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Clueless in Tokyo
Old 06-25-2010, 12:05 AM   #1
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Clueless in Tokyo

My wife and I have been living and working in Japan for the past 9 plus years. I’m an Army civilian and intend to retire at age 61 at the end of the fiscal year (30 September). We will be returning to the U.S. after I retire and have discovered that we are clueless regarding the cost of living in the “real world” (we’ve enjoyed “free” housing and utilities, commissary privileges, cheap Japanese cars, etc. for so long we’ve lost track of what it costs to live back in the “real world”).

We’ve saved diligently while overseas and now have a nest egg in the neighborhood of $1.8M and I’ll draw a small cola’d pension of about $20k/year. We have no debts. I’ll have subsidized health coverage when I retire and will collect Social Security once I become eligible for benefits. When we return to the U.S., we’ll have no house or car . . . just the household goods the Government is shipping back for us. Our current game plan is to buy a late-model used car and simply rent an apartment for awhile.

Getting more to the point, I’m a “poster child” for risk-averse investing, so I don’t expect our nest egg to generate much income in this low-yield economic environment. However, neither my wife nor I have extravagant tastes so my best GUESS is that we’ll have enough to “pull the plug” in September. A major concern is that we are planning to move to a small college town located on the California coast (too help look after my father, who is in his 90’s). The cost of living there appears to be quite high, but we really have no other choice – my father is not about to move elsewhere. I suppose what I’m hoping for is to hear some reassuring words that our game plan is “do-able,” i.e., that two people with relatively modest needs can make it (financially speaking) in a relatively high cost of living area with an estimated yearly income of $40-45k (I said I was risk averse and I really meant it!). Comments are most appreciated.
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Old 06-25-2010, 03:10 AM   #2
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My first thought is that $1.8m doesn't have to generate a lot of income, as long as you can bring yourself to spend some of it.

You haven't said how much you want to pass on to any heirs, but here's an example: if you get just 2.5% out of the $1.8m (and really, no matter how conservative you are, that's doable), that's $45K/year (plus $20K pension) and you will leave $1.8m (albeit non COLA'ed).

If you "only" want to leave $1.1m after a 35 year retirement, you can spend $20K/year of the capital and have an average of $36K/year from the earnings on the capital, again at a very conservative 2.5% income rate, for a total income of $76K/year. And by putting 15% of your nest-egg in stocks, you should be able to get north of 3% over a long period without too much trouble.

True, only $20K of any of those figures is COLA'ed. But if you follow Bernicke's argument, inflation should roughly be cancelled out by reducing expenditure anyway.

Oh, and one other thing, as the cop in the raincoat would say:
Quote:
Originally Posted by Geoffrey View Post
I said I was risk averse and I really meant it!
Being risk-averse is fine and indeed sensible. But you have to decide which risks you are averse to. If you are totally averse to seeing the nominal dollar value of your nest-egg ever go down, to the extent that if you look at the spreadsheet on day (X) and find that it has gone down from $1,800,000 to $1,799,980 since day (X-1) it causes you emotional trauma, then you could be taking a substantial risk that you won't have enough money, which is probably the bigger real risk.
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Old 06-25-2010, 07:28 AM   #3
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Why so low on the income? What do you expect to get from social security, $20k? With $1.8M you should be able to safely take out another $40K minimum. That totals about $80K with the pension. If you simply don't want to touch the principle and are so risk averse you have it all in Treasuries or the G fund or something why don't you dump about half your nest egg into inflation protected joint annuities and keep the remainder in TIPS or something?
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Old 06-25-2010, 08:37 AM   #4
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Returning and renting an apartment will get you past the clueless stage very quickly. I don't think you have anything to worry about right now. Once you see how things really work out, then you can worry if you need to.

When I returned from overseas, it was a little bit difficult getting auto insurance (even from USAA) since they had no record of my driving or owning a car for several years.
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Old 06-26-2010, 12:15 AM   #5
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Geico offers great rates for expats who have not had insurance in the US for several years -- I think they offer an even better discount if you have military connections. The quotes we got from Geico were significantly lower than those we got from other insurance agencies. You can even get them on-line.

It looks to me that 1.8 mill would give you quite a cushion and room to experiment a bit. Could you consider an ESR approach at the beginning -- doing house/pet sitting gigs, or maybe substitute teaching (if that is something you have a background in) as a way of generating extra income at the beginning without the stress/hours of a "real job"? It might help you feel more confident about the transition.

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Old 06-26-2010, 08:02 AM   #6
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I was initially hesitant to express anxiety regarding my upcoming retirement as I realize that some would have little sympathy for a couple in our circumstances. However, most retirees have the comfort of being able to realistically evaluate whether they will have enough to retire on because they can use their present living expenses as a convenient frame of reference. Our present living expenses, however, have absolutely no relationship to what it will cost us to live once we return to the States. All we can do is GUESS what our costs will be. And, while planning our retirement it never occurred to me that I wouldn't be able to make at least 4 or 5 percent simply by investing in CD's. Now, we're looking at rates that are half that. Further, our original plan was to retire to a low cost of living area. However, now that my father is pushing the mid-90's, I realize that I need to step up to the plate, and that means being closer to him, even if that means moving to a California Coastal town where the cost of living is quite high. I have thought of part time employment as a safety net, but I have no marketable skill outside of my federal job and it just doesn't seem worth my while to look for a job that pays 8 or 10 dollars an hour. So, for planning purposes, I have added my 20K pension and another 20-25K spun off from my nest egg, and I figured I was looking, conservatively speaking, at a budget of 40-45K per year until the Economy turns around, or my Social Security kicks in. I realize that many would count on the nest egg pulling a little more weight, but I am just about as conservative as they come (I've been 100% G-Fund in my TSP for my entire Federal career) and I don't feel comfortable looking to our nest egg to generate much more than 20-25K per year in this environment of uber-low interest rates. So, I asked the members of this community whether, in their judgment, it is realistic for us to make our contemplated move to the California Coast with a budget of $40-45K. I was simply looking for a reality check, and perhaps a few words of encouragement. I sincerely appreciate the advice concerning car insurance -- I'll check into Geico. I hadn't thought about the potential difficulties obtaining insurance after living overseas for so long. All in all, I'm finding that moving back to the United States is a very intimidating experience!
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Old 06-26-2010, 08:21 AM   #7
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Nothing wrong with risk-averse investing. You should check out the work of Zvi Bodie who advocates that one should have Treasury inflation-protected securities, inflation-indexed single-premium immediate annuities, and social security benefits. Your G fund is along those same lines.

What is your father's real estate situation? Does he own a home? Can you move in with him if push came to shove?
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Old 06-26-2010, 01:58 PM   #8
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Here is a link to some Zvi Bodie videos to watch: Boston University School of Management
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