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Old 06-08-2014, 11:38 PM   #1
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Assessment requested!

Hello everyone!

I have been lurking on this site for some time now. Have finally decided to come out and ask for an assessment of our (wife & I) retirement, although it is two years POST retirement. This website, along with some others have been helpful in setting up our retirement. Many thanks to the webmaster and members of these sites.

Here is some basic info to start with:

-Wife and I are both 52
-We both retired at age 50
-I have a pension of $47,983.20 per year ($3999/month)
-Wife has a pension of $45022.08 per year ($3752/month)
-Both pensions are COLA adjusted, but will lag inflation by 50% IMO
-We have health care with our retirement plan, and pay $163/month
-We have dental with our retirement plan, and pay $31/month
-Vision coverage is $15/month
-We have $585,000 in very safe investments (utilties/reits mostly)
-About $70,000 cash
-Each of us work part time (16 hours/week) at our old employer, making $31,000/year each
-We each put $12,000 into a 401s, and each put $12,000 into 457s as retirees
-We each put the max into the ROTH of $6500/year
----so 48k/year into tax deferred, and 13k into ROTH (61k total/year)
-We get about $28,000/year in dividends
-We have real estate valued at about $1,100,000
---A commercial unit worth 500k that is paid for
---A single family home that is worth 125k that is paid for
---A single family home that is worth 450k with a 48k mortgage
---Vacant land worth about 25k - 35k

---A house that is not included in the $1.1M is being passed to us that is worth $310k
---All properties are rented, and generate positive cash flow.
-We plan on doing the part time work (16 hours/week) until we reach age 55
-After age 55, we plan on going to 8 hours/week – cutting our pay in ½
-At age 60, work comes to a complete stop
-We will get nearly zero SS, as it gets taken because we were police/fire
--My SS at age 66 is estimated to be $354/month
--Wife’s SS at age 66 is estimated to be $277/month


Our bills:

One of our rentals is a commercial triplex with our house on top, and all of our house bills are covered by the other tenants, so we have no actual electric/water/trash/cable/insurance/property tax, or other home related bills.


Mandatory bills:

Auto insurance $150/month
Grocery $700/month
Maintaining professional licenses for both of us $50/month
--(we were police/fire, but on the medical end of it)
Health/dental/vision - $210/month
Health co-pays and deductibles $100/month
Smart phone plan $71/month
Car maintenance, gas, tags $400/month

Going forward –
-Do we really need to keep doing the part time thing?
-Would like to sell the commercial building, but it has a lot of depreciation against it. How to do that with minimal tax impact?
-When the 310k property comes our way, would like to sell that as it is several hundred miles away, and reduce taxes as much as possible.
-Trying to figure out if it is best to let the 48k mortgage ride on the rental (the rate is about 4%), or pay it off.
-May need to buy some cars. The combined age of our three cars is 53 years, but they run well…and nobody would want to steal them for sure..LOL.

We have no kids, so no worries for funding college.
My parents are well off, so don’t need any help.
Wife’s mother still alive, and in a rest home which is covered by Medicare/SS.

Have used many financial calculators to verify the worth/stability of our plan, and all of them say we are very well funded, but always have this feeling that there is something more we need to do.


Any ideas/thought welcome!!!



Thanks in advance.
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Old 06-09-2014, 05:10 AM   #2
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You list mandatory bills but don't really lay out your full expense picture which would be important to know in order to answer your questions.

What have been your full expenses for the past 2 years?
What would be the living plan be if you sell the commercial property which sounds like includes your current home? Buy/rent/anticipated price & ongoing costs?
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Old 06-09-2014, 06:44 AM   #3
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I agree with Fishingmn that we need to know what your total expenses are, including taxes. Also, how much income are you receiving from your rental properties? But considering you are making over $90k from pensions alone, plus whatever your income is from the rental properties. I'd say you are in great shape. But again, it depends on what your expenses are.
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Old 06-09-2014, 07:40 AM   #4
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Quote:
Originally Posted by gooddog View Post
.....Going forward –
-Do we really need to keep doing the part time thing?
-Would like to sell the commercial building, but it has a lot of depreciation against it. How to do that with minimal tax impact?
-When the 310k property comes our way, would like to sell that as it is several hundred miles away, and reduce taxes as much as possible.
-Trying to figure out if it is best to let the 48k mortgage ride on the rental (the rate is about 4%), or pay it off.....
+1 with the others but from your post it appears that you are saving your entire part-time work and living off your pensions so at first blush it appears that you do not "need" to do the part-time work financially.

Model the sale of the commercial property by adding the sale to your 2014 estimated tax return but it looks like worst case the tax on sale of the commercial RE would be 15% capital gains + state taxes. Options depend on your plans for the proceeds. If you plan to reinvest the proceeds in income producing real estate then you might consider a 1035 exchange for another property. You could do an installment sale but I doubt that either will gain you much. Ditto for the inherited property.

On the mortgage, how much do you earn on the funds that would be used to pay off the mortgage? If you earn less after taxes than the after-tax mortgage rate, then it pay off.
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Old 06-09-2014, 07:43 AM   #5
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Your plan looks rock solid. A couple of thoughts to ponder- What percentage of your investment are in equities? While you continue to work you will be adding to your investments but once you cease work entirely will your non RE investments be positioned to keep up with inflation?
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Old 06-09-2014, 08:23 AM   #6
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It looks like you are in great financial shape. Not sure why you would continue working unless you really like your jobs. The only possible problem is if one of you passes early and there's no survivor benefit in the pension. If I were you i'd limit my mandatory spending to your lowest pension plus 4% of your investments. Say you sell that house you're going to get that will put you close to $1M so that's $40K/yr from investments plus $45K/yr from pension for a total of $85K/yr. If you can live on that then i'd say you're in great shape. The other pension check would then be for discretionary spending. That will pay for a lot of traveling
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Old 06-09-2014, 04:39 PM   #7
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with what you listed, I see no reason to keep working. You save 100% of your PT income, and with your pensions, it seems likely you are making all of your expenses with them. You may also be supplementing the income with the positive cash flow from the rentals, but the point is you are not needing any of your PT work income. I also assume you are not taking any withdrawals from the savings. Better detail on your expenses would make this evaluation able to confirm, but you said the financial calculators have you with no concerns.

Unless you just like the work, from a financial standpoint it seems you can stop and be fully retired.
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Old 06-09-2014, 06:35 PM   #8
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While waiting for you to post your total (expected) expenses, consider:

Pension = 48k + 45k = 93k per annum, semi-COLA'd
Total assets = 1.1M + 310k + 585k + 75k = 2.1M
No medical risk

Current workplan = 62k x 3 years = 186k + 31k x 5 years = 341k extra income (pre-tax?)

In other words, continue working as planned will add a maximum of 16% to your wealth (341k / 2100k). That won't make a huge difference in lifestyle, especially given your pensions (which are worth another +/- 2M!).

Thus, to answer your first question: Working part time will not make a significant difference financially. Do it for fun only.

Have no clue about taxation so can't help you there.

The mortgage is 4%. I'd pay that off unless you can derive a tax benefit from it somehow. In general pay off any debt higher than the yield you get with the money you'd use to pay it off. 4% is rather high in this environment, so either refinance or pay it off is probably the best route.

And last but not least: why buy a new car when the current ones are still working? You might want to calculate the total cost of ownership first (depreciation, tax, gas, maintenance ..) when comparing with a newer one, or even better, get rid of two of them

In summary: if your expenses are roughly what I think they are, you have won the financial game by a wide margin.

Congratulations!
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Thanks for the replies!
Old 06-09-2014, 07:00 PM   #9
Confused about dryer sheets
 
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Thanks for the replies!

Thanks for the replies.

It appears I wasn't very clear on my expenses!

The triplex covers all our expenses that you would associate with house bills, thus we have no electric/water/and so on. The other 'mandatory' bills I listed are our only bills - we have very little in the way of bills. Our living expenses are around 15k/year due to the setup we have with the triplex (that does not include any vacations/fun money). We net about $1900 off our other rentals.

Our NET monthly income (including part time work) looks like this:

$6200 from pensions
$1900 from rentals
$4000 from part time work that is directed to 401s/457s
$1150 from part time work that is directed to ROTHS
$2250 from dividends that is reinvested via DRIP

As you can see, we take a $5200 a month hit if we quit our part time gig.

As a couple of people noticed we invest our entire part time work pay. The only deduction on our pay stubs for the part time work is medicare, we don't even have to pay SS as it is still police/fire.

If the place we are currently living in sells, we would probably move over to one of our other houses. One is a nice ocean front home, and seems like a good place to spend the next 30-40 years. The money from the sale of the triplex would probably go into a utility ETF.

As far as the division of how we are invested:
ZERO BONDS
~285k in various electric utilities
~143k in a government backed REIT
~40k in preferred stock
~43k in S&P
~11k in misc stock
~37k in New York City Bank
~71k cash

The question as to if our RE investments will keep up with inflation is a big yes. Our triplex, and one of the houses are oceanfront, and the other house is just three blocks off the ocean. Rents will be going up here quite a bit in the future, as well as the value of the homes. That said, I have long term tenants and will only raise rent if they move out.

Regarding 'survivor benefit' of the pensions - both are set up for full survivor status. We each took a 5% hit on our pensions for that.

Here is the reason I consider working part time for several more years - INFLATION. I believe that these pensions will be the value of minimum wage within 15 years (even with COLAs). Also, I don't have a lot of faith in the pension system, and am trying to build up as much cash as possible to protect us from ever regretting quitting. That said, I know we are ahead of the game.

When we retired two years ago (to the day today) we had 379k of stocks/cash. Today we have 655k, so we are saving quite a bit of money....mainly due to low living expenses. We don't like to travel much, as we live on the coast. We go to Reno a couple of times a year in the off season, spending less than 1k each time. Still hunt for bargains....

Any and all info appreciated! Perhaps someone has portfolio suggestions...
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Old 06-09-2014, 07:13 PM   #10
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Totoro

Thanks for your post. You were writing that up as I was writing up my last post, so didn't get a chance to respond to you.

The current work-plan yields 341k exactly like you said. Almost all of it is invested, because 4k/month is taken out pretax, and then the remainder is going into our ROTHS. So we wold end up with 341k + whatever it would make during the years it is invested.

The 16% figure you cite is interesting. I had not looked at it that way before, and think you have something there. Going to talk to the wife about that.

Taxation - we live in California, and pay regular state/fed taxes. Our taxable income is low due to the way everything is structured. I have been careful in that regard.

The 4% mortgage gets bounced against the rent, but I have been thinking of paying it off. Still trying to figure out what to do there.

Completely agree with you regarding cars!!! That said, I get a LOT of grief from everybody in town regarding my wife's car. The paint has fallen off, the head-liner is gone, even the sun-visor has fallen off. The thing runs like brand new, but looks rough. Everybody says 'with the money you have you could at least get the wife a new car'. There is some guilt there....LOL.

Thanks for the encouragement. Appreciated.
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Old 06-09-2014, 07:42 PM   #11
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Standard reply to your neighbors: You have that money because your wife chooses to drive that car. They should try it too

15k in living expenses (excl. housing) makes the picture complete.

Just for fun and giggles, let's assume you sell all real estate, and you go and rent a house for $20k a month including utilities. Add $10k in fun money. That's $45k per annum in expenses. Let's make it an even $50k.

From your $2.1M portfolio alone you can fund yourself 42 years, assuming your returns just match inflation. Buy a 30-year TIPS and you have that.

In other words: you don't even need the pensions, so don't worry about the COLA aspect of it!

If I were in your position i'd do the following:
* Simplify your portfolio in the coming years, even if it costs you return
* Start thinking about where your mountain of money will go since you have no kids
* Have fun!
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Old 06-09-2014, 08:17 PM   #12
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Completely agree with you regarding cars!!! That said, I get a LOT of grief from everybody in town regarding my wife's car. The paint has fallen off, the head-liner is gone, even the sun-visor has fallen off. The thing runs like brand new, but looks rough. Everybody says 'with the money you have you could at least get the wife a new car'. There is some guilt there....LOL.
The only one who should decide when to buy a new car is your wife. She's the one driving the beater. When she wants a new one she'll let you know.

But I'm sure you already knew that.
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Old 06-10-2014, 01:12 AM   #13
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I am not a big fan of driving cars that are really old. Newer cars are usually significantly safer, so I would look at that issue.
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Old 06-10-2014, 08:00 AM   #14
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Gooddog; You'll be fine of course but your investments do seem on the conservative side and perhaps not positioned to grow with inflation. Your emphasis on utilities generates income but what about growth beyond inflation? If you do sell some of the RE, I would consider moving some of the funds into equities including international eq in an overall AA plan that fits your risk profile. BTW if you don't mind sharing, what is the govt backed REIT? Is it one specific entity? Is it really 100 percent guaranteed? What is the return? Depending on the answers to these questions, could it be a concentration of risk?
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Old 06-10-2014, 11:38 AM   #15
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To be blunt, I have no idea why you're even asking this question. Your living expenses are 15k and your pensions bring in 90+k. You are FINE.
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Old 06-10-2014, 08:46 PM   #16
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Woot, looks we did it right

Totoro – Thanks! Wife and I discussed the 16% issue. While we are going to consider doing the part time thing for a while longer, your putting it into perspective like that kind of freed up our thinking. Thanks!

Walt34 – I agree…I’m kind of driving a beater too, it isn’t only the wife.

Katsmeow – When one of our cars finally dies, I will be looking for something a bit more ‘tank’ like. The new cars/trucks are safer, no doubt.

Golden sunsets – The REIT is ‘sort of a REIT’. It is not classified as a REIT, but it is basically. The ticker is ATAX. Currently it yields 8.3%. It is government backed low income housing. It is technically a limited partnership.

Spudd – I was asking on this board after lurking on this, and many other RE boards for the simple reason that there is always something to learn. My family thinks I’m ‘smart’ for having set things up like I have, but the truth is that the vast majority of the information comes from members of these boards who are trying to help others. I spent a lot of time prior to retiring trying to help those at work set up sustainable retirement plans. The more you learn – the more you earn!! And I have learned something by posting!
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Old 06-11-2014, 09:20 AM   #17
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Hi gooddog; Your investment in ATAX represents 22% of your investments x real estate. That alone represents a concentration of risk. It also appears to have declined in value by 16% in the past year, at a time when real estate has been appreciating in value as well as the stock market in general, so I would take a look at whether or not it is wise to be so concentrated in one holding. Secondly if you combine that investment with your owned real estate you are truly over concentrated in Real Estate in general. Have you considered the pitfalls of being so invested in one asset category?
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Old 06-13-2014, 09:20 AM   #18
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Golden Sunsets -

I have a unique trading system that concentrates assets into low BETA portfolio when the market is up (or in a bubble). If the market continues to go up, then what my portfolio earns lags the overall market - I'm ok with that. If the market crashes, then the low BETA stocks actually see a bit of rise as people rush to safer investments...low BETA type stuff. If the market continues to fall, then eventually the 'safe' stocks also go down, but lag the overall market in a correction. At this point, it is time to start shifting $ from low BETA to a high BETA ETF. Then ride the market back up in high BETA using a portion of your overall assets. There is a bit more to it than this, but keeping it brief here. This system took me 12 years to develop, and it has worked like a charm. So long as I have kept our portfolio within the guidelines that I created for the system, we have never lost a $. That said, sometimes I stray, and get pounded by a stock. The model I created is based in part on Japan from the mid 1980s to now, and what they have experienced in their market. The U.S. may have a similar market for the next two decades. Regarding ATAX, the reason it is down 16% is due to two secondary offerings that were done to raise funds for some large apartment unit & other purchases that will pay off nicely going forward. The price will go back up over the next two years.
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Old 06-13-2014, 03:59 PM   #19
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Having a plan and sticking to it is half the battle. Good Luck
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Old 06-18-2014, 06:12 PM   #20
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Assessment requested!

One more question to think about: once you retire fully, what are you going to do with your time, and how will that affect your living expenses?

Our pensions cover our mandatory expenses +some. We don't 'need' anything more - yet we harvest about $20k a year from pensions for fun. We travel a great deal, which eats the majority of that $20k). We eat out a lot. We're generous assisting our son. We donate to the church. We could SWD a lot more, but that would wasteful.

So while you're living on $15k a year now, do you want (not need) to continue doing so? Frankly, whatever your answer, I don't see why you're working part time. We ER'd so we could go out and enjoy life while we're still able. We're young(ish) but no one knows what tomorrow brings.

Go out and enjoy life while you have it.
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