Major financial and lifestyle decision

**disneysteve** · 12-25-2012, 10:15 AM

Welcome. I have a few questions and suggestions.

1. How are you able to put 50K into pre-tax retirement accounts? The max for 401k is $16,500 so even if you are both maxing them, that's $33,000. Where does the other $17,000 go pre-tax?

2. Why did a couple earning 600K need to borrow money to buy a car?

3. When will the student loans be gone?

4. Is the 200K in savings all you have liquid? What about an emergency fund? You should absolutely not spend all of your liquid savings on a down payment no matter how much you earn.

You say your husband will start some new businesses after the move. Will that mean giving up his current income right away? If so, what is a realistic projection of when the new businesses would be profitable? His current income nearly matches your annual cash savings so if his income goes away, so does that savings (unless you trim the budgt to make up for it). Also, that would be a very big additional reason not to exhaust your liquid savings. You'll need it to carry you during any period when he isn't earning anything (or earning less than now).

With your income, I think this plan can work. I just think you need to clean up a few details first, or at least have a solid plan to clean them up quickly after making the move.

**AnneK4254** · 12-25-2012, 10:55 AM

Steve, Thanks for your input. And Merry Christmas or happy holidays to you! A few answers:

1. The additional 17k goes into a pension fund at my firm, which I believe is pre-tax.

2. We took a loan for the car because they were offering less than 1 percent interest, and we thought we should pay higher interest debts (student loans, at 3 and 4 percent) first.

3. Student loans are on a schedule to be paid off in probably 20 years but our goal would be to pay them off much sooner.

4. Yes the 200k is all the liquid cash we have, but we could save all or most of the 200 in equity from selling the first house, and keep a bigger mortgage. (Seller financing would allow only 10 percent down if that's what we chose to do.) We would do that unless I received a Spring bonus that could serve as our emergency fund before the house closed.

Thanks!

**scfr** · 12-25-2012, 12:33 PM

If I were in your shoes, I'd want to know that my husband could: 1) Have an expected income increase of at least $20K per year and 2) qualify for disability insurance in the new line of work. Is that realistic?

Personally, I wouldn't buy the new property right away. I'd:

Sell the current property (may take awhile)
Move in to a teensy tiny, not very nice apartment (Anything is bearable short-term)
Go over budget and cut all expenses that aren't absolutely necessary
Pay off the student loan completely
Put all remaining liquid cash in a 1 or 2 year CD (yes, even at the current crappy interest rates)
Let your cash pile grow (from interest earned and significantly reduced expenses)
When the 1 or 2 years are up, buy the new property ... nothing more than what you can get for a 15-year mortgage, 20% down, and monthly payments no larger than what you have now.
Your husband may need a significant amount of cash to get the business up and running, and to cash flow the business for the first couple years. And he'll want to put as much as he can in to a retirement plan (SEP IRA, etc). Don't expect him to contribute much to household expenses the first couple years.

If this is a dream that the 2 of you share, this approach really won't feel like a sacrifice. It will feel like a grand adventure that the 2 of you are setting out on together. Trust me, I've "been there and done that" (tho' when my husband started his business it didn't involve buying property).

Good luck to you.

**rj.phila** · 12-25-2012, 02:44 PM

there are two things that i think you need to do some serious soul searching on:

1-you both obviously have skill sets/character traits that have allowed you to be successful. how well do you think these will translate over to your new lifestyle? if you think that the same things that made you both successful would be applicable tools to your new lifestyle, then i think that's a good indicator.

2-your husband needs to put a real dollar amount on this idea of "working with his hands", specifically, this question: "how much income would you be willing to sacrifice for this lifestyle benefit?" i know you probably arent equating the two, but i think its very possible you WILL be presented with a dichotomy between these two aspects. i'd put serious thought into it now.

**TBH** · 12-25-2012, 07:08 PM

Aren't you a bit behind on retirement savings? You have half a year's salary saved, in your early forties. I think most calculators want you to have 2x-3x your salary saved at that age.

The new house seems like a bit of a leap but I also think you can do it, especially if you can keep a sizable cash cushion as disney_steve suggested. I am also one of those people who thinks unless it's totally shooting yourself in the foot financially you should follow your dreams if you can, when you can. Money isn't everything.

Once you're in the new place, I would expect 2-3 years for your husband's businesses to start to pay for themselves, and then I'd go into major debt pay-down mode and after that focus on catching up on retirement savings.

Good luck! Sounds exciting.

**AnneK4254** · 12-25-2012, 09:45 PM

Yes, I think we are behind on retirement savings - that is a big part of the anxiety I am feeling. If we can pay off our mortgage before retiring, then we ought to be able to live on much less than our current income, but I would feel much better if we had more already saved. In hindsight, I would say we have not been as frugal as we should have been over the years, until the past two.

Good points about 1) soul-searching and 2) disability insurance for my husband. I am trying the soul-searching part and feel like I am on a huge emotional roller-coaster. In the morning, this feels like a calculated risk that could be a great life change - and at night, I can't sleep because the numbers and unknowns (fiscal cliff impact on our taxes, will he make any money at his business?) put my stomach in knots.

That in itself could be a sign that we shouldn't do this, except that I am a worrier by nature and have felt this way about just about every big decision I've made - and so far they have all generally turned out fine. Thanks to all those who are offering help. It is really helpful to get some other thoughts on the situation.

**snafu** · 12-26-2012, 12:12 AM

I can understand the desire to leave the city and choose an acreage lifestyle. Has DH had experience as a rancher? Does he have a background in animal husbandry & genetics that are so important running cattle? That industry has been such a rollercoaster and it seems to be linked to 'Murphy's Law'since so many things go awry. Has DH been looking at this change of career for a long time? [some guys at 40 make strange choices]

What part of the lumber industry does DH plan on? Does the property have 25 y/o timber growth and required mix and density for harvesting? What government compliance is applicable? I recall reading that soil quality and septic field drainage determines crops and tree choices.

How do you feel about carrying the financial load? How much money would you be willing to give DH's new business if it requires underwriting? How many years will you support the project? How important is it to you to have a $1.5 M home? What level would you be willing to drop?

**Wino** · 12-26-2012, 04:26 AM

Don't trust Mr. Haney. He only wants to take money from you. And Arnold is not really Mr. Ziffel's son, no matter what he says.

**AnneK4254** · 12-26-2012, 06:02 AM

Hi snafu, Husband does not have experience as an adult in ranching but grew up farming in the Midwest. He has been wanting to do this for years, and we've been actively looking for about 3 for the right property mix.

Yes, we could live in a less expensive house, but our concern is that what we've seen for about $1m (and no large acreages around here are less than that) is of questionable lasting value, whereas the one we've found is a gorgeous fixer-upper (cosmetic changes needed after elderly owners passed away) and weirdly enough seems to be a safer investment than others based on size and location in an upscale county. Also it is tolerable commuting distance for me, which is a tough-to-find feature for large acreage. If we had the money to reprint, clean, and bring it back to live, it could be worth much more eventually. At this stage, though, it is indeed more of a grand house than we need to live in.

Part of the property has been used for pine harvesting for years, as well as other agricultural uses. There is also significant hardwood acreage that could be selectively harvested. To some degree this business is more to kep property taxes low than a true money-maker.

I am comfortable earning the money - we have been that way throughout our relationship. My concern is not really who earns the money, but just whether we can afford it all. I don't mind living lean but don't want to go bankrupt.

**AnneK4254** · 12-26-2012, 06:10 AM

Ugh, sorry for the typos. Meant "re-paint" and bring house back to "life."

**EarlyRetirementJoy** · 12-26-2012, 02:48 PM

I'll approach this from a slightly different angle - have you calculated what you will need to have saved, assuming a 3% withdrawal rate, to support both your current and proposed lifestyle at the point of retirement? A rough rule of thumb is that a 3% withdrawal rate necessitates 33x your estimated annual spend in savings, to sustain you throughout your remaining lifetime. If your spend is currently $200,000, that means you'll need roughly 6.6 million in retirement assets, based on today's dollars, at the point of retirement. (Less SSN and any pensions of course.)

Going through an exercise like this with a financial planner might assist you in coming to a decision.

**97guns** · 12-26-2012, 04:28 PM

at 40 years old do you really want to take on 1.4M in debt for 30 years, i would rethink your dream hard before making any final decision, it could ruin you.

**kaleida** · 12-26-2012, 08:23 PM

These numbers are so high that all I can think of is Jimmy Choo shoes. gahhh!! lol.

Maybe some Loubies too.

My brain is cooked from thoughts of shoes.

I would make a terrible financial advisor

**Wino** · 12-26-2012, 08:28 PM

kaleida, I'm just upset no one caught my "Green Acres" reference - or thought it comment-worthy if they did catch it. Maybe it was too esoteric.

Or stupid.

Major financial and lifestyle decision