Early retirement strategies

[Prunesquallor]

Closest thread I could find.

I’m curious what others here who are homeowners with mortgages are thinking. I could pay off my mortgage with my TSLA gains. I’d have to sell 25% of my shares. And my mortgage rate is now 2.75% thanks to a refinance at current rates.

So on one hand the no mortgage payment would be life changing but it would come at a cost of selling 1/4 of my TSLA position. And the low rate vs. future TSLA growth... so curious what others may be thinking.

Not making any move just yet...

I get the attractiveness of having a paid-off home. I had very low mortgage interest, but I still paid it off in cash.

That was in pre-TSLA days, and now, I don't think I would do it. The potential lost future TSLA returns are just too large. I have a few low-interest loans that would add up to the equivalent of a modest mortgage, and no way would I cash out some TSLA to pay them off.

But again, I do understand the peace of mind associated with a paid-off home.

 

[Christine69420]

Prunesquallor these are the options I have been mulling about too. So far I think I will go with option 1.

The small possibility of a margin call is what I don't like. And I'm OK with trading in a bit of growth to sleep better at night when everything turns red.

Then there is the question of growth. How much - if any - do you need? Do you have kids who could benefit from inheriting? What is the risk of growth vs margin calls for their future?
I would be surprised but still very happy with what I've got if Tesla stopped being a growth story. But I do belive it still has som growing to do.

About options 2 and 3: I am not familiar with credt reports in the US - but my first thougth is that an additional 4% interest to get a better credit report with option 2 sounds very expensive.

 

[CHGolferJim]

Closest thread I could find.

I’m curious what others here who are homeowners with mortgages are thinking. I could pay off my mortgage with my TSLA gains. I’d have to sell 25% of my shares. And my mortgage rate is now 2.75% thanks to a refinance at current rates.

So on one hand the no mortgage payment would be life changing but it would come at a cost of selling 1/4 of my TSLA position. And the low rate vs. future TSLA growth... so curious what others may be thinking.

Not making any move just yet...

Only if you think TSLA CAGR will be less than 2.75%, LOL. Think of your mortgage(s) as secured low-interest deductible margin debt which can’t be called. I’ve been considering this most of 2020 and am glad I didn’t do it!

Otoh, if the principle isn’t a big chunk of your holdings, the peace of mind may be worth it. I keep thinking it would be nice to be able to reduce monthly CF needs by 1/3 even if it isn’t entirely rational economically. Another option might be to sell weekly covered calls on enough shares to cover your mortgage payment at low markups above market to increase the likelihood of them striking and to maximize premiums.

 

[Featsbeyond50]

All (especially @tesla Pilot, @EV forever, @adiggs):

I may be in the position to finally retire (again) early next year, and I’m looking at some options for providing supplemental monthly income from my taxable U.S. E*TRADE portfolio – 90% TSLA and 10% combination of ARKG, ARKF and BPTRX. I’d like to solicit your ideas and suggestions about three strategies I’m considering.


Option 1: Selling shares at opportune times during the year. Margin account would be used to smooth the outflow if needed, but margin total kept near zero. These would all be long-term cap gains, so tax would be 15% for me. The yearly income I would need plus taxes would equal about 15% of my current portfolio. As long as TSLA SP grows >15%/year, this should last forever.

Pros: No debt (as long as margin amount stays small). No danger of margin calls.

Cons: Taxes. Reduction in shares slows portfolio growth potential.


Option 2: Use margin (current max on this account is 40% of portfolio value). Margin interest is 7.95%. I would simply use margin for income. The yearly income I would need plus interest on the margin would equal about 14% of my current portfolio. As long as TSLA SP grows >14%/year, this should last forever. However, the margin amount would continue to grow at a constant rate (but still stay within maximum allowable portfolio percentage).

Pros: No reduction of shares, so greater portfolio growth potential. No taxes. Margin debt not reflected in credit report.

Cons: Debt with moderately high interest rate. Potential for margin call if deep SP hit.


Option 3: Use Line of Credit. Portfolio is collateral, interest rate 3.84%. LOC would be used for income. The yearly income I would need plus interest on the loan would equal about 13% of my current portfolio. As long as TSLA SP grows > 13%/year, this should last forever. However, the loan amount would continue to grow at a constant rate (but still stay within the maximum allowable portfolio percentage).

Pros: No reduction of shares, so greater portfolio growth potential. No taxes. Moderately low interest rate (doubt this is tax deductible interest).

Cons: Debt. Potential for margin call if deep SP hit. Debt would presumably be reflected in credit report.


I have neglected the effect of inflation in all of these options.
Do these strategies make sense? Is one clearly superior? Have I missed any other options?

Thanks for your help.

I may be overly conservative but I don't think you should retire. 15% of nest egg just seems like too much. Long term I think an estimation of 15% growth out of TSLA is a good gamble but what if the share price goes down for two years after you retire? Can you afford to burn shares at 400 dollars per, for a year or two?

 

[Prunesquallor]

Prunesquallor these are the options I have been mulling about too. So far I think I will go with option 1.

The small possibility of a margin call is what I don't like. And I'm OK with trading in a bit of growth to sleep better at night when everything turns red.

Then there is the question of growth. How much - if any - do you need? Do you have kids who could benefit from inheriting? What is the risk of growth vs margin calls for their future?
I would be surprised but still very happy with what I've got if Tesla stopped being a growth story. But I do belive it still has som growing to do.

About options 2 and 3: I am not familiar with credt reports in the US - but my first thougth is that an additional 4% interest to get a better credit report with option 2 sounds very expensive.

Good questions, Christine.

No kids, paid off mortgage, both wife and I would be retired with modest pensions. The E*Trade account is about 30% of our investments - we would be pulling about 5% annually from the other 70% (conservative mutual funds, stocks and annuity). The 13-15% from TSLA would boost us back to our current income level.

In the US, there are centralized credit assessment agencies that give a credit rating based on various criteria including current debt and payment histories. These determine if you are eligible for loans and at what rates. Things like regular margins loans don’t show up in the credit reports, so have no effect on your rating. A securities-backed LOC would.

 

[Prunesquallor]

I may be overly conservative but I don't think you should retire. 15% of nest egg just seems like too much. Long term I think an estimation of 15% growth out of TSLA is a good gamble but what if the share price goes down for two years after you retire? Can you afford to burn shares at 400 dollars per, for a year or two?

Thanks for replying.

The E*Trade account is about 30% of our investments - we would be pulling about 5% annually from the other 70% (conservative mutual funds, stocks and annuity) in addition to our fixed pensions. The 13-15% from TSLA would boost us back to our current income level. We also have about one-year equivalent of liquid emergency funds (CD ladder).

So we could belt-tighten and get through two years of TSLA no-growth.

 

[Christine69420]

Good questions, Christine.

No kids, paid off mortgage, both wife and I would be retired with modest pensions. The E*Trade account is about 30% of our investments - we would be pulling about 5% annually from the other 70% (conservative mutual funds, stocks and annuity). The 13-15% from TSLA would boost us back to our current income level.

In the US, there are centralized credit assessment agencies that give a credit rating based on various criteria including current debt and payment histories. These determine if you are eligible for loans and at what rates. Things like regular margins loans don’t show up in the credit reports, so have no effect on your rating. A securities-backed LOC would.

So you would be reasonably OK without the TSLA boost. Then the occasional failure to get your 13-15% from TSLA isn't that much of a disaster. Sounds good to me!

 

[ReddyLeaf]

Not advice, but I have two years of CDs (paying 2%), 2-3 years of I-Bonds, house paid off, plus 6+ months of living expenses in checking/savings account (paying essentially nothing ). I’m not planning to touch TSLA shares until after the 401(k) mutual funds are exhausted. All of this was set up prior to my TSLA investments, and I would definitely do it differently “next time.” If I move, I will definitely get a mortgage over selling stock or mutual fund assets. It’s been nice not having house or car payments for the past ten years and definitely saved interest money, but the opportunity cost of not owning an additional $500K in TSLA is much riskier.

 

[reardencode]

I've been living on income from trading $TSLA options, so to avoid selling shares. Not advice, but I find it enjoyable and more compatible with spending time with my kids than working full time as a programmer.

 

[EV forever]

I hope this is the right place for this question. Roth IRA thread is closed.

I like the idea of moving some TSLA to a Roth, but would have to create a backdoor conversion.
Can I transfer some stock this year (paying income taxes on it, naturally) and some in future years? Or even multiple times in a year? (dollar averaging)
If I only get one shot this year, I better think about it carefully.
If I only get one shot in my liefetime, I really better think about it!

TIA and sorry my google-fu skills failed me. Am hoping someone here has done this, or happens to know, and yes, I get and accept “not an advice” and ymmv.

Maybe I'm misunderstanding what you're trying to do - but I don't believe a "backdoor conversion" would be ideal with already purchased stock. A Roth Backdoor conversion is used when someone makes over the Roth Contribution limit ($139k in 2020 for individual) but wants to take advantage of an IRS loophole to still stuff $6k ($7k if you're older than 50) into their Roth IRA anyways.

They do this by first opening up a traditional IRA and funding $6k from their bank (post-tax dollars) and then immediately converting that traditional IRA into a Roth IRA. While that $6k is undergoing the conversion process, it should really be in a money market fund - otherwise you'll have some tax work to do on gains / losses next year. I've done this with Vanguard and the process is fairly easy - but I've not done anything related to stocks in the conversion. I believe another simplification for tax purposes is to have no open traditional IRAs for this backdoor process to work.

If you already have a traditional IRA accounts (say because you rolled your prior employment 401ks together) with stocks, I'm not sure how much benefit you'll get by only converting a portion of that traditional IRA to a Roth IRA.

And you don't get one specific shot in your life time, you can do backdoor Roth conversions every year. This link may help you.
Backdoor Roth IRA 2020: A Step by Step Guide with Vanguard

None of the following is advice - just my overall understanding in dealing with similar accounts

@CatB can do a conversion as he has planned - provided he has the money to pay taxes on the amount he is converting. Long term Roth IRA has a lot of benefits, both while withdrawing for retirement as well as part of estate planning for when your beneficiaries inherit the remainder.

You can do a conversion once/year - however note that the 5-year holding period that you cannot withdraw from the Roth restarts at every conversion. So you need to be sure you will not need to withdraw anything from the account for atleast 5 years after the last conversion.

Edit: the portion in yellow above is incorrect. Each conversion has its own 5-year holding period.

@The Raza is also correct, that is the typical way folks do a conversion without having to pay extra taxes. Since you deposit the money after tax in the IRA and convert immediately there are no gains to pay taxes on. This is fine as long as you don't already have a traditional or roll over IRA. If you have a significant amount of pre-tax money in a roll over IRA, then any additional amount you try to add after-tax for back-door ROTH becomes a fraction of your total IRA - you end up paying taxes on that a second time. (For e.g. you have 100K in a roll over IRA and now add 6500 in a traditional IRA after-tax to convert to ROTH. Now, your overall IRA balance is 94% pre-tax and 6% post-tax. You will need to pay taxes on 94% of any amount you convert to ROTH. So the 6500 that was after tax, you will have to pay taxes again on 6100 of it). This is the reason why people with large IRA balances don't bother with the back-door entry.

@CatB - from your follow-on post it appears you have both a rolled over IRA as well as a traditional IRA funded with post-tax $$. My understanding is that IRA is considered as a single entity - so in your case the rolled over IRA will be added to the denominator to calculate the % of pre-tax and post-tax amounts for conversion. Make sure you talk to your accountant in advance.
edit: If your accountant does tell you something different (my info is about 5 years old, rules change and my info may be outdated), I would be very much interested in the answer. I am in this situation too, my rollover IRA which has all my TSLA has become huge. I have another IRA with post-tax money which I would love to convert to ROTH, but is a small fraction of total IRA value, so will incur taxes again on almost the full amount.

 

[EV forever]

All (especially @tesla Pilot, @EV forever, @adiggs):

I may be in the position to finally retire (again) early next year, and I’m looking at some options for providing supplemental monthly income from my taxable U.S. E*TRADE portfolio – 90% TSLA and 10% combination of ARKG, ARKF and BPTRX. I’d like to solicit your ideas and suggestions about three strategies I’m considering.


Option 1: Selling shares at opportune times during the year. Margin account would be used to smooth the outflow if needed, but margin total kept near zero. These would all be long-term cap gains, so tax would be 15% for me. The yearly income I would need plus taxes would equal about 15% of my current portfolio. As long as TSLA SP grows >15%/year, this should last forever.

Pros: No debt (as long as margin amount stays small). No danger of margin calls.

Cons: Taxes. Reduction in shares slows portfolio growth potential.


Option 2: Use margin (current max on this account is 40% of portfolio value). Margin interest is 7.95%. I would simply use margin for income. The yearly income I would need plus interest on the margin would equal about 14% of my current portfolio. As long as TSLA SP grows >14%/year, this should last forever. However, the margin amount would continue to grow at a constant rate (but still stay within maximum allowable portfolio percentage).

Pros: No reduction of shares, so greater portfolio growth potential. No taxes. Margin debt not reflected in credit report.

Cons: Debt with moderately high interest rate. Potential for margin call if deep SP hit.


Option 3: Use Line of Credit. Portfolio is collateral, interest rate 3.84%. LOC would be used for income. The yearly income I would need plus interest on the loan would equal about 13% of my current portfolio. As long as TSLA SP grows > 13%/year, this should last forever. However, the loan amount would continue to grow at a constant rate (but still stay within the maximum allowable portfolio percentage).

Pros: No reduction of shares, so greater portfolio growth potential. No taxes. Moderately low interest rate (doubt this is tax deductible interest).

Cons: Debt. Potential for margin call if deep SP hit. Debt would presumably be reflected in credit report.


I have neglected the effect of inflation in all of these options.
Do these strategies make sense? Is one clearly superior? Have I missed any other options?

Thanks for your help.

Can you consider Option 2 but with addition of Covered calls for additional income?
Any income you make with covered calls will be short term gains. The margin interest is 7.95% which is not tax deductible, however it can off-set short term gains in the same account. So, if you do conservative covered calls - with expectation of making 10-12% gains on your TSLA holding, this would off-set the margin interest paid - any additional income would be taxed at your current rate, but the amounts won't be very high. You would get all the pros of Option 2, but in this case even if TSLA grows at only 5-10% per year, you should still come out ahead.

I think you could do covered calls with option 3 as well, but I am not very familiar with LOCs with portfolio as collateral.

Option 1 would be my last choice for the next 10 years. I think you should try keeping your shares intact and allow them to run.

Another option to consider for extra cushion - get a LOC approved on your home. Do not use any of it for any investment or risky purposes, but it can be a short term cushion in case of emergencies. If you don't take any money out of the LOC, there is no interest to be paid. If you do end up using some of it, the interest on amounts up to 100K is generally tax deductible. I don't believe this negatively affects your credit rating either.

 

[MP3Mike]

You can do a conversion once/year - however note that the 5-year holding period that you cannot withdraw from the Roth restarts at every conversion. So you need to be sure you will not need to withdraw anything from the account for atleast 5 years after the last conversion

I don't think this is correct. Each conversion has its own 5-year period for when you can withdraw the earnings tax free. As long as you meet the other 5-year rule, and age requirements, you can withdraw the money you put in immediately. So if you do a converision each year you end up making a ladder for when the earnings become tax-free withdrawable. See this for details: Worth the Wait: The Roth IRA 5-Year Rule

Also, it seems you can do as many conversions a year as you want to. How Often Can You Make Partial Roth IRA Conversions? (I think the only limit of one a year has to do with if you take a distribution as a roll-over, where you directly get the money and then have to deposit it. If you do a direct transfer from one brokerage to another you can do as many as you want a year.)

 

[Prunesquallor]

Can you consider Option 2 but with addition of Covered calls for additional income?
Any income you make with covered calls will be short term gains. The margin interest is 7.95% which is not tax deductible, however it can off-set short term gains in the same account. So, if you do conservative covered calls - with expectation of making 10-12% gains on your TSLA holding, this would off-set the margin interest paid - any additional income would be taxed at your current rate, but the amounts won't be very high. You would get all the pros of Option 2, but in this case even if TSLA grows at only 5-10% per year, you should still come out ahead.

I think you could do covered calls with option 3 as well, but I am not very familiar with LOCs with portfolio as collateral.

Option 1 would be my last choice for the next 10 years. I think you should try keeping your shares intact and allow them to run.

Another option to consider for extra cushion - get a LOC approved on your home. Do not use any of it for any investment or risky purposes, but it can be a short term cushion in case of emergencies. If you don't take any money out of the LOC, there is no interest to be paid. If you do end up using some of it, the interest on amounts up to 100K is generally tax deductible. I don't believe this negatively affects your credit rating either.

Options and margin buying in the LOC collateral account aren't allowed.

In any case, I’m totally unfamiliar with options. I could learn, I suppose, but it would take quite a bit to make me feel comfortable that I knew what I was doing.

Good idea about the HELOC as a gap-filler. That plus the CD ladder we have in place could really help if there are some lean TSLA years.

 

[EV forever]

I don't think this is correct. Each conversion has its own 5-year period for when you can withdraw the earnings tax free. As long as you meet the other 5-year rule, and age requirements, you can withdraw the money you put in immediately. So if you do a converision each year you end up making a ladder for when the earnings become tax-free withdrawable. See this for details: Worth the Wait: The Roth IRA 5-Year Rule

Also, it seems you can do as many conversions a year as you want to. How Often Can You Make Partial Roth IRA Conversions? (I think the only limit of one a year has to do with if you take a distribution as a roll-over, where you directly get the money and then have to deposit it. If you do a direct transfer from one brokerage to another you can do as many as you want a year.)

You are correct, I misunderstood the 5-year rule. Each conversion has its own 5-year period. I have only done this for the first time this year, when I found out that there was a back-door way of converting after-tax portion of 401K directly to Roth IRA. This was a surprise to me, and didn't pay that close attention when the Fidelity guy was reading all the rules out to me .

 

[adiggs]

All (especially @tesla Pilot, @EV forever, @adiggs):

I may be in the position to finally retire (again) early next year, and I’m looking at some options for providing supplemental monthly income from my taxable U.S. E*TRADE portfolio – 90% TSLA and 10% combination of ARKG, ARKF and BPTRX. I’d like to solicit your ideas and suggestions about three strategies I’m considering.


Option 1: Selling shares at opportune times during the year. Margin account would be used to smooth the outflow if needed, but margin total kept near zero. These would all be long-term cap gains, so tax would be 15% for me. The yearly income I would need plus taxes would equal about 15% of my current portfolio. As long as TSLA SP grows >15%/year, this should last forever.

Pros: No debt (as long as margin amount stays small). No danger of margin calls.

Cons: Taxes. Reduction in shares slows portfolio growth potential.


Option 2: Use margin (current max on this account is 40% of portfolio value). Margin interest is 7.95%. I would simply use margin for income. The yearly income I would need plus interest on the margin would equal about 14% of my current portfolio. As long as TSLA SP grows >14%/year, this should last forever. However, the margin amount would continue to grow at a constant rate (but still stay within maximum allowable portfolio percentage).

Pros: No reduction of shares, so greater portfolio growth potential. No taxes. Margin debt not reflected in credit report.

Cons: Debt with moderately high interest rate. Potential for margin call if deep SP hit.


Option 3: Use Line of Credit. Portfolio is collateral, interest rate 3.84%. LOC would be used for income. The yearly income I would need plus interest on the loan would equal about 13% of my current portfolio. As long as TSLA SP grows > 13%/year, this should last forever. However, the loan amount would continue to grow at a constant rate (but still stay within the maximum allowable portfolio percentage).

Pros: No reduction of shares, so greater portfolio growth potential. No taxes. Moderately low interest rate (doubt this is tax deductible interest).

Cons: Debt. Potential for margin call if deep SP hit. Debt would presumably be reflected in credit report.


I have neglected the effect of inflation in all of these options.
Do these strategies make sense? Is one clearly superior? Have I missed any other options?

Thanks for your help.

Congrats on the imminent retirement! I appreciate the mention, and I'm going through a similar decision making process myself right now (retirement at end of Jan). It'll be a new world for me - no more paycheck after 30 years.

Two important things to know up front - I'm not a financial planner or anything else of the sort. I'm a consumer of those services. I have talked with 2 financial planners though as part of making my own plan. You get what you pay for. We all make our own decisions and experience our own consequences. Your mileage may vary. No warranty express or implied. Etc..

The other thing to know is that I'm not following those financial planners advice. I've learned a lot from them for sure. But the #1 piece of advice they have for me is to diversify away from TSLA. They're far too polite to say so, but I can tell they're thinking I'm a hair-on-fire risk taker that's gotten lucky. I have learned useful stuff from them, and found useful tools; I'm ready to learn from anybody, but I'm also willing (eager - I find this stuff interesting and fun) to chart my own path.


Among the 3 options, one idea for you in regards to option #2 is that IBKR apparently has great margin rates. Something like 1.5% these days. Puts Fidelity to shame, and has me thinking of talking to Fidelity about how to keep my business . I'm not an Interactive Brokers customer though - all I really know is what I've read on their website, and read from others here that do use them. If your broker won't find a comparable rate for you, then an account transfer to IBKR might save you a pile of interest.


For me, at least at this time, option 1 makes sense to me (the mechanics). But I'm not emotionally ready and willing to sell shares periodically to raise living expenses, so it's not something I can do.. At some point I probably will, but today I'm not able to do that . (I guess I just like those shares too much).

The other observation about all 3 options is that they are all dependent on a steadily rising share price. I don't know how long you've been a TSLA owner, but if you lived through the ~5 years of approximately stagnant share price (up and down from 180 to 280, and then 280 to 380), then you'll need to think about how that'll work for you if (when) it happens again.

Although my own expectation for TSLA by 2030 is as much as 10x today's price level, I also expect at least 1 and maybe 2 50% drops in the shares somewhere along the way. How will that work out for you if (for instance) the stock market finally realizes just how bad off many people are due to the pandemic, and it sells off like it's 2008, and TSLA drops down to $350 from here. Not because it's become a bad investment, but because when the whole market is selling off, it has this annoying tendency to take everything with it. Heck, with TSLA's PE, it's not unreasonable for the company to go down more than the overall market (woot! $200 here we come!)

My point isn't that these things WILL happen, but that (like me), you've got new needs from the portfolio. Income + Growth, instead of purely Growth.


And thus I have a few ideas for you; this isn't the universe of approaches, but it's some ideas to noodle on.

1) The first is an emergency fund, or in your case now, a sufficiently large pile of cash on hand that you don't need to react month to month for living expenses. One way I'm thinking about this is that I would like at least 1 year worth of cash on hand and maybe 2. Then if the market or TSLA moves badly against me, I've got at least a year (or 2) for it to recover. But I also have 8 years until the retirement accounts are fully available to me, so maybe I need to hold more cash.

2) Next is a combination of your 3 ideas. Use Option 1 (sell shares) when you feel the share price is at a local peak. Sell when the selling is particularly good, as it were. When the selling is not to your liking, then option 2 or 3 are mechanisms for raising cash while retaining all of your shares for a future sale. Then sell when the selling is good again, both for living expenses as well as maybe catching up on those loans.

3) Related to this combination of 3 ideas is a variation on Option 1. Covered calls are a pretty safe approach (you'll still need to learn about how they can go awry). The key here is that in Option 1, you're selling shares for living expenses. Well if you're willing to sell your shares today for $700, then surely you're willing to accept a $34 premium to sell the Jan '21 700 calls against however many shares you want to sell (multiples of 100). You sell the shares in a month if they are trading above $700, and you get the $34 premium either way (I think of this as pre-selling shares that I want to sell anyway).

The risks - the primary risk most identify is that the share price takes off on you. Say it's $1000 in mid-Jan and you've missed out on that extra $300 in growth. But that's not really a risk if you're going to sell the shares today - they're gone either way and you miss the growth either way. The main risk you'd be taking on is that you actually do need the money from selling the shares, but you don't get it if the shares trade down. If the option premium doesn't cover your living expenses on its own, then you might be selling the shares anyway in a month, but now you're getting $600 and you've lost $66 ($100 lower share price, but $34 premium collected).

4) The last idea is something I've begun doing this summer, and plan to continue for the indefinite future. I've found that I can sell options against the portfolio (both covered calls, and cash secured puts). Use the shares and cash with a dividend mindset to sell options.

There are all sorts of dangers with this idea, and if you haven't traded options before (or don't find the idea of learning about how this works appealing), then that's a good hint that you don't even want to start down this path. My own target is somewhere around 1% per month which has seemed achievable so far; maybe I can do better than 1%, but I don't really need to do better either (which means I can take on even less risk).


Congratulations again!

 

[adiggs]

Good questions, Christine.

No kids, paid off mortgage, both wife and I would be retired with modest pensions. The E*Trade account is about 30% of our investments - we would be pulling about 5% annually from the other 70% (conservative mutual funds, stocks and annuity). The 13-15% from TSLA would boost us back to our current income level.

In the US, there are centralized credit assessment agencies that give a credit rating based on various criteria including current debt and payment histories. These determine if you are eligible for loans and at what rates. Things like regular margins loans don’t show up in the credit reports, so have no effect on your rating. A securities-backed LOC would.

My wife and I are similar - no kids, our primary house is paid off. No pensions, but the retirement accounts are well funded (thank you TSLA). Some charity(s) will be very happy when the second of us shuffles off.

I've thought about a loan against the house to raise additional investment money - I like having that mortgage paid off too much, and it lowers our living expenses too much. They key here - the house is either on the income side of the retirement ledger, or it's on the expense side of the retirement ledger (as a reduction in the expense level), but it isn't on both.

 

[TSLA Pilot]

Closest thread I could find.

I’m curious what others here who are homeowners with mortgages are thinking. I could pay off my mortgage with my TSLA gains. I’d have to sell 25% of my shares. And my mortgage rate is now 2.75% thanks to a refinance at current rates.

So on one hand the no mortgage payment would be life changing but it would come at a cost of selling 1/4 of my TSLA position. And the low rate vs. future TSLA growth... so curious what others may be thinking.

Not making any move just yet...

IMHO, doing this MIGHT make you feel better, but it's among the dumbest financial moves possible.

As a mortgage ages, your payments become far more principle and far less interest--that you paid early on, and it's how banks get rich.

Why would you do this when the odds of Tesla making triple-digit APR returns is almost a sure thing, especially given how so many in the finance media still don't "get" TSLA?

Recommend you not spend a dime to pay off your mortgage: sell NO shares, HODL!

 

[Runarbt]

Agree - I wont pay down the mortage by selling shares. The mortage has - 2% interest?

I'd rather sell puts and way OTM covered calls to cover day to day expenses.
Previously - I ment to sell shares at $2000 and above.. now? Not so much.

The only way I will sell, is because my way OTM suddenly got ITM. Pure accident.

And I can then turn even more agressive with my PUTs and hopefully either make a lot more money that way, or get my shares back for less. This is my retirment strategy for now. HODL 4ever - and by 4ever I really mean for EVER.

 

[CatB]

@CatB - from your follow-on post it appears you have both a rolled over IRA as well as a traditional IRA funded with post-tax $$. My understanding is that IRA is considered as a single entity - so in your case the rolled over IRA will be added to the denominator to calculate the % of pre-tax and post-tax amounts for conversion. Make sure you talk to your accountant in advance.
edit: If your accountant does tell you something different (my info is about 5 years old, rules change and my info may be outdated), I would be very much interested in the answer. I am in this situation too, my rollover IRA which has all my TSLA has become huge. I have another IRA with post-tax money which I would love to convert to ROTH, but is a small fraction of total IRA value, so will incur taxes again on almost the full amount.

That is what my accountant and I figured out. We had to add the rolled-over IRA with the non-deductible IRA, figure out the $5k x (number of years) after-tax numerator, against the total value (lotsa TSLA) to figure out the income tax I will have to pay out of existing savings. Since I just sold my old townhouse (rented <3 years), I have some capital gains there as well, so had to sharpen the pencil on how much to convert.

I wish I could figure out how the Warren Buffett’s and Mitt Romney’s of the world end up paying a fraction of AltMin in taxes! I think I have to quit working (or earn less than $44k) so I can sell some appreciated stock at the zero cap gains rate. Hmmm...

 

[Stretch2727]

You are correct, I misunderstood the 5-year rule. Each conversion has its own 5-year period. I have only done this for the first time this year, when I found out that there was a back-door way of converting after-tax portion of 401K directly to Roth IRA. This was a surprise to me, and didn't pay that close attention when the Fidelity guy was reading all the rules out to me .

I did the same with my 401k from a prior job. Aftertax to Roth, I had to take the gains with it an put it in a rollover IRA. It was a bit of challenge as part of the after tax $$ ended up in my self directed 401K portion. I had other investments I could sell, but Tesla was on a run after the split so the amount I had to have in cash kept increasing, so I had to sell a bunch of ARKK I was holding as well to be in cash when they did the withdrawal. The rep with no visibility to my self directed account asked what I was doing to have a 401K with 250% YTD gains at the time. Now its over 400% YTD.

One really important topic for those approaching retirement. If you leave you job for whatever reason after 55 you can withdrawal funds from the 401K without penalty. No need to wait until 59 1/2. One reason I left this 401K intact for now. I am 56 and switched jobs earlier this year and have not rolled the 401K into an IRA as I normally would do. The other reason is I will likely do a bunch of partial withdrawls to keep the Tesla investment intact. I cannot directly transfer the shares and it can take a month or more for the $$ to move.

Topic No. 558 Additional Tax on Early Distributions from Retirement Plans Other than IRAs | Internal Revenue Service

What Is the Rule of 55?

The following additional exceptions apply only to distributions from a qualified retirement plan other than an IRA:

1. Distributions made to you after you separated from service with your employer if the separation occurred in or after the year you reached age 55, or distributions made from a qualified governmental benefit plan, as defined in section 414(d) if you were a qualified public safety employee (federal state or local government) who separated from service in or after the year you reached age 50.