Legacy Asset Management
Director of Financial Planning
BS, Business Administration, University of Colorado at Boulder
Assets Under Management:
The general rule of thumb for a rainy day or emergency fund is 3 to 6 months' worth of essential/fixed expenses. The range is based upon how many earners exist in the household. If it's just you or you are the sole earner for the household, the recommendation is 6 months. For a household with 2 earners, the recommendation is 3 months, as it is unlikely you will both lose a job at the same time.
You do not need to include taxes, savings and discretionary expenses, unless you want to be conservative in your estimation or you have kids at home and feel better about extra cushion. You do need to make sure to include liability payments, insurance premiums, groceries, gas, utilities and other essentials. Some people also include health insurance deductibles within this emergency fund total amount.
If you want to get a quick idea of what this number is without going thru all of your expenses, look at your net monthly income on your paycheck (i.e. gross income less fed withholding, payroll & 401K) and multiply it times 6 (if you are only earner). This number includes discretionary expenses, but at least you will get a rough idea of the amount you need in a rainy day fund.
This is a tricky question to answer - how is your $150,000 invested? If you have it in cash and want it to last for 15 years, the answer is simple- $833 per month. This is simply assuming very little interest on your 150,000 and divide it by the number of months you are solving for - which is 180.
If the money is invested conservatively, which is recommended if this is all you have, at say 4%, then the amount you can withdraw to last 15 years increases, but not by much. At a 4% average rate of return, the math works out to roughly $1100 a month over a 15 year period. This however does not address any variation or volatility in the investment mix. And also means there is zero in your account at month 181. If market suffers or you dont earn 4%, money could run out sooner.
A better way to analyze the definition of living comfortably is to determine how much per month you actually need to be "comfortable". This will then inform you as to how you should invest the $150,000, if at all, or if you should keep in cash.
You also need to evaluate what happens after 15 years, is there another pot of money to draw from? At 64, you are young in determining sustainable retirement income, albeit supplemental over parttime work, as at some point that parttime income will end. In 15 years, you will still actually be young - only 79 - and could easily live another 15 years. Evaluation of expenses, longevity & risk tolerance all need to be addressed before making a reasonable recommendation on how much you can take out per month to live comfortably.
If you need help with these recommendations, seek out a financial planner in your area to help you. Likely someone who does personal financial planning - not just investments - and can do it for you on an hourly or fee basis.
Yes! Property held within a Revocable Living Trust is considered an asset of the grantor and the trust itself is disregarded as an entity for income tax purposes. This is very helpful for you since in order to get the $250,000 exclusion of capital gains on the sale of a home, it needs to be owned by an individual. So as long as you are the grantor of the Revocable Trust & have lived in the home for 2 of the last 5 years, under section 121 of the code, you can exclude up to $250,000 of capital gains. You also say "we" in your second sentence, thus if you are married, file a joint tax return and your spouse meets the occupancy rule, you can double the exclusion to $500,000. Do consult with your tax advisor for final word on the ability to take this exclusion. Happy Retirement!
An NUA transaction works really well when the basis of the stock is low enough. There are a lot of taxes to consider and careful planning needs to happen before you pull the trigger, for example, you state you are retiring earlier than planned, are you at least age 55? If not, add 10% early withdrawal penalty to your estimation of ordinary income taxes owed on the $100K. Here is a NUA calculator from PacLife that can help you estimate the benefits/costs over time. On the flip side, if you decide to rollover a portion, be aware that if you do this and then begin to draw monies from an IRA, you will need to be 59 1/2 to avoid penalties, versus age 55 when taking money from a 401(k).
In general, the only time you want to file taxes separately is if you don't trust your spouse is reporting income & deductions truthfully. If you split tax returns, you put your income into the married filing separate category, which is the least advantageous tax brackets. For 2016 and using MFS (married filing separate) brackets, you hit the 15% tax bracket at $9275 of taxable income; under MFJ (Married Filing Joint), you don't start paying 15% until you hit $18,550. And since your are able to deduct a significant amount of your income due to qualified savings and HSA, this helps to reduce the portion of social security benefits that are taxable otherwise. In determining what portion of SS income is taxable, you must add your income ($30,000) plus 1/2 of the total social security benefits ($7500) and determine if this number falls below, within or above the IRS social security hurdle amounts. Under MFJ, $37,500 falls in between the hurdles and the result is taxable portion of your wife's benefits will be roughly $5500. Here is a good resource for how I got this number & information on taxation of social security benefits from AARP. An AGI of $35,500 is the result, and after subtracting the standard deduction for MFJ and 2 personal exemptions, the resulting taxable income is under $18,550. Thus if you file MFJ, your bracket is 10% vs MFS at 15%.