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New to site, my overview
Old 07-16-2014, 09:44 PM   #1
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New to site, my overview

Hi, I am 48 years old and new to this site and spend a lot of time focused on personal finance.

An overview of my financial situation is following.

Overall net worth is $3M broken down by following:
  • $500K primary house
  • $500K rental house ($2800/month)
  • $1M Liquid investments non retirement
  • $1M investments in 401k/retirement accounts
I have two kids, 18 yo and 9 yo.


Current expenses $10k/month which want to maintain in retirement.


Any thoughts/feedback is welcome.


Biggest challenge is managing current investments that balances returns and risk to reach the finish line.


Thanks,
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Old 07-17-2014, 02:57 AM   #2
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Welcome. Tell us more about your asset allocation. And about your budget - is it gross or bet of annual income tax ?

considering the house in your total net worth you could do 4 pct and be close to ok

But being conservative and backing out the house leaves 2.5m and also would suggest a less risky SWR of 3.5 or 3.0 pct giving an approx 90-100k per year safe spend.

Later what so you expect SS or pension etc to contribute if anything ?


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Old 07-17-2014, 05:20 AM   #3
Confused about dryer sheets
 
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So the $2M of retirement and non retirement funds are invested in a diverse portfolio of stocks and mutual funds. I have about 10% in cash but remaining is moderately conservative with many dividend focused stocks.

The $10K /month is the net spend each month on average.

I am very conservative with my financial calculations and personal goal is to have $5M net worth in 7-8 years which will give me plenty of cushion if the income environment is as it is now where very difficult to get 4-5% return without much risk.

I will have no pension but in todays $'s will max out SS at around $2500 / month.

I'm new to all the acronymns so please clarify : SWR, I assume it is something withdrawl rate?
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Old 07-17-2014, 06:30 AM   #4
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Welcome to the forum. You'll learn most of the jargon and acronymns quickly.

SWR is Safe Withdrawl Rate.

At $10K/mo after taxes you are definitely pushing things if you rely only on your portfolio. A single rental house may have a nice cash flow now but a bad tenant or a few empty months can create a financial mess. I'm suggesting caution on relying too much on this income without a reserve fund to cover problems.

The classic SWR is 4% of invested assets but many here recommend lower withdrawl rates for younger retirees. If you want $10K/mo, that's more like needing an income of $150K/yr. I'll give you $30K credit for the rental income but I'll repeat my caution on depending on it. The remaining $120K would need $3.0 MM at 4% and $4.0 MM at 3%. Technically, your house is part of your net worth but isn't used in calculating your investable income since it doesn't generate a return unless you sell it. The rental is generating an income that's counted separately and also not included in investable income.

I didn't include anything for SS and you didn't mention any pensions would would reduce your need for investment income. I also didn't include anything for childrens' college or other big expenses.

There's a lot involved in figuring out your "number." If you haven't already done so, try plugging your numbers into FireCalc and see what happens.
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Old 07-17-2014, 06:36 AM   #5
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Quote:
Originally Posted by philly17 View Post

I'm new to all the acronymns so please clarify : SWR, I assume it is something withdrawl rate?
This will help: * Acronyms and Slang Frequently Used on the Forum *
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Old 07-17-2014, 06:40 AM   #6
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You NW is similar to mine, and I also have rental real estate. No kids, no mortgage for my home.

I am guessing your $2800 in rents is a gross amount, you still have to pay property taxes, insurance, mortgage, vacancy, management and maintenance, etc.

Plan on 50% of rents towards expenses, and pay the mortgage after. Generally, it's tough to make much money on a SF home. And it's not guaranteed every month. With one rental, you are 100% full, or 100% vacant.

When I look at my plan, and I plan for $10K per month, it's tough to do with my situation now and feel 100% comfortable. And I gross ~25K in rents per month, and have only ~$4500 in P&I expenses.

The 4% rule might be good for $80K, for 30 years. Or longer, or not, it depends on who you listen to. Do you feel lucky?

If you spend $80K, You will also need some for taxes. Plan on another $3K or so for that.
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Old 07-17-2014, 08:48 AM   #7
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Quote:
Originally Posted by philly17 View Post
...I am very conservative with my financial calculations and personal goal is to have $5M net worth in 7-8 years .....
If you end up in the $5m range in 7-8 years you should be all set to retire and maintain your current lifestyle. $120k a year today will be ~$150k a year in 7-8 years assuming 3% annual inflation and $150k would be a 3% WR on $5m and SS would be gravy.

I suggest that you run your situation through Quicken Lifetime Planner (a retirement planning tool included in Quicken Deluxe and higher versions) or Firecalc, but you should be all set if you stay the course. Congratulations.
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Old 07-17-2014, 09:22 AM   #8
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Originally Posted by 2B View Post
Welcome to the forum. You'll learn most of the jargon and acronymns quickly.

SWR is Safe Withdrawl Rate.

At $10K/mo after taxes you are definitely pushing things if you rely only on your portfolio. A single rental house may have a nice cash flow now but a bad tenant or a few empty months can create a financial mess. I'm suggesting caution on relying too much on this income without a reserve fund to cover problems.

The classic SWR is 4% of invested assets but many here recommend lower withdrawl rates for younger retirees. If you want $10K/mo, that's more like needing an income of $150K/yr. I'll give you $30K credit for the rental income but I'll repeat my caution on depending on it. The remaining $120K would need $3.0 MM at 4% and $4.0 MM at 3%. Technically, your house is part of your net worth but isn't used in calculating your investable income since it doesn't generate a return unless you sell it. The rental is generating an income that's counted separately and also not included in investable income.

I didn't include anything for SS and you didn't mention any pensions would would reduce your need for investment income. I also didn't include anything for childrens' college or other big expenses.

There's a lot involved in figuring out your "number." If you haven't already done so, try plugging your numbers into FireCalc and see what happens.
Agree with this above. Your expenses are a bit high for your actual assets that you can get an income off of (not incl your personal house, and also real net income from rental) in order to meet your needs. You can go with a higher withdrawal rate, but then you risk depleting the assets before you are depleted

If you can grow the assets as you plan and for the next few years i think you are in a better situation financially to meet your goals. It may not take 7-8 years, depending on your savings and investment performances.
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Old 07-17-2014, 08:47 PM   #9
Confused about dryer sheets
 
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No doubt I can't retire yet and maybe my goal is not necessarily full retirement even in future. Retirement to me is not having to do a job/career to maximize income to maintain lifestyle and take care of family.

I'm currently in software sales and it provides a good living would welcome the opportunity to pursue other jobs in semi retirmeent that are much lower paying.

Where and what is Fire calc?
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Old 07-17-2014, 08:55 PM   #10
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FIRECalc is a retirement calculator that allows you to input a variety of data about your assets, your spending, your asset allocation, etc. It then runs calculations based on historical data and generates, among other things, an estimate of success probability for your retirement. The link is at the bottom of every page.

And here http://firecalc.com/ for your added convenience.
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Old 07-17-2014, 09:02 PM   #11
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To understand SWR, you should read Bengen's paper. He (among others) did the early research on this topic
http://www.retailinvestor.org/pdf/Bengen1.pdf


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