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Old 08-25-2009, 10:43 AM   #1
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Hi Everyone

I've been lurking for a few weeks reading many of the old posts. Since I've now done that contributed to a few figured it was time to introduce myself.

I am 55 and my DH is 62, both still working, with adolescent kids.

Unlike the vast majority of people that I read about here we were not frugal, didn't live below our means and didn't invest well. Thankfully, we have been blessed with a high income and DH is vested in a traditional pension. Frankly, until recently we've spent the last 3 years or so digging out of the rather large hole we were in. I was sort of resigned to the idea that retirement would be late at best.

However, I've recently realized things aren't as bleak as I thought.

About 4 years our finances were fairly dismal. DH was contributing to his company's 401k (getting a 6% match) and was vested in a traditional pension which we knew very little about. I was the higher earner of the 2 of us by quite a bit and I was basically broke with no retirement savings other than about $30k that were non-matching contributions made my employer.

We also had over $160k in credit card debt. The reasons were complicated, some was just flat out overspending. Some were child related. Each of our children had had some unusual expenses including a needed therapeutic school for one child and huge childcare related expenses. The cost of that was running over $50k a year!

I think that one reason I hadn't saved for retirement and justified spending money we didn't have was that we had needs to meet now and we could do that later. Idiotic I know, but there we were. About 4 years ago, I woke up and realized we were in our 50s and were well into "later" and if we didn't do something retirement would be never.

So, we did our best to cut expenses but were just treading water (our credit card minimums were $3500 a month!). We had 2 car loans as well. The one thing we didn't do was have a huge mortgage at that time. We wanted to move and had actually bought land to build a future house (owed money for that as well).

So...3 years ago we sold the house and used most of the equity to pay off about half of the credit cards. We sold the land since we decided it wasn't the right time to build. At that point we had 6 people living in our house and any house we could build for 6 people wouldn't be the house we want to live in during retirement. By the time we had sold the land we had paid off one car loan and made a profit from the land sale so paid off the other car loan. 3 years later our credit card debt is now under $20k and will be paid off by the end of the year.

At that point our only debt is our current house mortgage. We did not overspend for a house (our mortage payments are about 15% of our gross income). However, we don't have a lot of equity in the house (we don't live in an area where values have gone down hugely but they haven't really gone up either). More to the point this particular house has been a money pit and we don't want to keep it in retirement. One son will be graduating in May will be going to a state college so then we will be down to 4 of us in the house. Our other son is graduating high school in December but since he will be 15 at graduation will live at home and go to community college for a couple of years. Our daugher will graduate in 5 years and frankly doesn't seem all that academically inclined. So, I don't think that college costs will be all that high for them but I've calculated that if we sold our current house (4300 sq feet with pool house, pool, 2 garages on 2 acres) and bought a 2500 sq foot house on similar acreage but no pool or pool house we would cut our costs by about $35,000 a year. So our plan is to do that in about 2 years when there will be 4 of us in the house. We figure it will take that long to build up enough cash to be able to sell our current house (which in our acreage community can take up to a year to sell) and have enough money for a 20% down payment on a smaller house.

At this point many of our extremely high past expenses are gone, we no longer need the $50,000 a year for therapeutic school/child care (sending kids to college will be far cheaper actually) and our largest fixed expenses are house related.

Anyway, at some point I realized things weren't as dire retirement wise as I thought. About 2 years ago I started contributing to my 401k. Last year DH and I for the first time both maxed out 401k contributions including catch up. Of course, looking back, we would have been far better off contributing only up to his 6% match and taking the rest of that money and paying off debt given that we lost about 45% of our 401k values last year! This year I've made some minimal contributions and he is contributing his 6% which will enable us to pay off the rest of our debt this year. Next year we will go back to making max contributions.

Right now, our 401ks combined have about $345k in them. I finally looked into DH's pension and found that he can take it as a pension or lump sum. If he takes it at 65, it will be about $700k. At 66 his estimated SS is $27575 a year. Mine is $22,008 at 62 or $29,472 at 66.

If we make max 401k contributions for the next 3 years with a 6% return, the 401ks should be about $619k.

For various reasons we would probably take his lump sum.

I think at that point retirement would be feasible. I looked at our current spending with 3 kids at home and calculated what it would be with no cuts other than projecting spending for a smaller house with an 80% mortage on it. That is about $95k a year.

There are really 2 things that affect retirement, specifically my retirement.

First, we need to sell the house we are in. While it is a relatively small percentage of our gross income now it is high maintenance and I just don't want a house that big. Because it doesn't have a lot of equity in it we don't have enough to pay selling costs, do what we need to get it ready to sell and pay a down payment for a new house. We do have some money in taxable accounts but that is reserved more for emergencies and I don't want to use any of that. What I want to do over the next 2 years when debt is paid off is to continue saving the money we were paying to debt and build up enough cash to sell this house and put down a down payment on a house that costs about half what this house cost. I don't plan that once we are in a lower tax bracket (currently in 33%) we can withdraw from DH's 401k to pay the mortgage off on the new house over a period of a few years (mortage will probably be for about $250k).

So we see DH as retiring somewhere between 64 and 66 depending on when we get this house sold. If he retires before 64, he gets retiree medical insurance until 65.

Some of the financial projections are somewhat fluid as a significant part of his income are annual bonuses which may or may not be achieved. This year and last year they are about 30% of his income but next year they could be 0% (not likely but could easily by in the 10% to 20% range).

The other big variable on my retiring is health insurance. Currently the kids and I are insured through DH's insurance since I like that plan rather than the one available through my work. If DH's retires, I can become insured along with the kids on my plan. But if I retire before 65 then the kids and I have no insurance. I'm not sure if I can get insurance or how much it would cost (no serious health problems but probably enough to make it hard to get insurance). Two our kids were internationally adopted and have a couple of genetic disorders that actually have caused them no health problems. However, some people with these disorders do have serious health problems and I suspect they will be uninsurable on the private market.

We live in Texas so after COBRA runs out I think we could get a high deductible plan which would run $15k to $20k a year for 3 of us (by then I think our oldest son would be out of school so responsible for his own insurance). Of course all that presupposes that the health insurance situation is the same 4 or 5 years from now.

Truthfully I would love to retire when DH retires, but this health insurance thing is the real concern.

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Old 08-25-2009, 12:02 PM   #2
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Welcome to the board! Yes, health insurance is the big unknown when planning for retirement.

Your story is amazing and that you have taken the huge steps to be able to whittle down that CC debt from $150K to $20K and will have it paid off this year (not to mention your car loans) is incredible. Your story sounds like a textbook case in how to do that--my hat is totally off to you.

Since your mortgage payment is only 15% of your gross income I wouldn't worry about it financially (even if it is high maintenance), as you have to live somewhere and especially if you enjoy having a pool.

Go Cubs
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Old 08-25-2009, 01:35 PM   #3
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Thanks for the nice comments.

Yes the mortgage is 15% of our gross income now but to keep that house with its high maintenance would require us to have more than we would have in retirement if, say we retired in 3 years (when DH is 65 -- he will probably retire somewhere between 64 and 66 depending on several variables). To keep this house would require us having more than the $1.3 million in retirement accounts and Social Security that we would likely have then (plus our emergency funds and probably another $70k to $100k in taxable savings in that period). So that would mean that I would have to work additional years to fund it and bottom line is that I really don't want to. I would ideally like to retire when DH retires or within a couple of years afterwards depending on that health insurance piece. My work is high income but high stress and long hours.

And the bottom line is that we really don't want the high maintenance and expense of this house. When we moved in it was us, 3 kids and an au pair. We have pets (dogs and cats) which is why we like having a couple of acres. In a year it will be us and 2 kids and dogs and cats. We think we could be perfectly happy in a 2500 square foot house, no pool and a couple of acres. The kids like the pool but it is a maintenance pit as well (we have many trees on our property so the pool maintenance is a bear because of constant leaves dropping into the pool). When we moved we plan to get one of those really nice spas and put it on a patio.

Dh and I talked about it. So much of our spending the past few years has been child, house, debt related that our spending on things other than that is less than a third of our gross income. We figure that in retirement we could happily live on $40k a year from our retirement accounts plus SS (him taking at 66 and me at 62). To do that we need to get rid of this house and either have a low mortgage during retirement or spend some of our retirement funds to have no mortgage at all.

This house is huge to take care, and really without the kids DH and I would never go upstairs at all and would have use only about half the house. So...why pay for it? We realize we would rather have less income in retirement and live more modestly in a smaller house than have to work years longer for a huge house.
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Old 08-25-2009, 02:55 PM   #4
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We too are wanting to retire in 1-3 years (depending on many variables) however to do so we also want to sell our current house and downsize (as well as move)... as you have pointed out it is a big "bottleneck" to the process...

I mean we sell it.. then we have to have a temporary place to live till we retire so we can move..

fun, fun ,fun...
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Old 08-25-2009, 04:20 PM   #5
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Welcome , It is good that you realized you needed to get ready for retirement and it looks like you are doing a great job !
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Old 08-27-2009, 07:08 PM   #6
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I have heard it said that all these big houses are going to become white elephants soon as the boomers start to downsize...maybe best to pull the trigger now rather than later?
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Old 08-28-2009, 08:21 PM   #7
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Well we plan to sell in about 2 years...right now we need the rooms. Doubt this will be a white elephant though in that the house is somewhat specialized (has a guest house and 2 garages and on 2 acres) but for people looking for that it can be attractive...but one reason houses in this area tend to take awhile to sell

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