53 and just starting FI journey

[KmmFIdreamer]

Hello everyone. I am a 53 year old female and just starting my FI journey.
I am debt free except for the mortgage where I live. I own 2 free and clear income properties generating $1000 - $1300 a month. I also own a 4th house out of state that I am fixing up to sell.

Way behind on retirement savings with only $90K in 401(k) and IRAs. I also have $28K in regular stock investments. This year I am putting approximately $20K into savings/investments, but really need to do more....

Looking at leaving my full-time job at 57.5 with the mortgage paid off (after selling the 4th house.) I will be able to collect a small pension then that will mostly just cover my health insurance costs for the family. I will probably pick up something part-time till DH can get his pension at age 60. When I "retire" we will be able to live on DH's wages and the rents, so I can put my PT pay totally into an IRA/401K.

Problems I have now are $400 to $500 a month going to pay for repairs, utilities, travel to the vacant house. Oh, and a 20 year old still living in the basement and not paying rent! (Though he does bring home lot of free food from his restaurant job! We had pie on Pi day even.)

We live pretty frugally, spending only $1300 a month outside of the mortgage payment (Mortgage = $2200 with the extra principle that is in my monthly budget.)

I want to actually have some funds to travel when DH retires at 60, so I know that we still have lots of work to do on saving for retirement over the next 7 years. What to do since our income is not likely to rise much? We take in $95 - $100K (we both typically get 1% raises each year - hardly keeps up with inflation.) my only other income is the above mentioned rents that will probably increase slightly over time.

I am thinking I may have to sell out of this large house (we have $180K in equity in it right now) and move into one of the smaller rentals we own, but that would then decrease income on a monthly basis. I gotta put some brain power into a solution for sure.

 

[KmmFIdreamer]

By the way, I do know what to do with dryer sheets - been cutting them in half for years. I also found that most loads only need half the laundry soap as well.

 

[rodi]

Hi KmmFIdreamer.

Are your numbers for your family (you and husband) or just yourself. (Salary, savings, etc.)

I assume the $3500 you spend monthly does not include the $500/month you spend on travel to your rental. I assume it also doesn't include healthcare (payroll deductions?) taxes, etc.

I've found that the three things you need to determine in order to come up with a retirement plan is
1) your *total* spending. This includes taxes, travel, food, healthcare, mad money... everything.
2) your income streams in retirement.
3) your investments/savings/spendable assets. (So not the home you live in, not gramma's lovely antique hutch that's worth a fortune but you'd never sell...)

Take your all in planned spending, subtract out the income streams... and that's the amount you need to cover with your savings. The rule of thumb (which many argue is too aggressive) is you can withdraw 4% of your savings to cover that gap... If 4% is enough - you're good to go... If not, you need to build your savings some more.

When I first went through this exercise I was quite a ways off from the 4% figure. I approached it from 2 paths - I increased my savings... which decreased my spending. I tackled the recurring expenses first (cell phone bills, cable bills, mortgage payments, utility bills, anything that was sucking money out every month.) As I whittled expenses, I increased my savings... which made my goal more achievable with each payroll deduction to my 401k. Pretty soon I was maxing out the 401k to the federal limit plus catchup, as well as making extra payments on the mortgage... When the mortgage was paid off I knew our spending was down to a level I could sustain... and I retired.

 

[KmmFIdreamer]

Yep, the figures are for both DH and I. The $1300 is the actual spending on groceries, gas, utilities, etc. to live and does not include the $$ I spend on the out of state house - Hoping to ditch the house by fall though if I can finish it up this summer.

The gross pay is for both of us $45K for me and $48 to $55K (depending on shift differentials and bonuses) for him. I carry the family health insurance. (I will keep the insurance after retirement at the same cost as if I were actually employed - $222/month - but it will be taken out of my pension with will not be much over $300/per month from the figures I had worked up by the HR dept. I am not counting on the pension supporting me at all! I just want to walk away with the really good insurance that I have now. The cost on it will drop a little when DS drops off at 26, but I am not really figuring that into any of my calculations.) DH will have a better pension and SS, but we have not got estimates on either one yet for him since he is still at least 7-8 years out.

My SS will only be $945 at 62 and $1417 at 67.(I spent a lot of time being stay at home mom or only working part-time over the last 30 years so I was surprised to find it was that big.) I am not gonna draw mine till 67 if I can help it. But he might take his at 62 - I just don't think that he will live long enough to wait till 67 or 70 unless he improves his health dramatically. That is why I am working on making sure that I have some income & assets to last. I think we could be surviving on our SS checks and rentals if the house is paid off, but that travel and eating out bug is what I am gonna have to depend on our investments for. I am also well aware of the costs of assisted living as my Dad was there for 2.5 years before he passed and my Mom also there for several months running up a $14,000 bill. They fortunately had cash as there was no Long Term Care insurance back when they retired.


I told DS20 not to expect any inheritance beyond the vacation rental property from us, so he is actually smart enough to be maxing out a Roth ($5500) and putting money aside for a down payment on his own house in the future. (I think he has saved about $20K in the last 2 years in spite of the occasional pizza or electronic/gaming purchase!) He had learning disabilities (hence being homeschooled) and I could not talk him into trying college, so he went to work after graduating high school ..... at least he won't be saddled with student debt though. I hope he finds a girl that is a good saver too when he goes to get married!

My actual tax rate was 1% this year because of deducting the mortgage interest, depreciation and expenses on income property, and some out of pocket dental stuff. Looking back, I really don't think I have ever paid more that a 15% rate due to lower income/big deductions. I admit we have always stretched the house purchases to the limit of what we could afford, but it has actually paid off in the long run. (our small old house which is one of my rentals is worth $130K more that we paid for it and refinancing to a 15 year mortgage was a super smart move to help us pay it off early. We were able to "move up" in house 7 years ago without having to get rid of the old one in a down market. )

 

[gauss]

Could you clarify the details on the rental income $1000-$1300/month?

Is this for each property or combined?
Is this gross rent or have all expenses been accrued (ie vacancy, reconditioning, taxes , insurance etc. etc.)?

Why the 30% spread on the rental income?

My gut feeling on all this is delaying SS payments may be what you want to look further into (ie age 70).

-gauss

 

[gauss]

The gross pay is for both of us $45K for me and $48 to $55K (depending on shift differentials and bonuses) for him. I carry the family health insurance. (I will keep the insurance after retirement at the same cost as if I were actually employed - $222/month - but it will be taken out of my pension with will not be much over $300/per month from the figures I had worked up by the HR dept. I am not counting on the pension supporting me at all! I just want to walk away with the really good insurance that I have now. The cost on it will drop a little when DS drops off at 26, but I am not really figuring that into any of my calculations.) DH will have a better pension and SS, but we have not got estimates on either one yet for him since he is still at least 7-8 years out.

Being able to ER is all about planning for the future. Many of us have been forecasting pension payouts and SS for decades.

To plan properly you need good data. I often redo the calculations assuming that I work 1 more year, then 2 more years etc. up to the point where in our case there was a big spike or no further increases.

No one cares about your retirement more than you.

At a minimum please pull estimates for your/his so called "secure income streams" sooner rather than later.

-gauss

 

[2017ish]

***

My SS will only be $945 at 62 and $1417 at 67.(I spent a lot of time being stay at home mom or only working part-time over the last 30 years so I was surprised to find it was that big.) I am not gonna draw mine till 67 if I can help it. But he might take his at 62 - I just don't think that he will live long enough to wait till 67 or 70 unless he improves his health dramatically. That is why I am working on making sure that I have some income & assets to last.

***

Sounds like he worked continuously while you were SAHM and likely has substantially more PIA. If so, you may really benefit from delaying his claiming social as long as reasonably possible. If your fears come true and he were to pass away well before you, you'd be entitled as his survivor/widow to his social security going forward--and the amount to which you would be entitled each month goes up the longer (until 70) that he delays his claim.... Of course, it all depends upon your longevity as to whether this would be a good financial path.

As gauss suggested, this is an area to look into during your planning stage (i.e., right now).

 

[ivinsfan]

I see a lot of potential roadblocks in your plan to go part time. In your non working years you expect to have,one very small pension, one slightly bigger pension, your SS check, your husband's SS check and rental income...so you say your DH has bad health if you are left alone you will have one SS check, a very small pension check, whatever survivor payments are on the slightly bigger pension, and rental income. It's in your interest to make your husband's SS check as big at possible. What if the worst happens and your DH has something happen before he hits 60? Are his health issues job stress related?

Second, once you hit Medicare,excellent supplemental insurance to protect you from out of pockets expenses can cost over 300-400 dollars a person per month including drug coverage.So your insurance costs will likely go up.

Third, when you say travel, what kind of travel do you mean. Domestic road trips with hotel nights, RV travel or international travel? How many weeks a year?

Your cash savings are low because you have invested in real estate, not because you live large. In your shoes, I'd probably buckle up and work full time until your DH hits 60, just so that I had extra cash. In your very efficient tax bracket I'd probably save it in after-tax monies or a Roth IRA.

 

[KmmFIdreamer]

I see a lot of potential roadblocks in your plan to go part time. In your non working years you expect to have,one very small pension, one slightly bigger pension, your SS check, your husband's SS check and rental income...so you say your DH has bad health if you are left alone you will have one SS check, a very small pension check, whatever survivor payments are on the slightly bigger pension, and rental income. It's in your interest to make your husband's SS check as big at possible. What if the worst happens and your DH has something happen before he hits 60? Are his health issues job stress related?

Second, once you hit Medicare,excellent supplemental insurance to protect you from out of pockets expenses can cost over 300-400 dollars a person per month including drug coverage.So your insurance costs will likely go up.

Third, when you say travel, what kind of travel do you mean. Domestic road trips with hotel nights, RV travel or international travel? How many weeks a year?

Your cash savings are low because you have invested in real estate, not because you live large. In your shoes, I'd probably buckle up and work full time until your DH hits 60, just so that I had extra cash. In your very efficient tax bracket I'd probably save it in after-tax monies or a Roth IRA.

Lots of good points there! I will sit him down and see if we can get some estimates on SS and pension for him....

I am the one with the job stress, hence why I want to get out of it ASAP. I am really considering just looking for a different job right now! The only thing being that I already have 13 years in there, and I think it would benefit me to stay if I can. You may be right in that maybe I should stay till 60 because then the pension would go up a bit when I hit the 20 year mark.

His health is all lifestyle related (overweight - leading to high cholesteral, diabetes, etc...). I have tried for years to get him to exercise/eat better to no avail, as he is getting older it is starting to catch up with him.....

Both our 401(k)'s are all traditional and I just found recently that I can not do conversions, but I have the option of putting new contributions in a Roth. I did go ahead and open the Roth this pay period and will start contributing to that.

As far as travel, I would definitely do it on a budget. I want to be able to go somewhere a couple of months a year. I would mostly drive or do airline points or cheap flights (right now we can get trips out of Denver to a lot of places for $29 to $49 each way - assuming they would go up in the future though). One of the things I thought of doing eventually is home exchanges with my vacation rental property - I figure somebody near a beach would just love to come to the mountains in the spring,summer, or or fall when my occupancy is lower anyway. We always plan on cooking most meals, so food is not an issue as we would be eating at home anyway. I always manage to find cheap entertainment too - like hiking, going to the beach, visiting the local farmers markets, etc. Sometimes you can even find free days at museums if you time it right.

My only real expense that I do is my yearly ski pass, but I have made good use of it on past vacations. My pass is good here, but I can also use it in Park City and Tahoe too. (Though we drove all the way out to Tahoe with the 2 boys last year and the skiing was so bad that we ended up doing other stuff instead for most of the week.)

 

[KmmFIdreamer]

Could you clarify the details on the rental income $1000-$1300/month?

Is this for each property or combined?
Is this gross rent or have all expenses been accrued (ie vacancy, reconditioning, taxes , insurance etc. etc.)?

Why the 30% spread on the rental income?

My gut feeling on all this is delaying SS payments may be what you want to look further into (ie age 70).

-gauss

This is profit after all expenses have been deducted. One is a vacation rental which will vary seasonally. The other is our old home. I'm getting below market rent on it because the young man renting is doing remodel work at his own expense-painting, Landscaping, Tilework, etc. I could potentially get higher rent once the remodel is done.

 

[KmmFIdreamer]

I still think that moving into my small house is a great option after my youngest leaves home. I am not
emotionally attached to the big house so much, we just needed more space with the teenage boys.

 

[rodi]

A few thoughts:
- Make sure your husband's pension has a joint survivorship option and that he selects that option when the time comes.
- I agree that delaying *his* SS is important - because if/when he dies, you get the larger of yours or his... and it sounds like your pension and SS aren't enough.

It sounds like you're pretty good at living frugally - but I would not be comfortable retiring with so little in savings. We have a rental property and budget for repairs, maintenance, and vacancy... It's an illiquid asset - but does provide an income stream - but you need to be able to survive the gaps between tenants.

I would keep working at your existing job (you have great benefits it sounds like) or change jobs... but it doesn't sound like you're at a point you can retire. But - perhaps you can prove me wrong... I'm a belt and suspenders kind of gal when it comes to retirement... and didn't want to quit prior to knowing I wouldn't have to go back to work.

 

[KmmFIdreamer]

A few thoughts:
- Make sure your husband's pension has a joint survivorship option and that he selects that option when the time comes.
- I agree that delaying *his* SS is important - because if/when he dies, you get the larger of yours or his... and it sounds like your pension and SS aren't enough.

It sounds like you're pretty good at living frugally - but I would not be comfortable retiring with so little in savings. We have a rental property and budget for repairs, maintenance, and vacancy... It's an illiquid asset - but does provide an income stream - but you need to be able to survive the gaps between tenants.

I would keep working at your existing job (you have great benefits it sounds like) or change jobs... but it doesn't sound like you're at a point you can retire. But - perhaps you can prove me wrong... I'm a belt and suspenders kind of gal when it comes to retirement... and didn't want to quit prior to knowing I wouldn't have to go back to work.

Yes, that is my concern precisely that we don't have enough cash savings. Even with the house paid off, things do come up.

By the way, before counting the rent profit I do set a specific monthly reserve back for repairs, taxes, etc. (I just paid taxes and insurance on both properties so I don't have much in there now, but it will build up a bit over the year.) I use a separate checking account and the $1000 figure is what I consider withdrawable for personal use. I am making a point not to put that back into the household budget and sending it first to my IRA, then to my taxable brokerage account.

I think my job is great as far as benefits - 5% 401(k) match, great insurance, and little stuff that actually adds up to a lot like a public transit subsidy. I can even order socks and shoes with my uniform allowance. My big issue is that there is pretty much no upward mobility/pay increases. I am pretty much at the top of my job category as far as pay. We got a 1.3% pay increase this year and I think it only came to around $600 for the year - or around .25 an hour.

 

[ivinsfan]

Although it's not money in your paycheck, the continuing great insurance is a pay increase. Those of us that pay out-of-pocket health insurance every year would tell you that 222 a month for 3 adults is nothing to sneeze at. The cost of insurance is rising rapidly so take that into account when you talk about a "raise".

 

[Walt34]

I can't add to what the others have said but can point you to a good list of questions that should be answered before retiring.

http://www.early-retirement.org/for...re-asking-can-i-retire-69999.html#post1399715

 

[KmmFIdreamer]

Although it's not money in your paycheck, the continuing great insurance is a pay increase. Those of us that pay out-of-pocket health insurance every year would tell you that 222 a month for 3 adults is nothing to sneeze at. The cost of insurance is rising rapidly so take that into account when you talk about a "raise".

Yes, that great insurance is my motivation for not just quitting all together.
The coverage is great too - one year DH had a $14,000 hospital bill and it covered all but a $100 deductible. My son's last ER visit was only $56 and that was at the expensive trauma center at the ski resort! Now if I could just get him to quick wrecking himself .......

The premium usually only has a $5 - $10 monthly increase per year, which seems pretty reasonable to me.

 

[KmmFIdreamer]

Okay - so after a bit more calculating - I decided that I need to increase household income a little so we can build up cash reserves. A friend of mine is trying to recruit me for lyft/uber. I already applied to work once a week over the summer for a shuttle service that does only airport runs - I get paid $50 each trip and I can get in at least 5-7 in a "normal" work day depending on traffic - so not so shabby. It is even better if they have some trips back that I load up on too. (That would make it maybe 8-10 times $50 - though they don't guarantee income as I would be a contract driver and not an employee of the company.)

My friend averages $550 and has made up to $1000/week doing uber but I probably won't do as much as he does since I am not as motivated to put in as many hours (especially with a second job all summer long). I happen to have Th, Fri, Sat off right now though and can see some lucrative bar nights being possible with uber.

I don't like the idea of giving up one of my days off from my "real job" but at least driving is a different thing than I do at work. ( I kinda have a love/hate relationship with my 4 10's work schedule - hate the long days but love the 3 day weekends.) I used to pick up overtime occasionally, but I am burned out and just can't stand the idea of working OT at my job. I really don't like spending the 40 hours there now... Hence my retire early motivation....

 

[MBAustin]

That sounds like a good plan. Let us know how it goes!

 

[tmm99]

Great that you've found something that works for you!

 

[KmmFIdreamer]

That sounds like a good plan. Let us know how it goes!

I figure that I can do that 16 - 18 weeks of work this summer easy enough!

I did check on my retirement funds/stocks this weekend and they have gained a lot this month! Nice to see after the poor 1st quarter..... My dividends have mostly all come in too but I reinvest the majority of those automatically, so I never see the cash. I will start taking them as cash after I retire! (I have KO, GE, and some other fairly stable dividend payers in my stock portfolio that I will end up relying on for "grocery money" in my old age..... My actual 401(k) is in ETF's as that is the only option available at my work.

 

[KmmFIdreamer]

Typed a really long update and it disappeared! UUGH.

Anyway, the gist of it is that I have been working hard on cutting expenses and increasing savings. IRA/401(k) now at $120K and taxable brokerage account at $31K.

$111K owed on a mortgage, but selling the inherited house (that is paid off) this summer for between $60 - $80K, and then really hitting the remaining $31 to $51K mortgage hard to get it completely paid off in 2 more years.

I got a 2% raise on base pay as of Jan 1, 2017 - that is going directly to the 401(k) - no lifestyle inflation for me. I also took a weird shift that pays a $5000/year premium and have been doing it for one year now.

Doing some work on the mountain rental property this summer that should yield a 20% jump in rental revenues over next ski season. (The improvements will bring my property from silver to gold rating making the rental rates and occupancy little higher. Spending approximately $2K out of last winters profits to get this done. Doing most of the work ourselves, but will need to hire a guy to do a little tile work for one or two days.)

I have been learning a lot over the last year and see that I need an increase in income as well as getting my spending down even more. I may not make my target retirement date of June 2019, but I sure as heck am gonna do everything in my power not to be working when I am in my 60's!

 

[exnavynuke]

Looks like you're making good progress, keep it up!