What do the experts think?

[Dreaming 2010]

Hello, everyone. I have been lurking for awhile and just had to jump in. Everyone seems so friendly. Heard about your group from the Boglehead website. My husband and I think about retiring early, myself more than him. He is gone from the home 13 hours per day running our company. He will be 50 in 2010, our daughter will be graduating in May 2010 and we will be married 20 years in 2010. I keep looking at the numbers and really believe we could retire in 2010 but not 100% sure.
We have duplexes paid for that net income is $60,000 per year. My husband would like to take care of them, cutting grass, painting when vacancy occurs, etc. We have $860,000.00 in 50% bonds and 50% mutual funds, all with Vanguard. I will be 53 in 2010 and my theory is live on $5000.00 per month rental income, have $200,000.00 in laddered CD's for emergency until I turn 59 1/2 and we can access our Vanguard accounts.
So what do you experts think?
Ann

 

[hankster]

Welcome to the forum. I don't think I qualify as an expert since I'm still working, but those numbers sure look good to me. Experienced retirees will have additional input and maybe some questions regarding medical coverage and other variables.

 

[REWahoo]

Welcome to the forum. Have you run your numbers through FIRECalc? (See link at the bottom of the page.)

 

[Dreaming 2010]

Forgot to say our home is paid for and medical insurance we pay on our own since we are self employed. We have a HSA.
I have to work on the FIRECalc calculator.
Ann

 

[jdw_fire]

I keep looking at the numbers and really believe we could retire in 2010 but not 100% sure.
We have duplexes paid for that net income is $60,000 per year. My husband would like to take care of them, cutting grass, painting when vacancy occurs, etc. We have $860,000.00 in 50% bonds and 50% mutual funds, all with Vanguard. I will be 53 in 2010 and my theory is live on $5000.00 per month rental income, have $200,000.00 in laddered CD's for emergency until I turn 59 1/2 and we can access our Vanguard accounts.
So what do you experts think?
Ann

welcome ann,

an analysis of retirement finances is only as good as the predictions of income and expenses.

when it comes to your income i would ask does the $60k net rental income analysis include appropriate consideration of vacancy and major repairs that might happen every 5-10 or more years? and is that $60k net of taxes? it looks like your portfolio (minus rental property) has a value of $1.06 million which at a 3.5%WR gives you about a $37k starting wd that should be adjusted for inflation each year, which makes a $97k 1st year retirement draw.

when it come to your expenses you say "my theory is live on $5000.00 per month" which makes me wonder how complete the analysis of your expenses you did. many people on this forum do 2 analyses, the first determines a bare bones expense amount and the second determines a desired expense amount. have you done this? if so is the $5k/mo the bare bones or the desired? have you tracked your current expenses? have you included expenses that you dont pay every year but can be large (like you need to do for your rental property)? and of course, have you considered health care? getting an accurate estimate of your retirement expenses is a key piece of info in determining whether you will have a sound retirement, financially speaking. having some padding between your desired expense lever and your income level will help you sleep at nite.

if your numbers above include all of this (and the $5k/mo expense number is the desired and not the bare bones expense number) than they do look good.

 

[Dreaming 2010]

welcome ann,


when it comes to your income i would ask does the $60k net rental income analysis include appropriate consideration of vacancy and major repairs that might happen every 5-10 or more years? and is that $60k net of taxes? it looks like your portfolio (minus rental property) has a value of $1.06 million which at a 3.5%WR gives you about a $37k starting wd that should be adjusted for inflation each year, which makes a $97k 1st year retirement draw.

.

The gross rental is $79,200.00. I was thinking of taking $60,000.00 per year and leaving the rest to cover property taxes, vacancies and repairs. The duplexes are fairly new. Have not had much turnover, and my husband is able to take care of minor repairs.
I have gone out on the FIREcal calculator and am not sure of where rental income comes in.
We live a simple life, home paid for and no debt. We currently while we are still self employed are able to contribute to Vanguard Money Pension about 25% of our income or $45,000.00 each. We will be making these contributions for 2009 and 2010 and then if everything works out retire December 2010.

 

[Rambler]

If you are self employed, does that mean you have a business to sell? If so, what is its worth? Or, are you going to hire someone to run it for you? What income would that provide? There may be more out there for you that you have not considered. Just sayin...

R

 

[Milton]

Welcome, Ann.

Because there are always unforeseeable contingencies, it is impossible to be 100% sure whether your post-retirement income will be sufficient to meet all of your needs and reasonable wants. There is nothing unusual about that, and some level of uncertainty is normal.

As jdw_fire suggests, you need to spend some time calculating your anticipated expenses. Assuming that $60,000 p.a. will be about right is not really good enough.

I note that you currently each contribute $45,000 to mutual funds, which is 25% of your income. That suggests that your current combined employment income is ~ $360,000, and you also have ~$60,000 rental income on top. If that is correct your current lifestyle seems to cost rather more than $60,000 (I assume that no money is spent on servicing mortgages, since you are debt free; or making other savings contributions, since you don't mention any).

 

[Dreaming 2010]

.

I note that you currently each contribute $45,000 to mutual funds, which is 25% of your income. That suggests that your current combined employment income is ~ $360,000, and you also have ~$60,000 rental income on top. If that is correct your current lifestyle seems to cost rather more than $60,000 (I assume that no money is spent on servicing mortgages, since you are debt free; or making other savings contributions, since you don't mention any).

We currently use all of our rental income to pay off the next duplex purchase and we are down to the last $80,000.00 debt and we will no longer be purchasing more so we will be debt free in retirement and able to finally draw a monthly income.

You are correct that we do have a good income but we pay so much in taxes and $90,000 per year in our pension plan. However, I have looked at our actual income and we do bring into our home $85,000 take home pay.
I have a revised plan so tell me what you think.
I think we could just take out $4000.00 per month from our rental and draw $3000.00 per month for 68 months from a $204,000.00 money market account when I turn 59 1/2 August 2, 2016. We would close our business December 31, 2010.
I think I need to sit down and do a monthly budget for such things as food, eating out, etc. We have been too busy to vacation much and plan to do more in retirement so I guess I need to figure some things out.

 

[Dreaming 2010]

If you are self employed, does that mean you have a business to sell? If so, what is its worth? Or, are you going to hire someone to run it for you? What income would that provide? There may be more out there for you that you have not considered. Just sayin...

R

My husband currently has just a old building so we mainly have equipment to sell. It would probably all be worth $100,000.00 so that would be able to be set aside for our monthly draw.

 

[jdw_fire]

The gross rental is $79,200.00. I was thinking of taking $60,000.00 per year and leaving the rest to cover property taxes, vacancies and repairs. The duplexes are fairly new. Have not had much turnover, and my husband is able to take care of minor repairs.
I have gone out on the FIREcal calculator and am not sure of where rental income comes in.

25% for expenses is a commonly used rule of thumb for residential rental property expenses (provided you arent paying gas or electric) so $60k/yr in income to you isnt unrealistic (and it is inflation protected, well kinda).

and it is true that FIRECalc doesnt work so well with rental property. the way you have to include rental income in FIRECalc is by making it look like a pension and since rental income should keep up with inflation, it will be COLAed.

I have looked at our actual income and we do bring into our home $85,000 take home pay.

...

I think I need to sit down and do a monthly budget for such things as food, eating out, etc. We have been too busy to vacation much and plan to do more in retirement so I guess I need to figure some things out.

yes, figuring out your expenses is key (just like when you buy rental property)

I have a revised plan so tell me what you think.
I think we could just take out $4000.00 per month from our rental and draw $3000.00 per month for 68 months from a $204,000.00 money market account when I turn 59 1/2 August 2, 2016. We would close our business December 31, 2010.

no point in doing a revised income plan before you figure out your expenses