Author Topic: Case Study: Need advice as I approach the finish line--thanks!  (Read 11176 times)

NinetyFour

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Case Study: Need advice as I approach the finish line--thanks!
« on: November 18, 2014, 10:38:36 AM »
Status:  single, 53, no kids, hoping to retire in either June 2017 or June 2018


Income:

Rent:  $800 per month
Royalties:  $400 per month (no guarantee these will continue)
Full-time job:  $5000 net

Total:  $6200


Current monthly expenses:

Minimum mortgage payment, including principal, interest, property tax and homeowner’s insurance:  $1294

Everything else:  $1100

Total:  $2394


Expected ER monthly expenses:

Minimum mortgage payment, including principal, interest, property tax and homeowner’s insurance:  $1500 (I am guessing that property tax and insurance will both increase)

Everything else:  $1500

Total:  $3000


Assets:

Retirement funds in TIAA-CREF:  $282,732
TIAA-CREF 403b:  $11,517
Beneficiary IRA: $25,203
Roth IRA:  $15,159 ($13,000 in contributions)
Cash:  $16,590
Total Cash and Investments:  $351,201
House:  Zillow says it is worth $345,000, but I am conservatively using $300,000 as the value
2003 Toyota Tacoma (paid off)


Liabilities:

Mortgage:  $201,575 @ 4.375%


Savings Rate so far for Jan – Oct 2014:  82%


Notes:
 
* I refinanced in October 2013.  Because I rent out my main house and live in the accessory dwelling unit (separate structure on same property), my situation was seen as an investment property and I was unable to get a lower rate.

* I have a defined contribution plan with my employer.  The employer contributes 11.4% of my salary and I contribute 8% of it to my retirement funds.  I also have a 403b account and can contribute an additional $23,000 per year to it (pre-tax).

* For those of you who might be unfamiliar with a beneficiary IRA, I must make minimum withdrawals (RMDs) since my parent was over 70.5 at time of death.  I can also withdraw more than the RMD.  I pay tax on all withdrawals (but no penalties).


Goals:

* I am hoping to retire in July of 2017 or July of 2018.  cFIREcalc confirms that this is possible.  At that point, I will be 55 or 56 years old.
 
* I want my Cash + Investments – Mortgage Balance to be at least $420,000, which, at 4% is $16,800—plenty for me to live on.

* I would like to minimize my tax bill, but also have enough of a cash flow to meet my expenses until I am 59.5 years old.


My basic question is:  How do I proceed in my last few years of employment?

With the extra income each month, should I:

•   max out the 403b? (that is $1917 per month—doable)

•   pay extra toward my mortgage?

•   Fully fund my Roth—in 2015?  Again in 2016?

•   Stash cash in a taxable account (at Vanguard)?

•   Some combination of the above?

Many thanks in advance!

XCIV




« Last Edit: November 18, 2014, 12:06:30 PM by NinetyFour »

Threshkin

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #1 on: November 18, 2014, 11:45:36 AM »
I would start with maxing out all of your tax advantaged accounts.  Probably 403B first then Roth IRA but would need more details.  You should also consider contributing to a Trad IRA rather than a Roth.  Tax the tax advantage now and put that extra money to work.  Post retirement you can gradually convert the Trad IRA to a Roth and get double tax benefits.

Once those are maxed out, then fund your Vanguard account. 

Paying down/off your mortgage is a debatable option.  From a purely financial standpoint you should be able get a better return than 4.375%.  On the other hand the peace of mind that comes from not having a mortgage has a lot of intangible value (it did for me!)

Congratulations on your uber impressive savings rate! 

TJ79

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #2 on: November 18, 2014, 11:53:22 AM »
Perhaps I'm missing something, but if your ER monthly expenses are $3k, how do you plan to live off $16k per year? And how are you calculating an 82% savings rate if your income is $6200 and your expenses are $2394?

Cheddar Stacker

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #3 on: November 18, 2014, 12:02:11 PM »
Perhaps I'm missing something, but if your ER monthly expenses are $3k, how do you plan to live off $16k per year? And how are you calculating an 82% savings rate if your income is $6200 and your expenses are $2394?

I'll tackle this one for you first XCIV (Great handle BTW), then comment on the quasi-case study.

The expenses are 50% mortgage etal, and the mortgage was deducted from the asset base before calculating the 4% SWR. So 94 can either cash out to pay off the mortgage, or take a 4% SWR from the gross invested assets. In either case, it should be safe.

The savings rate is likely higher than it reads because of mortgage principal payments.

NinetyFour

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #4 on: November 18, 2014, 12:02:31 PM »
I would start with maxing out all of your tax advantaged accounts.  Probably 403B first then Roth IRA but would need more details.  You should also consider contributing to a Trad IRA rather than a Roth.  Tax the tax advantage now and put that extra money to work.  Post retirement you can gradually convert the Trad IRA to a Roth and get double tax benefits.

Once those are maxed out, then fund your Vanguard account. 

Paying down/off your mortgage is a debatable option.  From a purely financial standpoint you should be able get a better return than 4.375%.  On the other hand the peace of mind that comes from not having a mortgage has a lot of intangible value (it did for me!)

Congratulations on your uber impressive savings rate!

Thanks!

What more details would you like?

NinetyFour

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #5 on: November 18, 2014, 12:09:56 PM »
Perhaps I'm missing something, but if your ER monthly expenses are $3k, how do you plan to live off $16k per year? And how are you calculating an 82% savings rate if your income is $6200 and your expenses are $2394?

I'll tackle this one for you first XCIV (Great handle BTW), then comment on the quasi-case study.

The expenses are 50% mortgage etal, and the mortgage was deducted from the asset base before calculating the 4% SWR. So 94 can either cash out to pay off the mortgage, or take a 4% SWR from the gross invested assets. In either case, it should be safe.

The savings rate is likely higher than it reads because of mortgage principal payments.

Exactly right , Cheddar.  Thank you.

Also, the $5000 net per month from my main employer is after retirement funds and 403b contributions.

And I "earned" much more than $400/month this year in royalties, but wanted to lowball it going forward--as I cannot count on this continuing at the current rate--or at all.

Sorry for the confusion, TJ79.

Cheddar Stacker

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #6 on: November 18, 2014, 12:26:55 PM »
94, congrats on being so close to the end. You seem to be in great shape.

Questions:

1) You can't "count on" the royalties, but what about the rental income? That's a game changer in my opinion, unless you're just counting that as safety margin.

2) What type of account are the TIAA-CREF retirement funds in? IRA?


You need to focus on getting a small bridge from 55-56 years old to 60 years old. You have ~30K right now in accessible funds between cash and Roth contributions, which is only about 1 year of necessary cash flow not counting royalties and rents (R&R). If the R&R continues your cash needs are only $21,600/year rather than $36K, which is a huge difference.

The 403b funds might be accessible at 55 if you leave your job and leave the funds there. I know there is a rule in place about this for 401k's, so I would think it applies to 403b's as well?? Check with HR and or Google.

If the 403b funds (and/or "retirement funds" account) are not accessible right away, I would contribute enough to the 403b to max out the match, contribute the $5,500 to a Roth every year you can, and put the rest in your taxable brokerage account. Do this until you have ~4-5 years of necessary cash flow built up. 4years*21,600=86,400, but you already have about $30K so you only need another 56,400. Since you're saving nearly $4k/month you can do this in a little over 1 year after adding in a max Roth contribution.

I would not pay off that mortgage, particularly because you can offset the interest against your rental income. If you play your cards right, you can deduct the mortgage interest on that house as a business expense, then take the standard deduction in addition to this on your tax return. You might consider an allocation of the mortgage interest, R/E tax, and insurance to your accessory dwelling unit, but that should be a small portion and the lion's share would be a rental expense.

Lastly, start converting any traditional money into roth money once you retire even if you don't think you'll need the access. Fill up the 15% tax bracket with these conversions. Continue to deplete any traditional retirement funds all the way until 70 in this manner so you are left with a lot of Roth funds. Doing this will prevent RMD's on your own retirement funds, reduce your overall tax bill over these years, and provide more flexibility.

NinetyFour

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #7 on: November 18, 2014, 12:28:06 PM »

Also, the $5000 net per month from my main employer is after retirement funds and 403b contributions.


Oops.  This sentence should read:  Also, the $5000 net per month from my main employer is after retirement funds.

Of late, I have been deferring $1500 of this each month to my 403b, bring my take home pay from this source down to $3500.

h2ogal

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #8 on: November 18, 2014, 12:29:49 PM »
Congrats to nearing the finish line!   We have a lot in common - you and I have the same Retirement Date Goal, and we are close to the same age - (Im 51).  I have a 1000 day plan, working towards a June 2017 retirement deadline.

My current investing priorities are:
1. Maxing out my 401K and my HSA plan. 
2. I'm investing in my employee stock purchase plan because it give me a 15% return even if the stock does not go up in value. 
3. I also have a small amount I put each month in treasury bonds and in cash savings account. 
 
On the house question - I felt it was very important to have my house paid off before I retire.  This gave me a feeling of security, in case there are major market downturns or unforeseen medical expenses, etc.  We paid off our mortgage less than a year ago.

May I ask you a question?   What is the final income generating asset goal you are targeting?   I am targeting to have $750K in cash, stocks, bonds, and financial assets before I retire.  I'm purposely excluding the worth of my home (because I plan to live here and not sell it) and real estate (land with no income generated) and excluding DH small businesses because we don't plan to sell those.




NinetyFour

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #9 on: November 18, 2014, 12:50:01 PM »
Thanks for your comment, h2ogal, and congratulations also to you for being so close!

I have a widget the dashboard of my computer.  It tells me how many days, hours, minutes, and seconds there are until April 30, 2017--possibly when my duties at my job would be completed.

I have gone back and forth on the house question.  The rate is not great, for one thing.  However, I think I have been convinced (by others on this forum) to not tie up all that money in my house.  Also, as Cheddar points out, I can use that mortgage interest to my benefit in a couple of ways.

I am aiming for a minimum of $420,000 free and clear.  So at that point, I may have something like $550,000 in cash and investments and a mortgage balance of $130,000.  Then I would have the option of paying off the mortgage--or not.

NinetyFour

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #10 on: November 18, 2014, 01:00:37 PM »
94, congrats on being so close to the end. You seem to be in great shape.

Questions:

1) You can't "count on" the royalties, but what about the rental income? That's a game changer in my opinion, unless you're just counting that as safety margin.

2) What type of account are the TIAA-CREF retirement funds in? IRA?


You need to focus on getting a small bridge from 55-56 years old to 60 years old. You have ~30K right now in accessible funds between cash and Roth contributions, which is only about 1 year of necessary cash flow not counting royalties and rents (R&R). If the R&R continues your cash needs are only $21,600/year rather than $36K, which is a huge difference.

The 403b funds might be accessible at 55 if you leave your job and leave the funds there. I know there is a rule in place about this for 401k's, so I would think it applies to 403b's as well?? Check with HR and or Google.

If the 403b funds (and/or "retirement funds" account) are not accessible right away, I would contribute enough to the 403b to max out the match, contribute the $5,500 to a Roth every year you can, and put the rest in your taxable brokerage account. Do this until you have ~4-5 years of necessary cash flow built up. 4years*21,600=86,400, but you already have about $30K so you only need another 56,400. Since you're saving nearly $4k/month you can do this in a little over 1 year after adding in a max Roth contribution.

I would not pay off that mortgage, particularly because you can offset the interest against your rental income. If you play your cards right, you can deduct the mortgage interest on that house as a business expense, then take the standard deduction in addition to this on your tax return. You might consider an allocation of the mortgage interest, R/E tax, and insurance to your accessory dwelling unit, but that should be a small portion and the lion's share would be a rental expense.

Lastly, start converting any traditional money into roth money once you retire even if you don't think you'll need the access. Fill up the 15% tax bracket with these conversions. Continue to deplete any traditional retirement funds all the way until 70 in this manner so you are left with a lot of Roth funds. Doing this will prevent RMD's on your own retirement funds, reduce your overall tax bill over these years, and provide more flexibility.

Thanks so much, Cheddar, for your detailed and thoughtful response.

I will answer your questions quickly and then come back with a longer response.

1)  Yes, the source of the royalties could (literally) dry up at any moment, but I feel safe estimating $400 per month for the next few years.  (Perhaps I should not count that at all?)

I do plan to continue to rent out my main house until I at least get to the magic 59.5 age.  And $800 per month is being conservative.

2)  The TIAA funds:  $224,043 is in their Equity Index Fund, and $58,689 is in their Bond Fund.  The 403b dollars are also in the Equity Index Fund.

The Beneficiary IRA is in VTSAX, as is the Roth.

3) I asked my HR folks, and my 403b dollars will not be available until age 59.5.

Also glad you like the XCIV!

Cheddar Stacker

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #11 on: November 18, 2014, 01:09:10 PM »
A little internet 403b research uncovered this:
http://www.403bwise.com/participants/getwise_403b_access.html

That includes a link to irs.gov which should explain it further. It might be a plan specific rule, but I would look into it further just so you know what all your options are. It seems like you can maybe access the 403b if you leave it behind and retire at 55 or later.

On the second question, I meant what type of account is it, not what are the funds invested in. So is it a pension, IRA, 403b, that type of thing. I'm only asking to determine accessibility because I think your #1 priority over the next 2-3 years should be making sure you have enough penalty free access to your assets to cover your cash flow needs until age 59.5.

NinetyFour

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #12 on: November 18, 2014, 01:17:55 PM »
A little internet 403b research uncovered this:
http://www.403bwise.com/participants/getwise_403b_access.html

That includes a link to irs.gov which should explain it further. It might be a plan specific rule, but I would look into it further just so you know what all your options are. It seems like you can maybe access the 403b if you leave it behind and retire at 55 or later.

On the second question, I meant what type of account is it, not what are the funds invested in. So is it a pension, IRA, 403b, that type of thing. I'm only asking to determine accessibility because I think your #1 priority over the next 2-3 years should be making sure you have enough penalty free access to your assets to cover your cash flow needs until age 59.5.

Right.  I will call TIAA (and maybe my HR) to check.  I believe that as soon as I part ways with my employer, I can move that money from TIAA-CREF over to Vanguard, but must put it in an IRA so that I don't incur penalties and taxes (assuming that I quit my job prior to age 59.5).

The bulk of that TIAA money (the $282,732) is in the defined contribution plan (the equivalent of a 401K?), and that other $11,517 is in a 403b.  I will get more details for you.

Remember that I can withdraw from that Beneficiary IRA also--but would have to pay taxes on it.

Also, you mentioned that I should keep contributing up to the match.  But there is no match.  My employer contributes 11.4% and I contribute 8%.  Those percentages are set--no matter how much my paycheck is.  And the 403b is capped at $23,000.

Thanks again for you time and suggestions.

Edited to change the 19.4% to 11.4%.
« Last Edit: November 18, 2014, 01:49:24 PM by NinetyFour »

NinetyFour

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #13 on: November 18, 2014, 01:23:05 PM »
One other (small) piece of information.

My employer of the last 15 years does not take out SS tax, so my SS payout will be low.  At age 62, I would get $458 per month; at age 66, I would get $651 per month; and at age 70, i would get $807 per month.

For the average person, these numbers look miniscule, but since my expenses are so low, even $600 per month is sweet.

(Not that any of this will help me with the "bridge" between age 55/56 and 59.5.)

Threshkin

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #14 on: November 18, 2014, 01:30:48 PM »
I would start with maxing out all of your tax advantaged accounts.  Probably 403B first then Roth IRA but would need more details.  You should also consider contributing to a Trad IRA rather than a Roth.  Tax the tax advantage now and put that extra money to work.  Post retirement you can gradually convert the Trad IRA to a Roth and get double tax benefits.

Once those are maxed out, then fund your Vanguard account. 

Paying down/off your mortgage is a debatable option.  From a purely financial standpoint you should be able get a better return than 4.375%.  On the other hand the peace of mind that comes from not having a mortgage has a lot of intangible value (it did for me!)

Congratulations on your uber impressive savings rate!

Thanks!

What more details would you like?

It is really you who needs to decide which is better but hear are some basic questions:  Is there a match on the 403b?  If so, no brainer.  What are the investment options/expenses/returns (net of fees) in the 403b and the Roth?

NinetyFour

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #15 on: November 18, 2014, 01:48:02 PM »
I would start with maxing out all of your tax advantaged accounts.  Probably 403B first then Roth IRA but would need more details.  You should also consider contributing to a Trad IRA rather than a Roth.  Tax the tax advantage now and put that extra money to work.  Post retirement you can gradually convert the Trad IRA to a Roth and get double tax benefits.

Once those are maxed out, then fund your Vanguard account. 

Paying down/off your mortgage is a debatable option.  From a purely financial standpoint you should be able get a better return than 4.375%.  On the other hand the peace of mind that comes from not having a mortgage has a lot of intangible value (it did for me!)

Congratulations on your uber impressive savings rate!

Thanks!

What more details would you like?

It is really you who needs to decide which is better but hear are some basic questions:  Is there a match on the 403b?  If so, no brainer.  What are the investment options/expenses/returns (net of fees) in the 403b and the Roth?

Nope--no match for the 403b.  (My employer already contributes 11.4% for the defined contribution part.)

As I understand it, the 403b is deferred pre-tax, so deferring $23,000 per year will help me immensely on my tax bills.  The Roth won't do that.  I think I have to balance that with the reality that I need cash for my late 50s.

ZiziPB

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #16 on: November 18, 2014, 02:07:12 PM »
Hi NinetyFour, just wanted to make sure that you are accounting for health insurance costs and taxes and insurance on your house in your retirement expenses.  Even if you pay off the mortgage, you will be left with taxes and insurance (and maintenance costs).  You should also figure out health insurance (premiums and out of pocket) costs once you retire.

As to stashing your cash, max out the 403b, invest the rest in a taxable account.  I probably would not be prepaying the mortgage if I were you.  I don't like the idea of tying up a lot of money in your house (especially since you are renting it - leverage is your friend in that situation).

Your case study is of great interest to me as I am planning to retire in April of 2018.  I also read your journal :-)

NinetyFour

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #17 on: November 18, 2014, 02:09:02 PM »
OK--just got off the phone with TIAA.

My defined contribution plan, according to him, is a 401a.  And the other one is a 403b.

Both of these, according to this guy, basically behave the same way.  After I leave my employer, I can take all this $$ out of TIAA and move it to Vanguard.  But I still can't access it (withdraw and spend it) before age 59.5 without incurring a penalty (plus taxes).

BUT the guy also mumbled something about age 55 (also mentioned in Cheddar's link). 

And I found this:

http://www.irs.gov/pub/irs-pdf/p5036.pdf  (see the Separation exception at the bottom of the page)

I just e-mailed my HR guy.  Will come back with his response.

Cheddar Stacker

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #18 on: November 18, 2014, 02:26:59 PM »
Even if you don't qualify for the 55 y/o rule, you should consider rolling it all into an IRA then taking a SEPP. Since you only have a few years to bridge the gap you won't really need to worry much about the rigidity of that option.

Plus I just saw your other thread about high fees at TIAA-CREF, so a move to an IRA would free up Vanguard's low cost index funds. Although to be quite honest, a 0.39% fee is in the lower percentile of expense ratios so it wouldn't be terrible to stay put.

NinetyFour

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #19 on: November 18, 2014, 02:33:45 PM »
Hi NinetyFour, just wanted to make sure that you are accounting for health insurance costs and taxes and insurance on your house in your retirement expenses.  Even if you pay off the mortgage, you will be left with taxes and insurance (and maintenance costs).  You should also figure out health insurance (premiums and out of pocket) costs once you retire.

As to stashing your cash, max out the 403b, invest the rest in a taxable account.  I probably would not be prepaying the mortgage if I were you.  I don't like the idea of tying up a lot of money in your house (especially since you are renting it - leverage is your friend in that situation).

Your case study is of great interest to me as I am planning to retire in April of 2018.  I also read your journal :-)

Hi ZiziPB!  Thanks for commenting--and thanks for following my journal!  And good for you for eyeing retirement in 2018.

Good reminder for me to look at my Retirement Budget again.  Right now, my property taxes are pretty low--$648 per year.  But I'm sure they will creep up.  (In fact, after my whole ADU thing is finalized with the city, my taxes might jump.  I heard that the Assessor is very interested in getting all this ADU info from the city!)

I think I like your suggestion of maxing the 403b and putting the rest in a taxable account--similar to what Cheddar recommended.  But the Roth?  Hmm.

Here is my bare bones budget for retirement.

wifi 55
food 180
car 120
gasoline 80
water 50
elec 30
phone 25
gas 50
health 500
other 80
hockey 90
travel 100
homeowner's insurance 70
property tax 70

This amounts to $1500 per month, or $18,000 per year.  So my target becomes $450,000 instead of $420,000.

One (big) unknown is how long I will stay in this house.  I might grow tired of owning a home that was built in 1898:  perhaps I will sell it, pocket the cash, and do some slow traveling.  Who knows!?

NinetyFour

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #20 on: November 18, 2014, 02:36:29 PM »
Even if you don't qualify for the 55 y/o rule, you should consider rolling it all into an IRA then taking a SEPP. Since you only have a few years to bridge the gap you won't really need to worry much about the rigidity of that option.

Plus I just saw your other thread about high fees at TIAA-CREF, so a move to an IRA would free up Vanguard's low cost index funds. Although to be quite honest, a 0.39% fee is in the lower percentile of expense ratios so it wouldn't be terrible to stay put.

Thanks again, Cheddar.  I will look into the SEPP option.

Yes, I know that .39% is not awful (some of the TIAA targeted funds has expenses like .82%!), but I'd much prefer the .05% fee at VTSAX.

ZiziPB

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #21 on: November 18, 2014, 03:00:36 PM »
Quote
Right now, my property taxes are pretty low--$648 per year.

I would say "super low" not "pretty low" ;-)  I pay over $9K per year for a property that is worth about $285,000...  Good thing I am selling this house and moving to a low COL area (country) upon retirement.  What do you think will happen to your property tax once the ADU is approved?

Your budget looks pretty good but there is not much room for error there.  Are you budgeting for car replacement at some point? 

NinetyFour

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #22 on: November 18, 2014, 05:25:13 PM »
Quote
Right now, my property taxes are pretty low--$648 per year.

I would say "super low" not "pretty low" ;-)  I pay over $9K per year for a property that is worth about $285,000...  Good thing I am selling this house and moving to a low COL area (country) upon retirement.  What do you think will happen to your property tax once the ADU is approved?

Your budget looks pretty good but there is not much room for error there.  Are you budgeting for car replacement at some point? 

Wow--$9K per year.  That's unreal.

I really have no idea what the legalization of my ADU will do to my property taxes.  And I'm not sure when I will know.  If the county government works at the same pace that the city does, it could be many, many months.  It will be interesting, though.

And no, I have not budgeted for a replacement vehicle.  And in addition, I want to, at some point, buy a slide in camper (for either my existing truck or for the replacement truck).

When I ran the numbers on cfiresim, I did include a one time expense of $50,000, and still got a 100% chance of success if I retire in 2017.

That said, I think I will do this in 2015:

* continue to keep expenses low
* continue to look for (and pick up) loose change on the streets
* fully fund a Roth
* make minimum mortgage payments (plus a maybe a little extra--I hate seeing that I pay more in interest than I do in principal when I make the minimum payment)
* throw extra into my 403b (capped at $23,000)
* throw anything remaining in a taxable account at Vanguard

It will be interesting to see what my numbers look like a year from now.  Maybe tomorrow, I will post my predictions.

It will also be very interesting to see what my tax return looks like for 2014.  My income went way up, but I also will have deferred $16,000 into my 403b.

Thanks for your comments so far.  Keep them coming!

ToughMother

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #23 on: November 18, 2014, 06:35:08 PM »
Just two tweaks to the plan, @94:
1. you're 50+ so put $6500 into your Roth
2. next calendar year, you can put $24K into the 403b -
here's the IRS link: http://www.irs.gov/uac/Newsroom/IRS-Announces-2015-Pension-Plan-Limitations;-Taxpayers-May-Contribute-up-to-$18,000-to-their-401(k)-plans-in-2015

Mother Fussbudget

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #24 on: November 18, 2014, 06:41:20 PM »
Hi there XCIV - three of us in the same boat, and nearly the same age...
+1 what ToughMother said.
 
Have you considered the Roth IRA conversion ladder?  http://www.madfientist.com/roth-ira-horse-race/

I started one this year converting $36K, and I plan to convert $36K yearly from my IRA to my Roth IRA for 3 more years, and begin withdrawing $36K/year tax-free, non-taxable starting in 2019.  It will increase my taxes somewhat this year, and for the coming 3 years, but it's while I'm still working and can absorb the tax hit (better than I can post-FIRE).

NinetyFour

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #25 on: November 19, 2014, 01:37:29 PM »
Just two tweaks to the plan, @94:
1. you're 50+ so put $6500 into your Roth
2. next calendar year, you can put $24K into the 403b -
here's the IRS link: http://www.irs.gov/uac/Newsroom/IRS-Announces-2015-Pension-Plan-Limitations;-Taxpayers-May-Contribute-up-to-$18,000-to-their-401(k)-plans-in-2015

Thanks, ToughMother.  I knew about the $6500 for the Roth--I put $6500 in mine in 2013 and 2014. I did not, however, know that the limit for the 403b plan would be increased next year.  That's great to know.

NinetyFour

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #26 on: November 19, 2014, 01:42:58 PM »
Hi there XCIV - three of us in the same boat, and nearly the same age...
+1 what ToughMother said.
 
Have you considered the Roth IRA conversion ladder?  http://www.madfientist.com/roth-ira-horse-race/

I started one this year converting $36K, and I plan to convert $36K yearly from my IRA to my Roth IRA for 3 more years, and begin withdrawing $36K/year tax-free, non-taxable starting in 2019.  It will increase my taxes somewhat this year, and for the coming 3 years, but it's while I'm still working and can absorb the tax hit (better than I can post-FIRE).

Thanks for your comment, MF.  If I understand you and Cheddar correctly, I think you are suggesting the same thing regarding Roth IRAs.  My situation may be a bit different from yours, though.  Right now, I cannot open a TIRA.  But, say that I retire at 55.  Then I can

*move all retirement funds from TIAA over to a traditional IRA at Vanguard.  (No, taxes, no penalties.)
*Then I can start the annual process of moving $$ from the TIRA to my (already existing) Roth IRA.

I'm not entirely clear on the limits--when I move $$ from the TIRA to the Roth, how much can/should I move each year?

Thanks again.

NinetyFour

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #27 on: November 19, 2014, 01:44:19 PM »
My apologies to anyone who wanted to add comments in the last 18 hours or so.  I must have accidentally locked the thread!  Must be more careful from now on--I don't want to miss out on any wonderful advice here!

NinetyFour

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #28 on: November 19, 2014, 01:48:08 PM »
Cheddar and others--

My HR guy thinks that if I retire at age 55 or thereafter, I will not be subject to the 10% penalty if I want to withdraw some of my 401a or 403b funds.  But he is checking with a "retirement expert" to make sure.

It would be great if I didn't have to worry about the "bridge" between retirement and age 59.5.

|  <<<|||| (in Babylonian, sort of)

Cheddar Stacker

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #29 on: November 19, 2014, 01:57:31 PM »
I'm not entirely clear on the limits--when I move $$ from the TIRA to the Roth, how much can/should I move each year?

No limits. You can move all of it, but you should move enough to fill up the 10% or 15% tax bracket, or maybe more depending. You will want to nearly deplete the Traditional stuff by 70, and whatever you don't use will just sit in the Roth or a Taxable investment or savings account. So retire at 55, take your $X traditional and divide by about 10-12 since it will continue to grow. That number is how much on average you would take out/convert each year to deplete traditional funds by 70. It might be too much taxable income. If so, spread it out longer and you might end up with some RMDs. If the market dips one year, convert as much as you can stomach while it's low and let it grow back to the high value in the Roth. You pay tax on the value at the time of conversion.

It would be great if I didn't have to worry about the "bridge" between retirement and age 59.5.

Agreed. It opens up more possibilities.

NinetyFour

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #30 on: November 19, 2014, 02:22:11 PM »
I'm not entirely clear on the limits--when I move $$ from the TIRA to the Roth, how much can/should I move each year?

No limits. You can move all of it, but you should move enough to fill up the 10% or 15% tax bracket, or maybe more depending. You will want to nearly deplete the Traditional stuff by 70, and whatever you don't use will just sit in the Roth or a Taxable investment or savings account. So retire at 55, take your $X traditional and divide by about 10-12 since it will continue to grow. That number is how much on average you would take out/convert each year to deplete traditional funds by 70. It might be too much taxable income. If so, spread it out longer and you might end up with some RMDs. If the market dips one year, convert as much as you can stomach while it's low and let it grow back to the high value in the Roth. You pay tax on the value at the time of conversion.

It would be great if I didn't have to worry about the "bridge" between retirement and age 59.5.

Agreed. It opens up more possibilities.

Thanks again, Cheddar--now that all makes sense to me.

NinetyFour

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #31 on: November 19, 2014, 02:46:24 PM »
Just a note to demonstrate (brag about) my gifts from my present self to my future self:

In my November paycheck, $2612 will come to my pocket, while $3709 will go to my retirement funds ($1209 to the 401a and $2500 to the 403b).  So for maybe the first time ever, the contributions to my future self are greater (by a good chunk) than the money for my present self.  My future self will be appreciative!

And December's paycheck will look very similar, with the possibility of even more $$ for my future self.

NinetyFour

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #32 on: November 28, 2014, 10:00:55 AM »
Thought I would give this a bump by posting my spending so far in 2014.  These are averages monthly expenses for January through November.

Reminder--I am single, so all these expenses are just for me.

Feel free to administer any gentle face punches.

Coffee Shops:__$7.54
Groceries (food only):__$194.75
Car:__$180 (includes tires, maintenance, insurance, registration)
Gasoline:__$74.48
Electricity:__$42.19 (for myself and my tenant)
Gas:__$52.57 (for myself and my tenant, includes stoves and heat--and tenant's dryer)
Water/Trash/Sewer:__$47.62 for myself and my tenant)
Cell Phone:__$4.58 (yes, really--I LOVE TING!!)
Household stuff:__$8.38
Other:__$153.45 (includes concert tickets, bicycle expenses, travel, campsite fees, eating out)
House Expenses:__$57.08 (landscaper, chimney cleaning, and appliance repair)
Gifts:__$56.69 (includes $425 charitable giving)
Internet:__$39.06
Netflix:__$1.68 (signed up for a short time while suffering from injuries)
Entertainment:__$8.39
Hockey:__$137.40 (this included some travel and lodging for out of town tournaments)
Medical:__$88.79 (out of pocket costs)

I think of debt repayment separately.  This year, I was able to pay off the loan I had taken from TIAA-CREF.  I also paid an extra $25,395 toward my mortgage principal--and that number will increase by about $1200 in December.

Thoughts about my 2014 spending:

* I would like to get groceries down to an average of $180 per month (or lower).
* I am thinking of switching insurance agents and trying to get both car and house insurance premiums/coverage lowered
* My gasoline usage was bare bones before I injured my leg on 9/7.  Since then, I have been forced to do some clown car driving (which I hate doing).  I also think spending $$ on gasoline to visit my 92 year old friend (who lives 160 miles away) is worth it to me (and to her).
* My utilities are pretty low, for two separate households.  They would be lower if my tenant were less wasteful.  Some good news is that about 60% of the utilities are deducted on my taxes as a rental expense.
* Medical was very low--before the leg injury.  :(
* The costs associated with playing hockey are definitely my splurge.  But (good news?), because I am injured, my hockey costs will be $0 for the foreseeable future.

Thanks for any feedback.

NinetyFour

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #33 on: November 28, 2014, 01:34:14 PM »
Here is more detail about what I spent in the "Other" and "Entertainment" categories.  These are TOTAL (not monthly) numbers for January through November:

New York Times online subscription:__$34.84
Eating out:__$148.43
Bicycle repair/maintenance:__$130.89
Campsite Fees:__$105
Out of town travel and lodging (not reimbursed by work):__$713.19 (mini-splurges in Boston and Denver)
Parking and bus fares:__$12.25
Tax Prep:__$250
Contributed toward new fridge at work:_$120
Hotels for out of town guests:__$124.84
Miscellaneous:__$35.86

Again, any feedback is welcome.  Thanks!

BPA

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #34 on: November 29, 2014, 05:12:41 AM »
Hi NinetyFour, just wanted to make sure that you are accounting for health insurance costs and taxes and insurance on your house in your retirement expenses.  Even if you pay off the mortgage, you will be left with taxes and insurance (and maintenance costs).  You should also figure out health insurance (premiums and out of pocket) costs once you retire.

As to stashing your cash, max out the 403b, invest the rest in a taxable account.  I probably would not be prepaying the mortgage if I were you.  I don't like the idea of tying up a lot of money in your house (especially since you are renting it - leverage is your friend in that situation).

Your case study is of great interest to me as I am planning to retire in April of 2018.  I also read your journal :-)

Hi ZiziPB!  Thanks for commenting--and thanks for following my journal!  And good for you for eyeing retirement in 2018.

Good reminder for me to look at my Retirement Budget again.  Right now, my property taxes are pretty low--$648 per year.  But I'm sure they will creep up.  (In fact, after my whole ADU thing is finalized with the city, my taxes might jump.  I heard that the Assessor is very interested in getting all this ADU info from the city!)

I think I like your suggestion of maxing the 403b and putting the rest in a taxable account--similar to what Cheddar recommended.  But the Roth?  Hmm.

Here is my bare bones budget for retirement.

wifi 55
food 180
car 120
gasoline 80
water 50
elec 30
phone 25
gas 50
health 500
other 80
hockey 90
travel 100
homeowner's insurance 70
property tax 70

This amounts to $1500 per month, or $18,000 per year.  So my target becomes $450,000 instead of $420,000.

One (big) unknown is how long I will stay in this house.  I might grow tired of owning a home that was built in 1898:  perhaps I will sell it, pocket the cash, and do some slow traveling.  Who knows!?

Hey there, 94!  I can't really comment on the investment stuff (since I am Canadian and don't have much understanding of the American savings vehicles), but your retirement budget looks kick ass.

For reference, mine is like so for two people:
Food and Personal Care:  $300
Gas:  $88  (heating)
Hydro and Water:  $125
Phone and Internet:  $100  (brother's rent helps with this)
Cell Phone:  $10 (prepaid)
Transportation:  $10 (bus tickets)
Home Owner's Insurance:  $85
Property Tax:  $210  (brother's rent covers this)
Pets:  $75
Donations:  $60
Netflix:  $9  for my son
Xbox Live:  $11 for my son
Vacation (trailer in PEI):  $250
Clothing and shoes for both of us run about $400/year, so:  $34
Once my son starts working, he will pay for his own food, xbox live, netflix, and clothing. 
Upkeep on the house costs some too, but other than a roof and furnace, most of that will be done by me for hopefully not much.

So, I'd say that you are definitely kicking my ass as far as spending goes.  I do find it interesting that for the most part we live mostly pretty bare bones except for a very few things.  Hockey and a car for you.  Pets and vacation time down east for me. 

Thanks for directing me over here.  I haven't fully finished reading the thread yet, but I will. 

NinetyFour

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #35 on: November 29, 2014, 10:53:23 AM »
Hi NinetyFour, just wanted to make sure that you are accounting for health insurance costs and taxes and insurance on your house in your retirement expenses.  Even if you pay off the mortgage, you will be left with taxes and insurance (and maintenance costs).  You should also figure out health insurance (premiums and out of pocket) costs once you retire.

As to stashing your cash, max out the 403b, invest the rest in a taxable account.  I probably would not be prepaying the mortgage if I were you.  I don't like the idea of tying up a lot of money in your house (especially since you are renting it - leverage is your friend in that situation).

Your case study is of great interest to me as I am planning to retire in April of 2018.  I also read your journal :-)

Hi ZiziPB!  Thanks for commenting--and thanks for following my journal!  And good for you for eyeing retirement in 2018.

Good reminder for me to look at my Retirement Budget again.  Right now, my property taxes are pretty low--$648 per year.  But I'm sure they will creep up.  (In fact, after my whole ADU thing is finalized with the city, my taxes might jump.  I heard that the Assessor is very interested in getting all this ADU info from the city!)

I think I like your suggestion of maxing the 403b and putting the rest in a taxable account--similar to what Cheddar recommended.  But the Roth?  Hmm.

Here is my bare bones budget for retirement.

wifi 55
food 180
car 120
gasoline 80
water 50
elec 30
phone 25
gas 50
health 500
other 80
hockey 90
travel 100
homeowner's insurance 70
property tax 70

This amounts to $1500 per month, or $18,000 per year.  So my target becomes $450,000 instead of $420,000.

One (big) unknown is how long I will stay in this house.  I might grow tired of owning a home that was built in 1898:  perhaps I will sell it, pocket the cash, and do some slow traveling.  Who knows!?

Hey there, 94!  I can't really comment on the investment stuff (since I am Canadian and don't have much understanding of the American savings vehicles), but your retirement budget looks kick ass.

For reference, mine is like so for two people:
Food and Personal Care:  $300
Gas:  $88  (heating)
Hydro and Water:  $125
Phone and Internet:  $100  (brother's rent helps with this)
Cell Phone:  $10 (prepaid)
Transportation:  $10 (bus tickets)
Home Owner's Insurance:  $85
Property Tax:  $210  (brother's rent covers this)
Pets:  $75
Donations:  $60
Netflix:  $9  for my son
Xbox Live:  $11 for my son
Vacation (trailer in PEI):  $250
Clothing and shoes for both of us run about $400/year, so:  $34
Once my son starts working, he will pay for his own food, xbox live, netflix, and clothing. 
Upkeep on the house costs some too, but other than a roof and furnace, most of that will be done by me for hopefully not much.

So, I'd say that you are definitely kicking my ass as far as spending goes.  I do find it interesting that for the most part we live mostly pretty bare bones except for a very few things.  Hockey and a car for you.  Pets and vacation time down east for me. 

Thanks for directing me over here.  I haven't fully finished reading the thread yet, but I will. 


Thanks for checking this out, BPA!  I appreciate the feedback.  And nice to see your numbers for comparison.

I would be tempted to live without a vehicle, but now that I have this friendship with a 92 year old who lives 160 miles away from me, I see a vehicle as a necessity.  Also, I am lucky enough to live at the southern end of the Rocky Mountains, and I do quite a bit of car camping and hiking.  But I basically do NO clown car driving around town (except in the past couple months--due to recovery from a broken leg).

Hockey--yep, it is great exercise and it gives me socialization that I don't get otherwise (I tend to be a bit of a recluse).  However, since I am suffering from a few hockey-related injuries right now, I am beginning to wonder if that particular hobby is history for me.  We'll see.

You're right: other than that, my retirement budget is pretty bare bones.  Health care costs (in US) are a huge unknown for me.  I also haven't really budgeted for house maintenance.

It will be interested to see where my numbers are in 2 - 3 years.  I would like a bit more cushion before I pull the plug on my job, but I want that cushion to appear quickly!

Anyway, thanks again!

BPA

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #36 on: November 30, 2014, 07:38:34 AM »
You are welcome!  Good luck with everything.

My RE date is December 18, 2015, but the way I'm planning to fund it is a bit different.  I plan to take the commuted value of my pension, so if that tanks, I may stick around until June 30, 2018 when I will receive a pension of about $20k/year. 

My entire investment plan is in paying down my mortgage (which is at just a little over $118k right now).  With my home equity and current commuted value though, my net worth is slightly more than $450k, so I could quit tomorrow and be FI.

My son has some special needs and I've spent a lot of money over the last 16 years for his support, but it looks like it's paid off.  He is a fully functional member of society now.  There was some concern when he was younger that this might not be the case.  So, that money was definitely well spent, but it did put off my FI.  I've put aside some money for training for him (since he plans to go the trades route), and he will always have a home with me or his dad. 

I will be following the rest of your journey with interest.  :)

NinetyFour

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #37 on: November 30, 2014, 08:20:29 AM »
That's great that your RE date is so close.  Sounds like you have a solid plan.  I assume your mortgage interest rate is such that you feel it best to pay it down rather than invest?

And it's wonderful that the support you have arranged for your son over the years has paid off.  You can be really proud of yourself (and of him) for that.

Now if you can get through next year without strangling a student.....(I saw your other thread about your job)!!  Or an administrator!!

BPA

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Re: Case Study: Need advice as I approach the finish line--thanks!
« Reply #38 on: November 30, 2014, 09:05:30 AM »
That's great that your RE date is so close.  Sounds like you have a solid plan.  I assume your mortgage interest rate is such that you feel it best to pay it down rather than invest?

And it's wonderful that the support you have arranged for your son over the years has paid off.  You can be really proud of yourself (and of him) for that.

Now if you can get through next year without strangling a student.....(I saw your other thread about your job)!!  Or an administrator!!

lol  Or the union! Or the government!  When you've pissed off the union, you hope that administration doesn't decide to go after you.  Or that you are FI.  If they fired me tomorrow, I would be just fine luckily.  I'd have to sell my current home, but I'd be fine.

I am amazed at how ridiculously patient with students I am because I'm not a patient person by nature.  I've got one student right now whom my boyfriend marvels I haven't lost my shit on.  Sweet, sweet kid who is probably on the autism spectrum, doesn't understand social cues at all, and claims that everyone bullies him.  Truthfully, he pisses the other kids off and they hold back a lot of what they want to say, but when he mocks their clothes or hair or work, and they finally tell him off, he thinks he's being bullied.  He told me my son bullies him, but it turns out that my son finally told him to fuck off after three incidents where the kid tried to parent my son.  "You shouldn't say those bad words.  Your mother is a teacher in this school and you need to show respect!!"  My son has Tourette Syndrome.  We give him some latitude for some of his language as a result.  The other boy knows this but doesn't get it.  This boy also says really racist things and seems to think that's okay, but don't say the word "shit."

"You shouldn't play M rated video games.  You aren't 18!"  (Aside: My son had a very bad anger management problem when he was younger.  Somehow playing violent video games allowed him an outlet and he hasn't been in a fight or lashed out at anyone in over 4 years.  I'm not sure if it's video games, years of therapy, or anger management classes, or a combination of all three, but something has worked.)

"You should really do your work.  Your mother wouldn't be happy.  I know because she's my teacher."  And then he rats my son out to me.  I've told him that if he has issues with my son, he needs to take it up with the classroom teacher and that it isn't up to him to parent my son.  He doesn't get it.  As one of his classmates said to me, "He's lucky no one has beat him up."  It's pretty amazing that it hasn't happened.

As for the mortgage vs investment argument, I am quite conservative (with my past issues with anxiety, that's a good way to go), so I know that paying down my mortgage will give me the least stress, so that's why I'm doing that instead. 

Edit for typos and to add:  The boy mentioned above also reassured me, "Don't worry, Miss.  I've had a talk with your son and his behaviour is going to change now."  lol  Riiight.  This boy is also a grade younger than my son.  I feel for my boy. 
« Last Edit: November 30, 2014, 09:17:27 AM by BPA »