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45 years old, 3 teenage kids, recent $$ windfall, can i retire?
Old 08-07-2015, 06:46 AM   #1
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45 years old, 3 teenage kids, recent $$ windfall, can i retire?

Hello - been lurking here for atleast a year now ... learning quite a bit but can always use some additional insight from those of us who have been down the untraveled road and exited unscathed on the other side

Have been involved in network engineering/consulting my entire career and am coming up on 23 years of w*rking both independent consulting as well as full-time. Went through the dot.com boom and bust and maintained my path to investing (with the inevitable ups and downs, mostly downs during early 2000's) and was largely out of the markets during the financial crisis and became active again in 2011 but am once again largely in Cash holdings over the past couple of weeks after giving back a lot of paper gains to Mr. Market and being quite skittish to remain long the market at this point for obvious reasons.

Instead of being in the market during the 2005-2011 period, i was actively investing in NYC real estate. Purchased a mixed use (residential and store) building in 2005 for $1.26M with 900k debt , have been cash flow positive since 2007, refinanced it for $1.8M in 2013 with a current market value of $4.5M (pulled out ~$650k cash) , that continues to throw off approx $5k per month in income. Also 33% partner on another 24 unit building in Chinatown, NYC that does not currently cash flow but has appreciated significantly. Pulled out our original investment during a recent refinance as well .

Joined a networking firm in 2002 that very recently received a large private equity investment - i was holding shares in the company that were bought out by the private equity investors, ; received $2.35M cash as part of this transaction , of which i need to pay long term capital gains taxes in 2015. Should net $1.65M when all is said and done.

Still currently employed with same firm, however , i have requested to step down from my mgmt position to more of an individual contributor role - trying to reduce stress while i figure out what i want to do from here on ... salary + bonus has been approx $300k / pa for last 6 years but with new private equity investors things are bound to change (unknown right now) plus i need to deal with my new position reporting to an individual who was formally my direct report that i swapped spots with

I do not want to retire to not work -- i am ambitious to invest in deals as they present themselves to me - whether in the markets or real estate or other opportunities that i can now pay some attention to (franchise, new biz opportunity , etc). But my question for the group here is : If no new income generating opportunities came together quickly to provide additional passive income/cash flow ; are we going to be OK?
Largest expenses on the horizon is obviously college for the kids....and our monthly expenses are high.

Here's my financial situation:
Primary Residence: $1.7M ($800k owed @ 2.875% interest)
Vacation Residence: $900k (no debt)
Cash Holdings: $3.2M ( 270k within an IRA) and after taxes paid
Stocks: $270k in various 401(k) accounts
Real Estate Investment Equity: $4M (after debt) on 2 NYC properties if i were to sell.

Rental Income (Currently): $5-6k / month

I could always rent vacation property for $4-5k/month if necessary but not very interested in doing so if it is not absolutely needed.

I know the cash is not paying any divs sitting in cash, but this bull market seems long in the tooth and better prices should be on the horizon over the next 6-12 months.

Expenses:
Home Mortgage: $5559/mo
Property Taxes (aggregate): $3666/mo
HOA Fees: $1500/mo
Utilities , insurance and misc: $1300/mo
Groceries / shopping, travel: $5000/mo
Let's call is $17k/mo without a need to change of current lifestyle. ($200k/year)

Thoughts?
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45 years old, 3 teenage kids, recent $$ windfall, can i retire?
Old 08-07-2015, 07:25 AM   #2
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45 years old, 3 teenage kids, recent $$ windfall, can i retire?

Here's one thought...

You pulled out of the Stock market as you think it is not good. Yet you hold a negatively cash-flowing real estate venture. Sell that boat anchor. If rates go up, the RE price will likely fall. I always question real estate returns unless they include a number of ~45% for expenses not including debt.

If you need $200K a year, and $60K is provided by your RE, you need an additional $140K annually. That's 3.5M invested in something, not cash.

Get over your fear of the market, or buy an annuity. Or let a Financial Adviser manage your money.

You do not have near enough money to retire on your lifestyle, at 43 years old, unless you can get a much better return or liquidate the RE.
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Old 08-07-2015, 07:36 AM   #3
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Originally Posted by Bnk1 View Post

Expenses:
Home Mortgage: $5559/mo
Property Taxes (aggregate): $3666/mo
HOA Fees: $1500/mo
Utilities , insurance and misc: $1300/mo
Groceries / shopping, travel: $5000/mo
Let's call is $17k/mo without a need to change of current lifestyle. ($200k/year)
Just wanted to mention that with budget expenses, you need to include taxes. If you need $200K/yr then probably need close to $280K to net $200K. Different sources of income will incur different tax rates, but you need to cover for that expense also.
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Old 08-07-2015, 07:41 AM   #4
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Here's one thought...

You pulled out of the Stock market as you think it is not good. Yet you hold a negatively cash-flowing real estate venture. Sell that boat anchor. If rates go up, the RE price will likely fall. I always question real estate returns unless they include a number of ~45% for expenses not including debt.

If you need $200K a year, and $60K is provided by your RE, you need an additional $140K annually. That's 3.5M invested in something, not cash.

Get over your fear of the market, or buy an annuity. Or let a Financial Adviser manage your money.

You do not have near enough money to retire on your lifestyle, at 43 years old, unless you can get a much better return or liquidate the RE.
I am only temporarily out of the markets. I will be back in after we get a normal correction, which will always do.

The non-cash flowing property has risen in value from the 2.6M we paid to over $8M today. It operates slightly above break-even - i'm OK with holding this non-performing asset for now...there is only so much land on the island of Manhattan
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Old 08-07-2015, 07:55 AM   #5
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On this board, most will argue you should always be invested, that trying to time the market can only end poorly for you. Several studies have found that although the market has returned 8-10% over past many years the average investor has only seen something like 5-6% return due to poor timing.


You may be one of the minority that can dodge market drops and get back in to capture the gains, so I'm not going to comment on your ability to do this or not. However, most successful investors I have heard of agree that 99.9% can't time the market. I have an asset allocation of 25% real estate, 50% stocks and 25% fixed income. I stick with that as much as I can with the ups and downs. With Re such as it is, you can't just move 3% from RE to stocks so I have to deal with that best I can.


You have done better than I so I would only suggest you take it under advisement and then do what you think best.
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a different perspective
Old 08-07-2015, 08:02 AM   #6
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a different perspective

I'll give you a different perspective, as someone who is in your approximate snack-bracket and has similar considerations (I have not done as well as you have and not at your age so hat's off). Given the outline of what you have told me, I think you are incredibly well positioned and have done extremely well against any possible expectations you should have. Without any fancy maths or deep analysis, I think you have more than enough to live comfortably at that expenditure quantum, give or take, for the rest of your long life.

Should that be what you decide to do, you can do that and stay active in "business" as you might define it.

Your anxiety is natural - successful risk takers must always feel some fear - as it helps shape decisions and acts as a natural check and balance.
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Old 08-07-2015, 08:06 AM   #7
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Question: how much do you really need?
If you sell the 8M property and realize a gain of 4-5M from that + other assets then the only other question would be do you want to cut your expenses to be able to live comfortably on your assets?
Do you want to continue living in a high expense area?
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Old 08-07-2015, 08:20 AM   #8
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Question: how much do you really need?
If you sell the 8M property and realize a gain of 4-5M from that + other assets then the only other question would be do you want to cut your expenses to be able to live comfortably on your assets?
Do you want to continue living in a high expense area?
If i sold my NYC real estate i would clear about $4M + vacation property (do not really want to ever sell this one on the beach!) would provide ~$5M but would need to pay capital gains or do a 1031 exchange into a Delaware Statutory Trust @ .85/ dollar.

I do not mind holding real estate though as the property mgmt work is somewhat interesting to me for now.
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Old 08-07-2015, 08:42 AM   #9
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Welcome to the forum. You have done very well for yourself. I think you have more than enough assets to retire, or just pursue whatever your interests are without regard for how much income they may generate.

As others have stated, you won't get much buy in on this forum for your market timing strategies. But as long as you have your money invested in something that generates enough to keep up with inflation, you should be able to do just fine.
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Old 08-07-2015, 09:44 AM   #10
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You have done well. I would just caution you that you can't live on the unrealized appreciation of your non-performing real estate. COnverting that asset into spendable cash may not be a quick and easy proposition. I know if I was pulling the trigger in your situation, I would cash that out and reinvest in a more liquid vehicle.

Finally, probably the greatest risk to you retirement would be your apparent belief in your ability to time the market. Countless academic studies point to the failure of timing strategies. Good luck with that.
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Old 08-07-2015, 12:31 PM   #11
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You have done well. I would just caution you that you can't live on the unrealized appreciation of your non-performing real estate. COnverting that asset into spendable cash may not be a quick and easy proposition. I know if I was pulling the trigger in your situation, I would cash that out and reinvest in a more liquid vehicle.

With $3.2M in cash and another $270K in the 401K (or $3.5M) should last a while once invested. If RE is working, I'd say stick with it as long as it keeps working for you. Just remember history is not guaranteed to repeat. Don't count on the same increase in asset value you have seen in the past. Goes for RE, stocks, bonds, etc.
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Old 08-09-2015, 12:50 PM   #12
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I do not want to retire to not work -- i am ambitious to invest in deals as they present themselves to me - whether in the markets or real estate or other opportunities that i can now pay some attention to (franchise, new biz opportunity , etc).
It seems like the answer to your question is not y/n, but "Where am I on a spectrum of tradeoffs between, on one end, 'No w*rk and somewhat reduced spending' to 'Continued w*rk I most want to do while maintaining current lifestyle'." The Mr. Money Mustache blog has a recent post you might Google about how very early retirement to him is really about achieving freedom to do one's BEST work, paid or not. Good luck enjoying the benefits of the mostly-good investing decisions that have gotten you this far and relatively quickly.


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Old 08-10-2015, 02:27 AM   #13
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The math says you'll be fine.

If things go badly, you clearly have the ability to go back into the marketplace and earn your keep. That's good.

On the other hand, your wheelings and dealings seem like gambling to me. You like to try to time the market, you imbue your words with trader jargon, and your RE transactions were concentrated and leveraged. (There, I used some some jargon, too. ) So you strike me as a gambler.

I am a gambler, so I am both sympathetic and not picking on you. But we gamblers are dangerous in "retirement", because we want to meddle, and double down, and do stuff that the math suggests is not conducive to "safe" retirement. If you can't resist plowing your resources back into more concentrated bets, your risk of ruin will be much, much higher than a normal FIREe.

Good luck either way. Have fun!
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Old 08-10-2015, 07:30 AM   #14
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Symbiotic, excellent observations and guidance. A safe and very do-able context for the OP could turn risky and tight based on bad decisions, questionable timing attempts, or over-concentration in the wrong thing at the wrong time. I went through a "gambling" phase and lost significantly and required a major rebuild. That lost capital and opportunity time would have been very nice to have now. It would not have been a rounding error! I was clearly not as smart as I believed and it was a very expensive lesson to learn when "you couldn't lose", a "monkey can make double digits", and "you had to be in the market or fall behind" (tech boom and bust of 2000).
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Old 08-10-2015, 07:39 AM   #15
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The math says you'll be fine.

If things go badly, you clearly have the ability to go back into the marketplace and earn your keep. That's good.

On the other hand, your wheelings and dealings seem like gambling to me. You like to try to time the market, you imbue your words with trader jargon, and your RE transactions were concentrated and leveraged. (There, I used some some jargon, too. ) So you strike me as a gambler.

I am a gambler, so I am both sympathetic and not picking on you. But we gamblers are dangerous in "retirement", because we want to meddle, and double down, and do stuff that the math suggests is not conducive to "safe" retirement. If you can't resist plowing your resources back into more concentrated bets, your risk of ruin will be much, much higher than a normal FIREe.

Good luck either way. Have fun!
Symbiotic : Your analysis of my personality is spot on! But I realize capital preservation and growth over time is what is most important at this juncture so that i can realistically maintain our current lifestyle on dividends and rental income alone. My intense goal of capital preservation is what has led me to go to Cash for the time being as everything i see points to a correction in the near term that i would really like to avoid before getting back into the markets with a globally diversified mix of index ETFs with some tactical asset allocation. To stomach a bear market out of the gate , if it were to happen, would not make me feel very confident and would certainly increase my levels of stress instead of reducing it.

How do you guys justify staying the course during downturns that could reduce your capital 20-30%?
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Old 08-10-2015, 07:42 AM   #16
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Symbiotic, excellent observations and guidance. A safe and very do-able context for the OP could turn risky and tight based on bad decisions, questionable timing attempts, or over-concentration in the wrong thing at the wrong time. I went through a "gambling" phase and lost significantly and required a major rebuild. That lost capital and opportunity time would have been very nice to have now. It would not have been a rounding error! I was clearly not as smart as I believed and it was a very expensive lesson to learn when "you couldn't lose", a "monkey can make double digits", and "you had to be in the market or fall behind" (tech boom and bust of 2000).
So what you are stating is that had you been out of the market during the dot com implosion, you would be way ahead right now! While i'm not suggesting we are at the same/similiar bubble levels as in those days, there is nothing normal about the global QE and coming end to our ZIRP that history doesn't really serve as any basis for what's going to happen next. While uncertainty does generally give rise to higher markets ("climbing a wall of worry") there is always an inevitable shake out that occurs before next leg higher.
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Old 08-12-2015, 09:21 AM   #17
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You have done well. I would just caution you that you can't live on the unrealized appreciation of your non-performing real estate. COnverting that asset into spendable cash may not be a quick and easy proposition. I know if I was pulling the trigger in your situation, I would cash that out and reinvest in a more liquid vehicle.

Finally, probably the greatest risk to you retirement would be your apparent belief in your ability to time the market. Countless academic studies point to the failure of timing strategies. Good luck with that.
Looks like a picked a pretty good time to move to an all cash position last week -- mostly based on intuition and clearly luck!
Now when to get back in , which is the 2nd and often harder part of the equaution!
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Old 08-12-2015, 09:29 AM   #18
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Perhaps and perhaps not. You got out but if you simply stay the course the results are likely to be exactly the same as if you had tried to time it, or better! That is my experience over 30 years of these cycles starting with the crash of 1987 (my first).
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Old 08-12-2015, 09:35 AM   #19
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Yep, the hard work is still ahead of you. Good luck with your future intuition.

So many apparently good decisions turn out to be less than optimum when seen in the rear-view mirror...
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Old 08-12-2015, 04:45 PM   #20
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The other problem with moving in and out of the market, even if you were a great market timer, is that taxes (even at capital gains rates) can be punishing. The better you are at timing, the more painful the taxes.
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