House Rich and Cash Poor

[MarieIG]

Consider postponing the Audi until after DW retires, and you can pull from the IRAs at a lower rate or from the sale of one property.

Or, if you can get a low cost loan (after two years); pay it for one year, and then pay if off after DW retires.

By waiting two years, which you want to do anyway, you won't have to pay the interest on any loans during the next two years.

Not sure if your DW's salary would stretch to cover the car loan as well as other costs, however, again, if you put it off for two years, an only have one years worth of payments to cover, and don't spend the remainder of your cash in the meantime, you could supplement the loan payments with the cash.

For your vehicle, I would wait the three years.

[doneat54]

The plan is to buy the vehicles in about 2 years, I think I mentioned that earlier. I'm not real keen on the Audi but she's talked about it for many years and hey, she should be able to do what she wants too. Her DD has about 140k miles on it now and stuff is starting to break. And I'm driving a $1300, 18 year old Ford LOL.

So again, the original question was where to pull cash from for a 2 year window *if* we need it.... and then in 2 years pay cash for 1, maybe 2 cars. Also, we expect in two years (or less) to have figured out which properties we want to keep, and which to sell.


So thanks for all the great input. She got her pension check today and it is now parked in the home bank as an IRA so it is there if we need it. Oddly one of the reasons I am comfortable pulling from it if we need to, is that up until maybe 4 years ago or so, I didn't even know it existed. She left the work force when our kids were younger then came back (same company), and I had just assumed that there was nothing there and was ready to FIRE myself anyway. It's a good chunk of money, but in the big portfolio picture, it doesn't move the needle much.

I think we are going to get a HELOC to. It will cost us only $50 a year and we have to keep it open for 3 years I think. Will just be another source for ready cash until we sell a property.

[Hermit]

Fast forward to age 72. In my case, RMDs are looming and 22% will happen and probably more. In addition, IRMA premiums (taxes on higher income folks on Medicare) will get another big chunk.



If you pull what you want out of your tax deferred accounts now you won't get nailed for IRMA on those withdrawals later.

[MI-Roger]

Quote:

Originally Posted by Hermit Fast forward to age 72. In my case, RMDs are looming and 22% will happen and probably more. In addition, IRMA premiums (taxes on higher income folks on Medicare) will get another big chunk. If you pull what you want out of your tax deferred accounts now you won't get nailed for IRMA on those withdrawals later.

Yes, that is something all of us need to consider. If their future RMD's are more than a person will require to provide their desired/intended lifestyle, then it may be prudent to withdraw funds early - not exceeding the current tax rate steps.

Definitely should be reviewed by everyone to determine their lowest overall tax option.

[MI-Roger]

Quote:

Originally Posted by doneat54 ... She got her pension check today and it is now parked in the home bank as an IRA so it is there if we need it. ...... I think we are going to get a HELOC to. It will cost us only $50 a year and we have to keep it open for 3 years I think. Will just be another source for ready cash until we sell a property.

Doesn't #1 still place you in the position of being currently strapped for free cash? You may need to pay penalty plus taxes to withdraw it, (realizing that age 59-1/2 which negates the penalty is nearly or already here). But if it came from a tax deferred account AND it was a large check - none of my business, just thinking through typing - it could/would be worthwhile to do what you did and pay taxes only on what you need to withdraw in the future rather than the full initial amount.

#2 does give you a means to access liquid money from the increased property value without a sale, which is what it sounded as if you really needed and wanted.

[pb4uski]

What about doing a cash-out refi of your primary residence? As an example, if you did a cash-out refi and took our $100k, the payments at 4% with a 30 year loan the payments would be $477/month so 3 years of payments would be $17k.... leaving $83k available to be spent on cars or whatever and the remaining principal balance can be paid off when you decide which property to sell and sell it.

[doneat54]

Quote:

Originally Posted by MI-Roger Doesn't #1 still place you in the position of being currently strapped for free cash? You may need to pay penalty plus taxes to withdraw it, (realizing that age 59-1/2 which negates the penalty is nearly or already here).

DW is 60, but yes, we'll still pay the 22% on it if we take it.

Quote:

Originally Posted by MI-Roger But if it came from a tax deferred account AND it was a large check - none of my business, just thinking through typing - it could/would be worthwhile to do what you did and pay taxes only on what you need to withdraw in the future rather than the full initial amount.

Not sure what you mean by that. The check was a pension lump sum that we were allowed to deposit in an IRA and not pay any taxes.... until it was withdrawn. So that is what we did. And yes, we will only have to pay taxes on anything that we withdraw and can leave the rest in the IRA.

[Rustic23]

Look for a 0% interest rate on a new car. Only buy one. DW and I have gotten by on one for 15 years, and we live rural. No uber.

[doneat54]

Quote:

Originally Posted by Rustic23 Look for a 0% interest rate on a new car. Only buy one. DW and I have gotten by on one for 15 years, and we live rural. No uber.

Sorry, I will never buy a brand new car. I'll let someone else pay that 1-3 years depreciation. Now way we can get buy with one car either, we live rural, wife works 45 min commute away. We have six cars now (!), but 3 are antiques. And in New England, at least for the next 2-3 years, I need to keep a plow truck on the property.

[MI-Roger]

Quote:

Originally Posted by doneat54 Sorry, I will never buy a brand new car.

I worked in the auto industry for 38 years, most of those with Employee Discount on new car purchases, and still bought primarily used cars. Only new cars bought came with multiple layered discounts making it almost embarrassing how low the final cost was.

Buying a slightly used car, such as Off-lease or company exec car, is a great way to save significant money. Some models are particularly popular with retirees and come off-lease, or are traded in, with only 12-15k miles. Purchase it via a CPO plan and it willhave all the warranty protections of a new car - except for much loser cost.

I am currently seeking out a mid-sized Volvo CPO to replace my SAAB which was bought used and has 210K miles. I was considering a very low mileage company exec Alfa Romero Stelvio at a ridiculously low price last Fall, but it had too little luggage space for trips and the model had/has issues with multiple electrical gremlins.

[doneat54]

Yes, I always look for one owner, 1-3 year old cars. I do all the normal maintenance myself, so I look for something with maintenance records, etc. It is amazing how some people will totally trash a car in a just a few years. Daily driver cars are just the worst things to spend money on....but I have to say once you have something fairly new that runs well, is powerful and has all the neat tech gadgets... it is hard to drive something without it.

As for models, there are some nice unloved models out there that are great cars, and you can get for little money, BUT, when you try to sell them they are still unloved and you don't get much. DW's VW CC is one such car, it is the second one we have had. And there is a real advantage in driving the mass produced mainstream cars (Camry, Taurus, Civic, etc) as parts for them get very very cheap vs. the more obscure models.

We had a couple Volvo wagons that we bought for our son years ago, very nice cars that you could get for very little money... but parts were pretty expensive.

[Teacher Terry]

We had a Volvo and a good friend had 3. Huge money pits. Even a oil change was expensive. Very comfortable car to ride in. I would never have another.

[doneat54]

Those V70 wagons were simply unstoppable in the snow. We used to make it a point to go out to dinner in a blizzard in them just because we could.

[pb4uski]

I bought 1-2 year old cars for many years and they were a great value compared to new cars. Then about 10-15 years ago, the discount between new and slightly used became a lot less attractive.... I'm not sure why.

Our last two vehicles have not only been new, but we also ordered them from the manufacturer. What we found is that the vehicles on the lots were higher trim levels and loaded up with options that didn't have a good value proposition. We found that by ordering we could get what we wanted and only what we wanted.... and avoid some of the overpriced options and trim levels that are common to vehicles on dealer lots.

[Teacher Terry]

I think it depends on where you live for the price difference between new and used. In Nevada there’s a big difference but my sister said it’s opposite in Chicago.

[doneat54]

So I think I am honing in on a pretty good solution. Talked to the Bank yesterday, and they offer a HELOC for $100k limit, no annual fee, 3.24% for the first 12 months and Prime plus .25% after that. I have to keep it open for 3 years or pay $450 penalty. I could borrow $10k for the first year an it would only cost $27/mo (interest only). But I wouldn't pull a large chunk out, I would take it out as I needed it, reducing the interest cost. The idea is that principle would be paid off when we sell a property in 1-3 years. Near term, I can see the need for only a few thousand to finish up some projects around here and maybe do some travel (well, pay for some travel that we have already booked, but have no idea how we are going to pay for it ;-0). Longer term, buying one or two new cars in ~2 years, at around $20-$25k I'd guess. Ideal case is to sell a property around that time.

I *could* borrow $25k for 2 full years at 4% and only pay about $2000 interest total. So yeah, cheap money.

But back to the IRA. As I had said, DW's salary is already well into the 22% bracket, so anything we'd take from there gets hit at 22%. Some earlier said "Well, you have to pay it eventually anyway", but not necessarily at 22%. If after DW retires we stay on budget, then only a portion of it gets taxes at 22% (Still not clear on how distributions are taxed, as income I know, but have other questions, may star a new thread on that). So the way I look at taking from that IRA right now, is that it costs us 10% (22%-12%) worst case. Way more than the HELOC 4%. And the tax "hit" on a $25k pull (to compare above) is X 10% or $2500. And if we wanted to make ourselves "pay it pack" after a property sells, like HELOC, we could. Then I conclude that HELOC is the better source. Yes, we will forego some growth in the IRA, but for the period of time, and amounts we are talking about, I don't think it moves the needle much. To keep our AA where we wanted, we were going to keep the IRA in MM or some CDs anyway.

And we will have access then to HELOC and the IRA if the s^it hits the fan for some reason. Sound reasoning, or am I missing something?

[corn18]

Quote:

Originally Posted by doneat54 So I think I am honing in on a pretty good solution. Talked to the Bank yesterday, and they offer a HELOC for $100k limit, no annual fee, 3.24% for the first 12 months and Prime plus .25% after that. I have to keep it open for 3 years or pay $450 penalty. I could borrow $10k for the first year an it would only cost $27/mo (interest only). But I wouldn't pull a large chunk out, I would take it out as I needed it, reducing the interest cost. The idea is that principle would be paid off when we sell a property in 1-3 years. Near term, I can see the need for only a few thousand to finish up some projects around here and maybe do some travel (well, pay for some travel that we have already booked, but have no idea how we are going to pay for it ;-0). Longer term, buying one or two new cars in ~2 years, at around $20-$25k I'd guess. Ideal case is to sell a property around that time. I *could* borrow $25k for 2 full years at 4% and only pay about $2000 interest total. So yeah, cheap money. But back to the IRA. As I had said, DW's salary is already well into the 22% bracket, so anything we'd take from there gets hit at 22%. Some earlier said "Well, you have to pay it eventually anyway", but not necessarily at 22%. If after DW retires we stay on budget, then only a portion of it gets taxes at 22% (Still not clear on how distributions are taxed, as income I know, but have other questions, may star a new thread on that). So the way I look at taking from that IRA right now, is that it costs us 10% (22%-12%) worst case. Way more than the HELOC 4%. And the tax "hit" on a $25k pull (to compare above) is X 10% or $2500. And if we wanted to make ourselves "pay it pack" after a property sells, like HELOC, we could. Then I conclude that HELOC is the better source. Yes, we will forego some growth in the IRA, but for the period of time, and amounts we are talking about, I don't think it moves the needle much. To keep our AA where we wanted, we were going to keep the IRA in MM or some CDs anyway. And we will have access then to HELOC and the IRA if the s^it hits the fan for some reason. Sound reasoning, or am I missing something?

I like your thinking. Best case, you don't need any HELOC or IRA. But the HELOC is certainly the best way to smooth things over.

[doneat54]

Does anyone ever do this? Go searching for something on this forum, never find it, but find an old post/thread of your own, re read what you were thinking considering and the suggestions posted..... and feel the need to post an update? LOL.


We sold the undeveloped land, and did better on it that we thought.
We paid nearly $50k in cash for two nearly new, ultra low mile cars last March.
We sold all three of the "needy cars" for around $15k total.
We didn't touch the Roths
DW picked a retirement date next May
We decided to sell the primary residence next May and at least for now, and live at the lakehouse full time
We did get a HELOC, used it a bit.....
.... but just closed it out, paid a $450 penalty...
......... to do a $100k cash out refi on the primary home at 2.5% (and lower our payment $100/mo)


Now the ongoing discussions are about what is/are the long term plans for the lakehouse. Might post about that in another thread.

Thanks for all the past insights on this....