Anyone FIRE on less than a million?

[Free To Canoe]

Retired in 2007. Less than $1m? Yes. No debt. Own house free and clear.

2010 Much less. But still retired and anticipate that I will remain so.

We will see.

(still) Free to canoe

 

[haha]

Retired in 2007. Less than $1m? Yes. No debt. Own house free and clear.

2010 Much less. But still retired and anticipate that I will remain so.

We will see.

(still) Free to canoe

Canoe, I am glad you are still free to do whatever you want. Also I have a question about the house free and clear issue. Roughly it seems to me that even a modest house with no mortgages will cost at least half of what a one bedroom apartment in the same or similar area might cost. Often with the apartment one will get some free or much cheaper utilities, and of course zero maintneance costs. Also, there would be no need for tools, painting equipment, ladders, etc., and the apt may be closer to town to save on auto costs. And this analysis values the owner's time at 0, and the owner's or an heir's frustration at selling time at 0 too.

Isn't it likely that the opportunity costs sunk in the house would easily pay the other one half of rent, unless we get into a very heavy-duty inflation?

I am ignoring the option value of the house, assuming that it will be occupied until death.

Ha

 

[teejayevans]

If you had a portfolio of less than a million, say $900,000, then at a 3%-4% SWR your annual withdrawal would be between $27,000-$36,000.

According to the U.S. Census Report, "Income, Poverty, and Health Insurance in the United States: 2008" this would have put your household income in the next to lowest quintile in 2008. So, between 20%-40% of American households would have lower incomes than you and are still surviving.

But how many of those are 65 or older, so are on medicare, or 30 or under and choose not to have HI or can get it super cheap?

If choosing to retire up to now, you have to assume that HI will be expensive and has an inflation rate of 15%. With HI costs for a couple older than 50, easily can spend $10K on health insurance alone, cuts a big hole out of that retirement income.
TJ

 

[Free To Canoe]

Canoe, I am glad you are still free to do whatever you want. Also I have a question about the house free and clear issue. Roughly it seems to me that even a modest house with no mortgages will cost at least half of what a one bedroom apartment in the same or similar area might cost. Often with the apartment one will get some free or much cheaper utilities, and of course zero maintneance costs. Also, there would be no need for tools, painting equipment, ladders, etc., and the apt may be closer to town to save on auto costs. And this analysis values the owner's time at 0, and the owner's or an heir's frustration at selling time at 0 too.

Isn't it likely that the opportunity costs sunk in the house would easily pay the other one half of rent, unless we get into a very heavy-duty inflation?

I am ignoring the option value of the house, assuming that it will be occupied until death.

Ha

Good point you make about the costs of home ownership. It has got me thinking about the many ways DW and I could still cut costs.
We own a house with some acres out in the sticks. I have always wanted to live in the country but could never find a way to get this and work at a career, too. I put great value on this at this time in my life. As long as my health holds out, working on the property will be a labor of love.

Free to canoe

 

[nun]

Good point you make about the costs of home ownership.

The great thing about owning a 2 family is that it's an income producer. Of course it soaks up capital, but after the mortgage is paid I'll have $650 in tax and home insurance a month plus a few other minor expenses offset by $2000/month in rent.

 

[TooFrugal]

Roughly it seems to me that even a modest house with no mortgages will cost at least half of what a one bedroom apartment in the same or similar area might cost. Often with the apartment one will get some free or much cheaper utilities, and of course zero maintenance costs.

Those are all great points. I'm self employed and currently we own an older home that needs some major renovations. The renovations are expensive enough on their own plus the opportunity costs for me of not working while I'm picking out flooring, getting bids, checking licenses and references, etc.

When we were young and living in an apartment it seems like we had so much more free time.

 

[ERD50]

Roughly it seems to me that even a modest house with no mortgages will cost at least half of what a one bedroom apartment in the same or similar area might cost.
Ha

There are personal and subjective reasons why one would want to rent versus buy. But has any thread here done a reasonable job of measuring the long term financial differences (assigning zero value to the subjective ones)? I'd be curious.

My Dad always used to make snide comments about some of our relatives who rented - " 30 years and all they have to show for it is a box of rent receipts.". But renting has advantages, too. Just different ones.

When we were young and living in an apartment it seems like we had so much more free time.

Sure did. And the flip side is we probably complained that we can't change out these cabinets, or do this or that upgrade.

After holding the flashlight and running for tools for me and watching me sweat my way through many remodels and maintenance jobs, I doubt any of my kids will be in any rush to buy a home. And as long as they can find nice rentals at a nice price, that sounds pretty good to me. They should enjoy their time.

-ERD50

 

[scrabbler1]

I would dispute that the expenses of living in an apartment are zero. I live in a co-op apartment and even after I exclude the portion of my monthly maintenance charges which go to property taxes, interest and principal on the co-op's underlying mortgage, and optional parking fee, I still pay about $260 a month which goes to general repairs and upkeep, heat, gas, electric (not inside my apartment), water, insurance (not my own HO policy), and the pool.

I don't write a check directly to the painter, the landscaper, or the elevator repairman, but that work still needs to be done and the money to pay for it still comes from from our managing agent via me and the other ~225 apartment owners.

 

[ERD50]

I would dispute that the expenses of living in an apartment are zero.

I don't write a check directly to the painter, the landscaper, or the elevator repairman, but that work still needs to be done and the money to pay for it still comes from from our managing agent via me and the other ~225 apartment owners.

I don't think anyone disputes that. But often times, a home owner just compares their mortgage payment to a rent check - one needs to include all the costs for a reasonable comparison. Maint, prop taxes, utilities, insurance deltas - anything that is above and beyond what a renter would pay.

-ERD50

 

[ziggy29]

I don't think anyone disputes that. But often times, a home owner just compares their mortgage payment to a rent check - one needs to include all the costs for a reasonable comparison. Maint, prop taxes, utilities, insurance deltas - anything that is above and beyond what a renter would pay.

True. And to a degree one *could* pay cash for a home you may consider current interest rates. That NOW would favor buying in this sense: If you had a decision whether to buy a $200,000 home or rent a similar property, if you saved the money and rented, you'd only make about $4,000 a year on the money (assuming you were able to get 2%), and it would cost a lot more than that to rent it. But as mentioned earlier, you'd have to add taxes, insurance and maintenance to get a true comparison. But in an era where the Fed is extending the middle finger to savers, putting the money aside and renting isn't so compelling.

 

[SunsetSail]

I may be mistaken, but it doesn't seem like anyone has pointed out that there is an important difference between rent vs own when a house is fully paid vs 80% or more mortgaged. The arguments for and against owning when the house is fully paid are both compelling and seem to depend on individual situations rather than a strict financial analysis. However, for a younger person purchasing a home with a small down payment it is important to consider that real estate historically rises at 5% (or thereabouts) a year on average. The 5% applies to the full value of the house, not the down payment. This creates an opportunity to leverage a small investment with a relatively low and tax-subsidized interest rate. Unless the rental prices are much lower than housing costs, there is a powerful financial incentive to purchase.

 

[Onward]

It took being a homeowner to make me realize that there are huge emotional issues in the rent vs buy decision. Get the emotional aspects wrong, and you'll be miserable, regardless of whether your decision was smart financially.

 

[ERD50]

It took being a homeowner to make me realize that there are huge emotional issues in the rent vs buy decision. Get the emotional aspects wrong, and you'll be miserable, regardless of whether your decision was smart financially.

I agree complete, however, it would be interesting to see the pure financial side. Then one could look at it and say: "Is that delta important to me?". The emotional aspects are going to be different for everyone - Let each person break them out separately (not ignore them).

-ERD50

 

[Birdie Num Nums]

I may be mistaken, but it doesn't seem like anyone has pointed out that there is an important difference between rent vs own when a house is fully paid vs 80% or more mortgaged. The arguments for and against owning when the house is fully paid are both compelling and seem to depend on individual situations rather than a strict financial analysis. However, for a younger person purchasing a home with a small down payment it is important to consider that real estate historically rises at 5% (or thereabouts) a year on average. The 5% applies to the full value of the house, not the down payment. This creates an opportunity to leverage a small investment with a relatively low and tax-subsidized interest rate. Unless the rental prices are much lower than housing costs, there is a powerful financial incentive to purchase.

Depends upon what time-frame you mean by "historically." Use the last hundred years or so, and not just 1945-2005, and the numbers are relatively flat.

This does not include repairs, tax, and the ~10% closing costs factored in.

 

[SunsetSail]

Depends upon what time-frame you mean by "historically." Use the last hundred years or so, and not just 1945-2005, and the numbers are relatively flat. This does not include repairs, tax, and the ~10% closing costs factored in.

You're right. It also depends on which location you are talking about. I live in Southern California so the growth numbers are probably higher than 5%. Plus the home costs are so large that the leverage may tend to wash out the impact of repairs which typically don't vary as much by location. There is also Prop 13 which freezes the property tax base at fmv at transfer of ownership. You would almost need to come up with a different model customized for each particular city or county to get an accurate comparison.

 

[ziggy29]

Another thing to consider about the future of real estate prices is the very real consideration that lower wages and fewer jobs will result in a marked increase in multigenerational "extended family" arrangements -- adult children moving back in with their parents or older parents moving in with their children because one or the other is enduring an extended period of unemployment or underemployment to the point where they can't support a separate living arrangement.

This may also be the fate of many older folks when they retire (or can't find a job any more) and they don't have personal retirement savings or a pension.

If this does become more of a trend, that will further increase the supply of homes because some of these people abandoning their old residences will need to sell in conjunction with moving in with family. And some of these will be "desperate" sales.

Retirement and the nuclear family may be two post-WW2 middle class expectations that are starting to revert back to pre-war conditions.

 

[Bimmerbill]

So, you can FIRE on less than 1 Mil if you live cheaply (low COL area, paid off house) and have some form of subsidized health care.

 

[MasterBlaster]

So, you can FIRE on less than 1 Mil if you live cheaply (low COL area, paid off house) and have some form of subsidized health care.

The good life awaits you:

Cheap Health Care


and Cheap Housing:



What are you waiting for ?

 

[rescueme]

So, you can FIRE on less than 1 Mil if you live cheaply (low COL area, paid off house) and have some form of subsidized health care.

I can; can't say what DW will do though...

 

[MasterBlaster]

I can; can't say what DW will do though...

Put her to work. Work makes people happy !

 

[Gerbil Wheel]

Note the post-WWII spike in that housing graph...the echo boomers are starting to form households now...betcha that at least keeps housing prices stable, if not upward again.

 

[Otter]

I may be mistaken, but it doesn't seem like anyone has pointed out that there is an important difference between rent vs own when a house is fully paid vs 80% or more mortgaged. The arguments for and against owning when the house is fully paid are both compelling and seem to depend on individual situations rather than a strict financial analysis. However, for a younger person purchasing a home with a small down payment it is important to consider that real estate historically rises at 5% (or thereabouts) a year on average. The 5% applies to the full value of the house, not the down payment. This creates an opportunity to leverage a small investment with a relatively low and tax-subsidized interest rate. Unless the rental prices are much lower than housing costs, there is a powerful financial incentive to purchase.

One of the things we learned in recent years is that housing prices always go up--except when they don't.

 

[scrabbler1]

So, you can FIRE on less than 1 Mil if you live cheaply (low COL area, paid off house) and have some form of subsidized health care.

....or if you have no kids. BTW my HI is not subsidized, other than most of it being tax-deductible.

 

[Rob]

I am semi-retired, and wondering if I should completely retire. This thread is very interesting. I have about a million, perhaps a little less, in TIAA-CREF and a bank account. I'm living on the interest from some of my money, and that interest income gives me about $32,000/year. I live in Singapore, pay the equivalent of about $1,300/month on rent, electricity, water, cable TV, and internet. Social security will add about $8,000/year if I took it now. I'm holding off though. I'm 63.

I'm in an area that is cheap to travel from. Last week I hopped on a bus and went to a small Malaysian town. Flying to any of the SE Asian countries is very convenient.

As for healthcare, I got a plan when I turned 60, and have held on to it even though the places I've worked in provided their own insurance. My policy is called IHI, and it's a subsidiary of BUPA. I pay about $3,600/year with a $1,600 deductible. It covers me everywhere in the world, guaranteed until I give up the policy. Two more years and I am on Medicare.

Cheers,

Rob

 

[Birdie Num Nums]

....or if you have no kids. BTW my HI is not subsidized, other than most of it being tax-deductible.

How is your health insurance (versus your "qualified medical expenses") tax-deductible? (I guess I'm assuming it's an HSA, which it may not be.) Is it COBRA? Are you collecting unemployment?