Year end windfall and job loss

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doon
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Year end windfall and job loss

Post by doon »

End of the year 2017 we are expecting about 200 K before tax which will be a combination of bonus, vested RSU's, ESPP & severance. Unfortunately my DS will also lose her job on Dec 31st.

We have about 100 K in personal loans ( 80 K at 8.5 % and 20 K in 6.5%). This personal loan was a one off situation where we wanted to buy a retirement property (foreign country) for my folks and did not have access to regular loan facilities.

I need some advice on how to go handle this windfall with a combination of loans and impending job loss.

Assumptions - over a million in investible assets (retirement + taxable), no debt except mortgage (if I pay off personal loan), 3 month emergency fund. It will take about 4-6 months to find a new job ( May/June 2018)

Option 1 - Pay off the loan

Pros - immediate return of about 8%, no more monthly payments
Cons - smaller cash cushion considering imminent job loss

Option 2 - Keep the loan and make monthly payments using bonus till DS finds a job. After that pay off the loan.

Pro - bigger cash cushion, more comfort during job search
Cons - higher interest for next few months

Thanks for suggestions in advance.
"Goal - Win the game before the need to retire"
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Tamarind
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Re: Year end windfall and job loss

Post by Tamarind »

Missing info:

How easy is it for your spouse to find a new job?

Can you more than support your normal expenses on just your income?

If it's easy to get a new job and you are ok on a single income, I'd take option 2 but keep the windfall liquid. If you are going to struggle to make ends meet on just your income OR if a job is hard to find or takes longer than expected, option 1 seems better.

Do you have a separate (uninvested) emergency fund or is the windfall it?

Before your spouse lost her job, when were you planning to pay off the personal loan?
Ron Scott
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Re: Year end windfall and job loss

Post by Ron Scott »

Flexibility and safety-first in times of change and stress. Option 2.
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. The solution is not to predict investment losses but to prepare for them.
FraggleRock
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Re: Year end windfall and job loss

Post by FraggleRock »

Ron Scott wrote: Mon Nov 20, 2017 11:07 amFlexibility and safety-first in times of change and stress. Option 2.
+1
Topic Author
doon
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Re: Year end windfall and job loss

Post by doon »

I thought I provided the info in assumptions. However here are some additional details
Missing info:


How easy is it for your spouse to find a new job?
4-6 months i.e May/June 2018
Can you more than support your normal expenses on just your income?
Yes but no savings are possible
If it's easy to get a new job and you are ok on a single income, I'd take option 2 but keep the windfall liquid. If you are going to struggle to make ends meet on just your income OR if a job is hard to find or takes longer than expected, option 1 seems better.

Do you have a separate (uninvested) emergency fund or is the windfall it?
Yes. 3 months.
Before your spouse lost her job, when were you planning to pay off the personal loan?
Windfall was expected but job loss was not 100 % certain
"Goal - Win the game before the need to retire"
aristotelian
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Re: Year end windfall and job loss

Post by aristotelian »

Since you can survive on one income, I would pay off the loan. I would rather have zero cash flow with $1M assets than $1.1M assets with a $100k debt costing -8% and negative cash flow of $8k.
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Ethelred
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Re: Year end windfall and job loss

Post by Ethelred »

doon wrote: Mon Nov 20, 2017 12:55 pm
Can you more than support your normal expenses on just your income?
Yes but no savings are possible
Then pay off the loan. It seems obvious. If "no savings are possible" includes contributing your 401k or other tax-advantaged retirement accounts, draw down from taxable the amount required to keep funding those accounts. To be honest, those interest rates are so high that I'm surprised you didn't draw down from taxable instead of taking the loan.

You didn't mention this, but if your income next year will be significantly lower than usual, also think about what tax efficiencies you might be able to find - bunching deductions into 2017 instead of 2018, for example.
KlangFool
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Re: Year end windfall and job loss

Post by KlangFool »

FraggleRock wrote: Mon Nov 20, 2017 11:29 am
Ron Scott wrote: Mon Nov 20, 2017 11:07 amFlexibility and safety-first in times of change and stress. Option 2.
+1
+1.

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Mlm
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Re: Year end windfall and job loss

Post by Mlm »

KlangFool wrote: Mon Nov 20, 2017 1:24 pm
FraggleRock wrote: Mon Nov 20, 2017 11:29 am
Ron Scott wrote: Mon Nov 20, 2017 11:07 amFlexibility and safety-first in times of change and stress. Option 2.
+1
+1.

KlangFool
+

+1
In uncertain times cash is king
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Meg77
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Re: Year end windfall and job loss

Post by Meg77 »

Ethelred wrote: Mon Nov 20, 2017 1:16 pm
doon wrote: Mon Nov 20, 2017 12:55 pm
Can you more than support your normal expenses on just your income?
Yes but no savings are possible
Then pay off the loan. It seems obvious. If "no savings are possible" includes contributing your 401k or other tax-advantaged retirement accounts, draw down from taxable the amount required to keep funding those accounts. To be honest, those interest rates are so high that I'm surprised you didn't draw down from taxable instead of taking the loan.

You didn't mention this, but if your income next year will be significantly lower than usual, also think about what tax efficiencies you might be able to find - bunching deductions into 2017 instead of 2018, for example.
+1. It sounds like you have the money in taxable to wipe out the loans, so I would do that immediately regardless of the bonus or job loss situation. You'll still have cash and plenty in investments AND your income which can pay the bills while your spouse looks for another job. There's no reason to borrow at 8% to keep cash in the bank. Especially since you can probably get a 0% credit card if you really did have to borrow (which you clearly do not). Pay off the debts. I know paying capital gains aren't fun, but it's better than taking a loss. Think how bad you'll feel if the stock market tanks 25% this month and you could have sold and used the money to pay off the debt.
"An investment in knowledge pays the best interest." - Benjamin Franklin
soccerrules
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Re: Year end windfall and job loss

Post by soccerrules »

Pay off Loans with $200K, put the rest in savings or EF. (consider tax liability)
Reduce spending until spouse finds new job
Continue to fund 401K up to company match, increase when spouse finds job
Don't let your outflow exceed your income or your upkeep will be your downfall.
cherijoh
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Re: Year end windfall and job loss

Post by cherijoh »

doon wrote: Mon Nov 20, 2017 10:35 am
Assumptions - over a million in investible assets (retirement + taxable), no debt except mortgage (if I pay off personal loan), 3 month emergency fund. It will take about 4-6 months to find a new job ( May/June 2018)
How did you arrive at the 4 - 6 month estimate for her to find a new job? How long has it been since she last looked for a job? How close to retirement are you and your spouse?

I would definitely keep more in liquid assets as a cushion in case the job hunt takes longer than expected.

Do you have access to a retirement plan with a company match? After beefing up your emergency fund, I would invest at least enough to get the company match. IMO that trumps paying down the loan even at 8% interest.
Silverado
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Re: Year end windfall and job loss

Post by Silverado »

cherijoh wrote: Mon Nov 20, 2017 4:24 pm
doon wrote: Mon Nov 20, 2017 10:35 am
Assumptions - over a million in investible assets (retirement + taxable), no debt except mortgage (if I pay off personal loan), 3 month emergency fund. It will take about 4-6 months to find a new job ( May/June 2018)
How did you arrive at the 4 - 6 month estimate for her to find a new job? How long has it been since she last looked for a job? How close to retirement are you and your spouse?

I would definitely keep more in liquid assets as a cushion in case the job hunt takes longer than expected.

Do you have access to a retirement plan with a company match? After beefing up your emergency fund, I would invest at least enough to get the company match. IMO that trumps paying down the loan even at 8% interest.
Depending on 401k options, I would be tempted to use the excess windfall cash ( not much after taxes) to fund expenses and dump more into 401k. But It depends on age and overall situation. I am one that always wants to fill all available tax advantaged space unless there is really some driving factors against it. For sure I would be looking to cut expenses during this time.
Topic Author
doon
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Re: Year end windfall and job loss

Post by doon »

cherijoh wrote: Mon Nov 20, 2017 4:24 pm
doon wrote: Mon Nov 20, 2017 10:35 am
Assumptions - over a million in investible assets (retirement + taxable), no debt except mortgage (if I pay off personal loan), 3 month emergency fund. It will take about 4-6 months to find a new job ( May/June 2018)
How did you arrive at the 4 - 6 month estimate for her to find a new job? How long has it been since she last looked for a job? How close to retirement are you and your spouse?
She still has a job till end of the year. I am in HCOL with lot of job prospects and she is in an area that is in high demand. So we expect things to move quickly once holiday season is over and budgets are finalized.
Do you have access to a retirement plan with a company match? After beefing up your emergency fund, I would invest at least enough to get the company match. IMO that trumps paying down the loan even at 8% interest.
I have a good company match and I do plan to fill it up at least up to the match. Also my firm allows in-service rollover of after tax contribution. So I think I will try to continue doing that by keeping the bonus and not paying off the mortgage.
"Goal - Win the game before the need to retire"
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djpeteski
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Re: Year end windfall and job loss

Post by djpeteski »

Mlm wrote: Mon Nov 20, 2017 1:33 pm
KlangFool wrote: Mon Nov 20, 2017 1:24 pm
FraggleRock wrote: Mon Nov 20, 2017 11:29 am
Ron Scott wrote: Mon Nov 20, 2017 11:07 amFlexibility and safety-first in times of change and stress. Option 2.
+1
+1.
KlangFool
+
+1
In uncertain times cash is king
+1 here, and I am a no debt kind of guy. Once your wife lands the new job, make these loans go away. The $467 net you are paying to keep both the loans and the cash is "small potatoes" in the grand scheme of things (675-208). The 208 comes from 200K @ 1.25%.
bungalow10
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Re: Year end windfall and job loss

Post by bungalow10 »

Hey, OP. You've gotten good advice. Take care of your wife and family as you go through this. It can be emotional and a bit of a roller coaster, even when it goes well.
An elephant for a dime is only a good deal if you need an elephant and have a dime.
Topic Author
doon
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Re: Year end windfall and job loss

Post by doon »

bungalow10 wrote: Tue Nov 21, 2017 9:35 am Hey, OP. You've gotten good advice. Take care of your wife and family as you go through this. It can be emotional and a bit of a roller coaster, even when it goes well.
Very true both regarding the advice but also about the whole emotional aspect on job loss and change.

Esp. in this case she was a victim of her success. She was highly valued employee and so was put on this M&A integration program. But to highlight the benefit of this merger they have to let the whole team go by end of year. :(

Funny how things work out some times.
"Goal - Win the game before the need to retire"
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