Transitioning to retirement/renting

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Topic Author
Workinghard
Posts: 372
Joined: Fri Apr 04, 2014 4:56 am

Transitioning to retirement/renting

Post by Workinghard »

I've been AWOL for awhile, but this is the first place I turn to for advice. Not sure how much detail you need, so I'll start off sparse and add as needed.

I'm recently retired at 59. My husband,65, is currently on short term disability but will be going back to work soon. More than likely, he'll only work another month or so.

Our current portfolio is about 51% index stock funds and 49% bonds/cash. We'll net about $270k from the sale of our house. Our NW is in the low seven figures. I'll start SS at 62;my husband will file on mine but wait until age 70 for his. We also get a pension of about $10k a year. In 5 years, SS/pension will be more than our current expenses.

I plan on using the money from the house to bridge the years until SS leaving our other investments intact. We'll do Roth IRAs this year and start doing IRA conversions up to the 15% tax bracket.

I'm not sure what to do with the lump sum. A CD ladder? Something else?

We have around 50k cash. We're planning on getting a new vehicle next year and helping with college,15k each, for two grandchildren in 2017 and 2018.
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Dutch
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Re: Transitioning to retirement/renting

Post by Dutch »

It sounds like you are in terrific financial shape, and you should have no financial problems in retirement. I would just park the proceeds of the sale of your house in a (bank) savings account.
johnra
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Joined: Sun Dec 28, 2014 12:07 pm

Re: Transitioning to retirement/renting

Post by johnra »

Workinghard wrote:...We'll net about $270k from the sale of our house...I'm not sure what to do with the lump sum. A CD ladder? Something else?
I would:
Keep $50K in cash
Put $50K in 1 year CD
Put $50K into total bond ETF (eg AGG) or fund and re-invest the dividends
Put $50K in short term high yield bond ETF (eg SHYG) or fund and re-invest the dividends
Put $70K into index stock fund (put into this over 4-6 months)
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celia
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Location: SoCal

Re: Transitioning to retirement/renting

Post by celia »

Workinghard wrote:Our current portfolio is about 51% index stock funds and 49% bonds/cash. We'll net about $270k from the sale of our house. Our NW is in the low seven figures. I'll start SS at 62;my husband will file on mine but wait until age 70 for his. We also get a pension of about $10k a year. In 5 years, SS/pension will be more than our current expenses.

I plan on using the money from the house to bridge the years until SS leaving our other investments intact. We'll do Roth IRAs this year and start doing IRA conversions up to the 15% tax bracket.

I'm not sure what to do with the lump sum. A CD ladder? Something else?
To clarify, it sounds like you need to bridge the shortfall for 5 years, right?

Will the shortfall for those 5 years total $270k or can you get by on part of it? In 5 years, how much of it should still be left? I ask since this could change the investing suggestions you are looking for. For example, you need to bridge the shortfall using $100k and should have $170k left. Or you need to bridge the shortfall using $250k and should have $20k left.

As you contribute to Roths this year, don't forget that the total you contribute to both of your Roths can't be more than the total Earned Income the two of you earn this year.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
Topic Author
Workinghard
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Joined: Fri Apr 04, 2014 4:56 am

Re: Transitioning to retirement/renting

Post by Workinghard »

celia wrote:
Workinghard wrote:Our current portfolio is about 51% index stock funds and 49% bonds/cash. We'll net about $270k from the sale of our house. Our NW is in the low seven figures. I'll start SS at 62;my husband will file on mine but wait until age 70 for his. We also get a pension of about $10k a year. In 5 years, SS/pension will be more than our current expenses.

I plan on using the money from the house to bridge the years until SS leaving our other investments intact. We'll do Roth IRAs this year and start doing IRA conversions up to the 15% tax bracket.

I'm not sure what to do with the lump sum. A CD ladder? Something else?
To clarify, it sounds like you need to bridge the shortfall for 5 years, right?

Will the shortfall for those 5 years total $270k or can you get by on part of it? In 5 years, how much of it should still be left? I ask since this could change the investing suggestions
you are looking for. For example, you need to bridge the shortfall using $100k and should have $170k left. Or you need to bridge the shortfall using $250k and should have $20k left.

As you contribute to Roths this year, don't forget that the total you contribute to both of your Roths can't be more than the total Earned Income the two of you earn this year.
Celia, the shortfall will be for 5 years but in 3 years we'll pick up ~1K a month when I start SS. I'm thinking that, the pension, and some side money I pick up gets us to around $2500/month. I'm planning on annual expenses of $50k although in reality it's way less, around $38K. However, we do have some big expenses with a new car and college payment. That's around 60k. :( . Our cars are 15 and 17 years old. We'll go down to one vehicle but would like a small SUV for road trips.

Thanks for the reminder about the Roths. We normally contribute in Jan but with my husband having surgery, loss of pay, and possibly not going back to work, we held off. The original plan was for him to work until Medicare age and max out his 401(K) early, but unexpected surgery changed that. So much for plans and yet here I am still trying to plan. Haha.
Topic Author
Workinghard
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Re: Transitioning to retirement/renting

Post by Workinghard »

johnra wrote:
Workinghard wrote:...We'll net about $270k from the sale of our house...I'm not sure what to do with the lump sum. A CD ladder? Something else?
I would:
Keep $50K in cash
Put $50K in 1 year CD
Put $50K into total bond ETF (eg AGG) or fund and re-invest the dividends
Put $50K in short term high yield bond ETF (eg SHYG) or fund and re-invest the dividends
Put $70K into index stock fund (put into this over 4-6 months)
Thanks for the suggestions, Johnra. Interesting that you broke it down into $50K increments which is what I was thinking of for each year but hadn't gone further than that. We do have the additional 60k "big" expenses over the next two years but technically I could cover that with current cash or shuffling things around.
Topic Author
Workinghard
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Re: Transitioning to retirement/renting

Post by Workinghard »

Dutch wrote:It sounds like you are in terrific financial shape, and you should have no financial problems in retirement. I would just park the proceeds of the sale of your house in a (bank) savings account.
Not sure one ever feels like they're in "terrific financial shape" but the sale of the house has helped. Plus we avoid the new roof and other repairs that are coming up.
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celia
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Re: Transitioning to retirement/renting

Post by celia »

Workinghard wrote:Celia, the shortfall will be for 5 years but in 3 years we'll pick up ~1K a month when I start SS. I'm thinking that, the pension, and some side money I pick up gets us to around $2500/month. I'm planning on annual expenses of $50k although in reality it's way less, around $38K. However, we do have some big expenses with a new car and college payment. That's around 60k.
So, for the next 5 years your projected income is: $30k (12*2500), $30k, $30k, $42k (incl SS), $42k.
Your shortfall is: $20K, $20k, $20k, $8k, $8k plus the 60k for college/car. You would then need $136k fairly liquid and secure. That could go in a bond fund or bank CD. The remaining $134k that is not needed for the next 5 years could be invested the same as the rest of your portfolio.

Do you still feel comfortable with a 50/50 stock/bond allocation in retirement if the stock market should drop? I'm trying to see if you think you should increase your bond allocation to make your portfolio a little more conservative. Did you sell anything in 2008 because you were worried?
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
Clive
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Joined: Sat Jun 13, 2009 5:49 am

Re: Transitioning to retirement/renting

Post by Clive »

In 5 years, SS/pension will be more than our current expenses.
So you've moved from a Talmud, somewhat around a third each in land (home), business (stocks) and reserves (bonds) ... to something else. With a home you've liability matched all future 'rent'. Selling a home and investing the proceeds elsewhere and that something else has to ideally see total returns that compare to house price appreciation + gross rental yield.

I'd have been inclined to have stayed put, and used liquid assets (stocks/bonds) to fund the 5 years before SS/pension rose to cover expenses. Drawing down from whichever had gained the most/lost the least each year from stocks or bonds.
Topic Author
Workinghard
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Re: Transitioning to retirement/renting

Post by Workinghard »

celia wrote:
Workinghard wrote:Celia, the shortfall will be for 5 years but in 3 years we'll pick up ~1K a month when I start SS. I'm thinking that, the pension, and some side money I pick up gets us to around $2500/month. I'm planning on annual expenses of $50k although in reality it's way less, around $38K. However, we do have some big expenses with a new car and college payment. That's around 60k.
So, for the next 5 years your projected income is: $30k (12*2500), $30k, $30k, $42k (incl SS), $42k.
Your shortfall is: $20K, $20k, $20k, $8k, $8k plus the 60k for college/car. You would then need $136k fairly liquid and secure. That could go in a bond fund or bank CD. The remaining $134k that is not needed for the next 5 years could be invested the same as the rest of your portfolio.

Do you still feel comfortable with a 50/50 stock/bond allocation in retirement if the stock market should drop? I'm trying to see if you think you should increase your bond allocation to make your portfolio a little more conservative. Did you sell anything in 2008 because you were worried?
Thanks for your patience, Celia, with my lack of clarity. Once my husband quits working, we'll have about $1500 month coming in. In three years that will increase to $2500 income, and two years later with his additional SS the amount will be more than we currently use.

I'm okay with the 50/50, based on the sale of our house and knowing, we'll be "covered" in five years, but certainly not opposed to adjusting it. I have never sold any funds, although I probably should have taken advantage of TLH. However, we never seemed to deviate much from a 5% band.
Topic Author
Workinghard
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Re: Transitioning to retirement/renting

Post by Workinghard »

Clive wrote:
In 5 years, SS/pension will be more than our current expenses.
So you've moved from a Talmud, somewhat around a third each in land (home), business (stocks) and reserves (bonds) ... to something else. With a home you've liability matched all future 'rent'. Selling a home and investing the proceeds elsewhere and that something else has to ideally see total returns that compare to house price appreciation + gross rental yield.

I'd have been inclined to have stayed put, and used liquid assets (stocks/bonds) to fund the 5 years before SS/pension rose to cover expenses. Drawing down from whichever had gained the most/lost the least each year from stocks or bonds.
I know what you're saying, Clive, but we don't need a 4 BR, 3 bath, 3 car garage, pool home on 3/4 of an acre. It's getting to the point we'd need to outsource. Plus taxes and insurance goes up every year and there's big maintenance projects coming up including a roof, resurfacing a pool, etc.

It's also an emotional decision in that we want to be unencumbered. We want the freedom and flexibility to travel. This is where you're probably thinking how are we going to afford that. Due to learning the miles and point game, I have a month's trip in EU, including a 7 Day Western Mediterranean cruise fully funded. The part we did have to pay in cash was funded by new checking/savings accounts and 5% CB cards. For this trip, we're going the luxury route. As far as a rental or apartment, I'm perfectly happy to live in something less than $1k a month and upgrade later when we're more home bound.
Clive
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Re: Transitioning to retirement/renting

Post by Clive »

I know what you're saying, Clive, but we don't need a 4 BR, 3 bath, 3 car garage, pool home on 3/4 of an acre. It's getting to the point we'd need to outsource. Plus taxes and insurance goes up every year and there's big maintenance projects coming up including a roof, resurfacing a pool, etc.
Sounds a good time to be downsizing, with a gap year (or few) between. Investing the proceeds 50/50 stock/bonds seems reasonable - as that's the more neutral in potentially offsetting any differences in house prices between having sold and after the gap years. That said I'm not a great fan of bonds myself viewtopic.php?p=2864659#p2864659

Nice cruise trip you've planned. I did the reverse (live in London), cruised out of Miami after doing the Disney thing - for a week traveling around the Virgin Isles. Living life backwards however as that was in my 20's.

The way I look at it is I'd be lucky to see 90, so total worth dividend by the number of years between then and now = guide figure of drawdown to nothing assuming investments just paced inflation. With that figure to hand then any real gains achieved along the way provides either additional spending money, or builds up a portfolio for longevity/heirs. Or they pick up the existing portfolio if I check out early. Factor in pensions that perhaps come online in later years and that bolsters the available to spend rate (or scales up inheritance accumulation). I retired in my early 40's with a 6 figure sum, but now have a total wealth well into the 7 digits at age 55 (come from a frugal - but happy/content lineage. Irish grandfather on one side who more or less fed the (large) family by living off the land (salmon, pigeon, rabbits, turkey pet each year (until Christmas), mushrooms from local fields, grew vegetables in the garden ....etc); And a English grandparents on the other side who were accustomed to war year rationing, recycling etc.).
Topic Author
Workinghard
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Joined: Fri Apr 04, 2014 4:56 am

Re: Transitioning to retirement/renting

Post by Workinghard »

Clive wrote:
I know what you're saying, Clive, but we don't need a 4 BR, 3 bath, 3 car garage, pool home on 3/4 of an acre. It's getting to the point we'd need to outsource. Plus taxes and insurance goes up every year and there's big maintenance projects coming up including a roof, resurfacing a pool, etc.
Sounds a good time to be downsizing, with a gap year (or few) between. Investing the proceeds 50/50 stock/bonds seems reasonable - as that's the more neutral in potentially offsetting any differences in house prices between having sold and after the gap years. That said I'm not a great fan of bonds myself viewtopic.php?p=2864659#p2864659

Nice cruise trip you've planned. I did the reverse (live in London), cruised out of Miami after doing the Disney thing - for a week traveling around the Virgin Isles. Living life backwards however as that was in my 20's.

The way I look at it is I'd be lucky to see 90, so total worth dividend by the number of years between then and now = guide figure of drawdown to nothing assuming investments just paced inflation. With that figure to hand then any real gains achieved along the way provides either additional spending money, or builds up a portfolio for longevity/heirs. Or they pick up the existing portfolio if I check out early. Factor in pensions that perhaps come online in later years and that bolsters the available to spend rate (or scales up inheritance accumulation). I retired in my early 40's with a 6 figure sum, but now have a total wealth well into the 7 digits at age 55 (come from a frugal - but happy/content lineage. Irish grandfather on one side who more or less fed the (large) family by living off the land (salmon, pigeon, rabbits, turkey pet each year (until Christmas), mushrooms from local fields, grew vegetables in the garden ....etc); And a English grandparents on the other side who were accustomed to war year rationing, recycling etc.).
I gather you've continued to live frugally the last 15 years? It's hard to change habits. After awhile it's the norm and you don't feel deprived at all.It was interesting looking at rentals today. We found some in a gated mobile home park in the $750 range. It's an over 55 community. Nothing fancy but in an area we'd be totally comfortable taking off for our month's vacation in EU and subsequent road trips. One place was freshly painted and new flooring.

I need to go to the thread you posted. Although I have bond funds, I'm not a exactly enamored with them.
dolphintraveler
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Re: Transitioning to retirement/renting

Post by dolphintraveler »

Workinghard wrote: I'll start SS at 62;my husband will file on mine but wait until age 70 for his.
I'm not an expert, but I believe the social security law just changed. I thought you had to be FRA by now (April, 2016) to claim on your spouse's record and let your own accrue to age 70. It's the first bullet that starts "First, if you are eligible as a retiree and as a spouse..." that I'm concerned your plan won't work from the site below:

http://blog.ssa.gov/what-you-need-to-kn ... -benefits/

I'd recommend talking to the SSA to get the real information for your situation.
Clive
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Joined: Sat Jun 13, 2009 5:49 am

Re: Transitioning to retirement/renting

Post by Clive »

Workinghard wrote:I gather you've continued to live frugally the last 15 years? It's hard to change habits. After awhile it's the norm and you don't feel deprived at all.
Certainly don't feel deprived. The kids respect money and we're comfortable/content. More a case of some outwardly express their wealth whereas we're more average in outward appearance. Careful and mindful of money (but not excessively so) rather than flamboyant. Feels about the right balance to us - which is all that matters.
Topic Author
Workinghard
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Re: Transitioning to retirement/renting

Post by Workinghard »

dolphintraveler wrote:
Workinghard wrote: I'll start SS at 62;my husband will file on mine but wait until age 70 for his.
I'm not an expert, but I believe the social security law just changed. I thought you had to be FRA by now (April, 2016) to claim on your spouse's record and let your own accrue to age 70. It's the first bullet that starts "First, if you are eligible as a retiree and as a spouse..." that I'm concerned your plan won't work from the site below:

http://blog.ssa.gov/what-you-need-to-kn ... -benefits/

I'd recommend talking to the SSA to get the real information for your situation.
Yes, it has changed, but my husband who is 65 will be getting part of my SS (once I start) until he's 70. Thus potentially leaving his larger survivorship amount for me.
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