general opinion on how we are doing

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MikeWillRetire
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general opinion on how we are doing

Post by MikeWillRetire »

My wife and I have recently started thinking about retirement, but we are a bit late in paying attention to our financial situation (we are both 50). We've been busy paying private school tuition for our kids elementary school years, so we haven't saved as much as typical bogleheads. But now they are in public high school, so we are able to save more for our future. Here is our situation:

Emergency funds: 6 months of expenses
Debt: mortgage, $54k remaining, at 5.875%. Recently applied for HEL @1.99% to payoff mortgage.
Tax filing status: Married filing jointly
Tax Rate: 28% fed (marginal tax bracket), 5.25% state
State of residence: Maryland
Age: 50
Desired Asset allocation: 50% stocks/50% bonds

Current retirement assets (mid six figures):
Taxable:
3% cash (in addition to emergency funds)
1% savings bonds

Our combined TSP (federal version of 401k):
96% Lifecycle fund L2020 (currently 37% government securities, 7% fixed income index, 28% common stock index, 9% small cap index, and 15% international stock index)

Contributions:
$11.7k His TSP and $5k matching, annual
$11.7k Her TSP and $5k matching, annual
Also saving about $25k per year in bank accounts for future college costs for our two children. The oldest will be entering college in 1.5 years, the youngest in 3.5 years.

Other Info:
In addition to our home, we also own two other rental homes. I didn’t include the value of these in the above portfolio, but I would estimate that they total about 1.5 times our portfolio. We recently inherited these, and my wife is emotionally attached to them for now. They are both over 20 years old, and will soon need some renovation work. We are saving all of the rental income for now to cover the future cost.

Questions:
1. We are new to paying attention to our financial situation, so for now, I am just looking for opinions on how we are doing.
Grt2bOutdoors
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Re: general opinion on how we are doing

Post by Grt2bOutdoors »

What is your desired age of retirement?
Looks like you are doing okay. Only suggestion, if you have room to do so and your plan permits it - raise retirement savings to 23.5K per year, it will do two things - 1)reduce your taxable income and 2)increase compounding of retirement assets. I would have said also it will leave less assets in taxable that are exposed to the land of the money grab in collegiate education. Cash and/or investments held in taxable are fair game in the world of financial aid/tuition payments.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
ShowMeTheER
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Re: general opinion on how we are doing

Post by ShowMeTheER »

Doing fine in my opinion.

Assuming age 65 retirement, you are on pace to add an additional $500K into the TSP. Combined with some asset growth, that gives you a very solid retirement savings account. Throw in a couple of homes that could be sold if absolutely needed and it sounds like a comfortable retirement to me.

Agree with the latest post - save as much as possible in tax-deferred for your brackets.

Stay the course!
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MikeWillRetire
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Re: general opinion on how we are doing

Post by MikeWillRetire »

Thankyou for the replies. I'm hoping to retire within 10 years, hopefully earlier. We haven't maxed out our TSP savings because I would like to have some cash available for upcoming college costs. We are concentrating on State universities, and I can't imagine that we would qualify for any aid.
hlfo718
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Re: general opinion on how we are doing

Post by hlfo718 »

Maybe I missed it but do you and wife have a pension? If so any idea how much they will pay when you retire?
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Peter Foley
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Re: general opinion on how we are doing

Post by Peter Foley »

I think you are doing fine as well. At some point you may want to deal with the real estate issue. That will result in a big increase in your taxable holdings. My guess is that one or both of you have a Federal pension. Age 60 retirement is not at all unrealistic if that is the case.
Thinking long term, it would be nice to have some money in Roth to provide for income flexibility to better manage income taxes in retirement. Other than that you are on the right track.
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grap0013
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Re: general opinion on how we are doing

Post by grap0013 »

I think you are overly focused on your children's education. Yes it is important, but you come first. They can always borrow some for college. You cannot borrow human capital once it is all used up. I vote stuff both TSPs with 17.5K and fund two Roth IRAs each with 5.5K this year and put another 10K in 2012 Roths. You'll get some nice tax breaks with this strategy, let compounding do what it does best, and you can always change your mind later. Direct Roth contributions can also be withdrawn penalty free at anytime in a pinch. In a couple years you could reduce retirement contributions and help pay for college with cash flow.
There are no guarantees, only probabilities.
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Toons
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Re: general opinion on how we are doing

Post by Toons »

Doing Just Fine,,relax :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
crowd79
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Re: general opinion on how we are doing

Post by crowd79 »

I never understood why parents feel the need to save for their child's education. Shouldn't it be the responsibility of their children to fund their own education? You spend money caring and raising them your whole life, provide them with food, warmth, comfort, a car after graduating from high school, etc..... When they become older as teenagers and young adults, they should be taught how to save for school and putting away money during the summer months while working summer jobs. This is how I was raised.
Grt2bOutdoors
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Re: general opinion on how we are doing

Post by Grt2bOutdoors »

crowd79 wrote:I never understood why parents feel the need to save for their child's education. Shouldn't it be the responsibility of their children to fund their own education? You spend money caring and raising them your whole life, provide them with food, warmth, comfort, a car after graduating from high school, etc..... When they become older as teenagers and young adults, they should be taught how to save for school and putting away money during the summer months while working summer jobs. This is how I was raised.
You don't understand because that's not the enviornment in which you were exposed to. Had you grown up in such an enviornment, you could easily understand it. Let's be realistic, a summer job flipping burgers or even interning at a paid job will likely only provide spending money or enough money to purchase some clothing - it's not even enough to pay for one class, let alone a semester or two.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
bdpb
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Re: general opinion on how we are doing

Post by bdpb »

Grt2bOutdoors wrote:
crowd79 wrote:I never understood why parents feel the need to save for their child's education. Shouldn't it be the responsibility of their children to fund their own education? You spend money caring and raising them your whole life, provide them with food, warmth, comfort, a car after graduating from high school, etc..... When they become older as teenagers and young adults, they should be taught how to save for school and putting away money during the summer months while working summer jobs. This is how I was raised.
You don't understand because that's not the enviornment in which you were exposed to. Had you grown up in such an enviornment, you could easily understand it. Let's be realistic, a summer job flipping burgers or even interning at a paid job will likely only provide spending money or enough money to purchase some clothing - it's not even enough to pay for one class, let alone a semester or two.
But it would be much worse if you were 70 years old and you were the one who was flipping burgers to support your retirement. :( Focus on retirement first and let them borrow for their education. Once your retirement is set you can help pay off their loans.

Any savings for their college education should probably be saved in a 529 account.

At this age and these tax rates you should be contributing tax deductible 23k to both TSP.

Staying emotionally connected to real estate is not usually very efficient for retirement assets.
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DiscoBunny1979
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Re: general opinion on how we are doing

Post by DiscoBunny1979 »

Grt2bOutdoors wrote:
crowd79 wrote:I never understood why parents feel the need to save for their child's education. Shouldn't it be the responsibility of their children to fund their own education? You spend money caring and raising them your whole life, provide them with food, warmth, comfort, a car after graduating from high school, etc..... When they become older as teenagers and young adults, they should be taught how to save for school and putting away money during the summer months while working summer jobs. This is how I was raised.
You don't understand because that's not the enviornment in which you were exposed to. Had you grown up in such an enviornment, you could easily understand it. Let's be realistic, a summer job flipping burgers or even interning at a paid job will likely only provide spending money or enough money to purchase some clothing - it's not even enough to pay for one class, let alone a semester or two.
---------------

I"m under the opinion that no one knows the value of money until their own money is put up to risk. that's true of the stock market. And, it's true when going to school. If Mom and Dad are footing the bill, the kids know nothing but a free ride. And I'll make a blanket statement by saying that most that get the free ride won't care much about their studies, just in it to get the piece of paper at the end of 4, 6 or how many years it takes. I know some that have taken the full 8 years to get a PhD - essentially taking their time so that they can get free apartment money, food expense, college tuition, well beyond their adult years until "they" were done. No consideration for the Parents giving them the money.

So, it's my opinion that College should be a shared cost...something like I'll pay for this as long as you pay for that. It should never be 100% paid by the parents or you get nothing but spoiled Adult Kids as Adults. And those "adults" will know nothing about the value of money or how to budget.

Also - what's wrong with Community College for the first 2 years instead of having to put on some kind of show that you're special and should spend a fortune going to a Tier 1 or 2 school? The reality is that most of us are small potatoes in the scheme of things and are not celebrities or Political Big Shots. An education uses the same books no matter where one goes . . therefore it's the quality of the student that matters, not the Tier of University.
suming
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Re: general opinion on how we are doing

Post by suming »

At some point you may want to deal with the real estate issue. That will result in a big increase in your taxable holdings.
I don't know why the real estate will result in a big increase in the taxable holdings. The real estate is cash-in-flow from the rental income, isn't it?
larsdad
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Re: general opinion on how we are doing

Post by larsdad »

DiscoBunny1979 wrote:
Grt2bOutdoors wrote:
crowd79 wrote:I never understood why parents feel the need to save for their child's education. Shouldn't it be the responsibility of their children to fund their own education? You spend money caring and raising them your whole life, provide them with food, warmth, comfort, a car after graduating from high school, etc..... When they become older as teenagers and young adults, they should be taught how to save for school and putting away money during the summer months while working summer jobs. This is how I was raised.
You don't understand because that's not the enviornment in which you were exposed to. Had you grown up in such an enviornment, you could easily understand it. Let's be realistic, a summer job flipping burgers or even interning at a paid job will likely only provide spending money or enough money to purchase some clothing - it's not even enough to pay for one class, let alone a semester or two.
---------------

I"m under the opinion that no one knows the value of money until their own money is put up to risk. that's true of the stock market. And, it's true when going to school. If Mom and Dad are footing the bill, the kids know nothing but a free ride. And I'll make a blanket statement by saying that most that get the free ride won't care much about their studies, just in it to get the piece of paper at the end of 4, 6 or how many years it takes. I know some that have taken the full 8 years to get a PhD - essentially taking their time so that they can get free apartment money, food expense, college tuition, well beyond their adult years until "they" were done. No consideration for the Parents giving them the money.

So, it's my opinion that College should be a shared cost...something like I'll pay for this as long as you pay for that. It should never be 100% paid by the parents or you get nothing but spoiled Adult Kids as Adults. And those "adults" will know nothing about the value of money or how to budget.

Also - what's wrong with Community College for the first 2 years instead of having to put on some kind of show that you're special and should spend a fortune going to a Tier 1 or 2 school? The reality is that most of us are small potatoes in the scheme of things and are not celebrities or Political Big Shots. An education uses the same books no matter where one goes . . therefore it's the quality of the student that matters, not the Tier of University.
+1 Disco Bunny :sharebeer
letsgobobby
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Re: general opinion on how we are doing

Post by letsgobobby »

This tired old argument again? :confused

OP the question asked about whether you have a pension or two is important. But your savings appear to be a ok. And talk about simplicity! ~$500,000 = 97% of portfolio in a single fund definitely wins the sweepstakes. :sharebeer
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MikeWillRetire
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Re: general opinion on how we are doing

Post by MikeWillRetire »

Thanks to everyone for taking the time to reply. I appreciate it. I didn' t mean to start the college debate, but I do enjoy reading your opinions. To answer some of your questions, my wife and I will qualify for a pension, and the combined value will be a minimum of 30k. Also, the rental homes that we inherited are stable and profitable, but we are saving all of the profit for a future maintenance fund. Thanks again.
Calm Man
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Re: general opinion on how we are doing

Post by Calm Man »

crowd79 wrote:I never understood why parents feel the need to save for their child's education. Shouldn't it be the responsibility of their children to fund their own education? You spend money caring and raising them your whole life, provide them with food, warmth, comfort, a car after graduating from high school, etc..... When they become older as teenagers and young adults, they should be taught how to save for school and putting away money during the summer months while working summer jobs. This is how I was raised.
Crowd, if you don't understand why parents feel this way, maybe you aren't a parent. No 18 year old is in position anymore to pay for college no matter how much they work, if you are talking about a good state or private school. Yes, they can borrow, but it s a lot. Most, but not all, parents delight in paying for their children's education to the extent that they can or at least leaving the child with as little debt as possible. It is in a similar vein that parents desire to leave inheritances to children rather than spending every dime.
Calm Man
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Re: general opinion on how we are doing

Post by Calm Man »

DiscoBunny1979 wrote:
Grt2bOutdoors wrote:
crowd79 wrote:I never understood why parents feel the need to save for their child's education. Shouldn't it be the responsibility of their children to fund their own education? You spend money caring and raising them your whole life, provide them with food, warmth, comfort, a car after graduating from high school, etc..... When they become older as teenagers and young adults, they should be taught how to save for school and putting away money during the summer months while working summer jobs. This is how I was raised.
You don't understand because that's not the enviornment in which you were exposed to. Had you grown up in such an enviornment, you could easily understand it. Let's be realistic, a summer job flipping burgers or even interning at a paid job will likely only provide spending money or enough money to purchase some clothing - it's not even enough to pay for one class, let alone a semester or two.
---------------

I"m under the opinion that no one knows the value of money until their own money is put up to risk. that's true of the stock market. And, it's true when going to school. If Mom and Dad are footing the bill, the kids know nothing but a free ride. And I'll make a blanket statement by saying that most that get the free ride won't care much about their studies, just in it to get the piece of paper at the end of 4, 6 or how many years it takes. I know some that have taken the full 8 years to get a PhD - essentially taking their time so that they can get free apartment money, food expense, college tuition, well beyond their adult years until "they" were done. No consideration for the Parents giving them the money.

So, it's my opinion that College should be a shared cost...something like I'll pay for this as long as you pay for that. It should never be 100% paid by the parents or you get nothing but spoiled Adult Kids as Adults. And those "adults" will know nothing about the value of money or how to budget.

Also - what's wrong with Community College for the first 2 years instead of having to put on some kind of show that you're special and should spend a fortune going to a Tier 1 or 2 school? The reality is that most of us are small potatoes in the scheme of things and are not celebrities or Political Big Shots. An education uses the same books no matter where one goes . . therefore it's the quality of the student that matters, not the Tier of University.
Disco bunny, without wishing to be disrespectful, many people, I among them, would do not benefit from attending community college as opposed to a full 4 year college. I did not avoid community college to "put on some kind of a show" but rather to obtain a good college degree in 4 years and become a doctor. There was no intent on my part of any of teh classmates or colleagues I have had to be celebrities or political big shots.I find your thoughts to be either naive, provocative for no good point, or something that I cannot explain or care to state.
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Pennstateclj1
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Re: general opinion on how we are doing

Post by Pennstateclj1 »

bdpb wrote:At this age and these tax rates you should be contributing tax deductible 23k to both TSP.
As a fellow fed, I agree with this.

$23k each to TSP- $46,000 between you.
$6,500 each to ROTHS- $13,000 between you.

That's $59,000 before you should consider college stuff.

You say they're in high school, how long do they have until college?

If you can focus on maxing the above accounts, and paying off the 1.99% HEL in 3 years, you'll presumably have enough cash flow to pay out of pocket for college costs while not fully scaling back on retirement contributions.

My parents paid for my college, and it was a huge blessing. However, I had no credit history, so you might want to let them take out some sort of student loan even if you pay it off, to establish a credit history. My first car loan was 6.25% with a gov job, so that kind of hurt me. I did have a credit card that I paid off monthly, but that didn't matter, they wanted an installment loan of some sort.
YDNAL
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Re: general opinion on how we are doing

Post by YDNAL »

crowd79 wrote:I never understood why parents feel the need to save for their child's education.
Everything in moderation.
  • If parents fund college for their children and don't save for their own retirement needs.... not a great thing.
  • Here, OP is saving $33.4K (including match) for retirement and $25K for College (separately).
    MikeWillRetire wrote:Contributions:
    $11.7k His TSP and $5k matching, annual
    $11.7k Her TSP and $5k matching, annual
    Also saving about $25k per year in bank accounts for future college costs for our two children. The oldest will be entering college in 1.5 years, the youngest in 3.5 years.
  • My suggestion is to minimally "max-out" TSP contributions.
MikeWillRetire wrote:Age: 50
Desired Asset allocation: 50% stocks/50% bonds

Current retirement assets (mid six figures):
Taxable:
3% cash (in addition to emergency funds)
1% savings bonds

Our combined TSP (federal version of 401k):
96% Lifecycle fund L2020 (currently 37% government securities, 7% fixed income index, 28% common stock index, 9% small cap index, and 15% international stock index)
MikeWillRetire wrote:To answer some of your questions, my wife and I will qualify for a pension, and the combined value will be a minimum of 30k. Also, the rental homes that we inherited are stable and profitable, but we are saving all of the profit for a future maintenance fund. Thanks again.
Mike, a mid $xxx,xxx portfolio plus pension plus rental real estate puts you in a good position. We don't know very much about your personal requirements when you retire - a very important number. My suggestion is to put together a "retirement budget" and see how much is covered by Pensions ($30K?), Social Security (estimate), and Rental Net Income.
  • Whatever is not covered comes from savings. That number (whatever) should be multiplied by 30 times (minimally 25x) to make sure that you are relatively OK.
  • Investing in L2020 Fund is perfectly fine.
  • That's all!
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
Grt2bOutdoors
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Re: general opinion on how we are doing

Post by Grt2bOutdoors »

Calm Man wrote:
DiscoBunny1979 wrote:
Grt2bOutdoors wrote:
You don't understand because that's not the enviornment in which you were exposed to. Had you grown up in such an enviornment, you could easily understand it. Let's be realistic, a summer job flipping burgers or even interning at a paid job will likely only provide spending money or enough money to purchase some clothing - it's not even enough to pay for one class, let alone a semester or two.
---------------

I"m under the opinion that no one knows the value of money until their own money is put up to risk. that's true of the stock market. And, it's true when going to school. If Mom and Dad are footing the bill, the kids know nothing but a free ride. And I'll make a blanket statement by saying that most that get the free ride won't care much about their studies, just in it to get the piece of paper at the end of 4, 6 or how many years it takes. I know some that have taken the full 8 years to get a PhD - essentially taking their time so that they can get free apartment money, food expense, college tuition, well beyond their adult years until "they" were done. No consideration for the Parents giving them the money.

So, it's my opinion that College should be a shared cost...something like I'll pay for this as long as you pay for that. It should never be 100% paid by the parents or you get nothing but spoiled Adult Kids as Adults. And those "adults" will know nothing about the value of money or how to budget.

Also - what's wrong with Community College for the first 2 years instead of having to put on some kind of show that you're special and should spend a fortune going to a Tier 1 or 2 school? The reality is that most of us are small potatoes in the scheme of things and are not celebrities or Political Big Shots. An education uses the same books no matter where one goes . . therefore it's the quality of the student that matters, not the Tier of University.
Disco bunny, without wishing to be disrespectful, many people, I among them, would do not benefit from attending community college as opposed to a full 4 year college. I did not avoid community college to "put on some kind of a show" but rather to obtain a good college degree in 4 years and become a doctor. There was no intent on my part of any of teh classmates or colleagues I have had to be celebrities or political big shots.I find your thoughts to be either naive, provocative for no good point, or something that I cannot explain or care to state.
+1 and thank you for stating the obvious.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
stan1
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Re: general opinion on how we are doing

Post by stan1 »

Pensions are at least $30K? That seems low for your 28% tax bracket even if you are both FERS (unless you don't have a lot of years of service and have rolled prior 401Ks into the TSP accounts). (I'm assuming you are FERS -- very few CSRS under the age of 50 these days).

You might want to review your estimate.
http://www.opm.gov/retire/pre/fers/computation.asp

With two federal pensions and mid six figures in assets at age 50, you can afford to help pay for your kids education unless you have some crazy high expenses -- although I would encourage them to contribute some of their own earnings for living expenses. Hopefully they are appreciative :wink:

Lifecycle 2020 fund is an excellent choice for you.
Warning: I am about 80% satisficer (accepting of good enough) and 20% maximizer
livesoft
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Re: general opinion on how we are doing

Post by livesoft »

Have you driven your income taxes to less than 10% of gross income?
See for example http://www.bogleheads.org/forum/viewtopic.php?t=79510
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MikeWillRetire
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Re: general opinion on how we are doing

Post by MikeWillRetire »

Stan1,
Yes, the pensions are low for FERS, but we've spent more than a third of our careers in the private sector before moving to government. I'm glad for the private sector experience, but I didn't earn any retirement benefits then. Thanks for your comments.
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Peter Foley
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Re: general opinion on how we are doing

Post by Peter Foley »

In response to my comment about "wanting to deal with the real estate issue,"
suming wrote:
I don't know why the real estate will result in a big increase in the taxable holdings. The real estate is cash-in-flow from the rental income, isn't it?
I'm age 62 and have owned rental real estate almost my entire adult life. Real Estate requires maintenance and I am getting less able and inclined to do the majority of it myself. In addition, at some point, many individuals will want to simplify their life (and investment holdings). I'm simply trying to make the OP aware that such a day might arrive for them too. Perhaps "issue" was a poor choice of words on my part as their real estate is currently doing fine. Managing real estate from a distance is no small task if they are facing that reality.

The sale of investment real estate will be a capital gain and will increase the OP's taxable funds availabe for retirement. They currently have only 4% in taxable so they have little flexibility to control taxes when they start withdrawing funds for retirement spending.
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MikeWillRetire
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Re: general opinion on how we are doing

Post by MikeWillRetire »

Peter,
We are lucky that the two houses are a short drive away. We were able to do most of the work getting one of them ready for renting. Now that they are rented, we have a management company handling them. They are my recently deceased in-laws properties, so my wife is emotionally attached to them for now. She won't want to sell them anytime soon. But in the future, I agree that we will simplify and sell them.
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