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Old 01-18-2012, 10:14 PM   #21
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I looked at the 72t, and don't think it is for me. If I wanted a monthly stipend, I'd stay with the state. I've been watching real estate pretty close in the area since the crash. My thoughts a few years back were to keep working until it bottomed. I'm no expert, but this layman thinks it has. My "calculations" do not factor in any appreciation of the properties.... But if do actually buy in at the bottom, the figures can only go up.

Another factor is that we are facing an increase in hours worked for less pay, with a big hit in health insurance too. I'm either making the greatest mistake of my life, or will be called brilliant in a few years... I AM quite scared!
I can certainly understand why you are scared. REWahoo gave you some very, very good advice IMO. Is it worth risking your retirement to be called brilliant in a few years? Maybe, maybe not. It wouldn't be for me, but then different people think differently about what they want in life, and what kind of retirement they are looking for, if any.
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Old 01-19-2012, 12:38 AM   #22
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I can certainly understand why you are scared. REWahoo gave you some very, very good advice IMO. Is it worth risking your retirement to be called brilliant in a few years? Maybe, maybe not. It wouldn't be for me, but then different people think differently about what they want in life, and what kind of retirement they are looking for, if any.
I'm going to play devil's advocate here so don't take it the wrong way. It's in the spirit of hopefully helping you look at it from some other directions.

What do you have asset wise besides the pension? Taking a 43% hit right off the top on what i am assuming is a majority of your retirement assets seems pretty bold to me.

I'm not sure why you have to go all in on cashing out the pension. At a minimum why not roll it into an IRA and then "take the hit" on it in pieces as the properties convince themselves to you? It's easy to do and it gives you the option to leave some of it within the IRA if you happen to change your mind later.

There is also the issue of diversification & leaving yourself options. Do you really want everything riding on the health of the rental market in your targeted location? Maybe you do but you said you didn't feel expert on the issue. Some further reflection wouldn't hurt if that is true.

If your current rentals seem to be working, why do you want to pay them off? interest rates are *really* low right now so one can make a case it does not make very much sense to pay them off. Given that you are riding so much on those properties you may want to give yourself more justification for paying them off w/ penalized assets.
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Old 01-19-2012, 02:06 AM   #23
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I am about to turn 54 and I have 12 rentals all paid off except for small balances on two that I had on 30 year notes (11 years left). The rest were five and seven year notes.

I am maxing out on the 401K at work plus a Roth. I think I have been buying (stocks) low and I want to keep stashing for the next year or two before RE. I intend to get the smaller mortgage paid off through extra principal payments.

I also have about $300K in a taxable stock account.

I would not cash out to pay off the rentals. Besides the tax hit or penalty another reason is diversification, as mentioned.

I may dabble in Real Estate sales later (I have been licensed for 32 years). If I find a bargain I might buy another rental or two at that point.
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Old 01-19-2012, 05:30 AM   #24
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I looked at the 72t, and don't think it is for me. If I wanted a monthly stipend, I'd stay with the state. I've been watching real estate pretty close in the area since the crash. My thoughts a few years back were to keep working until it bottomed. I'm no expert, but this layman thinks it has. My "calculations" do not factor in any appreciation of the properties.... But if do actually buy in at the bottom, the figures can only go up.

Another factor is that we are facing an increase in hours worked for less pay, with a big hit in health insurance too. I'm either making the greatest mistake of my life, or will be called brilliant in a few years... I AM quite scared!
In this case being scared is a good sign. I don't see why a rollover to an IRA is a problem. It does not mean stocks as you say, you can invest in fixed income and real estate as well. It also does not mean no returns for 7 years, but it does mean no withdrawals, even though you do have a 72t option. It sounds like you have made a decision and feel that this is a moment of opportunity you cannot miss. What is your "plan B" if this does not work out? It does not have to be all or nothing. You could rollover half to an IRA and keep it invested, and use the other half to finance your plan.
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Old 01-19-2012, 09:11 AM   #25
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Guys, I appreciate the advice and as strange as it sounds, I really want holes blown in what I知 contemplating. Naturally I'm plan on leaving the funds in the IRA until properties present themselves; sorry if I mislead otherwise. Similarly, the figures on my current properties return were excepting mortgage costs, which I actually DO currently have. That said, I can see why you are all recommending a more conservative approach; I値l try to clarify my thoughts further below. I apologize for the lengthy post.

As to carrying mortgage balances.... last year (well on my 2010 tax return anyhow) I paid ~$21k in mortgage interest.... Paying that off alone will account for HALF of what I would get in a monthly stipend from the traditional pension. I also live in a cottage (as well as have a 1000sf workshop) on the back lot of one of the properties; my thought process on paying that off is that even if the rental market dried up completely, I would still have somewhere to live for only taxes and maintenance costs for the rest of my life. In addition, there is a duplex on the front of the property that currently generates $1200/mo income. Add that to the $1000/month in mortgage interest for that property, I知 looking at $2200 month in savings and income PLUS a free home and shop... in ONE property!

The 43% 塗it represents 33% income tax plus a 10% ER penalty (figures from my accountant). The funds in the account are 100% pre-tax; I contributed nothing to it with after tax dollars. So in my simplistic view 25-28% of the money would have gone to Uncle anyhow if it were a post-tax contribution. The 10% penalty amortized over the next 7.5 years (until I am 59.5) amounts ~$7K year.....OR about the rental income from ONE unit.

As a retiring firefighter with 25 years, I could collect the monthly stipend with no penalty at all right now, BUT aside from what I mentioned earlier about the doubts I have of the continued viability of the fund, were I to die prematurely the stipend ends and the principle is retained by the State.... NOTHING goes to my heirs! As bad as that sounds, I have no children and I could take care of my S/O with a life insurance policy, BUT the thought of the State keeping 杜y money just irks me!

So, IF I left the money in an IRA and paid all the interest on my current properties, the interest alone would just about negate the 43%... AND I would be forced to postpone retirement for 7.5 years! Am I looking at this wrong?
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Old 01-19-2012, 09:19 AM   #26
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Oh, BTW, I meant to mention the property I’m living in right now has a 7.5% mortgage. The reason is because it is a “legal non-conforming” property in that it is 3 family in a single family zoning area. I could not get a bank mortgage because if it were destroyed, I could not re-build in the current configuration. I had to go with a private mortgage which I got 10 years ago (7.5 didn’t sound so bad at that time); It balloons in October 2013.

I have approached a few banks about refinancing this property.... I think they are still laughing!

Michael.... Plan “B” is to keep working, but not for the Fire Dept. As a paramedic, I can cross train to Registered Nurse in a few months, or work as a medic on oil rigs (2 weeks on, 2 weeks off) for ~$100K/yr. I have several friends who retired from the FD and went to the oil industry working as medics. I’m not nuts about being “gone” 2 weeks at a time, but the $100K for 26 weeks’ work isn’t bad. Also my S/O is a RN and is still working; she is not planning on retiring until I get settled in and have a steady retirement income stream in place.
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Old 01-19-2012, 03:07 PM   #27
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Oh, BTW, I meant to mention the property I知 living in right now has a 7.5% mortgage. The reason is because it is a 斗egal non-conforming property in that it is 3 family in a single family zoning area. I could not get a bank mortgage because if it were destroyed, I could not re-build in the current configuration. I had to go with a private mortgage which I got 10 years ago (7.5 didn稚 sound so bad at that time); It balloons in October 2013.

I have approached a few banks about refinancing this property.... I think they are still laughing!

Michael.... Plan 釘 is to keep working, but not for the Fire Dept. As a paramedic, I can cross train to Registered Nurse in a few months, or work as a medic on oil rigs (2 weeks on, 2 weeks off) for ~$100K/yr. I have several friends who retired from the FD and went to the oil industry working as medics. I知 not nuts about being 堵one 2 weeks at a time, but the $100K for 26 weeks work isn稚 bad. Also my S/O is a RN and is still working; she is not planning on retiring until I get settled in and have a steady retirement income stream in place.
I'm not familiar with the way your retirement works. You still have social security, right? I mean, it's not like you won't have anything to fall back on. Will you or your GF be able to pay the mortgage if something happens?

Are there age limits on paramedic jobs? Plan B going back to work is reasonable, as long as there are jobs to be had. But if you are using your retirement funds now and the the plan doesn't work, how long will you have to work to retire?
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Old 01-19-2012, 03:56 PM   #28
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Michael... If I cash out the pension, there will be no mortgage... that is the point of cashing out! I guess my effort at communication is falling short here, or my plan is so unconventional that I am being misunderstood.

There is no age limit to a paramedic job (well, no legal limit anyhow... I think the physical limit kicks in eventually LOL!) That said, I will NEVER go back to a public sector paramedic job; the benefit vs cost just isn稚 there. Private sector either in the energy or defense industries are much more lucrative. Any health care job such as above or RN would be a last resort, as I am just sick of taking care of sick people!

I really fear the conventional investment approach because in reality all you have is some stranger痴 promise that you have $x.xx somewhere and you are putting blind faith in that value. For instance, on face value staying with FRS is as solid as the State of Florida. I have been told that there would be class action suits etc if the politicians ever spent 鍍he Fund..... There is talk however in the Legislature right now about giving employers (County, State, and Special Districts) a 鼎ontribution Holiday because the system is 89% funded (one of the top 5 in the Nation). The 塗oliday would allow the employers a full year without contributing. The politicians get around 都pending the Fund, but still divert $ by not contributing! End result is the same.

At least by owning rental properties I can walk up and kick them if I want. They are physical, and hard to steal. If I own them outright the only way I can lose them is either from failure to pay taxes, or wide scale disaster. The later, of which there is no protection from, so not worth worrying about. Even a complete collapse in the rental market won稚 cause me to lose my principle as long as I can cover the taxes. The only absolute need people have is food, shelter, and health care. I知 no farmer, but I can make money with the other two!

We have zero debt outside my mortgage, we live in a 425 square foot cottage, I drive a 100,000 mile truck, and my S/O drives a 160K mile vehicle. I have a trust set up 21 years ago for health insurance in retirement so that痴 not a concern. In short, the monthly 渡ut is not very big. So IF there were ZERO rental income there is a safety net in that either or both of us can go right back to $100K jobs... (collectively we grossed $202K last tax year).
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Old 01-23-2012, 03:21 PM   #29
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cap-

Sorry, I'm late to the thread.

Another FF/medic here (I ride Eng 16 coincidentally...)--
I've read the thread up to this point and there's something I don't get.

How are you able to cash out the pension and get a lump sum with FRS?

I'm in a similar plan, but if I cash out, all I get is my own money back.
While this is a significant amount, it pales in comparison to how much is
in there in my name. My employer has thrown in at least twice as much as
I have. The only way for me to get any of that "back" is to take the monthly
annuity when I retire. That's generally the game with a DB pension.

What am I missing? Does FRS allow you to get the employer contribution money also? Or are you speaking of some kind of DROP money?

Anyway, all the best to you.
Stay safe,
R/
LB
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Old 01-23-2012, 04:12 PM   #30
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Depends on what plan you are in. Many City FD & PD are in a 175 plan... No lump sum allowed. County, State, and special district employers often utilize a traditional pension from the Florida Retirement System. They have 2 plans; defined benefit, and defined contribution. You get a “one time second election” to move from one plan to the other. Money builds much faster in the defined benefit and is sheltered from the whims of the market. I waited until just before retirement to make my election to the defined contribution plan (works more like an IRA). 90 days after severing employment, you can roll it over, lump sum, or a combination of both. The first 90 days without a paycheck can be a bitch though! tough!

There are other options like a 72t or even a 10% disbursement to a special risk member with the same qualifications as a retiring pension plan member (55 yo or 25 yrs continuous). Another tidbit I discovered on my own as my (former)accountant is worthless... “qualifying public service officers” can avoid the 10% early retirement penalty after age 50... I just saved $70k!
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Old 01-23-2012, 05:00 PM   #31
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Couple thoughts - would your pension be covered by the federal pension guarantee up to 40-50K in the event the state defaulted?

Second, if you took the lump sum, are you planning to acquire your rentals with leverage? If not, I think its possible you could title your rental to a self direct IRA and have it hold the property. I don't believe you could reside in it like your current property, but it might be an option to avoid the 43% hit.
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Old 01-23-2012, 06:59 PM   #32
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You are correct in that you can’t benefit from the self directed IRA.. directly. You could buy the properties as an LLC and the SD-IRA could act a mortgage lender, but you’d need a regular contract between the LLC and the SD-IRA with regular “market rate” terms (no 500 year amortization LOL) AND a trustee who is unaffiliated to oversee it all. THEN you as a tenant to the LLC would likewise pay rent, BUT the LLC could pay you for administrative and maintenance. IMHO, by the time you did all the bookkeeping, maintained the corporation and paid all the taxes for each entity, you pretty much negate the gains of a SD-IRA

Since finding out that there is no early retirement penalty for my situation from the IRS, it makes the plan laid out in previous posts all the more attractive. Right now I’m thinking about exploring a cash disbursement of enough to pay off my current mortgage only. It would keep me out of the 33% bracket and take the balance in equal distributions over the next 3 years. I have yet to run those numbers, so I don’t know how that will work..... BUT I might work it out that the entire pension can be taxed at a rate of ~25% instead of ~35% if done in one lump.

BUT I need to hire a new accountant before I can figure all that, because I’m not so smart!
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Old 01-23-2012, 08:42 PM   #33
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Sorry, late to the thread. If you took the pension, does the pension fund buy an annuity or do they simply make the annuity payments? I'm skeptical that the pension would be that risky and other than default the pension plan would bear the investment risk. Is the pension COLA'd as well?

If I cobbled together your info correctly, the annual pension payments are about 7.7% of the lump sum amount (before considering the tax bite). If that is correct, that is a outrageously sweet deal and I would take the risk on the pension. I don't think you can do better elsewhere, particularly after paying 35% of the lump sum to the feds for taxes.

What will your tax rate be in retirement? For many of us ER types our tax rate in the early years of retirement are 0% to 15%, so an additional 20% is giving away a lot.
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Old 01-24-2012, 03:13 PM   #34
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Sorry, late to the thread. If you took the pension, does the pension fund buy an annuity or do they simply make the annuity payments? I'm skeptical that the pension would be that risky and other than default the pension plan would bear the investment risk. Is the pension COLA'd as well?
The pension plan was one of the best in the nation.... HOWEVER the politicos have their sights on the fund. The Constitution of FL prohibits taking money from the pension fund and adding it to the general fund. It would take a referendum to change that.

There is no prohibition to DIVERTING funding from it though. Currently the State 途etains 3% of the total contributions in the general fund (employer and employee contributions first go to to the GF, then 97% of that amount goes to the pension fund). There is talk right now about a 菟ension holiday where the employers (but not the employees) get a break from making contributions to the pension. All very preliminary and not even on the legislative docket, but it has been suggested. Take money away or not put it in the first place, the end result is the same.

With almost EVERY private sector pension gone these days, the public here is demanding a change in the public sector pensions as well 的 lost mine; why should he have his on MY dime? Of course trying to explain the pension is (well was) fully funded and the retiree痴 stipend cost the taxpayer nothing, is like trying to teach a pig to fly..... wasted your time and pisses off the pig!

It is my goal to divorce myself totally from relying on the State for my future well being; I have no desire to wake up at 80 years old, and find there are to be no more checks coming. I知 52 right now, and if I crash and burn, I can still (reluctantly) go back to work on my second retirement if I had to... I could not at 80!

If my future properties are consistent with my experiences of my current ones, I should look at around a 7-10% ROI. That said, it would not be without effort on my part, so I wouldn稚 be 鍍ruly retired. I estimate 20-ish hours a month to service the management and maintenance needs. Not too bad, as I have trouble being idle anyhow. The upside is there is very little risk of losing my principle investment.
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Old 01-24-2012, 06:08 PM   #35
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Capngeo welcome. I too took my FRS money in July 2010. but I rolled it over to IRAs. One is set up 72T the other is there for Emergencies. I have a FA whom I trust, so I let him losses sleep for me about my investments (worth his fee). Hope things workout for ya. Did you know; Distributions made to you after you separated from service with your employer if the separation occurred in or after the year you reached age 55, or distributions made from a qualified governmental defined benefit plan if you were a qualified public safety employee (State or local government) who separated from service on or after you reached age 50 is exempt to the 10% penalty?
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Old 01-24-2012, 09:28 PM   #36
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Oddjobdth, see post #30
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Old 01-25-2012, 11:40 AM   #37
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Oddjobdth, see post #30
^^^^^ Thank You!^^^^
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