Anonymous in Virginia wants to travel after retiring, which will increase her expenses for the first seven or so years of her retirement. How can she plan for a higher withdrawal rate at the beginning of retirement, and a lower withdrawal rate in the middle of her retirement?
Given the talk around student loan forgiveness, Jess wants to know: should she pay the minimum on her student loan debt and save the payments she would otherwise make? Or should she keep throwing extra at her higher interest loans?
Ziggy purchased an $890,000 property in San Mateo, CA in 2016. After living there for a year, he had to move, so he rented it out. Unfortunately, it’s cash flow negative. Is this property worth holding onto, or should he sell?
Vivek has a paid-off primary residence that he’s interested in renting out for a few years, before selling. He’s worried about capital gains tax – does turning the home into a rental impact the amount he’ll pay?
My friend and former financial planner, Joe Saul-Sehy, joins me to answer these questions on today’s show. Let’s dive in!
Anonymous in Virginia asks (at 2:20 minutes):
If I withdraw four percent over the life of my retirement, I’ll be comfortable. However, I want to retire in 8-10 years, at age 60 or 62, and travel for an extended period of time. I’ll need an extra $8,000 – $10,000 per year over that timeframe, which takes me way above my four percent withdrawal rate. How do I tell if this will sink my retirement in the long-term? Am I better off designating a bucket of money for that travel?
Some additional details: When I retire, I’ll have around $800,000 in my retirement accounts, and I’ll also receive a pension which increases at age 62. I’ll have lifetime subsidized healthcare, and I plan to take Social Security at 67. This will likely drop my withdrawal rate to two percent or less until I take required minimum distributions.
Jess asks (at 13:28 minutes):
I have $50,000 in student loans, $15,000 of which are Federal, and $35,000 of which are private. My private student loans are at 3.99 percent interest, and my Federal loans are between three and 6.5 percent interest.
Since my Federal loans don’t have any interest right now, I’m focusing on paying off my private loans. However, given the pressure on President Biden to forgive $50,000 of student loan debt, should I only make minimum payments while putting the rest away in savings? I’d like to buy a house within three to five years, so if my loans are forgiven, I’d like to put the money towards that goal. What should I do?
Ziggy asks (at 25:27 minutes):
In 2016, I purchased a $980,000 property in San Mateo, near San Francisco. I had to move out in 2017 due to work. I’ve rented it out, but for the last two years, the average monthly cash outflow has been -$600. This accounts for monthly rental income of $3,100, vacancy, $700 in property management fees, and $641 from HOA fees, property taxes, and the mortgage.
It’s a luxury condo – it has a pool, an amazing view, and is in a nice community. I’ve listed the property for a higher rent, but with no success.
Should I hold onto the property in hopes of appreciation and increased rent in the future? Or am I better off selling and buying a cash flow positive property? Or – is there any way to maximize the income from this property to a point where it would cash flow?
Vivek asks (at 41:07 minutes):
I’m 36, and back in 2015, I purchased a starter home for $156,000. We’ve since paid it off and it’s currently valued at $253,000. We plan to live here for a few more years and turn it into a rental property.
Capital gains tax law states that we don’t have to pay taxes on capital gains received on the primary house when sold, up to $500,000 when married filing jointly.
But what if we rent for several years before we sell? Would I have to pay capital gains taxes on the appraised value from the 2015 purchase, or the rental value, which might be in 2021 or 2022?
Also, once it’s a rental, is the appreciation based on the purchase price of $156,000, or based on the future value of the home?
What’s the best way to avoid capital gains taxes on the years when it’s a primary residence and also get that appreciation on the value from the year it’s rented out, instead of the year that we purchased?
Resources Mentioned:
Vivek’s question:
- Selling a Rental That Was Once a Primary Residence | Kakenmaster Tax & Accounting
- How Capital Gains Taxes on Investment Properties Work | Millionacres
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