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I'm nervous..........
Old 02-09-2009, 03:47 PM   #1
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I'm nervous..........

I've posted on the board some over the past year or so trying to get my head wrapped around the "early retirement" idea, but now it looks like I am going to be forced to do it.

What always held me back whas the small business that I own and had tried to sell over the past two years with no success. I had some low-ball offers that in hindsight I should have taken but did not because we were still very profitable. Now we are down to 5 employees plus me, and I'm getting ready to just pull the plug to stop the bleeding here in a month or two (it will take me that long to wrap things up).

Anyway, I have a decent size nest egg saved up, but my expenses are still scary high to me. I was planning on paying off our recently purchased house over the next few years out of profits from the business, but that's not gonna happen so I'm stuck with a $2700 house payment until we can sell.

Also, I had planned on diversifying our concentrated nest egg over the next couple of years, but when everything went to hell I decided to leave it alone.

Here are my numbers:

Total portfolio-- $3,500,000
Total base annual expenses (no vacations) $112,800

Here is the monthlyt expense break down:
$4500-- what I used give to DW to run the house to pay for everything. There is some fat in here that I think I can trim when I start to pay for everything, but I have to be careful not to be too freaky or DW may revolt. I'm kind of joking, but not totally.
$500-- kid's private school. May sound like an extravagence, but the middle schools in our town are crappy.
$2700-- house payment
$1000 taxes and property insurance. Stupid large house.
$100 car insurance.
$600--- health insurance. I have looked around online and have found some policies in this range with large deductables for a family of four. I'm 43, wife 42, kids 9 and 11. All healthy.

The portfolio is 25% cash, 23% small caps that have gotten crushed, 3% in a foreign mutual fund (llinx), and the rest is in one stock-- Berkshire Hathaway. Like I said, not diversifed. Lost about 1.5M from the peak in 2008, and most of that was from the small caps.

I have 50K saved up for kids college plus their tuition is already paid for, but that's not going to be enough for 4 years of living expenses and books I'm afraid.

My goal is to slim down the monthly living expenses as much as I can (save10K per year is my goal), sell the big house as soon as housing recovers and get a regular house I can pay cash for (about 200K range).

Wife is a teacher, and she may go back to work for heath insurance and for some vacation play money.

What am I missing. Will we make it??
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Old 02-09-2009, 03:53 PM   #2
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We all have our expected lifestyles in retirement, but if I had HALF of what you do, I'd be FIREd so quick it would make your head spin.

Sounds like you may be dealing with the "one more year syndrome." Still, what it really sounds like you need is for both of you to be on the same page about it, and to downsize your house and get rid of that $32,000 annual house payment sucking you dry. If that were gone and you paid cash for a cheaper house (with cheaper taxes and insurance, too), you'd *easily* get your annual cost structure down. I think you can pull it off already with a $3.5M portfolio, but getting rid of that housing cost would make it so by a wide margin.
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Old 02-09-2009, 04:00 PM   #3
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Still, what it really sounds like you need is for both of you to be on the same page about it, and to downsize your house and get rid of that $32,000 annual house payment sucking you dry.
Yeah, I hate that %$&*! house. The wife and I have both agreed we need to sell it, but she's not liking it. Kind of a big trophy for her, if you know what I mean. We saved like crazy when we were younger and lived in a cheap little paid for house in a cheap little town, and as soon as we moved up to this bigger (too big) house in a more prosperous town the sky started falling it seems like.

The market is a little weak right now to say the least, but we are going to get it done.......
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Old 02-09-2009, 04:01 PM   #4
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Will we make it??
Of course you will. What's the alternative?

You have a very nice nest egg, something most of us only dream about. Still, you've got to come down to earth and cut your expenses to something most here would see as very comfortable. You've been living pretty high on the hog and now your bacon is getting fried. A very unfortunate but not unfamiliar story of late.

You mentioned your wife going to work but nothing about you seeking employment. Is that an option?

Also, if I read you correctly, your biggest problem may be convincing your spouse that "things are different now". Some folks can adjust, some can't. I hope for all of you, especially your kids, that she will come around.

Hang in there...
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Old 02-09-2009, 04:03 PM   #5
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Did you run your numbers through Firecalc? The ball park 4 percent withdrawal rate of your portfolio is $140,000 (do your total base expenses of $112,000 include income tax?).

If you sell your house maybe your replacement home will be in a neighborhood with better public schools.
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Old 02-09-2009, 04:12 PM   #6
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Of course you will. What's the alternative?

You have a very nice nest egg, something most of us only dream about. Still, you've got to come down to earth and cut your expenses to something most here would see as very comfortable. You've been living pretty high on the hog and now your bacon is getting fried. A very unfortunate but not unfamiliar story of late.

You mentioned your wife going to work but nothing about you seeking employment. Is that an option?

Also, if I read you correctly, your biggest problem may be convincing your spouse that "things are different now". Some folks can adjust, some can't. I hope for all of you, especially your kids, that she will come around.

Hang in there...
What REWahoo said, plus don't keep all this info to yourself; make your family part of the solution.
Wife to work, yes.
Children's college - loans, jobs etc.

If you are the only one on board with this situation it may cause other stresses in your family besides financial.

That health ins. premium is not too high for 4 people.
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Old 02-09-2009, 04:24 PM   #7
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Sorry about your problems but luckily you have a great nest egg . All you have to do is trim the budget by selling the house . Good Luck !
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Old 02-09-2009, 04:40 PM   #8
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It looks like your plan is fine:

* Reduce profligate household expenses drastically.
* Sell the house when things ease up to reduce exorbitant housing costs. You might consider doing it now, even, since your replacement house will be less expensive too. Or, if you have enough guts, buy your replacement house now, rent one of your homes, and sell your current one in a year or two.
* Wife possibly goes back to work for a few years. You can probably avoid it if she understands that you all have to spend less.
* Slowly diversify a bit better.

You will be burning too much for a while, but have faith: If you get things in line shortly, you will be fine!

Congratulations on achieving so much, despite the few mistakes (in hindsight) along the path.
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Old 02-09-2009, 04:54 PM   #9
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CD, if you're still sitting with 3.5M after this down turn I think you're good to go. Once you off the McMansion and the Dealership you'll be in great shape from what I can see.

Do you also own the dirt at the dealership or is it just a rent factor?
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Old 02-09-2009, 05:17 PM   #10
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I think you will be fine. I would bet even money you will find some form of (fun) work within 2 yrs of retiring. If your wife agrees to work, even PT its a "no brainer".

I would put 5 yrs living expenses in a safe investment and diversify the rest depending upon your risk/reward appetite. I would not worry to much about the house right now if either of you return to some form of work, especially if benefits are included. You can always tell the wife she has to carry some burden if she wants to keep the house. You can pack her lunch and drive her to work to save money.
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Old 02-09-2009, 05:51 PM   #11
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Thanks for all the input.

Quote:
CD, if you're still sitting with 3.5M after this down turn I think you're good to go. Once you off the McMansion and the Dealership you'll be in great shape from what I can see.

Do you also own the dirt at the dealership or is it just a rent factor?
Yes, McMansion needs to go. Man that was stupid..........

Own the dirt, so I will get a little out of that. Not much. Small store.

Quote:
What REWahoo said, plus don't keep all this info to yourself; make your family part of the solution.
Wife to work, yes.
Children's college - loans, jobs etc.

That health ins. premium is not too high for 4 people.
Yeah, wife is kind of in shock but coming around. It was hard going from making the big bucks to no bucks, but I was seriously sick of it anyway so maybe it is a blessing. It will be a little harder on her downsizing the house due to ego, but she is OK with it (she says).

The health insurance premium is a bare bones plan, and not a real quote yet just off e-insurance. It may get higher once I actually apply I hear from others. The heath insurance deal worries me..........

Quote:
Did you run your numbers through Firecalc? The ball park 4 percent withdrawal rate of your portfolio is $140,000 (do your total base expenses of $112,000 include income tax?).
FireCalc seems to think the numbers will work. $112,800 is what we need right now after tax, so I'm figuring about 125K pre tax. That's really just a WAG based on 15% cap gain rate if I sell stock to live or no rate if I just burn the cash, which is what I will do right now that the stocks are too undervalued to sell. What tax rate should I use?

Quote:
You have a very nice nest egg, something most of us only dream about. Still, you've got to come down to earth and cut your expenses to something most here would see as very comfortable. You've been living pretty high on the hog and now your bacon is getting fried. A very unfortunate but not unfamiliar story of late.

You mentioned your wife going to work but nothing about you seeking employment. Is that an option?

Also, if I read you correctly, your biggest problem may be convincing your spouse that "things are different now". Some folks can adjust, some can't. I hope for all of you, especially your kids, that she will come around.
Yes we have been living high on the hog the last year or so. We went from a $4000 monthly budget to a $9400 with the new house, taxes schools, etc. I've been a really high income earner over the last 10 years or so and did really well holding expenses down in relation to earnings, but the damn finally broke. But really, if the business would not have completely tanked it would have been OK. I know the expenses look crazy high, but the income was also crazy high. Not making excuses, because I did get weak finally, but there are real spending pressures on you when you are making the big bucks. It gets hard to sock 85-90% of it away each year believe it or not. It's hard to explain...........

I would have to open up some kind of business if I went back to work because I really have no professional skills (I'm in the car business), and I could, but I'm burned out, worn out and used up right now at the ripe old age of 43. Wife actually wants to get out of the house and do something-- wants me to be the house husband. I'm a good cook, clean like a mad man and hell with a lawnmower and handy with tools, so we will see how it works out. It's gonna be different.
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Old 02-09-2009, 06:18 PM   #12
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I mostly agree with Bikerdude, but the house numbers bother me a little more than they do him. Sleeping at night would be easier for me, in that situation, if I had some income coming in to apply toward housing costs. But I still would worry about springing a leak somewhere else in the plan and the house dragging me down to the bottom.

An emergency fund and a more suitable AA would definitely be a priority as well.

An interesting point was the private school expense because the public middle school sucks. I'm curious what the public high schools are like. If the high school follows suit, that alone could make me want to move. After my oldest kid graduated from one high school, the attendance zone changed and the youngest is now a sophomore in a different school. The new school is many times better than the other school, and if I had known how different they were, I would have moved years ago just so my first kid could have attended. If I had dual issues of hellacious housing costs and a worrisome school, I would give serious consideration to moving to something cheaper and zoned to a great school.
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Old 02-09-2009, 06:46 PM   #13
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...but she's not liking it. Kind of a big trophy for her, if you know what I mean...
I may be way out of line here, but we are all living in tough times right now. There's a lot of things we ALL don't like to have to do. But we do what we have to do. Stuff happens..to ALL of us.
I am sorry to hear about your business. Good luck with your plan to sell and jettison the house expenses.
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Old 02-09-2009, 08:39 PM   #14
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I'd seriously consider paying off the mortgage by selling a hunk of your portfolio, then plow your payment back into the market... Then when you downsize you could redeploy your cash.



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Old 02-09-2009, 08:53 PM   #15
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Well one pleasant thought...Take your 3.5M and multiply it by 20%, or for even more fun try 30%. (really big numbers) The thought being, 20 to 30% is probably possible over the next 18 -24 months, (a game changer for you) so there is some pretty good incentive to manage carefully..Of course, I'm sure someone will point out the possibly of a drop of similar magnitude, but that is not nearly as much fun to imagine..
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Old 02-09-2009, 10:03 PM   #16
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Did you run your numbers through Firecalc? The ball park 4 percent withdrawal rate of your portfolio is $140,000 (do your total base expenses of $112,000 include income tax?).

If you sell your house maybe your replacement home will be in a neighborhood with better public schools.
At age 43, I would be pretty hard pressed to go with a 4% WR. I would probably push it down to 3-3.5% somewhere, depending on your AA, etc.

Sell the house, get back into something reasonable (yeah, I know you want to and I know about DW's ego, our McMansion is also too big, and will probably never be fully used for its intended purpose before we sell it. We both love it though, and DW loves it more than I do). Agree with BWE about school in new area...might be better, try to find one that is better. Work on your AA a little, divest a few Berks and buy some long munis with the proceeds and some cash. Try to engineer your AA so you are leaving room for growth while at the same time providing a cash flow. Remember, no tax on munis...that is better for us that are in states with an income tax, and less so if your state has no income tax at all.

FWIW, R
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Old 02-10-2009, 08:39 AM   #17
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Well one pleasant thought...Take your 3.5M and multiply it by 20%, or for even more fun try 30%. (really big numbers) The thought being, 20 to 30% is probably possible over the next 18 -24 months, (a game changer for you) so there is some pretty good incentive to manage carefully..Of course, I'm sure someone will point out the possibly of a drop of similar magnitude, but that is not nearly as much fun to imagine..
This is why I don't really want to sell any stocks I own right now to diversify-- why sell at the bottom if I don't have to?? I don't think the Berkshire stock is rationally valued right now, but if course I could be totally wrong.

I have enough cash, even with the current big expenses, to last me about 8 years. If I can shed about 2K worth of monthly expenses that over 10 years of cash. It seems to me my biggest concern should be to shed some expenses as quickly as possible.

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At age 43, I would be pretty hard pressed to go with a 4% WR. I would probably push it down to 3-3.5% somewhere, depending on your AA, etc.
Yeah, I agree with the 4% being too high. That scares me to death. When I first started thinking about this a few years ago, 2.5-3% was my comfort range due to our young age, and now that the portfolio has dropped considerably I may have to adjust to 3.5% initially and hopefully when it recovers I can get it back down to the 3% and under range. We just need to sell some stuff and suck it up for now, and really keep it that way for the future so the money will last. I'm still optimistic, but it's just more of a challenge now.
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Old 02-10-2009, 09:23 AM   #18
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I have enough cash, even with the current big expenses, to last me about 8 years. If I can shed about 2K worth of monthly expenses that over 10 years of cash. It seems to me my biggest concern should be to shed some expenses as quickly as possible.
Is this cash you mention in addition to the $3.5mln? Like EF? If so, I're doing wonderful, though trimming spending is a great idea.

Tell us about the house.
How much did you pay for it?
What's the mortgage rate? Can you refinance it now as your business is still open? After you wrap up, loan brokers won't look at you.
How much are you upside down now? Or how much would you lose if you sold it today?
I'm asking these questions in order to look at your dwelling and its expenses from a different perspective. You hope real estate will revive this or next year. Thousands (or rather millions probably) hope exactly the same thing. But what if it doesn't happen for the next 3-5 years or 10years? You might end up throwing the money and hating the roof you sleep under ... you already detest it ....

Can you roughly break down the $4,500 your DW spends?

I'm just curious how big is your house?
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Old 02-10-2009, 10:07 AM   #19
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cardude,

If the wife wants to get out of the house and do something, then let her do that for a while. Even if she's making a paltry $30k per year plus benefits, that would really help with cash flow and might save you $8000-$12000 per year in health insurance too. That may even allow you to keep the mcmansion (if that is a high priority). You may want to talk with your wife and provide her with the either/or of having a nice house today and for at least the next 10 years, but possibly running out of money sometime in your 50's or 60's, or being set for life in a more modest house.
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Old 02-10-2009, 10:23 AM   #20
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Yes, McMansion needs to go. Man that was stupid..........
Not that stupid,you could afford it, and who knew that the automakers owuld fail and you'd get screwed?

Quote:
Yeah, wife is kind of in shock but coming around. It was hard going from making the big bucks to no bucks, but I was seriously sick of it anyway so maybe it is a blessing. It will be a little harder on her downsizing the house due to ego, but she is OK with it (she says).
I'd go about it slowly. Women are more attached to homes than men, as far as what I have observed. Maybe the nicer house helped ease all the time you were away from home. The car business is LONG hours and a lot of headaches.......

Quote:
FireCalc seems to think the numbers will work. $112,800 is what we need right now after tax, so I'm figuring about 125K pre tax. That's really just a WAG based on 15% cap gain rate if I sell stock to live or no rate if I just burn the cash, which is what I will do right now that the stocks are too undervalued to sell. What tax rate should I use?
I'd use the tax rate you were in as recently as last year, until you see how Year One goes.........

Quote:
Yes we have been living high on the hog the last year or so. We went from a $4000 monthly budget to a $9400 with the new house, taxes schools, etc. I've been a really high income earner over the last 10 years or so and did really well holding expenses down in relation to earnings, but the damn finally broke. But really, if the business would not have completely tanked it would have been OK. I know the expenses look crazy high, but the income was also crazy high. Not making excuses, because I did get weak finally, but there are real spending pressures on you when you are making the big bucks. It gets hard to sock 85-90% of it away each year believe it or not. It's hard to explain...........
No need to apologize, some of us have been there, myabe more on here than would admit.......

Quote:
I would have to open up some kind of business if I went back to work because I really have no professional skills (I'm in the car business), and I could, but I'm burned out, worn out and used up right now at the ripe old age of 43. Wife actually wants to get out of the house and do something-- wants me to be the house husband. I'm a good cook, clean like a mad man and hell with a lawnmower and handy with tools, so we will see how it works out. It's gonna be different.
Some retail stores allow access to group benefits for part-time employees. I know JC Penney does for sure. Maybe she could try 20 hours a week there. Part time teaching gigs are hard to come by........
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