What would you do with an extra $1 million?

[catii]

I've been happily retired for the past few years, & wife retires this year. She has decided to sell our rental property, which will net us around $1 million. However, in this weird market, I have no idea exactly what to do with that much cash!


All of our other retirement funds are spread out in stocks, bonds, IRA, etc., but there must be something better to do with a lump sum like this, & I would love some recommendations & ideas. (No, I don't make loans & don't gamble!)


House is paid off, no long-term debt, kids are grown & gone, grandkids almost so, & no student debt.

 

[Sunset]

Realize this $1M means you are now losing the rental income, so it's not like winning a lottery which is just extra money.

I would take the money, stuff it into very broad ETF funds , and some direct Bonds/CD's - completely boring.

Then take out 3.5->4% of the money each year to spend along with what you normally take out.

 

[NW-Bound]

I would just invest that $1M in the same AA as I have now with the existing investable assets.

If I knew a better way to invest the extra money, I would have applied that to the existing assets already.

 

[Scuba]

Were you using the rental income to live or investing it? If your financial needs are covered by other income streams and your investments, and this million is truly a windfall, I would probably split it between investments, a splurge purchase or two (car, boat, trip?), and perhaps a charitable contribution.

 

[Mr. Tightwad]

First decide if you want to spend any of it. If yes, then decide what on. Then contemplate investments with whatever is remaining.

 

[Helena]

.

Don't do what a friend of mine did... she sold her rental property that was supplementing her retirement income... then squandered all the money in less than a year.

.

 

[Dtail]

I would just invest that $1M in the same AA as I have now with the existing investable assets.

If I knew a better way to invest the extra money, I would have applied that to the existing assets already.

+1

 

[brucethebroker]

How much are you going to lose when the depreciation is re-captured by IRS? Have you bounced this off your CPA?

Not to be critical, just curious for ideas since we often consider doing the same thing, but are put off by the taxes.

 

[DrRoy]

Realize this $1M means you are now losing the rental income, so it's not like winning a lottery which is just extra money.

I would take the money, stuff it into very broad ETF funds , and some direct Bonds/CD's - completely boring.

Then take out 3.5->4% of the money each year to spend along with what you normally take out.

I would just invest that $1M in the same AA as I have now with the existing investable assets.

If I knew a better way to invest the extra money, I would have applied that to the existing assets already.

+1

 

[Col. Klink]

+1

+2

 

[catii]

The rentals (two on one property) generate about $36K/year, which we've poured back into first paying off the mortgage, & then into much-needed upgrades & repairs. We've managed the property since we bought it back in 1989 because we've never been able to find a property manager without larceny in his soul. In Hawaii, long-term capital gains are taxed at a maximum rate of 7.25%, & our federal rate is estimated to be 15%.

We don't really need the rental income, although I've tried to convince her that holding onto the property, even if we pay someone else to manage it, will let its value increase, as well as continuing the income stream. But she's adamant that we should sell it, & I don't really care enough to argue. She loves playing with money far more than I do, & does a good job, too.

Our other funds are more than sufficient to let us live without being overly frugal (we're both long-time engineers & own our companies), so this money really would be a windfall. We already have the boat & the car, & my hobby is speaking on cruise ships, so our vacations are essentially free, too. Not really much of anything else that we want or need.

None of our kids or grandkids are the least bit interested in living in Hawaii (go figure), so we have about $3 million in real estate to consider, plus all of the other assets I mentioned. We've been discussing charitable remainder trusts, but I'd rather use the money for our own enjoyment, & give it to charity after we're gone. Right now, we'll probably ladder CDs in this uncertain market, as well as increasing our existing ETFs. We won't sell for the next 8-12 months, & who knows where the market will be by then?

 

[flintnational]

I don't know if it would be applicable. But, you could contribute to the grandchildrens' education funds/pay off school loans over the next few years. The parents would also appreciate the help with school. $1M would buy a lot of diplomas.

 

[EastWest Gal]

I don't know if it would be applicable. But, you could contribute to the grandchildrens' education funds/pay off school loans over the next few years. The parents would also appreciate the help with school. $1M would buy a lot of diplomas.

+1

My dad that; he funded all his grandkids’ education. You can set up 529 plans for the grandchildren if they aren’t already through college. Each contribute the max not subject to gift tax and you will have helped them immensely. Or pay off their loans, $30K/year ($15K from each of you).

 

[frayne]

I would just invest that $1M in the same AA as I have now with the existing investable assets.

If I knew a better way to invest the extra money, I would have applied that to the existing assets already.

Ditto !

 

[donheff]

When we sold our weekend house we dumped it all into our taxable Vanguard account in equity indexes and then moved some 401K equities into bonds to maintain our AA. I don't see any reason to do anything else with this investment other than maybe blow a bit of it on a splurge if you want to take a round the world trip or something like that.

 

[MichaelB]

Taking the proceeds from rental real estate and reinvesting into the current AA increases the risk profile of the portfolio because it loses diversification. It might make sense to offset this by adding a new asset, such as a REIT or annuity.

 

[RunningBum]

How will the proceeds be taxed? As a capital gain, or regular income? If the latter, this would be the year to take as many deductions as possible, since you're in a higher tax bracket. I'd set up a Donor Advised Fund (DAF) and put as much money in it as you'd plan to give to charity over the next ten or more years. That gives you the large deduction this year, and you can spread out the granting as you would normally be doing donations. Even better if you fund the DAF with appreciated taxable assets, since the DAF won't be taxed.

Other than that, I'd just invest according to my AA, and maybe have a little fun with a portion. But really you just took a $36K income stream as a bulk payout, so this isn't any more extra than that rental income was.

 

[WestUniversity]

I would just invest that $1M in the same AA as I have now with the existing investable assets.

If I knew a better way to invest the extra money, I would have applied that to the existing assets already.

Ditto...

 

[street]

I would just invest that $1M in the same AA as I have now with the existing investable assets.

If I knew a better way to invest the extra money, I would have applied that to the existing assets already.

This ^

 

[jollystomper]

I would just invest that $1M in the same AA as I have now with the existing investable assets.

If I knew a better way to invest the extra money, I would have applied that to the existing assets already.

Agree. But perhaps set aside 5-10% for fun, and/or further AA diversification, such as a REIT (assuming you do not have one already).

 

[sengsational]

If I had rental real estate, that would be included in the asset allocation target, so to keep from skewing the AA, it would have to all go into REIT or other such hard assets. Realistically, though, if I had a $1M property, I'd probably have an AA I was uncomfortable with (too high on the hard assets), so I might redefine my target AA now that I had more flexibility.

 

[street]

Of course there will be capitol gains to pay I would think, but still a nice amount to invest.

 

[eytonxav]

Do you need additional income to offset what the rental properties were providing? If not, perhaps invest some in long term care coverage, some for kids/grand kids, and invest the rest per your allocation.

 

[ERD50]

I would just invest that $1M in the same AA as I have now with the existing investable assets.

If I knew a better way to invest the extra money, I would have applied that to the existing assets already.

Another + on that.

T ..... But she's adamant that we should sell it, & I don't really care enough to argue. She loves playing with money far more than I do, & does a good job, too...

None of our kids or grandkids are the least bit interested in living in Hawaii (go figure), so we have about $3 million in real estate to consider, plus all of the other assets I mentioned. We've been discussing charitable remainder trusts, but I'd rather use the money for our own enjoyment, & give it to charity after we're gone. ...

May I (strongly) suggest you liquidate the other properties as well? It will be a lot easier on your heirs to distribute liquid funds then to deal with real estate transactions, delays, collecting rents, paying bills and arranging maintenance (that you do yourself) while it is on the market, etc. Especially as your heirs are not interested in living in Hawaii, this would be done long distance at some considerable inconvenience.

-ERD50

 

[Stormy Kromer]

DW and I are in a very similar situation. We own some farmland with buildings that have a high PIA factor that we don't want to leave in our estate so we're going to sell it and reinvest this year. The sale will net about $1.2 million (after CG tax). The net rent is $30,000, ordinary income.


We've given this a lot of thought and here's what we've decided. We're going to take 100% of the proceeds and invest it all in Vanguard Tax Managed Capital Appreciation Fund. We're going to withdraw 2.5% each year, no matter what the market does, to replace the $30,000 income that the farmland is currently providing. This will be taxed as LTG instead of ordinary income. I'm expecting this 2.5% withdrawal rate will allow this fund to continue to grow and we'll leave it, TOD, to our children in equal shares and they can inherit what is left with a stepped up basis. This $30,000 income is above and beyond our basic living needs and we'll likely gift a large % to our children each year. I see no reason to diversify beyond this stock fund, or include bonds at all.


I remember someone asking Warren Buffett what he'd do with $1,000,000 and he said something similar to "invest it in a stock index fund and go back to work".


I agree with the post that recommended liquidating real estate in your later years, It can be a real head ache in an estate. The only reason I wouldn't would be to take advantage of a stepped up tax base, but with today's favorable CG rates it's not as big of a factor.


Good luck to you and your family.