Ciao, from a soon to be early-retiree in Italy

[rws1773]

Hello everyone! Well, I’m usually a lurker on Internet forums – content to read others thoughts and draw my own conclusions while I learn. I’m going to change things up though and just dive right in. I found this site while researching early retirement and there seems to be a wealth of knowledge and experience here. It also seems like the kind of place to find the answers to questions I have from people who have “been there, done that”.

I will be retiring from the Navy at the end of next year with 20 years of service. I’m going through the normal mix of emotions – everything from excitement to anxiety – not sure how to tell the difference! I could use some advice/reassurance in regards to the financial side of the house and making the transition. When I retire next year, I never want to be in a position to have to work full time at a job again. If circumstances require adjustments then my first option would be to cut expenses where possible. If cutting back wasn’t enough or circumstances such as a severe stock market crash necessitated earning some extra cash, I’d rather it be either part time or freelance with no long-term commitment.

With that said, I’d like to share some of my specifics and follow with some of my concerns with the hope that I’m on the right track and can benefit from others insights and ideas. Thanks to everyone in advance!

Retirement date: 31 Dec 2014
Terminal Leave date: 1 Sep 2014
Age: 42 (current)

Income/Assets:

Pension: ~$2050 gross/month, anticipate ~$1850 net/month

TSP: ~$125,000
ROTH IRA: ~$75,000
Taxable Brokerage: ~$50,000

Total: ~$250,000

Current amounts are approximately $35k less than those posted. I will be able to easily save another $25k during the next 9 months and the remaining $10k is assumed appreciation of my nest egg during the next year.

I have no debt and plan to retire to Tucson, AZ. I am an experienced investor and with the exception of TSP all my investments are in individual stocks. I am a fairly conservative investor, preferring steady dividend payers/growers, but will occasionally leverage some options to generate cash from the premiums for selling covered calls or leveraging by purchasing calls if I feel a security is very under valued.

Therein lies the problem. I have spent my career steadily investing but honestly have no firm idea on how I am going to draw it down.

Specific concerns are:

- I plan to purchase a house when I retire. I am divorced so I only have myself to worry about. Consequently, I want a small 900-1200 sf house in the $70k-$110k range. My concern is how to finance it – i.e. how much to put down, 30 yr/15 yr/5-1 ARM, pay off early or keep to term since rates are low?

- Considering the bulk of my nest egg is in tax sheltered accounts, what is the best way to draw it down without triggering the 10% early withdrawal penalty? I’d like to supplement my pension with ~$1,000/month from my nest egg. I realize this is a bit more than the recommended SWR of 4% but I am ok with that. My ROTH and taxable portfolio are currently yielding 3.9%. Depending on what I ultimately do with my TSP account, I think I can pull that amount out without selling equity (i.e. live off the dividends). Or I could do a 72(t) but I’m not convinced that is the most prudent way of getting the cash out. Specifically, I am concerned about being locked into a withdrawal rate until I’m 59 ½ without having the flexibility to either increase or decrease the withdrawals. I am open to ALL suggestions including annuitizing, converting TSP to Roth, 72(t) SEPP withdrawals, and staggered withdrawals from taxable, then Roth, then TSP. My goal is to maximize my withdrawal amounts while ensuring I don’t outlive my nest egg and minimize my tax liability.

Sorry for the long introduction! Any help or advice from the community will be greatly appreciated!

[braumeister]

Quote:

Originally Posted by rws1773 I have no debt and plan to retire to Tucson, AZ. ... I plan to purchase a house when I retire. I am divorced so I only have myself to worry about. Consequently, I want a small 900-1200 sf house in the $70k-$110k range.

Trulia says the median home price in Tucson is about $150K.
Average price per sf is $105, so a 1200 sf house would be around $126K.

Zillow says it's $135K.

Deptofnumbers.com asys the median asking price is $201K.

Homeinsight.com says the median price is $173K

So it appears the costs are al over the map.
Do you have a particular place in the area you want to live?
Based on what I can see online, you may need a lower cost of living area to consider.

[rws1773]

Quote:

Originally Posted by braumeister Trulia says the median home price in Tucson is about $150K. Average price per sf is $105, so a 1200 sf house would be around $126K. Zillow says it's $135K. Deptofnumbers.com asys the median asking price is $201K. Homeinsight.com says the median price is $173K So it appears the costs are al over the map. Do you have a particular place in the area you want to live? Based on what I can see online, you may need a lower cost of living area to consider.

I'll likely settle in the 85757 zip code. Median price only means half are above/half are below. The real estate market got hit pretty hard in Tucson - there are plenty of homes to be had for $70k-$110k there, especially if you are looking for a smaller place as I am.

[haha]

Quote:

Originally Posted by rws1773 - I plan to purchase a house when I retire. I am divorced so I only have myself to worry about. Consequently, I want a small 900-1200 sf house in the $70k-$110k range.

You have to ask yourself what is the market for 900 SQFT houses? It might be hard to find something like this in a middle class area, and it might be harder yet to sell it later should you want to. Much easier to find middle class, fairly new condo in this size and price range. But real estate is always local, and if you take your time you might find just what you want.

Have you considered renting, at least fro a while?

Ha

[Ready]

Welcome to the forum!

Since you asked for opinions, I'll share mine, FWIW. I think if you truly wish to retire next year you need to be sure you can live on $1,850 per month, including your housing costs. You are too young and don't have enough money saved to be withdrawing 4.8% per year of your life savings beginning at 43 years old. And if most of your money is in retirement accounts, you will most likely be paying penalties, and giving up the benefits of deferring the taxes for the next 20+ years or so, by withdrawing them so early.

You don't share much about why you want to retire at 42. There's certainly nothing wrong with it...that's why they call this the "Early Retirement Forum"! However, most of the members in this forum tend to be very conservative, and would want to live on somewhere between 2-3% of their savings given how young you are. And since you have to purchase a house, it seems likely that at least some of that $250K is going to have to cover the down payment, closing costs, and general costs to set up the house and make it livable.

Is there a line of work that is totally different from your previous experience that you might find enjoyable, even if only part time? Is there something else you have planned to do for the rest of your life, given that you could easily have 50+ years ahead of you?

[donheff]

Two thoughts. The TSP is a great investment vehicle but you will not have withdrawal flexibility. You might need to take a large chunk out and roll it to an IRA to do 72(t) withdrawals. Also, have you accounted for the hit today's budget deal is poised to impose on your COLA? There is a good possibility they will fix the change with a separate piece of legislation but no guarantee. Also check out Nord's guide for military retirees.

Edit: Oh, and welcome to non-stealth mode on the forum.

[rws1773]

Quote:

Originally Posted by haha You have to ask yourself what is the market for 900 SQFT houses? It might be hard to find something like this in a middle class area, and it might be harder yet to sell it later should you want to. Much easier to find middle class, fairly new condo in this size and price range. But real estate is always local, and if you take your time you might find just what you want. Have you considered renting, at least fro a while? Ha

Thanks for the comment and recommendations. I'm one of those very rare people that look at a home as a place to live vice an investment. Not to say I want to lose my investment value, but I view a home purchase as locking in your housing costs vice a potential lottery ticket. After 20+ years of moving every few years, I'm ready to grow some roots for awhile anyway.

[rws1773]

Quote:

Originally Posted by Ready Welcome to the forum! Since you asked for opinions, I'll share mine, FWIW. I think if you truly wish to retire next year you need to be sure you can live on $1,850 per month, including your housing costs. You are too young and don't have enough money saved to be withdrawing 4.8% per year of your life savings beginning at 43 years old. And if most of your money is in retirement accounts, you will most likely be paying penalties, and giving up the benefits of deferring the taxes for the next 20+ years or so, by withdrawing them so early. You don't share much about why you want to retire at 42. There's certainly nothing wrong with it...that's why they call this the "Early Retirement Forum"! However, most of the members in this forum tend to be very conservative, and would want to live on somewhere between 2-3% of their savings given how young you are. And since you have to purchase a house, it seems likely that at least some of that $250K is going to have to cover the down payment, closing costs, and general costs to set up the house and make it livable. Is there a line of work that is totally different from your previous experience that you might find enjoyable, even if only part time? Is there something else you have planned to do for the rest of your life, given that you could easily have 50+ years ahead of you?

Thanks for the reply!

I have earmarked a little over $30k in very short term (3 month) CD's with my CU for the down payment. I don't consider that money to be part of my overall nest egg since it is slated to go into a house fairly soon. With that said, I anticipate my housing costs to be between $400-$650 month total for PITI.

I will easily be able to meet my basic needs on my pension. The more extravagant extras will have to come from my nest egg. I'm not locked on any particular withdrawal amount or method at this point. I plan to take 2-3 years to see how things play out financially and see where life takes me. There are many things I'd like to do and I'm not averse to gainful employment provided it interests me. However, I never want to be a slave to a job again. I'm willing to make meaningful sacrifices to ensure I have my freedom.

Trust me, I get that part well. I currently gross about $110k being stationed overseas. That's a bit misleading though because I also have to pay about $2200/month in rent and another $500/month in utilities on average. Long story, let's just say the Italians are very opportunistic. I'm going from that down to ~$25k pension + investments. It IS daunting. However, when I back out the extraordinary expenses of living in Italy and budget realistically for living in Tucson, I see I can meet my basic needs with my pension rather easily.

As to whether I have 50+ years ahead of me or not, I don't know. Not sure I want to live into my nineties. Looked at another way though, I could be dead in 10 years. I never have viewed saving as an end. To me, the whole point of building a nest egg was to allow me the freedom to do what I want. At some point I will draw it down. I'm mindful of the potential of running out of money in my old age. I certainly do not want to wake up in my 60's and be broke. On the other hand, I don't want to die rich either!

[rws1773]

Quote:

Originally Posted by donheff Two thoughts. The TSP is a great investment vehicle but you will not have withdrawal flexibility. You might need to take a large chunk out and roll it to an IRA to do 72(t) withdrawals. Also, have you accounted for the hit today's budget deal is poised to impose on your COLA? There is a good possibility they will fix the change with a separate piece of legislation but no guarantee. Also check out Nord's guide for military retirees. Edit: Oh, and welcome to non-stealth mode on the forum.

Hey donheff. I agree with you about TSP being great. I do like more control over my investments being a dividend growth investor though. But I can't bad mouth TSP, the fees are super low.

Funny that you mention Nord's guide for military retirees. I just read it and in fact, it was his mention of this site in his book that brought me here!

[retiredatfifty]

You can take life-expectancy payments from TSP (similar to 72t) and avoid the 10% penalty - dig down into the TSP website & you'll find out about it. There used to even be a calculator. May also be some info about it on the Federal Soup or on TSPTalk websites about life-expectancy payments, although at your age I'm thinking it won't be very much. You will be locked into those payments till age 59.5 at which time you can make a one-time change to your withdrawal method. I know this because I'm doing it ... but I retired older than you and have substantially more in my TSP account. You can also, I think, move IRA accounts into your TSP after you retire ... but I don't know if that applies to Roths.

All that said ... I don't think you have enough without supplementing your retirement income unless you plan to live really, really, frugally. Think about staying 5 more years. Or think about opportunities as a military contractor for 5 or 10 years after pulling the plug. Does your military occupation translate well into anything you can do part-time in the private sector? Also - do you have GI Bill? ... you could be a college student for four years immediately following your separation - I hear they get a nice stipend & you could probably also work part-time at the college. (Another option might be to find a rich girl & marry her! I have a nephew did that. Rich girls need love too!)

In any case, if you are determined to try to go it on what you have now ... set yourself up so your residence is paid for when you retire from the military and you have a reliable newish paid-for vehicle. No debt will be the key. No mortgage, no car payments, no consumer debt.

I would be curious to hear more about your stock portfolio, as I have some cash sitting on the sidelines and have been thinking about putting it in blue chip dividend payers. I've only ever invested via mutual funds and Treasury bonds.