Hello All,
I’ve been reading this forum for a few months now and have become addicted. I’ve learned so much and am amazed at the collective knowledge of this group. My DW and I recently sold our home/family farm and I’m now hoping I can call on the wisdom of this group to help me think through some major decisions.
Background:
Me: 57
DW: 57
No children.
$1.0 mm 401k
$500k taxable
$4.2 mm cash (much of it from sale of home/family farm)
$150k loan on land purchased a few years ago on which we hope to build our dream home
No other debt
No pension
If we retire next year, my SS at 67 would be about $2,700/month and DW $1,900/month
We had been thinking about selling our home/farm for a while now with the idea of using the proceeds to fund a significant part of our retirement, but it was just a thought. With home/land prices as they are today, we decided there might not be a better time to actually take the plunge, so we contacted a couple of real estate brokers in April thinking it would be several months if not a couple of years before we actually sold the farm. Boy were we wrong…we closed on the sell of the property last month and things just became very real.
We managed to work out a 1-year leaseback from the buyer of our property, so we basically have one year to figure some things out. My DW and I both plan to retire within the next 12 months. While we would love to jump in to building a home on our out-of-state property, the cost of doing so seems crazy at the moment. We’ve been quoted prices of about $650/sq ft (up from about $450/ft a year ago), so we will wait to see if things settle down before making a decision. We will continue to look for homes in that same area which will hopefully be a little more affordable. We can also rent for a while if need be. We realize that spending $1mm on a home heading into retirement probably isn’t the smartest thing to do, but that is basically the cost of living in an area that we’ve dreamed of for years. The good thing is that the property taxes are actually very reasonable.
We’ve looked at our spending very closely for the last couple of years and are comfortable that $80,000/year will be our all-in spend in retirement and according to Fircecalc that would mean a portfolio of about $2.35 million to meet that spend. I would be more comfortable with more wiggle room and would prefer starting retirement with an investment portfolio of between $2.75mm and $3 mm.
The biggest question at this point is what do with the $4.2 mm in cash we’ve been sitting on since the closing last month. Unfortunately, even that has a bit of uncertainty tied to it due to the proposed changes in the capital gains tax. Worst case scenario is that Congress passes the tax as proposed by Biden at 43.4% (39.6% capital gains + 3.8% Medicare surtax) and it is made retroactive. That would mean a capital gains bill of about $1.1 mm. If there is an increase (of whatever amount) but it is not made retroactive, the bill will be closer to $700k. If it is retroactive, but the number is a bit smaller than the current proposal we will owe something in-between.
Which brings me to my question about how to allocate the $4.2 mm in cash. I’m currently thinking:
I’ve probably left something out, so please let me know if any additional information would be helpful. Thanks in advance for your thoughts/suggestions.
I’ve been reading this forum for a few months now and have become addicted. I’ve learned so much and am amazed at the collective knowledge of this group. My DW and I recently sold our home/family farm and I’m now hoping I can call on the wisdom of this group to help me think through some major decisions.
Background:
Me: 57
DW: 57
No children.
$1.0 mm 401k
$500k taxable
$4.2 mm cash (much of it from sale of home/family farm)
$150k loan on land purchased a few years ago on which we hope to build our dream home
No other debt
No pension
If we retire next year, my SS at 67 would be about $2,700/month and DW $1,900/month
We had been thinking about selling our home/farm for a while now with the idea of using the proceeds to fund a significant part of our retirement, but it was just a thought. With home/land prices as they are today, we decided there might not be a better time to actually take the plunge, so we contacted a couple of real estate brokers in April thinking it would be several months if not a couple of years before we actually sold the farm. Boy were we wrong…we closed on the sell of the property last month and things just became very real.
We managed to work out a 1-year leaseback from the buyer of our property, so we basically have one year to figure some things out. My DW and I both plan to retire within the next 12 months. While we would love to jump in to building a home on our out-of-state property, the cost of doing so seems crazy at the moment. We’ve been quoted prices of about $650/sq ft (up from about $450/ft a year ago), so we will wait to see if things settle down before making a decision. We will continue to look for homes in that same area which will hopefully be a little more affordable. We can also rent for a while if need be. We realize that spending $1mm on a home heading into retirement probably isn’t the smartest thing to do, but that is basically the cost of living in an area that we’ve dreamed of for years. The good thing is that the property taxes are actually very reasonable.
We’ve looked at our spending very closely for the last couple of years and are comfortable that $80,000/year will be our all-in spend in retirement and according to Fircecalc that would mean a portfolio of about $2.35 million to meet that spend. I would be more comfortable with more wiggle room and would prefer starting retirement with an investment portfolio of between $2.75mm and $3 mm.
The biggest question at this point is what do with the $4.2 mm in cash we’ve been sitting on since the closing last month. Unfortunately, even that has a bit of uncertainty tied to it due to the proposed changes in the capital gains tax. Worst case scenario is that Congress passes the tax as proposed by Biden at 43.4% (39.6% capital gains + 3.8% Medicare surtax) and it is made retroactive. That would mean a capital gains bill of about $1.1 mm. If there is an increase (of whatever amount) but it is not made retroactive, the bill will be closer to $700k. If it is retroactive, but the number is a bit smaller than the current proposal we will owe something in-between.
Which brings me to my question about how to allocate the $4.2 mm in cash. I’m currently thinking:
- Set aside $1.1 million in cash for the capital gains tax. Hopefully it will be less, but I need to plan for the worst-case scenario
- Pay off the land loan of $150,000. Loan is at 4.9% and payments are about $1,100/month.
- Hold another $1.1 million in cash for building a home or buying a home in the area if the right home becomes available.
- Hold another $500k in cash for expenses to get through the first few years of retirement starting mid-2022.
- Invest the remaining $1.35mm with a 60/40 or 70/30 allocation to get total investments to $2.85 mm. Should I invest all of this immediately or invest smaller amounts over a lengthier period of time using the dollar-cost-averaging method?
I’ve probably left something out, so please let me know if any additional information would be helpful. Thanks in advance for your thoughts/suggestions.
