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Do we have enough to retire?
Old 09-12-2014, 07:24 AM   #1
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Do we have enough to retire?

We are planning to retire at the end of the year.
I'm 60, DW is 53.
Kids are out of college and working.
We live in Texas so there is no state income tax.

This is what our financial situation will look like:
Primary home: 300K, paid off.
Stocks: 900K
Bonds: 100K (i-bonds and TIPS)
4 rental units paid off, 950K: 40K/yr rental income (after expenses, before income tax)
Pension: 30K/yr (cola'd)
Social Security 2 yrs from now (at 62): 11K/yr
DW's SS 9 yrs from now (at 62): 10K/yr
Health insurance from former employer. Our out of pocket cost is 5-10K/yr.
(We have no long term care insurance.)

We don't have a budget, but we think we can live comfortably on 80-100K / yr (before income tax).

We could work for a few more years, but we had enough.
Can we retire? Do we have enough?
Thanks.
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Old 09-12-2014, 07:33 AM   #2
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Depends on your projected and real expenses compared to your total projected income. I would recommend at least a 25% income buffer to cover the unexpected expenses.
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Old 09-12-2014, 07:57 AM   #3
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I'd recommend diving into your spending to understand that: it's the one thing that you have control over. Originally I thought I was spending about $100K/year, but when I looked at reality (with the help of Mint), I recognized a more realistic number is $10K/month. BTW - there are tons of folks on this board who seem to live quite happily on $50K/year or less (which never ceases to amaze me - I'm quite impressed with that). Point being, while it may not be your exact lifestyle, it's good to know that adjustments could be made so that you are not living in your car if times got tough. Regardless, if you're on the high end of $100K/year, you have about 70% of that covered with rental units and pension, so gut feel is that you'd be fine.

Then I'd look at tools such as firecalc to give you an idea about odds of success.
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Old 09-12-2014, 07:59 AM   #4
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Hi and Welcome. Have you put your numbers into FIRECalc ?

This is also a very good FAQ / Sticky for you to consider:
Some Important Questions to Answer Before Asking - Can I Retire?

Enjoy the forum !
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Old 09-12-2014, 08:04 AM   #5
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I think you are in good shape but I'll suggest a few possible moves.

First, think about selling your rental units. There is a strong market in much of Texas. Houston (where I live) is going nuts. If you are only netting $40k/yr with a $950k investment, you are lagging what you could probably get with a balanced portfolio without phone calls in the middle of the night and tenents that trash your plance. I know you are counting on continued appreciation but that's hit or miss. Also, can you really call yourself retired when you are having to take care of your properties.

Second, I think you are light on fixed income. You have too much in equities. If you are truly retiring you should probably be closer to 60% equities if not lower. You may be calling your rentals "bond like" but they're not.

Just my thoughts.
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Old 09-12-2014, 09:00 AM   #6
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You have over 55% of your noted assets tied up in real estate, with over 40% in rental properties. Although it's nice to have those paid off, just on the principal of diversification and risk, you may want to look at reducing your rental holdings and moving those into another asset class.
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Old 09-12-2014, 10:11 AM   #7
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I agree with 2B. More fixed income and sell at least some of the rentals to pad the portfolio. I have loosened my spending a lot over the past couple years (8 years ERed) I was living on approx. 48K per year, now approx. 60K per year. Congrats on being close to being free, You are gonna love it!

My only complaint with ERing is how darn fast time goes by! While working you wanted time to fly, now.......no.
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Old 09-12-2014, 10:46 AM   #8
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I have my standard questions. Does your rough budget include taxes?
You address health care premiums - is there risk this employer benefit could be reduced or taken away?
Have you run it through firecalc? (Make sure you go through all the tabs - to input SS, the rental income, pension, and of course asset allocation.)
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Old 09-12-2014, 10:47 AM   #9
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I think you are in decent shape. You do need to start tracking expenses at a very detailed level and develop a comprehensive budget that includes periodic one-shots like home improvements, new cars, major repairs, etc. You also need to plug your numbers into FIRECalc and some other similar tools. And yes, you seem to be pretty heavy on real estate and light on bonds. I like real estate as you can tell from my signature. But not nearly to the extent you are holding. This board will generally tend to lead you down a 60/40 path (+/- 10 points), which inevitably means selling at least some of your rentals and buying bonds. I tend to agree with that. But OTOH if the real estate is not a hassle to manage, or if you would generate large capital gains by selling, then I think it's fine to hold on. It generates 4.2% cashflow, with preferential tax treatment, and appreciation that should at least keep pace with inflation. You could certainly do worse holding bonds going forward.

Good luck and congrats on what you've accomplished so far.
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Old 09-12-2014, 11:39 AM   #10
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My rough conservative simplification of your cash vs spending (without taxes, inflation, COLA, rent increases, etc):
Income
1. Rentals = 40K
2. Pension = 30K
3. SS him (in 2 years) = 11K
4. SS her (in 9 years) = 10K
Total = 91k maximum, 81K interim, 70K current

Expenses
Health Ins = 10K
Living = 100K
Total = 110K

So you have a shortfall of between 40K current, 29K in 2 years, and 19K in 9 years. With 1M investments, you seem fine to take 4% for next 2 years, then 2.9% for next 7 years, and then 1.9% remainder. I do not think you will be running out of money.

I concur that you may want to unload the rentals and just have it in normal investment accounts with no hassles and less risk. As for your AA, that is up to your risk tolerance, it is generally recommended to have less equity and more income type holdings once you are no longer putting into the savings. Do you self-manage or have a prop mgmt service do it for you? That could be a factor in your rental income net if paying prop mgr fees, you could do that and some maintenance yourself once retired.

I don't count your house for anything, you need a roof over your head so it does not count in my calculations to produce income. Worst case you can get money out of it if all else goes to crap.
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Old 09-12-2014, 09:10 PM   #11
Confused about dryer sheets
 
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Thank you all for your nice and insightful comments / advice.

I plan to work / consult part-time for a while and so does DW; we'll build up a 20-30% income buffer for sure.
I'll keep my rentals for the time being, they've been treating us very well so far.
Rents are going up lately.

I feel free. Work is optional now (at least full time work is).

Thanks again.
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Old 09-13-2014, 10:08 AM   #12
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Quote:
Originally Posted by g_chime View Post
I'll keep my rentals for the time being, they've been treating us very well so far.
Rents are going up lately.
Your return on your real estate is low if you could really sell them for $950k. You should be raising your rents or moving the assets where you can get a better return.

I've been in Houston when rents were falling and houses were being repossessed by the thousands. Things look very nice now but you have a very high percentage of your net worth in rental properties.

Good luck.
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Old 09-13-2014, 10:33 AM   #13
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Yes
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