Planning on Retiring Next Year – Will My Plan Work?

[tsmisc]

Hello everyone. I’m happy to have found this site. I will be 49 years old in a couple of months and planning to retire next year. DW is 51 and we have no kids. I’d like to get your opinions on what I’m thinking and hopefully get some feedbacks. Thank you!!

DW – Semi-retired. Income is about 50K/year before tax. She plans on doing the same thing in the next few years since she likes what she’s doing. I am not counting on her income since it’s not stable and can end at anytime.

Primary Residence: It’s worth about 850K and has about 110K left on the mortgage.

Rental 1: It’s worth about 350K and it is paid off. The rental income after taxes and expenses just about covers the property tax, HOA, and Mello Roos of our primary residence.

Rental 2: It’s worth about 420K and it has a 280K mortgage. The rental income is about break-even after taxes and expenses.

I will be paying off the mortgage of our primary residence as soon as I stop working.

We have no debts so the basic monthly expense will be 30K/year.

So this will be the picture after the mortgage is paid off:

Taxable Savings:
Cash & CD’s: 300K
Stocks & Bonds: 250K (95% Equities 5% Bonds)

Deferred Savings:
Regular:
Stocks: 250K
Indexed Funds: 500K
Roth:
Aggressive Funds: 300K

The plan is to spend down the taxable savings for the next 10 years, then start tapping the deferred savings after that.

Next year, I plan to start buying 10-year TIPS with my regular deferred savings at 80K/year for the next 10 years. When I turn 60, I will use half of the matured monies to cover basic expenses and the other half to buy 10-year TIPS each year for the following 10 years. Basically, the idea is to be covered until I'm 80.

I also plan on either buying a SPIA or longevity insurance when I’m around 60. And depending on the stock market, I may liquidate the rental properties to accomplish this.

What do you think of this plan? Thanks again.

 

[travelover]

We have no debts so the basic monthly expense will be 30K/year.

So you plan to live on $30K per year?

 

[Midpack]

Welcome to ER.org. Might be good to enter your info into FIRECalc: A different kind of retirement calculator and see how your plan would have fared in every period similar to your plan from 1873 thru 2011. That may answer your question. While some members may say 'yeah, go for it,' of course no one can tell you if you're plan will work, best we can do is give probability of success based on past history. Then you have to decide what the future holds...

 

[jclarksnakes]

Just as a general comment........most people who live in primary residences worth 850K cannot live on 30K per year. Around here 30K would maybe cover taxes and insurance and the utilities on an 850K house.

 

[tsmisc]

So you plan to live on $30K per year?

No. That's just for basic expenses like grocery, utility, etc.

I'm planning on using the 250K for other. Also, I'm thinking of teaching drums and do something fun for pocket change.

 

[tsmisc]

Just as a general comment........most people who live in primary residences worth 850K cannot live on 30K per year. Around here 30K would maybe cover taxes and insurance and the utilities on an 850K house.

Yeah, the primary residence was bought in 1999, and here in CA we have prop 13 to keep the property tax increase at a reasonable rate. Our rental income will cover the tax and mello roos. So this expense is not part of the 'basic' expenses that's being covered by the 30K estimate.

 

[MasterBlaster]

If I counted right I get total savings (excluding rental and home equity) of around $1.6MM.

That would generate an reliable income stream of (perhaps) $64k per year using a 4% safe withdrwal rate.

Since the rentals pay for the property taxes on your primary residence the $64k could be used to pay your expenses including income taxes.

Personally I could live on that if I had to.

What about medical insurance/expenses ? Medical expenses are likely to eat up (perhaps) $15-20k per year if you aren't covered elsewhere.

Also, there dosen't seem to be much room for black swan events like deep recession or major expenses.

 

[rodi]

Another factor to consider... I see you're planning on paying off your mortgage... have you considered also paying off the mello roos?

I live in San Diego and mello roos are a part of life. (For those outside CA - these are sort of like property taxes, in the form of bond debt... and most houses built mid-80's or later have them.)

I have friends who've been looking into paying off their mello roos. It only makes sense if you plan on being in the home for a long time because it often doesn't help the sales price when you sell.

That said - some of the districts have been refinancing the mello roos, extending the time horizon... and others just jack up the annual amount owed each year to the maximum allowed.

If you're interested in a discussion of the pros/cons... there's a thread on a San Diego message board about it.
Paying off Mello Roos | Piggington's Econo-Almanac | San Diego Housing Market News and Analysis

 

[tsmisc]

If I counted right I get total savings (excluding rental and home equity) of around $1.6MM.

That would generate an reliable income stream of (perhaps) $64k per year using a 4% safe withdrwal rate.

Since the rentals pay for the property taxes on your primary residence the $64k could be used to pay your expenses including income taxes.

Personally I could live on that if I had to.

What about medical insurance/expenses ? Medical expenses are likely to eat up (perhaps) $15-20k per year if you aren't covered elsewhere.

Also, there dosen't seem to be much room for black swan events like deep recession or major expenses.

We are both healthy with no health issues...yet. Our medical insurance right now for the two of us is around 6k/year. I realize this may go up a lot more in the future.

We really have a simple life style. I like to spend money on experiences rather than material things. So the major expenses will be traveling and such, which can be dialed down depending on what's going on during the year. As far as deep recession .... that's the most worrisome part for me. I know I have a large chunk of the nestegg in the market, and I'm averaging out 80K a year. So I'm hoping the market will not go down drastically the next 10 years.

Any suggestions on the equity of the primary residence? I haven't really looked into reverse mortgage, but I'm thinking I can somehow use the equity as a backstop after I'm 80. This may free up the equity of the rental properties planned for the SPIA or longevity insurance to use on major expenses and such.

 

[tsmisc]

Another factor to consider... I see you're planning on paying off your mortgage... have you considered also paying off the mello roos?

I live in San Diego and mello roos are a part of life. (For those outside CA - these are sort of like property taxes, in the form of bond debt... and most houses built mid-80's or later have them.)

I have friends who've been looking into paying off their mello roos. It only makes sense if you plan on being in the home for a long time because it often doesn't help the sales price when you sell.

That said - some of the districts have been refinancing the mello roos, extending the time horizon... and others just jack up the annual amount owed each year to the maximum allowed.

If you're interested in a discussion of the pros/cons... there's a thread on a San Diego message board about it.
Paying off Mello Roos | Piggington's Econo-Almanac | San Diego Housing Market News and Analysis

Thank you for the suggestion.

We are planning to make one more move to a single-level house in the future (after 55) by taking advantage of prop 60, which allows you to transfer your tax base of the primary residence to the new property. So paying off the the mello roos does not fit into the plan.

 

[obgyn65]

Welcome. As Midpack suggested, I would look at online tools to get an answer to your questions. You will find other tools simply by browsing other threads on this website.