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54 yo trouble
Old 12-15-2005, 06:09 AM   #1
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54 yo trouble

I had lunch with a 54 y/o yesterday, who asked if I had any advice for her. She has 20K in savings, earns 50k year, has 40k in debt and wants to retire @ age 65 on 3k / month (after taxes) in todays dollars. I thought about it overnite and couldn't come up with a plausible solution. Any advice. BTW, they're currently only putting 3k per year into their 403b at work.
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Re: 54 yo trouble
Old 12-15-2005, 06:36 AM   #2
 
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Re: 54 yo trouble

The numbers do not work out.

She needs to sell her house and rent a small condo or apartment.

Sell her cars and get a good cheap used vehicle.

Either she takes drastic steps now or suffer later.

Appears she has lived it up for the last 54 years - she needs to feel the pain for the next decade to have any chance.

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Re: 54 yo trouble
Old 12-15-2005, 08:38 AM   #3
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Re: 54 yo trouble

Quote:
Originally Posted by Marketneutral
The numbers do not work out.

She needs to sell her house and rent a small condo or apartment.

Sell her cars and get a good cheap used vehicle.

Either she takes drastic steps now or suffer later.

Appears she has lived it up for the last 54 years - she needs to feel the pain for the next decade to have any chance.

Before you get carried away, I'd say a little more info would be appropriate.
*You say she/they.* Two people or one?
*What is the debt about? Good debt or bad?
* Whats the occupation?* Potential for second job?
* Where's the fat? Cars, trips, Corona?
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Re: 54 yo trouble
Old 12-15-2005, 08:57 AM   #4
 
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Re: 54 yo trouble

Maybe she should buy a ticket on a real expensive cruise and hopefully latch on to some rich old guy, or girl, who knows anymore?
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Re: 54 yo trouble
Old 12-15-2005, 09:01 AM   #5
 
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Re: 54 yo trouble

Quote:
Originally Posted by JPatrick
Before you get carried away, I'd say a little more info would be appropriate.
*You say she/they.* Two people or one?
*What is the debt about? Good debt or bad?
* Whats the occupation?* Potential for second job?
* Where's the fat? Cars, trips, Corona?
11 years and she wants 3K (keeping up with inflation/after tax) per month?

She is going to need to cut off some limbs for this tree grow.* A good start would be thinking about downsizing.*
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Re: 54 yo trouble
Old 12-15-2005, 09:03 AM   #6
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Re: 54 yo trouble

Reverse mortgage if it applies to her situation. *It could provide a steady stream of income. *She should continue to work full-time until: 1) all of the debt is gone and 2) she has some additional savings - 3k isn't going to cut it (it almost sounds as if she doesn't really want it that bad). *I only recommend a reverse mortgage as a last resort and this appears to be the case.
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Re: 54 yo trouble
Old 12-15-2005, 09:07 AM   #7
 
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Re: 54 yo trouble

Hmmmm . . .403b? School/municipal employee? -- Does she have a pension, too? How about potential inheritance? Home equity?
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Re: 54 yo trouble
Old 12-15-2005, 09:10 AM   #8
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Re: 54 yo trouble

Visit the FIRECalc site and plug in the numbers.

http://www.fireseeker.com/
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Re: 54 yo trouble
Old 12-15-2005, 09:16 AM   #9
 
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Re: 54 yo trouble

Quote:
Originally Posted by wildcat
Reverse mortgage if it applies to her situation. *It could provide a steady stream of income. *She should continue to work full-time until: 1) all of the debt is gone and 2) she has some additional savings - 3k isn't going to cut it (it almost sounds as if she doesn't really want it that bad). *I only recommend a reverse mortgage as a last resort and this appears to be the case.
That is a tricky one. *Will she have an equity built up? *A bad turn in the housing market and that can disappear faster then "paper gain profits" everyone was counting in 1999 with their tech stocks. *

Would be a major bummer to plan on a reverse mortgage now then age 65 comes and your home assessment 11 years from now will not cut the mustard.

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Re: 54 yo trouble
Old 12-15-2005, 09:22 AM   #10
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Re: 54 yo trouble

I'm assuming she does have a house and you seem to be assuming the housing market is going to go poof across the US. Without the appropriate information (like if she has a house and if she is in a pricey area) it is a bit too early to jump to conclusions don't you think?
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Re: 54 yo trouble
Old 12-15-2005, 09:26 AM   #11
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Re: 54 yo trouble

Right Wildcat. We don't have enough facts to comment intelligently.
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Re: 54 yo trouble
Old 12-15-2005, 09:31 AM   #12
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Re: 54 yo trouble

I think she could find out how much social security is going to kick in and if she is in a state that taxes it. That could get here part of the way there.


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Re: 54 yo trouble
Old 12-15-2005, 09:49 AM   #13
 
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Re: 54 yo trouble

Quote:
Originally Posted by wildcat
I'm assuming she does have a house and you seem to be assuming the housing market is going to go poof across the US.* Without the appropriate information (like if she has a house and if she is in a pricey area) it is a bit too early to jump to conclusions don't you think?
Housing prices will fall back to the norm. Raising slightly below wage increases.

Telling her to count on a reverse mortgage was jumping to a conclusion, don't you think?
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Re: 54 yo trouble
Old 12-15-2005, 09:55 AM   #14
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Re: 54 yo trouble

Let's assume the following case:

Married,
both are 54 yrs of age
no other savings, pensions, house, inheritance, ...etc
both will retire at 67
both are making $40K/yr now
saving = 20,000
IRA contrinution = 3K /yr until 67
monthly expense = 3,000

According to the social security calculator:
Monthy benefits = 2,624 (1,312 x 2)

Income need to cover Expense: 3,529 (tax rate of 15%)

Shortfall: 3,529 - 2,624 = 905

Portfolio: 20,000 + 25,590 (discounted at 3%, 10 years, 3,000 per year) = $45,590.

4 % withdrawl = 45,590 * 4% = $1,823 (sufficient to cover the shortfall)


That means that they should be able to retire at 67 (if we assume SS will fullfil its promise)

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Re: 54 yo trouble
Old 12-15-2005, 10:00 AM   #15
 
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Re: 54 yo trouble

I must be reading this wrong -- isn't the shortfall monthly,whereas the portfolio withdrawal is yearly?
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Re: 54 yo trouble
Old 12-15-2005, 10:03 AM   #16
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Re: 54 yo trouble

Very nice, Spanky. *Alternatively, she could start considering early semi-retirement at 65 or so (a la ESRBob's work, which I haven't had time to read yet).
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Re: 54 yo trouble
Old 12-15-2005, 10:05 AM   #17
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Re: 54 yo trouble

Quote:
Originally Posted by Spanky
Let's assume the following case:

Married,
both are 54 yrs of age
no other savings, pensions, house, inheritance, ...etc
both will retire at 67
both are making $40K/yr now
saving = 20,000
IRA contrinution = 3K /yr until 67
monthly expense = 3,000

According to the social security calculator:
Monthy benefits = 2,624 (1,312 x 2)

Income need to cover Expense: 3,529 (tax rate of 15%)

Shortfall: 3,529 - 2,624 =* 905

Portfolio: 20,000 + 25,590 (discounted at 3%, 10 years, 3,000 per year) = $45,590.

4 % withdrawl = 45,590 * 4% = $1,823 (sufficient to cover the shortfall)


That means that they should be able to retire at 67 (if we assume SS will fullfil its promise)

Not bad Spanky! *This stuff is interesting. *Wish I had more time to
crunch other folk's numbers.
Can't even take time to work on my own finances.................
(too busy posting). *

JG
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Re: 54 yo trouble
Old 12-15-2005, 10:08 AM   #18
 
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Re: 54 yo trouble

I don't think that this works. What am I missing? The shortfall is monthly. The annual portfolio WD doesn't seem to cover it.
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Re: 54 yo trouble
Old 12-15-2005, 10:11 AM   #19
 
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Re: 54 yo trouble

What about the 40K in debt?

What inflation rate are you using?

After tax?

The shortfall is much more then 905 per month - based on my simple factoring on this.
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Re: 54 yo trouble
Old 12-15-2005, 10:17 AM   #20
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Re: 54 yo trouble

Quote:
Originally Posted by WhodaThunkit
I don't think that this works. What am I missing? The shortfall is monthly. The annual portfolio WD doesn't seem to cover it.
You are right - they will need $752 per month from somewhere or increase the withdrawal rate.
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