Hi folks...

[DW]

I’ve been lurking around this website for quite a while and thought I should finally register. I think this is a great board; I’ve learned a lot from it. I started reading here a couple of years ago after I had walked out of a faculty meeting, sat down at my desk, and - in desperation - googled “early retirement”. I read a lot, collected data, worked on numbers for a while, and discovered, to my everlasting joy, that early retirement was a real option.

I have to be a bit coy about my situation, as I’m a mid-50's professor planning to retire in about 3.581 years. (But who’s counting?) As soon as the people I work with know that I’m leaving...well, my political pull evaporates and things get even less tolerable.

My retirement will be financed with a mix of some bonds, a good dose of equities (mostly index funds) and a TIAA annuity fund in which I was enrolled decades ago. I plan to take the latter out over 10 years in “substantially equal periodic payments”. We’ve also got two houses, one in town and one in the country. Don’t take this as meaning wealthy - both are modest and bought before prices skyrocketed in my region. Our area is growing at an absurd pace and the houses have appreciated substantially. (I know...this is likely to end soon, but I think housing costs around here will stabilize and then simply grow at a sane rate.) On retirement, we plan to sell the house in the city, live in the country place for a while, then sell it and move to a small town we’ve identified. Housing is not appreciating rapidly in our target town and we expect to make much more selling our current houses than we will need to buy a place where we’re moving.

Before I encountered this board, my financial strategy was a combination of “What, me worry?”, dumb luck in real estate, and - most importantly - having a firm attitude (shared with my wife) that we should live below our means.

Anyway, there it is. Long-winded, but I guess that goes with my profession...

[modhatter]

Welcome. Where do you live now, and where are you planning on moving when you retire?

[DW]

I live in Arizona now (Phoenix area). We're looking at some small towns in eastern Oregon or eastern Washington...possibly the panhandle of Idaho.

[yakers]

Originally Posted by DW

Before I encountered this board, my financial strategy was a combination of “What, me worry?”, dumb luck in real estate, and - most importantly - having a firm attitude (shared with my wife) that we should live below our means.* *

Don't knock luck, Its not in any of the preferred financial boooks but I'll take luck over planning anyday, as long as it works. The living below your means is another key bit to early retirement for the folks who have not amassed a large fortune. I will be 55 in a few weeks and may get forced to retire (cutbacks at work are expected) so I will have a pension and a paid off house and some 401k/Roth money. My wife will retire in June 06 so we are heading into a big adventure soon.

With a little luck everything will be fine. If not, I get to work a bit more.

[DW]

Yep, I agree. I try to plan, and feel much more comfortable when I have things well planned in advance. Nevertheless, thoughout my life I have looked back over my shoulder to find that I accidentally did the right thing. Slipped through a filter without knowing it was there.

[DW]

Living below my means has been incredibly important. Tried to transmit that to my two kids, with 50% success. About the same success my mom had.

Originally Posted by DW

Living below my means has been incredibly important.* *Tried to transmit that to my two kids, with 50% success.* *About the same success my mom had.

I agree with DW, and have had exactly the same experience. One kid is a saver,and the other is a spender. Same household, same schools, same everything . . . but different outcomes.

HH

[Eagle43]

Welcome aboard, professorHH. You'll find this an interesting and enlightened classroom.

[haha]

Originally Posted by DW

I live in Arizona now (Phoenix area).* *We're looking at some small towns in eastern Oregon or eastern Washington...possibly the panhandle of Idaho.

You'll find this to be quite a switch. Esp the Northern Idaho part.

ha

[DW]

Yep. Big change, and for the better. I've lived in all those areas so I know what I'm getting in to...and like it.

[Nords]

Originally Posted by DW

On retirement, we plan to sell the house in the city, live in the country place for a while, then sell it and move to a small town we’ve identified.

Welcome to the board, DW!

If you time the home sales correctly you can save quite a bit in cap gains taxes.

These numbers are off the top of my head but I think they're correct. You & your spouse can exclude up to $500K cap gains on the sale of your current home if you've lived in it for at least two of the last five years.

If you stay in the country home for two more full years then you can exclude another $500K cap gains on its sale too. This could be a huge number because you've presumably been depreciating this rental property for years and it's subject to recapture.

Of course this tax timing has to be compared to market values and the time of year you'd be selling. It'd be a bummer to try to save a 25% cap gain while the RE market drops 45%...

[Martha]

Originally Posted by Nords

If you stay in the country home for two more full years then you can exclude another $500K cap gains on its sale too. This could be a huge number because you've presumably been depreciating this rental property for years and it's subject to recapture.

However, to the extent you depreciated any rental property that was subsequently converted to your home, you will have to pay taxes at the 25% rate on the depreciation taken.

[DW]

Hmm. Let me make sure I have this straight.

We've lived in our primary residence many years. By the time it sells, my guess is that it will have have appreciated $300-400k. We should be able to exclude all of the capital gains taxes on it.

If we live in our country house for two full years out of the previous five (i.e., we sell the city house and live in the country house for two years), then we can exclude up to $500k on it also.

Do I have this right?

Issues of depreciation of rental property don't exist. This place has never been rented out. I've been a landlord before. Once was enough!

[Martha]

Originally Posted by DW

Hmm. Let me make sure I have this straight.

We've lived in our primary residence many years. By the time it sells, my guess is that it will have have appreciated $300-400k. We should be able to exclude all of the capital gains taxes on it.

If we live in our country house for two full years out of the previous five (i.e., we sell the city house and live in the country house for two years), then we can exclude up to $500k on it also.

Do I have this right?

Issues of depreciation of rental property don't exist. This place has never been rented out. I've been a landlord before. Once was enough!

Yes, you have this right.

[ladelfina]

I know!

It sounds too good to be true, but it is!! That's part of how we were able to leave the States with enough cash to buy a new place outright.

I communicated our plans to our then-tax-preparer, who replied we'd only be able to exclude $250,000.. but I said "nnnnnoooo, darling... check again.."* (this tells you something about tax preparers..)

This is just too good to turn down.. if your country house is too far from campus you could even consider moving to a smaller house in the same area for two years.. it could be well worth it, depending on your moving costs, your actual gain and your tax bracket. Then if that house appreciates, gee.. no gains taxes there either... (as far as I know).

Best of luck!!

[Kitty]

Welcome to the site, this is a fun and informative place. Your plans sound reasonable. You may learn more as you visit here and make your dream come true.

Living below your means goes a long way to achieve your goals.

Kitty