Help a Reader: Back to the US with $2 Million to Spend

Here's an email I recently received from a reader:

I am returning to the United States in December after five years working overseas.  (The global economic situation had led many companies to pull back on overseas ventures.)

I am 50 years old with a spouse and a daughter planning to enter college in 3 years, and am not sure yet whether I will be employed when I return.

During these years overseas, the organization I work for provided furnished accommodations, transportation, children's education etc. which was nice, but also means that I now have very few possessions - no house, car, furniture, appliances, etc.  I also have little idea what things cost in the US any more.

I have managed to save to the point that my total portfolio is approximately $2 million - was $4 million 3 months ago (!) - almost entirely in the stock market.  This includes 401(k), IRA, 529, and regular taxable accounts.

I would like to know what you think I should do to restart back home.  Buy a house?  Rent? Take a mortgage?  How much should I plan to spend on start-up, and how much per month, to be financially secure - especially if it takes me a long time to find a job?

And of course I expect some comments on my asset allocation - fire away!

What advice do you have for him?

Comments

[Matthew Rogers]

There's a lot of variables in here, like where you're going to live for one thing. But general advice: buy a modest house that can handle the three of you, don't take a mortgage. Sock away the total amount you *think* you'll need for your kid's education now, that way you won't have to worry about it. Those two together *might* total half a mil, depending on what part of the country you live in. Assuming you need them, buy a couple decent cars for maybe another $40k or $50k total, and you've still got around $1.5 million left. With no mortgage, you can probably live on (just ballparking here, guesstimating grocery, insurance, communication, and incidental bills for three) less than $1500 a month, maybe less than $1000 a month. I'd say as long as you purchase these things modestly, in the "middle class" range for a house and cars, you've got more than enough saved up to give you plenty of time to find a new job.

[Katharine]

If your daughter wants to go to a private university in the US, figure expenses of about $60k a year, after housing and tuition, and if she overloads or if the price goes up... 60k a year is probably safe as the most people are paying right now is 50k

[Duane]

First bit of advice is not to take seriously any advice you get on an internet site.

That said, you should really enlist the services of an investment advisor. Work with a Registered Investment Advisor, ask to see their ADV-II form to see how they are compensated and confirm that they are legally bound to act as a fiduciary. Get references and make sure they spend more time talking about your needs and life goals than talking about money.

[Jim]

My short answer: Buy a house and then plan on a few thousand $ a month to cover living expenses.

Long answer: First the biggest question that isn't known is where do they want to live? If tehy are moving to Manhattan then I wouldn't recommend buying, but if they're moving to the Midwest then buy a home. I don't know if they've decided on location yet? If they already know where they want to live then the housing question depends on the local market. Some markets are better to rent and some markets the housing state is so chaotic that buying is a gamble. But some locations housing is more stable and a decent investment. So really the answer there probably depends on where they want to live.

As far as general costs I think an easy rule of thumb is looking at what most people make in the US for wages. Median household income in the US is about $50k. So you should be able to live comfortably off $4k a month. With $2M investments they should easily be able to cover that. Of course how much they need to cover expenses will depend on the details of their situation and where they live. NY City is a lot more expensive then Oklahoma City.

I'd put the money into stable fixed income investments. $2M is plenty of money and they have no reason to go risking their money in the stock market. Good AAA corporate or municipal bonds will yield 4-6% and provide steady and dependable income. I'd put 90% of the assets into bonds and leave 10% liquid.

Just my 2¢
Jim

[Jim]

What do things cost in the USA?

For consumer goods like clothing, furntiure, household items, etc, you can get a good idea by browsing some websites. Try looking at Walmart.com, Homedepot.com, or Sears.com

For groceries look at Safeway.com or other grocery sites and check out their weekly ads.

Cost of college is highly variable. Figure roughly $15k a year for public and $30k a year for private average today. And it will likely be 15-20% more in 3 years.

Medical insurance is a fairly pricey item that you may need to pay for. A good medical plan can run a family in the ballpark of $1000 a month. And its going up at a fast rate with annual increasese around 6-8%.

FOr reference, here is what a typical middle class family spent on major categories in 2005:

Housing: $13,234
Transportation : $7,437
Food: $5,295
Healthcare: $2,567
Entertainment: $1,813

[Plex]

Another thing to keep in mind, you may want to consider earl retirement, depending on how much you expect to need each year. You can certainly safely live on 80k/year with about 100% safety without working anymore.

This is just an option though, what is most important is to pursue the what you enjoy, and that may be work.

early retirement* (No option to edit :( )

[Kevin M]

I'd buy a modest house in a low-cost area (ask FMF about this!) & invest the rest in good dividend paying stocks and live off the dividends. Even if you only generate 3%, that's $54,000 income annually (after subtracting $200k to purchase a home), or about $45,900 after taxes. With a paid off home, you should have no problem living off that much money. If you do, get a part-time job or consulting gig.

[Stephen]

As Jim & Matthew said, a lot depends on where you're planning on living. Still, here's a few thoughts:
1) I'd *strongly* recommend have a family chat about where your daughter might like to go for college if she could go to any *state* university and then move to that state. Three years is probably long enough to meet residency requirements to allow you to qualify for in-state tuition, which will save a lot of money! I humbly recommend North Carolina (Chapel Hill/Durham area) where i grew up ;).
2) Do *not* buy a house! Or, at least, not yet. Rents are going up (at least in Cali, where I now live), but unless you've got extended family nearby who can help you do preliminary house hunting, you're going to want to spend some time in whatever area you settle in to get a feel for neighborhoods, churches, schools, downtown areas, etc. Spend your first few months back in the US getting over reverse culture shock and making sure you know where you want to buy a house -- it's not as if house prices are going to start going up any time soon, so there's no rush.
3) Do talk with a financial adviser -- $2 million is a good amount and, if you settle somewhere cheaper, you could definitely retire (or semi-retire), but since you're only 50, that $2 million will need to last a *long* time. Strongly consider working -- can you do consulting or part-time work with your current company?
4) as to actual costs of things, make use of craig's list (www.craigslist.org) -- if it's available for the part of the US you choose -- to get a feel for the cost of used items, that'll probably give you a far better idea then our estimates :)

[Todd @ Prosperity Junky]

There is way to much to commment on but first things first, I would spend some time deciding where you want to live. I highly recommend Texas as the housing and economy has seen less impact than other areas. If you decide on a location like this, then you can purchase a house with cash at a very reasonable price. If you want to be thrifty, buy a vehicle, such as Honda Civic, that is a reasonable price and you can drive it until the wheels fall off. I've had mine for 10+ years, I still get 35 miles to the gallon, and rarely have to repair it. Beyond that, as others have said, you sit down with a registered financial planner and decide your strategy. You structure your holdings so that you will see growth as the economy recovers and you have cash to live on while figuring it all out.

[Bill M]

All depends where you are going, $2 will let you retire early.

[Money Minder]

What a great time to buy a home - the market is low and there are distress sales in every community. Beyond that, put whatever cash you will need to live on for the next 5 years (including provisions for your daughter's education) into cash and cash equivalents. Put the cash you may need for the 5 years after that into income generating investments (dividend income, bond interest etc.) and the rest into domestic and some foreign blue chip stocks (which, lucky for you, are also on sale right now). If you find a job to cover most or all of your expenses and you have more cash than you need or more income generating investments than you need, then adjust your portfolio accordingly once you have settled into your new position. Good Luck!

[York]

Agree with the comments about retiring early. Buy a modest home, invest in some "safe" assets and enjoy life.

[robert w]

Location, location, location.
First Rent until you have decided on where you will be working. Yes, now is a great time to buy, but if you need to sell - well. As for kid's education, many state have a residency requirement before starting any public schools. Private schools no problem.

Do plenty of paper/foot work before making a decision.

[Bob]

My advice. Don't ask for advice on an internet forum hosted and read mostly by people who have no idea what $2M even looks like.

You obviously must be somewhat intelligent and/or persistent to accumulate that sum. Use that intelligence to find real advice. Not here

[Foobarista]

I'd say rent and stay invested, until you find a seriously good financial adviser and figure out what your longer-term plan is. I wouldn't liquidate big market positions to buy a house with cash. Sure, houses are cheap, but the market is also probably very cheap now.

And don't pay too much attention to us net pukes :)

[dogatemyfinances]

In my own opinion, 50 is WAY too early to retire. That's crazy! So, I would wait to buy until you have a job lined up. At least then you'll have a city. But if you are the wanderlust type (which it sounds like you might be), why buy at all? There are bargains to be had in real estate, and that goes for renting too.

[Tim]

find a job, would be my first priority. second, cost of living will depend on the area you are moving to as will the amount you need on startup costs. third, mortgage rates for home buyers is low and will remain so for a bit, so i wouldn't be too much of a hurry to buy anything. i'd rent until I got readjusted and re-assimilated and go from there. however, if you have time between now and then, you could fly to the location you are planning on resettling in and look at houses. if anything strikes you, then you could get the ball rolling on it so you aren't locking yourself into a year long lease.

if you keep your job but Stateside, your work should probably be paying for relocation expenses, etc. that is a different ball of wax, though.

as far as allocation, if you were almost all into equities, not much you can do at this point. relook your holdings and if there are dogs, then get rid of those and find something else to transfer into. keep contributing if you can to average out the decrease. you will have to relook your retirement plan and go from there. much of what you should do with your existing portfolio will be based off of your financial goals. i would be focusing on capital preservation of what you have right now, which means you don't want to expend a great deal of your savings; moreover, there i presume that most of your savings is held in retirement accts which you aren't eligible to tap right now anyways. hopefully you have an emergency fund and perhaps severance, or better yet relocation money (i figure regardless of your job status, your company would pay for relocating you back to the States).

key thing is to get back into a secure place during this transition, then make rational decisions. do not put the burden of trying to figure out everything all at once. you may miss the bottom of the market, you may miss the bottom of mortgage rates, etc, but a non-optimal overall solution is better than irrational decisions made under the weight of all the choices.

[Steve]

I advise you to come to beautiful NW Montana and I will build a great house for you. No sales tax, cheap real estate taxes, good university, Glacier National Park, etc. Self serving advice, but worked out for me
after I left Chicago.

[Sarah]

At 50 and with short-term needs on the horizon like house and college, you need to NOT be nearly 100% in stocks. Too late to fix what's already happened but for God's sake get a more sensible diversification.

[Jee]

Houses here in the US are pretty cheap now. It really is a good time for him to buy one before the economy gets back to where it was once before. Clothing and cars are pretty cheap too because people are very careful in spending their money. However, grocery prices have gone up a bit. Gas price is okay.

[Mark]

I am the person who sent in this question.

First - thanks to everyone for their comments. And thanks to FMF for posting my question.

Have no fear, I won't take advice only from the internet. But I also don't want to only take so-called professional advice.

I realize there are a lot of variables. I guess the big difference from a typical person becoming unemployed or retiring is that I have the luxury (or penalty!) of starting with a clean slate.

I doubt I would want to retire at 50 - but a lower-pressure, lower-income lifestyle might be the best choice for us.

Thanks again for all your comments.

[Janet]

It's probably a good time to buy, but I think it's very important to rent short term. You've been away a long time and even if you moved back to the same area you lived in before it will have changed. Give yourself a bit of time to settle and assess the area before making the huge commitment of buying. You also don't say where you've been living, if it's Africa or Asia it could take a while getting used to liing in a first world country again. GOOD LUCK

[Strick]

Now is a great time to rent one of the many nice empty houses out there. You can buy after you've figured your new "career" out with cash and fund college with cash (529 & other) and leave the rest alone until your next retirement. You should be able to live off the lower-income job you may take comfortably without a mortgage payment or a need to save for retirement, since these 2 things combined take up almost half of everyone's income anyway.

[LC]

One thing to strongly consider is a job at a university, especially one your daughter may be interested in. With that savings, you don't need a hige income, so even a part time associate professorship or secretarial job in admissions for you or your spouse would give you a big break on tuition, usually 75% off.

I agree that unless you or your spouse have job prospects lined up, consider living in a state where your daughter wants to go to college. Rent until you have a job somewhere that you think you'll stay at for awhile. I would budget $80-$100k for college, $200k for a house (pay cash, and you can get very nice homes for under $100k in many areas of the country.) Talk to a financial advisor about how to invest the money, but general advice is to keep in cash anything you need in the next 5 years and then stocks for the rest.

[escapee]

I'd rent until the government gets these new low interest mortgage loan programs underway (4.5%).

[TG]

Funny - one suggestion above is to live on $1,000 to $1,500 a month. Guess he won't be living in New Jersey because I do and just my property taxes are over $1000 a month!

[SmBizMan]

Move to Boston (my home city) and help your daughter find a university. There are lots here. Rent while you are here. Then, when you find a job, move there and if you are comfortable with the job (i.e. you will be there for a few years and would like to retire there) buy a house. I'd take a mortgage at a low interest rate (rates are very, very low right now) to get the tax deduction, unless you don't qualify. Talk to a tax advisor (CPA) about that. I would also find a trustworthy financial advisor-- (CFP) and let them manage your portfolio. They charge for their service, but you don't have to worry so much. They are experts at what they do as i assume you are an expert at what you do.

[James]

Echo those who say it's probably the right time to buy a house... depending on where you're going to live.

Also-- if you have any charities you believe strongly in, you may be able to set up a Charitable Remainder Unitrust. You'll have a charitable deduction you can utilize for the next few years, accomplish charitable giving, and can receive life income on the value of the trust.

$1 million trust = $50,000/year income for the remainder of your life.

A nice charitable option that has a nice life-income aspect to it.

[AdamCO]

Reading this thread, it's amazing how many people think that housing is on the path to recovery or will begin to appreciate again in the next couple of years. It was a bubble, people, and bubbles don't reinflate. So while this is maybe an okay time to buy a house, 2012 would be better and 2014 even better than that.

[Tim]

@AdamCO: depends on the market Mark is resettling into.

[Jonathan Smith]

Check out "What Every Investor Should Know" at the CFA Institute website for ideas about how to choose your financial advisor, avoid common mistakes, define investment objectives, and more. http://www.cfainstitute.org/aboutus/investors/articles/index.html

Cheers,

Jonathan Smith

[F]

Mark, your portfolio's decline in value is so spectacular that I presume you're heavy into financials? I think that despite their historically low prices it's still too early to buy or hold them - especially the investment bankers. After all, financials still have a lot of deleveraging of their balance sheets to do, which will reflect in further deflating stock prices. I'd start to re-invest the cash into the markets in half a year or so (or longer, if they aren't lower than today).

Diversification is a good idea, but abandoning stocks in a time everyone's selling? Also, I see no attractive alternatives beside commodities (and their producers, which brings us to stocks again).

I agree with the suggestion to rent a house for a while and buy one later (at least a year from now). But why would you pay cash in times when like these when cash is scarce and valuable, and long-term interest rates for a mortgage are likely to continue falling? I'd take a mortgage (on condition I can have a fixed interest rate).