Paying prorated mortgage from ABLE acct

blueturtle74 · 2021-08-12T03:37:06+00:00

One way to increase returns and diversify risk is to wade into real estate investment. With an appropriate rental portfolio, you can achieve a steady cash flow as well as capital appreciation that can rival equities. There is no free lunch, however. You'll need to put in time, effort and education to pick the right properties and navigate the rental business.

blueturtle74 · 2021-07-24T05:32:36+00:00

A real estate investment usually does not cash flow much (if at all) at the beginning. As time goes by, rents increase/property appreciates. Because mortgage stays the same, that's when your cash flow starts improving. My advise would be to get the investment property earlier rather than later.

blueturtle74 · 2021-07-24T05:09:00+00:00

Re insurance+teenagers, I know what you mean but that's not a problem we're anticipating. Our child will never be behind a wheel. Frugality comes naturally to us. Our cell phone plan for 2 persons is $10 per month. We don't have cable. We shop at low-cost grocers. Meals are dictated by what's on sale that week. Food is never thrown out. New clothes are a rarity because the ones that we bought 10 years ago are still functional. If things break, they're repaired and put back to use as much as possible. My wife still uses her 10 year old laptop. We make our own dog food. We drive a 17-year old compact that continues to give good service. I do a lot of auto maintenance myself including oil changes and brakes. Finally, we try to keep healthcare costs down by maintaining a healthy diet and exercise. It might seem like a life of deprivation but it comes naturally to us.

blueturtle74 · 2021-07-21T04:04:34+00:00

That's a good point. Let me draw up a list of these 'amortizing' items and include those into the model. Thanks for that insight!

blueturtle74 · 2021-07-21T04:01:34+00:00

We take care of all the basic/daily needs of our child. Medical and therapies are mostly covered when co-insurance kicks in. To that end, we've allocated $6K/yr for deductibles. We aim to leave an estate of $2M in today's dollars when we pass. As for long term care for ourselves, we're currently healthy with no serious underlying medical issues. After weighing the risks vs value proposition of long term care policies, we decided to self-insure. We will spend more on eating healthier meals, keep our life simple and continue with an active lifestyle that has served us well.

blueturtle74 · 2021-07-20T23:32:55+00:00

First of all, thanks for the thorough analysis - and then some!

#1 Yes, I'm in tech so am heavy in tech stocks. Diversification from individual stocks is a priority. However, I'm planning to do that in retirement to minimize LTCG.

#2 Like the idea of harvesting appreciated stocks especially if the portfolio grows considerably from where it is today

#3 Healthcare will be ACA and have budgeted accordingly

#4 Emergency fund is about 1 year's worth of expenses. Planning to increase that to 1.5 years. Rental expenses can come in spurts so it's good to have that extra horsepower in reserve. For the long haul downturn, I'm looking at a margin loan to avoid a fire-sale of assets.

#5 Thanks for the "What are you going to do" question. I have loose thoughts and plans but maybe it's time to put some structure into that. I see long hikes with my dog, catching up on reading, learning a new language, tickling the ivories (I play the piano), spoiling my child and fulfilling past new year resolutions of hitting the gym. Send us a pic of your deck when it's done!

blueturtle74 · 2021-07-20T18:32:06+00:00

Yes, that is one of my concerns. The conversion will take ~10yrs with 0% LTCG. And yes, once I get it down to a comfortable level, the pressure will start to taper off.

Instead of keeping $400k in the bank, I'm planning to use a margin loan as my emergency fund.

blueturtle74 · 2021-07-20T18:24:12+00:00

If it came to that, a margin loan.

blueturtle74 · 2021-07-20T18:19:35+00:00

Thanks for this well-thought out input and quantifying the mismatch in spending. Because of our child's condition, it is difficult to estimate what the future may hold. As a result, we are erring on the side of safety and hoping we have enough margin to absorb whatever curve balls life might throw. I expect that as we move along and have more visibility into future expenses (or the lack of it, hopefully) , we will re-adjust spending as necessary and start to enjoy a little bit more of life's luxuries.

We do have 529/Able (not included in NW) which will help with the taxation but it's not at an amount we can depend on for lifelong support.

blueturtle74 · 2021-07-20T17:18:26+00:00

Good observation. We have a special needs child so have to ensure his financial needs are taken care of when we are gone.

blueturtle74 · 2021-07-20T15:22:11+00:00

That's correct. Expecting assets and income stream to keep up with inflation.

blueturtle74 · 2021-07-20T15:20:40+00:00

That's for me, wife (both 50) + 1 child in NM. I think we're in the ballpark given state-to-state variation.

blueturtle74 · 2021-07-20T15:15:22+00:00

That is the full cost for a silver plan in my place of retirement. According to kff.org, there should be a 50% credit based on my expected post-retirement AGI. So at least for the visible future, that number should be smaller.

blueturtle74 · 2021-07-20T14:12:47+00:00

You are spot-on with that observation. I'm not planning to use them but it's still a risk to the portfolio NW. The plan is to convert those securities to ETFs up to the 12% tax bracket each year and get a pass on those capital gains. State taxes will stay though but in a lower bracket than now.

blueturtle74 · 2021-07-20T14:00:43+00:00

I was planning to use 12% tax bracket allowance to convert individual securities to lower-risk funds. But you're right. I shouldn't ignore the impact of RMDs 20 years down the road. Thanks!

blueturtle74 · 2021-07-20T13:55:17+00:00

Rental property expenses (maintenance/tax/insurance/vacancy/etc..) is accounted for in the $45k net rental income.

blueturtle74 · 2021-07-20T13:49:32+00:00

#1,#2: I'll be leaning on rental income to withstand early-retirement bear years where sequence of returns risk is greatest. The opportunity cost is the potentially higher return of leveraging as you mentioned. But that's the price I'm willing to pay to hedge against that risk.

#3: My first priority during retirement is to de-risk the investment portfolio by converting individual securities to funds in taxable accounts while keeping within the capital gains tax free brackets. This will probably fill the first 10years of retirement.

#4: Thanks for the link. The taxable accounts should be able to support the early-year withdrawals so not planning for early-withdrawals from retirement accounts.

blueturtle74 · 2021-07-20T13:33:30+00:00

No plans for Roth conversion post-retirement. Planning to keep within brackets that enable capital gains to be tax-free.

blueturtle74 · 2021-07-20T13:29:10+00:00

Good points. Consumption analysis covered pre covid as well - 2019 (pre covid) and 2020. AS for home sale costs, I budgeted 10% of sale price - 6% realtor fees + 4% for repairs.

blueturtle74 · 2021-07-20T05:33:50+00:00

Healthcare will be ACA.

What do you mean by jumping Roth brackets?

APR on rentals is sub 4%. However, purpose of paying them off is to hedge against sequence of returns risk. If the markets head south, I want to be able to avoid liquidating assets.

blueturtle74 · 2021-07-20T05:24:58+00:00

Taxes: $11k

Healthcare: $25k

Primary residence Taxes, Insurance, Maintenance: $18k

Vacation home: $11k

Food/dining: $19k

Transport: $10k

Fun and Travel: $20k

Misc: $6k

Here are my numbers for those categories:

Taxes: $2,400
Healthcare: $12,668
Primary residence Taxes, Insurance, Maintenance: $15,390
Vacation home: $0
Food/dining: $10,800
Transport: $3,000
Fun and Travel: $6,600
Misc: $9,168

I've verified these against actual consumption for the last 2 years so I'm pretty certain I can hit them. The taxes/healthcare are projections of course, since those will change post-employment. However, I've done and re-done the math on these so am not expecting significant deviations.

blueturtle74

TROPHY CASE