Reality Check

[foxhuntr]

Hi,
I've already posted this over on the other forum, so forgive me if you've seen it before!

I guess I'm not exactly an early retirement candidate, since I'm 62 and still working, but I'd like to run my numbers by some members and see if my logic makes sense. I'm an obsessive number cruncher and have a cash flow plan going out 40+ years! The calculators say I'm ok, but I'm nervous!
I'm 62 and my wife is 48. I assume we'll both live to 92.
I'm still working making $90K, maxing out a 401k and IRAs before and after tax.
Target retirement is age 64. Soc. Sec. should be $20K/year.
We own a rental house, market value $650,000, no mortgage, $2100/mo. rent. I usually raise the rent by inflation annually.
Personal residence has a $125K balance, 12 years to pay off. Market value $500k.
Target expenditure level after retirement $65k/yr, which includes a generous amount of travel and leisure expenses.
Investments in retirement accounts: $450k. 60% index funds, 40% bonds.
Investements in taxable accounts: $225k, same split. with muni bonds.

Using a rate of return of 5%, 3% inflation, everything seems to continue to grow with the $65k expense level. I've factored in replacing cars every 10 years.

Any comments? I'd appreciate feedback.
Thanks,
Rick

 

[Sam]

Hi Rick,

I'm NOT an expert, but your rental property surprises me a little.  The yearly rental income is only 3.88% of the property market value.  That's kind of low, isn't it.

Sam

We own a rental house, market value $650,000, no mortgage, $2100/mo. rent.  I usually raise the rent by inflation annually.

Any comments?  I'd appreciate feedback.
Thanks,
Rick

 

[foxhuntr]

That's southern CA for you. Rising property values have brought in speculators and it's not a great rental market. I've had the same tenants for 11 years and haven't been aggressive about wringing every available rental dollar out of them. I feel that long term tenants are valuable. Also, if I converted the property to liquid $$$ I'd have capital gains taxes and would lose the appreciation.

Thanks,
Rick

 

[Sam]

That's southern CA for you.  Rising property values have brought in speculators and it's not a great rental market.  I've had the same tenants for 11 years and haven't been aggressive about wringing every available rental dollar out of them.  I feel that long term tenants are valuable.  Also, if I converted the property to liquid $$$ I'd have capital gains taxes and would lose the appreciation.

Southern CA! That's what I thought. But, assuming a low property tax rate of 1%, then the real rental income is less than 3% of the property value. Ouch!

And will the appreciation continue forever? Just wondering out loud here.

Anyway, back to your original question. I'm a number cruncher too, and I think you're in excellent shape. Question is, why are you still working?

Sam

 

[TromboneAl]

Yes, you can do it. What I'd do: retire tomorrow while still young and healthy, sell rental property, sell house, move to a less-crowded and less-expensive small town.

Working for two years more is risky -- you might die before you can retire.

 

[Cut-Throat]

That's what I noticed! - 650K rental property. Sell it buy a CD paying 5% - NO property taxes, no Worries!



Also your statement

Using a rate of return of 5%, 3% inflation, everything seems to continue to grow with the $65k expense level. I've factored in replacing cars every 10 years.

Everything is growing except your life! - Why do you want your portfoilo to grow? - You'll be 80 in 18 years, and it will be pretty much over by then, even if you are still alive!

 

[Robert the Red]

Even better - sell current home, bank profit tax-free.  Move into rental home for 2 years, retire on schedule, sell home and bank its profit tax-free (except for depreciation recapture).  Move to Chiang Mai and live like royalty.

 

[dex]

That's what I noticed! - 650K rental property. Sell it buy a CD paying 5% - NO property taxes, no Worries!

Also your statement
Everything is growing except your life! - Why do you want your portfoilo to grow? - You'll be 80 in 18 years, and it will be pretty much over by then, even if you are still alive!

I agree with Cut-Throat.
You are 62! What are you waiting for - a telegram from God? Do bother waiting - Western Union stopped that service recently.

 

[chris2008]

I have known lots of people who believed that "there is not yet enough to retire".
They did not live till the day when there is enough.
But their kids and other relatives enjoyed the savings - sometimes even could retire on them...
"Get a Life: You Don't Need a Million to Retire Well " by Ralph E. Warner (Nolo Press) provides an excellent reality check as well as lots of input for retirement planning.

 

[SteveR]

What about health insurance? If you have coverage after retirement or can be covered under your wife's employer then I would have a really hard time trying to justify staying on for another 2 years. Run some calcuations to see what you really gain, after tax and working expenses, by doing so vs working for 2 more years. Only you can decide what works for you and your comfort level but avoid calculation constipation.

There are a number of members here that have the assets to retire today but choose to continue to work for a variety of reasons. Being Financial Independent (FI) is the main goal; retirement is the benefit of being FI. Some would rather pad the nest egg to assure they will have enough for their lifestyle at 100% level until they are 100+ using a pretty high spending level. Others like their work but still think about ER. Some want to ER and are working towards it with a firm plan and a firm number of $$ it will take. Do what works for you. Read the comments here, take away those that work for you and leave the rest.

Early retirement is relative to your situation. It is not a race, it is a goal. The level of toxicty in your job will be a major factor in when you finally leave. We tend to find ways to live on less when presented with an option to leave a negative work environment.

Good luck in your decision and welcome to the board.

 

[wildcat]

Everything is growing except your life! - Why do you want your portfoilo to grow? - You'll be 80 in 18 years, and it will be pretty much over by then, even if you are still alive!

Damn C-T is good, he definitely puts the "reality check" into the thread.

 

[foxhuntr]

Thanks for all the great inputs! Based on all of that I've decided to move my date up. I'm going to retire in 10 months, 18 months til my 65th birthday, so I can get medical insurance through COBRA. My wife doesn't work, so I'll shop for an individual policy for her. Any suggestions?

I work at a very nice place with a nice group of people and no stress whatsoever compared to my 35 years in high tech middle management. My main desire to retire is to have more free time to goof off and do the things I enjoy every day instead of just on the weekends.

As to the rental property, we have considered the option of moving in to get the capital gains exemption, and we may do that in the future. We like living in CA, so no escaping to Chaing Mai! We lived in the Rangsit area of Bankok for a year and it's not for me long term.

We're heading to Italy for the month of April - that will be my longest vacation ever- should be fun.
Thanks again.
Rick

 

[lazygood4nothinbum]

I can get medical insurance through COBRA.  My wife doesn't work, so I'll shop for an individual policy for her.

check me on this but if i understand cobra correctly (i'm on it now) it can pick up precisely the same insurance you have through your employer. so if wife is currently covered by that, then she should also be covered for at least the 18 months of cobra.

caution on cobra: while they had no problem accepting my premiums, they neglected to tell the insurance companies i was still covered. so each first time (with medical, dental & vision) i had to make sure the insurance company knew i was covered or the doc's office would be told i was uninsured.

 

[chris2008]

Enjoy Italy!

 

[tryan]

COBRA will cover your wife as long as she's currently covered. But in 18 months she'll need an individual policy. Better to apply younger than later.

Also learned BC/BS was better/cheaper than COBRA ; and had to be in my wife's name (she's also younger).

Good Luck.

 

[foxhuntr]

Yes, I'm aware that she can be covered by COBRA, but I also felt we could beat the COBRA rates for her. She's healthy, no Rx drugs, etc.

Speaking of procrastination, I mentally moved my date up 6 months, but now am having second thoughts. I'll be eligible for a 15% bonus if I stay through May instead of January. Also some extra 401K company contribution. I guess you just have to decide to bite the bullet and do it, because there will always be something in the future tempting you to keep working longer.