May be retiring earlier than I thought

[MaryContrary]

I have wondered about the 1099 issue on a short sale. I originally paid $347k with 20% ($69,400) down. It is currently valued at around $200k (I believe) and I have a mortgage of $245k. I did refinance with HARP to lower my interest rate.

If the bank issues a 1099 for the "profit" of the difference, how does the down payment amount that I lost come into it? Would it off-set that amount totally? If I write off that loss on taxes to off-set the "gain" of the short sale it seems to me that would totally wipe it out PLUS another $3k write-off per year of excess loss.

[Chuckanut]

Quote:

Originally Posted by MaryContrary . If I believe that I can retire on the $618k at age 53 there doesn't seem to be a compelling reason to put any of it at risk (other than inflation risk).

At your age, inflation is a very great risk, IMHO.

Have you looked as various asset allocation scenarios that can buffer your investments when (not if) the market turns down? Diversification is the key to minimizing - not eliminating - risk. Think about it. But, if you are really fearful of a down market and might panic and sell at the bottom, then you probably should not be in the market.

In any event take your time, no need to rush that I see. You need to be comfortable with your decisions.

[MaryContrary]

Quote:

Originally Posted by Chuckanut At your age, inflation is a very great risk, IMHO. Have you looked as various asset allocation scenarios that can buffer your investments when (not if) the market turns down? Diversification is the key to minimizing - not eliminating - risk. Think about it. But, if you are really fearful of a down market and might panic and sell at the bottom, then you probably should not be in the market. In any event take your time, no need to rush that I see. You need to be comfortable with your decisions.

Yes, inflation is a big risk. I'm not usually a timid investor but with this development I feel better about not taking unnecessary risk. I'm currently at 45% bonds, 30% cash, and 25% stock. That's a conservative portfolio and some "conventional wisdom" says to have as much bonds as your age.

I got a call from an advisor at Fidelity asking if I needed investment advice because of the amount of cash that's not invested. I told him my situation and that I'd set up an appointment. I'll see what he has to say and recommend, then take it into consideration. I'm not naive enough to blindly take their word for things and I am aware of management fees, loads, etc. that could be charged on mutual funds. MorningStar helps with that too.

My co-worker that was let go did a dumb thing, IMO. We still talk on the phone and he told me that he met with the 401k provider we have now. The investments ARE NOT anything that I would ever choose on my own except for a PIMCO bond fund. They talked him into keeping his money there AND they charged an up-front fee of $5k! They said if he did that then they he would never again have to pay transaction fees. WTF!?!? How many thousands of mutual funds are there at Fidelity and other places that have no transaction fees? Are they also putting him in high cost, loaded funds? I don't know and he doesn't either because "they are managing it" for him.

I told him that he just paid them for the privaledge of keeping his money there.

[rodi]

Quote:

Originally Posted by MaryContrary I have wondered about the 1099 issue on a short sale. I originally paid $347k with 20% ($69,400) down. It is currently valued at around $200k (I believe) and I have a mortgage of $245k. I did refinance with HARP to lower my interest rate. If the bank issues a 1099 for the "profit" of the difference, how does the down payment amount that I lost come into it? Would it off-set that amount totally? If I write off that loss on taxes to off-set the "gain" of the short sale it seems to me that would totally wipe it out PLUS another $3k write-off per year of excess loss.

I'm not sure. That's a question for an accountant.
I'm not sure if loss of the downpayment and principal payments made is considered a loss for tax purposes.

[Running_Man]

Quote:

Originally Posted by MaryContrary It is attractive, the relative % of income with the annuity. I've tried looking at this several ways. One way is... Deposit the $120k in an IRA. Assuming a 4% rate of return it would grow to $177,600 at age 60. I then start withdrawing the same amount that I would have had in an annuity, $7560 per year. Assuming a tax rate of 25% at that time (big assumption but have to start somewhere) that is a net of $5670. Up to the age of 85 this comes up to $147,420 in after-tax income and a remaining balance of $157,475. If I take the annuity starting this year at age 49, I will be paying 38% taxes on it through age 53. For the remaining years to age 85 the assumed tax rate is 25%. This comes up to $200,188 in after-tax income and no remaining balance. That's a difference of $53k in income versus $157k remaining. That's $100k on the side of taking the lump sum. Of course, there's the market risk but, interest rates won't be this low forever either and it could pay more than 4% to get rid of all risk and go to cash/CDs for income. Unless I'm totally figuring this up wrong, which is also possible.

You are forgetting that 62% of $7,560 would be able to be saved between age 49 and 60. Assuming a 4% return that leaves $70K at age 60 when you could then start taking the annuity, if that is the plan, and @ 4% that 70K since it is not in the spending plan will grow to 188K by age 85:

[MaryContrary]

Quote:

Originally Posted by Running_Man You are forgetting that 62% of $7,560 would be able to be saved between age 49 and 60. Assuming a 4% return that leaves $70K at age 60 when you could then start taking the annuity, if that is the plan, and @ 4% that 70K since it is not in the spending plan will grow to 188K by age 85:

You are quite correct and I forgot about that. Added a column for 4% interest on the after-tax annuity starting at age 49 to age 60.

According to my calculations it comes up to a difference of $39,400 in favor of the lump sum.

Not a lot over a span of 25 years. I then need to consider longevity risk versus leaving the balance to my 3 children.

[MaryContrary]

I chose the lump sum. It hasn't been paid yet, supposed to be any time now and I opened a roll-over IRA already because I needed the account number for the forms.

Things have changed some in the meantime. The company is splitting up and they have a buyer for the still profitable part. The systems and people we have are valuable in the industry. No one can say if there will be further layoffs or not or how things will go, whether the deal with go through or not, etc.

I guess this is good and bad. Right now, even though I knew my job would be ending, I still had a good severance package and a 15% per year retention bonus. I assume that if there is a new owner/continuing business, that will go away. I just really want to retire at age 55 if at all possible.