Life happens, now what?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
findingourway
Posts: 6
Joined: Sat May 25, 2019 6:22 pm

Life happens, now what?

Post by findingourway » Sat May 25, 2019 8:31 pm

I’ve decided to post here because I’m hoping for ideas from this great community of thinkers. I feel like we had a plan then life happened to us. I will try to provide as much detail as possible so you’ll have enough to go with. I’m 48, my wife 50, I’m retiring next year. We accidentally increased our family by three in the last few months (via adoption through fostering which is a whole post on some other forum). The children are young but we’ve decided to move forward with retirement as planned.

Here are the assets in a nutshell:

Money, retirements in wife’s name so access based on her age.
$420k traditional IRA
$85k Roth IRA
$110k cash

Real Estate Mtg’s include P+I, tax and insurance:
House 1. Owe $75k value $250k. Mtg. $550 Rent $1025 Paid $150k
House 2. Owe $75k value $270k. Mtg. $750 Rent $1025 Paid $110k
House 3. Owe $190k value $480k. Mtg. $1290 Rent $1950 Paid (part of 1031, who knows)
House 4. Primary Owe $135k value $600k. Mtg. $1600 bought ‘04 Paid $390k

Pension will be around $7k month.

We’ve owned the rentals since the early 2000’s so lots of depreciation. Rents on house 1, 2 could be about $200 and $300 more but would need some mild renovating ($5k each) to get those market rate rents. We have a crazy adoption tax credit to use over the next several years we could potentially sell one rental with minimal taxes but there are income limits we could surpass thus removing the credit. Currently make about $82k year. We have no debt other than the mortgages. We spend little because we’re borderline minimalists. We do eat out though but, typically counter serve type places so pretty cheap. We hope to travel over the next 2 to 5 years then settle some place (maybe). We currently live in a no income tax state. My health insurance as well as the children’s is covered by various means. My wife’s is the only one that will need to be paid for.

Is there a question in all this? Sort of. On one hand we don’t mind the rentals and feel we could manage them from a distance but I don’t think we’re getting the biggest return on the equity. We do plan to sell the primary next year but what to do with that equity? Stash it? Pay off rentals and stash less? Some tell us to put it in the stock market but going all in scares me. I know the ‘market’ can have diversity REIT’s etc. but it’s just an area that I’m not all that familiar with. The bottom line is we tried to save/invest what we earned but didn’t really have an exit strategy. I’ve asked around for thoughts but the ideas are always biased to the person dispensing the advice. Brokerage lady, sell it all and invest in the market. Real estate people, 1031 and get apartments in the Midwest.

Your thoughts are greatly appreciated.
Last edited by findingourway on Sun May 26, 2019 9:56 am, edited 1 time in total.

User avatar
cheese_breath
Posts: 8621
Joined: Wed Sep 14, 2011 7:08 pm

Re: Life happens, now what?

Post by cheese_breath » Sat May 25, 2019 9:19 pm

findingourway wrote:
Sat May 25, 2019 8:31 pm
We accidentally increased our family by three in the last few months (via adoption through fostering...
You accidentally adopted through fostering? Are you related to the guy who accidentally retired a few weeks ago? :P
The surest way to know the future is when it becomes the past.

Topic Author
findingourway
Posts: 6
Joined: Sat May 25, 2019 6:22 pm

Re: Life happens, now what?

Post by findingourway » Sat May 25, 2019 10:07 pm

My cousin. :wink:

Regattamom
Posts: 193
Joined: Sat Jan 06, 2018 3:40 pm

Re: Life happens, now what?

Post by Regattamom » Sat May 25, 2019 10:11 pm

Hello. It's hard to give you advice when your future plans are so vague. You plan to travel for 2-5 years and then maybe settle down?
What are your expenses while traveling? Will your pension cover those expenses? When does pension kick in? Do you want to save for college for the three kids? More detail would be helpful.

Topic Author
findingourway
Posts: 6
Joined: Sat May 25, 2019 6:22 pm

Re: Life happens, now what?

Post by findingourway » Sat May 25, 2019 10:40 pm

Hi Regattamom, thanks for reading my post. The pension will cover our costs while traveling.The pension starts when I retire next year. As to college, help yes, fully fund, not certain.

boomer_techie
Posts: 135
Joined: Fri Jan 18, 2019 6:47 am

Re: Life happens, now what?

Post by boomer_techie » Sun May 26, 2019 12:27 am

findingourway wrote:
Sat May 25, 2019 8:31 pm
We hope to travel over the next 2 to 5 years then settle some place (maybe).
Travel with the three children? I assume that means they are preschool age. Hotels, or an RV?

3504PIR
Posts: 772
Joined: Mon Jul 26, 2010 2:46 am

Re: Life happens, now what?

Post by 3504PIR » Sun May 26, 2019 1:57 am

As your pension will essentially be the same as your current income, the change in your retirement situation will be the details in cost for the travel and the cost of having a bigger family which may not be an impact as you were fostering up until now, although you don’t mention if you had foster income beyond the $82k. Those two details are the key to if this will work or not.

In general if you’re happy with the rentals, keep them and build a renovation plan over time to improve their value. If there is one or two you’re not particularly happy with, you can sell one or both in a timeframe that is tax efficient and improve your liquidity as well. It’s really up to you and how you feel about the overall situation as it does not appear to be a financial decision right now.

DarthSage
Posts: 320
Joined: Tue Sep 19, 2017 9:39 am

Re: Life happens, now what?

Post by DarthSage » Sun May 26, 2019 6:54 am

I think you have a typo--your pension is likely $7k/mo, not $7000k/mo. Still, the lower number should keep you guys well on track.

I think you need a little more time adjusting to your (relatively) new family, before you make any big decisions or moves. You don't list your children's ages, or any issues they may have, and it's nobody's business, but kids, generally, have a way of throwing a monkey wrench into all kinds of planning.

As a mother of 4, I can tell you that travel with children is very do-able, but the logistics are different than for a couple. It's also likely that you're a slave to the school calendar.

Kids can also be pricey. You do have some control over this--not everyone needs travel lacrosse at age 6 or whatever. But, some thing, you can't control so much. Any kid can break an arm and need surgery--this happened to us, and even with decent insurance, our OOP was close to $5k. We generally think about food/clothing/some enrichment (sports, music lessons, etc.), but costs can go well beyond that. And that's not counting college, which you have to make a decision on what you'll fund (doesn't have to be 100% of Pricey U., but you want to be fair to all three).

Overall, I think you're in great shape, and God bless you for taking in children who needed a family.

Valuethinker
Posts: 38199
Joined: Fri May 11, 2007 11:07 am

Re: Life happens, now what?

Post by Valuethinker » Sun May 26, 2019 7:59 am

findingourway wrote:
Sat May 25, 2019 8:31 pm
I’ve decided to post here because I’m hoping for ideas from this great community of thinkers. I feel like we had a plan then life happened to us. I will try to provide as much detail as possible so you’ll have enough to go with. I’m 48, my wife 50, I’m retiring next year. We accidentally increased our family by three in the last few months (via adoption through fostering which is a whole post on some other forum). The children are young but we’ve decided to move forward with retirement as planned.

Here are the assets in a nutshell:

Money, retirements in wife’s name so access based on her age.
$420k traditional IRA
$85k Roth IRA
$110k cash

Real Estate Mtg’s include P+I, tax and insurance:
House 1. Owe $75k value $250k. Mtg. $550 Rent $1025 Paid $150k
House 2. Owe $75k value $270k. Mtg. $750 Rent $1025 Paid $110k
House 3. Owe $190k value $480k. Mtg. $1290 Rent $1950 Paid (part of 1031, who knows)
House 4. Primary Owe $135k value $600k. Mtg. $1600 bought ‘04 Paid $390k

Pension will be around $7000k month.

We’ve owned the rentals since the early 2000’s so lots of depreciation. Rents on house 1, 2 could be about $200 and $300 more but would need some mild renovating ($5k each) to get those market rate rents. We have a crazy adoption tax credit to use over the next several years we could potentially sell one rental with minimal taxes but there are income limits we could surpass thus removing the credit. Currently make about $82k year. We have no debt other than the mortgages. We spend little because we’re borderline minimalists. We do eat out though but, typically counter serve type places so pretty cheap. We hope to travel over the next 2 to 5 years then settle some place (maybe). We currently live in a no income tax state. My health insurance as well as the children’s is covered by various means. My wife’s is the only one that will need to be paid for.

Is there a question in all this? Sort of. On one hand we don’t mind the rentals and feel we could manage them from a distance but I don’t think we’re getting the biggest return on the equity. We do plan to sell the primary next year but what to do with that equity? Stash it? Pay off rentals and stash less? Some tell us to put it in the stock market but going all in scares me. I know the ‘market’ can have diversity REIT’s etc. but it’s just an area that I’m not all that familiar with. The bottom line is we tried to save/invest what we earned but didn’t really have an exit strategy. I’ve asked around for thoughts but the ideas are always biased to the person dispensing the advice. Brokerage lady, sell it all and invest in the market. Real estate people, 1031 and get apartments in the Midwest.

Your thoughts are greatly appreciated.
(note I am not American so tax related things are completely unknown to me)

I see nothing wrong with your current portfolio. Assuming your IRA money is all in equities such as Vanguard Total Stock Market and Vanguard Total International (I would suggest a ratio of around 25-30% in international.

Greed is a bad thing in human existence. A very dangerous thing - I know people who have lost millions through it. I would however upgrade the properties to get higher rents, because you get a better quality of renter doing that (albeit sometimes a bit more complain-y). Exception if you have long term renters who cause you no hassles - no hassle tenants are gold dust.

I am not quite sure how taxes work with US rental property - depreciation is an allowable expense but then when you sell the house it increases your capital gain? However it seems to me the house rental cash flow will repay the houses over time - you should just let that happen, as it happens.

As you get older you will look to wind down that portfolio of houses or make it less hassle.

Your pension income allows you to take greater risks with your portfolio. Hence my suggestion of a mixture of real estate and equities. Rents tend to rise with inflation in the long run, so there's a degree of inflation hedge there.

You are about to embark on an incredible and exciting venture - I don't know if you have done this before but it will be incredibly rewarding, albeit at times drive you to distraction and despair. What a wonderful thing to do in your retirement years.

User avatar
Sandtrap
Posts: 7535
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii No Ka Oi , N. Arizona

Re: Life happens, now what?

Post by Sandtrap » Sun May 26, 2019 8:36 am

Considerations:

1. The day you start questioning ownership of income property is sometimes the beginning of the end of it.

2. You are listening to your "big picture" intuition. (fantastic)

3. You're right. An investment finance person will suggest getting out of income property and into the market, and a Realtor type will suggest something R/E related.

Having been in your position a bit, here are some options to ponder.

1. Simplificaiton of your assets is a really great thing because you now have a lot of "life's puzzle pieces" going on. Think, less stress, less demands on brain and time, and re-prioritize what's now changed.

2. Do this progressively/incrementally in a way that you can stop at any time. It's not a sell all and do something or nothing situation. And, even if done incrementally, do it at your own speed (comfort zone) regardless of market circumstance. (don't let the tail wag the dog) = stress.

Some R/E options:

1. Consolidate your rentals to a small multi unit apartment/duplex/6 plex, etc, that would make a reasonable 1031 exchange. This is only if you want to stay in the rental "business". And, indeed it is a business.

2. Sell the lease profitable units, perhaps 50% of what you have. Pay your fees and taxes. Then, DCA into the market per Boglehead forum guidelines. ("experts" here will guide you) (you don't need a FA).

3. Selling R/E is similar to a "windfall" situation so when that time comes, read that in the forum "WIKI". This is important.
IE: Imagine working for 40 years and finally selling a large chunk of R/E for a substantial sum. This is indeed a "windfall".

4. If you enjoy owning R/E but don't want to physically own it, ask about REIT's, etc, here. It might be for you, may not be. Ask away.

5. Even if you decide to sell all of your R/E income property, still, do it incrementally to your best tax and financial advantage. There is a strategy to it. Talk to your CPA about it.

Another option:

1. Take a break and change nothing, for now. Go on a vacation with the family. Hit the "pause" button. Sometimes, when question whether to do something, not doing something for a bit is the temporary answer.


*Hopefully, the upsides of all of the above are: less stress, less demands, simplification, re-prioritization, = happy life. :D

Congratulations on your family addition.
j :happy
Wiki Bogleheads Wiki: Everything You Need to Know

User avatar
CyclingDuo
Posts: 2358
Joined: Fri Jan 06, 2017 9:07 am

Re: Life happens, now what?

Post by CyclingDuo » Sun May 26, 2019 9:22 am

findingourway wrote:
Sat May 25, 2019 10:40 pm
The pension will cover our costs while traveling. The pension starts when I retire next year. As to college, help yes, fully fund, not certain.
What are the ages of your three adopted children (you only mentioned young)?

Your overall asset mix is real estate heavy and certainly nearly a full time job in and of itself with repair/maintenance of three properties outside of your primary residence. The pension income stream ($7000) and the rental income stream ($1410), as posted above, allows you to take on a little more investment risk in equities. Does the pension have COLA? What about health insurance for such a large family? At the very least, building solid education funds for the three adopted children would be a top priority if it were us.

Since this adoption only happened in the past few months, has enough time gone by so that you truly have got it all figured out in terms of how it impacts your current household cashflow in terms of money in vs. money out to feed, cloth, insure, and educate three children on your current salary?

Just a cursory look at the situation would have me rethinking retirement based on the title of your thread "life happens, now what?" The "now what" certainly could delay your original plans of successfully retiring next year. In addition, it would be wise to move beyond your fear and unknown of equity/bond investing to learn as much as you can this year rather than continuing to avoid a more diverse asset mix for the longer haul.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

Broken Man 1999
Posts: 2728
Joined: Wed Apr 08, 2015 11:31 am

Re: Life happens, now what?

Post by Broken Man 1999 » Sun May 26, 2019 9:59 am

I have no financial advice to give you; I just want to say you and your wife are very generous to provide for these children needing forever homes! :thumbsup :thumbsup

Your generosity is a beautiful thing to read about. Charity does begin at home.

I hope your new adventure with the children bring you and your wife a great deal of joy!

Best wishes for you and yours!

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

User avatar
Sandtrap
Posts: 7535
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii No Ka Oi , N. Arizona

Re: Life happens, now what?

Post by Sandtrap » Sun May 26, 2019 10:07 am

Broken Man 1999 wrote:
Sun May 26, 2019 9:59 am
I have no financial advice to give you; I just want to say you and your wife are very generous to provide for these children needing forever homes! :thumbsup :thumbsup

Your generosity is a beautiful thing to read about. Charity does begin at home.

I hope your new adventure with the children bring you and your wife a great deal of joy!

Best wishes for you and yours!

Broken Man 1999
+1
Absolutely Wonderful
:D :D :D :D :D
Wiki Bogleheads Wiki: Everything You Need to Know

btenny
Posts: 5081
Joined: Sun Oct 07, 2007 6:47 pm

Re: Life happens, now what?

Post by btenny » Sun May 26, 2019 10:45 am

Welcome to the Bogleheads. You are a brave person adopting three kids. I am not sure retiring while the kids are young and need lots of stability is a great idea. Most kids do well going to school all day and coming home at night and doing homework and going across the street to visit their friends. Plus traveling with three small kids is really hard. Most kids do not do well setting in a car or plane or wandering around resorts, etc.. Plus it is just really expensive to travel with 5 people.

And I just do not see how you can retire and travel around much and still take care of the rental real estate you own. Are you going to sell this stuff? Or do you hire out the management of it currently?

Can you postpone retiring or go part time at your job for a while and still draw part of your pension? Can you go to another city in the same area and get a similar job and double dip? Have a pension and a salary? One of my relatives has two pensions and is consulting for a city for a free car and some fun $$$. So he is triple dipping and he is also eligible for social security.

Just thinking. Please advise. Good Luck.

OnTrack2020
Posts: 388
Joined: Mon Mar 20, 2017 10:24 am

Re: Life happens, now what?

Post by OnTrack2020 » Sun May 26, 2019 11:26 am

We have two adopted children, as well as biological children. As any other adoptive parent would or rather should say, all adopted children are special needs. Those needs may not be showing up now, but they will later. I'm assuming when you were fostering, that you were reimbursed by the state and the kids' insurance was paid for by the state and may continue to be paid for by the state--don't know your specific situation.

I would advise to start putting away every month a small amount for the kids for future use--whether it be attending a community college or for future housing.

A key piece of information that is missing is the ages of the children. With three young kids and you approaching 50, I would make sure good term life insurance is in place for you and your spouse. Smaller children typically require more trips to the doctor.

I don't think it is necessarily bad you are retiring as you are receiving $7k pension per month, your wife is continuing to work and, quite frankly, those three children need an at-home parent as they've have, more than likely, had enough to deal with in their young lives already. As another poster mentioned, stability is the key, not travelling necessarily. I think that when you get to the point where you want to move somewhere, then you look at selling the rental properties as it would be hard to manage remotely. But until then I would keep them.

Topic Author
findingourway
Posts: 6
Joined: Sat May 25, 2019 6:22 pm

Re: Life happens, now what?

Post by findingourway » Sun May 26, 2019 11:30 am

@boomer_techie:
The kids will be 5, 5, and 6 at retirement.

@DarthSage:
Thanks for pointing out the typo. The kids have been with us for five years so the adjustment period is over. It took the system four years of working with mom before they finally threw in the towel and one year to free the kids up. By this time we were all they knew so we couldn’t walk at that point. Because there were four years we assumed they’d go back we never gave long term thought to any of it. To your point of activities lessons etc. this is partly why we think to settle down later so the kids can have those experiences as well. We’ve been reading/watching other families currently traveling with children to see how they’re getting it done. Looking at online learning at accredited schools to avoid the slave to school calendar aspect.

@Valuethinker:
Current tenants are long term which is why we have raised the rents only once in ten years and done no renovating. They pay and take relatively good care of the places. Two of the tenants are workers at my employer although I do not work directly with them. When I took pay-cuts in the down turn to balance the budget I knew they were taking them too so left them alone. Not the best investor landlords are we? We have traveled some. Various parts of Europe, SE Asia, and Mexico so we’ve have our fair share of airports and layovers.

@3504PIR:
We did have foster income beyond the $82k. We always kept expenses with my income incase fostering ever ended.

@Sandtrap:
Simplifying the investments sounds nice but for now the rentals don’t drive us too nuts. We have few phone numbers of who to call for what which has been helpful. We do give thought to selling the oldest place which has more maintenance issues. DCA into market?

@CyclingDuo:
Do you read CrazyGuyOnABike blogs? The pension does have COLA’s built in that actually work out better than I get while employed. Health insurance for me is provided by employer at retirement, children have Medicaid through adoption, wife is the wildcard. I do plan to use the free time to become more educated on markets.

@btenny:
You say brave sometimes we have other adjectives. We manage the rentals ourselves. Knowing who to call for what and accepting the fact that they cost money from time to time is key. I am allowed to work elsewhere and collect retirement so that is an option but after 25 years of computers my mind hurts. But part time work is not out of the question. We like the fact that our circumstances allow us to be ever present for the kids even if they might want otherwise when they get older.

Thank you everyone for all of your thoughts. The different perspectives are a great resource.

Topic Author
findingourway
Posts: 6
Joined: Sat May 25, 2019 6:22 pm

Re: Life happens, now what?

Post by findingourway » Sun May 26, 2019 11:44 am

@OnTrack2020:
Nice to hear from another adoptive family. We assume at least one of the three will have some sort of special needs, behavior or educational. So far they seem quite healthy other than allergies. We continue to receive Medicaid for the kids. Currently have a decent term policy that essentially covered the debt liabilities of the rentals when we took them on. My wife has stayed at home so I didn’t want her on the hook for those rentals if I checked out. We know that we need another policy to account for the kids. Wife may take on a job when I retire for the insurance but we’re not sure if we decide to travel. I can cover her in retirement from my employer for about $550 per month. Fortunately for the kids they’ve lived almost their entire lives with us only visiting birth mom so we’re pretty much all they know.

btenny
Posts: 5081
Joined: Sun Oct 07, 2007 6:47 pm

Re: Life happens, now what?

Post by btenny » Sun May 26, 2019 12:16 pm

Does your pension have a COLA?

Topic Author
findingourway
Posts: 6
Joined: Sat May 25, 2019 6:22 pm

Re: Life happens, now what?

Post by findingourway » Sun May 26, 2019 1:20 pm

@btenny:
Pension does have COLA's that kick in about two years after your retirement date.

btenny
Posts: 5081
Joined: Sun Oct 07, 2007 6:47 pm

Re: Life happens, now what?

Post by btenny » Sun May 26, 2019 10:04 pm

I get not wanting to work in your current field. You are probably burned out. So find a play job or a charity non profit job. There are lots of lower pay jobs that are fulfilling and fun. Think part time. One of those jobs and some mister mom time should give a lot of fun and a little money. You also do not have to do anything right away assuming your pension starts at retirement.

I was a burned out tech guy. In my retirement I became a ski instructor for 5 years as a second career. I also took off a year after first retiring and slept in for lots of mornings and did lots of chores.

Good luck

Post Reply