Some basics for the less well off

[baskin]

Hello. as will be obvious, I am new here and quite confused so please allow me to offer apologies first. I am 66, retired and divorced. I live alone in a rented apartment. My financial picture seems simple now that my ex husband has gone his way. My health is relatively good although I have a serious heart condition. That is a dumb way of saying I am currently active, but have already had two heart attacks and a family history of cardiac problems (my father passed away at 46). Living forever is likely not an issue.

I get $1800 a month from Social Security (actually $1950 but then they deduct for Medicare and drugs). And I have $250,000 in a TIAA-CREF account. $100,000 of that is in TIAA now paying 4.1%. As I understand, that $100K can only be withdrawn at 10% a year or converted to an annuity. That is pretty much it. I have one daughter, two young grandchildren (and nice son in law) that live close by in the Philadelphia area. She is happily married and pretty financially comfortable. She could 'lend' me quite a bit of money. She could 'buy' me a condo and I would leave her everything in my will. She will get anything I have anyway.

I think I'd like to buy a nearby condo for around $175K that would cost about $1200 a month total. I could get an annuity from TIAA-CREF that would give me about $1350 a month for my lifetime (min 15 years). Then I have a passing fantasy of possibly buying a much nicer and cheaper house in Florida even though the only person I know there now is Mickey Mouse :-)

I am not sure exactly what to ask or even if I am asking in the right forum. This FIREcalc stuff confuses me and I don't think my situation is that complex. Can anyone suggest some direction. Thank you so much.

(as usual, I spoke too much)

[omni550]

Welcome, baskin. We've got all levels of wealth on this board.

I'm sure some posters will be by soon to give their thoughts on your situation.

If you post a clearer question it would be easier to answer.

omni

[teejayevans]

Remember when you buy the condo, you can then apply the rent you pay now to what you need for the condo.
Also, with condos there are usually fairly expensive homeowner fees, make sure you know what they are.
As far as paying for it yourself vs letting your daughter buy it, that's a conversation you might wan to have with her. BUT, banks are pretty strict with loans these days, many require 20% down, so you will need $35K for the downpayment if you are buying it, you have 35K?
TJ

[MichaelB]

Hi baskin, welcome to the forum. You're thinking of buying some real estate? What is your monthly expense, not including rent?

[aaronc879]

You're the less well off? I didn't even know SS payments went that high. Almost everyone I know gets $1200/mo or less. Plus you have an additional $250,000? That's pretty good. Sounds like you can afford the condo as long as you have $35K to put down on it. You said the condo would cost $1200/mo, how does that compare to your rent? Keep in mind condos have expenses that apartments don't have like association fees and special assessments. I'm going to have $1500 in special assessments within less than 1 year on a condo that's only worth $40,000. Best of luck.

[baskin]

Wow, so many responses so fast. Thanks to all of you. I am sorry I was not real clear. I am just learning this investment stuff(?) and between here and Bogleheads, my mind is kind of on overload. Wouldn't life be simpler with $4 million in a Swiss account ;-)

The down payment: If I get the condo for $175K, I would need about $40K for the down payment and closing costs. I don't know whether to 'borrow' such from my daughter or just withdraw that from my TIAA-CREF and reduce that balance to $210K. Tax wise it seems I can withdraw about $12,000 a year from TIAA-CREF and NOT owe any income tax. So if I took out $40K for the down payment, I'd have immediate tax issues. Could I get a 'gift' for $13K from my daughter, plus take $12K from TIAA and then 'borrow' $15K from my daughter?

Monthly expense: Right now, my rental expenses are about $1100 a month. With the condo, I am estimating about $1220. The assoc fee is $250 a month, taxes $300 a month, mortgage $670 (30 yr @ 4% on $140K). Electric, cable, etc would be around
$300 more? I have not tried to see if there are tax deductions on the interest.

Observations: I just have this feeling that home prices are not going to go (much) lower nor are interest rates. Don't they have to go up in the next few years. And if I am in an apartment and they go up a lot, then I am in trouble.

Concerns: I think if I had about $1000 in 'added income' from my TIAA-CREF above my social security, I should be ok on around $34K a year. Maybe I should have more? I'm not sure whether an annuity is good for all this or what.

[growing_older]

I have no idea if a "gift" is a useful or appropriate tax strategy, but both daughter and son-in-law can gift you up to the limit each year without any tax consequences. So you could receive $26,000 in Dec and another $26,000 in Jan.

[teejayevans]

Quote:

Originally Posted by baskin The down payment: If I get the condo for $175K, I would need about $40K for the down payment and closing costs. I don't know whether to 'borrow' such from my daughter or just withdraw that from my TIAA-CREF and reduce that balance to $210K. Tax wise it seems I can withdraw about $12,000 a year from TIAA-CREF and NOT owe any income tax. So if I took out $40K for the down payment, I'd have immediate tax issues. Could I get a 'gift' for $13K from my daughter, plus take $12K from TIAA and then 'borrow' $15K from my daughter? Monthly expense: Right now, my rental expenses are about $1100 a month. With the condo, I am estimating about $1220. The assoc fee is $250 a month, taxes $300 a month, mortgage $670 (30 yr @ 4% on $140K). Electric, cable, etc would be around $300 more? I have not tried to see if there are tax deductions on the interest. Observations: I just have this feeling that home prices are not going to go (much) lower nor are interest rates. Don't they have to go up in the next few years. And if I am in an apartment and they go up a lot, then I am in trouble. Concerns: I think if I had about $1000 in 'added income' from my TIAA-CREF above my social security, I should be ok on around $34K a year. Maybe I should have more? I'm not sure whether an annuity is good for all this or what.

Tax wise if you pull out the 40K plus SS would put you in the 25% tax bracket.
I agree with you that now is a great time to buy a home if you are willing to keep it for 5-10 years.
IF your daughter doesn't already have a 2nd home, if they were to buy the condo, they could deduct the interest since they are probably in a higher tax bracket, it would help them. Then you could gift your daughter 12K/yr with no tax consequences for the use of the condo, this way it would not be a burden on her to have a 2nd mortgage. You effectively would be paying rent to your daughter. Tax savings and your gift cover the cost of the condo, I still keep her in your will since she is such a good daughter
Your expenses would be the same as they are now. I think this is the best solution. Since they are working, they shouldn't have a problem getting a mortgage, assuming they have the 40K for the down payment. You could gift her 12K up front this year to cover some of the deposit.
TJ

[FANOFJESUS]

Small update to what teejayevans said now you can gift up to 13k a year to each person you want.

[plex]

Quote:

Originally Posted by aaronc879 You're the less well off? I didn't even know SS payments went that high. Almost everyone I know gets $1200/mo or less. Plus you have an additional $250,000? That's pretty good. Sounds like you can afford the condo as long as you have $35K to put down on it. You said the condo would cost $1200/mo, how does that compare to your rent? Keep in mind condos have expenses that apartments don't have like association fees and special assessments. I'm going to have $1500 in special assessments within less than 1 year on a condo that's only worth $40,000. Best of luck.

My parents would get $22k/yr each, and that's without one of them deferring to 70, which they will probably do, which of course multiplies that number accordingly. That's pretty near the limit though (the current limit is $2,513/month retiring at the normal set age), they both have 35 pretty decent, though not stellar, years.

[Ally]

Welcome, Baskin. Many of these ideas sound very helpful. You are lucky to have such a helpful daughter. I think you would be more secure in the next 20-30 years buying rather than renting. Rents can always go way up.

[baskin]

Thank you all. I now have some ideas to consider. One thing I am still troubled by is just how do I handle the gifting or paying the $12000 a year towards a mortgage and related costs? Do I just withdraw that amount each year? Do I buy an annuity? What is the best way for me to generate the $12,000 I need each year while still preserving my core $250,000 with TIAA-CREF for as long as possible?

[samclem]

Baskin,
Can you tell us what type of account you have with TIAA-CREF? Is it a 403B, a 401K, an IRA, an after-tax retirement account of your own, etc?

Annuities are extremely expensive right now on an historic basis (i.e. they are paying out less each month per dollar invested than they traditionally have). This is because of the low interest rate environment we are in. That is expected to change when interest rates rise. I wouldn't buy an annuity now.

[baskin]

I believe it is a 403b. I worked for a non profit educational organization. The TIAA portion is "guaranteed" and pays a minimum 3% although the 5 year average is 4.57% . I can only withdraw 10% of that per year if need be. It is called an annuity. Currently that is worth about $100K. For the CREF portion, I have about $100K in their 'equities'(stocks?), $40K in fixed income (bonds) and $10K sitting in their money market. I am allowed to move that around and or I think I can put it in an IRA. Either one of theirs or someone elses. That is all confusing to me.

I recently spoke with a Wells Fargo advisor who suggested he had a 5 year bond (AAB?) fund yielding about 6-7% but it sounded like I would have to withdraw from TIAA to open that account and then pay taxes. That's when I decided I needed a place like here to help suggest things to me.

[hguyw]

Quote:

Originally Posted by baskin I believe it is a 403b. I worked for a non profit educational organization. The TIAA portion is "guaranteed" and pays a minimum 3% although the 5 year average is 4.57% . I can only withdraw 10% of that per year if need be. It is called an annuity. Currently that is worth about $100K. For the CREF portion, I have about $100K in their 'equities'(stocks?), $40K in fixed income (bonds) and $10K sitting in their money market. I am allowed to move that around and or I think I can put it in an IRA. Either one of theirs or someone elses. That is all confusing to me.

Baskin, I also have a 403b with TIAA-CREF and I agree, the options for my various accounts are confusing. My best advice would be to schedule a face-to-face meeting with a TIAA-CREF consultant before you do anything. Tell him/her what you want to do, maybe take your daughter with you since she figures into your plans, and get the consultant's advice as to the smartest way to go about it. It doesn't matter if you're no longer employed, you still can meet with their counselors as necessary throughout your retirement. I recently retired (at 55) and will continue to meet with "my guy" on an annual basis just to make sure things stay on track. He knows all the ins-and-outs of what can be done with each account and the smartest, most efficient ways to combine these options so the money lasts.

Meeting with a consultant will cost you nothing. If you log in to your TIAA-CREF account page, over on the right you'll see 'Register for a consultation or seminar' link. You should be able to meet with the consultant when he's in town (on a local college campus, for example) or you can schedule an appointment at your nearest TIAA-CREF office. HTH.

ETA: As for the taxes, that was the long-term deal we made with the government. For 31 years I and my employer stashed money in my various 403b accounts, tax free. Now that I'm pulling it out, a mandatory 20% is being withheld - the gummint now wants its pound of flesh. But true to the original advice I received, I am now in a lower tax bracket, and I expect to get decent refunds from that. So unless you have an additional "after tax" account with TIAA-CREF, as far as I know you'll have to pay some tax on any money you withdraw, no matter what. But again, the consultant can give you the best advice.

[pb4uski]

Check out TurboTax® TaxCaster - Free Tax Calculator - Free Tax Estimator

If your total income is SS & $12k of retirement benefits ($34k in total) your tax would be minimal ($106 by my calculations) since your income would be low enough that your SS would not be taxed. So if they withheld 20% on you $12k of retirement benefits you would get a refund of ~$2,300.