Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Looking for guidance from those that have "Been there, done that"
Old 02-12-2014, 01:43 PM   #1
Dryer sheet wannabe
 
Join Date: Feb 2014
Posts: 12
Looking for guidance from those that have "Been there, done that"

1st let me start by stating I am new to this great community. I was downsized from my position at age 61, currently 66 yrs old.

I opted to start collecting SS at age 62, started receiving monthly checks from retirement annuity, and rolled my 401k over to Vanguard. My wife has a few more years to work..she contributes to employer matched 401k.

Question to those wiser than me...

We are looking to do some home remodeling (house is fully paid for) and buy new car soon. Should I consider withdrawing money from my 401k account or should we look to finance purchases thru credit union/bank ? I know there are a lot of variables that come into play, but I am looking for path(s) to proceed down from those that have already "been there, done that".
__________________

__________________
Cruise42 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 02-12-2014, 02:24 PM   #2
Recycles dryer sheets
SteveL's Avatar
 
Join Date: Aug 2005
Posts: 380
Hi,
Welcome to the forum.....
I'm not sure you gave us enough info to give you any good advice.
If you had some slack in your budget to make payments, and you wanted to avoid tapping the 401k/IRA to avoid increasing income and tax, you might consider the following....
For the car, you might find factory financing, depending on the model of 1% or so. This is hard to beat. You need 20% down or to do this I think.

For the house remodel, again depending on budget room, you could discus a HELOC with the CU. These tend to be floating rate deals, but current rates are prob. low relatively.

Given that you have the tax deferred account, those fund are available to pay off the HELOC should interest rates increase.
__________________

__________________
Retired -- 2001
SteveL is offline   Reply With Quote
Old 02-12-2014, 02:43 PM   #3
Dryer sheet wannabe
 
Join Date: Feb 2014
Posts: 12
Quote:
Originally Posted by SteveL View Post
Hi,
Welcome to the forum.....
I'm not sure you gave us enough info to give you any good advice.
If you had some slack in your budget to make payments, and you wanted to avoid tapping the 401k/IRA to avoid increasing income and tax, you might consider the following....
For the car, you might find factory financing, depending on the model of 1% or so. This is hard to beat. You need 20% down or to do this I think.

For the house remodel, again depending on budget room, you could discus a HELOC with the CU. These tend to be floating rate deals, but current rates are prob. low relatively.

Given that you have the tax deferred account, those fund are available to pay off the HELOC should interest rates increase.
SteveL...thanks for your quick reply to my question(s). You have provided me with several points to consider. Our household budget has some slack in it (although I wouldn't call it excessive) to make payments a consideration. We are whittling away at minimizing expenses for cable TV, internet, phone bills, etc...these services are necessary but at the same time drain a lot of people of their money.

Please keep the ideas coming.
__________________
Cruise42 is offline   Reply With Quote
Old 02-12-2014, 03:13 PM   #4
Thinks s/he gets paid by the post
walkinwood's Avatar
 
Join Date: Jul 2006
Location: Denver
Posts: 2,677
I do not have any experience in your situation, but.. some things to ponder

- will withdrawing 401-K funds to pay for the car/remodelling put you in a higher bracket thus increasing your tax bill & cost of the car/remodel? What will the tax on the money withdrawn be? Use tax software to figure it out.

- will the interest payments on loans (plus the tax for 401-k withdrawals to pay them) for the car/remodel be more than additional taxes paid on the one time withdrawal from the 401K (to pay without loans)

- assuming these are short term loans (< 5 years), I think you should use very conservative investment returns to compare what the money in the 401-K would earn if you went the loan route.

- and in the spirit of this forum - do you really have to buy a new car? do the remodel?

All the best
__________________
walkinwood is offline   Reply With Quote
Old 02-12-2014, 03:26 PM   #5
Dryer sheet wannabe
 
Join Date: Feb 2014
Posts: 12
Quote:
Originally Posted by walkinwood View Post
I do not have any experience in your situation, but.. some things to ponder

- will withdrawing 401-K funds to pay for the car/remodelling put you in a higher bracket thus increasing your tax bill & cost of the car/remodel? What will the tax on the money withdrawn be? Use tax software to figure it out.

- will the interest payments on loans (plus the tax for 401-k withdrawals to pay them) for the car/remodel be more than additional taxes paid on the one time withdrawal from the 401K (to pay without loans)

- assuming these are short term loans (< 5 years), I think you should use very conservative investment returns to compare what the money in the 401-K would earn if you went the loan route.

- and in the spirit of this forum - do you really have to buy a new car? do the remodel?

All the best
All good points...I'm planning to run some What If's using TurboTax to see how some of these points shakeout. I thought being retired was supposed to be less stressful...LOL.

As far as the car, the wheels we have now are going on 13yrs old...runs good, well maintained, but still old. Home remodel projects are relatively small in today's thinking (countertops, some new carpets, etc) all put off while I was working.
__________________
Cruise42 is offline   Reply With Quote
Old 02-12-2014, 03:30 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Mulligan's Avatar
 
Join Date: May 2009
Posts: 7,384
Only giving you my perspective as it pertains to me, so it may be of little value to you. Whenever I need a big ticket item like a roof or a car I borrow and pay for it out of my monthly pension income. Yes, I do have the money in the bank to pay for these things, but I don't trust myself to pay myself back. Plus the squeeze on my monthly income provides me with enough pain to remind myself I am spending money. If I had a tremendously big asset base I probably would not do this. The truly prepared people on this forum in my opinion anyways are the ones who have already amortized these items into their retirement before they happened. But unfortunately I was not one of them. I prefer to play accounting tricks and continue to save monthly and treat these things like a monthly bill instead of a hit to my asset base.
__________________
Mulligan is offline   Reply With Quote
Old 02-12-2014, 04:03 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,982
It would make sense to use cash to purchase the car if the return earned on the money is significantly less than what you could borrow for a car loan. In other words, you have to decide if your money would be better spent buying a car free and clear, where you could avoid paying interest, or if you believe the same chunk of money can earn more than the car loan's cost of interest if it's placed in another investment.

And don't forget about FIT if you have to sell an investment to raise the cash for remodeling and/or the car.

There are zero percent car loans out there too, though usually that's rolled into the car price, it's not really zero percent. Theoretically the lowest price possible is the cash price, whether the buyer actually gets to that number or not...

And it's not entirely a financial decision. Some people choose to pay cash and avoid debt regardless of the calculations.
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is online now   Reply With Quote
Old 02-12-2014, 06:18 PM   #8
Thinks s/he gets paid by the post
 
Join Date: Mar 2011
Posts: 3,709
My two cents: If you have to take the $ out of the 401K/IRA, there's not only tax implications but loss of growth.

As noted above, loans are very cheap nowadays.

*Full disclosure: I hate taking out a loan (haven't had a loan/mortgage in 30 years!) but I would seriously consider it with the above strategy in mind.
__________________
Living well is the best revenge!
Retired @ 52 in 2005
marko is offline   Reply With Quote
Old 02-12-2014, 06:51 PM   #9
Full time employment: Posting here.
BTravlin's Avatar
 
Join Date: May 2010
Posts: 994
Instead of buying a new car, I suggest you buy a late model used car from say 2011 or 2012. You should be able to search your area and come up with some low mileage clean cars at a very reasonable price. People buy more car than they can afford and end up selling them soon thereafter. They suffer the huge loss of depreciation while you get to drive basically a new car for 50-70% of the cost. I bought several vehicles like this with 10-15k miles on them and was always very pleased. And I always bought from individuals, never from dealers.
__________________
Wherever you go, there you are.
(In other words, no whining!)
BTravlin is offline   Reply With Quote
Old 02-12-2014, 08:49 PM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2013
Posts: 5,327
One consideration would be if you qualify for ACA subsidies now. If you are, an extra 401K withdrawal could increase your O-MAGI.
__________________
daylatedollarshort is offline   Reply With Quote
Old 02-12-2014, 09:00 PM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2013
Posts: 5,327
Quote:
Originally Posted by BTravlin View Post
Instead of buying a new car, I suggest you buy a late model used car from say 2011 or 2012. You should be able to search your area and come up with some low mileage clean cars at a very reasonable price. People buy more car than they can afford and end up selling them soon thereafter. They suffer the huge loss of depreciation while you get to drive basically a new car for 50-70% of the cost. I bought several vehicles like this with 10-15k miles on them and was always very pleased. And I always bought from individuals, never from dealers.
We just bought a used, dealer certified car (one year dealer warranty) through the Penfed TrueCar link for .99 percent financing, which is less than their equivalent CDs are paying.

(We aren't car savvy enough to buy from an individual and not get a lemon, but I am sure that would be a better deal if you know what you are doing. Unfortunately we do not.)

We used to almost always buy new, but I think in terms of total cost to own this car will turn out much less expensive and it looks brand new.
__________________
daylatedollarshort is offline   Reply With Quote
Old 02-13-2014, 10:30 AM   #12
Recycles dryer sheets
 
Join Date: Oct 2013
Posts: 281
It's hard for me to recommend that anyone take out a loan for anything, much less at 66, much less for a car to replace one that functions just fine, or a home that does same.

I hope you'll reconsider so as to avoid putting even more financial stress on yourselves. Far better to set aside funds to do both, and pay cash once you have enough.
__________________
RetiredAndFree is offline   Reply With Quote
Old 02-13-2014, 11:31 AM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 5,696
Quote:
Originally Posted by Cruise42 View Post
All good points...I'm planning to run some What If's using TurboTax to see how some of these points shakeout. I thought being retired was supposed to be less stressful...LOL.

As far as the car, the wheels we have now are going on 13yrs old...runs good, well maintained, but still old. Home remodel projects are relatively small in today's thinking (countertops, some new carpets, etc) all put off while I was working.
We have 2 cars that are in the same situation, the Honda CRV is 10 years on (on Valentine's Day) and the Toyota Camry is 12 years old. We have a good mechanic and they have low mileage. So why replace them?

When I did the numbers on an upcoming trip that is 1500 miles away, it was better to fly and rent. So for many vacations the cars will have a break too.

If you are looking for something to do with the 401k money AND you have the tax space, I would do a Roth conversion.

For home remodels, maybe doing them one at a time helps to avoid any financing? I find if there is too much going on, I'm making mistakes in the selection and install process.
__________________
Lsbcal is offline   Reply With Quote
Old 02-13-2014, 01:59 PM   #14
Thinks s/he gets paid by the post
imoldernu's Avatar
 
Join Date: Jul 2012
Location: Peru
Posts: 4,616
Hard to give advice. So much depends on financial situation. A big difference between planning to live on $35,000/yr and $150,000/yr.

We've been retired for a long time, and made our plans early by looking ahead to guess at where we'd be 5, 10 and 20 years from then, in 1989. We weren't sure that we wanted to stay in our home, so didn't spend on upgrades, but moved temporarily to a campground, and then to a Florida retirement community. Stayed with older cars, and learned to live happily but inexpensively. We now split our time between IL and FL... and live in a regular home in IL, in a Continuous Care Community. A little more here:
Sharing 23 years of Frugal Retirement

I know that our lifestyle is not for everyone, but it worked for us.

Wish you well in whatever you decide.
__________________
imoldernu is offline   Reply With Quote
Old 02-16-2014, 05:58 PM   #15
Full time employment: Posting here.
 
Join Date: Oct 2012
Location: Reno
Posts: 556
Quote:
Originally Posted by imoldernu View Post
Hard to give advice. So much depends on financial situation. A big difference between planning to live on $35,000/yr and $150,000/yr.

We've been retired for a long time, and made our plans early by looking ahead to guess at where we'd be 5, 10 and 20 years from then, in 1989. A little more here:
Sharing 23 years of Frugal Retirement

I know that our lifestyle is not for everyone, but it worked for us.

Wish you well in whatever you decide.
Imoldernu:

I knew 3 of my greatgrandparents, all 3 of the 4 grandparents made their 90s (Ruth died at 89 but had diabetes) and just lost my father at 83, probably only because he had adult onset diabetes (I suspect he would have lived in his 90s like his parents otherwise.)

There is a great deal of wisdom in your linked post, dealing with the realistic issues of the later stages of retirement and aging, not just the "financial" issue. I highly recommend that those in the community read the links, particularly if they aren't familiar with long-lived parents or grand-parents.

My somewhat younger wife confessed this week that she was bothered about the prospect of aging and asked me about my thoughts; I suppose I am as well but having a twin who inherited a congenital disease but lived to his mid 40s and given my family history of longevity, I've always known I'm living on borrowed time between my brother's fate and the problems of old age. The grim reaper and worse--debilitating illness--always lurks in the left corner of the eye although we don't focus much on that aspect of retirement (or aging).

In any case, I think you have provided a real service of realism to the community. Those who have ears to hear, let them hear.
__________________

__________________
RobLJ is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Looking for advice, criticism, and guidance FIREdToBeExpat Young Dreamers 9 11-01-2013 10:26 AM
28/29 yo military members looking for guidance adeline Hi, I am... 3 12-05-2012 09:27 PM
Been there,done that, have the T'shirt NYEXPAT Other topics 1 09-27-2012 04:54 PM
If Christmas Music had Been Done By the Doors tangomonster Other topics 4 11-27-2007 09:36 PM
New Here - Looking for Guidance arthurb999 Hi, I am... 11 07-25-2006 08:13 AM

 

 
All times are GMT -6. The time now is 05:06 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.