind wrote: Sun Sep 06, 2020 9:44 amAre we insane?
Perhaps. :wink:
But nothing you have written here seems insane.

If you are really asking "is our plan reasonable", then you would need to include information about your goals beyond just moving back to your townhouse in 11 years, along with some indications of the costs of those goals.
This isn't just my wallet. It's an organizer, a memory and an old friend.
Topic Author
curious mind
Posts: 26
Joined: Fri Feb 05, 2016 12:25 pm

Re: Any gaps in our thinking?

Post by curious mind »

JoeRetire wrote: Sun Sep 06, 2020 9:54 am
curious mind wrote: Sun Sep 06, 2020 9:44 amAre we insane?
Perhaps. :wink:
But nothing you have written here seems insane.

If you are really asking "is our plan reasonable", then you would need to include information about your goals beyond just moving back to your townhouse in 11 years, along with some indications of the costs of those goals.
Once kids are out of the nest, we would like to live abroad for a period of time. The plan is make it work with a 100K/year expense rate all in. There is room to cut fat if necessary.
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JoeRetire
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Re: Any gaps in our thinking?

Post by JoeRetire »

curious mind wrote: Sun Sep 06, 2020 10:05 am
JoeRetire wrote: Sun Sep 06, 2020 9:54 am
curious mind wrote: Sun Sep 06, 2020 9:44 amAre we insane?
Perhaps. :wink:
But nothing you have written here seems insane.

If you are really asking "is our plan reasonable", then you would need to include information about your goals beyond just moving back to your townhouse in 11 years, along with some indications of the costs of those goals.
Once kids are out of the nest, we would like to live abroad for a period of time. The plan is make it work with a 100K/year expense rate all in. There is room to cut fat if necessary.
In your early 50s, assuming your portfolio doesn't tank in the intervening years, you should easily be able to withdraw enough to support 100k/year in expenses for the rest of your lives.

Pension(s)? Social Security? Long-Term Care Insurance? Plans to leave a financial legacy to your heirs? Ageing parents to support?
This isn't just my wallet. It's an organizer, a memory and an old friend.
OnTrack2020
Posts: 1423
Joined: Mon Mar 20, 2017 10:24 am

Re: Any gaps in our thinking?

Post by OnTrack2020 »

I'm going to mention--and I hate to because I can't stand when other people do it--do you have the option of moving? I realize that not everyone does. If you move to a lower cost of living area, you can get a really nice home for 1/2 of what you mentioned and still get your children in a really good school district? You'd just have to research where that place is.
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Stinky
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Location: Sweet Home Alabama

Re: Any gaps in our thinking?

Post by Stinky »

Personally, I wouldn’t keep the townhouse on the off chance that you move back there in 11 years.

Being a landlord can be a PITA. I know that from personal experience

Let me frame it this way. If you didn’t own the townhouse now, would you put down $100k to buy the townhouse, take out a $300k mortgage to finance it, and plan to rent it out for the next 11 years? (I didn’t think so)

I’d sell the townhouse.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
Topic Author
curious mind
Posts: 26
Joined: Fri Feb 05, 2016 12:25 pm

Re: Any gaps in our thinking?

Post by curious mind »

OnTrack2020 wrote: Sun Sep 06, 2020 10:39 am I'm going to mention--and I hate to because I can't stand when other people do it--do you have the option of moving? I realize that not everyone does. If you move to a lower cost of living area, you can get a really nice home for 1/2 of what you mentioned and still get your children in a really good school district? You'd just have to research where that place is.
We have our base (both set of grandparents, old friends, etc) in our area. I am hoping we can make it in our current location.
basspond
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Re: Any gaps in our thinking?

Post by basspond »

I would also recommend that you sell the townhouse. Other then that your plan looks great.
av111
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Joined: Mon Jan 26, 2015 12:27 pm

Re: Any gaps in our thinking?

Post by av111 »

OP

Does 95k annual expense include PITI for the new home? This expense is expected to come from the 2m taxable so withdrawal rate is about 5%. Does the expense include taxes on sales of appreciated stock? What happens if stocks go down a bit for some time? Do it but have a 2 year liquid EF before quitting jobs

What you want to do is the whole point of the FIRE movement.
AV111
Topic Author
curious mind
Posts: 26
Joined: Fri Feb 05, 2016 12:25 pm

Re: Any gaps in our thinking?

Post by curious mind »

Stinky wrote: Sun Sep 06, 2020 3:11 pm Personally, I wouldn’t keep the townhouse on the off chance that you move back there in 11 years.

Being a landlord can be a PITA. I know that from personal experience

Let me frame it this way. If you didn’t own the townhouse now, would you put down $100k to buy the townhouse, take out a $300k mortgage to finance it, and plan to rent it out for the next 11 years? (I didn’t think so)

I’d sell the townhouse.
We have 100K left on the mortgage but to keep this formula simple, lets say I pay it off. So the numbers would be:

The rent for our townhouse is in the $3200-$3400 range.
The HOA fee + tax is about is $1500 per month.
If I pay 10% management fee to absorb the pain and another 10% for ongoing maintenance costs, I am thinking there will be an extra $1k in the pocket.

Thoughts?
Topic Author
curious mind
Posts: 26
Joined: Fri Feb 05, 2016 12:25 pm

Re: Any gaps in our thinking?

Post by curious mind »

av111 wrote: Sun Sep 06, 2020 4:07 pm OP

Does 95k annual expense include PITI for the new home? This expense is expected to come from the 2m taxable so withdrawal rate is about 5%. Does the expense include taxes on sales of appreciated stock? What happens if stocks go down a bit for some time? Do it but have a 2 year liquid EF before quitting jobs

What you want to do is the whole point of the FIRE movement.
With the 900K house, our expenses would go up from 95K to 105K which does include PITI. We would put down 500K from taxable and finance 400K.

This expense would indeed come from the taxable account but shouldn't the whole portfolio be counted as one pile? As of today, our portfolio will be 4M after we sell 500K. Could you elaborate on how you got 5% withdrawal rate?

When we sell 500K in equities, it will generate 175K in long term gains. 71K will be covered by TLH locked in this year. 104K taxed at 15% will be covered by income before we quit.
av111
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Joined: Mon Jan 26, 2015 12:27 pm

Re: Any gaps in our thinking?

Post by av111 »

OP

5% is 100k withdrawal out of the 2m taxable. One reason to focus on the taxable only is because needs for withdrawals can sometimes change the ips leading to unpredictable results. But with 4m corpus it does not matter. You are good to go. Consider expanding the EF or reducing the equity exposure in the taxable just to be safe
AV111
babystep
Posts: 775
Joined: Tue Apr 09, 2019 9:44 am

Re: Any gaps in our thinking?

Post by babystep »

curious mind wrote: Sun Sep 06, 2020 9:44 am Looking for community feedback on our thought process.

Ages
Him: 42 yrs
Her: 40 yrs
2 kids: 11 & 7

Income
Him - 200K
Her - 110K

Debt:
100K Mortgage on 400K townhouse
No other debt

Education Expenses
100K for each child in 529. No plans to add more

Current Expenses
95K/yr all in.

NW - 4.5M
2.3M - taxable
1.9M - 401k
340K - Roth
50K - Cash

Allocation
75:25

Future planning
We would like to do the following:
[*]Purchase a bigger place in one of the best school districts for up to 900K. Sell 500K from taxable for down payment and 400K on mortgage.
[*]DW - to quit her job because commute will be too long. She is unlikely to find another job in our new area. Her skills are not very marketable outside of the big city and her work will not allow WFH post-pandemic.
[*]DH - Would like to have the option to try something else in life. Not sure what that is.
[*]Keep the current townhouse as rental. Rent should cover all costs with a little left over.

Financial:
Income: $0
Portfolio - $4M
New Expenses: 130K (105K + 24 for medical premiums for a family of 4)
SWR: 3.25%. Some years it will be 3.875% when we need to replace cars.

In 11 years, once kids are in college, we can downgrade and move back to our paid off townhouse.

Are we insane?
The numbers look great. I would consider taking a loan from taxable instead of selling and causing a huge tax burden. You can easily get a loan of 500k from interactive brokers for maybe 1%. This would likely save you in taxes in two dimensions 1) no capital gains tax 2) deduct the interest on this loan against the investment income.

I am curious about 1.9M in 401k. Did you do very well with your 401k investments or was there any other reason for this? Also, 2.3M in taxable looks great as well. Care to share more details?
Congratulations on your success.
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Stinky
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Location: Sweet Home Alabama

Re: Any gaps in our thinking?

Post by Stinky »

curious mind wrote: Sun Sep 06, 2020 4:18 pm
Stinky wrote: Sun Sep 06, 2020 3:11 pm Personally, I wouldn’t keep the townhouse on the off chance that you move back there in 11 years.

Being a landlord can be a PITA. I know that from personal experience

Let me frame it this way. If you didn’t own the townhouse now, would you put down $100k to buy the townhouse, take out a $300k mortgage to finance it, and plan to rent it out for the next 11 years? (I didn’t think so)

I’d sell the townhouse.
We have 100K left on the mortgage but to keep this formula simple, lets say I pay it off. So the numbers would be:

The rent for our townhouse is in the $3200-$3400 range.
The HOA fee + tax is about is $1500 per month.
If I pay 10% management fee to absorb the pain and another 10% for ongoing maintenance costs, I am thinking there will be an extra $1k in the pocket.

Thoughts?
Sorry that I reversed the equity and mortgage amount.

So by paying off the mortgage, you’d be making $12k per year on a $400k cash investment, or 3% per year. Plus any appreciation (or depreciation) on the townhouse. Minus an allowance for any times the townhouse is vacant.

So the question is whether you would want to invest in residential real estate for a 3% return. Not my cup of tea. But it may be just right for you.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
saagar_is_cool
Posts: 401
Joined: Thu Jan 30, 2014 1:21 pm

Re: Any gaps in our thinking?

Post by saagar_is_cool »

I don’t want to be the naysayer, but will give you an altwrnative perspective. As you are 42/40, let us assume you don’t want to withdraw from 401k or Roth IRA any time soon or deal with the 72(t). So, you have essentially 2.3M portfolio for withdrawal. At 118k (130-12k rent from townhome) expenses, your withdrawal rate is 5.7%. If you take out the 500k for payment on new place, and 100k to pay off the townhome, you have 1.7M portfolio for withdrawal and 118k expenses. That is close to 7% withdrawal for next 13-15 years before you can withdraw from 401(k). Are you comfortable with that rate of withdrawal rate of 7%, thats the question you need to answer. I think thats the reason, many are advising to sell off the townhome, so you now have 2.3M portfolio and 130k expenses which gets you to 5.65% withdrawal until you are eligible for withdrawing from 401k etc.
Topic Author
curious mind
Posts: 26
Joined: Fri Feb 05, 2016 12:25 pm

Re: Any gaps in our thinking?

Post by curious mind »

babystep wrote: Sun Sep 06, 2020 5:18 pm
curious mind wrote: Sun Sep 06, 2020 9:44 am Looking for community feedback on our thought process.

Ages
Him: 42 yrs
Her: 40 yrs
2 kids: 11 & 7

Income
Him - 200K
Her - 110K

Debt:
100K Mortgage on 400K townhouse
No other debt

Education Expenses
100K for each child in 529. No plans to add more

Current Expenses
95K/yr all in.

NW - 4.5M
2.3M - taxable
1.9M - 401k
340K - Roth
50K - Cash

Allocation
75:25

Future planning
We would like to do the following:
[*]Purchase a bigger place in one of the best school districts for up to 900K. Sell 500K from taxable for down payment and 400K on mortgage.
[*]DW - to quit her job because commute will be too long. She is unlikely to find another job in our new area. Her skills are not very marketable outside of the big city and her work will not allow WFH post-pandemic.
[*]DH - Would like to have the option to try something else in life. Not sure what that is.
[*]Keep the current townhouse as rental. Rent should cover all costs with a little left over.

Financial:
Income: $0
Portfolio - $4M
New Expenses: 130K (105K + 24 for medical premiums for a family of 4)
SWR: 3.25%. Some years it will be 3.875% when we need to replace cars.

In 11 years, once kids are in college, we can downgrade and move back to our paid off townhouse.

Are we insane?
The numbers look great. I would consider taking a loan from taxable instead of selling and causing a huge tax burden. You can easily get a loan of 500k from interactive brokers for maybe 1%. This would likely save you in taxes in two dimensions 1) no capital gains tax 2) deduct the interest on this loan against the investment income.

I am curious about 1.9M in 401k. Did you do very well with your 401k investments or was there any other reason for this? Also, 2.3M in taxable looks great as well. Care to share more details?
Congratulations on your success.
I am not familiar with borrowing from interactive brokers. Our assets are broken up between Etrade & Schwab. Could you shed some light on how that works?

My wife & I have been maxing out our 401ks for 20 years. Additionally, I was a 1099 for 10 years, so I would put in ~50k per year into Solo 401K. The rest is the bull run of the market.
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Watty
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Re: Any gaps in our thinking?

Post by Watty »

curious mind wrote: Sun Sep 06, 2020 9:44 am 100K Mortgage on 400K townhouse
What is the cost basis for the town house?

If you have significant capital gains then you would lose the homeowners capital gains exemption if you rent it for a few years. If that is the case then selling the townhouse would likely be tax free and I would do that in a heartbeat.

Even if that is not the case I would still sell it.

Among other reasons if you move again in 11 years you will likely want to move to a place that will work well in retirement and most townhouses have lots of stairs.

If you sell the townhouse then with just a bit more you could pay cash for your next house. If you are thinking of career changes then having a paid off house could be a real good thing since you would need a lot less income to cover your other expenses.


curious mind wrote: Sun Sep 06, 2020 9:44 am New Expenses: 130K (105K + 24 for medical premiums for a family of 4)
Did you include income taxes in that? If not you will need to have a lot more income to have $130K left after you pay your income taxes.
Any gaps in our thinking?
A few things for brainstorming;

1) $900K is a lot for house when you live in a $400K townhouse now.

You did not say a lot about why you were moving to that area but in some areas of the country you might be able to find a better house that is a lot less expensive and maybe even a location with lower state and property taxes.

2) You are moving and then trying something else out careerwise. It might be best to make your career plans first, then move to a location where that will work.

3) What healthcare will look like in the future is a big unknown. One thing to consider is if you would be able to manage your taxable income so that you would qualify for a healthcare subsidy. If you are not able to do that then you should also look to see if you could qualify for a subsidy every other year by shifting you income so that you have low taxable income every other year.

Having a paid off house might help you keep your taxable income low enough to qualify for a subsidy.

Having rental income from renting the townhouse will make it a lot more difficult to qualify for a subsidy.
babystep
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Joined: Tue Apr 09, 2019 9:44 am

Re: Any gaps in our thinking?

Post by babystep »

curious mind wrote: Sun Sep 06, 2020 6:29 pm
babystep wrote: Sun Sep 06, 2020 5:18 pm
curious mind wrote: Sun Sep 06, 2020 9:44 am Looking for community feedback on our thought process.

Ages
Him: 42 yrs
Her: 40 yrs
2 kids: 11 & 7

Income
Him - 200K
Her - 110K

Debt:
100K Mortgage on 400K townhouse
No other debt

Education Expenses
100K for each child in 529. No plans to add more

Current Expenses
95K/yr all in.

NW - 4.5M
2.3M - taxable
1.9M - 401k
340K - Roth
50K - Cash

Allocation
75:25

Future planning
We would like to do the following:
[*]Purchase a bigger place in one of the best school districts for up to 900K. Sell 500K from taxable for down payment and 400K on mortgage.
[*]DW - to quit her job because commute will be too long. She is unlikely to find another job in our new area. Her skills are not very marketable outside of the big city and her work will not allow WFH post-pandemic.
[*]DH - Would like to have the option to try something else in life. Not sure what that is.
[*]Keep the current townhouse as rental. Rent should cover all costs with a little left over.

Financial:
Income: $0
Portfolio - $4M
New Expenses: 130K (105K + 24 for medical premiums for a family of 4)
SWR: 3.25%. Some years it will be 3.875% when we need to replace cars.

In 11 years, once kids are in college, we can downgrade and move back to our paid off townhouse.

Are we insane?
The numbers look great. I would consider taking a loan from taxable instead of selling and causing a huge tax burden. You can easily get a loan of 500k from interactive brokers for maybe 1%. This would likely save you in taxes in two dimensions 1) no capital gains tax 2) deduct the interest on this loan against the investment income.

I am curious about 1.9M in 401k. Did you do very well with your 401k investments or was there any other reason for this? Also, 2.3M in taxable looks great as well. Care to share more details?
Congratulations on your success.
I am not familiar with borrowing from interactive brokers. Our assets are broken up between Etrade & Schwab. Could you shed some light on how that works?

My wife & I have been maxing out our 401ks for 20 years. Additionally, I was a 1099 for 10 years, so I would put in ~50k per year into Solo 401K. The rest is the bull run of the market.
You can check here.
https://www.google.com/aclk?sa=l&ai=DCh ... Qx6BAgOEAE
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Lee_WSP
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Location: Arizona

Re: Any gaps in our thinking?

Post by Lee_WSP »

If you'd be willing to keep the townhouse even if it generated no rent and still cost you the upkeep, keep it. Otherwise, let it go and buy a different one when the time comes. It's just a right to stay on some land after all.
UsVi
Posts: 1
Joined: Sun Sep 06, 2020 9:03 pm

Re: Any gaps in our thinking?

Post by UsVi »

Congrats to both of you.
I have a question - have you considered Pledged Asset Line at Schwab. To borrow 400k you have to sell a lot more to cover built in capital gains tax. PAL will allow you to avoid LTCG. It enables you to borrow against taxable assets and pay only interest. Of course interest rate is tied to LIBOR and variable. But your investments will continue to grow hopefully more than a) appreciation on your house equity b) interest rate.
The rates are negotiable and lower than those mentions on website.
https://www.schwab.com/public/schwab/ba ... asset_line.
Run some numbers and see if it makes sense for you.
Good Luck.
Topic Author
curious mind
Posts: 26
Joined: Fri Feb 05, 2016 12:25 pm

Re: Any gaps in our thinking?

Post by curious mind »

Stinky wrote: Sun Sep 06, 2020 5:20 pm So by paying off the mortgage, you’d be making $12k per year on a $400k cash investment, or 3% per year. Plus any appreciation (or depreciation) on the townhouse. Minus an allowance for any times the townhouse is vacant.
Very valid point that we haven't considered before. I think we are convinced now that we should be selling our current townhouse. Thank you.
Topic Author
curious mind
Posts: 26
Joined: Fri Feb 05, 2016 12:25 pm

Re: Any gaps in our thinking?

Post by curious mind »

Watty wrote: Sun Sep 06, 2020 7:10 pm What is the cost basis for the town house?
We paid $375K so not much capital gain. Based on the feedback so far, I think we will be selling our current place.

Watty wrote: Sun Sep 06, 2020 7:10 pm Did you include income taxes in that? If not you will need to have a lot more income to have $130K left after you pay your income taxes.
I did not. I think I saw a thread a while back that calculated withdrawal of 100K from portfolio almost tax free. I may need to revisit it.
Watty wrote: Sun Sep 06, 2020 7:10 pm 1) $900K is a lot for house when you live in a $400K townhouse now.

You did not say a lot about why you were moving to that area but in some areas of the country you might be able to find a better house that is a lot less expensive and maybe even a location with lower state and property taxes.
One big reason is the desire to move to one of the best school districts in the state. Additionally, we have been living below our means for a long time and wanted to see if we can kick it up within a reason. Hence, this post to gather thoughts.
Watty wrote: Sun Sep 06, 2020 7:10 pm
3) What healthcare will look like in the future is a big unknown. One thing to consider is if you would be able to manage your taxable income so that you would qualify for a healthcare subsidy. If you are not able to do that then you should also look to see if you could qualify for a subsidy every other year by shifting you income so that you have low taxable income every other year.
This is an excellent point. Thank you.
Topic Author
curious mind
Posts: 26
Joined: Fri Feb 05, 2016 12:25 pm

Re: Any gaps in our thinking?

Post by curious mind »

saagar_is_cool wrote: Sun Sep 06, 2020 5:22 pm I don’t want to be the naysayer, but will give you an altwrnative perspective. As you are 42/40, let us assume you don’t want to withdraw from 401k or Roth IRA any time soon or deal with the 72(t). So, you have essentially 2.3M portfolio for withdrawal. At 118k (130-12k rent from townhome) expenses, your withdrawal rate is 5.7%. If you take out the 500k for payment on new place, and 100k to pay off the townhome, you have 1.7M portfolio for withdrawal and 118k expenses. That is close to 7% withdrawal for next 13-15 years before you can withdraw from 401(k). Are you comfortable with that rate of withdrawal rate of 7%, thats the question you need to answer. I think thats the reason, many are advising to sell off the townhome, so you now have 2.3M portfolio and 130k expenses which gets you to 5.65% withdrawal until you are eligible for withdrawing from 401k etc.
Thank you for taking time to respond. We will be selling our current place based on the feedback.

I was always under the impression SWR is calculated against the whole portfolio and not just the taxable account. 5.65% withdrawal sounds scary when I think about it.
Topic Author
curious mind
Posts: 26
Joined: Fri Feb 05, 2016 12:25 pm

Re: Any gaps in our thinking?

Post by curious mind »

babystep wrote: Sun Sep 06, 2020 5:18 pm You can easily get a loan of 500k from interactive brokers for maybe 1%. This would likely save you in taxes in two dimensions 1) no capital gains tax 2) deduct the interest on this loan against the investment income.
Have you ever done it? This sounds too good to be true. What's the catch? I will certainly read up more about it.
Topic Author
curious mind
Posts: 26
Joined: Fri Feb 05, 2016 12:25 pm

Re: Any gaps in our thinking?

Post by curious mind »

UsVi wrote: Sun Sep 06, 2020 9:16 pm Congrats to both of you.
I have a question - have you considered Pledged Asset Line at Schwab. To borrow 400k you have to sell a lot more to cover built in capital gains tax. PAL will allow you to avoid LTCG. It enables you to borrow against taxable assets and pay only interest. Of course interest rate is tied to LIBOR and variable. But your investments will continue to grow hopefully more than a) appreciation on your house equity b) interest rate.
The rates are negotiable and lower than those mentions on website.
https://www.schwab.com/public/schwab/ba ... asset_line.
Run some numbers and see if it makes sense for you.
Good Luck.
Very very interesting. I've never heard of PALs. I will be looking more into it. Please share any gotchas I should be aware of.
babystep
Posts: 775
Joined: Tue Apr 09, 2019 9:44 am

Re: Any gaps in our thinking?

Post by babystep »

curious mind wrote: Sun Sep 06, 2020 11:15 pm
babystep wrote: Sun Sep 06, 2020 5:18 pm You can easily get a loan of 500k from interactive brokers for maybe 1%. This would likely save you in taxes in two dimensions 1) no capital gains tax 2) deduct the interest on this loan against the investment income.
Have you ever done it? This sounds too good to be true. What's the catch? I will certainly read up more about it.
These options are great when one has a large portfolio like yours. The risk is that the margin rate could change with time but 30 years fixed interest rate won't. In your case, you could slowly sell the stocks and pay-off the mortgage such that your income is spread over the years.

There are other tricks you can apply because of your unique situation e.g. about 100k of gross-income there won't be any capital gains tax. You should also convert 401k into Roth IRA over the years. Take a look at 72t withdrawals also.

I will advise that you take the opinion of a fee-only fiduciary advisor as well. You don't wanna miss things like the above one.
CurlyDave
Posts: 3182
Joined: Thu Jul 28, 2016 11:37 am

Re: Any gaps in our thinking?

Post by CurlyDave »

curious mind wrote: Sun Sep 06, 2020 9:44 am Looking for community feedback on our thought process.


...Education Expenses
100K for each child in 529. No plans to add more..

...In 11 years, once kids are in college, we can downgrade and move back to our paid off townhouse...
You are not insane, but I think you are vastly under preparing for college expenses.

20 years ago my daughter's college was about $30k/year for everything (tuition, books, supplies, food, etc.) at a lower tier college. College costs have inflated faster than almost anything else in the US, and might be double that today, triple or more at an expensive school. I doubt you can count on much, if any, financial aid with your impressive assets.

I would budget at least $100k per year for each of them in 2020 dollars. You might be pleasantly surprised, or you might find that is not enough.

My strongly-held personal belief is that every child should be able to attend the very best college they can be accepted into...
Answering a question is easy -- asking the right question is the hard part.
Topic Author
curious mind
Posts: 26
Joined: Fri Feb 05, 2016 12:25 pm

Re: Any gaps in our thinking?

Post by curious mind »

Based on everyone suggestion here is our new action plan:

We have 70K(29K short term & 41K long term) losses from TLH in March.

Step 1.
900K (Purchase price of the house)
- 275K in equities from taxable. This will eat up all of 70K of losses. Net result is $0 capital gains.
----------
625K mortgage

Step 2
625K mortgage
- 276K (400K sale price - 24K(6% commission) - 100K mortgage balance. Cost bases is 375K so $0 capital gains.
---------
349K mortgage balance & 2M left in taxable.

I will need to explore Schwab PAL or IB Margin Loans on the 349K balance to see what is more beneficial.

What do you guys think?
Topic Author
curious mind
Posts: 26
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Re: Any gaps in our thinking?

Post by curious mind »

CurlyDave wrote: Sun Sep 06, 2020 11:45 pm You are not insane, but I think you are vastly under preparing for college expenses.

20 years ago my daughter's college was about $30k/year for everything (tuition, books, supplies, food, etc.) at a lower tier college. College costs have inflated faster than almost anything else in the US, and might be double that today, triple or more at an expensive school. I doubt you can count on much, if any, financial aid with your impressive assets.

I would budget at least $100k per year for each of them in 2020 dollars. You might be pleasantly surprised, or you might find that is not enough.

My strongly-held personal belief is that every child should be able to attend the very best college they can be accepted into...
My wife and I are both graduates of state colleges. With hard work and living below our means, we were able to secure our future. For now, our plan is to cover 4 years of state college. I don't even know if my kids are smart enough to get into better schools. Decisions will certainly have to be made when we get there.
saagar_is_cool
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Re: Any gaps in our thinking?

Post by saagar_is_cool »

curious mind wrote: Sun Sep 06, 2020 11:12 pm
saagar_is_cool wrote: Sun Sep 06, 2020 5:22 pm I don’t want to be the naysayer, but will give you an altwrnative perspective. As you are 42/40, let us assume you don’t want to withdraw from 401k or Roth IRA any time soon or deal with the 72(t). So, you have essentially 2.3M portfolio for withdrawal. At 118k (130-12k rent from townhome) expenses, your withdrawal rate is 5.7%. If you take out the 500k for payment on new place, and 100k to pay off the townhome, you have 1.7M portfolio for withdrawal and 118k expenses. That is close to 7% withdrawal for next 13-15 years before you can withdraw from 401(k). Are you comfortable with that rate of withdrawal rate of 7%, thats the question you need to answer. I think thats the reason, many are advising to sell off the townhome, so you now have 2.3M portfolio and 130k expenses which gets you to 5.65% withdrawal until you are eligible for withdrawing from 401k etc.
Thank you for taking time to respond. We will be selling our current place based on the feedback.

I was always under the impression SWR is calculated against the whole portfolio and not just the taxable account. 5.65% withdrawal sounds scary when I think about it.
It is, if you are 55 years or older. Atefnatively, you can do 72t and look at it as a holistic portfolio. But, depending on your withdrawal strategy - fixed or variable, 72t might pose some challenges. Either ways, you are in a very good position to take these challenges up. The whole point of diligent saving is to be able to use it.

A couple of things from others I agree with. Both of you dropping out and moving to a new place is too many changes. Have you considered one of you working so you could eliminate health insurance costs and have supplementary income while you “try out” new career options. Can you move to a lower paying less stressful job in your field. Also, how soon do you expect to get into an alternative career, can you work part fime with health benefits in the meanwhile.

Again, all these are different levers. You can still walk off and your current plan seems pretty good. Congratulations on paving your path to get to this state.
k b
Posts: 173
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Re: Any gaps in our thinking?

Post by k b »

I am a strong believer that solid school education is the best 'gift' you could give your kids. Of course, there is a balance between pvt and public schools. A strong schooling district certainly gets my vote. Financially, you seem to be well-prepared.

Couple of points:
  • expensive school districts are expensive in other ways too
    expensive school districts change kids' aspirations; they might not be content with state colleges
Separately - congratulations on the decision to sell the townhouse. You should be spending the next many years enjoying your kids, not managing unprofitable (or at best low profit) property!

Good luck!
livesoft
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Re: Any gaps in our thinking?

Post by livesoft »

CurlyDave wrote: Sun Sep 06, 2020 11:45 pmI would budget at least $100k per year for each of them in 2020 dollars. You might be pleasantly surprised, or you might find that is not enough.
Nice, but when current 2020 all-in college expenses are under $30K a year for many state flagship universities, this is 3 belts and 4 suspenders thinking and totally unnecessary. Besides, the OP has plenty of other money for college anyways.
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Wannaretireearly
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Re: Any gaps in our thinking?

Post by Wannaretireearly »

Well done OP. An envious position.
Don't have much more advice on the financials...make sure your will/estate stuff is up to date?

What new career do you both want to pursue?
How do you think you'll plan living abroad?
“At some point you are trading time you will never get back for money you will never spend.“ | “How do you want to spend the best remaining year of your life?“
PowderDay9
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Re: Any gaps in our thinking?

Post by PowderDay9 »

This is a fantastic success story. Congrats OP!

I really like your updated plan. I think you should be able to minimize your taxes, possibly to zero since your taxable account is large and LTCG have a large $0 bracket.

Have you looked into healthcare? You'll probably be able to structure your withdrawals to maximize your ACA subsidy and CSR. It sightly depends on where you live, but you should be able to get healthcare expenses down to a few thousand dollars a year.
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Stinky
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Re: Any gaps in our thinking?

Post by Stinky »

curious mind wrote: Sun Sep 06, 2020 11:53 pm Based on everyone suggestion here is our new action plan:

We have 70K(29K short term & 41K long term) losses from TLH in March.

Step 1.
900K (Purchase price of the house)
- 275K in equities from taxable. This will eat up all of 70K of losses. Net result is $0 capital gains.
----------
625K mortgage

Step 2
625K mortgage
- 276K (400K sale price - 24K(6% commission) - 100K mortgage balance. Cost bases is 375K so $0 capital gains.
---------
349K mortgage balance & 2M left in taxable.

I will need to explore Schwab PAL or IB Margin Loans on the 349K balance to see what is more beneficial.

What do you guys think?
Sounds like a winner to me.

Congratulations.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
Topic Author
curious mind
Posts: 26
Joined: Fri Feb 05, 2016 12:25 pm

Re: Any gaps in our thinking?

Post by curious mind »

Wannaretireearly wrote: Mon Sep 07, 2020 10:24 am What new career do you both want to pursue?
I have an IT background. At first, I would like to mess around building apps and websites but without the pressure for them to be profitable.
Wannaretireearly wrote: Mon Sep 07, 2020 10:24 am How do you think you'll plan living abroad?
The plan is to move to Portugal under the D7 Visa if it is still around. Our dividend income, should fulfill the necessary requirements.
With our base in Portugal, we can explore the rest of Europe as desired.
Topic Author
curious mind
Posts: 26
Joined: Fri Feb 05, 2016 12:25 pm

Re: Any gaps in our thinking?

Post by curious mind »

PowderDay9 wrote: Mon Sep 07, 2020 11:26 am Have you looked into healthcare? You'll probably be able to structure your withdrawals to maximize your ACA subsidy and CSR. It sightly depends on where you live, but you should be able to get healthcare expenses down to a few thousand dollars a year.
Very good point. Yes, the plan is to structure our withdrawals to maximize ACA subsidy.
Topic Author
curious mind
Posts: 26
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Re: Any gaps in our thinking?

Post by curious mind »

saagar_is_cool wrote: Mon Sep 07, 2020 8:37 am A couple of things from others I agree with. Both of you dropping out and moving to a new place is too many changes. Have you considered one of you working so you could eliminate health insurance costs and have supplementary income while you “try out” new career options. Can you move to a lower paying less stressful job in your field. Also, how soon do you expect to get into an alternative career, can you work part fime with health benefits in the meanwhile.
My current job is low stress but it does take away 40hrs per week of my time. My thinking is that I will tinker with side IT projects without the pressure for them to be profitable.

I am hoping if market tanks and we are running low on funds, I would be able to find an IT job with say 50K pay & benefits. Maybe I am fooling myself and finding an IT job in late 40s/50s is an impossible task. Tough to say now.
neverpanic
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Re: Any gaps in our thinking?

Post by neverpanic »

curious mind wrote: Sun Sep 06, 2020 9:44 am [*]Purchase a bigger place in one of the best school districts for up to 900K. Sell 500K from taxable for down payment and 400K on mortgage.

[*]Keep the current townhouse as rental. Rent should cover all costs with a little left over.
YES to moving into the premier school district.

NO to keeping a rental property that provides very little income.
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sergeant
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Re: Any gaps in our thinking?

Post by sergeant »

Updated plan of selling the townhome gets my total approval. Good luck to you.
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Wannaretireearly
Posts: 4880
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Re: Any gaps in our thinking?

Post by Wannaretireearly »

curious mind wrote: Mon Sep 07, 2020 1:56 pm
Wannaretireearly wrote: Mon Sep 07, 2020 10:24 am What new career do you both want to pursue?
I have an IT background. At first, I would like to mess around building apps and websites but without the pressure for them to be profitable.
Wannaretireearly wrote: Mon Sep 07, 2020 10:24 am How do you think you'll plan living abroad?
The plan is to move to Portugal under the D7 Visa if it is still around. Our dividend income, should fulfill the necessary requirements.
With our base in Portugal, we can explore the rest of Europe as desired.
Sounds like a great plan. Were trying to organize ourselves for something similar. Living part time in Europe, perhaps Asia, while maintaining a home in the US. Good luck! There's enough of us with similar thoughts that we should have a dedicated sub-forum :D
“At some point you are trading time you will never get back for money you will never spend.“ | “How do you want to spend the best remaining year of your life?“
PowderDay9
Posts: 1001
Joined: Fri Oct 12, 2018 12:29 pm

Re: Any gaps in our thinking?

Post by PowderDay9 »

curious mind wrote: Mon Sep 07, 2020 1:56 pm The plan is to move to Portugal under the D7 Visa if it is still around. Our dividend income, should fulfill the necessary requirements.
With our base in Portugal, we can explore the rest of Europe as desired.
Love the idea of living overseas. What would you do for schools for the kids?
Topic Author
curious mind
Posts: 26
Joined: Fri Feb 05, 2016 12:25 pm

Re: Any gaps in our thinking?

Post by curious mind »

PowderDay9 wrote: Mon Sep 07, 2020 5:53 pm Love the idea of living overseas. What would you do for schools for the kids?
I think it will have to wait until kids are done with school. For now, the plan is to spend 4-6 weeks every summer in Europe to start with.
elgobfoot
Posts: 3
Joined: Mon Apr 13, 2020 3:32 am

Re: Any gaps in our thinking?

Post by elgobfoot »

Regarding the D7 Visa, does anyone know if an account total amount would satisfy the requirements? Eg If I can show bank or investments accounts with total value of X EUR, would that be enough for some value of X? (Rather than proving regular payment amounts)
marcopolo
Posts: 8445
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Re: Any gaps in our thinking?

Post by marcopolo »

saagar_is_cool wrote: Mon Sep 07, 2020 8:37 am
curious mind wrote: Sun Sep 06, 2020 11:12 pm
saagar_is_cool wrote: Sun Sep 06, 2020 5:22 pm I don’t want to be the naysayer, but will give you an altwrnative perspective. As you are 42/40, let us assume you don’t want to withdraw from 401k or Roth IRA any time soon or deal with the 72(t). So, you have essentially 2.3M portfolio for withdrawal. At 118k (130-12k rent from townhome) expenses, your withdrawal rate is 5.7%. If you take out the 500k for payment on new place, and 100k to pay off the townhome, you have 1.7M portfolio for withdrawal and 118k expenses. That is close to 7% withdrawal for next 13-15 years before you can withdraw from 401(k). Are you comfortable with that rate of withdrawal rate of 7%, thats the question you need to answer. I think thats the reason, many are advising to sell off the townhome, so you now have 2.3M portfolio and 130k expenses which gets you to 5.65% withdrawal until you are eligible for withdrawing from 401k etc.
Thank you for taking time to respond. We will be selling our current place based on the feedback.

I was always under the impression SWR is calculated against the whole portfolio and not just the taxable account. 5.65% withdrawal sounds scary when I think about it.
It is, if you are 55 years or older. Atefnatively, you can do 72t and look at it as a holistic portfolio. But, depending on your withdrawal strategy - fixed or variable, 72t might pose some challenges. Either ways, you are in a very good position to take these challenges up. The whole point of diligent saving is to be able to use it.

A couple of things from others I agree with. Both of you dropping out and moving to a new place is too many changes. Have you considered one of you working so you could eliminate health insurance costs and have supplementary income while you “try out” new career options. Can you move to a lower paying less stressful job in your field. Also, how soon do you expect to get into an alternative career, can you work part fime with health benefits in the meanwhile.

Again, all these are different levers. You can still walk off and your current plan seems pretty good. Congratulations on paving your path to get to this state.
You seem very concerned about getting money out of the tax-advantaged accounts. Please take a look at the Roth Conversion strategy, I believe it will alleviate some of the concern you have raised for the OP.

OP, congratulations, you are in great shape. SWR should be viewed in the context of the entire portfolio.
Good luck with your new plans (I like the updated plan to sell the town house).
Once in a while you get shown the light, in the strangest of places if you look at it right.
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