Just Getting Started - Looking For Advice!

[LTDL]

Hello Everyone!

Love this community and enjoying the process of starting our road to FI!

I am looking for advice on how to start investing, and feedback on how to achieve our end goal.

The hubs and I currently own a fairly successful small business. Over the past (5) years, we have been able to to save about $250k, which is currently sitting in a savings account (I know, I know...that's why were are here). Additionally, we have several real estate assets valued at about 1M (still owe about 550K). The business should do well this year, and in a perfect world, we should be able to pull another 400K of profit. Generally, we like to leave about 200K in the business and will be able to pull down another 200K in income. This is on top of our salaries, which total about 90K per year. Oh, and the hubs has a small 401K from a prior employer (like 3K).

Our goal is to be able to "soft-retire" by the end of 2017 (RV life here we come!), with total liquid assets of about 1.5M. There is potential to sell the business, and if not we can sell the assets, which should net about 150K. Both of know that we will continue to work in some capacity, at some point (we are both 40, with good skills sets that include construction consulting, marketing consulting, etc...)

Currently, we are setting up a budget (quicken? quickbooks? mint?), determining the best route for investing (betterment? vanguard?), setting goals, etc...etc..

So, any insight into our situation, and advice on how to reach our goal, would be much appreciated. I realize that we are "late in the game", but at the same time, I think out situation has real potential recognize our goal.

Thoughts?!?!?!

[former player]

Assets of $1.5m would give you an income of $60k at a 4% drawdown: are you happy with that rate of drawdown and can you live on that income in retirement?  You might need to take into account that an RV is a depreciating asset which will need to be replaced at some point or other assets used to provide a place to live.

Your current assets, including the business at assets only, seems to be about $850k, which is slightly more than half your capital need and a current investment income of $34k, although you haven't specified whether the real estate assets produce income and if they do at what rate they produce income, so that might skew the calculations of how far along you are in terms of income after retirement.  How much could the business sell for as a going concern?  Is the income down to you and your spouse particularly, or is there e.g. goodwill to pass on?

Your business looks like a goldmine if you can take out $380k per annum and still leave $200k of profit in the business.  Is that a recent level of income?  Because if not, saving only $50k per annum on that level of income gives me no assurance that you will be able to live on $60k per annum in retirement.  How clever are you being on the subject of taxes - are you getting good advice on how to minimise your tax payments on those earnings?

I do wonder why you are leaving $200k per annum in a business which you want to sell or wind up within 18 months.  What is the thinking behind that?

[LTDL]

Hi Former Player!

Thanks for the response -- this is exactly what I am looking for. :)

We are happy with the 4% drawdown for the time being. As I mentioned, this will be a "soft retirement" meaning, the hubs and I are very likely (and would enjoy) continuing to work in some capacity. We are both youngish, and have good skills sets that would apply well to a variety of areas. We just want more freedom and flexibility to enjoy life and travel with our son.

The real estate assets to produce income, however, we choose to re-invest in good maintenance of the assets. Because we have not done a great job of tracking income/expense, I do not have finite numbers, but I can tell you that the assets are self-contained (meaning they pay for themselves), and them some. If I had to guess I would say that we net about $20k per year.

Currently, we are working to implement systems into the business (hello e-myth) so that the business is turn-key. We own a contracting company, in an area that is seeing a boom (Seattle Area). The company has a long history, well-known brand, and thus goodwill is a factor.

Yes, the business has done VERY well in the past few years. And, many folks ask why we would think about selling. Mostly, we feel that there is still a volatility to our industry, and we are TIRED of the stress. Available labor in the trades is a real concern, and frankly, we are just over dealing with the bullshit. So, we plan to "take the money and RUN".

I see your concern around the the $60K. However, I have calculated that a few lifestyle changes (which we are both totally o.k with), should allow us to live comfortably on about $4500 per mo. The goal is to liquidate most of our real estate assets and live RV style for about a year. We also own property free and clear, and my husband is a contractor, so returning home to build spec is always an option.

And, no, I don't think we are getting the advice we need on our to minimize our tax payments...or at least we have concerns.

Finally, we leave the $200K in the business in order to cash ourselves for large-scale contracts, rather that utilizing a line of credit. :)

Thoughts?!

[JustGettingStarted1980]

Interested in the advice given here. So I will bump this.

I'm no expert, but I'm fairly sure your husband can put money in a SEP-IRA for your contracting business to the tune of 53K/year. This is tax deductible for the business. If you are an employee as well of this business, I think you can contribute for you as well.

You can also contribute to a 401K at work, max out at 18K if your employer in Marketing has a plan like.

Let's say you put away 53 + 18 K (low example) in tax deferred retirement accounts x 2 years. That means that after 2 calendar years, you'll have 142 K earning money for you in, say, Vanguard Target Retirement Fund 2055.

For withdrawal in 2018, you can set up a SEPP plan with the IRS, since you don't have the 5 year window necessary for a Roth Conversion Ladder. A SEPP plan will allow you to avoid a 10% withdrawal penalty.

Another option is just to withdrawal from your deferred retirement accounts when you need to and just pay the penalty. Why? Because you'll never have to pay taxes on contributions to those deferred retirement funds!  10% of 60 K is $6,000, whereas your current 2016 tax bracket is likely 30+%. When you have no income in 2018, and withdrawal 60K, paying 6K is alot less that the 18+K you have to pay this year.  To clarify, you will have to pay taxes on any earned interest, dividends, and gains from your deferred retirement accounts when you liquidate them (but it will still be at a lower rate).

I'm probably wrong in a couple points above, I look forward to being corrected! By the way, my advice is barely scratching the surface for you folks, especially considering alot of your income is based on real estate!

[LTDL]

Hello JGS1980!

Thank you for the reply! Yes, we are looking in the SEP-IRA. This would be a great year to do so, as we should be able to use the tax deduction.

Currently, don't have a 401K, but can look at establishing that through the biz.

I am curious about the withdrawal & penalty, will have to check in with my CPA.

Appreciate the feedback and am looking for more weigh-ins from the Mustache community!