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need help with financials before we pull the plug
Old 12-28-2017, 01:25 PM   #1
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need help with financials before we pull the plug

A year and a half ago I posted here b/c DH was given the option of a package and we were all revved up to take it.

We didn't. Fear and feelings of uncertainty (both financial and emotional) set in and we decided to wait. It was the right decision at the time, though we sure wish they were handing out packages now, ha. All water under the bridge...

So here we are and DH is ready. Commute time has doubled, friends are being diagnosed with devastating diseases. Time to get off the hamster wheel and have fun. We have lots we want to do and we still really like each other!

I am including our current financial info, with notes, below. I'm basically trying to determine two main issues:

1. how to translate these different sources of funds into monthly (annual?) money for our living expenses

2. What shifts/rebalances we might make going forward? Our money is either in cash or equities.

Thanks in advance for taking the time to go through this. It's a lot of information but I figure it's easier just to put it out there.

(He just turned 55 by the way, and I'm about to turn 55)

Household/Living Expenses:
Monthly expenses, current - $12,500


Fidelity account(as of 12/28/17)
Retirement accounts:
Provident fund – $1,489,884
PF BRP - $270,270 Total of the two: $1,760,154
(Note: our accounts are roughly 90% equities. Aggressive growth)

Individual stocks within Fidelity- $1,017,455.00

Other stocks:
Ameritrade – $57,000
Random DRIPS –? Need to explore – likely minimal (i.e. guessing under $20,000)

Pension:
Monthly – $6124
Lump sum: (these are in addition to the monthly pension)
APF - $240,000
New Money Alliance - $45,366 Total of the two lump sums: $285,366

Social Security (2029)
• DH: $1,844 monthly ($22,128)
• DW: $354 monthly ($4,248 annually)
Credit Union account:
Cash– $270,000
Money Market account – $107,000
Savings -$7,600 Total of 3 credit union accounts: $ 384,600

College:
College fund: $16,000
Remaining expenses: roughly $10,000 (incl. rent, living allowance, graduation expenses, suit, etc.)
Approximately $6,000 left to consider


Notes:
• At $12,500 monthly expenses, we’d need $150,000 a year or $450,000 to cover 3 years of our current expenses (peace of mind). This does not take into account home remodeling, extensive travel or other “unusual” expenses.
• Our monthly income from DH pension is $6124. This leaves a shortage of $6376 each month (or, $76,512 a year until Soc. Sec. kicks in 2029 which is 12 years; would still have a shortage then too, just not as much). This does NOT take into account the two pension lump sums. We need to put those to work.
• We were planning to do some fairly major work on the farm and the house and had originally earmarked $300,000 for that. I’m not sure how that will work now.
• We have used YNAB to track expenses and they are pretty consistent. We’ve taken college expenses out of the equation because those are taken care of until son graduates.
• FIRECALC shows 100% good to go. I’m just trying to figure out how to make it work.

Thanks again. I really do appreciate your time and your wisdom!
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Old 12-28-2017, 01:58 PM   #2
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Not sure exactly what youíre asking since youíve already run this through Firecalc and got a positive result. A few questions/comments:
- Does your monthly cash need include taxes? If not have you estimated how much more youíll need to fully fund any income taxes?
- You mentioned that your spending needs donít include home remodeling, extensive travel or other unusual expenses. I think itís valuable to budget for things you want to do. If you donít care about travel, thatís fine, but if youíre intending to do more travel, dining out, etc. once youíre retired, Iíd budget for that.
- You didnít mention how youíll fund healthcare prior to Medicare. Do you have a Megacorp retiree medical plan or will you have to self-pay? DH and I self-pay and that is probably our biggest uncertainty as to what to budget. Fidelity Retirement Income planner can help you estimate it.
- I would also budget a substantial contingency for unexpected expenses (home maintenance, car replacement, major illness, etc.). How much is enough depends on lifestyle and how much of your spending need is discretionary vs non-discretionary. In our case, we budgeted a significant increase in travel and dining out. We figure if the market tanks and/or we have a major unexpected expense, we will cut travel, gifting and dining out to make up for it. About 45% of our budgeted monthly spending is fully discretionary so we have a lot of room to reduce costs.

Having said all of this, it seems to me that with your generous pensions and the assets you have, you probably have enough. Your projected spending level is not too different than ours. Our portfolio value is bigger than yours, but our pension is much smaller. So far since we REíd 14 months ago, our biggest financial issue has been how to keep our taxable income as low as we can. Multiple streams of income and access to a substantial taxable portfolio are helpful. We ERíd at 56/57.

One thing you might consider is to pay a financial advisor for a one-time review of your situation. The FA could do a number of things for you:
- Validate whether you have sufficient cash flow to meet your retirement needs
- Advise on whether there are any expenses you forgot to fund in your retirement cash flow needs projection
- Confirm what youíll likely need for taxes
- Help you devise a plan to convert your assets from pure growth to income/cash flow producing (this is a major benefit we got from the FA we hired).

You donít have to hire an FA to manage your portfolio on an ongoing basis but a one-time investment IMO is well worth it before making such a major life decision. Good luck!
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Old 12-28-2017, 02:11 PM   #3
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  • Consolidate accounts to make management easier.
  • Do a spreadsheet and determine you AA. You have 90% equity at Fido, but have a few hundred k in cash. I imagine that in RE, you might want to be between 60% and 70% equities.
  • LTC?
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Old 12-28-2017, 02:11 PM   #4
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You basically have $2.5 MM in current/lump sum assets to cover about $6,000/mo until SS kicks in in 2029. You then only need about $4,000/mo moving forward. The "accepted" rule of thumb is to limit withdrawals to 4%. Your $2.5 MM can have $100,000 per year taken out with a 60/40 asset allocation. You have achieved a financially acceptable situation without getting any SS.


For health coverage, I'd suggest looking at faith based health sharing plans. They cost much less. My DW is on Liberty Health Share for about $200/mo with a $500 annual deductible. I don't have a clue about family plans. There are health restrictions that would slow benefits but it really beat the exchange plans if you aren't getting mega subsidies. As far as "faith based" goes, I think you can worship crystals or even money. There aren't any specific questions about your "faith."


By the way, you have almost joined the club of "I have $3MM. Can I retire?" Most of the people here would laugh at your level of expenses. I'm surprised you haven't had any comments about that by now.
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Old 12-28-2017, 02:26 PM   #5
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Thanks for your thoughts, Scuba.

My main questions are about how to translate our different funding sources into monthly income. I.e., take a percentage of withdrawal from 401K, create CD ladders, use the pension lump sums for cash...I know there's got to be a sensible way to most efficiently use those funds for monthly cash flow. Second question was more about asset allocation.

To answer your questions:
1. Yes, our monthly expenses include taxes, insurance and healthcare.
2. We will get healthcare through DH's company at a reduced rate and that is figured in
3. Our expenses up to this point have taken household expenses into account, including unexpected ones like replacing the sewer line, re-leveling the foundation and making subsequent repairs, doing some fairly major work at the farm
4. When I did FIRECALC, it allows up to $14,666 of expenses a month to still be 100%
5. You are correct about "other expenses"...I need to think that through. By way of explanation, I had initially thought we'd use some of our cash for the remodeling but I'm thinking we may need that for cash flow. What I DIDN'T say was that I didn't use any of our Credit Union money (checking, savings, money market) when I computed FIRECALC. That's why I was earmarking it for remodeling and other possible future "bigger" expenses. (Our cars are fairly new - 2013 and 2015)
6. We don't travel much, don't have a huge interest in traveling a lot, though we would like the option like you said. We're fairly moderate in our traveling expenses..
7. The biggest unknown is whether or how long we'd keep both our house in the city and our small farm. If we sold either one of these, it wouldn't be an issue. But, we want to have the option not to have to sell either, and DH doesn't want to bail out too earlier b/c of that issue. He doesn't want to sell the farm to quit work, b/c one of the things he really wants to do is to be at the farm more.

DH is super responsible, not a risk taker. He'd let himself be miserable for 2 more years if he thought it would make my life easier. I want to show him it can be done. I want more of his time, not more of his money.

We did pay for and have an Ameriprise review a few years ago and it was helpful. Last year we went to Fidelity and they gave us the green light.

Where I am stuck is how to go from having the funds that we have in the places that they are, and translating that into monthly cash.

You've given me good food for thought, Scuba. I appreciate that! Thank you!
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Old 12-28-2017, 02:28 PM   #6
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Quote:
Originally Posted by Z3Dreamer View Post
  • Consolidate accounts to make management easier.
  • Do a spreadsheet and determine you AA. You have 90% equity at Fido, but have a few hundred k in cash. I imagine that in RE, you might want to be between 60% and 70% equities.
  • LTC?
LTC. That's a valid question. No we do not have LTC insurance. I've gone back and forth on that.
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Old 12-28-2017, 02:35 PM   #7
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Originally Posted by 2B View Post
You basically have $2.5 MM in current/lump sum assets to cover about $6,000/mo until SS kicks in in 2029. You then only need about $4,000/mo moving forward. The "accepted" rule of thumb is to limit withdrawals to 4%. Your $2.5 MM can have $100,000 per year taken out with a 60/40 asset allocation. You have achieved a financially acceptable situation without getting any SS.
Thanks 2B. This is where I'm stuck. I'm trying to determine the best way to do that since my accounts are not all consolidated. I have cash, I have 401K, I have individual stocks. I'm trying to think that through and would love to hear any thoughts on that.

We'd like the option for him to retire by the end of the first quarter of 2018, or at least in the summer.
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Old 12-28-2017, 02:37 PM   #8
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Quote:
Originally Posted by Z3Dreamer View Post
  • Consolidate accounts to make management easier.
  • Do a spreadsheet and determine you AA. You have 90% equity at Fido, but have a few hundred k in cash. I imagine that in RE, you might want to be between 60% and 70% equities.
  • LTC?
Z3, do you have any thoughts on consolidation? And also how to do that to make it most efficient from a tax standpoint?
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Old 12-28-2017, 05:09 PM   #9
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I would roll your tax-deferred investments into a Vanguard IRA account (direct rollover = no taxes) and use the 72t rule (SEPP, or substantially equal periodic payments) to take early distributions before 59.5). Then, take taxable accounts, and look at the cost (tax bill) to move them into Vanguard brokerage account. I'd move some each year, minimizing the impact to your annual tax bill (need to know what % of your taxable assets are subject to tax, either short or long-term gains, first). I'd invest in low-cost mutual funds, or a target retirement fund (which would be too conservative for me). ~$1.5M of your assets with Fidelity are subject to an expense ratio of 1.06% annually!!!! Definitely time to switch to Vanguard, IMHO.

BTW, is there anything prohibiting DW from taking spousal SS benefits based on his earnings history? If not, that should bump the SS payments.

This sounds a bit complex, and any missteps could have huge tax consequences. DISCLAIMER: If I were you, I'd consult a CPA and tax person before making an major changes.
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Old 12-28-2017, 05:23 PM   #10
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Originally Posted by HNL Bill View Post
I would wait until you are both at least 55, then roll your tax-deferred investments into a Vanguard IRA account (direct rollover = no taxes) - that way, any disbursements can be penalty-free. Then, take taxable accounts, and look at the cost (tax bill) to move them into Vanguard brokerage account. I'd move some each year, minimizing the impact to your annual tax bill (need to know what % of your taxable assets are subject to tax, either short or long-term gains, first). I'd invest in low-cost mutual funds, or a target retirement fund (which would be too conservative for me). ~$1.5M of your assets with Fidelity are subject to an expense ratio of 1.06% annually!!!! Definitely time to switch to Vanguard, IMHO.

BTW, is there anything prohibiting DW from taking spousal SS benefits based on his earnings history? If not, that should bump the SS payments.

This sounds a bit complex, and any missteps could have huge tax consequences. DISCLAIMER: If I were you, I'd consult a CPA and tax person before making an major changes.
Not if it's a 401K, could easily be better to leave it there to get the age 55 withdrawal without penalties.
OP - needs to check their 401K rules (if they have one).
A person needs to be 59.5 to withdraw from IRA without penalties (unless sets up 72t), so moving all to IRA would cause penalties.
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Old 12-28-2017, 05:27 PM   #11
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Sunset - Sorry, you are so right. SEPP would then be the only way around it. With $1.5M in assets, with an expense ratio of 1.06%, you're paying some $15K annually in fees...so it might be worth it to get down to 0.18%!
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Old 12-28-2017, 05:34 PM   #12
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I like the idea of consolidation, and doing so certainly simplified my life. It has made it easier to understand my financial position and identify sources for living expenses. I see 2 major pieces to be consolidated (taxable & tax-deferred), each with a few steps.

Taxable:
If you're happy with Fidelity and they have a nearby office, gather your most recent Ameritrade and DRIP account statements, go to their local office, dump them on their desk and tell them you want to consolidate everything with them. They'll be happy with the additional business. Holdings can be directly transferred without tax consequences, and Fido knows how to do it.

If you're not happy with Fido, do the same thing with Schwab or Vanguard (although Vanguard will be only by phone).

Tax deferred and pensions:
Since you won't need access to your IRAs for several years, I would consolidate them in the same manner as well. The pension lump sum and 401k can be rolled over to an IRA after separation. There may be estate planning and liability considerations with this consolidation, so appropriate advice should be sought.

Once everything is in 2 discrete buckets, you can decide how you want to adjust your asset allocation and manage the timing of any changes you want to make. When you consider your AA, look at the combined balances across taxable/deferred.
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Old 12-28-2017, 06:00 PM   #13
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Originally Posted by 2B View Post
You basically have $2.5 MM in current/lump sum assets to cover about $6,000/mo until SS kicks in in 2029. You then only need about $4,000/mo moving forward. The "accepted" rule of thumb is to limit withdrawals to 4%. Your $2.5 MM can have $100,000 per year taken out with a 60/40 asset allocation. You have achieved a financially acceptable situation without getting any SS.


For health coverage, I'd suggest looking at faith based health sharing plans. They cost much less. My DW is on Liberty Health Share for about $200/mo with a $500 annual deductible. I don't have a clue about family plans. There are health restrictions that would slow benefits but it really beat the exchange plans if you aren't getting mega subsidies. As far as "faith based" goes, I think you can worship crystals or even money. There aren't any specific questions about your "faith."


By the way, you have almost joined the club of "I have $3MM. Can I retire?" Most of the people here would laugh at your level of expenses. I'm surprised you haven't had any comments about that by now.
2B, which figures are you consolidating to get the $2.5 MM? Also, I failed to say that the lump sum pension figures are pre-tax.

Curiously, do my expenses seem high or low to you? They would be much lower if we didn't have the farm. I know we all have wildly varying degrees of spending and I think it's because of that wide variability that I couldn't discern if mine seemed high or low to you. Just curious, ha. All good.
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Old 12-28-2017, 06:10 PM   #14
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any missteps could have huge tax consequences. DISCLAIMER: If I were you, I'd consult a CPA and tax person before making an major changes.
+1
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Old 12-28-2017, 06:23 PM   #15
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Not if it's a 401K, could easily be better to leave it there to get the age 55 withdrawal without penalties.
OP - needs to check their 401K rules (if they have one).
A person needs to be 59.5 to withdraw from IRA without penalties (unless sets up 72t), so moving all to IRA would cause penalties.
I looked at an IRA but leaving it in the 401K seemed to make more sense because we aren't penalized for early withdrawals. We have many options in our 401K as well. Would there be a good reason to transfer part of that money to an IRA? I'd like to keep it as simple as possible, but also want to make good tax-related decisions.
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Old 12-28-2017, 06:31 PM   #16
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Originally Posted by FlaGator View Post
I like the idea of consolidation, and doing so certainly simplified my life. It has made it easier to understand my financial position and identify sources for living expenses. I see 2 major pieces to be consolidated (taxable & tax-deferred), each with a few steps.

Taxable:
If you're happy with Fidelity and they have a nearby office, gather your most recent Ameritrade and DRIP account statements, go to their local office, dump them on their desk and tell them you want to consolidate everything with them. They'll be happy with the additional business. Holdings can be directly transferred without tax consequences, and Fido knows how to do it.

If you're not happy with Fido, do the same thing with Schwab or Vanguard (although Vanguard will be only by phone).

Tax deferred and pensions:
Since you won't need access to your IRAs for several years, I would consolidate them in the same manner as well. The pension lump sum and 401k can be rolled over to an IRA after separation. There may be estate planning and liability considerations with this consolidation, so appropriate advice should be sought.

Once everything is in 2 discrete buckets, you can decide how you want to adjust your asset allocation and manage the timing of any changes you want to make. When you consider your AA, look at the combined balances across taxable/deferred.
FlaGator, I like the idea of simplifying things. We do have a Fidelity office close by and our money is already in Fidelity so we'll stick with them. I had looked into switching to Vanguard at one time, but the move didn't make sense then. I can't remember the particulars. It's a good idea to consider taking Ameritrade and DRIPS there. I hadn't figured out if I needed that as cash.

Tax deferred: Since we might be keeping the 401K, then I need to figure out where to put the lump sum pension.

I agree that I need to seek advice from a tax standpoint...Thanks for your input!
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Old 12-28-2017, 06:51 PM   #17
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Originally Posted by steady saver View Post
FlaGator, I like the idea of simplifying things. We do have a Fidelity office close by and our money is already in Fidelity so we'll stick with them. I had looked into switching to Vanguard at one time, but the move didn't make sense then. I can't remember the particulars. It's a good idea to consider taking Ameritrade and DRIPS there. I hadn't figured out if I needed that as cash.

Tax deferred: Since we might be keeping the 401K, then I need to figure out where to put the lump sum pension.

I agree that I need to seek advice from a tax standpoint...Thanks for your input!
I agree to consolidate would be a great idea and an easier way to produce the income you need. Don't forget that you will get up to 50% of his SS as spousal income so yours should be more like 900 plus per month. Your investments should put off over 60-70k per year just in dividends and interest. That along with the pension should supply enough to pay taxes also. Lump sum pension should be rolled into an ira to keep it tax deferred for as long as possible. Taxable funds will be the most valuable as you can use them to control the amount of taxable income each year. Plan to withdraw from multiple accounts to pay minimum taxes.

Best wishes,

VW
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Old 12-28-2017, 08:33 PM   #18
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Isn't spousal social security half of the main breadwinner (if more than the lower paid spouse) especially since you are close in age and can start drawing about the same time?
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Old 12-28-2017, 09:08 PM   #19
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Isn't spousal social security half of the main breadwinner (if more than the lower paid spouse) especially since you are close in age and can start drawing about the same time?
yep see post 17
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Old 12-28-2017, 10:11 PM   #20
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Move to the farm, get yourself a tractor and plant yourself a big garden. That way you will be assured of eating well while you figure out how to spend your substantial financial resources.

You really ought to be offering us advice instead of asking for advice.
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