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Looking for comments on my plans for FIRE
Old 05-21-2005, 01:38 PM   #1
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Looking for comments on my plans for FIRE

Howdy!

Background:* I'll be 52 in 4 months, and my sweetheart of 28 years is 53 next month.* We're both career Feds (CSRS) who started in 1976 and she was able to take an early out offer last June, and is quite happy being RE'd.* My regular retirement date would be 09/2008 at 55 years with 32 years of service.

I've been told that my agency has received early out authorization (no buyout incentives, just an extra reduction for leaving before 55) from OPM, but they are really dragging their feet on announcing it as it would have to end when the fiscal year does (30 Sept).* We had an early out last year, but it wasn't offered to my division.* If we get skipped again and Operations doesn't a former boss who is Deputy Regional Commissioner has said she thinks she could arrange for me to transfer over just long enough to slip out the door.* But if things don't work out I may be stuck for three more years.* Early outs in the future seem unlikely unless a lot of my fellow Boomers don't retire as they are expected to do.

If I don't get to retire this summer I'm going to be really PO'd as I've been mentally ready for some time!

We're not concerned about leaving an estate to distant relatives - we plan to use it up ourselves.* We're very aware that predicting how long we'll live is hopeless - my Dad died at 72 but my grandmother lived to just past 90, and we've had a spate of friends our age die/get terminal illnesses recently.

Financial info:* I've been doing budget/income spreadsheets for some time as I'm fairly analytical in nature, so I think I've got a pretty good grasp on my likely level of expenditures.

Since we've both had similar careers (and no children) we've kept our money separate except for joint expenditures which go into the "bill envelope" and are settled up every month or two.* That works for us.* We are both able to carry our medical coverage into retirement, and we also have the Federal LTC plans.* The household has had some serious illness a few years ago and maintaining medical coverage is a priority consideration.* We use Kaiser Permanente as our HMO.

Assets:* We paid off our 1100 sq ft 1948 house on the west side of San Francisco several years ago.* CMV is in the $500-550K area.* Recently we've been doing some of the major things like replacing all the windows and drapes, termite repairs and an electrical service upgrade, trying to get some big ticket items out of the way before the income drops even more.* We've got three paid for autos - two cars and a van.* I'm considering selling my 2000 Focus when I no longer need to do a 250 mile/week commute, and either fix up my 88 Dodge van some or sell it too and use the money from both to buy a nicer van.* I ride/race/build motorcycles as my major hobby so I need a van.* I've got 30 or so project bikes, and I've already been trying to decide what of those I can stand to sell.

With my annual leave cash out and current savings I'd probably have about $30-35K cash within a couple of months of retirement.* She's a better saver than I and has about 3X that - money market fund, CD and cash.* The Thrift Savings Plan at work is about $110K between both of us.* We've been paying in at the max including the catch-up amounts though of course that stopped for her when she retired.

Costs:* Right now our combined monthly fixed costs look to be right at $2000.* That covers the joint expenses: property taxes, house insurance, utilities, food etc.* I've got a shared warehouse space for my dead storage m/cycle stuff that costs me $480 a month, and getting out of that is the impetus for selling off a lot of the extra bikes.

With the storage my annual budget for a pretty similar lifestyle, including income taxes, is about $30-31K, less about $5K if I get out of the storage.*

Income:* In a month my immediate retirement amount should be almost exactly $40K/year.* She's about $36K.

After retirement issues:* We're leaving the money in the TSP instead of pulling it out and putting it somewhere else.* We've had a bad time with mutual funds and the security of our principle is important to us.* We put off getting into mutual funds during all the run up, and then put about $40K cash into them and watched significant amounts of it evaporate when things went bust, and we didn't enjoy the experience.* We're out of them now.* We also got into the TSP late and missed most of those 20-37% annual return years in the mid 1990s.* I guess you can say that as investors we're more on the conservative (and not terribly well educated) side.

At 59.5 (or later) we can convert the TSP into an annuity.* We figured we'd let the money sit in there and go with the annuity at that or a later date to offset any erosion in the pension amount.* I can't get into EBIS from home so I can't come up with an annuity amount, but I think the projection was for about $3-5K a year each at 60 years of age.

Right now we're 50% G (government securities) and the rest in the C (common stock) funds.* For the last year the G fund is 4.53% and the C fund is 6.35% for a combined 5.4% return.

I'm uneasy about the state of the national and world economies, and I'm very tempted to wait for the C fund to have a couple of positive months (it has been negative the last few months) and then just switch it all into the G fund where it will be secure.* I'm not an investment hobbyist who studies things with any kind of diligence, but there seems to be enough stuff looming on various horizons for me to not want to be in anything that is even remotely volatile should things start to tank.

We don't have any intentions of working after retirement on anything but our own projects.* However, as I mentioned I build motorcycles (not choppers - race bikes and vintage bikes) as my hobby and in doing that I've accumulated a pretty good home machine/welding shop.* This past year I've spent about $30K on upgrading my lathe and mill to older, high-quality industrial machines, and I'm continuing to spend on tooling with the idea of being set up really well before my "mad money" income drops.* While I am buying this for my own projects, there is certainly the possibility of picking up the occasional bit of outside income with them.* I won't go looking for it, but if something came up that took 2-3 days a month that would be fine.* The milling machine is computer controlled and could be used for doing small production runs.

It looks to me like we're in pretty decent shape, and we should be able to continue adding some to our savings after retirement.* We don't live a lavish "keepin' up with the Joneses" lifestyle, but we are accustomed to ordering whatever strikes our fancy if we go out to eat, and buying whatever we want to buy (within reason).* We can probably trim a bit of non-essential spending, but we are intending to enjoy ourselves with our hobbies (her's are lapidary/jewelery making and orchids) and if we were going to have to scrabble for every dime I'll just keep on working and add another $10K or so onto my pension.



I think that pretty much covers everything I can think of, and what I'd like is to hear anyone's constructive criticism of our plans as I've laid them out.* Is there something obvious I've overlooked, or maybe someone knows where there is a 100% secure investment with a 30% rate of return that we should consider moving our savings into?*

thanks,
Michael
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Re: Looking for comments on my plans for FIRE
Old 05-21-2005, 04:01 PM   #2
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Re: Looking for comments on my plans for FIRE

How much is your health coverage going to cost you? You should anticipate at least a 10% raise annually in your budget. $500 bucks a month for storage? Sell the bikes quick! Just keep two or three to tinker with at your house to get your fix. I wouldn't sell the focus if it runs well and you've paid it off. If you maintain it, it may last you 20 years, and with gas prices, I bet that van will be quite expensive to tootle around in!

I would not go annuity, if you can stick that money into an IRA, get into Vanguard and go for a low risk, low cost fund like Wellesly. It's majority bonds but has some equity play, gets you a pretty nice return with low volitilaty (risk)-throws off nice dividends, too. Your equity investment experience is a textbook case of how a lot of people get burned. Read the 4 pillars of investing. If you are dead set against even that level of risk, think short/intermediate bond ladder with that money. The problem with annuities is there is no hedge on inflation. Those payments could become next to worthless if we have a run up like the 70's. Speaking of inflation, are your retirement pensions COLA'd or are the payments constant, leaving you vulnerable to inflation there? If they are COLA'd then I think you are sitting pretty, since you'll be grossing almost 4 times your expenses. Sounds like you made it! I'm jealous! Welcome to the board!
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Re: Looking for comments on my plans for FIRE
Old 05-21-2005, 04:37 PM   #3
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Re: Looking for comments on my plans for FIRE

Thanks for the reply and welcome.

On the car, I was figuring to get rid of the more expensive of two insurance premiums.* Without a commute involved I don't do that much driving, and the joint trips could be in her Acura (which has 40K fewer miles than my Focus, even though it is 6 years older).* If I had some time and energy (something that sure seems to be lacking when I'm getting up at 4:15AM to go to work) I might actually have a few running street bikes that I could use for running around in the city.

San Francisco does have a pretty decent (mostly, at times, well, now and then) public transit system, and we're half a block from a streetcar line, so if we want to head downtown for some reason that didn't involve lugging lots of stuff home we'll take that instead of driving and paying for parking.

Yes, the CSRS pensions are COLAd, though I think it is now one of those CPI-1 types of deals so there will be some slippage.

We carry the medical over at the same payrates as when working.* Right now I'm paying $92/month for the medical, and $145 for LTC.* The LTC is an inflation indexed policy, and I was able to get that locked in before I turned 50 so the price seemed pretty good.* Since I've seen how quickly LTC can eat up assets, and how something like a bad auto accident (at any age) can put a person into needing at least a period of LTC, I'm willing to continue that.

I'd have to get more details on the annuity when the time comes.* It is hard to say what might be offered in 8 years vs what other options might be available to roll the TSP money over into.* Since the TSP is very safe (if in the G fund) and doesn't seem to be all that bad of a ROI I could just let it sit in there and appreciate mildly, and pull it out if some really stunning option came along.

cheers,
Michael
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Re: Looking for comments on my plans for FIRE
Old 05-21-2005, 05:04 PM   #4
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Re: Looking for comments on my plans for FIRE

Michael,

With almost $80K pension oer year (COLA) and discount medical insurance, you will have no problem whatsoever to afford a $2,000 monthly budget. You do not even have to tough your savings. You are another success or inspirational story about working for the government or agency.

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Re: Looking for comments on my plans for FIRE
Old 05-21-2005, 11:54 PM   #5
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Re: Looking for comments on my plans for FIRE

I don't see much inspirational about it, just put your head down and stick it out, much like most any other job out there. But the government careers often seem to be looked down at by many people, while I've found it to have worked for me. The new FERS setup may not be as good a deal as the old CSRS I'm under, but that could certainly vary with individual circumstances.

Of course, putting your head down and sticking it out could apply to savings too, and as someone who hasn't always had a lot of success at saving (spending is easy though) those of you who've had the discipline to have piled up enough savings to finance your retirement in lieu of a pension seem pretty inspirational to me.

As I said, I was pretty sure things were looking good, but Mr. Murphy likes to wait until you get complacent before sandbagging you.* The $2K is the rock bottom "keep the lights on budget" for the two of us, not the "let's have some fun in retirement" budget.

The tip about annuities was worthwhile to me.

cheers,
Michael
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Re: Looking for comments on my plans for FIRE
Old 05-22-2005, 06:17 AM   #6
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Re: Looking for comments on my plans for FIRE

Quote:
Originally Posted by The Other Michael
I don't see much inspirational about it, just put your head down and stick it out, much like most any other job out there.
Several ex-government employees have posted about their government pensions and I'm amazed at the amount of retirement income and the cost of living adjustment. I don't know of many corporations that have such plans. The ones that do have them are getting out of them either through changing the plan terms or going bankrupt. I worked for GE from the age f 22 to 45 and will get a pension of 13,500/ year in 2016 - no cola.
I now work for a company that does not have a pesion plan - only a good 401k plan.

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Re: Looking for comments on my plans for FIRE
Old 05-22-2005, 09:09 AM   #7
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Re: Looking for comments on my plans for FIRE

I must say that you are very far ahead of most people and should be looking forward to a very fulfilling retirement. I am a financial advisor and trust me you are way ahead of the game.I do have a couple of suggestions you may want to look into.

First, I really find it unnecessary for you a man of your age to still have such a large portion, 50%, in common stock funds, The return you are getting is very low considering the risk and also the C fund can go bottoms up and you are too close to retirement to have to worry about something like that. It might be a good idea to shift some money into maybe bonds or a vehicle that gives solid returns, is liquid, and gives great tax breaks. As you get older, liqudity becomes more important since health care costs, vacation costs, and home repair always seem to surprise you and jumpo out of nowhere. The worst feeling in the world is to have enough money but you cant convert it to cash in time.

I would not recommend an annuity simply because you already have such a wonderful pension. Your pension plan is very rare and I can guarantee that 99% of retirees would kill for those benefits. If you set up an annuity, you are selling yourself short on the return you can get for that whole sum elsewhere and the pension will more than cover monthly expenses.

Also you can create even more income by simply creating an official business for your motorcycle shop. By making it a seperate business entity, you can start claiming numerous tax deductions, lowering that taxesy ou pay, which ultimately puts money in your pocket.

Please feel free to comment on suggestions and ask anymore questions. I love doing this stuff!
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Re: Looking for comments on my plans for FIRE
Old 05-22-2005, 09:45 AM   #8
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Re: Looking for comments on my plans for FIRE

Quote:
The $2K is the rock bottom "keep the lights on budget" for the two of us, not the "let's have some fun in retirement" budget.
That's only $24K per year while your combined pension is $76K. You have another $52K for fun.

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Re: Looking for comments on my plans for FIRE
Old 05-22-2005, 12:06 PM   #9
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Re: Looking for comments on my plans for FIRE

Michael,


I want to add my voice to the others who advise against taking a TSP annuity. I am a retired Fed (CSRS) and thoroughly researched the TSP options and I concluded that the TSP annuity is one of the worst financial deals around. It you are still interested in an annuity, take the $ out of the TSP and buy yourself an immediate annuity through a low cost provider like Vanguard.


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Re: Looking for comments on my plans for FIRE
Old 05-22-2005, 12:13 PM   #10
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Re: Looking for comments on my plans for FIRE

Hello dex,

Our pensions have been funded by 7% of our gross pay since day 1. *There is an agency match of that amount. *We also pay 1.45% of gross for Medicare coverage (CSRS is outside the Social Security system). *For many years we didn't have the TSP quasi 401K type of program, so we didn't have some of the options that folks in private industry had for additional savings.

We're in a high cost location (SF Bay Area) that receives a geographic cost of living supplement in an attempt to make Federal salaries more competitive with private industry. *That makes my current level of pay about a full grade level (or so) higher than it would be if I were in East Elbow, Montana and that's certainly helped matters quite a bit. *That supplement is treated as regular pay for the pension comp.

JR, as I mentioned our limited experience with investing is pretty negative, missing the boom years and getting the full negative benefit of the bust years. *I saw some comments by Donner in a discussion back in March that makes me seriously consider switching everything over into the G fund. *The F (bond) fun has done the same or worse than the G fund for the last several years, though for this most current 12 month period it is doing about .7% better. *I don't have any investments outside of the TSP, and once I retire I can leave the money there and shift it around, but I can't add to it. *I'd probably go for CDs or similar safe vehicles for any additional savings/excess cash after retirement. *I've long since given up any hopes of being wealthy, and I'll be satisified with "comfortable". *We're not gamblers, and we'd rather go with the sure thing, which is probably a significant factor in why we went with careers in the civil service. *

I'm ahead of you on the side business as I've had that since 1990. *It has had a minor profit several *years, but generally has been of more use as a writeoff against my wages. *I took the Section 179 deduction for my machine tool purchases for 2004 and that took me from a $5K profit to a $25K loss, which got me quite a healthy refund on my taxes. *I'm a firm believer that everyone needs a side business! *I haven't had any concerns about the "hobby business" aspects as I've treated it as an arms-length entity from my personal funds as much as possible. *Business accounts, bank card merchant account, yellow pages listings, and gross receipts have generally run $20-40K, though losses have generally been more common than profits at tax time. *I have though declared enough profits that saw me paying SEI FICA taxes in various years.

I should be pretty close to having sufficient quarters for a Social Security benefit though I'd be subject to the Gov't Pension Offset, and the amount of any payment would be the rock bottom minimum since many of the quarters were earned from jobs when I was in college. *But if there's an extra $100 a month in 13 years I won't turn it down.

cheers,
Michael
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Re: Looking for comments on my plans for FIRE
Old 05-22-2005, 12:55 PM   #11
 
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Re: Looking for comments on my plans for FIRE

Good news, Michael. You have the high-test COLA, which is generally the same as the CPI. The FERS folks get the diet COLA. Good luck with your VERA!

Quote:
Originally Posted by The Other Michael
Yes, the CSRS pensions are COLAd, though I think it is now one of those CPI-1 types of deals so there will be some slippage.
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Re: Looking for comments on my plans for FIRE
Old 05-22-2005, 01:15 PM   #12
 
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Re: Looking for comments on my plans for FIRE

Dex, you have no idea how bizarre it is to parachute into an exotic place where--for once--you encounter denizens with vaguely positive things to say about government employment.*

As the Other Michael noted, civil service is generally not held in high esteem.* Many times over the years I contemplated jumping ship for private industry.* However, one peculiarity of the federal Civil Service Retirement System is its absolute lack of portability.* If you leave a government job, you leave with nothing save the 7% deductions you paid over the years.* Additionally, you don't pay into social security, so you have to start fresh for the chance to draw a check at 62.* So very early on you get locked into your station in life.

Over the years I'd hear the older folks talk about the great retirement plan but it was just all blah blah blah blah.* I'd tune it out.* Under the age of 40 or so, retirement is just a vague concept.* You never really think you will get there.* I certainly didn't take a federal job for the retirement benefits. It has only been very recently that I started paying attention.* It is an absolutely superb plan if you choose to retire from age 55 - 60.* And if you decide to bail earlier, it ain't that bad either.*

Quote:
Originally Posted by dex
Several ex-government employees have posted about their government pensions and I'm amazed at* the amount of retirement income and the cost of living adjustment.* I don't know of many corporations that have such plans.
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Re: Looking for comments on my plans for FIRE
Old 05-22-2005, 09:55 PM   #13
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Re: Looking for comments on my plans for FIRE

So the consensus would be you are sitting pretty! Enjoy, you've earned it after all those years dealing with beuracracy!
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Re: Looking for comments on my plans for FIRE
Old 05-22-2005, 10:45 PM   #14
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Re: Looking for comments on my plans for FIRE

Hey, I resemble that remark!

There's nothing wrong with the idea of a bureaucracy. They're designed to enforce rules fairly and without personal bias. The problems come when they get a bit out of hand, and that can happen in both public and private bureaucracies.

I've got a lot more problem dealing with lame-O managers, and I suspect that is something that most people can relate to. I've had some really good managers that I've respected and enjoyed working for, but they seem to be about as common as people who save their money and retire early!

There appears to be a few things I need to tweak a bit (like the eventual disposition of my TSP, and how to allocate it among the funds while I have it) but yes, I'm feeling pretty good about my prospects. Now all I need is my agency to get their collective butt in gear and let me retire!

cheers,
Michael
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Re: Looking for comments on my plans for FIRE
Old 05-23-2005, 10:39 AM   #15
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Re: Looking for comments on my plans for FIRE

You've got lots of good advice and I don't think I could add much anyway.
Hubby and I are retired gov't employees in the midwest with a very similar pension amt. as you and your wife. I have to admit, though, that our bare bones budget is more than $2000 a month. Our health ins. alone costs us $1037 until the end of the yr. We're switching to a HSA at that time which should help.
We also have no plans to work in retirement. We'd much rather spend less in order to stay totally retired than to go back to work. Our budget does include a large vacation fund as well as some stock and bond purchases each month. So we do have some $$ to play with currently.
Our pensions were also funded with 7% of our gross wages. We were able to save a bit more in IRAs and 457 accts which we have earmarked for long-term care insurance.
Congrats on the good job you've done.

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Re: Looking for comments on my plans for FIRE
Old 05-23-2005, 01:56 PM   #16
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Re: Looking for comments on my plans for FIRE

T.O.M.,

Your situation has similarities and differences from mine. I will be 55 at the end of this year with 32 years of Fed service. In theory I could retire. My wife plans to retire next year at 58 with 20+ years of teaching. She will get a very modest pension. Our house is paid off and I have been maxing the TSP since it started. And Roth and some DRIP stocks. So far we are similar but we still have one son at home in high school (and an older son with a Grandchild, yes, yes, yes). Itís the question of college costs that keeps me from pulling the plug, I don't know if its $5K a year or $30K a year. I expect in a year or maybe more I will have a better idea of what the college prospects are.
Anyway I am thinking that it is a good idea for my wife to retire first. She is more attached to her job and will want to see how she will handle the transition. And we will lose some income so it will be interesting to see how we adjust to our income going down. And I would like to have a job it the economy tanks, to be able to retire into a rising market. But if my agency offers a buy out next year I already told the boss I would take it. Its not just the money, which is really not that much, $20-25K, but I assume that working somewhere after a downsizing is a lot less pleasant.
From a purely financial aspect I think you have things covered. Check back in and let us know how things develop.
One concern I have for myself is that my spending is to some degree to some degeree constrained by my job. I can imagine spending a lot more money if I had the free time to travel. The job provides some external discipline which I would have to replace with the internal sort.
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Re: Looking for comments on my plans for FIRE
Old 05-23-2005, 03:12 PM   #17
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Re: Looking for comments on my plans for FIRE

Have you considered moving?

Half a million dollars will get you a mansion in many parts of this country. Your annual income would allow you to live in luxury.

Have fun.

John R.
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Re: Looking for comments on my plans for FIRE
Old 05-23-2005, 03:57 PM   #18
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Re: Looking for comments on my plans for FIRE

Hi yakers,

The last buyouts we had were about 1997/98, and I'd be very surprised if they ever have any again, since so many people are coming up to the 30/55 combo and should be leaving anyway.* Also, the hacking at the civil service rules that they are doing is probably going to be an incentive for some people to bail out before things get even worse.

As for the college expenses, it seems to me that unless they HAVE to attend a certain school for a certain class, the students would be better off going to a local college, living at home, and avoiding starting out with $70K in student loans.* You could even tell them that if they do that you'll put 1/2 of the saved expenses towards a nest egg for them when they graduate.* In this economy having the money and a less expensive degree that won't get them a job is better than big debts and an expensive degree that won't get them a job.

John, we really like where we are at, other than not having enough space (we both have hobbies and pack rat genes).* If our 95 year old next-door neighbor would just will her house to us when she dies we'd be set!*

We have a very limited temperate zone - 70F is an official heat wave (and the complaints about "getting hot" start around 65F), and 45F is getting pretty chilly.* We don't like bugs, and we like the amenities available to us here in San Francisco.* The traffic and parking sucks, but everything has a price.* We've also seen grandparents who moved off to the rural small town and when they could no longer drive found they were stuck in the boonies, and getting back into the City where they could get the medical attention they needed was quite a bother.

I could see living in the small town on the edge of the big city, but we'd have to find someplace right on the coast for our climate requirements, and that limits things.

Plus, with Prop 13 our property taxes are about $2200 a year.* A move would probably see them at minimum double, if not triple.

When we have the time we do plan to start doing more "investigative" short trips to check out places, but at this time I figure a move isn't likely in the near future.

BTW, today I changed the portion of my TSP payroll deductions that was going into the stock fund over so that 100% goes into the G (t-bill) fund.* The C fund has lost ground in three out of the last four months.* I'm not sure if I should just move all the C fund portion of my account (about $32K) over into the G fund now or hang on for a few more months and see if things bounce back a little before bailing, instead of getting out of it during a losing streak.* I find those kind of decisions annoying, but since historically I've tended to hold on to things too long maybe I should just cut and run.

cheers,
Michael
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Re: Looking for comments on my plans for FIRE
Old 05-23-2005, 04:31 PM   #19
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Re: Looking for comments on my plans for FIRE

Quote:
Originally Posted by The Other Michael

Plus, with Prop 13 our property taxes are about $2200 a year. A move would probably see them at minimum double, if not triple.
If that's all you pay in property taxes, you have really got it made. My house is nowhere near 500k and I pay $3600+ here in Texas. I always knew our property taxes were outrageous, primarily because of no income tax. Hey, we need a prop 13.
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Re: Looking for comments on my plans for FIRE
Old 05-23-2005, 05:08 PM   #20
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Re: Looking for comments on my plans for FIRE

Didn't they try for a Prop 13 in Texas a few years ago?

I would love to see my property taxes freeze at their current rate of $4800 per year.* The only saving grace in my area (north of Houston) is property values are not going up super fast so my taxes only increased $108 per year in the last two years.

We thought about moving to a more tax friendly area to make our retirement funds last but having a hard time locating one.* Oklahoma's property taxes run about 1% of value (a bargain compared to Texas 2.3%) but the Oklahoma 5% income tax really hurts.

Anyone got opinions on the best place for retirees looking for a nice place to live without going broke paying taxes?



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