Advice needed for unusual financial situation

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Jacksright
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Advice needed for unusual financial situation

Post by Jacksright » Mon Nov 11, 2019 1:16 pm

Hello fellow Bogleheads! Long time reader, first time poster here. I love this site and heed its prudent advice often. I'll skip the chase and cut right to the heart of the matter:

I'm 60 yrs. old (a "young" 60!), currently no significant health issues. My wife is 48, and we have two sons, 16 and 14 (yes, I was a late bloomer, and my wife is MUCH more mature than I am!), and thankfully everyone's healthy. We have a portfolio of a little over 1M with Vanguard, with a 70/30 asset allocation. My position in the health care field (therapeutic rehabilitation, nothing like MD or specialist) was recently eliminated. My wife works part time in a similar position, and we've never had a combined income over $78K/year. We have been renting out a condo we own, and we've been using that to pay the mortgage on our permanent residence (condo all paid for). We have about 5 years left of mortgage payments on our house, but that might be extended due to the loss of my income (we had been paying a little more than what was asked for each month). Condo is worth about $300-$350K, and has not been our primary residence for more than 18 years, so we'll be hit with capital gains when we sell it.

I'm pretty sure I can't retire, and I have a good 10 years of work left in me (depending on the work, I guess). I'm not sure if I can semi-retire (work part time) or need to work full time again. We have long re-invested the dividends (about $13K/year) of our mutual funds with Vanguard, but I fear that must change, at least temporarily. Our biggest issue right now is income, and we were wondering if we should put money in a high-yield bond account
for income purposes. We both have IRAs (about 120K in one, 130K in the other), and we have 529s set up with our state for the boys' college tuition. My wife has a 401K (not exactly sure what it's at right now), but I do not.

If I'm leaving out any pertinent information needed, let me know. We've been thinking of adjusting our AA to 65/35 or 60/40 lately. I would appreciate any advice on what my options might be. Thank you.

bampf
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Re: Advice needed for unusual financial situation

Post by bampf » Mon Nov 11, 2019 2:36 pm

I don't know if I would put money in a high yield risk bond fund if I was struggling for income. You get a higher yield due to risk.
My first google search gave me this:

"High-yield bond funds invest in "junk" bonds—lower credit quality corporate bonds that carry a higher-than-market yield.Investors look to high-yield bonds to earn a better return than low-yielding, but safer, government and highly rated corporates. Owning high-yield bonds comes with particular risks unique to this part of the fixed income market. Be sure to understand the product or fund before investing."

That being said, its all about how well you sleep at night. If you can afford to take some risks so you don't have to go back to work, it is perhaps fine. You are a couple years away from social security and healthcare, but, doable I suppose.

Working until I was 70 seems rough. I might look for ways to reduce my expenses first. But, each situation is unique. I wouldn't want to be on the wrong side of a junk bond problem.

Best of luck.

bloom2708
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Re: Advice needed for unusual financial situation

Post by bloom2708 » Mon Nov 11, 2019 2:49 pm

Sorry for the predicament.

How much emergency cash do you have? First off, you need enough cash to pay the bills until you find work. Maybe start with 3 months of expenses.

What is the split between what your wife makes and what you make in the ~$78k income?

Are all your investments in a tax-sheltered account? You are 60, so if you have a Traditional IRA, you can take out "income" to replace your income. You will pay tax on the withdrawal. If you have a 401k, you could roll it over to a Rollover/Traditional IRA. Again, you are over 59.5, so you can take out the income to survive the drop in income.

I would look at this as a temporary setback. Get on LinkedIn. Update your resume. Get out and start applying for jobs. Your work contacts are your best bet.

Is selling the condo a good idea? It might be. That plus your current home mean you have a concentration in real estate. Short term, it probably doesn't make sense to sell in a hurry. Might that $300k look nice in your portfolio? Yes.

It might be a good time to look at your 70/30 allocation. At 60 it might be a bit stock heavy. I realize your wife is younger, but 60/40 might be more prudent.

Don't panic. Take it one month at a time. For most, this is what an "Emergency Fund" is for. 6-12 months of cash to get you through the dips and valleys.

Hopefully others have ideas.
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HomeStretch
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Re: Advice needed for unusual financial situation

Post by HomeStretch » Mon Nov 11, 2019 3:08 pm

Sorry for the job loss.

Are you eligible for unemployment? Is your wife able to work more hours while you job search? Have you reduced expenses wherever possible?

I personally wouldn’t invest in a high-yield bond fund to generate more income. Consider selling the condo and withdrawing as needed from your emergency fund then portfolio until you land a new job. Best of luck.

Ron Ronnerson
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Re: Advice needed for unusual financial situation

Post by Ron Ronnerson » Mon Nov 11, 2019 3:17 pm

Some more info is needed to help figure out how to proceed in your situation.

How much is your wife's income?
How much are your expenses?
Is health insurance covered for you?
How much do you owe on the mortgage and how much are the payments?
You said you have a $1M portfolio. You also mention $250k in IRAs. Is that part of the $1M or additional amount?
How much will you be getting in social security and when?

You should also find out how much is in your wife's 401k.

Since you said your combined income has never been more than $78k per year, I think you may quite possibly be able to retire comfortably (depending on the answers to questions above).

Lalamimi
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Re: Advice needed for unusual financial situation

Post by Lalamimi » Mon Nov 11, 2019 4:49 pm

Can you do some part time work in related field (massage therapy, assisted living therapy, personal trainer/therapist). Have you cut cable, internet, cell phones. Its amazing how to save without trying. Raise rent on the condo if lease is coming up. Kids can mow your lawn, wash cars if used to having it done. I was laid off March 2018 at age 64. Its doable.

EnjoyIt
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Re: Advice needed for unusual financial situation

Post by EnjoyIt » Mon Nov 11, 2019 4:59 pm

What are your yearly expenses? What will your expenses look like after the 16 year old leaves for college? What about after the 14 year old? What do you expect from Social Security at your full retirement age? Also, please clarify your investments. Do you have $1 million in a taxable account as well as $250k in two IRAs and a certain amount of cash in a 401k? Is that accurate?


We need a lot more info to help answer your questions.

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CyclingDuo
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Re: Advice needed for unusual financial situation

Post by CyclingDuo » Tue Nov 12, 2019 7:37 am

Jacksright wrote:
Mon Nov 11, 2019 1:16 pm
Hello fellow Bogleheads! Long time reader, first time poster here. I love this site and heed its prudent advice often. I'll skip the chase and cut right to the heart of the matter:

I'm 60 yrs. old (a "young" 60!), currently no significant health issues. My wife is 48, and we have two sons, 16 and 14 (yes, I was a late bloomer, and my wife is MUCH more mature than I am!), and thankfully everyone's healthy. We have a portfolio of a little over 1M with Vanguard, with a 70/30 asset allocation. My position in the health care field (therapeutic rehabilitation, nothing like MD or specialist) was recently eliminated. My wife works part time in a similar position, and we've never had a combined income over $78K/year. We have been renting out a condo we own, and we've been using that to pay the mortgage on our permanent residence (condo all paid for). We have about 5 years left of mortgage payments on our house, but that might be extended due to the loss of my income (we had been paying a little more than what was asked for each month). Condo is worth about $300-$350K, and has not been our primary residence for more than 18 years, so we'll be hit with capital gains when we sell it.

I'm pretty sure I can't retire, and I have a good 10 years of work left in me (depending on the work, I guess). I'm not sure if I can semi-retire (work part time) or need to work full time again. We have long re-invested the dividends (about $13K/year) of our mutual funds with Vanguard, but I fear that must change, at least temporarily. Our biggest issue right now is income, and we were wondering if we should put money in a high-yield bond account
for income purposes. We both have IRAs (about 120K in one, 130K in the other), and we have 529s set up with our state for the boys' college tuition. My wife has a 401K (not exactly sure what it's at right now), but I do not.

If I'm leaving out any pertinent information needed, let me know. We've been thinking of adjusting our AA to 65/35 or 60/40 lately. I would appreciate any advice on what my options might be. Thank you.
Sorry about the position being eliminated and your job loss. If it were me, I would fight tooth and nail to find some replacement income ASAP. Especially with two teenagers still at home. Did you apply for and are you currently on unemployment? Can your wife bump up from part-time to full-time - or at least increase her hours?

Although you are age 60, a similar thing happened to me last year before I turned 57. I was able to piece together replacement income via multiple part-time jobs and am in the middle of year two of my "new work". The job market is in your favor at the moment to find some replacement income, so take advantage of it while you can.

Here's a post which has some information, opinions, experiences of others, and steps you should take (just as pertinent to you at age 60 as it was to me in my latter 50's)...

Losing a job in your 50's...

viewtopic.php?t=273092
"Everywhere is within walking distance if you have the time." ~ Steven Wright

fru-gal
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Re: Advice needed for unusual financial situation

Post by fru-gal » Tue Nov 12, 2019 7:44 am

What's the health insurance situation? I assume with the reduced income you are likely eligible for Affordable Care Act (Obamacare) insurance perhaps with a subsidy that would lower the premiums also, or maybe even Medicare. I assume a job loss is a qualifying event so you could get it outside of the normal open enrollment period.

(I got laid off at 57. This sucks, but I'm sure many people are in this situation.)

Leemiller
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Re: Advice needed for unusual financial situation

Post by Leemiller » Tue Nov 12, 2019 8:37 am

How much are you making on the condo annual minus expenses? I’ve noticed some folks seem to think they have good real estate investments but would have made a lot more money investing in the stock market via an index fund. Also, how much is left on your primary mortgage? Maybe at 60 it would be good to just pay it off if possible for the security.

There are so many ways to make income quickly now with Uber and Lyft, let alone other short term options. You weren’t clear how short you are a month.

A high yield bond fund for income in a market with dropping rates seems like a risk plan to me. Really you just need a 5-7 year plan before collecting social security, but it’s hard to tell from your post how much that is.

MJS
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Re: Advice needed for unusual financial situation

Post by MJS » Tue Nov 12, 2019 11:05 am

Part time gigs: Is AirBnB'ing your condo or even a spare bedroom in your house possible in your neighborhood? From what I've read, short-term-renting is the most profitable part-time gig. Being a Door Dash Driver can be done by bike or car, and may be less fraught than dealing with drunks at 2am on Uber.

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White Coat Investor
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Re: Advice needed for unusual financial situation

Post by White Coat Investor » Tue Nov 12, 2019 11:17 am

Jacksright wrote:
Mon Nov 11, 2019 1:16 pm
Hello fellow Bogleheads! Long time reader, first time poster here. I love this site and heed its prudent advice often. I'll skip the chase and cut right to the heart of the matter:

I'm 60 yrs. old (a "young" 60!), currently no significant health issues. My wife is 48, and we have two sons, 16 and 14 (yes, I was a late bloomer, and my wife is MUCH more mature than I am!), and thankfully everyone's healthy. We have a portfolio of a little over 1M with Vanguard, with a 70/30 asset allocation. My position in the health care field (therapeutic rehabilitation, nothing like MD or specialist) was recently eliminated. My wife works part time in a similar position, and we've never had a combined income over $78K/year. We have been renting out a condo we own, and we've been using that to pay the mortgage on our permanent residence (condo all paid for). We have about 5 years left of mortgage payments on our house, but that might be extended due to the loss of my income (we had been paying a little more than what was asked for each month). Condo is worth about $300-$350K, and has not been our primary residence for more than 18 years, so we'll be hit with capital gains when we sell it.

I'm pretty sure I can't retire, and I have a good 10 years of work left in me (depending on the work, I guess). I'm not sure if I can semi-retire (work part time) or need to work full time again. We have long re-invested the dividends (about $13K/year) of our mutual funds with Vanguard, but I fear that must change, at least temporarily. Our biggest issue right now is income, and we were wondering if we should put money in a high-yield bond account
for income purposes. We both have IRAs (about 120K in one, 130K in the other), and we have 529s set up with our state for the boys' college tuition. My wife has a 401K (not exactly sure what it's at right now), but I do not.

If I'm leaving out any pertinent information needed, let me know. We've been thinking of adjusting our AA to 65/35 or 60/40 lately. I would appreciate any advice on what my options might be. Thank you.
You don't mention spending, so I don't really know if you can just retire now or not, but it seems unlikely with only $250K in assets. You can really only burn about $10K/year from that and expect it to last throughout retirement.

I agree your biggest issues right now is income. You need a job. Everything else is icing on the cake. Asset allocation doesn't matter much. Spending dividends obviously will make your nest egg grow slower but would boost spendable income without tapping principal. Boosting your wife's income would help too.

You definitely need to stop saving in 529s. Retirement is a far higher priority than college savings. Just put yourself in their shoes. Would you rather take care of your own college and have your parents be fine or have them pay for your college and then you have to support them later? Exactly. Retirement savings >>> college savings.

Can you get a new job in the same field? If not, what can you do? The good news is that it is far easier to replace a $40K/year income than a $400K/year income.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

fru-gal
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Re: Advice needed for unusual financial situation

Post by fru-gal » Tue Nov 12, 2019 12:04 pm

White Coat Investor wrote:
Tue Nov 12, 2019 11:17 am

You don't mention spending, so I don't really know if you can just retire now or not, but it seems unlikely with only $250K in assets. You can really only burn about $10K/year from that and expect it to last throughout retirement.
They have $1 mil at Vanguard in addition to those IRAs. It was hard to see in the original post.

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White Coat Investor
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Re: Advice needed for unusual financial situation

Post by White Coat Investor » Tue Nov 12, 2019 3:26 pm

fru-gal wrote:
Tue Nov 12, 2019 12:04 pm
White Coat Investor wrote:
Tue Nov 12, 2019 11:17 am

You don't mention spending, so I don't really know if you can just retire now or not, but it seems unlikely with only $250K in assets. You can really only burn about $10K/year from that and expect it to last throughout retirement.
They have $1 mil at Vanguard in addition to those IRAs. It was hard to see in the original post.
Oh, there it is. Well sure, you can retire (or rather become a stay at home parent.)
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

EnjoyIt
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Re: Advice needed for unusual financial situation

Post by EnjoyIt » Tue Nov 12, 2019 4:09 pm

White Coat Investor wrote:
Tue Nov 12, 2019 3:26 pm
fru-gal wrote:
Tue Nov 12, 2019 12:04 pm
White Coat Investor wrote:
Tue Nov 12, 2019 11:17 am

You don't mention spending, so I don't really know if you can just retire now or not, but it seems unlikely with only $250K in assets. You can really only burn about $10K/year from that and expect it to last throughout retirement.
They have $1 mil at Vanguard in addition to those IRAs. It was hard to see in the original post.
Oh, there it is. Well sure, you can retire (or rather become a stay at home parent.)
How can you say that? I don’t see anywhere what OP expenses are. Maybe I missed it.

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White Coat Investor
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Re: Advice needed for unusual financial situation

Post by White Coat Investor » Tue Nov 12, 2019 4:41 pm

EnjoyIt wrote:
Tue Nov 12, 2019 4:09 pm
White Coat Investor wrote:
Tue Nov 12, 2019 3:26 pm
fru-gal wrote:
Tue Nov 12, 2019 12:04 pm
White Coat Investor wrote:
Tue Nov 12, 2019 11:17 am

You don't mention spending, so I don't really know if you can just retire now or not, but it seems unlikely with only $250K in assets. You can really only burn about $10K/year from that and expect it to last throughout retirement.
They have $1 mil at Vanguard in addition to those IRAs. It was hard to see in the original post.
Oh, there it is. Well sure, you can retire (or rather become a stay at home parent.)
How can you say that? I don’t see anywhere what OP expenses are. Maybe I missed it.
Well, they're saving money, so they're not spending everything they make. They make $78K. They now have $1,250,000 plus she is continuing to work. It seems pretty basic that a 4% or so withdrawal from $1.25M is more than going to cover his contribution to the household income. No? am I missing something?
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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galawdawg
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Re: Advice needed for unusual financial situation

Post by galawdawg » Tue Nov 12, 2019 6:08 pm

OP, sorry about the job loss. On the other hand, it sounds like you are in good financial shape with over $1m in your portfolio, college savings for your sons, a rental property that throws off enough income to pay your current mortgage and a spouse who is employed. I agree with White Coat Investor that the "back of the napkin" numbers seem to point to retirement as a possible option, but the big question for me is healthcare.

Do you have a spending plan? To know whether or not you "need" to work from a financial standpoint, you need to know what your spending needs are currently and how they might change if you are able to retire. The big ticket item is often healthcare. Some "expenses" you have while working you won't continue to have in retirement (such as FICA taxes) and others may be reduced (such as commuting expenses). Also, if you are able to optimize withdrawals from tax-advantaged accounts and taxable accounts, your overall tax burden will likely be reduced due to the lower capital gains rate (as low as 0% federal) on your taxable account holdings.

I'd recommend you look at your spending and see what you will need to maintain your current lifestyle. That will give you a good starting point to see whether your portfolio will produce enough income at a 3.5% - 4% withdrawal rate to enable you to retire.

If you are comfortable, feel free to post some rough spending numbers and folks here can provide you some feedback. Good luck!

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Re: Advice needed for unusual financial situation

Post by grabiner » Tue Nov 12, 2019 10:17 pm

bampf wrote:
Mon Nov 11, 2019 2:36 pm
I don't know if I would put money in a high yield risk bond fund if I was struggling for income. You get a higher yield due to risk.
My first google search gave me this:

"High-yield bond funds invest in "junk" bonds—lower credit quality corporate bonds that carry a higher-than-market yield.Investors look to high-yield bonds to earn a better return than low-yielding, but safer, government and highly rated corporates. Owning high-yield bonds comes with particular risks unique to this part of the fixed income market. Be sure to understand the product or fund before investing."
Another way to look at this is that a high-yield bond fund behaves like a fund which is half bonds and half stocks. Look at what happened to high-yield funds in 2007-2009 to get an idea of the risk.

If you do hold a high-yield bond fund, hold it in an IRA; in a taxable account, the high yields are taxed at your full tax rate, so you lose a lot of the return to taxes.
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JAZZISCOOL
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Re: Advice needed for unusual financial situation

Post by JAZZISCOOL » Tue Nov 12, 2019 11:31 pm

grabiner wrote:
Tue Nov 12, 2019 10:17 pm
bampf wrote:
Mon Nov 11, 2019 2:36 pm
I don't know if I would put money in a high yield risk bond fund if I was struggling for income. You get a higher yield due to risk.
My first google search gave me this:

"High-yield bond funds invest in "junk" bonds—lower credit quality corporate bonds that carry a higher-than-market yield.Investors look to high-yield bonds to earn a better return than low-yielding, but safer, government and highly rated corporates. Owning high-yield bonds comes with particular risks unique to this part of the fixed income market. Be sure to understand the product or fund before investing."
Another way to look at this is that a high-yield bond fund behaves like a fund which is half bonds and half stocks. Look at what happened to high-yield funds in 2007-2009 to get an idea of the risk.

If you do hold a high-yield bond fund, hold it in an IRA; in a taxable account, the high yields are taxed at your full tax rate, so you lose a lot of the return to taxes.
IMO, high yield bond funds/ETF's (like "JNK") are not an appropriate option for income in this situation. As suggested here, they have quite a high, positive correlation to stocks (~0.70). For short term cash needs, I think a combination of high yield MM funds/CD's/core bond funds/ETF's might make more sense.

It seems finding another job, closely analyzing and/or cutting back on expenses and possibly selling the condo might be other options to consider as others here have suggested. Or your wife can look into increased hours. Like so many others have talked about here and in the FIRE community, it is really important to examine expenses. It's pretty easy to trim them when you sit down and think about every line item in your budget and each credit card statement, etc. (need vs. want). You sound very motivated so that is on your side. :)

Motor
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Re: Advice needed for unusual financial situation

Post by Motor » Wed Nov 13, 2019 12:51 pm

You could stop putting money in the 529s, depending on the state, withdrawals are only for education right? Guessing from the other details I bet you have a chunk the 529s. Instead, your wife could max out a Roth and pick a fund that would beat the returns in a 529. If you came up short on tuition loans in the kids names would have the lowest rate...maybe lower than you'd make investing. You could still make the payments for them later when the time came. You never know [Comment removed by Moderator Misenplace] they might get a job pays or gets their loans "forgiven". This would make some of the money you have more flexible in the future. Also, the Roth account can be passed down w/o required minimum distributions, or RMDS. The lower income could also open more avenues for financial aide packages and scholarships. I'm closing in on 60 and plan just keep working...sometimes working at least part time is better for health and your attitude seems positive. Best of Luck!

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