I jumped off the cliff but worried

[venkatdabri]

Hello,
I am 43 single with no kids and intend to stay that way. My total net worth is $2.628 million however $1.12 million is my home where I live in the Bay Area(California). $74k in IRA. $207K in 401k. $1.4 million investments with 75% stock vs 25% bond split. I worked for Amazon and never sold the stock I got as RSUs and there 40% of my investment is in that stock. My expenses are not very high and I believe that with about $400/month for health insurance, $200/month for home + auto + umbrella insurance, $300/month utilities and $500/month for food should put me at about $1400. Property tax and HOA is another $1000/month. So overall that puts me at close to $2500/month. My home mortgage still has $175k left. I will have to pay $2750/month for the next 5 years to pay of my home. If I calculate 4% of $1.7 million investments then it comes to about $68k per annum which is $5666/month. That makes it very close for the next 5 years while I am paying my mortgage. Should I sell my house and move to a cheaper location in the USA? That way I don't have to pay my HOA and property tax that forms the bulk of my expenses? Are there any expenses that I am not thinking about?

 

[NW-Bound]

I am sure that there are expenses that you have not included. But on the other hand, I don't believe in computing everything out to 4 significant figures, and would rather have a lot of safety margin.

Right now, your WR would be right about the 4% WR, but I don't know about the tax liability of the $1.4M investment that you have. That 4% WR will be for only 5 years, then it would be about halved. On the surface, that seems quite safe.

Another way to look at it is, what if you pay off your mortgage now. Suppose you can raise $175k from your investment with minimal taxes, in order to own your home outright. You then have $74k+$207k+$1400k-$175k = $1506k left. Drawing $2500/month from that stash is 2% WR. Sounds low enough to me to allow for taxes and unplanned expenses, such as home repairs and car replacement, hobbies, travel, etc...

I think it is doable, but perhaps other readers may see some problems that I miss.

 

[Surewhitey]

Your budget seems to cover the basics. It's the non-planned items that you should at least put something in there for.

Our basic budget for 2 is around $2k / mo. Our all in spending is $4k / mo. We own our home and have 2+dog, 2 cars, 1.5 grandkids and like to travel. We could get it down to $3k if we wanted / needed to...

Based on what you say, you probably are fine. Before moving, maybe see if you can do it in place (if you really like the bay area). Moving would definitely simplify your next 5 years though as you could pay cash for most anywhere you want to live.

Plan on an occasional health event, used car or maintenance on the home too...

 

[Car-Guy]

If it were me under the same circumstances, I'd sell the house and move to a LCOL area..."Retiring" with ~2.6m at 43 years old in that area, considering inflation and market conditions as they are now, would scare me... I might consider it but would move to a LCOL area and probably work at something for a while, at least part time. You probably have a 40+ year time horizon to consider and "stuff happens"! YMMV

 

[Aerides]

...I believe that with about $400/month for health insurance, $200/month for home + auto + umbrella insurance, $300/month utilities and $500/month for food should put me at about $1400. Property tax and HOA is another $1000/month. So overall that puts me at close to $2500/month.

When it comes to taking the leap, you need to have a very firm grasp on expenses. Not "I believe..." not "should put me..."

This is what I spend = this is what I will spend. Is that $300 in utilities based on your actual data for the last 2 years? I mean real actuals, like pulled from your bills and payments. Or it is a swag - same for the others. Finding out you really spend $700 on food vs. $500 can be a real eye opener. And then transit, tolls, gas, bus, subway bike or car...clothing...eventually you need a new mattress, that house needs a new roof or the AC stops working - all that sort of stuff needs to go into a budget.

If that stuff isn't already included, you have some homework to do. Yes, it might make sense to move and reduce your housing expenses.

 

[ivinsfan]

Could you clarify the exact amount you have in Amazon stock?



And yes you need a better budget.


Do you want to move?

 

[Koolau]

Typically, it's not considered a good practice to have 40% of your portfolio in one stock. I found myself in that situation way back when I w*rked for Megacorp. For quite a while Megcorp did not allow us to exchange our corp. stock within the 401(k) for any other investment. Eventually they relented - though, full disclosure, right now I would be RICH if they had forced me to keep it all. I DO have quite a bit left - but mostly because the stuff just keeps growing! Great problem to have.

Oh, and about moving. Only you can decide if that is right for you. It certainly would stand you in good stead financially to move to say, Mississippi or even Nebraska. But, would you miss SF? I think I would and I've only visited. I chose a HCOL myself and only think of selling it as a back-up measure. If, for instance, I needed money for long-term care, my residence is a back-up. I wouldn't willingly move now JUST to make my portfolio work better. It's all a compromise. Maybe try it for a while and then decide. Unlikely your residence will lose value in the mean time.

Best of luck. Check back often. And remember, YMMV.

 

[Car-Guy]

Typically, it's not considered a good practice to have 40% of your portfolio in one stock. I found myself in that situation way back when I w*rked for Megacorp. For quite a while Megcorp did not allow us to exchange our corp. stock within the 401(k) for any other investment. Eventually they relented

My Megacorp was similar... They pretty much encouraged (almost forced) us to invest in the companies stock in our 401k....

I believe there were some laws passed after the Enron mess and all companies backed off such practices..... That's probably why your company relented.


I knew a few folks that worked for Enron ~20 years ago when they went under... They lost almost everything since the stock went to zip pretty quick.. I can remember driving by the Enron HQ's building in downtown Houston when this was going on and seeing people standing out in front of the building with their "to go box".

 

[Koolau]

My Megacorp was similar... They pretty much encouraged (almost forced) us to invest in the companies stock in our 401k....

I believe there were some laws passed after the Enron mess and all companies backed off such practices..... That's probably why your company relented.


I knew a few folks that worked for Enron ~20 years ago when they went under... They lost almost everything since the stock went to zip pretty quick.. I can remember driving by the Enron HQ's building in downtown Houston when this was going on and seeing people standing out in front of the building with their "to go box".

Our Megacorp stock was "given" to us as the 6% match. Amazingly, it was almost always the biggest chunk of my 401(k) even though I often went beyond the 6% (to get the match) all the way to the max of 10%. Now, a couple of years when we were struggling, Megacorp dropped its participation in the match. But now, low these many years later, it begins to feel like I can't get rid of those last 1000 shares or so (some with a likely cost basis of $2 and the stock in the hundreds.) YMMV