I might get layoff this year, need help

[CBR900RR]

Hi forum, my 1st post here and need some help to figure out my options

I turn 47 this year with 2 kids, 8 yrs old and 1 1/2 yrs old, factory worker, possible getting layoff sometime this year.

The only loan I owe is the mortagage on my primary residence, worth ~$700,000 and owe ~$335,000

I have
$200,000 cash in my saving account
$35,000 in ROTH IRA
$460,000 in 401k
$100,000 in pension
$10,000 in another pension

I have a 2nd rental house worth about $330,000, already payoff and collecting $1,000/month after all the expenses.

Wife is 45 and will continue working for at least the next 10-15 years, she is making $38,000 gross

My youngest kid is attending a private childcare school, cost me $1,600/month, will cut that out if I stay home and babysit.

My monthly expense other than the mortgage and child care are ~$1,500 utilities/vehicle/insurance plus $1,500 food and extra, I need about $3,000 a months to live comfortably.

Should I payoff or paydown my mortgage?
Am I able to retire or do I need to get a part time job?

 

[rodi]

Welcome.

What would you use to pay off the mortgage?
I only see $200k in taxable account. You're too young to draw from the 401k without penalty.

I'm a big fan of paying off the mortgage (working to be mortgage free, myself, in the next year).

Have you plugged your numbers into firecalc? Make sure you hit all the tabs so you can put in your wife's income. And make sure you put in the pre-tax amount you'll need. Firecalc assumes gross spending, not net.

 

[rodi]

More questions - are these pensions lump sum payouts?
Do they need to be rolled into a tax advantage account?

 

[CBR900RR]

Welcome.

What would you use to pay off the mortgage?
I only see $200k in taxable account. You're too young to draw from the 401k without penalty.

I'm a big fan of paying off the mortgage (working to be mortgage free, myself, in the next year).

Have you plugged your numbers into firecalc? Make sure you hit all the tabs so you can put in your wife's income. And make sure you put in the pre-tax amount you'll need. Firecalc assumes gross spending, not net.

I was thinking either

take the 10% penalty and pay off the mortgage, I still have $300,000 in my 401k

or

paydown my mortgage with $235,000 cash and refinance for $100,000 (15yrs @ 2.5%), start drawing down my 401k with 72(t) early distribution

More questions - are these pensions lump sum payouts?
Do they need to be rolled into a tax advantage account?

I believe need to roll over to an IRA

 

[Rowdy]

Welcome CBR900RR. Sorry to hear about your potential layoff.

If you are thinking of retirement, perhaps your $700k house is more than you need or can afford. Does your wife's job provide health insurance for your family? I'm assuming your pensions are lump sums?

 

[pb4uski]

How much is your mortgage payment? Looks like you have about $3500 a month of income ($2500 DW take home pay + $1000 a month from the rental) and $3000 of expenses before the mortgage.

I think it would be foolish to raid the 401k to payoff the mortgage - not only would you have to pay the 10% penalty but you would have to pay tax as well, so the total bite would probably be 25-30% or more - so in order to net $100k you would have to withdraw $130 - $145k and pay $30-45k in taxes and penalties - foolish.

One option might be to use some of the cash to buy another cash flow positive rental or two that you would then manage in addition to taking care of the young one.

Seems like you would be cutting things close to me - unless you can sell you house and move to a less expensive house.

 

[CBR900RR]

Welcome CBR900RR. Sorry to hear about your potential layoff.

If you are thinking of retirement, perhaps your $700k house is more than you need or can afford. Does your wife's job provide health insurance for your family? I'm assuming your pensions are lump sums?

Do you mean downsizing my house? The median housing pricing in my area is over $600,000

My wife job does provide health insurance, and pensions are lump sums.

My plan is to stay home babysit for 3 years so I can save on childcare ($19,000 per year), may be collect unemployment for the 1st year, when my youngest one turn 5, I can send him to kindergarten, I will be 50 yrs old by than, part time job? or retire?

Thing I need to decide right after I get laid off is,

either draw down $100,000 from my 401k/pension/IRA, take the 10% penalty hit, together with my cash and pay off my mortgage, should have $470,000 left in my portfolio($500,000 minus penalty and income tax),

or refinance $100,000 for 15yrs @ 2.5%, $666.79 monthly payment, survive the 1st year with collecting unemployment, and than start drawing down my $600,000 portfolio with 72(t) early distribution, may be take out $1,000 a month, another $1,000 from the rental properties, wife income is $3,200, I should be able to gross $5,200 per month

or I go back work after my youngest one start kindergarten

 

[jimnjana]

I'd sell the rental and payoff your primary. In the meantime I'd stop contributing to retirement savings and build cash funds. Also start cutting fat from the family budget.

 

[CBR900RR]

How much is your mortgage payment? Looks like you have about $3500 a month of income ($2500 DW take home pay + $1000 a month from the rental) and $3000 of expenses before the mortgage.

I think it would be foolish to raid the 401k to payoff the mortgage - not only would you have to pay the 10% penalty but you would have to pay tax as well, so the total bite would probably be 25-30% or more - so in order to net $100k you would have to withdraw $130 - $145k and pay $30-45k in taxes and penalties - foolish.

One option might be to use some of the cash to buy another cash flow positive rental or two that you would then manage in addition to taking care of the young one.

Seems like you would be cutting things close to me - unless you can sell you house and move to a less expensive house.

Mortgage payment on my primary house is $3,000 per month, 13 more years to go.

Buying another rental properties is my original plan before the layoff announcement, I was originally planning to put down $200,000 and finance another $120,000, I should come up positive, and both the rental properties will be use for my kids future collage fund.

 

[growing_older]

Yikes. With a layoff looming, now is the worst time to pay off your mortgage. You need to hold your cash for possible use until you can find a new job.

 

[CBR900RR]

I'd sell the rental and payoff your primary. In the meantime I'd stop contributing to retirement savings and build cash funds. Also start cutting fat from the family budget.

I did thinks about that route too, sell my rental and it should be just enough to pay off my house, after layoff and rollover all my pension to an IRA, should be around $600,000 in my nest off egg with my wife getting $3,200 per month and health insurance.

If I save the rental unit, I will use it for college fund for both my kids, should be half a mil by the time they need the fund.

 

[CBR900RR]

Yikes. With a layoff looming, now is the worst time to pay off your mortgage. You need to hold your cash for possible use until you can find a new job.

I am very fortunate to get a high paying job 18 years ago, I gross 127k last year, I am a high school drop out with some mechanical degree, I will be lucky to get 60k if I find a new job.

 

[Throwdownmyaceinthehole]

Move to Australia

I am very fortunate to get a high paying job 18 years ago, I gross 127k last year, I am a high school drop out with some mechanical degree, I will be lucky to get 60k if I find a new job.

Move to Western Australia, work for 2 years @ half million, retire.

 

[CBR900RR]

Move to Western Australia, work for 2 years @ half million, retire.

What type of work is that?

 

[samclem]

CBR,
I would definitely not pay off your house. Your idea of refinancing to reduce your house payment is probably a good one, but you'll need to do it soon (while you still have an income that your employer will verify).

You'll need to work out a detailed budget to see if you could retire now. Most people plan on withdrawing about 4% of their investments each year while they are retired, often a bit less if they are as young as you are. Under these rules of thumb, your portfolio would allow you to withdraw about $17k per year starting now. You'd have this, the income from your rental property, plus your wife's income. Is that enough for all your family's expenses? Then there's the kids' college expenses you mentioned on top of that.
Is that rental property bringing in all it can? You've got a lot of money tied up there.

One possibility is that you could "make your own job" by buying, fixing up, and renting out homes, if you are handy and willing to do what it takes. You've got a little capital, you've got a little more available in your paid off rental unit, and if your credit is good you might be able to borrow more while you've still got a job. You'd have to crunch the numbers and see if it makes sense for you.

A $700K house is a lot of tied-up assets. Is it time for you guys to consider downsizing? I don't know much about where you live, but if you can find a nice house for less, it would free up resources you could use for other things. Again, acting while you still have income from your job (to show a mortgage company) will give you the most flexibility. They need to see a steady income stream, they don't care about your savings.

 

[obgyn65]

This sounds like the best option.

or I go back work after my youngest one start kindergarten

 

[jimnjana]

I did thinks about that route too, sell my rental and it should be just enough to pay off my house, after layoff and rollover all my pension to an IRA, should be around $600,000 in my nest off egg with my wife getting $3,200 per month and health insurance.

If I save the rental unit, I will use it for college fund for both my kids, should be half a mil by the time they need the fund.

Your return on investment is not that great with the rental. Some of the Kids college funds could be moved to tax deferred accounts. Selling provides you more flexibility.

 

[ronocnikral]

What about selling your primary residence and moving into the rental?

You should also move your kidlet that is in the fancy private school thingy out, sooner rather than later. Regardless if you get laid off or not, that would save a significant chunk of change.

I'm of the opinion that funding your kid's college should be the least of your worries right now.

 

[hlfo718]

Do you maintain a spreadsheet on all your expenses? Don't guesstimate but use actual when they occur so you know if you can FIRE.

 

[nun]

Downsizing sounds like a plan. $700k is a lot of house to carry. Even in the most expensive regions you can move a few miles and find bargains.

 

[Throwdownmyaceinthehole]

Any kind of tradesperson, electrical, mechanical, engineers - search SEEK - Australia's no. 1 jobs, employment, career and recruitment site or look thru Rio Tinto, BHP, Chevron Gorgon project, Pilbara, FIFO - they are actively recruiting in the US.

 

[haha]

Once again, a thread proves that the streets in America really are paved with gold.

Ha