Between you and me and the fence post…

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From what I can gather, Diane has made some good decisions (e.g. pay cash for a car instead of a loan); get an MBA … but, hasn’t really been able to financially ‘cash in’ on it, and is now either looking for work – or, ‘semi retired’ – and currently drawing down from her retirement accounts. Have I got that right? If so, what could/should Diane do?


Quick post to answer Adrian’s questions about our retirement accounts.

What I got ain’t much. My first retirement was a real retirement and when I resigned my position to become a SAHM, I withdrew its cash value and put it in an IRA, as well as withdrawing a thrift savings plan (more akin to a 401k I guess) and putting that in the IRA as well.

Since the cash value of what I withdrew was about $22k, plus $3k from the TSP, it wasn’t worth as much in cash as it is as a retirement plan. This is important because it was a federal government retirement. Leaving meant I could not get the exact same retirement plan if I went back to the government, but if I did get reinstated later (going back), I could “buy back the years” into a retirement plan by returning the cash. This would add the years I’d worked back into the years towards my retirement and it would be a retirement plan, not a 401k. Tho I know that’s changed a lot for the US Govt in the past decade.

This money later got used to buy my current vehicle because when my prior vehicle finally ran itself into the ground, we did not have headroom between income and expenses at that time (two young boys) for a car payment. It was a choice of paying off the house (mortgage) or buying the vehicle.

My last post should have revealed that the vehicle cost $28,100. We chose to leave the mortgage alone and pay cash for the vehicle because the rates between the two would be quite different (our mortgage was at a good rate, plus was tax-deductible.) That action probably saved my financial skin during the later divorce, actually, so let’s not try to second-guess it now. That did not wipe out the IRA either.

However, that was in the years 1999-2000, so we luckily ended up pulling out the money at a time when the market had run up quite a bit (remember the New Year’s toasts to QualComm?) and right before it semi-crashed in March/April 2000. I believe at one point the value of $13k went down to $9k, but because it was a divisible property, I didn’t really mind that it was less than it was (I figured it would go back up later, and it did.) I was investing in stocks at this time I think; perhaps some mutual funds.

Off to get the MBA and acquire a lot of debt – credit card and student loans. Received some cash from division of the house, paid off the living expenses (credit card debt) then went to work and started rebuilding a retirement, this time a 401k.

I worked some OT and because of the great support staff in our home office, was able to set up to have all my OT money put into the 401k and keep building it.

I invested in stocks of companies I was familiar with and was watching, then delved into some international funds – again where I knew something about the infrastructure and planning in those countries (international consulting in Supply Chain Management was the major focus of my MBA) as well as something about most of the companies/industries where the funds were placing their money.

I made about 33% in 2007, then watched one (a US cable company’s) stock tank as a result of a Jim Cramer episode (it was a good pick, but now it had the attention of those who are fad shoppers and he – not understanding their market position – downgraded it with telecommunications stocks, so speculators started selling out….or something.) I had dabbled a bit with REITs overseas, but wasn’t seeing a good return on that, and eventually limited it to a couple of stocks and Intl Mkt funds, then last summer when they dropped 17% in a week, and in preparation for my move to NC, moved everything into cash – about $66k? – and left it there. I didn’t have time to work the investments (keep up-to-date) and could not risk losing value at that time in my life.  All told, this was only for about 4 years.

Now, I am using the IRA (all is now in IRAs again) to pay off Credit Card debt, child support payments, etc. (see prior posts on what I am covering), so it is dropping rapidly and I will make a huge withdrawal soon to pay off any remaining 2008 taxes as well as prepare for 2009 taxes. Then, who knows?

All I know is that I realized last year (2007-2008) that at age 47, saving 10% of my income with a 50% match up to 8% by my company, fully-vested from day one, I was not going to be able to save enough money – even with 33% growth each year, assuming I could assume that (which we all know I can’t) – to be able to afford to retire one day.

I still have the option of returning to work for the govt, if they hire, but where I am in NC, there is not the kind of work I used to do (cost analysis/operations research) for the government, and so I would have to move again to regain that retirement.

Needless to say, I am in a state of transition…let’s not think about the names that has been called in mythology…change is always such.

Oh, there’s also some stuff in a State Teacher’s Retirement Fund – which I should transfer somewhere else – for a year’s substitute teaching I did.  Very small. — And some years (working) which took money for social security, so there may be something there for my old age.  Being at the tail end of the baby boomers, I try not to think of that as a back-up plan, you know?  Same goes for my xh’s retirement, which I may have already traded for less aggravation from those quarters, but it might exist;  just not something I am counting on.

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@ Diane – Question: what do you think that you are earning on your ‘retirement money’ [ ] post-tax?

What do you think you COULD ‘earn’ elsewhere? If more, what do you think that ‘elsewhere’ might be?

@ Adrian – currently the retirement money is in cash, earning 0 by itself. I used some of it more recently to eliminate a 2.9% charge on a debt. NB: Withdrawing it before the requisite age of 59.5, I will pay 10% on that money, but if I wanted a few months to do it, I’d still pay the 10% but would not have avoided the $100 I avoid by paying off the debt now rather than continuing to pay it down to zero by the later date.

I have not got enough insight into the market to place it somewhere else short-term as I need some soon to pay any tax debt for 2008 and any anticipated for earnings for this 1st quarter of 2009 (now self-employed). With the bankrupting of some of our banks, I even worry that if I go to withdraw the cash, it might not be there (images of the 20s when banks stopped allowing withdrawals).

I am considering several ideas on what to do with the remaining monies – estimating 30-40% for taxes and penalties: RE investing and/or a Zumba Studio. At this point, I am working on the Zumba aspect and have research still to conduct to determine whether I would be better or worse off renting a facility or buying a commercial property that has room for the studio (maybe currently unrented space). The concerns I have with renting a studio are related to improvements I make to the location, then building a clientele that likes the location picked, and losing the location for some reason. Conversely, opening the studio and not being successful, or not finding the right location, and wanting “out” of that. But I think the downside on that is better than the downside of renting, assuming the rest of the facility was earning rent. There are a lot of commercial strip properties that are new and vacant around here. Any insights into negotiating for such a piece of property would be appreciated, as well as in finding one. I have contacts who have done this and will ask what they have learned as well, and particularly how they picked their location. There is much to learn, but I think I am going to end up doing a lot of that “on the job.”

@ Diane – If you want to ‘dip’ your toe into investing in commercial RE, owner/occupier is not a bad way to go … I did it, and it worked out for me. But you HAVE to want to own commercial regardless in case you do end up selling/closing your business.

You need to find a good agent who will act for you … if there is plenty vacant then low-ball your offers with a decent-sized deposit check attached.

Put in conditions, such as subject to Due Diligence (30 days, let’s say); approval of your ‘partner’ (could be your dog); subject to finance; etc., which give you plenty of outs.

Money at o% is not great, so make sure we are talking short-term … if you need to finance later, then paying off 2.9% debt is also not great (you will just need to borrow back at 5%+ later).

What would be considered a decent-sized offer?
Thanks for the list of “subject to”s
The 2.9% debt blossoms in July as well…I can’t see paying the higher rates later, so I was paying against it while I was working, then withdrawing what I needed monthly to continue paying off debts/obligations, and it finally dawned on me that the finance charge I was paying on the one debt was a waste since I was withdrawing my own money regularly and not a check. I can withdrawn my money whenever I want, whereas a check comes when they pay you. Doh! So, I just withdrew enough in this calendar year (hopefully a lower tax year, but if not, it won’t be higher) to pay it off.

How would you gage how much to low-ball a deal as well – base it on cash-flow (one method I heard) or de-value the RE based on on-going and local market conditions (and if so, how to go about determining that value…are there easily-found comps for commercial RE?)

Thanks, Adrian!

@ Diane – is the best site for commercial RE (comps; etc.) … if I am investigating a neighborhood I download a report of (say) all the offices for sale in that area and plot on a graph the per-sq-foot price on the Y axis and the total square footage on X axis. That quickly shows me what property is selling for in that area (and in what size ranges) … that – and your realtor’s advice – should help you come up with a low-ball price.

If it cashflow’s positive (incl. the reasonable ‘rent’ you will pay yourself), you intend to use/hang on to it for a long time, and you can cover the ancillary costs (outgoings, property taxes, vacancies, etc.), I wouldn’t stress too much about the price, provided it sits nicely on that graph that I just mentioned …

[…] Diane – Is currently assessing her options; while she does so, she is drawing down on her retirement account. Should she take the penalties and pay down debt and/or continue to draw down her living expenses? […]