Author Topic: Case Study - selling house windfall  (Read 936 times)

diffusate

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Case Study - selling house windfall
« on: February 14, 2018, 01:32:43 PM »
Life Situation: 37, in a committed relationship with partner (27), no kids and don't plan on having them. Both had preexisting frugality, savings, and interest in FIRE.

Income: I'm doing independent non-profit consulting, gross income around $60k with no benefits. This is about 12 hours a week of work, and is sustainable for the next couple years. In some ways it's a semi-FIRE gig, after stepping down from a demanding job a few years ago. I'm maxing out my Roth, but not saving much else.

Partner works in tech, earning $150k. She's maxing out retirement accounts. Is very burnt out. Stock vesting schedule makes another two years in current role advantageous.

Assets:

Mine: Around $60k in Roth IRA, $62k in 401k/403b, and $26k in taxable investment account. $148k invested. Also sitting on $33k cash. The big thing for me is that I'm currently selling my house to move in with partner. Bought it at the bottom of the market, and expect to walk away with about $400k after paying off the mortgage.

Total net worth around $550k

I have to say I'm proud of this at 37! I've worked in the nonprofit sector, and there were only a few years that I earned more than $60k. I got some good luck with the housing market, but saved substantially even when I earned $8/hr. Enough to come up with a $20k downpayment on my first house at 20 years old.

Hers: Roth $77k, 401k $54k, taxable investment, $194k. Total invested: $325k. 10k cash. Owns a condo that I'm moving into worth about $490k with $269k mortgage, so $221k equity. 

Total net worth around $556k

Joint net worth: $1.1m

Current expenses: We are combining households, so we expect our expenses to reduce in certain areas but not clear yet. We've each been spending around $20k a year on all non-housing expenses. Our projected budget looks something like this:

Car insurance, gas, and repairs (2007 Prius): $1,400
Health insurance for me: $3,600
cell phone for both: $960
Utilities: $1k
Groceries: $6k
Restaurants: $2,400
Entertinament: $1,200
Clothing: $600
Misc: $2,400
Donations: $1k
Travel: $8k (This is a major hobby/priority. Last year we spent a month in Thailand for a total cost of around 5k plus some smaller trips. It could also be dramatically cut if needed, with longer camping/climbing trips domestically)

Total non-housing expenses: $28,500
Mortgage, HOA, insurance, taxes (15 year mortgage): $31k

Total expenses with mortgage: +/- $60k

Discussion/questions: It feels like we are getting pretty close to FI, with a number of caveats. A few more bits of information: in the next two years, we're projecting saving around $130k more, putting our total invested assets around $1m ignoring market increases or decreases. Heath care wise, we are both healthy but after quitting her job she will have to buy individual heath care for the first time, potentially adding $5k/year for now.

Plans wise, I am wrapping up a contract in two years, about the same time as her "it's not worth as much to keep working here" date. I would probably bring in around $10k/year even just working for fun after that. She is also open to doing some software engineering as an independent contractor.

Just a quick note that it's pretty cool that our assets are so equal going into combining our household.

Practical questions: Anything I should keep in mind with my large amount of assets ready to invest? I don't want to time the market, but thinking of doing some dollar cost averaging. I'm also considering paying off the mortgage, both for the safe returns (3.75%) and for the cash flow benefit.

Any tax tips? I'm just investing in my Roth, what other possibilities are there to consider this year?

Bigger questions: psychologically, do we both plan on quitting in two years? Or should we wait to see how the market goes? Biggest worries are health care expense, sequence of returns risk with the market downturn, and uncertainly about earning potential and stress level of both of our contract work possibilities.

Any other things we should be thinking about now?
« Last Edit: February 14, 2018, 01:38:35 PM by diffusate »

RWD

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Re: Case Study - selling house windfall
« Reply #1 on: February 14, 2018, 02:13:45 PM »
What portion of the $31k in mortgage payments is interest/HOA/insurance/taxes (i.e. actual expenses)?

Don't dollar cost average.
Don't pay extra on the mortgage.

diffusate

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Re: Case Study - selling house windfall
« Reply #2 on: February 14, 2018, 02:29:55 PM »
About $8k is insurance, HOA, and taxes. of the remaining $23k, $9,500 is interest. So $17,500 expenses. You're saying this is the number I should use to calculate my FI number? This would make our total annual expenses $46k, requiring $1.15m at 4% SWR. Or something else?

RWD

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Re: Case Study - selling house windfall
« Reply #3 on: February 14, 2018, 05:50:38 PM »
About $8k is insurance, HOA, and taxes. of the remaining $23k, $9,500 is interest. So $17,500 expenses. You're saying this is the number I should use to calculate my FI number? This would make our total annual expenses $46k, requiring $1.15m at 4% SWR. Or something else?

Yes, that is what I meant. As you pay down the mortgage the amount you're paying in interest will decrease. The idea is that some of your invested assets will go towards principal and once the mortgage is paid off you'll have annual expenses of $36.5k, which will require $913k invested to sustain at 4% SWR. This is just a rough calculation so you could break it down on a spreadsheet to make sure the numbers work out.

Your projected budget looks a little weird to me. Are these based off of actual tracked expenses or just guesses? Some value seem really high and others seem too low. For example, you only expect to spend ~$83/month on utilities? That's about 60% of our costs. But then you're spending about $700/month on food (groceries + restaurants) which is more than double what my wife and I are spending.

diffusate

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Re: Case Study - selling house windfall
« Reply #4 on: February 15, 2018, 09:40:45 AM »
Makes sense!

Utilities are low because it's a small condo, the only costs not covered by the HOA are internet and electricity. Some months it's as low as $60. I know $700 is a bit high, but we prioritize eating well, and are in an urban HCOL area with lots of great restaurants in walking distance (we always take advantage of happy hour deals). This is a prediction not an actual, as we aren't sure how our grocery budget will be impacted by combining assets. There might be some savings here.

waltworks

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Re: Case Study - selling house windfall
« Reply #5 on: February 16, 2018, 12:19:30 PM »
Just dump the house windfall into the taxable at your usual asset allocation and forget about it. If it helps you sleep at night, feel free to DCA in, but be aware that you are probably losing money by doing that (probably).

You're in a situation where optimizing things perfectly is of minor importance, though, since you only have a little way to go - so maybe DCA is just fine. Keep doing the restaurants and enjoying your life, think about your partner walking away from the stock vesting if he/she is that burnt out (2 years is a long time), and concentrate on making your life awesome and  planning for the future instead of scrapping for every last bit of money.

Good work!

-W

diffusate

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Re: Case Study - selling house windfall
« Reply #6 on: February 19, 2018, 02:29:56 PM »
Thanks for the reply! It's very encouraging. I keep going back and forth between feeling "set" and feeling more anxious than ever with FI so close. Right now I'm spending way too much energy thinking about how much exactly I'm going to get for my house when it sells. Looking forward to getting all the careful planning, asset allocation, and budgeting out of the way so I can just enjoy.

Bicycle_B

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Re: Case Study - selling house windfall
« Reply #7 on: February 19, 2018, 05:31:26 PM »
If the planning / budgeting is an effort, just make sure that your expenses don't exceed the estimates you have.  You're close to the edge, so IMHO the effort is worth it.  I am FI on slightly less $/person (450k, no partner) and value the freedom of not actually needing to work.  Things can change and the easy money disappear.  Just one person's opinion.