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Please critique our plan
Old 04-24-2019, 08:06 PM   #1
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Please critique our plan

Long time lurker, first time post..

Please critique our plan.

Family:

Husband 43
Wife 40
Child #1 (starts college in 2020)
Child #2 (starts college in 2024)

Current income:

Combined W2 income: $450,000
Net rental cash flow: $30,000 (Goes up to $75,000 if investment mortgage fully paid off)

2018 household expenses:

Mortgage, Extra principal payments, and Property taxes: $60,000.00 50%
Children sports & summer activities: $15,000.00 13%
Food, dining, grocery, clothing and shopping: $20,000.00 17%
Utilities and home maintenance: $6,000.00 5%
Travel & vacations: $5,000.00 4%
Gas and Transportation: $5,000.00 4%
Donations: $5,000.00 4%
Health and Fitness: $2,000.00 2%
Miscellaneous (term life insurance, other, etc): $2,000.00 2%
Total: $120,000.00 100%

Break down of net worth (Assets – Liabilities):

Taxable brokerage accounts + cash: $550,000
Tax deferred retirement accounts (401k, Roth IRA, etc): $1,100,000
Rental real estate equity in 7 properties: $1,000,000
Primary home equity: $450,000
Other long term investments: $300,000
Total NW: $3,400,000

College Savings, not included in NW (529 + UTMA/UGMA): $450,000

Total Debt:
Primary mortgage: $300,000 left over 10 years remaining of a 15 year fixed term @2.875%
Rental mortgage #1: $125,000 left over 7 years remaining of a 15 year fixed term @3.75%
Rental mortgage #2: $115,000 left over 8 years remaining of a 15 year fixed term @2.75%
Total: $540,000

Other:
Husband and Wife have a term life insurance of $1M coverage each through 2023
Umbrella insurance of $1M coverage

Five year 2019-2024 and post-retirement outlook:

1. We have been blessed with a relatively high W2 income from high paying jobs in Tech and Healthcare. But, we both have very demanding, stressful jobs, and we also feel our high income may not last. Therefore, our wish is to semi-retire or significantly scale down work load next year (2020) and fully retire in 5 years (2024) after child #2 leaves for college.
2. In 2024, scale down from current 4000 sqft home and move to a 2000 sqft paid off condo
3. Spend time on healthy hobbies (marathons/triathlons/hiking) and travel post retirement
4. Would like to fund $130,000 of total annual expenses post retirement. Budgeting $25,000 for income taxes, $25,000 for health insurance, and $80,000 for living expenses.
5. Would like to fund college savings up to a total of $500,000
6. We’re both in good health now, but future health care expenses are a concern
7. We’re debt neutral today (Taxable investments offset debt), but would like to be completely debt free in 2024.
8. We live in a MCOL midwest area now. Would like to relocate to a no income tax, retiree-friendly state with warmer weather in 2024.

Questions:

1. What are we overlooking in our plan?
2. What adjustments/refinements do you suggest to our plan?

PS: Posted on other forums, but would love to get input from ER community.
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Old 04-24-2019, 08:36 PM   #2
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Great job of converting a high income into net worth

-your 529 funding is generous, but you can afford it. Might be able to stop contributing now and get enough growth to meet your requirement for #2
-your liability coverage is lower than I would be comfortable with given teen drivers and that net worth
-If you're going to bail out for a lower taxed area, start positioning your rental RE investments to keep it simple when you're living hours away.
-consider backing off the rental mortgage repayment and banking that cash in an account you can access when the paychecks stop.
-after taxes/401K/living expenses, you should have >$200K/yr discretionary. Don't waste it.
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Old 04-24-2019, 11:04 PM   #3
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The low umbrella cover really sticks out, especially with rentals, and your jobs.
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Old 04-25-2019, 12:54 PM   #4
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Quote:
Originally Posted by fullplay2024 View Post
What are we overlooking in our plan?
Federal, state, local income taxes and healthcare insurance are missing from the "household expenses".
Plan for these - up until, and after '2024.
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Old 04-25-2019, 01:41 PM   #5
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Quote:
Originally Posted by fullplay2024 View Post

Please critique our plan.
Let's see... You've got upwards of 3M already. You earn a very high income yet you live off less than 1/3 of it. What's left after taxes goes toward investments (paying down mortgages counts), so your NW will go nowhere but up over the coming years. You also have a large sum amassed toward the education of your two children. Your goal is to live on approximately what you already demonstrate you can live on, which would be on the order of 4% of your current PF, and probably under 3% by the time you punch out.

Sorry, not a chance. You're toast...

...Ha ha! Just kidding! You are doing great. I have no advice, but you clearly don't really need any. I look forward to your future posts.
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Old 04-25-2019, 01:51 PM   #6
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Nice work on achieving high salary and net worth at your ages.

Two things stand out to me

Low life insurance for your income, but since you are retiring, maybe not that big of a concern. It should be inexpensive for you at your age to have much higher life insurance.

Rental net income is low compared to how much equity you have. Consider 1031 into rental properties closer to where you will live. Looks like you have 7 properties at about $200k each and cash flowing $30k after all expenses. $357/property and month which is decent, especially with a 15 year mortgage. I target a minimum $200/door and I try to only do duplexes. With the amount of equity you have you should be able to up your rental income quite a bit if you choose the right properties.

Nice work overall though
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Old 04-25-2019, 04:00 PM   #7
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Three thoughts:
1. Bump up the umbrella coverage.
2. Drop the life insurance. You don’t need it anymore.
3. Sell the rentals. Invest the equity from the rentals in a mix of stocks and bonds. Wellesley? This will simplify your life greatly.
Jmho
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Old 04-25-2019, 04:33 PM   #8
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I'm no expert, but your rental income is a dog compared to your investments. $30,000 / year from $760,000 is 3.9%. Either sell all of it and use the $1M to draw 3.9% (a lot less work) or cash out refi all of them and get your returns up. But like NgineER pointed out, these look like dogs to me. $1M of real estate with a balance of $240,00 should be generating a heckofa lot more than $30k / year.

After you sell all the rentals, you are good to go. Like the rest of your plan.
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Old 04-25-2019, 05:18 PM   #9
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Quote:
Originally Posted by FlaGator View Post
Great job of converting a high income into net worth

-your 529 funding is generous, but you can afford it. Might be able to stop contributing now and get enough growth to meet your requirement for #2
-your liability coverage is lower than I would be comfortable with given teen drivers and that net worth
-If you're going to bail out for a lower taxed area, start positioning your rental RE investments to keep it simple when you're living hours away.
-consider backing off the rental mortgage repayment and banking that cash in an account you can access when the paychecks stop.
-after taxes/401K/living expenses, you should have >$200K/yr discretionary. Don't waste it.
Thank you FlaGator!

1. Good point on 529 funding, but we may flow some funds while we are working so any unused funds can be given to younger nieces and nephews.
2. I'll bump up liability coverage -- this has been a universal comment from everyone.
3. I'll likely outsource to a rental property management once we fully retire. We self-manage the rental properties at the moment.
4. I don't currently make rental mortgage payments beyond what's required for the 15 year loans.
5. You are absolutely right. We roughly add $250K/yr into retirement/college savings. Our net worth grew more than $3M after our relatively high income began 7 years ago.
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Old 04-25-2019, 05:20 PM   #10
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Quote:
Originally Posted by corn18 View Post
I'm no expert, but your rental income is a dog compared to your investments. $30,000 / year from $760,000 is 3.9%. Either sell all of it and use the $1M to draw 3.9% (a lot less work) or cash out refi all of them and get your returns up. But like NgineER pointed out, these look like dogs to me. $1M of real estate with a balance of $240,00 should be generating a heckofa lot more than $30k / year.

After you sell all the rentals, you are good to go. Like the rest of your plan.


Didnít he say that without the mortgages, the revenue is $75,000?
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Old 04-25-2019, 05:38 PM   #11
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Quote:
Originally Posted by Sunset View Post
The low umbrella cover really sticks out, especially with rentals, and your jobs.
Got it, thank you for pointing it out.

Quote:
Originally Posted by joylesshusband View Post
Federal, state, local income taxes and healthcare insurance are missing from the "household expenses".
Plan for these - up until, and after '2024.
Great catch on insurance premiums, they are deducted directly from the paychecks and don't show up on Mint. However, I do track income taxes separately.

Quote:
Originally Posted by Mdlerth View Post
Let's see... You've got upwards of 3M already. You earn a very high income yet you live off less than 1/3 of it. What's left after taxes goes toward investments (paying down mortgages counts), so your NW will go nowhere but up over the coming years. You also have a large sum amassed toward the education of your two children. Your goal is to live on approximately what you already demonstrate you can live on, which would be on the order of 4% of your current PF, and probably under 3% by the time you punch out.

Sorry, not a chance. You're toast...

...Ha ha! Just kidding! You are doing great. I have no advice, but you clearly don't really need any. I look forward to your future posts.
Lol! Thank you for the kind words. Our family expenses certainly grew over last 7-10 years, but definitely not at the pace our income grew.

Quote:
Originally Posted by NgineER View Post
Nice work on achieving high salary and net worth at your ages.

Two things stand out to me

Low life insurance for your income, but since you are retiring, maybe not that big of a concern. It should be inexpensive for you at your age to have much higher life insurance.

Rental net income is low compared to how much equity you have. Consider 1031 into rental properties closer to where you will live. Looks like you have 7 properties at about $200k each and cash flowing $30k after all expenses. $357/property and month which is decent, especially with a 15 year mortgage. I target a minimum $200/door and I try to only do duplexes. With the amount of equity you have you should be able to up your rental income quite a bit if you choose the right properties.

Nice work overall though
Thank you!! Regarding life insurance, we both purchased 10 year term really cheap, which expires in 2023. We feel we don't need life insurance beyond that point.

Aggregate return (CAGR) on rental investments over last 7 years has been close to 12% (7.5% NOI cash flow / mortgage payoff + 4.5% market growth) not including tax benefits.

Quote:
Originally Posted by LiveBelowMeans View Post
Three thoughts:
1. Bump up the umbrella coverage.
2. Drop the life insurance. You donít need it anymore.
3. Sell the rentals. Invest the equity from the rentals in a mix of stocks and bonds. Wellesley? This will simplify your life greatly.
Jmho
1. Yep, noted.
2. Agreed.
3. Something to think about down the road for sure.

Thank you for your thoughts.
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Old 04-25-2019, 05:43 PM   #12
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I'm no expert, but your rental income is a dog compared to your investments. $30,000 / year from $760,000 is 3.9%. Either sell all of it and use the $1M to draw 3.9% (a lot less work) or cash out refi all of them and get your returns up. But like NgineER pointed out, these look like dogs to me. $1M of real estate with a balance of $240,00 should be generating a heckofa lot more than $30k / year.

After you sell all the rentals, you are good to go. Like the rest of your plan.
I'm not sure I understand your Math. But, as I wrote in one of my posts above, my RE returns have been more or less on par with the market.

Aggregate return (CAGR) on rental investments over last 7 years has been close to 12% (7.5% NOI cash flow / mortgage payoff + 4.5% market growth) not including tax benefits.
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Old 04-25-2019, 05:45 PM   #13
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I'm not sure I understand your Math. But, as I wrote in one of my posts above, my RE returns have been more or less on par with the market.

Aggregate return (CAGR) on rental investments over last 7 years has been close to 12% (7.5% NOI cash flow / mortgage payoff + 4.5% market growth) not including tax benefits.
But why are you paying them all off? Leverage the crap out of them and buy more. Or get out. Having a paid off rental just means you are not utilizing your cash ineffectively.
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Old 04-25-2019, 06:55 PM   #14
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But why are you paying them all off? Leverage the crap out of them and buy more. Or get out. Having a paid off rental just means you are not utilizing your cash ineffectively.
I have seen a few people who were leveraged and retired early on RE. But, they were forced to sell and return to workforce after the 2009 crash. My goal is to be debt free in retirement.
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Old 04-25-2019, 06:58 PM   #15
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I have seen a few people who were leveraged and retired early on RE. But, they were forced to sell and return to workforce after the 2009 crash. My goal is to be debt free in retirement.
Varying opinions here on carrying debt. Agree with you. We are in retirement and debt free. Sleep a little better.
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Old 04-25-2019, 07:09 PM   #16
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OP - I'm impressed with your responses to all the feedback - accepted it all, and explained, with sound reasoning, why you deviated from the advice.

Think you got it nailed. Are you sure you're a "medical professional"?

Would be nice to have you hang out and contribute.

Best of luck to you and your family!
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Old 04-27-2019, 08:52 AM   #17
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OP - I'm impressed with your responses to all the feedback - accepted it all, and explained, with sound reasoning, why you deviated from the advice.

Think you got it nailed. Are you sure you're a "medical professional"?

Would be nice to have you hang out and contribute.

Best of luck to you and your family!
@FlaGator,

Thank you for kind words. I have benefited so much from lurking on this forum last few years. Yes, I hope to hang out and pay it forward. Cheers!
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Old 04-27-2019, 09:31 AM   #18
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I don't have any advice.
You would be the one giving me advice.
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