LateFIRE Chapter 4: A Tale of Two Houses, a 26-Bag, and $1.7M

Lin Financial Freedom 25 Comments

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When you start late on the path to FI, there is URGENCY. There is no margin to make missteps. There is no multi-decade runway to recover from market turbulence, so “time in the market” trumping “timing the market” takes on a different nuance. Ask a person on the cusp on retirement in 2000, or 2008, what happened to that retirement fund left in a stock market account.

Hence, I need to choose my steps carefully. I am in my mid-50s; my husband is 61. However, we also need to take swift and probably dramatic action to catch up and provide for the years ahead. Here is where we are. Any constructive thoughts you, GYFG reader, might offer to help, are very appreciated. Thank you in advance.

The Good, the Bad & the Ugly

The Good:

  1. $1 million equity in our primary residence
  2. A single stock we purchased pre-IPO via a family relationship that now sits at 26X our initial investment (total value today $86,000 after selling some in 2018 to fully fund our HSA, a spousal IRA, and $14,000 so far in 2019 for IRAs.)
  3. $700,000 equity as likely inheritance from an aging parent’s home, to be divided by four siblings (although Alzheimer’s Disease is greedy and expensive, so I don’t really count this)
  4. A profitable business that we still enjoy running; just had our best month and quarter ever.
  5. Investments totaling $170,000 (includes #2)
  6. The intangibles: HEALTh, FAMILy. MARRIAGE, PASSION and vitality for the career my husband still works full time

The Bad and The Ugly:

  1. No pension (I am 2.5 years shy of vesting for minimal teacher’s pension).
  2. Social Security insufficient to fund our retirement.
  3. Mother’s full time care due to AD that could burn up all her assets (retirement accounts as well as home value, despite $6000/m pension and long-term care insurance that pays $123/day to her limit os $188,000).
  4. Business makes minimal profit when we are not there working it (health care practice that we spent the last three years pivoting from insurance-based into 95% cash pay).
  5. Investments totaling only $170,000.
  6. Health insurance costs spiraling upward yearly.
  7. Unbalanced concentration of net worth (our home, by far the lion’s share).
  8. Various investment funds, some (Putnam) with really high fees. I’m not sure where or how to reallocate these.

So…this is the tale of “what BEST to do” now in order to make the best of where we are and what we have, and to get us where we need to go. It’s the kind of tale with a “pick your ending” finish…

[GYFG: I thought that I would step in and out of the post to provide some of my thoughts. It would be great to see what other readers have to add to the conversation.

There is a lot of equity tied up in your primary residence. If we ignore the potential inheritance, I get an approximate net worth of about $1,256,000. This doesn’t count the value of the business or the income that it produces. From a net worth standpoint, I would argue you and your husband are in a much better position than most American’s your age find themselves in – the silver lining. The biggest challenge I see is that ~80% of your net worth is locked up in your home (I’m not telling you anything you don’t already know). Depending on your goals in retirement, selling the home might be a viable option to consider. Although Social Security will not be sufficient to fund your retirement, I’m glad you have at least considered it in the bigger picture of your retirement landscape.

The first action I would take in your shoes would be to transfer the investments you have with Putnam over to Vanguard to get rid of the high fees (I believe you once told me that this was running close to 1% in fees). I think a split between a total market fund and bond fund would be appropriate. You should be able to get your fees down to 5-25 bps. I would then continue to sell out of the single stock you own to fund retirement accounts to reduce taxes on your active income. At 59.5 there is no longer a penalty for pulling the funds out if you need them but you will still have to pay taxes when you do pull the funds out. I would even consider speaking to a tax professional on setting up a self-directed IRA or 401K, which would allow you to shelter up to $56,000 per year instead of the $7,000 for each of the IRAs you’re funding. This would serve two purposes: (1) you get to harvest more of the gains from the single stock sooner and (2) you get a tax shield against that income.

The benefit of this strategy is that you get to harvest the gains and pay long term capital gains, while at the same time gaining a tax shield for the same amount against ordinary income that is likely taxed at a much higher rate (I’m guessing your household makes at least six-figures with a marginal tax rate of 30%+) than your long term capital gains rate (15% for income under $479,000 for a married couple filing jointly). So, there is some tax arbitrage in this move.]

 

Our Residence

I love real estate. I thank God for the home we live in, which we purchased in 2011 as a foreclosure sale in a great area. We got stung on the last house we purchased in 2005, sold in 2010, but this one has almost made up for it. Over the years we have bought and sold four residences, plus two vacation rentals in Palm Springs, CA, one of which we flipped for a profit of $45,000 in three months, and one of which we held three years for a profit of nearly 2X our purchase price (sold for $500,000 in 2005; subsequently sold by others in 2009-ish for half that as the desert crashed – yikes). Out of the six, four represented wins (three very big wins).

We love where we live, but there is a lot of opportunity cost tied up here. Should we sell this house we live in, and rent? Sell and purchase something else (less expensive SFR, or potentially more expensive multi-family and live in one unit)? Is selling our home now the correct move? If we did, we could then access ~$1 million to invest elsewhere (including potential cash flow rental real estate), or maybe purchase something less expensive to live in (thereby giving us less to move into investments).

But around here (California, where our business is located), in a still-hot market, something significantly less expensive than our current cost basis is not easy to find, unless it is an extreme fixer, or condominium. Our home is a bit of a “complicated house,” with a pool and some idiosyncrasies, so I question it as a good rental (likely to rent @ $4500-5000/month, with PITI + pool + water @ $3500/month, potential profit of $1500/m). Maybe we should sell, but later, so that we can continue to focus our energy and time on growing our business, rather than getting a house ready and then selling, and moving? At that time, we can transfer our tax basis (as over 55-ers) to a home purchased for equal or less than the sales price of this one.

[GYFG: This is a hard one to answer without asking yourself a few questions:

(1) Are you ready to downsize? (I have the benefit of knowing you are empty nesters, so you don’t need such a big house.)

(2) What is your time horizon on retiring?

(3) Will you consider relocating once you retire?

I’ve always been a big believer that no one ever went poor taking a profit. You have $1M in equity, which based on the rule of thumb from the 4% rule, should give you something close to $40,000 a year to fund your retirement lifestyle (assuming index investing in S&P 500). My grandfather used to love telling me that “a bird in the hand is worth two in the bush.” If I were in your shoes I would sell, lock in the $1M in equity and rent for a year. Rent something close to the business, something smaller than what you’re used to, to figure out if the smaller size fits your lifestyle. Based on the above analysis, it sounds like your monthly burn rate for housing is about $3,500/month, which should be plenty to rent something smaller. Place the $1M in an online saving account like CIT Bank and earn 2.45% interest while you evaluate your options. You will literally be paid $2,042/month in interest while you wait. This leaves you with the ultimate optionality.]

My Mom’s House

My mom bought her home for $40,000 in a nearby city in 1975 after her divorce from my dad. 44 years later, it is now worth approximately $800,000 with its remaining balance of $80,000 on a refinanced mortgage ($1027/month), which she took out to finance a sibling’s business that failed and pay off a second husband she divorced. Ugh. With Proposition 13, her property taxes remain constant under $850/year ($71/month). As she has moved out of her house into full time care, we siblings are now deciding whether to sell the house or keep it and rent it out. Rent would likely be around $3000/month. Homeowner’s insurance is $800/year ($67/month). Gardener, water, trash, probably $150/month. Without accounting for repairs, etc., profit as a rental might be $1600/month.

But…committee-run. My brother is Mom’s successor trustee and I get along great with him. My two sisters less smoothly. Sale is cleaner, rental more involved, and probably requiring more dialogue among the siblings. Of course, it is my Mom’s, not mine, so this question is about what is best for her, financially. But looking ahead, I wonder if my husband and I should make a move to buy out my siblings and keep it as a rental of our own?

[GYFG: My first piece of advice is to not even count inheritance as part of your plan. I personally think a sale is cleaner as inevitably there will be issues whether you decide to rent it out as a committee or if you bought your siblings out – someone is more than likely going to eventually feel like they got screwed. Additionally, at $1,600/month in free cash flow, that is only about 2.4% on an $800,000 home and that is before accounting for repairs and maintenance. It doesn’t leave a lot of room for vacancies or a big repair issue. I would liquidate and put the money into something safe to fund any shortfalls in your mom’s care for as long as she is with you. You can figure out what’s left for potential inheritance later.]

The Stock

Should we diversify the single stock? When I reached out for advice some time back to another financial blogger (before I knew GYGF), he said to sell it all and reallocate according to my investment plan. My whaaat? Yeah, well…I still don’t have one, but at least I now know what one is!  Since that time, the stock has risen from 5X to its current 26X, so lucky me that I did not liquidate it. My family member obviously cannot give me advice (hello, insider trading), nor does he know the future, but he is very confident in his company to still grow and prosper (their biotech product lines target a common baby boomers’ health concern).

We sold some more when it was pretty high last month, getting ready to move it into the 2019 IRAs.

[GYFG: You have my thoughts on what I would do above. At this point, you need to ask yourself what your tolerance for downside is. How would you feel if it went from 26X back down to 5X? Let the answer to that question guide you in the speed to which to lock in the gains and re-deploy and diversify elsewhere (potentially following the strategy outlined above).]

The Non-Pension

On paper, I think this choice looks obvious: go back to work as a teacher (local jobs are available currently in my two credentialed areas: English and Spanish), collect the $50,000+ salary, save on health insurance, and work at least 2.5 years to secure the pension, of whatever size. However, I do work in our business (without collecting pay) currently. There would be a cost to replace me. And…teaching is very hard work. Doing it at 56 full-time is no small thing. I have doubts about beginning again, and truthfully, I didn’t love it before I left it years ago. I had thought to activate substitute teaching by now, and my lagging efforts there seem revealing…

[GYFG: What is the potential pension size? Unless it’s game-changing it sounds like your heart isn’t in it and you will be miserable for a few years. I would suggest doing the math to at least understand what is at stake. It’s the cost of replacing you in your husbands business, the salary you would bring in, the size of the monthly pension. Figure out the net gain/(loss) and then ask yourself if it’s worth it or not for 2.5 years. This is one of those art + science questions. Not everything can be solely decided on math, especially when time is our most precious and scarce resource.]

Then What?

If we sell our residence, I get the inheritance, and we liquidate the stock, then where shall we put the money? If in “funds,” what is the right one(s)? What is the right ration of stocks/bonds/US/international/large-small cap, etc.?

Income generation for post-work life appears top priority, both my husband’s and mine. Dividend funds? Bonds? Rental property either here (although impossible to fit the “rent for 1% of purchase price” parameter locally), or elsewhere in the country?

[GYFG: Don’t try to boil the ocean, it is an impossible task. If you sell your house and put the money in an online saving account you buy yourself time to figure out the optimal next steps. We only have so much bandwidth and you also have a business to run. You don’t have to have all the answers before you start taking action. If you wait until you have it all figured out you will be stuck in analysis paralysis. Consider selling the house, moving your investments from Putman to Vanguard, and continuing to exit your single stock position as Phase One. Phase Two is income generation once you free up the capital and bandwidth associated with Phase One. You will be in a much better head space to work on Phase Two once Phase One is behind you.]

The Business

It’s been an exciting three years as we have worked hard to grow our business, and pivot from insurance- to cash-pay. We have grown while we pivoted, and are tracking for 25% growth this year. Beyond our excitement, there is value building, too, as we see a possibility of (one day) hiring someone else on salary to do the day-to-day my husband does, while we pay all the overhead and keep a profit. He loves what he does, so that is a long way off. In the last year or so, we’ve also stripped away every single extraneous wasted dollar being spent, and added $12,000/year in subleasing income.

[GYFG: It sounds like teaching may be a distraction for the momentum you’ve built into the business. You may be answering your own question of what to do with respect to going back to teaching or not. It also sounds like the business will play a critical role in Phase Two of the plan. It may also be worth considering if there is an opportunity to sell the business. It may require a couple years of transition for your husband to phase out and pass off relationships, but it might be worth considering.]

Odds and Ends

Besides the mortgage, our only debt is what we have carried for a few months each year since 2016 as we pay a business consultant in a significant lump sum every February, then dig in hard to pay it off as quickly as possible. We haven’t yet had the cash flow to pay it immediately in cash, but we have transferred to a low-interest card. This year, we arbitraged that to get $500 cash back, and companion fares for a year (worth $1200 for the trips we already know we will take) on two new cards, before transferring.

Adult kids are completely independent, except for health insurance we still pay for our 23-year-old recent college grad on our plan, and for the two left on our cell phone plan (as of June they will be kicking in their share: $68/month each or procuring their own plans). No more college tuition and costs as of June 2018!

Cars are old but steady: 2007 Prius, and 2004 slightly-high maintenance Ford truck.

The Universal life policies we should not have purchased way back when will be paid off in six years, with permanent death benefits and long term care components.

Vanity expenditures: $260/month to store a boat, and any other boat-associated costs (I don’t ask; he doesn’t tell). We probably eat out more than we should, and belong to a more expensive gym than we could, and spend more on quality organic food than many would choose to. But these are in line with our values.

We have given lump sums to help our kids as they have needed it, trying hard to straddle the line of love vs. enabling and stay on the side of love (for example, when our youngest moved to NYC, we joyfully gave the “family car” she’d been driving to our oldest – now expecting our third grandchild – and spent a good chunk on making sure it was mechanically sound first). We have also helped out another family member and regularly give to various charities.

This is Where You Come In. Please.

I could use some real help here! When I first started focusing on our money matters hard a year and a half ago or so, I felt ashamed and hopeless, and thought it was way too late to make any changes that would correct for all the years we’d misspent. But I read a lot of what was freely offered in the FI/RE community, which has been incredibly helpful, and I started taking action. Dom here at GYFG has been hugely impactful; just by dint of spending time in his words and in his friendship, some of his insights, creativity, and proactivity are starting to rub off on me. I’d like to think his intelligence, too, just a tiny bit! I feel more confident and hopeful now, and less like it is a situation completely without redemption. I’m certainly not aiming at GYFG’s BHAG of $10 million, but we want to fund a simple life from the point we stop working until the end of our days, and avoid being a burden to our kids.

Now I want to take the best next steps and try to get a game plan laid out for these next 1-5-10-15+ years. It’s not a perfect situation, and no one knows the future, but I want to be wise, stepping out both courageously and prudently.

What do you think? Can you see areas I should lean hard into? Others that are murky swamps I need to get out of?

I would be so grateful for any input!

[GYFG: I share this Chinese Proverb a lot but I will share it again – The best time to plant a tree is 20 years ago and the second best time is today!

Shall we take a slight peak into the future after you complete Phase One?

In Phase Two, an important exercise to go through before deploying any capital will be to understand what your desired burn rate is (the cost to maintain your desired lifestyle). You will then need to compare that burn rate to the income generated from Social Security, the business, and then figure out the remaining with the $1.3M in net worth (factoring in your own risk profile). I suggest you execute on Phase One and then come back and seek additional feedback when you’re ready for Phase Two.]



Personal Capital allows you to aggregate your entire financial life into one account. All you need to do to see all your accounts in one place is log in to Personal Capital and voila! But it doesn’t stop there. They even automatically classify all your income and expenses for you. You get a FREE and fully AUTOMATED tracking system!

Lin

Lin is the voice of LateFIRE, and our resident copy editor. She believes in the power of the semicolon, and a dash properly placed. Her life mission is world peace: can’t we all “just get along” by using contractions properly, and placing punctuation marks firmly inside quotation marks?

Comments 25

  1. I would sell the 26x stock since diversification is important in retirement. Don’t base this decision based on pst results. Annie Duke uses the term”resulting” in her book which means that you should make the most logical decision and not second guess it based on results even if they defied logic. I met so many folks who continue working and regret not selling Cisco, Yahoo at the peak.

    Wrt the house; instead of selling can you rent it and what would be the cap rate? CA has the advantage of Prop 13 so if you bought it low it might make more sense to look into converting it into a rental.

    Besides these 2 points; I agree with all that Dom mentioned.

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      Thank you, FFC! Your point is very well-taken about selling the stock. The emotionality is such a trap – when the price is down, I feel bad, and want to hold on until it gets back up to where it was at its height. But when it’s high, I want to hang on to see what is possible, at an even higher price! “Resulting” indeed – great concept. Again with a feeling, but the real estate market around here has had an incredible run-up, and is still very strong for a seller, but there are definite signs of things slowing. This makes me nervous to hold on indefinitely to this place as a rental, plus the fact that it has some characteristics that I see not faring well as a rental. But it is worth reexamining – thank you for your input!

  2. I believe there are times for using a reputable FEE ONLY financial advisor and this looks like one of them. This family has significant assets and is actually well above average in net worth. However, there is some difficult emotional, tax and legal terrain to navigate to be able to set clear goals that they can get focused on together. Also, this family has too much going on to quickly become advanced DIYers like a 20-something with a simple job can. They can succeed but they need a plan they both agree on to help them make or sequence various decisions.

    Emotional: They are attached to the house, boat and CA lifestyle but don’t know how they should value these things in their retirement planning, because they don’t have clear goals to guide them yet. The easiest and quickest way to prioritize is to work with a competent, neutral (FEE ONLY) third party professional who walks with similar clients daily. Otherwise, I sense this couple, like many including ourselves, will have a hard time talking about everything to get on the same page. A good coach can facilitate that discussion.

    Tax/Legal: The couple is not going to be able to understand the tax implications of their and her mother’s real estate from strangers on the internet, especially in light of Medicare. There are just a lot of moving pieces here with the business, too, that are unique to them.

    Note: Local fee only advisors advertise online. Be sure to visit more than one to get a sense of chemistry. Make sure they do not sell financial products of any kind, whether investment management, mutual funds or insurance. If they say anything other than “I do not sell financial products, only my time to advise you and create and coach you on a financial plan that you implement,” run away fast. Good luck.

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      Hi Markola. You brought up some really good points, and I can see the value of hiring a FEE ONLY financial advisor (loved your all caps – duly noted!) to help wrangle the whole thing and get a long-range game plan together. It is very complicated, and I feel the stress of not being able to make up time lost in DIY, as you said. Another benefit of a third party’s involvement would be that we (my husband and I) are not then coming up with ideas on our own and bossing each other around. Really good points – thank you for taking the time to answer.

  3. Hi Lin,

    I agree with the recommendations to see a tax professional and a fee only financial planner. Sometimes what we don’t know can really bite us. I know, from experience, that I don’t want to run afoul of the IRS.

    That said, I do have a few things I want to add. My Mom was a teacher in California and did not pay into Social Security. I told my parents many times that she was eligible for spousal benefits from my Dad’s work history when she reached her full retirement age and my Dad had already started collecting his benefits. After her death (and I took over my Dad’s finances) I discovered that she had never applied. That made me very sad, as that money would have made a big difference in the quality of their life after retirement. You probably already know this, but I wanted to bring it up.

    Next, I’m assuming that your Mom’s house is in a trust and that you’re her P.O.A and trustee. Is that correct? If you sell her house now, her tax basis is $40,000. She will pay capital gains on the proceeds of the sale minus $40,000, home improvements, and the $250,000 owners exemption. From a tax standpoint, that might not be the best move.

    I’m my Dad’s P.O.A and trustee. I have a fiduciary responsibility to make sure my Dad receives proper care. I know that my parents wanted to leave an inheritance to my siblings and I, but that isn’t my number one priority. My Mom died of Alzheimer’s, so I know that the last eighteen months of her life she really didn’t need a “fancy” place. Had my Dad not been living, I would have placed her in in-home residential care (close to me) with only a few residents so the ratio of staff to patients would good. In my area, LTC insurance plus pension would have been more than adequate. My Dad currently lives in an assisted living facility a mile from me. He’s ambulatory, but can no longer live alone. He’s just starting his Alzheimer’s journey. Right now, he benefits from the bells and whistles of his $4,000 a month facility. However, as his needs increase the costs will soar past $8,000 a month -far more than his income will sustain. When the time comes when social interaction with his peers is less important, I will move him into one of the homes close to me so I can continue to spontaneously drop by to check on him. I may need to refinance his home if more funds are needed, but I don’t plan to sell his house until after his death. That way, there will be a stepped up tax basis on his house, I can fix it up and sell it, all expenses will be paid by the trust, and four equal checks will written to the trusts beneficiaries without the burden of capital gains taxes. That is my plan. I hope it works! 😂

    In the meantime, I will rent my Dad’s place, receive income, and be able to write off some expenses at tax time, which I’m unable to do now.

    The last thing I want to add: If you sell your home, you will not pay capital gains on the first $500,000, but you will on the remainder. That’s still a great place to be. You have lots of options. Good luck!

    B.

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      Thank you, Bonnie! Your insightful comments brought up 2 things I hadn’t considered: my Dad’s and stepdad’s SS benefits perhaps being available to my mom, and also considering the stepped-up value of her home at her eventual passing versus the capital gains to be paid now factoring into a sell versus hold and rent choice. I worked with my mom for years to pay her bills and keep that organized, but am not the POA, nor the successor trustee (brother is). So far we have operated as a good team and I will bring this up to him. My mom is in a nearby converted neighborhood home facility, one of 6 residents to usually 3 caregivers at a time, one assigned specifically to her. It’s loving excellent care, and costs $10,600/month. If she slept through the night instead of getting up and presenting a fall risk, thereby requiring a caregiver with her all night, it would be $8000/month (the home’s owners require this). Thank you so much!

      1. Wow, that’s very steep for in home care. I’m sorry to hear that. I’m guessing you live closer to the coast and the “big cities” than I do. Which brings up another point. Do all your siblings live in the same area? My siblings live in Washington, Oregon, and Texas. In home care is less expensive in Texas than in the other states we reside in. Right now, my Dad still knows people in my area, and he can visit his mountain home when he’s accompanied. There’s a value in him being here. However, there may come a time when there isn’t. So we might reevaluate the location of his accommodations at that time.

        My parents chose to retire in a place over an hour away from hospitals, and in a home with three different levels all accessed by steep stairs. It was not a home where they could safely age in place, even without the risk of fires, flooding or snow. When I pick my retirement home, I’ll keep all those things in mind.

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          Isn’t it crazy? The costs were shocking, and then the disparity in quality was also sobering. We are definitely living in a high COLA – Southern California – reflected in these figures. 3/4 of my siblings live near. Ironically, my sister works in assisted living, but in another state. She affirms what you are saying in regards to cost.

    2. I also agree with Dom’s advice and highly recommend that you begin working with a fee-only financial adviser. We, too, run a small family-run business and are near retirement age. In 2002, we had a net worth of -$80,000 (yes negative!), but the business began to turn a profit, and I set up a SEP-IRA with Vanguard. By 2007, we were completely debt-free. In January 2016, I began to work with a highly rated fee-only financial adviser because planning for retirement and trying to minimize the tax burden had become overwhelming. He converted the SEP-IRA to a 401K and we began maxing out 401K Roth contributions for myself, husband, and young adult son. In 2017, we added a Cash Balance Pension Plan. Having a planner has made me much more deliberate about saving and aware of small business savings/tax options. Since bringing in the financial adviser, our net worth has more than doubled (from $800,000 to 1.7 million).

      Here’s another idea on your current house. Is it possible to turn part of it into a rental? We deliberately built our current house with a small studio apartment with separate entrance that our son currently rents from us. This decision financially benefits both us and him.

      Like others, I recommend that you don’t return to teaching. You sound much happier working for the family business. You could possibly add more value to the business than you are already doing. It sounds like a return to teaching would make you miserable. Happiness and good health are hugely important, and as Dom emphasizes, time is our most precious resource, and this way you get to spend more of it with your husband.

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        Author

        Wow – KJD! What a great story! Thank you for your input. There are certainly many more advantages to small business ownership than we have tapped into, and your insights are going to be super helpful as I check them out. I will be drafting off your success. I love the idea of “house-hacking,” by creating a partial rental. At our current home, we have size but limited options for creating separate spaces without spending a lot of money to remodel. I’m not ready to share the kitchen, etc. Thank you for taking the time to comment!

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        Author

        One other point (before Dom steps in and asks you to write a guest post LOL): how did you vet that financial planner? You say he was “highly rated;” can you share what you looked for, what proved to be important down the line, and share any surprises (good or bad) in that process? The planner looks to have been a vital component in the successful journey. I’d like to know more!

        1. I did numerous online searches and reading of various articles about how to pick a decent financial planner. Before committing, I had the planner to do a small task (analysis of social security benefits and ways to maximize) which has a one-time fixed fee of only $150, which would be waived if I did decide to contract with the company within 30 days following receipt of the written report and meeting with the planner. Online reviews of the company stressed their honesty, integrity, and accessibility. Another thing is that I hate in-person meetings, so being able to do everything via online, phone, and fax was one of my criteria. The company I chose, rebel Financial https://rebelfinancial.com/, is small and local. Looking at their website would probably be helpful to you as it could serve as a good example/comparison for your own search.

          The Good: 1. Their pricing is very straightforward. 2. Anytime I have a question, I can email or call, and I get an answer from the company president/owner. 3. Our portfolio is now regularly rebalanced based on my moderately high risk level and is now much more diversified. 4. I usually have two Webex meetings per year with the planner to discuss retirement and tax planning. 5. Free estate planning and updates to our wills by one of their attorney partners is included.

          The Bad: 1. Planner recommended that I sell my Amazon stock, which is one of the few individual stocks that I ever purchased that had a decent return, so I was personally attached to it. His concern that I was over invested in it, as the stock represented at least a fifth of our portfolio and some of our mutual funds also included Amazon. In retrospect, I wish I had stood my ground and kept more of the Amazon stock than I did. It took me about a year to stop beating myself up about this. Doing a systematic spreadsheet cost/benefit analysis helped me come to terms with this decision. 2. The return on the Cash Balance Pension Plan is less than expected and the expenses are higher (requires an actuary to set up and manage). My company had a few high earning years, but that has now slacked off, so the tax benefits are not as great as hoped for, so I plan to get rid of this next year. The planner will then transfer the pension funds into our respective 401K accounts and there will be yet more fees for closing the pension.

          In response to your comment “The planner looks to have been a vital component in the successful journey.” – On my own, and with Vanguard investments (mostly index funds in SEP-IRA and individual IRAs, though I invested $100,000 in individual stocks which had very mixed returns), I had already amassed over a $1 million in assets. However, in 2015, we bought a house, the stock marked dropped significantly in January 2016 (we lost over $100,000), and our tax bill exploded due to higher business earnings. In addition, my husband was nearing retirement, but unless we took action, he did not have enough credits to qualify for 10 years of benefits he could receive until I retired and he’d become eligible for spousal benefits. Thus, even though I had done well overall with getting us out of debt and growing our wealth I decided it was time for expert advice. After my first meeting with the adviser, I officially added my husband to the business so that he could earn the needed social security credits before he turns 66. The tool that helped me the most with wealth building was my creation of a personalized Excel spreadsheet that tracks our net worth. I still update this monthly. Online wealth builders do the same sort of thing, but these were not readily available when I started this journey.

          Final thoughts: 1. Recently, I met an Edwards Jones financial planner at a business networking meeting, and quite unexpectedly given our initial casual conversation, she began to aggressively hard sell her services to me over the past few months. Last week, I caught her lying to me (said I had requested her call) and said that she was getting over 20% returns for clients (in my experience, this figure is unrealistically high over the long run). I will no longer be answering her calls. At no time has my planner ever done any hard selling or made empty promises. 2. With respect to expected returns, I recommend reading: https://www.thesimpledollar.com/where-does-7-come-from-when-it-comes-to-long-term-stock-returns/ . Over the past 16 years that I’ve monitored my annual return on investments, I’ve earned a high of 24% and the greatest loss was 14%. When I tally everything up, the average is close to 7%. Pretty amazing, eh? I just keep investing and hoping for the best, and having the planner provides added peace of mind that research-based investment and retirement strategies are being applied based on information available at the point in time that a particular decision was made.

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  4. It sounds to me like you are living in one of the most expensive parts of the country. In your shoes I would follow GYFG’s advice about renting where you are, but I would also consider a future move to a more affordable area. Las Vegas maybe? Where you can enjoy the boat and any beautiful home you might buy at a fraction of the price. That will leave plenty of leftover equity to invest. While your family and successful business are your priorities now, a future relocation could offer a game-changing series of life choices.

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      You put your finger right on a huge issue, Carolyn. Like the proverbial lobster in the pot, we never really fully grasped this issue as two who have grown up here in coastal Southern California. But it is really expensive here!!! Las Vegas is on our radar, as well as some other areas with potential. Thank you for your input.

  5. Hi Lin,

    I can certainly appreciate the situation you are in. Your story brings to life some real issues that FI/RE doesn’t address with regards to full-time medical care for parents, dead equity, and attachment to individual stocks.

    Dom has provided you with some gold in his comments. I would be inclined to agree with selling your home to access the equity in your home and transferring it to a cash flowing property. I used to be diehard about “owning” vs “renting”, but now that I’m older, I realize that renting has some real value if you can otherwise use that equity to generate income or build your assets faster in other areas. I would definitely consider investing out of state as there are more opportunities to find cash flow deals. Bigger Pockets is definitely a great resource if you’re wanting to dive head first into real estate investing.

    I’d also recommend diversifying out of the single stock. The other commenter have nailed it on the head.

    All in all though, I think you’re doing fine. You have enough time to shift things around. Good for you for facing your reality and taking action!

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      Hi Michael. Thank you for your insights and most of all for your encouragement! I am actually starting to become intrigued at being a renter. If we go that direction, it gives us a low-risk way to try out new styles of living and locations. These changing life seasons do bring new and different challenges; as John Lennon said, “life is what happens when we’re busy making other plans.”

  6. Lin, thanks again for sharing your journey, your posts are always worth my time and enjoyable. Our situations are not to different, and your dedication to your Mom is really admirable. My father passed in early May after a 10-year battle with dementia, so the struggle is real. Some thoughts I hope you find useful even as another confirming opinion, even though they are duplicates already provided by the wise commenters and GYFG…

    Putnam funds – what GYFG said, get into Vanguard fast. Don’t get into a discussion, or explain, or tell Putnam why you are leaving (they will contact you and ask). There will be fees, just pay the fees and get into Vanguard, and the fund recommendation and distribution is exactly what I would have done. See, GYFG wisdom is rubbing off on us!
    Mom’s house – unless there is a compelling reason to sell, you might enjoy benefit by keeping it until her passing. At that time, her estate exemption can be passed on to heirs without any taxes (up to $5.7mm in 2019). If you sell the house, you will have to pay Capital Gains over the $250K homeowner’s exemption minus cost-and-cap basis. Also, the sales commission and doc fees. If you sell for $800K, after taxes on CG I estimate $300K divided four ways is $75K. Now you have to pay for Mom’s care out of that, and count on your siblings to do the right thing too.
    Your house – a rule of thumb for primary residence is to not treat it like an investment, but as a home. Sell a home, pay at least 7% in commission-fees-staging-inspection corrections, etc. Buy a home and pay at least 5% in the first year to make the house closer to what you want. These costs are incurred every time you move. Selling your house to temporarily rent is another form of market-timing; if you believe you can time it twice (exit and entry) then go ahead.
    Teacher pension – 2.5 years doing something you don’t want to do. Nah. I should stop there, but won’t. Put a number on it. Cost of replacing you at your husband’s practice (imputed value), teacher salary/ins. minus taxes-and-expenses-and-commute.
    Social Security – as a California resident, you will not be able to collect both S.S. and teacher’s pension; just whichever is greater. Non-issue, and another argument against returning to teaching
    26-bagger – that is a fun story, but unless you have an attachment that is more than sentimental, it should be looked at like any other money. DCA out of it over four years to spread both risk and Capital Gain which will be taxed, and DCA into the Vanguard funds GYFG mentions.

    Alzheimer’s is brutal, and you are right to be conservative about the costs. Your costs are about what my family is paying for care, per person. Even though my father is no longer with us, a sibling also has dementia and requires f/t care at that rate, and my mother is expecting to be in the same situation in a few years. Thanks so much for sharing, and I’m keeping good thoughts for you and your family while you attend to her care.

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      JayCeezy, your comments are always generous and thoughtful. Thank you for taking the time. I’m so sorry to hear of your father’s struggle – and now your sibling’s – with dementia. Ugh. It is a tsunami beginning to break, in my opinion. I will heed your counsel (in line with Dom’s) to exit out of Putnam ASAP, with no dithering allowed! I hear you on the principal residence and the intangible value of “home,” while at the same time having to acknowledge that for us at this time in this situation, I have to also look at this house as a tool. Thank you again for weighing in – thank you for your encouragement!

  7. Great advice from everyone that there is actually very little to add.

    Those universal life insurance policies that “you should not have purchased”, have you explored optimizing these policies? My life insurance policies benefit me TODAY versus down the road.

    Life insurance is a very complicated product that very few understand, but for the right person can be very beneficial. I cannot stress enough, how important it is to consult with a financial professional who specializes in this field before you make any moves. Even those professionals who think they know, don’t so vet them hard. I thoroughly enjoy leveraging my whole life policies, but that is just me and not for everyone.

    99.9% of financial professionals and enthusiasts will not tolerate such advice, but my humble recommendation would be to educate yourself about how to leverage these policies to better serve you.

    You already have them, the worst that can happen is that you find an unknown asset.

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      Well, Church, that is a very interesting point, and one I had not considered! We have paid enough for these policies – it would be great if they “earned their keep.” I will look into that possibility of leveraging them, and take your counsel to do so very carefully.

      1. Please let me know if I can be of any assistance. It is my pleasure to help out. I won’t have all the answers, but know enough to connect you with someone who does.

        Dom can connect us.

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  8. It looks like most of your net worth is tied up in your home and based on your family circumstances that you probably don’t want to leave the area. Have you considered a cash-out refi on your home? You could get 75-80% of the value out at a relatively low interest rate (historically anyway). This would allow you to purchase investments… thinking investment properties, especially since it sounds like you already have some experience in that area. Then you could use the cash flow from the investment properties to pay back your refi and add some permanent additional cashflow to your bottom line.

    Just another option to consider. Best Wishes.

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      I really hadn’t considered that course of action, Eric. At our ages we just hate debt so much and the real estate market has been flying high for such a long run around here, it makes us nervous (once burned, twice shy) to think of scraping out the equity of our home if a correction is on the horizon. But…I do respect the wealth I see built on real estate using assets as you describe. Thank you.

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