I recently shared our income projections for the next 13 years. If nothing drastic changes by 2023, we’ll be making about $100,000/year from our pensions and my husband’s Social Security. And by the time I am eligible to collect Social Security in 2029, we will be making over $110,000/year.
This is without any withdrawals from retirement accounts, rental property income, or income from any part-time work we might choose to do.
We understand that our pensions and Social Security may not be fully funded throughout our lifetimes. But we don’t think that they will disappear either. Even if they are only funded between 50-75% ($50,000 – $85,000) at some point in our lives, that income should cover most (if not all) of our yearly expenses from 2022 and beyond.
But we do have a 5-year gap until I can collect my pension in 2022. My husband gets his pension now and even though I am giving up my full-time job, I will be working a part-time online job for the next five years. This will provide us at least half of the income we need each year (and likely much more.)
I also explained that we could fund the gap a variety of ways. We could withdraw money from my husband’s retirement account with no penalty. I could start a SEPP with my retirement account (to avoid penalties) or just pay the 10% penalty too. Our nine* rental units also produce some cash each month that could help bridge the gap.
(*Good news! We’re soon going from 10 rental units to nine. Our tenant of 22 years has found a new place to live. This is the house across from the lake that we are thinking of downsizing into this fall if we sell our home.)
The one thing we hadn’t really talked much about is selling properties. Based on our current situation, maybe selling most of our properties would be a really smart decision?
Before I get into some basic financials of the properties, I want to share our updated end goals again too. We spent time this winter reviewing what matters most to us. These revised goals also helped me to get over my one more year syndrome.
- Maximize Health/Wellness – Extremely Important (EI)
- Create a Flexible, Location Independent Lifestyle – Very Important (VI)
- Commit to Grow/Strengthen Relationships – Important (I)
- Continue Personal Growth – Important (I)
- Increase Wealth – Somewhat Important (I) *meeting financial obligations is a given
With these goals in mind and the knowledge that our pensions and Social Security (even at a reduced percentage) will fund a large part of our future, it’s time to think more broadly about our other assets. And about designing our retirement lifestyle.
We are already planning on trying to sell our home and downsize into one of our Lake House rental later this year. Our plan was to use the proceeds of that sale to pay off two mortgages, leaving us with just one more debt – a large mortgage on our 8-unit rental.
But as we started thinking more about the next five years, the kids both being away at college, and all of the places we want to go – maybe we should just sell it all…(or most of it!)
Here is a basic breakdown of the properties and a conservative estimate of what we would walk away with after a sale, realtor’s fees, depreciation recapture, and paying capital gains taxes if we sold them in the next year.
Florida Condo (near Sarasota/Siesta Key) Keep this paid off property
Property #1 – Lake House* (downsize fall 2017) $40K
Property #2 – Current Home $75K
Property #3 – 8 Unit Rental Property $70K
Property #4 – Single Family Rental $65K
*If we decided to keep the Lake House in N.Y. to use during the summer/holidays when kids are on college breaks, we would still have about $210K in cash if we sold properties 2, 3, and 4. Another option is to sell the Lake House too – and just rent a furnished place in our hometown (VRBO/HomeAway, etc) when we want to be in New York! There are beautiful townhouses and brand-new apartments available with all kinds of amenities. Lake access, pools, tennis courts, golf, club houses – and even central air, which none of our properties has right now!
Why would we even consider selling (almost) everything? Because we can.
We had the properties as part of a long-term plan when we bought them years ago. But it doesn’t look like we will need the income from these properties now. It might be smart to sell them and use some of the proceeds to help fund our five-year gap ($100,000 or less) and invest the rest ($100,000 or more). We also wouldn’t have to dip into our existing retirement accounts to help fund the gap years either.
You might be thinking that keeping those properties could bring greater financial freedom by accelerating us past financial independence. And you might be right. If we could hold out about 7 more years, we would have the 8-unit rental paid off. We would then make about $15,000-$20,000 a year just from that property.
But at what cost to us?
If we sold it all, we’d be totally debt free – including mortgages. And we wouldn’t be managing all of our rental properties as we do now. We wouldn’t have to mow lawns or post ads for new tenants. We wouldn’t worry about whether the plow company showed up or if the commercial washing machine was going to quit again. No more gutters to clean or credit checks to run. No more emails reminding people that we don’t allow pets anymore. Really. No exceptions. Raising the assessment? Who cares. Another ten grand to put on a new roof? Not a worry anymore.
Could we hire a property manager to do all of that for us? Maybe. But we’ve done this work for years and that was our plan. We’ve started looking into property management, and we’re not happy with what we’re finding either. We have some friends that do it when we travel now, but we don’t think this would work long term. Managing our properties isn’t that hard, but managing the management company from 1500 miles away might not be worth it either.
We are also firm believers that we care about (and care for) our properties much more than anyone else ever will.
When we think about leaving town for an extended period of time, we get pretty stressed thinking about the properties. Maybe it’s a good time to sell. Maybe not. Luckily, we don’t have to make a rush decision!
The more important question relates to our goals. Will keeping the properties help us meet our two most important goals – Maximizing Health/Wellness and Creating a Flexible, Location Independent Lifestyle? I’m not so sure.
What do you think? And what else should we be considering? We’d love to hear your thoughts or other questions you might have!
Would you just sell it all (or most of it) and take the money knowing that you should be in good financial shape without the properties down the road? Would selling help you sleep better at night? Would you give it a few years and try a property manager? If we did sell, where would you invest the proceeds?
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