Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Will my plan work?
Old 12-12-2005, 09:27 PM   #1
Dryer sheet aficionado
 
Join Date: Dec 2005
Posts: 43
Will my plan work?


My name is Mike, here is my story. I did not start working seriously until I was 30. Before that I was dedicated to having fun. At 30 I got a job with the government and began a 20 year ‘experiment’ with the work world. Unfortunately I am a typical American, which means I am largely incapable of either budgeting or saving. I can save for a while, but when the amount gets large I end up buying something.
Fortunately fate intervened and I discovered real estate when my job moved to Southern California in the mid-1990’s. It was a home buyers dream. A colleague introduced me to a real estate agent who sold Freddie Mac repossessed homes. They were often in poor condition, but they were very cheap and I was energetic or stupid enough to spend my weekends fixing them up.

Buying homes solved our saving and spending problems. When we accumulated 5-10k, we just used it as a down payment to purchase a new house. We rented the old house and moved into the new house while I fixed it up. After we had used up all of our home buying credit we switched to using home equity as a savings account by increasing mortgage payments with any excess money before we could spend it.

In 8 months I will be 50 years old and will have 20 years into the federal retirement system. Here are what our approximate numbers will be at that time:

Rental Real Estate Value 950k
Rental Mortgage 200k
Home Equity 550k
401(k) and IRA 450k
Fed Pension 20k/year, not indexed but will increase to 28k in 5 years
Wife’s Salary (44) 60k/year
Rental Income 30k/year

We have moderate lifestyles, and health is paid through my wife’s work. Monthly expenses are about 4k, with room for reducing. Most discretionary money goes into two kids. We will also need to pay for college in a few years. My plan is for us to live off of the pension, Wife’s salary and rental income. My wife thinks that I will need to get another job.

Will this plan work, or is there a better one that will enable me to avoid having to go back into the work world?

Mike
__________________

__________________
BearlyWorking is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Will my plan work?
Old 12-13-2005, 05:13 AM   #2
Thinks s/he gets paid by the post
 
Join Date: Dec 2002
Posts: 3,875
Re: Will my plan work?

Quote:
Originally Posted by BearlyWorking
My name is Mike, here is my story.* I did not start working seriously until I was 30.* Before that I was dedicated to having fun.* At 30 I got a job with the government and began a 20 year ‘experiment’ with the work world.* Unfortunately I am a typical American, which means I am largely incapable of either budgeting or saving.* I can save for a while, but when the amount gets large I end up buying something.*
Fortunately fate intervened and I discovered real estate when my job moved to Southern California in the mid-1990’s.* It was a home buyers dream.* A colleague introduced me to a real estate agent who sold Freddie Mac repossessed homes.* They were often in poor condition, but they were very cheap and I was energetic or stupid enough to spend my weekends fixing them up.*

Buying homes solved our saving and spending problems.* When we accumulated 5-10k, we just used it as a down payment to purchase a new house.* We rented the old house and moved into the new house while I fixed it up.* After we had used up all of our home buying credit we switched to using home equity as a savings account by increasing mortgage payments with any excess money before we could spend it.
*
In 8 months I will be 50 years old and will have 20 years into the federal retirement system.* Here are what our approximate numbers will be at that time:

Rental Real Estate Value 950k
Rental Mortgage * * * * * * 200k
Home Equity * * * 550k
401(k) and IRA * * * * * * *450k
Fed Pension * * * * * * * * * * * * 20k/year, not indexed but will increase to 28k in 5 years
Wife’s Salary (44) * * * *60k/year
Rental Income 30k/year

We have moderate lifestyles, and health is paid through my wife’s work. Monthly expenses are about 4k, with room for reducing.* Most discretionary money goes into two kids.* We will also need to pay for college in a few years.* My plan is for us to live off of the pension, Wife’s salary and rental income.* My wife thinks that I will need to get another job.*

Will this plan work, or is there a better one that will enable me to avoid having to go back into the work world?

Mike
Unless you can get paid for doing what you love, walk away from
"the work world" and never look back.

JG
__________________

__________________
MRGALT2U is offline   Reply With Quote
Re: Will my plan work?
Old 12-13-2005, 07:02 AM   #3
Thinks s/he gets paid by the post
BUM's Avatar
 
Join Date: Feb 2004
Location: 34N 78W
Posts: 1,772
Re: Will my plan work?

Welcome Mike,

I hope you've gotten over that "buying something" habit. In the 8 months you've got left consider trimming back your debt and if possible making the rental business run nicely without you. Maybe it does already... Does DW want to ER at the same time?

The numbers look doable but you are heavily dependent on the rental income. Is it stable? Going up? Whats in the 401k? Does that need adjusting?

Your situation looks like a diamond in the rough. Might need to be polished up a bit.


__________________
In a panamax down by the river.
BUM is offline   Reply With Quote
Re: Will my plan work?
Old 12-13-2005, 07:21 AM   #4
Moderator Emeritus
Martha's Avatar
 
Join Date: Feb 2004
Location: minnesota
Posts: 13,211
Re: Will my plan work?

Have you carefully looked at your current expenses and anticipated expenses?
__________________
.


No more lawyer stuff, no more political stuff, so no more CYA

Martha is offline   Reply With Quote
Re: Will my plan work?
Old 12-13-2005, 07:36 AM   #5
Recycles dryer sheets
 
Join Date: Jan 2005
Posts: 118
Re: Will my plan work?

Bearly-

Unless your wife is also a fed, her health insurance probably goes away when she retires/quits/gets laid off etc. One of the best benefits available to feds is lifetime health insurance. The catch is you have to be in the insurance program 5 years before your retirement date. If you are in it now, and have been for 5 years, you may want to consider carrying it into retirement. Medicare kicks in at 65. 15 years can be a long time to wait.

rapooole
__________________
rapoole is offline   Reply With Quote
Re: Will my plan work?
Old 12-13-2005, 08:08 AM   #6
Thinks s/he gets paid by the post
grumpy's Avatar
 
Join Date: Jul 2004
Posts: 1,321
Re: Will my plan work?

What kind of fed pension do will you have that is NOT indexed?

Grumpy
__________________
...you can check out any time you like, but you can never leave...
grumpy is offline   Reply With Quote
Re: Will my plan work?
Old 12-13-2005, 09:26 AM   #7
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,563
Re: Will my plan work?

Quote:
Originally Posted by BearlyWorking
We have moderate lifestyles, and health is paid through my wife’s work. Monthly expenses are about 4k, with room for reducing.* Most discretionary money goes into two kids.* We will also need to pay for college in a few years.* My plan is for us to live off of the pension, Wife’s salary and rental income.* My wife thinks that I will need to get another job.*

Will this plan work, or is there a better one that will enable me to avoid having to go back into the work world?
Welcome to the board, Mike! Let me make sure that I understand the numbers. You state that you have a $20K/year pension and $30K/year rental income, for $50K/year spending money, and $48K/year expenses. It sounds like you're pulling more than your own weight even without your spouse's income.

You'll have an additional $8K/year over the next five years, and in 12 years you'll hypothetically be eligible for Social Security (you can more accurately estimate the amount of your SS distributions using their online calculator. So your plans seem to have sufficient room for inflation.

Your $1.3M equity is fairly illiquid and, if you're in San Diego, not likely to stay that high over the next few years. So I wouldn't count on it unless you're planning to sell soon, although there's no imperative to sell if you have your expenses covered by rental income...

Rapoole makes a very good point about medical insurance. Don't leave work until you know the whole family can bridge the gap.

It sounds like the only remaining variable is paying for college. This board has a number of opinions on that subject, mostly leaning toward having the kids pay a portion of the expenses, which means you'll have to decide how much you two want to save in the college fund. At $60K/year your spouse's income could fill that up pretty quickly! And then again there's the rental property.

You also sound like you'll be more than adequately employed taking care of two kids, your home, and your rental property. What other kind of job does your spouse think you'll need?
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Re: Will my plan work?
Old 12-13-2005, 10:27 AM   #8
 
Posts: n/a
Re: Will my plan work?

Hi, Mike. If your wife is not comfortable with the plan, you are asking for trouble. (This is not intended to be a joke). Beyond that, nobody here can read the tea leaves and tell you the future. Early retirement carries a certain element of financial risk, although by conventional thinking you seem to me to be reasonably secure.
__________________
  Reply With Quote
Re: Will my plan work?
Old 12-13-2005, 10:43 AM   #9
Dryer sheet aficionado
 
Join Date: Dec 2005
Posts: 43
Re: Will my plan work?

Let me see if I can cover everything in one message.

JG - Thanks. That is exactly the way I feel. Life is short.

Bum - 401k is in a lifecycle fund. I tend to be a higher risk investor than most, so the fund keeps me from puting it all in stock funds. Rentals are stable and well cover the debt. I am switching mental gear from the buy mentality to the frugal mentality. I should be all the way there by next summer.

Martha - Unfortunatley I do not have the patience for detailed budget analyses. My estimate is that we could get down to 3k per month with kids if needed and less when they leave. Presently we are living off of just my DW's income as a test. The rest is going to pay down mortgage. I am afraid I have a bit John Gault's philosophy - I am confident that I can handle any bumps in the road along the way using guile and ingenuity. My DW is more conservative.

rapoole - Wife is a middle school teacher. She loves her job and her health insurance is much better than Fed. We will keep that. If she decides to stop we will go for a high deductible catastrophic policy and cover the little things ourselves. Good point though, I need to start gaming several more options to make sure this is well covered.

grumpy - Federal pension system is byzantine, arbitrary and illogical, as anything done by Congress tends to be. If you are interested I can explain the details in a later post. Let me know.

Nords - The experts predict a soft landing for real estate in SoCal. I am planning for a 20% decline in prices. It is a full blown bubble mentality down here. People now expect to have their house increase by 20-30% every year!
- We will need to sell a house to cover college expenses. Our thinking is that we will pay half, and the kids will earn or find money for the other half. We want them to value their education.
- My wife likes the security of me being employed.

Thanks Everyone!
__________________
BearlyWorking is offline   Reply With Quote
Re: Will my plan work?
Old 12-13-2005, 10:47 AM   #10
 
Posts: n/a
Re: Will my plan work?

Quote:
Originally Posted by BearlyWorking

* Life is short.
I'll tell my Aunt, who just turned 104 . . .
__________________
  Reply With Quote
Re: Will my plan work?
Old 12-13-2005, 04:10 PM   #11
Dryer sheet aficionado
 
Join Date: Dec 2005
Posts: 43
Re: Will my plan work?

Quote:
Originally Posted by WhodaThunkit
Hi, Mike. If your wife is not comfortable with the plan, you are asking for trouble. (This is not intended to be a joke). Beyond that, nobody here can read the tea leaves and tell you the future. Early retirement carries a certain element of financial risk, although by conventional thinking you seem to me to be reasonably secure.
Actually the impact on my marriage and social life are my biggest concerns. I am getting my wife used to the idea. I have also learned never to use the word 'retire'. Instead I am taking time off, transitioning carreers, going to part time, ect. Several threads have discussed this issue, but I never realized the emotional reactions that I would get from my peer group.

Mike
__________________
BearlyWorking is offline   Reply With Quote
Re: Will my plan work?
Old 12-13-2005, 06:55 PM   #12
Thinks s/he gets paid by the post
 
Join Date: Dec 2002
Posts: 3,875
Re: Will my plan work?

Quote:
Originally Posted by BearlyWorking
Actually the impact on my marriage and social life are my biggest concerns.* I am getting my wife used to the idea.* I have also learned never to use the word 'retire'.* Instead I am taking time off, transitioning carreers, going to part time, ect.* Several threads have discussed this issue, but I never realized the emotional reactions that I would get from my peer group.

Mike
For what it is worth.................when I decided to quit, my previous
spouse said "If you are going to retire, then I am retired too. "
(She had been "retired" forever IMHO), and................"I already have a
full time job." (Housewife and a 12 year old at home).
Anyway, that attitude killed the marriage, although I could understand the
"I already have a full time job" comment better once I regained
bachelor status.

JG
__________________
MRGALT2U is offline   Reply With Quote
Re: Will my plan work?
Old 12-14-2005, 04:11 AM   #13
Thinks s/he gets paid by the post
BUM's Avatar
 
Join Date: Feb 2004
Location: 34N 78W
Posts: 1,772
Re: Will my plan work?

Mike,

Never mind the reactions from your peer group. Its sour grapes! I got the same reaction. Fact is, they're not my peers anymore since most were work related buddies.

Don't be afraid to use the "R" word.

__________________
In a panamax down by the river.
BUM is offline   Reply With Quote
Re: Will my plan work?
Old 12-14-2005, 04:37 AM   #14
 
Posts: n/a
Re: Will my plan work?

I assume they are offering early-outs where you work?

Quote:
Originally Posted by BearlyWorking
In 8 months I will be 50 years old and will have 20 years into the federal retirement system.* Here are what our approximate numbers will be at that time:
__________________
  Reply With Quote
Re: Will my plan work?
Old 12-14-2005, 08:01 AM   #15
Recycles dryer sheets
 
Join Date: Nov 2005
Posts: 331
Re: Will my plan work?

Quote:
Originally Posted by BearlyWorking
My name is Mike, here is my story.* I did not start working seriously until I was 30.* Before that I was dedicated to having fun.* At 30 I got a job with the government and began a 20 year ‘experiment’ with the work world.* Unfortunately I am a typical American, which means I am largely incapable of either budgeting or saving.* I can save for a while, but when the amount gets large I end up buying something.*
Fortunately fate intervened and I discovered real estate when my job moved to Southern California in the mid-1990’s.* It was a home buyers dream.* A colleague introduced me to a real estate agent who sold Freddie Mac repossessed homes.* They were often in poor condition, but they were very cheap and I was energetic or stupid enough to spend my weekends fixing them up.*

Buying homes solved our saving and spending problems.* When we accumulated 5-10k, we just used it as a down payment to purchase a new house.* We rented the old house and moved into the new house while I fixed it up.* After we had used up all of our home buying credit we switched to using home equity as a savings account by increasing mortgage payments with any excess money before we could spend it.
*
In 8 months I will be 50 years old and will have 20 years into the federal retirement system.* Here are what our approximate numbers will be at that time:

Rental Real Estate Value 950k
Rental Mortgage * * * * * * 200k
Home Equity * * * 550k
401(k) and IRA * * * * * * *450k
Fed Pension * * * * * * * * * * * * 20k/year, not indexed but will increase to 28k in 5 years
Wife’s Salary (44) * * * *60k/year
Rental Income 30k/year

We have moderate lifestyles, and health is paid through my wife’s work. Monthly expenses are about 4k, with room for reducing.* Most discretionary money goes into two kids.* We will also need to pay for college in a few years.* My plan is for us to live off of the pension, Wife’s salary and rental income.* My wife thinks that I will need to get another job.*

Will this plan work, or is there a better one that will enable me to avoid having to go back into the work world?

Mike
Just looking at the numbers says you are in very good shape if you net everything or even keep the rental property and collect from it.

You're ok, it will work itself out if you really feel the need to chuck it. Many here, including myself, do not have spouses earning 60K nor have your assets, but being cheap sobs, we can eke out a healthy and fulfilling retirement. Go for it, and dont listent to the guys at work or whatever, just follow your heart.

My peers also think Im crazy opting out soon instead of waiting 4 years in hell to get another 20K on my pension.


I live in NYC, and am having a house built in vegas, as soon as my house here sells, I go. My pension will be smaller, but bank interest will make up for it. IF I run out of money in 25-30 years, I'll cash in my house and take an apartment. Im 53 now, but I may not live that long anyhow.

Years are worth something too, especially after I just saw my friend, who was loaded with money and RE, murdered in a split second a few weeks ago.

With your assets, follow your dreams and passions, not other people's dreams and passion.
jug
__________________
jug is offline   Reply With Quote
Re: Will my plan work?
Old 12-14-2005, 08:15 AM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Dawg52's Avatar
 
Join Date: Feb 2005
Location: Central MS/Orange Beach, AL
Posts: 6,882
Re: Will my plan work?

Quote:
Originally Posted by jug
Just looking at the numbers says you are in very good shape if you net everything or even keep the rental property and collect from it.

You're ok, it will work itself out if you really feel the need to chuck it.* Many here, including myself, do not have spouses earning 60K nor have your assets, but being cheap sobs, we can eke out a healthy and fulfilling retirement. Go for it, and dont listent to the guys at work or whatever, just follow your heart.

My peers also think Im crazy opting out soon instead of waiting 4 years in hell to get another 20K on my pension.*


I live in NYC, and am having a house built in vegas, as soon as my house here sells, I go. My pension will be smaller, but bank interest will make up for it.* IF I run out of money in 25-30 years, I'll cash in my house and take an apartment. Im 53 now, but I may not live that long anyhow.

Years are worth something too, especially after I just saw my friend, who was loaded with money and RE, murdered in a split second a few weeks ago.

With your assets, follow your dreams and passions, not other people's dreams and passion.
jug
Amen brother.
__________________
Full time wuss............
Dawg52 is offline   Reply With Quote
Re: Will my plan work?
Old 12-14-2005, 08:26 AM   #17
Thinks s/he gets paid by the post
 
Join Date: Dec 2002
Posts: 3,875
Re: Will my plan work?

Quote:
Originally Posted by DOG51
Amen brother.
I have witnessed a killing and seen my share of "early exits".
When someone says to me "Oh, if I just hang on for ____________
(fill in the blank), I will get _______(fill in the blank) more $ in my SS/pension/IRA, truly, I question their sanity (or at least their
intelligence) .

I will add a "Mega-ditto!" to DOG's "Amen!"

JG
__________________
MRGALT2U is offline   Reply With Quote
Re: Will my plan work?
Old 12-14-2005, 08:37 AM   #18
Thinks s/he gets paid by the post
MooreBonds's Avatar
 
Join Date: Aug 2004
Location: St. Louis
Posts: 1,855
Re: Will my plan work?

Quote:
Originally Posted by BearlyWorking
Wife is a middle school teacher. She loves her job and her health insurance is much better than Fed. We will keep that. If she decides to stop we will go for a high deductible catastrophic policy and cover the little things ourselves. Good point though, I need to start gaming several more options to make sure this is well covered.
What kind of a pension does your wife have? That could be a big difference in how it might combine with your SS/rentals/pension.

Also, you mention that your rental income covers the mortgage, as you are currently just living off of your wife's income as a test-run....is the 30k 'net after-tax cash-flow'? Don't forget that if you're depreciating your real estate, you might have a sizable recapture gain once you sell a house or two for college...

Apart from that, it appears that you're in pretty good shape.
__________________
Dryer sheets Schmyer sheets
MooreBonds is offline   Reply With Quote
Re: Will my plan work?
Old 12-14-2005, 08:39 AM   #19
Thinks s/he gets paid by the post
 
Join Date: Dec 2002
Posts: 3,875
Re: Will my plan work?

Quote:
Originally Posted by jug
Just looking at the numbers says you are in very good shape if you net everything or even keep the rental property and collect from it.

You're ok, it will work itself out if you really feel the need to chuck it.* Many here, including myself, do not have spouses earning 60K nor have your assets, but being cheap sobs, we can eke out a healthy and fulfilling retirement. Go for it, and dont listent to the guys at work or whatever, just follow your heart.

My peers also think Im crazy opting out soon instead of waiting 4 years in hell to get another 20K on my pension.*


I live in NYC, and am having a house built in vegas, as soon as my house here sells, I go. My pension will be smaller, but bank interest will make up for it.* IF I run out of money in 25-30 years, I'll cash in my house and take an apartment. Im 53 now, but I may not live that long anyhow.

Years are worth something too, especially after I just saw my friend, who was loaded with money and RE, murdered in a split second a few weeks ago.

With your assets, follow your dreams and passions, not other people's dreams and passion.
jug
jug, I reread your post and I think is is just excellent! (almost
sounds like me - high praise indeed).

JG
__________________
MRGALT2U is offline   Reply With Quote
Re: Will my plan work?
Old 12-14-2005, 11:33 AM   #20
Recycles dryer sheets
 
Join Date: Nov 2005
Posts: 331
Re: Will my plan work?

Quote:
Originally Posted by MRGALT2U
jug, I reread your post and I think is is just excellent!* (almost
sounds like me - high praise indeed).*

JG
Dont think it doesnt bother me loosing out on the 20k if I wait just another 4 years or so. With the 20K more, I wouldnt even be thinking about how to invest money safely for income. I fight with my mind each nite, then I feel better in the day time.

I bought the house in vegas after having a rough situation at work that has finally calmed down. But I already made my bed, might as well take the leap.

But on the other hand, after 50, your health is iffy. My wife fortunately simply says,

"you bought the other house, so lets look at this as an adventure, we are not broke, and we can always work part time if things get tight." She is all for it.

There is no perfect decision, some have less, some have more, but we all have limited health and time.
jug

__________________

__________________
jug is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Another retirement plan option... LRAO FIRE and Money 10 10-17-2006 09:31 PM
How's this for an ER plan? dt123 Other topics 4 10-13-2006 08:32 PM
7 Million Retirees Return to Work REWahoo Life after FIRE 18 12-30-2005 06:04 AM
Pension Plan Investing justin FIRE and Money 33 08-07-2005 09:35 PM
FireLight 50 Plan JonnyM Young Dreamers 0 11-10-2004 06:44 AM

 

 
All times are GMT -6. The time now is 09:36 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2016, vBulletin Solutions, Inc.