Newbie here and introducing myself

[gtbguy]

I've been a lurker here for a couple months now and I now decided to write my first post (kind of a long read). I look forward to engaging in future retirement discussions with you all.

A little bit about myself and wife:

I just turned 55 last week and plan on retiring (probably) a year from now.

I've been at my present job of 31+ years and can retire with a pension anytime. My calculations would estimate my pension to be $4,000 per month if I leave in Feb. of next year. FYI, no COLA.

I have a 401K with a balance of ~$900K.

My wife is 53 has a 403B with a balance of ~$400K but has no pension.

We have 4 rental properties (paid off) that pay us $4,800 per month and are valued at ~$850K. (We've had VERY little down time with no rent from the properties).

We currently have a daughter attending an Ivy League school and we're currently paying for and have enough money (no loans) to pay off her 4 years. She is in her a sophomore year now.

On the side, I build houses (only for myself) live in them 2-3 years, sell them, and then build another one. Yes, I'm getting kind of tired moving and as you get older it sure gets hard to keep packing boxes!

We have no personal or auto loans, etc.

We currently have a mortgage on our personal residence with a payment of $2700 per month. We plan on putting the house for sale here in a month or so, and once we sell we estimate to have about $400K to either build another house (add a loan) or buy an existing house outright and have no loan. BTW, I won't retire until the house is SOLD.

Without going into more boring detail, if we purchase a home outright (no mortgage) then we can live comfortably on my pension and rental income. (The plan in this scenario is not to use either of our 401k or 403b monies) If I build a house and take on a mortgage of say $200K, would it be wise to begin shaving off a bit of money from my 401K solely to satisfy the mortgage payment? I won't be charged the 10% penalty since I would have retired. BTW, we both will get social security when we enter our late 60s.

I know we have to do something with our 401k and 403b monies when we turn age 70 1/2. We never really had a plan to use this money and only planned to use it for an emergency.

The big question here, would it be wise to begin shaving off my 401K to satisfy a mortgage? Once I retire with a lower tax bracket we could begin selling our rental properties and live off that money as well. I'm a bit confused as to what makes sense here.

Any advice will greatly be appreciated.

 

[Cobra9777]

You didn't explicitly say what your basic living expenses are. But you implied it's around $105K/yr since you could "live comfortably" on the pension and rental income. Your current house payment is obviously a huge adder on top of that and probably drives a lot of other expenses (utilities, insurance, property tax). You obviously enjoy houses. And you appear to have the wherewithal to continue that into retirement if you want to. For me (and probably a lot of other forum members), $400K would buy more than enough house to retire in. I'm looking to downsize at some point in the next few years from a ~$475K house to $200-250K. Here in Texas, great housing can be bought for $90-100/sf or rented for $0.70-0.75/sf/mo.

We also have pensions and rentals that cover all of our basic living expenses, and the house has no mortgage. We currently pay for travel and the "big house" with dividends and small WDs from our taxable account. After downsizing, we won't need to draw on the taxable funds except for travel and other fun stuff. We have no intention of tapping the tax-deferred accounts until required to do so at 70.5, and we'll defer SS as long as possible. This plan leaves plenty of room for emergencies, aging parents, uncooperative markets, LTC, and the like.

Your proposed $200K mortgage would only drive around $11K/yr P&I, which is less than 1% WR against your tax-deferred balances. So you can easily afford to continue with your house-building hobby if that's what floats your boat. Sounds like you're getting a little weary of that life though.

Also, as is documented all over this board, your expenses will likely go down more than you think after retirement, and certainly after your daughter is off the Ivy League payroll. I won't go into detail here; you can search and read. But I would suggest that you analyze your expenses in some detail (before and after retirement) before making a decision on the new house. You might find you can cover the mortgage with reductions elsewhere.

Congratulations and good luck!

 

[MBAustin]

Welcome gtbguy! You seem to be well situated in your planning, but f you haven't seen them yet, there are two excellent resources here that might help you make your "list" and check it twice (or three or four times if you are like most of us).

http://www.early-retirement.org/forums/f47/some-important-questions-to-answer-before-asking-can-i-retire-69999.html

and

Early Retirement FAQs - Early Retirement & Financial Independence Community

We'll do our best to answer your questions also - lots of friendly and knowledgeable folks hang out here as you probably have noticed already. We'll do our best to keep you from OMY syndrome

 

[38Chevy454]

Welcome to the forum. It seems you are good shape financially to retire, assuming your expense numbers and income are accurate.

Assume your pension starts soon as you retire? Just for ease of life, sell your current house and buy a house outright with the cash from current house sale. Then you can use any 401/403 money as safety cushion. You should have plenty to live at quality of life you want with pension and rental income.

You could also get a new mortgage for some of the new house, get it before retiring so you have easier qualifying. At the low interest rates now it almost seems no-brainer to do this and invest the house sale (which is after tax) cash into savings instead of house equity. Use the after tax money to supplement expenses as needed.

Really is just what you are more comfortable with. Either can work.

 

[gtbguy]

You didn't explicitly say what your basic living expenses are. But you implied it's around $105K/yr since you could "live comfortably" on the pension and rental income. Your current house payment is obviously a huge adder on top of that and probably drives a lot of other expenses (utilities, insurance, property tax). You obviously enjoy houses. And you appear to have the wherewithal to continue that into retirement if you want to. For me (and probably a lot of other forum members), $400K would buy more than enough house to retire in. I'm looking to downsize at some point in the next few years from a ~$475K house to $200-250K. Here in Texas, great housing can be bought for $90-100/sf or rented for $0.70-0.75/sf/mo.

We also have pensions and rentals that cover all of our basic living expenses, and the house has no mortgage. We currently pay for travel and the "big house" with dividends and small WDs from our taxable account. After downsizing, we won't need to draw on the taxable funds except for travel and other fun stuff. We have no intention of tapping the tax-deferred accounts until required to do so at 70.5, and we'll defer SS as long as possible. This plan leaves plenty of room for emergencies, aging parents, uncooperative markets, LTC, and the like.

Your proposed $200K mortgage would only drive around $11K/yr P&I, which is less than 1% WR against your tax-deferred balances. So you can easily afford to continue with your house-building hobby if that's what floats your boat. Sounds like you're getting a little weary of that life though.

Also, as is documented all over this board, your expenses will likely go down more than you think after retirement, and certainly after your daughter is off the Ivy League payroll. I won't go into detail here; you can search and read. But I would suggest that you analyze your expenses in some detail (before and after retirement) before making a decision on the new house. You might find you can cover the mortgage with reductions elsewhere.

Congratulations and good luck!

Thanks for the write up. Our current expenses (without our mortgage) is about $6K per month. As you indicated the mortgage drives up the monthly obligations.

As for downsizing here in Santa Fe, $400K is downsizing. Cost of homes here are fairly high but that is the way it is, we can't do much about that.

We still need to analyze our savings, spending, etc. before I actually "bite the bullet" and retire. This forum has a wealth of information I continually find myself looking at.

 

[gtbguy]

Welcome to the forum. It seems you are good shape financially to retire, assuming your expense numbers and income are accurate.

Assume your pension starts soon as you retire? Just for ease of life, sell your current house and buy a house outright with the cash from current house sale. Then you can use any 401/403 money as safety cushion. You should have plenty to live at quality of life you want with pension and rental income.

You could also get a new mortgage for some of the new house, get it before retiring so you have easier qualifying. At the low interest rates now it almost seems no-brainer to do this and invest the house sale (which is after tax) cash into savings instead of house equity. Use the after tax money to supplement expenses as needed.

Really is just what you are more comfortable with. Either can work.

Yes my pension will begin immediately after I retire.

Good point, getting a loan now before retiring will be much easier to obtain. I need to make sure to time it as to when to take out a loan.

Either way, I must admit I'm a bit nervous knowing I'm so close to being able to retire, since I do have the comfort of a full time job. Hopefully, reading more and more of the posts on this forum will get me over that!

 

[sheehs1]

What happens to your health plan when you retire? Your retirement income before SSN kicks in is $8,800/mth and you said you needed $6,000 to live on. Some of us having to go to Affordable Care Act compliant policies whose modified adjusted gross income is above the subsidy line are seeing premiums of $400-800+ a month with $6,000 deductibles/yr in our age group (over 55). It varies by state and it varies by the plan chosen. Just wondering if you have looked into that aspect of things. If you have to pay for it, consider how it may change your monthly expense figure.

You don't mention any "after tax" money set aside except for perhaps your daughters tuition. One consideration a lot of us try to do is have different buckets of money that are handled differently so we can pull from different sources depending on the tax situation any given year. For ex: Deferred money like your 401Ks, Roth IRA that can be withdrawn tax free and for those that don't qualify doing Roth conversions to take advantage of this, after tax money that can be used without any tax consequences, Health Savings Accounts (HSA's), etc. Provides a bit of flexibility on the tax front.

How do you fund maintenance, either labor or materials, for your rental properties or do you do most of that work? Is that a concern? If someone needs a new dishwasher, does that come out of the $4,800/mth?

Just a few things to consider if you have not already.

 

[gtbguy]

What happens to your health plan when you retire? Your retirement income before SSN kicks in is $8,800/mth and you said you needed $6,000 to live on. Some of us having to go to Affordable Care Act compliant policies whose modified adjusted gross income is above the subsidy line are seeing premiums of $400-800+ a month with $6,000 deductibles/yr in our age group (over 55). It varies by state and it varies by the plan chosen. Just wondering if you have looked into that aspect of things. If you have to pay for it, consider how it may change your monthly expense figure.

You don't mention any "after tax" money set aside except for perhaps your daughters tuition. One consideration a lot of us try to do is have different buckets of money that are handled differently so we can pull from different sources depending on the tax situation any given year. For ex: Deferred money like your 401Ks, Roth IRA that can be withdrawn tax free and for those that don't qualify doing Roth conversions to take advantage of this, after tax money that can be used without any tax consequences, Health Savings Accounts (HSA's), etc. Provides a bit of flexibility on the tax front.

How do you fund maintenance, either labor or materials, for your rental properties or do you do most of that work? Is that a concern? If someone needs a new dishwasher, does that come out of the $4,800/mth?

Just a few things to consider if you have not already.

My health plan will be subsidized by the company I will retire from. I expect to pay $235 per month for medical and dental for the three of us (wife, daughter, myself). It can go up every month but its less than what I am paying for now while I am still working. Health care monthly premiums haven't always been a concern of mine. I still have am annual deductible per person of $750.

Your after tax discussion is a dandy. I have been thinking about the 401K money, we do have a Roth and will get one every year, and savings. Of course our savings isn't as much as our 401K (especially since we're paying for college). The other tactic I am thinking about is selling a rental property one at a time when when our income is low. Each rental can provide a decent amount of money (2-3 years worth) after we pay all the crazy taxes when selling a rental property. Once SS kicks in then we get a bit more money to live off of (The big question to ask is when to collect SS). Overall, the idea is to skim only a little bit from the 401K in hopes that the gains will offset what we use up for the year. Might be wishful thinking but at least we should see some gains.

Good question on the rentals. They are all in 2 different states and I currently manage them from New Mexico. Once I retire, the plan is to sell one of them and since the value is fairly high, I would 1031 exchange one into two properties in the state where the other 3 are located. I will live in one part-time and rent out the other one. When I retire I will live between both states and will do SOME of the repairs but for the most part I will contract out everything that I don't want to tackle. Yes, the maintenance does come out of the $4800. I've had good success and very little in the way of maintenance but be sure as ****, when I retire everything will break within 6 months! Murphy is a very good friend of mine.