Author Topic: Case Study - 40, family of 4, expat, what would you do?  (Read 1170 times)

Greatoutdoors

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Case Study - 40, family of 4, expat, what would you do?
« on: November 01, 2018, 08:24:03 PM »
Hello.  I stumbled across the whole FIRE movement 1 month ago and have been reading blogs and forums ever since and certainly value the opinion on the many knowledgable people on this forum.  I’m curious what people would do in my situation. 

My situation

Me: 40, UK and Australian citizen
Wife: 38 Canadian & Australia citizen
Children: 2 & 4
We live and work in NY as US-tax residents having moved here a little over a year ago, previously lived in Australia.
 
Gross Salary per month $33.5k

Pre tax deductions  (monthly)

FSA Dependent Care  $417 max $5000k allowance
Healthcare  $429
HSA   $265 max for annual family allowance
$401k $2620 max for annual contribution
Total $3731

Net income  $15.5k/month

Expenses (monthly)

Child care   $3267 full time 5 day, 2 children
Property taxes $1220
Car lease+fuel $833 (two cars)
Vacation $500 (conservative budget $6k for annual vacation domestic and overseas)
Utilities $458 Gas, water electric
Groceries/Food $1380 includes eating out 2 month, lunch weekdays
Insurance $313
Other $700 (internet, TV subscription, gym, kids sports activities, clothes)
Total $8671

Net income after expenses (monthly) $6,829

Assets
House paid off  $950k
Cash    $110k
401k    $58k combined balance
Vanguard brokerage $31k
Company shares $93k
Real estate crowdfunding $44k
HSA    $1k
Subtotal $1.287m         

Overseas 401k $350k => can’t access till 65
Overseas Investment Property:    $1.75m (valuation), mortgage $800k, Cash in offset account $800k => no interested owed on mortgage, like a line of credit set up. 
Overseas sub-total    $2.1m

Net Rental income after all expenses $3400/month

Liabilities - None beyond the overseas mortgage

Some of you may look at this and think this guy is crazy and is already into FIRE status.  The expenses are ridiculously high, this is partly living in expense NY suburb due to my work and clearly some luxury expenses.  We’ve always been savers and yes we have high paying jobs which has helped a lot.  My wife and I started from nothing literally, both from working class families and have built this up over 15 years. Clearly, luck has played a role with real estate appreciation along the way.  Although our asset position is very strong, there’s not a huge amount of passive income except from our overseas investment property.

Here’s points to note about our plans and I’d be curious to know what you would do in our position. 

A) Our plans for ‘retirement in 3-5 years is:

i) Move to Canada=> one of the major consideration is the tax implication of all our US investments if we move and become non-US residents. I am eligible for a Green Card.  What should we do with the investment in the meantime?
ii) We have a huge passion for travel and we would like to consider travelling with our children and home schooling them for 1-2 years, perhaps before moving to Canada.

B) What steps would you take to create a passive income stream into the future? Let’s say we want to live on $75k on annual expenses.
C) What else would you change.
D) Selling the property overseas is something we’d like to avoid as this could generate a CGT liability > $500k!

Welcome any thoughts or questions you may have.

Watchmaker

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Re: Case Study - 40, family of 4, expat, what would you do?
« Reply #1 on: November 02, 2018, 10:12:22 AM »
First of all--good job!

Some thoughts
A) Our plans for ‘retirement in 3-5 years is:

i) Move to Canada=> one of the major consideration is the tax implication of all our US investments if we move and become non-US residents. I am eligible for a Green Card.  What should we do with the investment in the meantime?

I'm not quite understanding whether you want to move to Canada for some other reason, or just for the tax issues. I wouldn't let the tail wag the dog-- you'll be fine whether you move to Canada or stay in the US. But assuming the move to Canada is for other reasons, this sounds like a reasonable plan.
ii) We have a huge passion for travel and we would like to consider travelling with our children and home schooling them for 1-2 years, perhaps before moving to Canada.

B) What steps would you take to create a passive income stream into the future? Let’s say we want to live on $75k on annual expenses.

Selling stocks and bonds as income is perfectly fine, no need to create special "passive income streams"

C) What else would you change.

D) Selling the property overseas is something we’d like to avoid as this could generate a CGT liability > $500k!

Welcome any thoughts or questions you may have.

I'd sell the overseas property anyway. You wealth is too highly concentrated in that. Short of that, I certainly wouldn't add any more investment real estate.

I'd also work on lowering my expenses, which could absolutely be done to the tune of 2-3k right now.

Finally, I'd focus on what I want to do with the rest of my life. Sounds like that might include long term travel. Start figuring out those details.


Watchmaker

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Re: Case Study - 40, family of 4, expat, what would you do?
« Reply #2 on: November 02, 2018, 10:16:51 AM »
I should add that while you're absolutely doing well on the net worth side, in your shoes I'd be looking to build more stock market investments and reduce my exposure to RE. How is the money in the 401k and the brokerage invested? Even assuming it's all stock, <100k in stocks for someone with your NW and income is shockingly low.

Greatoutdoors

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Re: Case Study - 40, family of 4, expat, what would you do?
« Reply #3 on: November 02, 2018, 09:14:38 PM »
Thank you for the feedback and comments.

Let me clarify by saying that our intention to move to Canada is for family reasons.  What I was trying to say is how can I optimise my investment choices while based in the US over the next 3-4 years before making that move.  For example, does is make sense for me to max out 401k and HSA?   Would options like Roth Conversion ladder even be possible or make sense if I'm not in the US?

Regarding real estate investments, the overseas property we are unlikely to sell as we believe there will be further appreciation given the marco economic fundamentals of that market.  However, some market commentators would argue that Australia is currently in a huge housing bubble, we disagree.  An alternative option I've thought about it pulling the equity and investing that in the US.

The US real estate market has really caught my imagination. If nothing else, then purely given the size and number of opportunities in US market.  I've been following the Biggerpockets forum with interest.  Rightly or wrongly, I do expect to make some type of investment in 2019.

I agree that we are underweight on the stock market and we are certainly looking to build that up over the next couple of years to a more robust level to provide some diversification.   

On the original post I didn't really comment on my personal plans in the FIRE period but there's no shortage of things on my mind beyond spending a lot more time with my kids including:
Promise to my wife to learn conversational French!
Starting a photography business
Switching careers to teaching
Various sporting endeavours
Picking up & playing my dusty guitar a lot more



Watchmaker

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Re: Case Study - 40, family of 4, expat, what would you do?
« Reply #4 on: November 05, 2018, 08:51:42 AM »
I don't know enough about the tax stuff to give good advice regarding the move. There are quite a few Canadians on this board though, so if you posted again with the US->Canada move tax implications in the title, I bet you'd get a lot of information.

I'll admit I'm very anti real estate for myself and that does tend to leak into my advice for others. But if there was a RE downturn that affected both you primary residence and your vacation home, your current NW could take a huge blow.

To some degree you've 'won the game' already and so you should be thinking about ways of minimizing risk.

Greatoutdoors

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Re: Case Study - 40, family of 4, expat, what would you do?
« Reply #5 on: November 06, 2018, 05:44:46 PM »
Thanks for the comments and suggestion to repost with a more appropriate title to get the Canadian's perspective, I will certainly try that out.