Author Topic: Need Advice on How To Play Things  (Read 6036 times)

NeedAdvice

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Need Advice on How To Play Things
« on: April 07, 2015, 07:50:22 PM »
Thanks for reading, I am brand new here! 

The situation:

40 years old. Single.   

Assets:  $550,000 (house, car), $400,000 tax deferred investments/retirement accounts I can't touch until 65, and $300,000 investable cash.  Expected inheritance of $200,000 some day. 

Liabilities:  None

Monthly Cash Flow Required:  $5,000 (net)

How can I best deploy these assets to retire now?  I have left my job because I could not stand the new owners, and am resisting taking a new one now.  I can't seem to put my finger on how to best use the resources that I have to be financially independent today (perhaps this is too ambitious?).

Many, many thanks for any insight you can provide.  i am open to all options. 

MKinVA

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Re: Need Advice on How To Play Things
« Reply #1 on: April 07, 2015, 07:55:10 PM »
First, if you have over a half a million tied up in a house, I would sell that bad boy and free up the cash for an investment that provides cash flow (e.g, rental property). Second, how much of that is car? Maybe you need to down size the car too.

deborah

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Re: Need Advice on How To Play Things
« Reply #2 on: April 07, 2015, 08:51:11 PM »
It might also be worthwhile telling us which country you live in - different countries need different responses. For example, your retirement accounts might be accessible in some countries but not others.

JohnGalt

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Re: Need Advice on How To Play Things
« Reply #3 on: April 07, 2015, 08:57:33 PM »
Are you sure you can't touch the deferred/retirement accounts?  Check out SEPP or Roth pipeline methods for accessing 401k/IRA money before 65.

+1 on selling the house

NeedAdvice

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Re: Need Advice on How To Play Things
« Reply #4 on: April 08, 2015, 06:41:58 AM »
Thank you for the feedback.  I live in Canada and the $400K is split between a LIRA (Locked in Retirement Account from a previous employer) and an RRSP.

The car is $20K. 

I have considered selling the house and buying something smaller and a rental property.  I am very open to this, but with the price of homes where I am relative to rents the yield is comparable to a highly liquid ETF but with a lot of work and potential for unknown costs.  I would love to find another way to deploy the house capital and get a higher yield sufficient to cover current expenses.  I have considered buying a B&B etc. 

humblefi

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Re: Need Advice on How To Play Things
« Reply #5 on: April 08, 2015, 06:52:28 AM »
IMO, $5000pm net is a tough ask....I like the "downsize the house" idea too. Anyways, I will recommend two calculators to play with....put in different nos and see how it comes out.

1.
The first calculator to use is http://www.dividendladder.com/tools/dividend-calculator/. If you put $400000 (ret account), invested for next 25 years (40 to 65 yrs), with a 3% dividend return with a 0% tax rate. You get $837511.17 as the final amount available at age 65. Use this as a proxy for the "less risky than capital growth stocks" rate of return.

2.
The second calculator link: http://www.firecalc.com/index.php
You can put the following nos and check the results.

Case A.
    Spending = $30000 per year
    Portfolio = $837511
    Years = 35 (65-100)
    FIRECalc found that 1 cycles failed, for a success rate of 99.1%.

Case B.
    Spending = $60000 per year
    Portfolio = $837511
    Years = 35 (65-100)
    FIRECalc found that 1 cycles failed, for a success rate of 23.9%.

3.
Now you can play the same game with years 40 to 65 with the input of $300000 and the potential inheritance of $200000.

Hope that helps.

forummm

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Re: Need Advice on How To Play Things
« Reply #6 on: April 08, 2015, 09:46:42 AM »
If you moved to a $100k house, you might be able to do it. That might also help reduce your $5k expenses too, which also helps.

AlwaysBeenASaver

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Re: Need Advice on How To Play Things
« Reply #7 on: April 08, 2015, 10:09:12 AM »
My recommendation would be to take a new job while you sort this out. Then find a way to reduce your monthly expenses and/or increase your liquid assets. Keep the new job until you've found a way to make the numbers work out. Can you rent out a couple rooms in the house, if you want to keep it? I personally also wouldn't count on the inheritance until you have it, since (I assume) it could be decades until you get it, or it could get spent before you get it.

MayDay

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Re: Need Advice on How To Play Things
« Reply #8 on: April 08, 2015, 10:20:08 AM »
If your house is paid off, what in the world are you spending 5k a month on? Is life in canada that mush more expensive than the states?  I feel like as a single person with no house payment your monthly costs should be more like 2-3k a month at most, and that is still pretty spendy.

NeedAdvice

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Re: Need Advice on How To Play Things
« Reply #9 on: April 08, 2015, 04:50:03 PM »
Thank you all for the comments.  I guess the key questions I have are:

 - keep the house or sell it?  Consensus seems sell it.
 - What to do with the proceeds to create sustainable income?  I could buy a house that produces income + a smaller place, buy house with suite, buy B&B, buy a farm?
-  How to combine the above with the other assets to be FIRE now?

PharmaStache

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Re: Need Advice on How To Play Things
« Reply #10 on: April 08, 2015, 05:10:05 PM »
Where in Canada do you live?

What are you spending 5k/month on?  That's spendy even if you were supporting a family.

swick

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Re: Need Advice on How To Play Things
« Reply #11 on: April 08, 2015, 05:33:54 PM »
Lots of good advice here, the RRSP portion of your savings should be available to you earlier then 65, you would just have it taxed as income - if you were to FIRE early and not bringing in employment income, shouldn't be an issue.

okits

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Re: Need Advice on How To Play Things
« Reply #12 on: April 09, 2015, 09:14:43 AM »
Is your $300k in investable cash actually just sitting around in cash?  That seems ripe for deployment into a portfolio of financial assets (MMM has posts about this) to grow the pile and spit out some income.

The sell/keep question for your house needs more details for consideration, but a $550k home seems pretty lavish for a single person looking at ER. Can you downsize to free up some of that cash?

If you cease work completely, draw down your RRSPs while you're in low tax brackets. Remember, it's not actually a $400k RRSP because there's still tax liability outstanding on that amount.

I think you need to either reduce your need for income or take at least part time work. I don't think your current assets will last another 40-60 years if you want to draw $60k a year.  If you liquidate the house and invest every dollar I wouldn't go beyond $34,500/yr (3% safe withdrawal rate, assuming 25% tax liability on the RRSP.)

lostamonkey

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Re: Need Advice on How To Play Things
« Reply #13 on: April 09, 2015, 06:40:07 PM »
Thank you all for the comments.  I guess the key questions I have are:

 - keep the house or sell it?  Consensus seems sell it.
If you really want to retire ASAP, sell the house and move into a cheap apartment.

 - What to do with the proceeds to create sustainable income?  I could buy a house that produces income + a smaller place, buy house with suite, buy B&B, buy a farm?
Real estate in Canada generally sucks from a cash flow perspective. I would put all the proceeds in low cost Vanguard funds.

-  How to combine the above with the other assets to be FIRE now?
-Ensure that the RRSP's don't have to high MERs. Canadian banks often charge redicilous fees which will really hurt your returns.
-Look into cashing out your LIRA early. I think you can transfer the money into a RRIF and start cashing out at 55, but I am not 100%.
-Ensure that your investable cash is actually invested and not just sitting in a savings account. Again I would recommend low cost index funds.
-Ignore the potential future inheritance for planning purposes.


lostamonkey

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Re: Need Advice on How To Play Things
« Reply #14 on: April 09, 2015, 06:54:15 PM »
Potential Retirement Stache:
Value of car and house                      550,000
Value of car                                     (20,000)
Value of home                                   530,000
Closing costs of sale of home (5%)    (26,500)
Proceeds                                           503,500
Retirement Assets                              400,000
Non-registered investments                300,000
Total Stache                                      1,203,500

4% rule                                              48,140
Per month (pre-tax)                              4,012

Consider moving to a cheaper part of the country and/or spend less so you can retire.
This calculation ignores tax, CPP, OAS, and GIS.
« Last Edit: April 09, 2015, 07:01:53 PM by lostamonkey »

Valhalla

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Re: Need Advice on How To Play Things
« Reply #15 on: April 09, 2015, 06:59:20 PM »
It seems like you're in pretty great shape financially.  Can you get another job easily?

If so, I'd suggest you get another job while you mull over the decision to FIRE or not.

If you can't readily get another job, then I see no alternative but to sell the house and find something far cheaper.

$5k cash flow seems high, but there maybe controllable items there you can trim back.  At this time you have a little bit of time to figure out what you want to do, but don't take too long to sit on it.