r2i forum

Posted: **Tue Jul 03, 2007 12:48 am**

Gurus,

I would like to first commend all of you for serving as a guidelight for new members here. This forum has been a goldmine of information and has helped me immensely in firming up my plans to R2I in May 2008.

I am listing my AAP for your expert review. I would deeply appreciate your ideas on how to rebalance my AAP and to acheive my objectives.

1. Return to India (R2I) or Live In America (LIA): - R2I

2. Your current age: - 38

3. Marital Status: - Married

4. Number of dependents and ages: Wife(35), Kids(4 and 1)

5.
(a) Current citizenship and/or Immigration status: GC
(b) If not a USC currently, do you have the option to take up US citizenship prior to R2I? Yes, just filed for USC
(c) If you have the option to take USC, do you intend to do so prior to R2I? Yes

6.
(a) If you intend to R2I, when do you intend to R2I? ? May 2008
(b) Immediately upon R2I, do you plan to retire (cease gainful employment), semi-retire, or continue to work for some time? ? Semi-retire
(c) When do you plan to cease gainful employment (Intended Retirement Age)? - 39
(d) If you plan to work after R2I, what do you estimate your annual after-tax savings to be? ? N/A
(e) If you plan to semi-retire after R2I, will your annual earnings from employment take care of your annual expenses during semi-retirement? If not, what do you expect the deficit to be per year? ? No, Need Rs.6 lacs per year

7. Is spouse also working? - Yes

8. RNOR eligibility of you and your spouse (use the calculator in doc section) or how long you have been out of India ? ? 9 years

9.
(a) Current annual after-tax savings including Roth IRA (excluding 401(k) and regular IRA contributions): None
(b) Current annual savings into tax deferred accounts i.e. 401(k) and regular IRA ? $90K(401k ? self), 71K ( 401K-spouse)
(c) Current annual expenses (excluding tax): $60k
(d) What is your current marginal (not average) federal tax rate, based on your filing status? ? 25%
(e) What is your current marginal (not average) state tax rate, based on your filing status?- 3.2%

10. House owner? - Yes

11. What percentage of your total portfolio loss in a year will make you lose sleep? 10%? 20%? 30%? Or 40%? ? 20%

12. Do you have any loans? CC? Car loans? House loans? What is the current interest rate?
Home ? $230,000 - 5.375%

13. Do you or your spouse?s participate in retirement plans: 401K, IRA, Roth-IRA? If so, how much do you and your employers contribute every year to these accounts? ? 10K(spouse)

14.
(a) What are your short term (1 year) financial goals?
- Balance/Reallocate current assets towards Short / Medium/Long term goals
(b) What are your medium term (2-5 years) financial goals?
- Need a a strategy for Rs.40k/mo regular income at today?s value.
- Need Rs. 15 lacs for cars
- Planning to rent. Need Rs.5 lac for apartment rent deposit
- Need 5 lacs for settling expenses and furniture
- Need 5 lacs for moving expenses
(c) What are your long term (>5 years) financial goals?
- Kids education and marriage, capital appreciation

15. Need to save money for your kids future education? If so, please answer the following questions:
(a) Do you have a 529 plan? - No
(b) Do you want to fund your kids? Indian or US education or both? If so, please provide a detailed description of the kind of education that you want to fund. (All expenses in today?s Rs/$)
- Primary/High School in India @ 1Lakh/year/child
- Undergraduate education (a). India @ 5Lakh/year/child or (b). US @40k/yr/child
- PG education in USA @ 40k/year/child

16. After you retire (cease gainful employment), what do you estimate your annual living expense figure to be (in current dollars or rupees, based on the life style you want)? Does this figure include housing cost? ? Rs. 7 Lacs

17. If you are R2I, what percentage of your portfolio do you want to leave in US? And where? Stocks? Bonds? Cash?
Leave all the 401K funds here. Maybe leave a portion of my home sales proceeds (currently, $180000 approx)

18. Do you have any insurance? Life, disability, long-term care? Total value of your policy?
? Life 500k for self and 200K for spouse ( employee sponsored).

19. Do you have an emergency fund? How it is invested? ? $35000 in savings account

Current US Assets* (Please provide a separate breakup of tax deferred and after-tax accounts):

NON-RETIREMENT(after tax ? 318K)
1. Stocks (Total 40K):
VIMSX ( 5K)
2. Bonds: None
3. Cash (50K ) : Savings account - ING
4. Real estate (Total 180k): I am assuming this is what I will have after selling home in 2008 after closing costs, Home equity payoff, appreciation etc.,
5. Jewellery: 28K
6. Cars: 15K

RETIREMENT(before tax ? $161K)
1. My 401 K - (Total 90K):
- 37.5 K in Spartan US Equity index Fund
- 17.5 K in American EuroPacific Growth
- 35.0 K in Vanguard Total Bond Market Index Fund

2. Spouse 401K ? (Total 71K):
- 28.5 K in Spartan US Equity index Fund
- 15 K in American EuroPacific Growth
- 27.5 K in Vanguard Total Bond Market Index Fund
3. Cash : None
4. Real estate: None

Current India Assets(Rs. 2.52 crore):
(in Rs @ curren mkt value)
1. Stocks : None
2. Bonds : None
3. Cash : None
4. Real estate :
- Home 1 (60L) : Parents stay here
- Home 2 (10L) : Spouses Parents stay here
- Plot1 (1.5 crore) : Future home in 2/3 ? Plan to sell 1/3 of the land
- Plot2 (12L) : Investment
- Plot3(10L) : Investment

5. Other : FD 1L

Posted: **Fri Jul 06, 2007 11:07 pm**

Gentlemen,

I am not sure if you had the time to review my AAP. Please do so when you get a chance.
I value your feedback and will be very helpful to re-adjust my AAP and acheive my objectives.

Thanks in advance

Posted: **Fri Nov 09, 2007 2:35 am**

Luv2fly,

I see that you have substantial sum in INGDirect. The Vanguard money market fund VMMXX gives better returns than INGDirect. I would suggest to move money there till I go thru the rest and suggest.

2. Also compare the return of tax exempt money market fund with the net return from taxable money market fund and select the one with higher after tax net return.

The above step alone may save you a few hundred dollars till you R2I.

Posted: **Fri Nov 09, 2007 5:17 am**

Luv2fly,

Your emergency money 35k in savings account should also be considered for Vanguard if the interest rate is higher than your savings account.

What yearly post tax expenses do you need in India ? this should include the expenses for the child (you had mentioned 1 lac for school for the child)?

You had mentioned at one point 6 lacs rupees per year beginning with R2I and at another point, you mentioned 7 lacs per year. Is the difference because in one case you are semi retired?

Beginning with 2009, how much income per year do you need from your assets including chidren's current education expenses. Tell me post tax money only and not pre tax. Also do not figure in any inflation, assume today's dollars only. I will compute inflation.

Posted: **Wed Nov 14, 2007 1:33 am**

Thanks a bunch for the response Desi.
Please find below my answers to your questions:

Desi;56399Luv2fly,

Your emergency money 35k in savings account should also be considered for Vanguard if the interest rate is higher than your savings account.

I have since then moved 30 K of that to a private business group offering an annual guaranteed return of 10%.
Would it make sense to retain the 5K ion ING for emergency expenses?

What yearly post tax expenses do you need in India ? this should include the expenses for the child (you had mentioned 1 lac for school for the child)?

You had mentioned at one point 6 lacs rupees per year beginning with R2I and at another point, you mentioned 7 lacs per year. Is the difference because in one case you are semi retired?

Beginning with 2009, how much income per year do you need from your assets including chidren's current education expenses. Tell me post tax money only and not pre tax. Also do not figure in any inflation, assume today's dollars only. I will compute inflation.[/quote]

I was inconsistent with the amount that I needed on an yearly basis. I had not included housing and school expenses. After taking that into account,
I would actually need Rs. 9 lacs per year in post tax expenses.

I eagerly look forward to your feedback.

Thanks

Posted: **Wed Nov 14, 2007 2:18 am**

luv2fly;57421Thanks a bunch for the response Desi.
Please find below my answers to your questions:

I was inconsistent with the amount that I needed on an yearly basis. I had not included housing and school expenses. After taking that into account,
I would actually need Rs. 9 lacs per year in post tax expenses.

I eagerly look forward to your feedback.

Thanks[/quote]

OK, it seems that 9 lacs per year is the net amount of money you will need every year to live (inflation adjusted of course). This 9 lacs includes primary and secondary school expenses for children and housing expenses.

What do you mean by housing expenses? The house you will be living in will be an owned house? Correct? Based on the real estate owned, it seems that you will be living in a fully owned house.

The property tax, utilities, maintenance, etc are all living expenses - Am I missing something that is additional or different?

Posted: **Wed Nov 14, 2007 5:00 am**

Desi;57434OK, it seems that 9 lacs per year is the net amount of money you will need every year to live (inflation adjusted of course). This 9 lacs includes primary and secondary school expenses for children and housing expenses.

What do you mean by housing expenses? The house you will be living in will be an owned house? Correct? Based on the real estate owned, it seems that you will be living in a fully owned house.

The property tax, utilities, maintenance, etc are all living expenses - Am I missing something that is additional or different?

Desi,

The property that I own is far away in the suburbs and my parents currently live there.
I plan to rent an apartment in the city that is close to the schools that my kids will go to. I had accounted for rent as housing expenses.
Hope that clarifies my situation.

Posted: **Tue Nov 20, 2007 1:40 am**

Luv2fly,

ASSETS:

We will ignore the value of cars and jewellry. These are not for investment. They are part of your total worth but not investment asets.

So taxable account value is $275K

Regarding 401K and IRAs, here ealry withdrawal would mean a penalty of 10% or 16K
Also if the withdrawal is broken up into say 3 chunks. That would be about 54k per year of withdrawal. With standard deduction and personal exemptions rounded up will be about 24K, so about 30K would be taxable (at this point we will not consider unearned income as I am trying to approximate taxes on this IRA distribution). Your taxes on 30K will be under 4K. So over 3 years that is taxes of 12K plus penalty of 16K. A total thus of 28K of liability for IRS.

Net of Penalty and taxes, your 401K and IRA are worth about $133K.

Current India Assets(Rs. 2.52 crore):
(in Rs @ curren mkt value)
1. Stocks : None
2. Bonds : None
3. Cash : None
4. Real estate :
- Home 1 (60L) : Parents stay here
- Home 2 (10L) : Spouses Parents stay here
- Plot1 (1.5 crore) : Future home in 2/3 – Plan to sell 1/3 of the land
- Plot2 (12L) : Investment
- Plot3(10L) : Investment

In your computation of real estate assets, you have taken into account the values of your parents and in-laws homes. I am assuming that the reason you have figured those in is because you stand to inherit those. Also since in your computation of 9 lac need per year for living and housing expenses, you have assumed renting and hence all of these real estate assets can be considered investment assets.

Real Estate Investment assets 2.52 crores

5. Other : FD 1L

TOTAL Investment assets

1. US assets = 275K + 133K = $408K = Rs. 1.63 crores
2. Indian real estate and cash assets = 2.53 crores

Total investable assets = 4.16 crores

Is the above correct? Is the $35K emergency fund part of 4.16 crores or is it separate and needs to be added?

Besides above assets, how much more will you accumulate (forget the growth on these for the moment) from savings till you R2I?

We first need to get a good handle on current assets and assets when you R2I. So let us start with answering some questions, I have asked.

=====================

Near term needs: 30 lacs R2I, settling, furniture, appliances, Cars etc.

Upon R2I, will dispose off cars in USA and furniture - will generate $xxxx ?

================================

Posted: **Wed Nov 21, 2007 12:28 am**

Desi,

That's a pretty accurate assesment of my current situation. Thanks again.
I have provided my responses to your questions in red

Desi;58751Luv2fly,

ASSETS:

We will ignore the value of cars and jewellry. These are not for investment. They are part of your total worth but not investment asets.

So taxable account value is $275K

Regarding 401K and IRAs, here ealry withdrawal would mean a penalty of 10% or 16K
Also if the withdrawal is broken up into say 3 chunks. That would be about 54k per year of withdrawal. With standard deduction and personal exemptions rounded up will be about 24K, so about 30K would be taxable (at this point we will not consider unearned income as I am trying to approximate taxes on this IRA distribution). Your taxes on 30K will be under 4K. So over 3 years that is taxes of 12K plus penalty of 16K. A total thus of 28K of liability for IRS.

Net of Penalty and taxes, your 401K and IRA are worth about $133K.

Current India Assets(Rs. 2.52 crore):
(in Rs @ curren mkt value)
1. Stocks : None
2. Bonds : None
3. Cash : None
4. Real estate :
- Home 1 (60L) : Parents stay here
- Home 2 (10L) : Spouses Parents stay here
- Plot1 (1.5 crore) : Future home in 2/3 ? Plan to sell 1/3 of the land
- Plot2 (12L) : Investment
- Plot3(10L) : Investment

In your computation of real estate assets, you have taken into account the values of your parents and in-laws homes. I am assuming that the reason you have figured those in is because you stand to inherit those. Also since in your computation of 9 lac need per year for living and housing expenses, you have assumed renting and hence all of these real estate assets can be considered investment assets.

Real Estate Investment assets 2.52 crores

5. Other : FD 1L

TOTAL Investment assets

1. US assets = 275K + 133K = $408K = Rs. 1.63 crores
2. Indian real estate and cash assets = 2.53 crores

Total investable assets = 4.16 crores

Is the above correct? Is the $35K emergency fund part of 4.16 crores or is it separate and needs to be added?
$35K emergency fund is part of the 4.16 crores

Besides above assets, how much more will you accumulate (forget the growth on these for the moment) from savings till you R2I?
I will probably accummulate another $40K

We first need to get a good handle on current assets and assets when you R2I. So let us start with answering some questions, I have asked.

=====================

Near term needs: 30 lacs R2I, settling, furniture, appliances, Cars etc.

Upon R2I, will dispose off cars in USA and furniture - will generate $15K ?

================================[/quote]

Posted: **Wed Nov 21, 2007 12:59 am**

So upon R2I you will have following:

Assets of Rs 4.16 crores + $40K + $15K = Rs 4.16 crores + $55K

The above equates to 4.38 crores.

Your needs are as follows:

1. R2I settling expenses of 30 lacs
2. Children's education expenses of $300K (150K per child for four year education)

I have taken a conservative approach in that I am assuming that need is 150K per child if they were to go to four year undergrad school today. I have assumed that any growth in the money will compensate for inflation and taxes. Since education inflation is higher, I am not discounting this amount for growth. So the amount that one should save today is 150K. An aggresive approach would discount by some amount of growth above and beyond inflation thus reducing the current need from 150K to something lower.

3. Marriage expenses for kids = ??

4. An asset base of X crores which will generate 9 lacs post tax per year inflation adjusted for the rest of your life.

I will compute the amount of X crores needed for #4 and then we can add the numbers.

Once we add these numbers, we will know the following:

1. Gap or surplus if any in the current asset base from requirement.

2. Adjustments in expectations (amount to be saved for kids and retirement lifestyle) - right off the bat, I think you may have to lower the amount of 9 lacs post tax expectation to somewhat lower. Also, as you get older your expense needs may drop below 9 lacs, so for example from age 60 onwards if you need say 6 lacs a year in living expenses plus housing etc (today's rupees) (I will adjust for inflation), then that can also lower the gap.

3. Amount of insurance needed.

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