Wanting to know if this financial situation is feasible

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zippy69
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Wanting to know if this financial situation is feasible

Post by zippy69 »

This is my first time poster here, but hopefully won't be the last. Here is the situation I need advice for:

Something that my husband and I forgot about - which, at the time, seemed highly unlikely, even improbable - looks like it will be happening. What "this" is: stock options that he had in a startup company look to be realized in 1-2 months, resulting in a cash windfall of about $7.2 million. Whoopee! :happy Now for the question..

For a variety of reasons, I believe that we will be getting divorced. I further believe this will be amicable on both of our parts. (No need to delve into the marital aspect of this scenario for which I need advice.) We have 3 kids, one in their first year of college and twins about to start high school. What I would expect to happen is that we pay off the small debts that we have and set aside money for the 3 kids' college educations. How much would we need to cover those - would $125,000 per kid be sufficient for that?

Once done with that, we would split the remainer. I imagine that would leave us around $2.5 million each (after taxes and the above taken care of). I expect to relocate back to the NEOH area to live, with my kids. I would plan on spending around $500,000 initially - to cover a home, a new car, furniture and stuff for the home, and take the kids on a great vacation, leaving around $2M. I am 44.

Would that be enough to live on, modestly, for the rest of my life? I know it would have to be invested somehow - let me say I am *very* conservative and NOT a risk taker at all. I know I would have to account for health insurance, monthly expenses, etc. This is what I'm trying to determine if this is doable.

Any advice and guidance would be helpful. What my husband and I are facing would be an answer to many prayers, on so many levels.
livesoft
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Re: Wanting to know if this financial situation is feasible

Post by livesoft »

It might work, but I don't think so. The reason I say so, is that the $500,000 house and junk in NEOH would require upkeep, prop taxes, etc. It also seems quite expensive for that area. If you had written that you were buying a $250,000 house I would change my mind.

I think the $125K each for college could be OK, but it could be too low by a factor of 2. Maybe compromise and put away $200K each.

You can try to run some numbers through the calculator http://www.firecalc.com
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Jay69
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Re: Wanting to know if this financial situation is feasible

Post by Jay69 »

The big question is what do you need/want to live on/year for your modest life style? My modest life style is likely not your modest life style.

I think the $125,000/kid for college is more then generous, if they blow thru that what's the worst that can happen, they need to get a job and a pony up to the college bar.

Are you thinking of doing something work wise at all, part time etc.?
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Topic Author
zippy69
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Re: Wanting to know if this financial situation is feasible

Post by zippy69 »

I would be looking in certain suburbs for the best school district for my kids; the homes in that area aren't too cheap. I'm quite familiar with that area as that's where I grew up. I know there will be property taxes but we need a place to live, and at least I wouldn't have a mortgage.

Ok so maybe $150 per kid for college expenses...
Luke Duke
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Re: Wanting to know if this financial situation is feasible

Post by Luke Duke »

zippy69 wrote:This is my first time poster here, but hopefully won't be the last. Here is the situation I need advice for:

Something that my husband and I forgot about - which, at the time, seemed highly unlikely, even improbable - looks like it will be happening. What "this" is: stock options that he had in a startup company look to be realized in 1-2 months, resulting in a cash windfall of about $7.2 million. Whoopee! :happy Now for the question..

For a variety of reasons, I believe that we will be getting divorced. I further believe this will be amicable on both of our parts. (No need to delve into the marital aspect of this scenario for which I need advice.)
I think that the odds of an amicable divorce probably changed drastically after the windfall.
Topic Author
zippy69
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Re: Wanting to know if this financial situation is feasible

Post by zippy69 »

Well when I say modest lifestyle.. I mean no extravagant "round the world" kind of vacations, but nice vacations a few times a year; live comfortably, not to worry about stuff. With no mortgage or car payments, in my mind it seems possibly doable, but I don't have any experience with this kind of thing and I want to have a plan, I don't want to have overlooked something. And my husband (future ex) would be kicking in for the kids' expenses...

As for the future divorce, I don't think so... it has been talked about abstractly and both of us would be happier, that much I know.
livesoft
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Re: Wanting to know if this financial situation is feasible

Post by livesoft »

There are many divorced women and widows with kids in my neighborhood. They almost all work at least part-time to bring in some money and satisfy the self-esteem thing. They are living rather frugally. I think they were all surprised at how much it costs at this stage of their lives.

So what ARE your expenses? What would be your expenses? You don't have to answer, but I would urge some caution and belt-tightening in the early stages until you have good handle on all this. I am guessing that if you had a good handle on this, that you would not have posted this as your first question on the forum.
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Meg77
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Re: Wanting to know if this financial situation is feasible

Post by Meg77 »

Assuming you actually do end up splitting half of your husband's stock options and actually do have $2.5MM leftover after taxes, I do not think you have enough to live off unless you are prepared to live extraordinarily modestly - particularly for that region. To answer your question, $2MM is enough to comfortably provide approximately $60,000 a year in income for 30 years. That assumes a 3% withdrawal rate, which is generally considered to be safe.

HOWEVER, Most studies of acceptable withdrawal rates on portfolios assume a 30 year time horizon (since they are analyzing retirement spending and assuming people who are in their 60s and probably living into their 90s). You could easily live another 50 years. If I were planning to retire in my 40s I wouldn't be comfortable withdrawing more than 1.5% or 2% of my portfolio each year, which would put you at around $40K per year - before taxes, investment fees, etc. If you plan to live off that amount (and of course millions of Americans do), then I think you could be OK.

Still, what exactly would you do with the second half of your live if you don't work at all? I think it might be fine to take time off until your kids are all out of the house, but there is no reason you should try to live off that money entirely. Work provides social interaction, a sense or purpose, and added financial comfort - particularly to single adults with no kids at home. Find some part time work at least and try to just let your portfolio grow for a decade.
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HomerJ
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Re: Wanting to know if this financial situation is feasible

Post by HomerJ »

Most people use a rule-of-thumb that says withdrawing 4% a year will make your money last 99% of the time through a 30-year retirement.

However, you're "retiring" at 44, so 3% is probably the most you should take out for the first 10 years or so...

3% of $2 million is $60,000 a year...

Having your house paid off helps a LOT, but do you think you can support your kids, pay property taxes, go on vacations etc. on 60k a year?

You need to figure out what you spend now... That should help you figure out how much you need.

I'm thinking you will need to get a job to supplement your income if you want to live in a high cost of living area. Where is NEOH?

And I certainly hope your ex-husband doesn't try to change the deal to get more than half.
SamB
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Re: Wanting to know if this financial situation is feasible

Post by SamB »

I initially budgeted $80K for college for my daugher. It turned out to be more like $250K. There is nothing unusual about this variation. In-state versus out-of-state, public versus private, not being able to make up your mind about your direction as to major, etc.

I would think of $2M as transition money to start a new career. There are too many unknowns, financial and otherwise, to think that you can even determine what fixed sum will suffice for the rest of your life. Even if you just took the dividend plus interest yield and it amounted to say, 2.5%, the resulting gross $50K per year would in no way suffice.

In short, take some of the $2M, go back to school, whatever, to start a new career. Manage the $2M to provide for a retirement some time in your 60's. You are not there yet.

Additionally, early retirements are far riskier than late ones. The obvious source of uncertainty is just the time that you have left to live. Risk grows with time. The range of possible outcomes widens; it does not narrow. I would not feel comfortable retiring at age 44 with $2M even if I lived in the local trailer park.
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zippy69
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Re: Wanting to know if this financial situation is feasible

Post by zippy69 »

In all likelihood, at some point in the future, I would return to the workforce, somehow, but since I didn't finish college after meeting my husband to be, I would need to finish my schooling first. That said, the last 8+ years of my life have been extremely difficult and stress filled. I need, and deserve, some time to enjoy being with my kids (before they leave for college), and just to enjoy life, after being worried and so unhappy for so long. I want my kids to see me as a happy person; they were so young when everything started going badly that I don't think they remember me being carefree and happy. I've realized lately that life is short, and time goes by too quickly.. I will never get this time back with my kids. I want this time with them, unencumbered, more than anything. In 4 short years they'll be on their way to making their own lives and that's time enough for me to start embarking on a future of my own.
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HomerJ
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Re: Wanting to know if this financial situation is feasible

Post by HomerJ »

zippy69 wrote:In all likelihood, at some point in the future, I would return to the workforce, somehow, but since I didn't finish college after meeting my husband to be, I would need to finish my schooling first. That said, the last 8+ years of my life have been extremely difficult and stress filled. I need, and deserve, some time to enjoy being with my kids (before they leave for college), and just to enjoy life, after being worried and so unhappy for so long. I want my kids to see me as a happy person; they were so young when everything started going badly that I don't think they remember me being carefree and happy. I've realized lately that life is short, and time goes by too quickly.. I will never get this time back with my kids. I want this time with them, unencumbered, more than anything. In 4 short years they'll be on their way to making their own lives and that's time enough for me to start embarking on a future of my own.
I think that's a great goal. You just need to get a handle on how much you currently spend each month on electricity, food, cable, Internet, insurance, property taxes, etc.

If you moved to a low-cost area of living, $2 million with a paid-off house would be plenty... If you move someplace expensive, it probably will not be. Where is NEOH?

Maybe you move to the area where you grew up, and rent for 4 years to get access to the good schools, then move to a lower-cost area where you buy a cheaper house (probably nicer, bigger, AND cheaper)
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zippy69
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Re: Wanting to know if this financial situation is feasible

Post by zippy69 »

NEOH is Northeast Ohio.. Cleveland area. Where most of my family and friends still live, my kids have grown to love it as much as I have. No digs at my former hometown, please.. Cleveland has ALOT going for it!
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Re: Wanting to know if this financial situation is feasible

Post by niceguy7376 »

zippy69 wrote:Well when I say modest lifestyle.. I mean no extravagant "round the world" kind of vacations, but nice vacations a few times a year; live comfortably, not to worry about stuff. With no mortgage or car payments, in my mind it seems possibly doable, but I don't have any experience with this kind of thing and I want to have a plan, I don't want to have overlooked something. And my husband (future ex) would be kicking in for the kids' expenses...
WOw, if the above is modest lifestyle, I am definitely living in a poor lifestyle. if the kids expenses are being take care by their dad, what exactly are your expenses now that the house and car are paid and you do not plan on working. he already has some money in 529 and he will take care of all remaining educational expenses?

so all the prev years are now considered stress filled once the poor (ex) hubby found out that he has a 7.2 mil windfall.
SDBoggled
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Re: Wanting to know if this financial situation is feasible

Post by SDBoggled »

Hi,

Just a thought, I am just checking that you have correctly factored in tax. I expect something like 50% to disappear (but then I live in CA).

Wishing you all the best.
Calm Man
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Re: Wanting to know if this financial situation is feasible

Post by Calm Man »

OP, are you planning on living on your divorce settlement for your whole life or are you going to go to work? That would have a major effect on the planning.
wilked
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Re: Wanting to know if this financial situation is feasible

Post by wilked »

I just took a look at what you can buy for $500K in greater Cleveland area...looks like 3500 - 6000 sq ft. You sure you need this much house when you are a few years removed from all kids out of the house?
leonard
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Re: Wanting to know if this financial situation is feasible

Post by leonard »

A lot of qualitative stuff in these posts, but the reality is that you need to develop a specific budget of all your anticipated expenses, plus additional for unanticipated emergencies. Once you have a full budget - project it out for the next 10 years. Then project out how much you can take out of your nest egg and see if you are covered.

Also, $7.5m in stock options - having your portion after lawyers fees and taxes be $2.5m seems like an optimistic starting point. And, really your net starting lump sum investable amount is the crux of the whole plan. So, until that number becomes a tangible, actual, real number - all of this discussion is tenuous at best.

So, I suggest firing up excel and defining a detail budget and see what your real dollar requirements are for the next 10-20 years. Then, wait to find out what your portion of the option proceeds would be to plug that in.

EDIT: I'll add one more thing. What flexibility do you really have to downsize your life style or get another job - if you realize your plan is underfunded? I think that's another key consideration. Are you willing to cut unnecessary expenses, downgrade to a mid or lower tier condo or apartment if the finances don't work out? I think this factors in to how risky your plan is and how willing you are to accommodate risk. Low tolerance to cut expense and downsize means much higher risk to the plan - in my opinion.
Last edited by leonard on Tue Feb 18, 2014 1:07 pm, edited 1 time in total.
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Boglenaut
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Re: Wanting to know if this financial situation is feasible

Post by Boglenaut »

zippy69 wrote:NEOH is Northeast Ohio.. Cleveland area. Where most of my family and friends still live, my kids have grown to love it as much as I have. No digs at my former hometown, please.. Cleveland has ALOT going for it!
Ohio used to have a very low inheritance tax threshold. They got rid of it altogether, so rich people (or even a lot of average people) no longer need to leave the state to die.

There are plenty of other taxes though.
TFinator
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Re: Wanting to know if this financial situation is feasible

Post by TFinator »

leonard wrote:A lot of qualitative stuff in these posts, but the reality is that you need to develop a specific budget of all your anticipated expenses, plus additional for unanticipated emergencies. Once you have a full budget - project it out for the next 10 years. Then project out how much you can take out of your nest egg and see if you are covered.

Also, $7.5m in stock options - having your portion after lawyers fees and taxes be $2.5m seems like an optimistic starting point. And, really your net starting lump sum investable amount is the crux of the whole plan. So, until that number becomes a tangible, actual, real number - all of this discussion is tenuous at best.

So, I suggest firing up excel and defining a detail budget and see what your real dollar requirements are for the next 10-20 years. Then, wait to find out what your portion of the option proceeds would be to plug that in.
This. How can you know if you can retire if you don't know how much you'll be spending? Even with $10M in the bank, if you realize your yearly spending is $1M, it's not going to last long! That's hyperbole, but knowing if $2.5M is going to last 40 years takes very careful consideration and planning.
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Re: Wanting to know if this financial situation is feasible

Post by leonard »

TFinator wrote:
leonard wrote:A lot of qualitative stuff in these posts, but the reality is that you need to develop a specific budget of all your anticipated expenses, plus additional for unanticipated emergencies. Once you have a full budget - project it out for the next 10 years. Then project out how much you can take out of your nest egg and see if you are covered.

Also, $7.5m in stock options - having your portion after lawyers fees and taxes be $2.5m seems like an optimistic starting point. And, really your net starting lump sum investable amount is the crux of the whole plan. So, until that number becomes a tangible, actual, real number - all of this discussion is tenuous at best.

So, I suggest firing up excel and defining a detail budget and see what your real dollar requirements are for the next 10-20 years. Then, wait to find out what your portion of the option proceeds would be to plug that in.
This. How can you know if you can retire if you don't know how much you'll be spending? Even with $10M in the bank, if you realize your yearly spending is $1M, it's not going to last long! That's hyperbole, but knowing if $2.5M is going to last 40 years takes very careful consideration and planning.
And, at this point that $2.5M start point is way to optimistic. I personally don't believe that number as a post-tax, post-divorce start point on $7.5M split 2 ways.
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Topic Author
zippy69
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Re: Wanting to know if this financial situation is feasible

Post by zippy69 »

Wow, thank you all so much for your thoughtful replies (sarcasm). So glad I decided to come here to try to get some friendly advice.

First - NONE of you have ANY idea what the last several years of my life have been like, or what I've gone through. You don't know JACK about my husband or what kind of guy he is. And as I said, divorce has been brought up numerous times in the past (by HIM!) albeit in the abstract. This (possible but likely) unexpected windfall, as I said, would answer and solve a lot of problems. Why automatically make ME to be the bad guy? If you knew *any* of the specifics of what I've had to deal with the past 6-8 years, you wouldn't be ragging on my like this.

Second - you don't even know what suburbs I'm considering. Again, I am putting my kids and their education at the top of my list. I don't want to live in a shoebox - at some point in the future, hopefully, my kids and their families will be returning for visits, that is, assuming I get to live that long in the future. I would like a place for them all to stay. On the other hand, I'm not considering multi million dollar palatial estates, which believe me, NE OH has plenty of.

Third - I don't currently live in OH. I live in PA. My husband has mentioned to me what he most likely feels the tax situation would be once his stock options were sold. That is how I arrived at the figure I provided. Optimistic, I don't know.

Fourth - as for expenses and all that, this is what I'm trying to determine. IF I do not have a mortgage/car payment, or any other debt, and I DO feel my husband would provide some small monthly stipend each month for the kids, and IF their college funds are set aside.. and I'm not walking around in designer shoes, holding a $2000 purse, this is what I mean by living "modestly," is this doable? I believe I already answered the question of "will I work in the future?" The answer is yes.. once my kids are grown and off to college, I will focus on that. For now I want some quality time with my kids, to make up for the last 6-8 years. They deserve some fun. And so do I.
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Re: Wanting to know if this financial situation is feasible

Post by Jack FFR1846 »

Please go online and survey a few colleges that you feel your kids may possibly attend. You can go to almost any college website and find the "cost to attend" in $/yr. Having a son who is going to a second tier technical college in Boston at a total cost (tuition/room/board) of $44k, unless you're counting on merit scholarships, I don't see where an incoming freshman in high school will get past their second year on $125k unless you're planning on a state school.

Add above normal inflation, but I'll pick a few schools close to me that you may have heard of:

Northeastern: $55,296 (and this is a 5 year school)
Boston College: $60,950
Worcester Polytechnic Institute: $59,896
Northwestern: $63,228
UCLA: $55,293
University of Virginia (average major): $51,000

Add travel costs. Yes, I understand that one can shop around for a better deal or go 2 years to community college. But I do believe that people often do not realize what college costs are today. Even some of the college funding seminars I've gone to over the last year at my son's high school have put shock into parents' eyes, thinking that the $5k per year tuition that they got 25 years ago was still what they expected to pay. Also, remember that the vast majority of aid is in the form of unsubsidized loans which are at horrible rates.
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Re: Wanting to know if this financial situation is feasible

Post by leonard »

zippy69 wrote:Third - I don't currently live in OH. I live in PA. My husband has mentioned to me what he most likely feels the tax situation would be once his stock options were sold. That is how I arrived at the figure I provided. Optimistic, I don't know.
But, you need to know. The whole feasibility of your plan revolves around it. So, consult your personal lawyer and your personal (not your joint) CPA. Present the facts. And, get assistance estimating what the lump sum might be.

And, good advice is often tough advice, not necessarily advice we want to hear. On this forum - you aren't going to get overly optimistic advice - because it does not serve you. You will get realistic advice.

Seems you think some of the tone of the posts above were not helpful or were blaming you. I didn't see that for one - so I would suggest maybe this is more to do with your reaction to it - than anything folks offered above.
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Ged
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Re: Wanting to know if this financial situation is feasible

Post by Ged »

TFinator wrote: This. How can you know if you can retire if you don't know how much you'll be spending? Even with $10M in the bank, if you realize your yearly spending is $1M, it's not going to last long! That's hyperbole, but knowing if $2.5M is going to last 40 years takes very careful consideration and planning.
Exactamundo. At age 44 you are planning for 50 years, not 40. Unless you have a huge pile of money, which you don't, there is no way you can be assured that it will last.

Life is too uncertain.
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zippy69
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Re: Wanting to know if this financial situation is feasible

Post by zippy69 »

My kids are great students but I don't see them going to an Ivy league school. I would hope they might get some scholarships as their older brother did (full tuition at a state school). We aren't "upper crust" people so I wasn't really envisioning a hefty private college choice, but who knows.. Anything wrong with a solid state university? Or are those no longer deemed acceptable? I truly don't know what they want out of their future.
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Re: Wanting to know if this financial situation is feasible

Post by Jack FFR1846 »

Another thing came to mind. Is this $7.5M the realized gain? If that is the value of the option upon exercise, it would work against a basis (what you buy the stock for). I once cashed in several million dollars of stock options. Once the basis was applied, I walked away with $70k, which I got to pay income tax on.
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Twins Fan
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Re: Wanting to know if this financial situation is feasible

Post by Twins Fan »

OP, yes we're on the internet here and don't know all the details, but it does look kinda bad when you say things have been so bad for YEARS and you didn't decide to leave until this windfall was realized.

If he is such a peach, I wouldn't just expect the divorce to be so amicable. That could get ugly and you may not get what you expect out of the deal. Who knows? But, I'd say wait and see what the situation is after the divorce is done before planning out the rest of your life. Something about chickens and hatch comes to mind. :D

And, yes you will get a monthly stipend from the ex until the kids graduate high school. It's called child support. :D
BanditKing
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Re: Wanting to know if this financial situation is feasible

Post by BanditKing »

Do you really need to blow $500k there? A nice house in a nice neighborhood can be had for $200k, $30k for a new car (or $20k for a two year old one), and if you must $20k for a crazy vacation assuming no expense spared. Maybe $10k to furnish the new house simply. Toss another $100k into an emergency fund. You have a chance here to simplify your lifestyle. Maybe up until now you've been able to live expensively, but why do it now? With a paid off house and car and no debt, your expenses could be very low.

Both you and your husband could maximize 529s for the kids ($14k/yr each I think - you can direct child support towards that assuming you are going to get it) which should be plenty for the two youngest when they hit college, AND you could put the maximum into a 529 for YOURSELF so that you can draw on it tax-advantagedly when you go back to school down the road.

I guess I can't emphasize enough, $2M may seem like a lot, but it's probably not enough to live extravagantly for the next 40 years or so. Live simple. Let the money work for you so that you have it when you need it.

(Question to others reading here, in order to keep spending in line, would there be any benefit even at OP's younger age to putting this into an annuity? I plunked her age and $2M into a calculator and it say's it would pay out $7,860/mo including full installment refund if she should die early. That's about $94k/yr for life - I don't know if this is inflation adjusted. I dunno just something that occurred to me as a good way to make sure you don't splurge crazy with the windfall and set up a good budget.).
Last edited by BanditKing on Tue Feb 18, 2014 1:40 pm, edited 1 time in total.
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Re: Wanting to know if this financial situation is feasible

Post by Jack FFR1846 »

zippy69 wrote:My kids are great students but I don't see them going to an Ivy league school. I would hope they might get some scholarships as their older brother did (full tuition at a state school). We aren't "upper crust" people so I wasn't really envisioning a hefty private college choice, but who knows.. Anything wrong with a solid state university? Or are those no longer deemed acceptable? I truly don't know what they want out of their future.

Note that my post listed several state schools, but with out of state tuitions. I did that on purpose, because people do often only look at the in-state price even when they don't live there.

There are indeed great state schools. I went to Virginia Tech for grad school and it had (and still has) the best power electronics program in the world. I paid out of state tuition which brings it closer to the price of a private college. If you plan on state schools, look at cost of attendance.
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freebeer
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Re: Wanting to know if this financial situation is feasible

Post by freebeer »

Another point is that Pennsylvania is an equitable distribution state not a pure community property state. IANAL but while if your husband's stock options were granted after the marriage then they are almost certainly going be classified as marital property, if not they could be classified as separate property of your husband and thus not necessarily subject to a 50/50 distribution. And with "equitable distribution" 50/50 isn't necessarily the rule even for marital property. So regardless of your understanding about an amicable divorce you might wish to protect yourself by researching the legal situation carefully.

Good luck and re: your main question, yes I think you definitely have enough to make it although you might want to budget a bit more per kid for college and perhaps a bit less for spending on housing (we have $160K/each allocated for kids that are a couple and a handful of years away from college respectively and expect that might not be quite enough, even leaving aside spendy elite schools).
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Re: Wanting to know if this financial situation is feasible

Post by Steelersfan »

freebeer wrote:Another point is that Pennsylvania is an equitable distribution state not a pure community property state. IANAL but while if your husband's stock options were granted after the marriage then they are almost certainly going be classified as marital property, if not they could be classified as separate property of your husband and thus not necessarily subject to a 50/50 distribution. And with "equitable distribution" 50/50 isn't necessarily the rule even for marital property. So regardless of your understanding about an amicable divorce you might wish to protect yourself by researching the legal situation carefully.
Stock options earned during a marriage in PA are marital property. If the two parties agree on a 50%/50% division then the court is going to be OK with that.

I doubt if the stock options can be transferred to your name so they will remain his asset and he will pay you per your separation agreement. Taxes will be at his tax rate and his residency.

Proceeds are subject to state income tax but PA's income tax rate is a flat 3.07%. Stock options are subject to municipal taxes which might be another 1% or so if he lives in a municipality with one. The top federal rate is now 43.4% so the total tax rate is in the range of 48%. Less taxes, it looks to me like you're going to end up with a little less than $1.9 million. Still a lot of money but short of your expectation.
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Re: Wanting to know if this financial situation is feasible

Post by OAG »

Just to pile on (I really do not mean that) but to continue on the monetary theme of the preceding post. If you then set aside $150K for the 3 children's college funds the $1.9 gets reduced by $225K (I assume you and ex will split the $450K cost), then you spend the $500K for the new home etc., you will have about $1.125K left to set up a emergency fund and invest. Close to $1MM to last 40-50 years. It is not enough unless you go back to work pretty quickly. You should be able to plan on drawing SS benefits on your Ex if he and you are qualified (him by profession, you by length of marriage(10 years). Have you checked that out (I know at 44 year that may not be a priority)? Frankly I suggest some separation of emotions and reality needs to be a major objective for you as I think you have blended them.
OAG=Old Army Guy. Retired CW4 USA (US Army) in 1979 21 years of service @ 38.
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Re: Wanting to know if this financial situation is feasible

Post by roymeo »

Hello Zippy69,

I'm sorry that it looks like ~3 of the posts this far in the thread have been color commentary. That is a pretty high % of noise for our usual forum questions (unless you're asking about your fiance's spending habits, in which case it's a lot higher). I'm not sure how those posters think they're adding anything to the discussion. Hope we can turn that around for you. (I'll also admit that I've been a complete merkin-stealer a time or two on the internet myself.)

So it looks like we have about 3 issues wrapped up in your general question: Windfall management, Early retirement, and divorce. As far as the divorce goes, I'm not sure that I have anything useful to add, other than there's child-support and some possibility of alimony. You'll have to figure out what would be coming in to you via those avenues, I'm not sure that we have much more to add there.

Then you've got a windfall which is leading you to consider early retirement. We're not sure what that windfall amount is really going to end up exactly, but you've been given the standard information about 4% for 30 years, etc. And pointed to firecalc.com which does some monti carlo simulation to try to figure out whether spending $X /year from a portfolio of $Y will 'safely' last for Z years. But one important thing to remember is that this windfall is a one-time deal, so you're not 'in another tax bracket' for more than a year. And then you want to try to preserve this as your main and sometimes sole source of income, so you'll need to work carefully with that.

Which rolls us over to general retirement planning. Much of the advice you've received starts with the base question "what do you need per year to live on?" We're not being mean, we know it's a lot more fun to think of 2.5 million dollars, but especially since your windfall amount is unknown and somewhat modest for what you're describing doing with it, the best place to start is to stop treating it like a special treat and deserved reward and instead treat it as your nest-egg.

--< Speaking of nest-eggs, you didn't mention any other retirement savings. Are there other funds to help bulk this out in retirement accounts that would be split with your husband? >--

We're not sure how large it will be, so whether it ends up 1 or 3 million, with an idea of how much you really require to live on you'll have a better idea on how that compares to a reasonable 2% (or maybe more if firecalc gives you good results over the timeframe you're looking at) withdrawl rate from say 1.5 million. If that base number leaves you with plenty left, then you can add extras, upgrades, etc. Oh yeah, that base will also come in handy to help you figure out how much house you can afford.

I'm outlining the approach to figure out the answer your main question, not giving you a yes or no, because it's very hard to tell from your rough guesses to the amount you'll get, and the rough guesses you're discussing as needing for schooling, housing, perks, etc. Some of the things you've said sound to some to be gratuitous, and it's hard to tell if a $2000 handbag is something you consider to be totally outrageous or only slightly unnecessary but a couple $500 handbags are certainly going to be needed.

Speaking of schooling, we've mentioned reserving the money for the schooling for 3 children, but I believe there may be another person in this scenario that may want some money for a degree to consider as well.

One of the biggest things that spooked me and apparently several other posters was the housing, especially as it starts to intertwine with schooling. Now I live in San Francisco and just wish I could have found something decent without tenants to kick out for the price you are talking about, but I, too, have to question that number. You're justifying it primarily by saying it has to be there for the twins' high-school education. And I think that may be where we start assuming that this means the twins are thus bound for expensive schools. But you've stated that that wasn't really in your planning so far. So I've got to question why their highschool education = $500,000 but college isn't really a concern. The high level of financial sacrifice for the house/school district which may impact your ability to retire on that money is followed by a shoulder shrug about college makes me wonder whether you're really that devoted to education. I don't care what you do, but I think you'll make a wiser decision if you're able to really identify what your selection criteria is. Would a smaller house or a cheaper school district which saves you $100K be better applied to college funding?

Then again, the general advice is that you need to look after yourself, first (plan your retirement), before you start (over)paying for your kids' education (and that includes when housing is purchased to buy into a district). And while my parents certainly helped out, by the time I was done I was working and taking loans with very little coming from my parents, so it's not as if you have to cover all of their costs to anywhere at all...having some skin in the game yourself helps. So you and your husband need to figure out together how much you're willing to pay there. And hey, if you're paying 2-300K more for a house in the right neighborhood, what's he contributing to the twins' highschool education?

I don't have any instant answers for you, but I hope I've helped you in your search for them.

Good luck,

roymeo
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Re: Wanting to know if this financial situation is feasible

Post by Twins Fan »

Here's some more color commentary, but I couldn't help it reading this part...
roymeo wrote: And hey, if you're paying 2-300K more for a house in the right neighborhood, what's he contributing to the twins' highschool education?
From the sounds of it and without knowing how the divorce will end up, it sounds like he will be contributing a couple mil, a nice house, probably a decent chunk of child support, and maybe alimony!

That's a pretty silly question. Are you a divorce lawyer by chance? :D
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Re: Wanting to know if this financial situation is feasible

Post by Jay69 »

zippy69 wrote: First - NONE of you have ANY idea what the last several years of my life have been like, or what I've gone through. You don't know JACK about my husband or what kind of guy he is. And as I said, divorce has been brought up numerous times in the past (by HIM!) albeit in the abstract. This (possible but likely) unexpected windfall, as I said, would answer and solve a lot of problems. Why automatically make ME to be the bad guy? If you knew *any* of the specifics of what I've had to deal with the past 6-8 years, you wouldn't be ragging on my like this. This has nothing to do with how long your cash will survive.

Second - you don't even know what suburbs I'm considering. Again, I am putting my kids and their education at the top of my list. I don't want to live in a shoebox - at some point in the future, hopefully, my kids and their families will be returning for visits, that is, assuming I get to live that long in the future. I would like a place for them all to stay. On the other hand, I'm not considering multi million dollar palatial estates, which believe me, NE OH has plenty of. We a family of four live in a shoe box by many standards and are very happy.

Third - I don't currently live in OH. I live in PA. My husband has mentioned to me what he most likely feels the tax situation would be once his stock options were sold. That is how I arrived at the figure I provided. Optimistic, I don't know. No Comment

Fourth - as for expenses and all that, this is what I'm trying to determine. IF I do not have a mortgage/car payment, or any other debt, and I DO feel my husband would provide some small monthly stipend each month for the kids, and IF their college funds are set aside.. and I'm not walking around in designer shoes, holding a $2000 purse, this is what I mean by living "modestly," is this doable? I believe I already answered the question of "will I work in the future?" The answer is yes.. once my kids are grown and off to college, I will focus on that. For now I want some quality time with my kids, to make up for the last 6-8 years. They deserve some fun. And so do I.We are the same age with two kids, no mortgage, no car payment, live a lower cost area in a $250,000 shoebox, no cable TV or fancy trips, we do spurge on sports fees for the kids and I can say $50,000 per year would be a tight budget. I think the investing part is step #3 or 4 at this point. You need to work on your budget first. btw who said kids deserve some fun, I had lots more fun at my part job then hanging out with my parents when I was in HS! .
"Out of clutter, find simplicity” Albert Einstein
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Re: Wanting to know if this financial situation is feasible

Post by Index Fan »

Another troll thread already?
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Re: Wanting to know if this financial situation is feasible

Post by zippy69 »

Well Romeo (sorry I cannot see your complete user name), you're basically the only one who really responded in a thoughtful manner. Will try to answer some of your questions as best I can.

I was being facetious when I mentioned a $2000 handbag or designer shoes. I'm not that kind of person. And I would be regarding this as a nest egg, NOT a windfall, except in the sense that it would give my/our new life a kickstart. I have NO plans on going out on a "Brewster's Millions" kind of spending spree. The plan would be to get a nice home, furnish it nicely but NOT expensively, get a new car (to replace my 13 year old with 150,000 miles on it - something like a Hyundai Sonata), and that's basically it.

Yes, I do regard education, but I believe I already stated we aren't "uppercrust people" - boarding/prep school, wintering in the Caribbean/summering in the Hamptons kind of people. I guess I haven't made that clear? We both drive cars with over 100K miles and have NEVER taken a lavish vacation of ANY kind. The last real vacation my kids were on was in 2006, to Orlando.

For the record I'm not a divorce lawyer.. If I were I wouldn't be in this predicament. No, to answer other questions - there are NO other savings/retirement, etc funds to worry about. Why? Because my husband made several bad financial and business decisions in the last decade, was out of work for 3 years, and we came damn close to being homeless. So you can imagine that (1) I'm slightly scarred and (2) very conservative with any potential money coming in. NOW does any of this make sense???

And for the last time, I DO have plans on getting myself straightened out (with education and working), once my kids are gone in a few years. You cannot imagine the hells I've experienced, as so many of you seem to be living charmed lives and to that I say - congrats, enjoy. Consider yourselves lucky that you never had to worry every minute because you had no health insurance, or worry about how to make the house payment, etc. It has taken years off my life and I do not exaggerate in saying that. Unlike you all, worrying I'll live to a ripe old age, I feel sure that my life expectancy has been shortened due to the stress I have been under for so long.

In any case, I guess I'll just forget about this thread or trying to get some useful tips, and just - if this pans out - try to figure it out on my own. God knows I'm used to having nobody else to lean on or look to for support. And to the last poster - a troll? No, I'm very real, with very real problems. Thanks for your concern.
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Re: Wanting to know if this financial situation is feasible

Post by SDBoggled »

Hi Zippy 69,

I feel sorry you feel unsupported:

I'm just a numbers driven person (as are many Bogleheads)... so when you ask: "Is this Feasible?", two very critical numbers are:

(1) The lump sum and (2) the expenses. Lots of questions were targeted at getting more confidence at both of these.

Lump Sum
From what we know about taxes --> $2.5m could be a significant overestimate of your initial lump sum and obviously could affect what you can safely draw from it for living. 3% might be a number to start working with.

IMHO People are focused on your house cost estimate because it is a significant % of your initial lump sum (not as judgement) but how to optimize the total value/your desire to fund living. e.g $250,000 less on house might mean $10,000 year more available... and be the difference in feasibility or great vacations or ???

Expenses:
Many bogleheads are very particular about tracking expenses and they can --> at the press of a couple of buttons tell you their annual expenses every year for the last decade. I can't, we earn, save, spend and we have $$$ leftover which we invest/spend... I think the advice is pointing at you getting a very detailed handle on your future estimated expenses. If you are anything like me, the easiest way to do this, would be to identify current expenditure (all credit card/check records) and then start identifying expected changes.

I hope you understand that values with maybe 20% error and descriptions of "modest" do not compute/allow numbers driven folk to answer your question of feasibility. I hope this helps.

Again, I wish you all the best.
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Re: Wanting to know if this financial situation is feasible

Post by freddie »

The stock options might be capital gains. That is still only 2.7 million per person with no state tax. Frankly until the divorce is final of use can say anything. Maybe she gets 50k/yr of alimony for 5 years on top of the assets. Maybe she is going to be eligible for half of his substantial SS in another 20 years. Maybe they have another 2 million in assets to chop up. Maybe they both lawyer up and run up 500k of legal bills. Maybe he decides that his wife should pay for college out of her share.

But yeah 2.5 million is plenty to live modestly. Of course a modest middle class life is living in 250k house and living on like 50k after taxes. You want to live in a 400k house and live on 90k/yr and things get dicey and you better hope you retire into a good stock market (and no with a 40+ year time period you can't just stick all the money in tips)

And with 125k/kid starting school in 4 years, they better be happy with the state school or get a lot of merit scholarship money. This windfall means that you are getting zero need based aid.
Steelersfan wrote:
freebeer wrote:Another point is that Pennsylvania is an equitable distribution state not a pure community property state. IANAL but while if your husband's stock options were granted after the marriage then they are almost certainly going be classified as marital property, if not they could be classified as separate property of your husband and thus not necessarily subject to a 50/50 distribution. And with "equitable distribution" 50/50 isn't necessarily the rule even for marital property. So regardless of your understanding about an amicable divorce you might wish to protect yourself by researching the legal situation carefully.
Stock options earned during a marriage in PA are marital property. If the two parties agree on a 50%/50% division then the court is going to be OK with that.

I doubt if the stock options can be transferred to your name so they will remain his asset and he will pay you per your separation agreement. Taxes will be at his tax rate and his residency.

Proceeds are subject to state income tax but PA's income tax rate is a flat 3.07%. Stock options are subject to municipal taxes which might be another 1% or so if he lives in a municipality with one. The top federal rate is now 43.4% so the total tax rate is in the range of 48%. Less taxes, it looks to me like you're going to end up with a little less than $1.9 million. Still a lot of money but short of your expectation.
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Re: Wanting to know if this financial situation is feasible

Post by clubby »

I don't have much to add except that a) the poster seems to think that taking two lavish vacations per year is living modestly and b) the OP seems to have come on the forum with a real chip on her shoulder. How many times has she mentioned possibly not living a long life due to all the horrendous stress she's been under for 10 years? I got news for you, you haven't cornered the market on stress. Suck it up a little.
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Re: Wanting to know if this financial situation is feasible

Post by HomerJ »

zippy69 wrote:Well Romeo (sorry I cannot see your complete user name), you're basically the only one who really responded in a thoughtful manner.
Really? You didn't find my posts useful at all?

You have to start with your budget... Figure out how much you spend now each month. Until you do that, you won't be able to make any plans. It doesn't have to be exact... Just get rough numbers... Oh, about $1000 a month on food... $200 on cable/internet... $200 electricity/gas... $200 phone bill... $1000 a month for two vacations a year, etc.

You just need a rough idea... $4000 a month? $6000 a month? How much do you spend now... Should give you a decent idea of how much you'll need going forward.
Last edited by HomerJ on Tue Feb 18, 2014 8:52 pm, edited 1 time in total.
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Re: Wanting to know if this financial situation is feasible

Post by Twins Fan »

zippy69 wrote:In any case, I guess I'll just forget about this thread or trying to get some useful tips, and just - if this pans out - try to figure it out on my own. God knows I'm used to having nobody else to lean on or look to for support.
Sorry you didn't hear what you were hoping to hear. But, you came here asking for advice on a completely unknown situation. You're not going to get anything more than a best guess because all the numbers are not known. Things could go any number of ways between now and the time you start house hunting back in Ohio. When you KNOW the situation and numbers, feel free to come back.

Actually, you should hang out here in Bogleheads, read, study, and learn. LOTS of knowledgeable people in here about money, finances, and investing. Gaining knowledge about all that is probably the best thing you can do now, if you expect a lot of money to come your way.
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Re: Wanting to know if this financial situation is feasible

Post by HomerJ »

zippy69 wrote:Consider yourselves lucky that you never had to worry every minute because you had no health insurance, or worry about how to make the house payment, etc. It has taken years off my life and I do not exaggerate in saying that. Unlike you all, worrying I'll live to a ripe old age, I feel sure that my life expectancy has been shortened due to the stress I have been under for so long.
Well I worried about money all the time 20 years ago... so I have some idea what you've gone through (although I didn't have kids depending on me, so your situation was definitely worse than mine)...

On the other hand, I'll never get a $7.2 million stock payout either... so maybe we're even. :)

Kidding aside, I'm sorry you feel slighted. This board is pretty good about giving solid financial advice. I would suggest you read some of the books on the wiki... I highly recommend "The Millionaire Next Door" and the "The Bogleheads Guide to Investing"

http://www.bogleheads.org/readbooks.htm

We're just worried you're going overboard. If you were nearly homeless, and have been broke for a few years, there's no need to jump to a $400k house.... Start out a little smaller or rent first... Go slow.
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Re: Wanting to know if this financial situation is feasible

Post by livesoft »

I think the Tribe Has Spoken: The answer to the question is: This financial situation is NOT feasible.
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Re: Wanting to know if this financial situation is feasible

Post by freddie »

Sure it is. Ignore the divorce, the options, and all that stuff. If you 43 and have 2.5 million dollars, can you retire? Sure. You just have to be happy living in a 300k house and living on 75k/yr. That isn't exactly roughing it. Heck if she only gets 1.5 million she can still have an income of 40k/yr which also isn't exactly roughing it either. Now try to live a 150k/yr lifestyle in either of those situations is likely to lead to trouble.
livesoft wrote:I think the Tribe Has Spoken: The answer to the question is: This financial situation is NOT feasible.
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Re: Wanting to know if this financial situation is feasible

Post by Grt2bOutdoors »

zippy69 wrote:We have 3 kids, one in their first year of college and twins about to start high school. What I would expect to happen is that we pay off the small debts that we have and set aside money for the 3 kids' college educations. How much would we need to cover those - would $125,000 per kid be sufficient for that?

Once done with that, we would split the remainder. I imagine that would leave us around $2.5 million each (after taxes and the above taken care of). I expect to relocate back to the NEOH area to live, with my kids. I would plan on spending around $500,000 initially - to cover a home, a new car, furniture and stuff for the home, and take the kids on a great vacation, leaving around $2M. I am 44.

Would that be enough to live on, modestly, for the rest of my life? I know it would have to be invested somehow - let me say I am *very* conservative and NOT a risk taker at all. I know I would have to account for health insurance, monthly expenses, etc. This is what I'm trying to determine if this is doable.

Any advice and guidance would be helpful. What my husband and I are facing would be an answer to many prayers, on so many levels.
Let's say your kids go to Ohio State since you'll be living in-state that will run around $25K per year- so your $125K number seems right in the ballpark.
Strictly speaking from a financial point of view - it could be very risky to leave all of your money in bank cd's, treasuries and savings accounts - inflation could steadily reduce the purchasing power of those funds, when or if it appears. Investing in equities is equally as risky - your money can grow or it can stay static or it could be subject to violent downdrafts before recovering - this past January the market was down nearly 5%, as of today, the market has nearly recovered all of its losses, sometimes takes alot longer to recover - years.

As a few of the other posters have alluded to, you must estimate how much living moderately will cost you per month in absolute dollars. Living moderately in the NYC area could run a family anywhere from $25K to $50K or higher, depending upon how one defines moderate. A home's cost will be a one time outlay at purchase, but there will be ongoing maintenance and upkeep costs that must be accounted for. Generally speaking, the larger the home, the more those items will cost as well as higher utility bills and depending on how Ohio charges - high or low property taxes. Other items, car insurance, property insurance, an umbrella policy - to protect the assets you will have from others - search the forum on umbrella policies, health insurance, groceries, phone, tv/cable,clothing,personal care. I think those are the main spending categories, there may be others. Have you discussed how much child support you may receive from your spouse? That will likely go until age 18, then the children are either on their own or will be supported by you. Since this is the only source of funds/income, you will have to make it known that it's off-limits, it will not be a source of funds to go on a spring-break fling down in Cabo, etc. (this is a hypothetical, not saying your kids are a certain type or not - peer pressure in school can be influencing). You/family will need this money to survive.
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Re: Wanting to know if this financial situation is feasible

Post by roymeo »

And to your advantage, even if you did go for a $500,000 house, we'll hope that you're able to get that back out of it some day so that money is available when the kids quit living at home/visiting often and you really only need a couple of bedrooms and can downsize. So it's not like that money is GONE, just hard to get at for the first ~10 years.
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Re: Wanting to know if this financial situation is feasible

Post by mnvalue »

I think your next steps at this point are: 1) work as hard as you can on estimating your budget (the expenses side, really) as a single person, assuming you have the kids. Basically, this means research, including tracking your current spending in detail. 2) Ensure that you and your husband consult a CPA to minimize the tax burden on the windfall. Make sure the CPA is aware of the impending divorce. 3) Consult a divorce lawyer. Make sure the lawyer is aware of the impending windfall. 4) Once you get through the windfall and the divorce, you'll understand the size of the nest egg, the custody and child support situation, the alimony situation, and whether you can move to another state with the kids (which follows from the custody situation). Then, you subtract the income from the expenses to find your shortfall. Then it's a question of how feasible it is to maintain that shortfall (and a smaller one once the kids leave the house) on that nest egg.
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Re: Wanting to know if this financial situation is feasible

Post by hq38sq43 »

From a quick review of the advice you've received here I think the best is that you not count on an annual income more than about $60,000 from a portfolio of $3,000,000 and plan accordingly. Many people have blown through much bigger "fortunes" with amazing speed due to improvident spending (usually because of bad advice). The advice you receive here "with the bark on" might seem harsh, but is mostly sound, disinterested financial advice at least as good and probably much better than you are likely to receive elsewhere. The primary goal of most participants here is financial help--not emotional support. I doubt any of us is unsympathetic to your situation, but emotional support is not really our strong suit.

In Chapter 11 of the latest revision of his Only Investment Guide You'll Ever Need, Andrew Tobias updates his advice on What to Do If You Inherit a Million Dollars. This short chapter of a wonderfully readable and wise book on personal money management first published in 1978 is a good introduction to managing a financial windfall. He points out that $1,000,000 in 1978 equates because of inflation to about $3,000,000 now and will not in itself support more than a very modest life style. Unless you plan to get a well paying job or otherwise supplement the income you can reasonably expect from from your prospective divorce settlement, you will surely have to adjust downward the lifestyle you seem to have in mind. Advice to the contrary might be more congenial, but is unlikely to serve you well.

Best wishes,
Harry at Bradenton
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