Finance Dave
Thinks s/he gets paid by the post
- Joined
- Mar 29, 2007
- Messages
- 1,864
I have a variety of questions, would like your thoughts.
Background:
We both work today at MegaCo and are in the 33% marginal bracket. That will change when I rehire in the next 1-2 years, as we'll then be in the 25% bracket for a couple years, and after that will be in the 15% bracket. We are high earners, but LBYMers...so we live more like someone in the 25-28% bracket today. I'm not sure I NEED munis given this, but would like your thoughts. I anticipate we'll spend around $75-$80k our first year of rehirement, indexed for inflation after that.
We have few tax deductions, as our mortgage is paid off (recently) and we have few medical expenses currently.
Our rehirement savings are around $1.6M now, 70/30 AA. Goal is to get to about $1.9M before she leaves the workforce. I do plan to work a part-time low-wage job for a few years. We have no pensions, but do have excellent cash balance plans with lump-sum balances, 401k plans, Roth IRAs, and after-tax accounts...all of which are included in the $1.6M above. Between what we put into our rehirement accounts and what the MegaCo put in, we're adding about $60k/year to the balance...add a bit of growth and hopefully we'll hit the $1.9M soon.
We also own 2 rental properties, currently negative cash flow as we only started 2 years ago and are still plowing profits back into major repairs such as siding, kitchen floors, and so on...but anticipate buying one more, and having net income of about $12k/year for eternity starting in about 3 years (by then we hope to have all the major upgrades done and the ongoing repairs will be more modest). One of the rentals is fully paid for, the other partly borrowed on a HELOC but we plan to pay it off in 2-3 years, and a new one would be borrowed on the HELOC if rates stay low, or could pay out of savings if needed but it would put our emergency fund on the thin side. I'm very handy and do 80% of the work myself on the rentals and manage the tenants...therein might lie my part time job in rehirement.
First off, bonds:
Considering some bond purchases in the next few years. I know there are trade-offs between bonds and bond funds. Want to explore a few things and hoping you folks can help.
1) As long as I buy an individual bond and I hold to maturity, I'm guaranteed (except in the case of bankruptcy) face value plus the coupon, right? (yes, I know if there's a call option, that's another risk)
2) What risks are there then to laddering individual bonds?
3) Compare and contrast a bond such as above to a dividend-paying stock (sounds like an exam question) . I know the "place in line" with a stock is lower, but could buy preferred stock to improve this...although obviously creditworthiness of the company is a key factor).
4) I've always heard "GO" (General Obligation) bonds are a safer choice in terms of munis...what are your thoughts on this?
5) If buying munis, I'd want to do so in an after-tax account, right? Other than this, any tax considerations?
I've bought a few individual ones for my dad, as I manage his finances, but it's a relatively small position in his portfolio and basically it was to ladder some liquidity...did this 5 years ago and it's working well compared to the piddly rates being offered today.
Second, medical insurance/costs:
We will likely have to purchase private medical insurance before DW leaves the full-time workforce in about 3 years.
1) I don't want to be "uninsurable", so I'd like to purchase this coverage BEFORE she FIREs...what do you think of this approach? We're both relatively healthy now, but things like blood pressure and cholesterol are marginal and I'm not sure how insurance companies view that.
2) If we buy LTC and medical insurance privately, are the premiums for each of these deductible as far as medical expenses exceeding the 7.5% limit? If so, our taxes will REALLY be low.
Third - income in rehirement generated by various sources:
Another area that confuses me is how the gov't views various income sources in retirement. For us, we'd roll over the 401k to an IRA and then remove money over time...I know that's taxed at "normal" rates...which is fine since our marginal bracket will go down...so I'd likely use a combination of withdrawal from IRA and rental profits up to the 15% bracket max each year, and then if we need any extra I'd take it from the Roth or my after-tax accounts. This would effectively cap our average rate at fairly low number. Does this seem like a good strategy?
Thoughts?
Background:
We both work today at MegaCo and are in the 33% marginal bracket. That will change when I rehire in the next 1-2 years, as we'll then be in the 25% bracket for a couple years, and after that will be in the 15% bracket. We are high earners, but LBYMers...so we live more like someone in the 25-28% bracket today. I'm not sure I NEED munis given this, but would like your thoughts. I anticipate we'll spend around $75-$80k our first year of rehirement, indexed for inflation after that.
We have few tax deductions, as our mortgage is paid off (recently) and we have few medical expenses currently.
Our rehirement savings are around $1.6M now, 70/30 AA. Goal is to get to about $1.9M before she leaves the workforce. I do plan to work a part-time low-wage job for a few years. We have no pensions, but do have excellent cash balance plans with lump-sum balances, 401k plans, Roth IRAs, and after-tax accounts...all of which are included in the $1.6M above. Between what we put into our rehirement accounts and what the MegaCo put in, we're adding about $60k/year to the balance...add a bit of growth and hopefully we'll hit the $1.9M soon.
We also own 2 rental properties, currently negative cash flow as we only started 2 years ago and are still plowing profits back into major repairs such as siding, kitchen floors, and so on...but anticipate buying one more, and having net income of about $12k/year for eternity starting in about 3 years (by then we hope to have all the major upgrades done and the ongoing repairs will be more modest). One of the rentals is fully paid for, the other partly borrowed on a HELOC but we plan to pay it off in 2-3 years, and a new one would be borrowed on the HELOC if rates stay low, or could pay out of savings if needed but it would put our emergency fund on the thin side. I'm very handy and do 80% of the work myself on the rentals and manage the tenants...therein might lie my part time job in rehirement.
First off, bonds:
Considering some bond purchases in the next few years. I know there are trade-offs between bonds and bond funds. Want to explore a few things and hoping you folks can help.
1) As long as I buy an individual bond and I hold to maturity, I'm guaranteed (except in the case of bankruptcy) face value plus the coupon, right? (yes, I know if there's a call option, that's another risk)
2) What risks are there then to laddering individual bonds?
3) Compare and contrast a bond such as above to a dividend-paying stock (sounds like an exam question) . I know the "place in line" with a stock is lower, but could buy preferred stock to improve this...although obviously creditworthiness of the company is a key factor).
4) I've always heard "GO" (General Obligation) bonds are a safer choice in terms of munis...what are your thoughts on this?
5) If buying munis, I'd want to do so in an after-tax account, right? Other than this, any tax considerations?
I've bought a few individual ones for my dad, as I manage his finances, but it's a relatively small position in his portfolio and basically it was to ladder some liquidity...did this 5 years ago and it's working well compared to the piddly rates being offered today.
Second, medical insurance/costs:
We will likely have to purchase private medical insurance before DW leaves the full-time workforce in about 3 years.
1) I don't want to be "uninsurable", so I'd like to purchase this coverage BEFORE she FIREs...what do you think of this approach? We're both relatively healthy now, but things like blood pressure and cholesterol are marginal and I'm not sure how insurance companies view that.
2) If we buy LTC and medical insurance privately, are the premiums for each of these deductible as far as medical expenses exceeding the 7.5% limit? If so, our taxes will REALLY be low.
Third - income in rehirement generated by various sources:
Another area that confuses me is how the gov't views various income sources in retirement. For us, we'd roll over the 401k to an IRA and then remove money over time...I know that's taxed at "normal" rates...which is fine since our marginal bracket will go down...so I'd likely use a combination of withdrawal from IRA and rental profits up to the 15% bracket max each year, and then if we need any extra I'd take it from the Roth or my after-tax accounts. This would effectively cap our average rate at fairly low number. Does this seem like a good strategy?
Thoughts?