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Old 05-23-2016, 06:53 PM   #1
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My plan - comments welcome

Hi all,
I've been lurking here for a while and I respect the wisdom of the folks on this forum so I thought I'd reach out to see you what you think about my situation.
I'm 46 years old , DH is 43. I'm hoping to retire by 50.
We own a condo in SF Bay Area with <100k mortgage. We plan to rent it out when we retire and live in our weekend home in the mountains. It will be paid for by the time we stop working.

We currently have 670k in tax advantage accts and 250k in taxable accts. For a total of 920k. We contribute at least 20k per year to the tax advantage accts.

Our annual expenses in retirement are expected to be 84k. This figure allows for some wiggle room as there is approx 12k in discretionary expenses. It also accounts for large items such as new roof/siding/Windows/tile/car/etc.

We expect to get 36k per year in rent from condo so we'll need 48k from investments.

My SS at. FRA is 18k and DH is 12k annually.

Any thoughts?
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Old 05-23-2016, 07:19 PM   #2
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Strongly suggest running your numbers and assumptions through Firecalc.
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Old 05-23-2016, 07:24 PM   #3
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I plugged your numbers into CFireSim, and got a 98% chance of success with a 60/40 portfolio. The biggest question mark to me is how you'll fund the 9.5 years from ages 50-59.5, when you can start tapping your tax-advantaged accounts? The 250k in taxable accounts won't fully cover your expenses during that period. Are you planning to do 72t withdrawals, or do you have another plan to get at those funds?
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Old 05-23-2016, 07:26 PM   #4
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You're doing very well for your age. Unfortunately, living on the West Coast is somewhat difficult for someone retiring so young--everything is so expensive. The ace in the hole is getting the real estate paid for.
Healthcare insurance is a wildcard in the real world for someone retiring so young. It's a long time to Medicare.
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Old 05-23-2016, 07:39 PM   #5
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I agree you're doing well for your age. I also agree with the other posters that you need to figure out the age 50-59.5 years... The $250k is not enough to cover the $48k spend you need (above rent.)

Does the $84k include taxes? Health insurance? etc?

I plugged in your data - putting the rent in as a COLA'd pension, guessing at the start years for SS. It spit out a 97% success rate - which is pretty good. But this forum we tend to want belt/suspenders, fudge factors, etc... It's a pretty conservative planning group.

Play around with firecalc - explore the different tabs like "other income" and "Not retired yet".

Remember - the spending is for GROSS spending - all inclusive, including taxes.
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Old 05-23-2016, 07:39 PM   #6
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Thanks for the comments. Yes, funding from 50 to 60 is a conundrum. We are currently paying down our mortgage 4K per month. At this rate it should be paid off in a couple years at which point I hope to allocate those funds to after tax accounts. In fact in considering halting contributions to the tax advantage accts to boost the after tax accts. Any thoughts on this?
Also, I've been trying to figure out how to tap equity in the condo at say 70 yrs of age. We don't have kids so no real reason to leave two fully paid for properties. Perhaps I can consider this my medical cushion? It would've a 850k cushion. I'd like to enjoy life we've been grinding for years and our health shows it.
Thanks again for the feedback.
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Old 05-23-2016, 07:48 PM   #7
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Yep, taxes are included at a 14% rate. Health insurance at 1k per month for both of us. However I don't have the deductible factored in.
I firecalc almost daily ��.
This plan is on the cusp to be sure. Both my parents passed at 76 and pretty much all of my relatives get cancer at some point. My FIL just passed at the age of 69. So we are aware that we don't stay healthy forever. Thus the desire to enjoy while we can.
I appreciate the conservative nature of this group it will keep me grounded.
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Old 05-23-2016, 08:24 PM   #8
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A reverse mortgage could, at the right time, enable you to tap your home equity and thereby generate some liquidity.

If I were you, I would probably be working some additional years, to build more of a nest egg and more margin for error.

But then again, I am not you. And I am pretty risk averse.
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Old 05-23-2016, 08:25 PM   #9
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You expect $36K per year in rent from your SF condo. Is this net of vacancy periods, rental marketing, property taxes and maintenance?
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Old 05-23-2016, 08:51 PM   #10
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I'm not sure how to factor those things in. If we were to rent it out today it would go for 3500 per month but we are in a bubble . So yeah my net would most certainly be lower. 36000 is expected gross. I have included in my expenses HOA and taxes for the condo as well as maintenance such as painting and appliance replacement . Any suggestions on how to factor in vacancy ?
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Old 05-23-2016, 08:53 PM   #11
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Lately I've been thinking of part time work in something that I find interesting. Not sure what that would be and I'm sure it wouldn't pay much .
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Old 05-23-2016, 09:10 PM   #12
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What would the condo sell for? I'd consider selling it and banking the money to spend until 60.
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Old 05-23-2016, 09:17 PM   #13
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I also live in SF Bay Area and $36,000 income from condo is very reasonable nowadays. Possibly after your expenses, depending on the property location and size. Yet to get $48K income from your savings is not going to be simple in current economy.
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Old 05-23-2016, 09:20 PM   #14
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This has crossed my mind. The truth is we love the city and keeping the condo makes us feel like we can come back if we want. We'd have to work if we lived here but there are lots of job opportunities here. On the other hand, we could have an earthquake tomorrow and it would all be lost.
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Old 05-23-2016, 09:23 PM   #15
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Agreed on the 48 being difficult from saving comment. Having RE, stock and bond diversification gives me peace of mind.
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Old 05-23-2016, 09:24 PM   #16
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....Yet to get $48K income from your savings is not going to be simple in current economy.
Huh.. that's only 4.8% on $1 million plus they have reinforcements with $30k of SS.

Have you done a pro forma tax return as if you were retired? 14% sounds a bit high but then again you are in California.
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Old 05-23-2016, 09:32 PM   #17
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My plan - comments welcome

A helpful little mental game I play is "How could I FIRE right now?!". In fact, financially, we could FIRE right now. We could quit tomorrow and live like bloggers Mr. Money Mustache or the Root of Good families in an inexpensive town, or move abroad like Go Curry Cracker. DW nor I are honestly motivated to do those things but the math says that we could. Furthermore, if we did, we could fund twice their consumption rates sustainably, as could you, mathematically.

In sum, work is already optional, we're just choosing a lifestyle level and then applying the appropriate savings rate, time for compounding, portfolio and health risk management and tax-wise withdrawal strategies to manifest our goal. In our case, that means we work for a while longer.
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Old 05-23-2016, 09:35 PM   #18
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I'm not sure how to factor those things in. If we were to rent it out today it would go for 3500 per month but we are in a bubble . So yeah my net would most certainly be lower. 36000 is expected gross. I have included in my expenses HOA and taxes for the condo as well as maintenance such as painting and appliance replacement . Any suggestions on how to factor in vacancy ?
Well, you could find out what the average vacancy rate is in SF. But there's more. A huge risk of being a landlord is bad tenants who wreck your place, annoy the neighbours, and are difficult to evict. Tenants often move frequently. Every time they move on, you have to repair and redecorate ($$$$) and during that time you are earning no rent. Do you have a network of reliable tradespeople? How are you planning to handle emergencies, e.g. a blocked toilet?

To be a successful landlord can be a lot of work. Tenant selection is key. You can outsource some of the hassle by employing a property manager, at the cost of increased expenses (5-10% of rents). Conservatively, I think you should factor in 20-30% of rents for the expenses I have described. Also, you need a cash buffer to cover those vacant periods.

If I were in your situation, I would carefully consider how much you might miss city life. Financially and from a peace of mind POV, if you are sure you want to move, it would be preferable to sell the condo in SF.
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Old 05-23-2016, 09:38 PM   #19
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I haven't done a tax proforma. The 14% rate is based on 2015 tax rates on 84k less standard deduction. I Calculated both federal and state these are both included in the 14% rate.
THANKS for all the great comments !!!
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Old 05-23-2016, 09:44 PM   #20
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Good point, Markola. It's comforting to think of it that way. Always better to feel like you are choosing to do what you're doing. Although my brain then screams "make it stop!"
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