Married, 55 & 58, need next-step advice!

[Oversoul]

Here are my stats & a requests for next steps if I want to retire next year:

Me 55; Wife 58. Both in reasonably good health.

Expenses:
$750 mortgage but paying $1500/month on a 15 year, 4% mortgage with 13 years remaining (which will be reduced by double paying). $52k balance.
Monthly utilities (electric, cable, etc) $200/month
Food, fuel, insurance, entertainment, medical/drugs, etc $1300/month.

Total monthly expenses over the last 2 years: $3000

Income:
$100,000 me.
$60,000 wife.

Assets:
$250,000 401k wife
$250,000 401k me.
$80,000 in cash emergency fund

We own four homes:
We are considering renting one home. (no mortgage)
One home is used by a non-rent paying relative. (no mortgage)
One home is our newly built retirement home. (no mortgage)
The home with the $52k mortgage we would sell if/when we retire.

We have reliable late model cars with low mileage. (No payments).

After the expenses listed above & Federal payroll deductions, we bank everything else..... something around $5k/monthly.

We are not financial types & our backgrounds are not related to money, retirement, or personal finance but we both realize health insurance is our greatest obstacle to an early retirement.

There may be other issues here that we are not even aware of.
Our plan is to let our retirement funds sit until we have to touch them.... hopefully not for another 10 years.
We feel we can sell off & get out from under the mortgage which will lower our monthly obligations to $1500 which we can cover with rental income.

I can also work as a consultant one day a week if I have to supplement my income.

We are very frugal people & our retirement plan is to live in our new home in the country, grow most of what we eat in a greenhouse, & raise some small farmyard animals. We don't travel, keep up with the Jones's or waste money.

Does all this seem doable or are we just dreaming?

Thanks to all who respond.

 

[JoeWras]

Welcome Oversoul. I think you need to proceed with caution and research further.

The first thing we usually suggest is that you run the numbers on firecalc. Have you tried that? It takes a little getting used to, but there are some good scenerios you can run, including starting today or waiting a few years while you build a buffer. You can also add in Social Security income.

Which begs more questions. Do you have credits for SS? Assume you do. Have you considered how you'd take it? Early? Split between you and spouse? You have work to do there.

I'm asking about SS because the rest of your assets look a little light, and I'm thinking SS may be important for you. Do you have pensions?

It sounds like you are thinking well on the expense side. That's good. Glad you are looking at health insurance.

Beyond that, the one thing that jumps at me are your real estate holdings. They are doing nothing for you right now. And you don't mention taxes. Are you including the cost of your real estate taxes and insurance? I hope so.

Run firecalc and really look carefully at all your expenses and make sure some are not hidden. With your income level, I would have expected more savings by now. Perhaps only recently you "got religion" so that's why the savings are a bit light for your age since you say you have $5k per month savings.

 

[heeyy_joe]

Run firecalc and really look carefully at all your expenses and make sure some are not hidden.

+1
Real estate rich and cash flow poor is not the way to retire. If I were you, I'd be putting two of those houses up for sale.

 

[Oversoul]

Thank you for the prompt & thoughtful reply.
No, I have not looked at this firecalc program but I will certainly do so now.
We ran our SS numbers on SSA website & it says I should be getting about $2400/month & wife $2000/month (at age 65) but we know that's only a guess at best. We would consider taking it early if we needed it but with such low monthly expenses, we are hoping to leave it be as long as possible.

We make $160,000 a year now but did not always make that much.
We learned to live on about $35000/year & even when we made more, we keep our lifestyle in that $35k range.
We didn't save earlier on for a number of reasons..... mainly, we paid cash for everything in life..... except this latest mortgage.
That's one reason we have lot's of paid-off assets & less retirement funds.
We also took a bath on investments when the market went south as we were fully invested (100%) in the stock market.... and in the wrong investments. We lost 50% of our investment assets & never recouped it.
We are with Vanguard now & better allocated.
We also gifted a lot of money to family who were struggling.... college tuition, stuff like that.
So yes, we don't have an extraordinary savings amount but with our real estate assets, retirement funds & SS, we were hoping we could throttle back enough where we could work maybe 1 day/week worse case.

I know our expenses seem low, especially with 4 homes, but we seem to be able to cover everything for 2 years now on $3000/month so if we ditch this mortgage, I think we will be better situated.
Of course, we really don't know anything at all except maybe how to live cheap.
Thanks for your insight. I will check out firecalc.

Welcome Oversoul. I think you need to proceed with caution and research further.

The first thing we usually suggest is that you run the numbers on firecalc. Have you tried that? It takes a little getting used to, but there are some good scenerios you can run, including starting today or waiting a few years while you build a buffer. You can also add in Social Security income.

Which begs more questions. Do you have credits for SS? Assume you do. Have you considered how you'd take it? Early? Split between you and spouse? You have work to do there.

I'm asking about SS because the rest of your assets look a little light, and I'm thinking SS may be important for you. Do you have pensions?

It sounds like you are thinking well on the expense side. That's good. Glad you are looking at health insurance.

Beyond that, the one thing that jumps at me are your real estate holdings. They are doing nothing for you right now. And you don't mention taxes. Are you including the cost of your real estate taxes and insurance? I hope so.

Run firecalc and really look carefully at all your expenses and make sure some are not hidden. With your income level, I would have expected more savings by now. Perhaps only recently you "got religion" so that's why the savings are a bit light for your age since you say you have $5k per month savings.

 

[Oversoul]

Yes, we would sell at least one house as soon as we retire and would either sell another or rent it... depending on the market.
Many thanks for your advice.

Run firecalc and really look carefully at all your expenses and make sure some are not hidden.

+1
Real estate rich and cash flow poor is not the way to retire. If I were you, I'd be putting two of those houses up for sale.

 

[Meadbh]

Welcome to the forum.

Your real estate assets are costing you money. You cannot afford this negative cash flow. It is time to stop being charitable to your relatives and start providing in earnest for your retirement. Sell or rent any property that you are not living in.

 

[jclarksnakes]

If your total monthly expenses over the last two years were actually 3K and you have been saving around 5K a month that comes up way short of your $160K annual income. You should try to figure out what happened to all the difference between 8K a month and 160K a year. Federal income taxes did not get all of it.

 

[jollystomper]

Why are you owning a home with a non-paying relative? You are tight as it is for retirement. Without knowing any further details, you should sell that home, or start charging the relative rent, or get another tenant.

 

[Rambler]

Why are you owning a home with a non-paying relative? You are tight as it is for retirement. Without knowing any further details, you should sell that home, or start charging the relative rent, or get another tenant.

Renting to relatives is never a good idea...how do you evict them when they lose their job and stop paying, without destroying family ties? If I were selling only one of the homes, this is the one I would sell, if for no other reason than it gives you an excuse to ask them politely to move on. That said, you may have other reasons for allowing this relative live there rent-free...ie, son or daughter who you want to live nearby...a mother in law who can't make it on her own and who you must help (or allow to live with you...heaven forbid). But if it is a brother. Or an uncle who are simply freeloading on your goodwill, show'em the door.

I don't think you are financially ready to retire. If you stick around here for a while, learn a few things, play with Firecalc, sell some real estate, you may be able to figure out how to make it work...but as of today you are unfortunately not ready.

R

 

[pb4uski]

I use Quicken Lifetime Planner for my basic retirement plan. It is part of Quicken Deluxe or higher. You will need to enter your portfolio (tickers and share amounts) in Quicken and then go to the Lifetime Planner and work through the various screens that cover your assumptions as to rates of return, inflation, taxes, living expenses, college expenses, special expenses, pensions and SS, etc. and based on the information that you provide it will do a year-by-year projection of your retirement assets. While it has its imperfections, it is a good place to start, get a basic plan and think through all the various things that will financially affect your retirement.

Once you have a base plan in place, you can do what-if analysis using different assumptions (for example with sale of one of your properties) and it provides a line graph showing the growth/decay of your retirement nestegg under each set of assumptions. If you think the what-if set is more realistic, you can reset your base plan to use those assumptions with a single click.

I then supplement the QLP analysis with FireCalc, Vanguard's Monte Carlo analysis, and Financial Engines which adds a stochastic test of the plan.

 

[Oversoul]

If your total monthly expenses over the last two years were actually 3K and you have been saving around 5K a month that comes up way short of your $160K annual income. You should try to figure out what happened to all the difference between 8K a month and 160K a year. Federal income taxes did not get all of it.

After payroll deductions, medical/dental/eye insurance & 401k contributions, we bring home $4005 every 2 weeks combined out of our $160k yearly salary.

Our Federal tax bill for 2012 is roughly $25k. We don't qualify for anything except the standard deduction.

 

[Oversoul]

I went to FireCalc & this is what I got:

FIRECalc Results

Your spending in every year after the first year will be adjusted for inflation, so the spending power is preserved.
Because you indicated a future retirement date (2014), the withdrawals won't start until that year. The tested period is 1 years of preretirement plus 29 years of retirement, or 30 years.
FIRECalc looked at the 111 possible 30 year periods in the available data, starting with a portfolio of $500,000 and spending your specified amounts each year thereafter.
Here is how your portfolio would have fared in each of the 111 cycles. The lowest and highest portfolio balance throughout your retirement was $415,336 to $3,302,605, with an average of $1,398,496. (Note: values are in terms of the dollars as of the beginning of the retirement period for each cycle.)
For our purposes, failure means the portfolio was depleted before the end of the 30 years. FIRECalc found that 0 cycles failed, for a success rate of 100.0%.

I inputted a few variables:
1) That my wife & myself would collect SS of $12k each beginning in 2020 & 2023 respectively & that we added a one-time lump sum of $150k in 2020 from the sale of one house.

The main variables were $36k/year on a $500k pot over $30 years adjusted for inflation.
Does this help in what you think? I sure don't want to quit just to find out we are broke in 10 years.
Thanks for all your advice. We are learning.

 

[Oversoul]

Why are you owning a home with a non-paying relative? You are tight as it is for retirement. Without knowing any further details, you should sell that home, or start charging the relative rent, or get another tenant.

I allow my brother to live there. He is an injured navy vet with a very low income. I'll let him stay as long as he wants because it's the right thing to do but if the day comes he ever leaves, I'll sell or rent the place.

 

[JoeWras]

Oversoul: OK, you are on the right track.

You really have to look at your expenses. You must determine if this expense level is feasible. Insurance, property tax, car expenses, infrequent expenses (what about a new roof for those 4 houses of yours?) add up.

Keep in mind many here are setting aside 20k per year just for health expenses. That may be too conservative, but it may not be. Read up on some other threads.

 

[Oversoul]

I don't think you are financially ready to retire. If you stick around here for a while, learn a few things, play with Firecalc, sell some real estate, you may be able to figure out how to make it work...but as of today you are unfortunately not ready.

R

Thank you. We are eager to learn and look before we leap.

 

[Oversoul]

Oversoul: OK, you are on the right track.

You really have to look at your expenses. You must determine if this expense level is feasible. Insurance, property tax, car expenses, infrequent expenses (what about a new roof for those 4 houses of yours?) add up.

Keep in mind many here are setting aside 20k per year just for health expenses. That may be too conservative, but it may not be. Read up on some other threads.

Yes, there's a lot more involved than what we've considered, especially ith the state of healthcare. This is why we seek the advice of those who are more learned. Thank you for helping us see the bigger picture.

 

[obgyn65]

If FIREcalc says you are good to go, then you are good to go. Welcome to the forum.

FIRECalc found that 0 cycles failed, for a success rate of 100.0%.

Thanks for all your advice. We are learning.

 

[UserRequested]

i allow my brother to live there. He is an injured navy vet with a very low income. I'll let him stay as long as he wants because it's the right thing to do but if the day comes he ever leaves, i'll sell or rent the place.

+1,000,000

 

[Live And Learn]

For a family of 2 the Obamacare calculators say you need $20k per year for unsubsidized coverage. On top of the $20k for HI you'll pay 30% of services up to the out of pocket max of 12k.
With a low withdrawal rate you will qualify for subsidies but there are a few concerns at the moment about which plans / doctors will be in the subsidized plans.

I'm willing to accept a 10-15% risk of portfolio failure because I'm planning on spending $29k per year on Healthcare. I'm betting that some years will be lower than that to make up some of the risk. Others here would never dream of accepting a 15% risk (and to tell you the truth some days it makes me queasy thinking about it !)

PS - thank you for giving your brother a home. I agree with you - its the right thing to do !

 

[Oversoul]

Wow! That much for healthcare!
Can I choose to simply stay healthy?
Or maybe I can hold out for sudden cardiac death!

How can we ever save up enough money to enjoy our "golden" years when we'll all be rusted & worn out when we get there?!?!

Thanks for the eye opener...... or punch it the eye..... depending on how I look at it.

For a family of 2 the Obamacare calculators say you need $20k per year for unsubsidized coverage. On top of the $20k for HI you'll pay 30% of services up to the out of pocket max of 12k.
With a low withdrawal rate you will qualify for subsidies but there are a few concerns at the moment about which plans / doctors will be in the subsidized plans.

I'm willing to accept a 10-15% risk of portfolio failure because I'm planning on spending $29k per year on Healthcare. I'm betting that some years will be lower than that to make up some of the risk. Others here would never dream of accepting a 15% risk (and to tell you the truth some days it makes me queasy thinking about it !)

PS - thank you for giving your brother a home. I agree with you - its the right thing to do !

 

[JoeWras]

Oversoul: just research it a bit more. You are probably going to be drawing an income level that will be subsidized, so you'll catch a break on the cost. Additionally, when we give worst case scenarios, it includes out of pocket. So, in a healthy year, you would only pay premiums. What we're saying is your health care expenses need attention.

Here's what I've been doing for expenses. DW and I enter EVERYTHING on Quicken. All our checks, all our withdrawals, all our credit cards. We categorize everything. We now have a 12 year record and know very well what our expenses are. Some of our surprise expenses have been house related: old appliance replacement, roofing, hot water heater replacement, etc. We also keep track of our dining out versus groceries. Very enlightening.

I'm not saying you can't do it at $36k, but I suspect you may want to give it just a bit more cushion. Perhaps this means firecalc says 95%. If so, you can probably go for it and manage your expenses in the lean years.

 

[jclarksnakes]

After payroll deductions, medical/dental/eye insurance & 401k contributions, we bring home $4005 every 2 weeks combined out of our $160k yearly salary.

Our Federal tax bill for 2012 is roughly $25k. We don't qualify for anything except the standard deduction.

Your taxes at 25K are exactly what I would guess they would be. I think you do not understand what I am talking about. If you are saving 5K a month that is 60K a year. If you are spending 3K a month that is 36K a year. Let's add this up. 25(taxes)+60(savings)+36(spending)=121. You are missing the difference between 160K and 121K each year. That is 39 each year that you seem to have lost. I do realize that FICA taxes are taking about 11K out of your 160K combined income but that still leaves a good bit (like 28K) of money unaccounted for. You entered 36K annual expenses in Firecalc and got good results but it would seem that you have been spending a lot more than 36K in recent years. Firecalc results are only as good as the data you enter into the calculator.

 

[JoeWras]

You entered 36K annual expenses in Firecalc and got good results but it would seem that you have been spending a lot more than 36K in recent years. Firecalc results are only as good as the data you enter into the calculator.

Jclark says it more directly. I've just been hinting. I can't see how the expenses are that low.

The OP needs to seriously, seriously look at expenses and get realistic.

And JCS is right, the data is only as good as you put in. Garbage-in, garbage-out as the saying goes. I respect OBGynes opinion, but to say "if firecalc says you are good, you are good to go" isn't true if you fed firecalc garbage.

OK, there's theme here. A lot of us are simply saying: Get Real About Your Expenses.

 

[Katsmeow]

25(taxes)+60(savings)+36(spending)=121. You are missing the difference between 160K and 121K each year. That is 39 each year that you seem to have lost.

I think that also out of that $160k is taken FICA, health insurance premiums, and 401k contributions. I suspect those collectively make up the bulk (and perhaps all) of the $39k.