Author Topic: Would appreciate some perspective on my somewhat unusual situation  (Read 6338 times)

morli

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I am 35, working, married, and have the following going on:
  • 335K in a beneficiary IRA for me (RMDs of ~8K per year right now) left by my mom - I took this over and invested in cheap vanguard funds, got rid of an advisor who was taking 1% of account value every year
  • 242K in a metlife variable annuity for me (RMDs of ~5K per year right now) left by my mom - I haven't touched this
  • about 90K in 401Ks between me and my wife.  We contribute about 14%.  Haven't maxed out yearly yet.
  • Vanguard taxable account with a few K in extra savings that we don't need in checking, set to automatically add $50 per week to total stock market fund. Plan to just keep that going forever and keep buying in with extra cash
  • House with fixed rate mortgage of $3k per month, still have many years left (probably ~25)
  • We also have a college 529 account for daughter which we have just started, putting about $150 in there every 2 weeks.
  • A condo which we rent, rent pays for mortgage and fees but not much else.  Thinking about selling as the maintenance does cost us. Value has gone nowhere in years.
  • Combined income is about $145K/year right now


1. How am I doing?  I feel blessed to have the cushion of the IRA and annuity, feel like I am doing a good job managing the benef. IRA and not sure about the annuity.  I've had the annuity a while so may be able to roll it somewhere else but I get the sense the financial damage has already been done and might be best ot leave this alone for guaranteed income.

2. Do I have enough rolling to retire early, like around 45-50? My goal is to do that, but with a 3K mortgage that isn't going anywhere soon I feel like we need significant income to sustain us for quite some time.  We don't need tons of money in retirement, and both willing to work a little part time, but not quite sure how to set a goal for total invested before "retiring".  The calculators you find online seem to assume everything will cost a fortune in the future, and that our salaries will both go to 200K+ as a result... it just seems like a bunch of bullshit to me, but looking for your thoughts.

norabird

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Re: Would appreciate some perspective on my somewhat unusual situation
« Reply #1 on: December 01, 2015, 01:11:13 PM »
Definitely sell the rental since it's not appreciating or really earning.

Can you sell your house also? $3k is huge! If you downsize housing I think you can definitely retire early.

Also, what is your income/spending? I suspect you could put extra money on the mortgage or max out your 401k--that would have a tax benefit too.

rubybeth

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Re: Would appreciate some perspective on my somewhat unusual situation
« Reply #2 on: December 01, 2015, 01:25:16 PM »
The only way to know if you can retire is to know what your total spending is or will be after retiring. The $3k mortgage each month is a lot; are you in a high COL area? Some costs drop after leaving a job, but this is a large expense.

MDM

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Re: Would appreciate some perspective on my somewhat unusual situation
« Reply #3 on: December 01, 2015, 01:45:49 PM »
  • 242K in a metlife variable annuity for me (RMDs of ~5K per year right now) left by my mom - I haven't touched this
1. How am I doing?  ...not sure about the annuity.  I've had the annuity a while so may be able to roll it somewhere else but I get the sense the financial damage has already been done and might be best ot leave this alone for guaranteed income.
Noticed that item before seeing your question.  You really need to find out your specific options for that annuity.  Ways to do so (all having pros and cons) include
 - asking MetLife to tell you your options
 - reading the documentation and determining your options
 - paying a fixed fee to a CFP to tell you your options.

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2. Do I have enough rolling to retire early, like around 45-50? My goal is to do that, but with a 3K mortgage that isn't going anywhere soon I feel like we need significant income to sustain us for quite some time.  We don't need tons of money in retirement, and both willing to work a little part time, but not quite sure how to set a goal for total invested before "retiring".  The calculators you find online seem to assume everything will cost a fortune in the future, and that our salaries will both go to 200K+ as a result... it just seems like a bunch of bullshit to me, but looking for your thoughts.
Well, GIGO, so what inputs are you giving the calculators? ;)

https://www.bogleheads.org/forum/viewtopic.php?t=115839#p1686175 has some good suggestions for calculators.  The case study spreadsheet also has a simplified version, FWIW.

morli

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Re: Would appreciate some perspective on my somewhat unusual situation
« Reply #4 on: December 01, 2015, 02:15:19 PM »
Hello, thanks for input so far.

Mortgage - yes it's an expensive area but it's where I have a lot of work options, family nearby, etc. And my wife and I are very happy in the house. Not likely to change this piece - I do understand it's not MMM approved to spend $3k a month on it. :)

Selling rental - I would like to do this just for peace of mind.  It also has a HELOC against it (used for current house downpayment) which is going to expire in a few years and that will cause our payments to go up pretty dramatically, the way I understand it.  Rent may or may not cover total costs at that point.  My wife is of the opinion that we should hold it even at a slight loss if we can eventually see a 20-40K increase on sale price.  It's had a hard time recovering from 2009 - we paid $40k more than it's now worth.

Spending - I am not sure how to figure out our spending very accurately (especially after retirement).  All I know if we definitely feel like we overspend on certain areas like eating at restaurants, buying entertainment items, etc, and as a result we have a bank account balance that stays pretty consistent given income minus spending and college+taxable investments. And yes, the mortgage I acknowledge is a lot.  How can I somewhat accurately estimate what we will need to spend yearly at 45 or 50 years old?

Metlife - I would like to figure out what my options are for this.  I do find it is one of the better annuity packages and has a nice benefit but I don't fully understand how to compare it to other options like investing it as a regular IRA or second beneficiary IRA.  The way I understand it is that is has a guaranteed base and monthly payment after a certain age, and it's currently set to a fairly aggressive growth portfolio.  In return for that I understand I pay higher fees (and probably my mom paid an up front cost) than a regular IRA.  The advisor who sold it to my mom told me that to get the best use of it, I should start taking the max amount I can without penalties, after that age, in hope of emptying it and still getting the monthly payments after that.

Another question - It seems that after some time (maybe in 10 years) the beneficiary IRA and metlife accounts (later on) will both be sending me more money than I need in RMDs/metlife withdrawls.  That hasn't happened yet, but when it does, should I just move that money to taxable vanguard funds or is there a better way to invest those required payments?


norabird

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Re: Would appreciate some perspective on my somewhat unusual situation
« Reply #5 on: December 01, 2015, 02:23:00 PM »
Maybe start with YNAB and get on tracking spending. That will give you a groundwork of expenses. You really need to know and control your outflow if you are serious about having a financial house in order.

Would you think about downsizing houses when the kids are older?

Axecleaver

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Re: Would appreciate some perspective on my somewhat unusual situation
« Reply #6 on: December 01, 2015, 03:33:12 PM »
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My wife is of the opinion that we should hold it even at a slight loss if we can eventually see a 20-40K increase on sale price.  It's had a hard time recovering from 2009 - we paid $40k more than it's now worth.
This is classic "sunk cost fallacy." https://en.wikipedia.org/wiki/Sunk_costs

What your house is worth today has nothing to do with what you paid for it. The question to ask yourself is, if I could buy it today for (whatever you could sell it for), would I rather have the property or the cash? From your description, it sounds like the answer is cash. Since you have a HELOC loan against the property, you will need to come up with some cash to dispose of the property. Figure out how much underwater you are, save up the cash for closing or use your taxable investment dollars, and get rid of it.

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401k: We contribute about 14%.  Haven't maxed out yearly yet.
529: $300/month
non tax deferred: $200/month
You should take the money you're putting into your taxable account and 529 and push that over to the 401k until you hit 18k a year in contributions for each of you. 14% of 145k is about 20k, the $500 a month is 6k, so you need to come up with another $10k a year in 401 contributions. When you do that, then start up 529 contributions, then taxable savings. Remember that contributions to your 401k will cost you only 75 cents on the dollar, if you're in the 25% bracket. Consider raising your withholding to soften the blow.

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How can I somewhat accurately estimate what we will need to spend yearly at 45 or 50 years old?
Create a budget based on what you're doing today. Will anything change in 15 years? Will your commuting costs, housing costs go down? What are your plans for supporting your kid in college? Go through the budget and see what you can trim out.

Quote
How am I doing?
The inheritance gave you a huge leg up, you're at roughly 550k today (using cash equivalent for the annuity). If you save 36k a year, in 15 years, with a 7% real rate of return you'll have $2.8m. In 15 years, that $2.8m after inflation will have the purchasing power of roughly $1.75m in 2015 dollars. That will generate an annual income of about  $70k in today's dollars.

So, probably not enough to retire given your current lifestyle. Spend less, make more, or work longer and you can get there. Increase your earning over the next 15 years and keep your lifestyle the same, and you can probably get there.

AlwaysLearningToSave

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Re: Would appreciate some perspective on my somewhat unusual situation
« Reply #7 on: December 01, 2015, 04:00:25 PM »
Quote
401k: We contribute about 14%.  Haven't maxed out yearly yet.
529: $300/month
non tax deferred: $200/month
You should take the money you're putting into your taxable account and 529 and push that over to the 401k until you hit 18k a year in contributions for each of you. 14% of 145k is about 20k, the $500 a month is 6k, so you need to come up with another $10k a year in 401 contributions. When you do that, then start up 529 contributions, then taxable savings. Remember that contributions to your 401k will cost you only 75 cents on the dollar, if you're in the 25% bracket. Consider raising your withholding to soften the blow.

+1 to this. 

I think people overemphasize college savings.  The best thing you can do for your child's financial future is to take care of your own financial future first.  Save as much as you can for your own retirement now, while you have time on your side.  Assuming college is more than ten years away (you don't state daughter's age, so only a guess) you will be well on your way to financial independence when it comes time to help with college expenses.  At that point, you can use current cash flow to pay college expenses.

If you have maxed out all tax-advantaged retirement accounts available to you (including health savings accounts, if applicable) and still have ample income leftover to save, by all means consider putting it in a 529 plan.  But your own retirement comes first. 

MDM

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Re: Would appreciate some perspective on my somewhat unusual situation
« Reply #8 on: December 01, 2015, 04:03:40 PM »
Metlife - ...I don't fully understand how to compare it to other options like investing it as a regular IRA.
The extremes are
1) Leave the annuity alone.
2) Take all the money now from the annuity and invest it.
In between are the ~infinite partial withdrawal strategies.
To compare, you need to know (e.g., be able to put the formulas in a spreadsheet) how the annuity and your investments will grow.  Do you know these formulas?

Quote
...should I just move that money to taxable vanguard funds...?
That is a perfectly reasonable approach.

morli

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Re: Would appreciate some perspective on my somewhat unusual situation
« Reply #9 on: December 01, 2015, 08:50:08 PM »
I just thought of more questions.  The 401K accounts can't be used without penalty until we are 59 1/2 years old, right?  Doesn't that sort of make it hard to have a goal of retiring at 50 if we can't access that cash?

The metlife annuity has similar rules, I forget but I believe it's 60 years old as well.

The beneficiary IRA is the only one I can take money out of whenever I want without penalty other than normal taxes.

Edit: and regarding housing, yes, we want to stay in current house until we are 50 or so, but at that time we are indeed willing to switch to a house costing half as much in another part of the country.  At that time we won't need the house, or the expensive commuting and property tax we deal with now.
« Last Edit: December 01, 2015, 08:52:52 PM by morli »

MDM

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Re: Would appreciate some perspective on my somewhat unusual situation
« Reply #10 on: December 01, 2015, 09:24:40 PM »
I just thought of more questions.  The 401K accounts can't be used without penalty until we are 59 1/2 years old, right?  Doesn't that sort of make it hard to have a goal of retiring at 50 if we can't access that cash?
See http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

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The metlife annuity has similar rules, I forget but I believe it's 60 years old as well.
Section 1035 exchange?  E.g., see https://stevensonfinancialmarketing.wordpress.com/2012/03/28/how-can-i-access-my-ira-or-annuity-early-without-penalties/.  Also see https://www.bogleheads.org/forum/viewtopic.php?t=159758.

morli

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Re: Would appreciate some perspective on my somewhat unusual situation
« Reply #11 on: December 01, 2015, 09:34:26 PM »
Thanks.  I see language on those posts about non-IRA annuities.  Mine is actually called by Metlife "MLI USA Variable Annuity Series VA - DECEDENT IRA"  - so I am not exactly sure if that matters or if it's better or worse than other annuity products.

morli

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Re: Would appreciate some perspective on my somewhat unusual situation
« Reply #12 on: December 01, 2015, 09:55:51 PM »
Since you have a HELOC loan against the property, you will need to come up with some cash to dispose of the property. Figure out how much underwater you are, save up the cash for closing or use your taxable investment dollars, and get rid of it.


Axecleaver, can you elaborate on this?  Do you just mean the couple of thousand in closing costs?  Otherwise the sale of the condo should cover payback of HELOC.

MDM

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Re: Would appreciate some perspective on my somewhat unusual situation
« Reply #13 on: December 01, 2015, 10:10:21 PM »
Thanks.  I see language on those posts about non-IRA annuities.  Mine is actually called by Metlife "MLI USA Variable Annuity Series VA - DECEDENT IRA"  - so I am not exactly sure if that matters or if it's better or worse than other annuity products.
Much will depend on the exact options you and your mom chose either overtly or by default.  Thus, without seeing the signed contract language, it is difficult to advise.

That said, see https://www.bogleheads.org/forum/viewtopic.php?t=155954.  At least superficially very similar to your situation.  Good luck!

Axecleaver

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Re: Would appreciate some perspective on my somewhat unusual situation
« Reply #14 on: December 02, 2015, 11:02:09 AM »
Quote
Quote from: Axecleaver on December 01, 2015, 03:33:12 PM
Since you have a HELOC loan against the property, you will need to come up with some cash to dispose of the property. Figure out how much underwater you are, save up the cash for closing or use your taxable investment dollars, and get rid of it.

Axecleaver, can you elaborate on this?  Do you just mean the couple of thousand in closing costs?  Otherwise the sale of the condo should cover payback of HELOC.

I assumed you were underwater on the condo because you said:
Quote
It's had a hard time recovering from 2009 - we paid $40k more than it's now worth
But if you have some equity, then you just need to figure out what your net is. Get the mortgage payoff amount, HELOC balance, 6% for a real estate agent, and a few grand for closing costs and see how that compares to the market value. Don't fall into the trap a lot of people fall into where they price their home based on what they need to break even. The market doesn't care what you paid pre-subprime crash, it cares about recent comparable sales.

morli

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Re: Would appreciate some perspective on my somewhat unusual situation
« Reply #15 on: December 02, 2015, 12:44:11 PM »
Axe, I see.  The value has gone down 40K but no, we won't be taking a 40K loss as it's never been fully paid off at the original price.

morli

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Re: Would appreciate some perspective on my somewhat unusual situation
« Reply #16 on: December 02, 2015, 09:05:25 PM »
I did the math and if I sell the condo today for the Zillow price I should wind up with about 30-35K in cash after paying back the HELOC, realtor fee, mortgage.

hoping2retire35

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Re: Would appreciate some perspective on my somewhat unusual situation
« Reply #17 on: December 03, 2015, 08:15:28 AM »
Definitely sell the rental since it's not appreciating or really earning.

Can you sell your house also? $3k is huge! If you downsize housing I think you can definitely retire early.

Also, what is your income/spending? I suspect you could put extra money on the mortgage or max out your 401k--that would have a tax benefit too.

I would do this (above), (remember that 401k will keep growing for the next 24 years before you can tax-free withdraw ;) and move those IRA and metlife accounts as quickly tax free possible to a regular vanguard index and start drawing a SWR ~$25k, once you are mortgage free you basically only need to figure out health insurance.
I am at the point were I could FIRE in about a year except getting and paying for health insurance. I don't want to be on medicaid nor do I trust our current political situation and what they insurance subsidies will be in two years. So there is too much turmoil for me. I believe this to be your only problem also, once of course you are mortgage free, I think you could almost retire now.

EDIT; just saw were you had said you really don't want to move. From my research college savings plans seem limited while I believe Roth IRA and maybe SEPA? has tax free earlywithdraw for college. Also, you said you cannot take out Metlife without penalty, could this have same exemption for college funding? I know normally you can pay grandkids tuition so since this was your mothers could you use this as college fund? It just maybe easier to only have 401k and a regular investment account for early(pre 59 1/2 yo) retire so that things are easier to manage. Since you want to stay in house you could focus ALL excess savings toward payoff, home equity lines are tax free and can be used for anything and right now you are paying interest and locked into it if you need to move.
« Last Edit: December 03, 2015, 08:30:06 AM by hoping2retire35 »

morli

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Re: Would appreciate some perspective on my somewhat unusual situation
« Reply #18 on: December 03, 2015, 01:06:50 PM »
So if I stop putting into the college fund I do have a few hundred each month.  I can put it toward mortgage or 401Ks, or I can split and contribute to both.  What is the best use of the money or what factors should sway me one way or the other?  Paying mortgage will shorten my time to pay off but won't reduce payments.  Putting into the 401K will mean that I will have more money when I am old.  Just having a hard time visualizing which is better.
« Last Edit: December 03, 2015, 01:08:30 PM by morli »

MDM

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Re: Would appreciate some perspective on my somewhat unusual situation
« Reply #19 on: December 03, 2015, 01:10:47 PM »
So if I stop putting into the college fund I do have a few hundred each month.  I can put it toward mortgage or 401Ks, or I can split and contribute to both.  What is the best use of the money or what factors should sway me one way or the other?  Paying mortgage will shorten my time to pay off but won't reduce payments.  Putting into the 401K will mean that I will have more money when I am old.  Just having a hard time visualizing which is better.
See http://forum.mrmoneymustache.com/forum-information-faqs/frequently-asked-questions/ under "Investing".

neo von retorch

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Re: Would appreciate some perspective on my somewhat unusual situation
« Reply #20 on: December 03, 2015, 01:25:09 PM »
The math of mortgage payoff vs. investing has been done many times. It's usually better even with taxed investment accounts. With a 401K, it's your best bet. Max that out before anything else. It's not "money you'll have when you're old." It's money you can start to enjoy 5 years after you become financially independent and stop having income, switch to retirement income, and start doing something like a Roth IRA conversion.

hoping2retire35

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Re: Would appreciate some perspective on my somewhat unusual situation
« Reply #21 on: December 03, 2015, 01:57:39 PM »
The math of mortgage payoff vs. investing has been done many times. It's usually better even with taxed investment accounts. With a 401K, it's your best bet. Max that out before anything else. It's not "money you'll have when you're old." It's money you can start to enjoy 5 years after you become financially independent and stop having income, switch to retirement income, and start doing something like a Roth IRA conversion.

oh yeah, that would work good idea. invest in 401k, rollover to roth, then withdraw up to contributions. The reason I was pretty strong on paying down the mortgage is because they mention that they want to remain in their home which is a $3k a month mortgage, even with $145k salary this is big expense, and lot of (probably) interest. Not good in an emergency. Though you mention that does not lower your payment it will if you refi and besides that is not a short term plan something you may have to do for years.