Poll:Hi From Woodstock GA - Am I on Target

[zap0007]

Age: Both My Wife and I are 55 years old

Currently: Between jobs (semi retired)

Education: Masters in Management and home maker

Children 2 - both on their own (empty nest)

Retired Military: Retirement income 35K per year

Debt: 0 (house, auto, cc all real estate paid off)

Income producing property: 3 rentals = $2,500 per month

Owner financed property (income): $3,600 per month P&I

Self Directed IRA: 150K

Savings: 150K

Home value: 220K

Other non producing income real-estate value raw land: 75 to 100K

Living expenses = 35K/year

Question: knowing that the income producing (owner financed) stream will be ending in 5 to 15 years (staggered) - I plan to use the remaining IRA and a portion of the savings to purchase additional income producing property

example $50-60k 3/2/2 home (under 5 years old) in north Atlanta area (Paulding County) with rental income of 750-850 per month x 4 = $200-240K to produce = 3 -3.5K per month

Currently we have a monthly positive cashflow of around: 6K

is my plan on tract - considering the prospects for future inflation

 

[Sirka]

Welcome to the forum. I think you are all set, except you may have too much in real estate RE). I try to have only 1/3 in RE and it work out great during the downturn.
What about the health insurance?

 

[chinaco]

Welcome.

RE is not my area of expertise.

But.... IMO it is wise to diversify those income streams if you are really dependent on them.

WIll you or your DW be eligible for SS or other pensions?

 

[zap0007]

Welcome.

RE is not my area of expertise.

But.... IMO it is wise to diversify those income streams if you are really dependent on them.

WIll you or your DW be eligible for SS or other pensions?

The reason we are into Real Estate is because of the inflation hedge - we have seen what happens to money once inflation takes hold - and the stock marke has not been that good for us - Both of us will be eligible for full SS at 67.5

 

[zap0007]

Welcome to the forum. I think you are all set, except you may have too much in real estate RE). I try to have only 1/3 in RE and it work out great during the downturn.
What about the health insurance?

I've been purchasing foreclosure homes (120K homes for under 50K) this is my insurance for a down turn.

Both my wife and I are covered by TriCare Prime Health Insurance (BTW it's great program for the retired military)

 

[chinaco]

The reason we are into Real Estate is because of the inflation hedge - we have seen what happens to money once inflation takes hold - and the stock marke has not been that good for us - Both of us will be eligible for full SS at 67.5

So you have a Pension and SSx2. you need to do some analysis around what happens if one or the other of you die. What does the survivor get?

Plus, what is the survivor's ability (lowest capability) to manage the income stream and not get into trouble?

Take you time making any decisions and do your homework. It sounds like you already own (or hold mortgages) on 3 houses and own some raw land.

Just my opinion...

BTW - I do not consider what you are doing as a true investment... it is more like a small business run by you.

There are other ways to hedge inflation!

IMO - Personally, I would not leverage myself further. And I would not put too many eggs in one basket (category of business or asset).

 

[zap0007]

Welcome to the forum. I think you are all set, except you may have too much in real estate RE). I try to have only 1/3 in RE and it work out great during the downturn.
What about the health insurance?

So you have a Pension and SSx2. you need to do some analysis around what happens if one or the other of you die. What does the survivor get?

Plus, what is the survivor's ability (lowest capability) to manage the income stream and not get into trouble?

Take you time making any decisions and do your homework. It sounds like you already own (or hold mortgages) on 3 houses and own some raw land.

Just my opinion...

BTW - I do not consider what you are doing as a true investment... it is more like a small business run by you.

There are other ways to hedge inflation!

IMO - Personally, I would not leverage myself further. And I would not put too many eggs in one basket (category of business or asset).

Both of us have 300K in term life Insurance (20 year term good till age 70)

My 35K pension goes away if I die

If I die first - Spouse has several options (I.E. sell home and live with Daughter) so she would loose 35K/year however would gain 300K (ins) and 210K+ sale of home for a total gain of $500 (BTW she can handle the investment properties with some assistance)

If Spouse dies first - I still have my pension 35K/year till I die plus 300K Life Insurance - and I can handle the investment properties.

I'm looking into Long Term Care Insurance

Will and Living will in place

Any suggestions on other ways to hedge inflation?

 

[chinaco]

You might consider delaying the largest SS (yours or your wife's) till 70 to increase one of the payouts. Assuming the survivor gets to retain the largest SS payout. It should increase the payout to about 130% of the FRA at 66.x and it has a COLA which would mitigate inflation and longevity risk.


Many use a portfolio of stock as bit of a hedge against inflation (for the long-term). But stocks do have risk.

There is a rule of thumb that a balance portfolio of stocks and bonds (say 60/40 allocation or 50/50 allocation) will support a 4% (inflation adjusted yearly) withdrawal rate for about 30 years without failing (based on historical figures). That is 4% of the day 1 retirement portfolio to set the $ amount. Of course the caveat is that the past may not reflect the future.

So using 4% would mean that $100k would yield $4k year 1 and if the inflation (CPI-U) was 2% then Year 2 would be $4080.

There are a lot of papers and studies available about Safe withdrawal rates.

IMO - A good book is Jim Otar's "Unveiling the Retirement Myth". If you look on his site, it can be purchased in pdf format for about $6. It covers most of the popular approaches along with the pros and cons. I believe Otar might describe you as being in the red zone.... and he would have certain recommendations.

IMO - This is my opinion. if you go the annuity route... since (for some reason your wife does not get your pension)... the annuity should be purchased for a SL for her and probably with a COLA.

This is complicated stuff... take your time, study, and think about it. Plus, you probably need to keep some cash for emergencies.

For LTC.... LTC planning is more to it than just insurance to pay for care. It is also about protecting the spouse. And if you buy it does it really give you protection over and above what the laws and rules in your state already provide.

I know nothing about your situation. But in some cases, depending on your state laws, and your financial situation... you may not improve your situation. It is a balancing act... and it is a complicated topic.

There are many posts on this forum about LTC and the LTCi debate. Do some searches and read to get some perspective.

IMO - the first stop about LTC is to get a book and read on the topic. Plus you need to acquaint yourself with your state's medicaid laws. Remember LTCi pay for care and it can be a way to mitigate financial risk exposure.

A couple of questions I would be asking myself with regard to LTCi:

• Is LTCi needed to shield my assets or the assets of the survivor?
• What are my current source for funding for LTC (including medicaid) and what are the rules for medicaid in my state?

 

[bizlady]

If your wife may have to live with your daughter if you die, then IMHO you are not on the right track, particulary if you were to die early. You also do not say how health insurance and taxes are covered within your 35k of expenses, and you did not say when you want to retire.

You seem to have planned for the two of you, and you, but not her. I certainly would suggest you get much more life insurance. That would be in her best interest and that of your daughter.

 

[zap0007]

If your wife may have to live with your daughter if you die, then IMHO you are not on the right track, particulary if you were to die early. You also do not say how health insurance and taxes are covered within your 35k of expenses, and you did not say when you want to retire.

You seem to have planned for the two of you, and you, but not her. I certainly would suggest you get much more life insurance. That would be in her best interest and that of your daughter.

35K in expenses includes all taxes (property and income), insurance, and living costs.


The reason she would want to live with the daughter is to be close to the grand kids (not because she would have to) -

 

[chinaco]

One other thought. No offense on this but I am going to be candid!

Maybe she did not qualify for the military pension as a survivor... but short of that... I am wondering WTF you were thinking if you picked the the SL option (and could have had JL)?? If there was no choice... forgive my comment!

IMO - you are not in a strong position to retire! You and/or your DW should go back to work! You have not adequately setup income for your wife for the long-term. Short of her being in poor health or family history of early death... you need to plan for a long life expectancy.

Since you are the one with the education... it probably makes the most sense for you to go back to work! You need to save enough money to create a rock solid income for her before you stop... You should go back before you lose your edge and before you spend your current resource down!

And don't delude yourself on the Rental BS... anything could happen. You are just the holder of mortgages (debt.. albeit secured debt).

Just my opinion!

The reason for my candid remark...

I know of a number of elderly women that are struggling to make ends meet on SS alone (right now) because of stupid moves by their dead husbands!

 

[Sirka]

One other thought. No offense on this but I am going to be candid!

Maybe she did not qualify for the military pension as a survivor... but short of that... I am wondering WTF you were thinking if you picked the the SL option (and could have had JL)?? If there was no choice... forgive my comment!

IMO - you are not in a strong position to retire! You and/or your DW should go back to work! You have not adequately setup income for your wife for the long-term. Short of her being in poor health or family history of early death... you need to plan for a long life expectancy.

Since you are the one with the education... it probably makes the most sense for you to go back to work! You need to save enough money to create a rock solid income for her before you stop... You should go back before you lose your edge and before you spend your current resource down!

And don't delude yourself on the Rental BS... anything could happen. You are just the holder of mortgages (debt.. albeit secured debt).

Just my opinion!

The reason for my candid remark...

I know of a number of elderly women that are struggling to make ends meet on SS alone (right now) because of stupid moves by their dead husbands!

chinaco -Did you miss: Debt: 0 (house, auto, cc all real estate paid off)?
IMHO (and I am no expert in this) all he needs to do is diversify from real estate, as soon as it recovers. Think the 3 legged stool: RE - Bonds - Stocks

I would recommend a Muni or Balanced fund to eliminate the guess work out of up and downs of the stock market. I am doing both - in CA taxes are high!
I am sure you will find lots of recommendations on this and Bogleheads forum.

 

[chinaco]

chinaco -Did you miss: Debt: 0 (house, auto, cc all real estate paid off)?
IMHO (and I am no expert in this) all he needs to do is diversify from real estate, as soon as it recovers. Think the 3 legged stool: RE - Bonds - Stocks

I would recommend a Muni or Balanced fund to eliminate the guess work out of up and downs of the stock market. I am doing both - in CA taxes are high!
I am sure you will find lots of recommendations on this and Bogleheads forum.

Only if I am misinterpreting his balance sheet. He has some rental property... if he owns it all outright. I might change my opinion.

But I got the impression they are holding mortgages on that property....

The wife doesn't have a 3 legged stool. According to the OP, she does not have access to the pension.

That life policy is fine.... but it is only good till 70 years old.

What if she lives up into her late 80s or early 90s and he dies at 72?

 

[Sirka]

Both of us have 300K in term life Insurance (20 year term good till age 70)

I'm looking into Long Term Care Insurance

Will and Living will in place

Any suggestions on other ways to hedge inflation?

LTC insurance, rather then inheritance, is a great gift to your relatives. One less thing for them to worry about as you get old.

 

[zap0007]

Only if I am misinterpreting his balance sheet. He has some rental property... if he owns it all outright. I might change my opinion.

But I got the impression they are holding mortgages on that property....

The wife doesn't have a 3 legged stool. According to the OP, she does not have access to the pension.

That life policy is fine.... but it is only good till 70 years old.

What if she lives up into her late 80s or early 90s and he dies at 72?

Yes all the property I own (11) is free of any debt. Plan is to save/invest the positive cash flow (6K per month) - and to replace the eventual loss of income with additional RE or a potential business.

 

[Aiming_4_55]

I voted remain as is, Retirement Income of 35K = Living Expenses of 35K.

I assume the rental income currently is all gravy.

As the number of rentals increase, the risk of passively managing goes down is what I've experienced. Even if you have a property management company, you generally call the final shots. Exit strategy and tax impact can be a handful.

 

[zap0007]

I voted remain as is, Retirement Income of 35K = Living Expenses of 35K.

I assume the rental income currently is all gravy.

As the number of rentals increase, the risk of passively managing goes down is what I've experienced. Even if you have a property management company, you generally call the final shots. Exit strategy and tax impact can be a handful.

Thanks for your input

 

[chinaco]

Yes all the property I own (11) is free of any debt. Plan is to save/invest the positive cash flow (6K per month) - and to replace the eventual loss of income with additional RE or a potential business.

OK... Sorry I misinterpreted your circumstances... I retract my statement..!

You might consider how you can arrange your plan to insulate your DW from a cashflow/income crisis if you die (after 70 since the insurance will be gone). Plus you could wind up needing liquid funds before 70 due to unexpected events (while both of you are alive).

You have some liquid assets (around $300k)... You might consider hanging on to it and not tying it up in non-liquid business investments. It would offer some level of asset diversification.

You might also consider an exit strategy for the rental business. Your plan for those assets may be a consideration in the rest of your plan. You might consider a planned exit before you or your DW experience life problems (i.e., health, etc) that might put you in a situation where you cannot manage the property and are in a situation to have to liquidate. An example would be something like: We intend to have half of the property liquidated between age 65 and 70... and a plan for the rest of it at some other time frame. Looking at it a different way.... do you intend to be a landlord at age 90 when one of you might be in a nursing home? What if you begin to suffer from dementia?


You want to play offense to improve your circumstances... but you also need a defensive game!

 

[zap0007]

OK... Sorry I misinterpreted your circumstances... I retract my statement..!

You might consider how you can arrange your plan to insulate your DW from a cashflow/income crisis if you die (after 70 since the insurance will be gone). Plus you could wind up needing liquid funds before 70 due to unexpected events (while both of you are alive).

You have some liquid assets (around $300k)... You might consider hanging on to it and not tying it up in non-liquid business investments. It would offer some level of asset diversification.

You might also consider an exit strategy for the rental business. Your plan for those assets may be a consideration in the rest of your plan. You might consider a planned exit before you or your DW experience life problems (i.e., health, etc) that might put you in a situation where you cannot manage the property and are in a situation to have to liquidate. An example would be something like: We intend to have half of the property liquidated between age 65 and 70... and a plan for the rest of it at some other time frame. Looking at it a different way.... do you intend to be a landlord at age 90 when one of you might be in a nursing home? What if you begin to suffer from dementia?


You want to play offense to improve your circumstances... but you also need a defensive game!

Thanks for your input.

It's true that I don't plan to be a landlord after age 70 (15 years away) but I do want to increase our current net worth (1.3M) - and with the economy and job situation being as tough as it is it leaves me with three choices:

1. Do what I'm doing now (buying homes at 35-40 cents on the dollar 150K 3/2/2 homes for 50-60K cash - no mortgage- and then turning around and renting them for $800-$900 per month giving me a return of about 20% per year) (I have 3 properties like this)

2. Instead of renting them, selling them as owner financed (10% down 10% loan 15 year loan - for example 50K purchased home selling for 100k - 10% down = 10K = 15 year note @ 10% = $925 per month - Over a 20% return on the money - (I have 5 properties like this with various sale dates, loan amounts, and rates ranging from 7.5% to 12%)

3. Look at some type of business I can purchase that would give me a comparable rate of return.

Option 1 involves work on my part (maintenance, painting, management etc) however there is a build in inflation hedge (I can always raise the lease payment as inflation rises) - risk is in finding a great renter (sometimes very hard to do)

Option 2 involves much less work - other then getting property ready (painting, maintenance, selling etc) then if something breaks, I don't have to worry about it. However there is risk in my having to foreclose if the buyer stops making payments (and this has and could happen in the future) there is also risk in the future since payments stay the same though out the entire loan period - no inflation hedge

Option 3 is the most risky since I'm venturing into unknown territory

An exit strategy is important with any option - I know of folks that have invested in the stock market and lost 50 - 70% of their investment. I also know of folks that have invested in reals estate (mortgaged it to the hill) and have lost it to a down real estate market. I know folks in other cuntries (Poland, Turkey, and Argentina) that had their savings wiped out due to hipper inflation - not saying that that is what will happen in the US - but with our national debt - inflation is here and much more is on it's way.


Thanks