I submit this post with great anticipation as I am looking forward to receiving the advice from the sharp money minds on this forum.
I am 49 and single. I got beyond fed up with my six figure job of 20 years last October and turned in notice without a real plan but comfortable that I had enough of a cushion to take at least year off of work. I am in the middle of that year now and have been having a fantastic time traveling the world and getting my house and everything else in my life organized in way that I was never able to before.
I want to keep the party going, but how to do it? My assets are split between retirement accounts, my house, a non-retirement brokerage account and a rental property. I'm looking for ideas on how to smartly use my assets to find $36k of income in perpetuity.
Assets:
401k #1: $700k ($10k roth, $690k standard)
401k #2: $78k standard
Roth IRA: $45k
Brokerage Account: $9k
Rental property: $280k current market value, $48k mortgage @ 2.625% fixed >> $233k equity
Primary Residence: $410k current market value, $98k HELOC @ 4.5% floating>> $312k equity
Car 1: $3k paid for
Beater truck: $1k paid for
Liabilities:
$48k mortgage @ 2.625% fixed on rental property
$98k HELOC @ 4.5% floating on primary residence
Annual Essential Expenses: $28,096
Expense breakdown as follows:
Primary residence property taxes: $7600
Homeowner's insurance: $900
Umbrella insurance: $175
Internet: $576
Healthcare: $1000 ($40/month + copays ACA, thanks Obama!!)
Water & Sewer: $600
Electric: $960
Natural Gas: $1200
Cell phone project FI: $480
Food: $3600
Car Insurance and registration: $525
Beater truck insurance and registration: $520
Gas: $360
Heloc: $4800
Clothing: $1200
Miscellaneous: $3600
Annual Luxury Expenses: $8000
Travel: $5000
Hobbies: $3000
Total Essential Budget: $28,096
Total Desired Luxury Budget: $36,096
Income:
Essentially no income right now, I've been living off of savings and plan to make some retirement account withdrawals this year to stay afloat. The rental property shows taxable income of approximately $8k/year. However, after expenses including long term maintenance, the cash flow is roughly 0. I'm in the final 6 years on the mortgage and all of the income is principal payments. For ACA purposes I have estimated my 2019 income to be $18k. I expect this to be a mix of rental income and retirement account withdrawals.
Tax:
This year I anticipate my net tax to be near 0. My mortgage interest and property taxes will offset most of the small income I actually show.
Goals:
1. I might be dreaming here but what I really want is to find enough income to fund my $36k luxury lifestyle scenario while keeping taxable income low enough to continue getting the ACA subsidy. I live in Wisconsin.
2. Payoff the 98k HELOC. How do I do this without incurring a huge tax bill from tapping assets?
Moves I'm considering:
1. The rental property is a single family house. It has a lot of equity and is in an area that has been appreciating nicely while attracting great tenants. If I hold I expect that I will gain about $18k equity per year between principal payments and appreciation. However, it is a cash flow disaster. The basis is low, so the depreciation is low but the principal payments are high. I end up showing a healthy profit each year that I have to pay taxes on but with no cash flow from the property to cover the taxes. I am considering selling it for a more expensive multi-unit property in the $600-$800k range that would cash flow about $12k year but would shield about $20k in income with depreciation expenses.
2. Option 2 for the rental house. Payoff the $48k mortgage (how to do this with existing funds?) so that it cash flows about $9k/year
3. Option 3 for the rental house. Just sell it, payoff the 98k HELOC and after taxes have about 100k of cash to last awhile
4. Selling the beater truck and renting a uhaul pickup on the occasions where I need a truck.
5. Getting roommates. I have a 4 bedroom house with just myself. I could probably rent rooms for $700/month.
6. Tapping into my retirement accounts using 'substantially equal payments' annuitization to avoid tax penalty.
7. Living off of everything except the larger $700k retirement fund until I'm 55. Then at 55 get a job for a short time roll the money into that company's 401k and then leaving that job so that I can access that money tax free. Side note - I would be upfront with my new employer about my intentions and timeline.
8. Working part time low stress/enjoyable job. e.g. Bike shop mechanic
9. Going back to high pay job working for the man for a few years to shore up finances.
Specific questions:
1. How best to redeploy my assets to get $36k of income?
2. Is there anyway to payoff the $98k HELOC and/or $48k rental property mortgage without incurring too much tax penalty
3. Do any of the moves I'm considering seem particularly good or bad. Is there something else I should be considering?