Considering Change on Retirement Strategy

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Topic Author
menendeza
Posts: 6
Joined: Wed Apr 01, 2020 4:03 pm

Considering Change on Retirement Strategy

Post by menendeza »

I'm new to the forum and excited to be part of this great community. Here is a little background about me. I'm 54 years old, married, full time employed, debt free, own 2 house rentals and have a fair emergency fund that I continue to grow every month.

My "pre Corona virus retirement plans" were a combination of investments thru my 401K, Roth IRA, HSA accounts and 2 rentals. I would like to purchase another 2 rentals within the next couple of years if possible. I expect to work until 65.

I started late working towards my retirement plans so I don't have nearly what I need to retire comfortably thru the investment accounts only. I'm exploring the possibility of taking advantage of the government proposed no penalty 401K withdrawals (even though they are still taxable) to pay off one of my rentals and snowball the payoff of the second rental and eventually my own house. The goal when I turn 65 is to have all these properties paid off and be a source of income and equity during retirement.

Would it make sense to try to fast track the payoff of the properties and relegate the investment accounts to a lower priority for the next 10 years? I understand there are some variables in the housing and rental market like occupancy, property values etc, but assuming those variables are favorable for now, would this be a good plan?

Thanks!
dbr
Posts: 34186
Joined: Sun Mar 04, 2007 9:50 am

Re: Considering Change on Retirement Strategy

Post by dbr »

It seems like selling stocks that you know have taken a sharp drop to put the money is something that hasn't dropped (yet) might not be a good reaction to an extreme situation. What was your original thinking about real estate vs stocks and bonds when you started and what did you think your reaction should be to a drop in the stock market?

Are you sure you have a handle on risk in rental real estate, especially now with whatever fall out there might be from this crisis?
delamer
Posts: 10659
Joined: Tue Feb 08, 2011 6:13 pm

Re: Considering Change on Retirement Strategy

Post by delamer »

Do you really want to have the vast majority of your investments tied up in one asset class — in your case, rental real estate?

That is in general not a great idea and in times of great financial uncertainty like today’s environment, it is even more risky

Diversification is the way to go, now more than ever.
Topic Author
menendeza
Posts: 6
Joined: Wed Apr 01, 2020 4:03 pm

Re: Considering Change on Retirement Strategy

Post by menendeza »

Thank you for the input gentleman. I really appreciate the honest feedback!
My initial thinking was to keep a balanced allocation of 50% on each area. However because I started very late on retirement planning and taking financial responsibility I thought clearing the properties from the debt could be beneficial. I understand there are still some risks with allocating a bigger portion to the rental housing but wasn't sure if the proposed penalty free withdrawal from the 401K could be used as an advantage. I contribute 14% of my income towards the 401K and based on Fidelity projections of my account I would have around $150K at age 65 which I don't think is enough for a life expectancy of 80 to 85

I still feel new to all this so please bear with me if I'm looking at it the wrong way. My goals thru this forum is to be more savvy with investments. I'm grateful that I didn't wake up from financial foolishness at age 60 or 65 and I have made some progress but I definitively don't want to blew it! Thanks again!
livesoft
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Joined: Thu Mar 01, 2007 8:00 pm

Re: Considering Change on Retirement Strategy

Post by livesoft »

Not a good plan in my opinion. If/when things settle down, equities will have a very nice run up. I don't think real estate will do the same. Why should it?

Perhaps check back in a couple of years. In the meantime, if you can cut expenses and invest more, then that would be a plus.
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dandinsac
Posts: 209
Joined: Sat Jul 30, 2016 8:34 am

Re: Considering Change on Retirement Strategy

Post by dandinsac »

I wouldn't remove money from your 401K to pay down any loans.

With interest rates at all time lows, consider refinancing to ideally shorten payoff times and lower your payments.

At age 50, you are eligible for catch up contributions, allowing you to defer more of your income pre-tax to your 401K.
Last edited by dandinsac on Mon Apr 06, 2020 8:13 pm, edited 1 time in total.
averagedude
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Joined: Sun May 13, 2018 3:41 pm

Re: Considering Change on Retirement Strategy

Post by averagedude »

This would be like being in a depressed housing market, and selling your rentals to buy stocks.
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WoodSpinner
Posts: 1867
Joined: Mon Feb 27, 2017 1:15 pm

Re: Considering Change on Retirement Strategy

Post by WoodSpinner »

OP,

Are you having any issues collecting rent? A number of small landlords seem to be struggling at this time.

WoodSpinner
Topic Author
menendeza
Posts: 6
Joined: Wed Apr 01, 2020 4:03 pm

Re: Considering Change on Retirement Strategy

Post by menendeza »

WoodSpinner wrote: Mon Apr 06, 2020 8:14 pm OP,

Are you having any issues collecting rent? A number of small landlords seem to be struggling at this time.

WoodSpinner
No, so far we've been lucky to have good tenants. We use a third party service to screen them before renting to them.
Topic Author
menendeza
Posts: 6
Joined: Wed Apr 01, 2020 4:03 pm

Re: Considering Change on Retirement Strategy

Post by menendeza »

dandinsac wrote: Mon Apr 06, 2020 7:43 pm I wouldn't remove money from your 401K to pay down any loans.

With interest rates at all time lows, consider refinancing to ideally shorten payoff times and lower your payments.

At age 50, you are eligible for catch up contributions, allowing you to defer more of your income pre-tax to your 401K.
I only owe $18K on the house and I'm on track to pay off in 1.5 years. The idea of using the 401K was to pay off that amount and then roll over the rent into the second house. I can continue this track as financially I'm Ok so far. The 401K idea was intended to get rid of the mortgages sooner but I'm not pressed by anything to do it.

Thank you so much for the input! :-)
Topic Author
menendeza
Posts: 6
Joined: Wed Apr 01, 2020 4:03 pm

Re: Considering Change on Retirement Strategy

Post by menendeza »

averagedude wrote: Mon Apr 06, 2020 7:46 pm This would be like being in a depressed housing market, and selling your rentals to buy stocks.
Thank you for that perspective.
:-)
jimkinny
Posts: 1464
Joined: Sun Mar 14, 2010 1:51 pm

Re: Considering Change on Retirement Strategy

Post by jimkinny »

I would not sell my equity allocation now but selling some bonds might work out. Bond yields are low now and applying those dollars to debt could be beneficial. You are giving up the safety of bonds but that is an issue for you to consider for your situation.
Rudedog
Posts: 294
Joined: Wed Aug 01, 2018 3:15 pm

Re: Considering Change on Retirement Strategy

Post by Rudedog »

Diversification is good. I'd keep the 401K money in the 401K, and stick to your original plan.
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