37 and Hopeful

[Cool_Sparrow]

Folks,

What a great community and boy, am I delighted to find it! I am in a sort of a unique situation and need your insights. I am 37 year old immigrant (naturalized US citizen), married (spouse not working currently but used to) and have a 2-year old. We have ~$600,000 saved for retirement (2/3rd of it in taxable accounts but in tax-efficient index funds and low turnover funds), with roughly 75% equities (rest in bonds/cash) - About 34% of my investment portfolio is international. In addition, we have about $100K for our child’s college education (all in index stock funds, 65% US, 35% int’l). We don’t own a home anywhere in the world. However, we have investment real estate in Asia (which serves as a hedge against our purchase cost of a future home there), where we hope to retire by end of this year. As excited as I am about “retiring” early, there is a fear in the back of my mind of whether I have thought everything though…. My specific questions are:

1. Are my retirement assets sufficient to support $2000/month in Asia, which should give us a comfortable (but certainly not luxurious) lifestyle once home is fully paid for (we hope to sell investment real estate and put the proceeds into a home)? I am worried if the inflation rate in Asia is higher than U.S. and I am forced to withdraw more from my asset base (especially in later years when gainful employment become difficult). What %age of my retirement assets should I keep in the currency I intend to spend in from the next year?

2. Should I include Social Security in the above calculation? My wife and I both are vested at the minimum (40 quarters), and projections indicate that even if we don’t contribute a penny from 2009 into SSA, our monthly benefits (present dollars) at age 62 are $600 for me and $500 for my wife. Given that this represents a sizeable chunk of my retirement expenses, I am eager to know if I can count on SS coming through in my later years (Wife and I are 25+ years away for early eligibility at 62).

3. Have we saved enough for college education for our child? Not knowing what our child will do when he grows up, we would like these funds to cover either his 4-year undergrad education in U.S. or 2-year U.S. graduate education (assuming he does undergrad in a low cost but decent school in Asia, which we can cover within our monthly expense budget).

Health care is inexpensive where we will be retiring so we are less concerned about it, but we have earmarked a modest $10K for it in case so we don’t dip into the retirement asset base.

How does the above sound? Is there an obvious “oops” somewhere or any other issues that you can help me think through?

Thanks a ton!

[lifeisgood]

Well, keep an eye out for tsunamis, cyclones and earthquakes.

Seriously, you sound pretty OK to me. I plan on a 4% withdrawal rate, which seems to be your assumption as well.

How much to keep in your local currency? No definitive answer to that, except that the fully-hedged, least risky position is to convert all your assets into the same currency as your liabilities (assuming all your liabilities are in one currency). My sister lives in Europe, but has kept her assets in the US. In the 10 or 12 years she has been there, the dollar has fallen a lot, like by half. Big ouch. Where will it go from here - who knows? but do you want to take that risk at all?

[Medit8]

Where in Asia, Sparrow? It's a big place with a huge variance in living costs.

[militaryman]

You said you ear marked 10k for health/medical

Is that per year ?

If you meant 10k period I think that is really low (even for asia) and could be the thing that brings the most surprise later .

ie what happens while you child is here in US at college and they need a couple root canals/ major dental work --- or have a sports injury -- most university health insurance will not deliver the quality and thouroughness of care you will desire for you student.

Other than that your plan sounds good.

[Cool_Sparrow]

Thanks for the replies so far. The location is India. $10K is the sum total for health care, yes it is low, but this will be invested along with my retirement funds for future growth....hopefully, becomes ~$50K when we retire. We intend to purchase health insurance in India for major illnesses, which is covered within my $2K monthly budget.

You mentioned health insurance for kid in college...isn't that covered by University medical/dental schools (most schools I know offer low cost or essentially free services for students)? For grad school, most US universities offer low cost insurance that can be covered by some sort or aid or work-generated money. My grad school friend had a major dental work (non-cosmetic) done, which was covered 80-90% by his insurance and the remaining he paid off over 5 years by paying $10 a month (as he was a Ph.D. student on a stipend for 3 of those 5 years)!

[Cool_Sparrow]

Originally Posted by lifeisgood

Well, keep an eye out for tsunamis, cyclones and earthquakes.

Seriously, you sound pretty OK to me. I plan on a 4% withdrawal rate, which seems to be your assumption as well.

How much to keep in your local currency? No definitive answer to that, except that the fully-hedged, least risky position is to convert all your assets into the same currency as your liabilities (assuming all your liabilities are in one currency). My sister lives in Europe, but has kept her assets in the US. In the 10 or 12 years she has been there, the dollar has fallen a lot, like by half. Big ouch. Where will it go from here - who knows? but do you want to take that risk at all?

Thanks. Good point. My US$ hedge, i.e. my total investments outside U.S. (including real estate holdings) is about 55%, so I think I am fairly diversified for that risk. However, local currency investment is currently all in real estate, which will become a primary home. What %age of the $600K should you suggest should be in local currency? Any overseas retirees, please comment.

[Cool_Sparrow]

Please let me know your thoughts on the question posed in #6 (esp. overseas retirees) and on SS benefits for my situation. Thanks.

[Rambler]

Originally Posted by Cool_Sparrow

Please let me know your thoughts on the question posed in #6 (esp. overseas retirees) and on SS benefits for my situation. Thanks.

We're not ERd yet, but living overseas. If it were me, I would probably use a similar asset allocation that you would use in the US....except that the US becomes part of the international portion.

If it were me, I would not include SS in your considerations. Why? because if you have only done the currently required 10 years-40 quarter, and that requirement gets bumped up due to the state of SS, then you will be SOL. Further, while I am a natural-born american, I have lived overseas on a spousal visa for 17 years. I don't think I will make it to the required 25 years here, but even if I did, and even if I obtained citizenship in this country (sorry - can't be more specific than "asia"), then left for the states, I'm not sure this country would pay my SS benefits.

Luckily enough for me, I have been employed by a US company for the last 15 years even though working overseas part of that, and have been paying into US SS for 15 years (thus meet the 40 quarter requirment, as long as it is not bumped up). If the laws change here and allow int'l people to collect then I may have two SS payments, one on 18-19 years of work and the US pmt on 16-17 years of work. However, I include neither of those in my planning, for a conservative, safe view.

FWIW

R

[BunsGettingFirm]

Originally Posted by Cool_Sparrow

Thanks for the replies so far. The location is India. $10K is the sum total for health care, yes it is low, but this will be invested along with my retirement funds for future growth....hopefully, becomes ~$50K when we retire. We intend to purchase health insurance in India for major illnesses, which is covered within my $2K monthly budget.

You mentioned health insurance for kid in college...isn't that covered by University medical/dental schools (most schools I know offer low cost or essentially free services for students)? For grad school, most US universities offer low cost insurance that can be covered by some sort or aid or work-generated money. My grad school friend had a major dental work (non-cosmetic) done, which was covered 80-90% by his insurance and the remaining he paid off over 5 years by paying $10 a month (as he was a Ph.D. student on a stipend for 3 of those 5 years)!

It is true your child should be able to get some form of health insurance for a reasonable cost. I got health insurance through school for both of my grad degrees. I wouldn't worry too much about your kids while they're in college because they will be in their late teens and early twenties, not exactly an age bracket known for high health insurance premiums.

[retire2india]

Sparrow,
Your plans sound similar to mine. My wife and I are also planning to retire in India. But we are 10+ years away from retirement, so we haven't made any definite plans yet. I don't have clear answers to the questions you listed, but I share some of the same concerns. You might like to check out my blog Retire To India

[Cool_Sparrow]

Originally Posted by Rambler

We're not ERd yet, but living overseas. If it were me, I would probably use a similar asset allocation that you would use in the US....except that the US becomes part of the international portion.

If it were me, I would not include SS in your considerations. Why? because if you have only done the currently required 10 years-40 quarter, and that requirement gets bumped up due to the state of SS, then you will be SOL. Further, while I am a natural-born american, I have lived overseas on a spousal visa for 17 years. I don't think I will make it to the required 25 years here, but even if I did, and even if I obtained citizenship in this country (sorry - can't be more specific than "asia"), then left for the states, I'm not sure this country would pay my SS benefits.

Luckily enough for me, I have been employed by a US company for the last 15 years even though working overseas part of that, and have been paying into US SS for 15 years (thus meet the 40 quarter requirment, as long as it is not bumped up). If the laws change here and allow int'l people to collect then I may have two SS payments, one on 18-19 years of work and the US pmt on 16-17 years of work. However, I include neither of those in my planning, for a conservative, safe view.

FWIW

R

Rambler,

Thanks for validating my international allocation in my retirement portfolio. I have excluded SS from my conserative analysis but I am fairly confident that the min. vesting requirement of 40 quarters, if raised in the future, will not apply to those already vested. Doing so is like reducing the benefits to those already receiving SS or on a broader scale, changing the contract after both parties have signed it. I see this as a very low probability event (politically). There are other ways (increasing SS payroll taxes, increasing retirement age, stopping COLA adjustments etc.) to deal with SS in the future that are a higher probability from a political sense.

Don't know about your "asia" SS plan so can't comment on its viability.

[Cool_Sparrow]

Originally Posted by retire2india

Sparrow,
Your plans sound similar to mine. My wife and I are also planning to retire in India. But we are 10+ years away from retirement, so we haven't made any definite plans yet. I don't have clear answers to the questions you listed, but I share some of the same concerns. You might like to check out my blog Retire To India

Very impressive blog. Since you have 10+ years of work and you already have sizable assets today, you'll be in a much better asset size position when you ER. You can live like a king in India with the income from the assets you will have when you ER!

[Cool_Sparrow]

Thank you all for your comments. I especially appreciate the detailed analysis posted by r2i on his blog. That analysis and others prompted me to re-think my plans a little and also, post an update for your comments.

1. Our retirement assets would probably be close to $650K when we actually begin retirement due to some vesting contributions expected when I leave my job. This may not change our calculations sizeably but the asset size increase is significant for us.

2. Using FIRECalc under its various settings and assumptions have given me a cause for concern that I should consider no more than about $1500/month of expenses to be fairly sure (>92%) of our assets lasting a 50+ year retirement. While this reduction is significant, I feel a modest but reasonable lifestyle can still be afforded by this income in a Tier 1 metro in India but for a really comfortable lifestyle, we should consider retiring to a Tier 2 or Tier 3 town. This will have an impact in terms of quality of health care and other lifestyle issues but if this town is located near a Tier 1 metro that has high quality care available for major illnesses, the impact should be marginal. Also, this reduced income has an impact on the type of schools that we hope to send our child to, so that is another factor that's worrying me. My wife points out that we both studied in rather modest schools and did pretty well in life, so the school itself is not a major predictor of a child's future success.

3. Anyway, to revert back to my $2K/month spending goal, one option is for me to not withdraw from my assets till I reach 40. The additional 3 years, supported by modest employment in India, would offer a better chance to start our retirement with $2K/month. Delaying till 45 will put us in a much better position according to FIRECalc, but the prospect of toiling for 8 years in a high pressure & relatively low wage country like India is a major concern to me. We are not counting on any savings from working in our retirment destination, but rather hope to earn enough to cover our living costs to let our retirment assets grow. With the faltering capital markets this year, the prospect of withdrawing from it from the end of this year is scary

4. Much was mentioned about health care costs. I found couple of decent India-based health insurance plans with annual premium of about $400-500 for a family of four (~$40 a month), which we can cover within our monthly budget. This insurance covers outpatient surgery, inpatient surgery and hospitalization, major dental work including in-home post-op nursing care (upto 30 days) with coverage limits around INR 0.3-0.4 million ($7,000-$10,000). Given current health care costs in India, this coverage is adequate in my opinion. What it does not cover are routine doctor's visits (which are inexpensive in India, as most fees are under $10/visit and rarely cost $20/visit). This insurance combined with the $10K we have earmarked for long-term health care related "investment" is what we are counting on. I am upset with the rising healthcare costs in India as well, it throws a curveball into anyone's long term plans.

5. Regarding our child's education fund, thanks to Mr. Market, the $100K fund has now dwindled to about $93K. Using this as the base reduces the median long term projection by about 7% - does this mean we now don't have enough for a decent education? Maybe Harvard and Stanford are out? What about less expensive but good schools, does junior have to get a loan? I know many in this forum don't see any issue with that but since my wife and I both enjoyed the benefits of graduating debt-free, we wanted to offer this advantage to our child as well. Can college experts in this forum comment on the adequacy of our current college savings ($93K)?