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Old 01-17-2009, 03:00 PM   #21
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Just a couple of things to keep in mind. There is nothing wrong with looking at the 500K in CD's/I-bonds as a source of income for the 4 or 5 years you need to bridge to SS. It's after-tax money, and currently is probably earning fairly little interest, with short-term rates as low as they are today, so the opportunity cost of spending this principal is small. This will also minimize your taxes. So I would spend the CD's/I-bonds (principal and interest) as they mature

Assume your AGI is 40K (and it may be less since you won't be counting the maturing CD principal). This means your medical expenses (including health insurance) will be deductible on Sched A once it exceeds 7.5% of AGI, or 3K in this example. In 2009, the standard deduction is 11.4K, so you will likely exceed that with health insurance by itself. If you are itemizing, property taxes will be deductible, as well as some other items. So your tax liability may well be close to zero.

It appears that you have been paying the maximum in SS taxes, and your wife has probably been paying just a bit under the max. Hence, between the two of you, your age-62, SS is probably pretty significant. You can look at this income as replacing that from the CD/I-bond principal you spend over the next 5 years.

Also, take a look at what your dividend/interest income from your 401K's/IRA's is. Think of this as income whether or not you actually take it out. Let's say you have 500K in retirement accounts, and it earns 20K in dividends/interest. If you spend 20K of your after-tax cash (e.g, the CD's), think of it as spending interest (not principal) since it is being offset by retirement account earnings. It is also, more tax-efficient to spend the after-tax cash first.

Also, once you turn 59.5, you can start taking money from your IRA, if you need to. If your tax liability turns out to be zero, make sure you take enough out your IRA to offset any unused deductions. This will also help you down the road with regard to RMD's.

In summary, it appears to me, that financially, you are in better shape than you think you are. Good luck to you both.
Thank you for your evaluation. Your suggestion about using CD/I bond money to gap the bridge to SS is exactly why I have been putting so much there for the last couple years. Except it was with the expectation of a planned early retirement, not a forced early retirement.
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Old 01-17-2009, 03:05 PM   #22
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Except it was with the expectation of a planned early retirement, not a forced early retirement.
Over half of the "retirements" are unplanned. That's right up there with pregnancies.

You never put your totals up but I suspect you can easily cover your current lifestyle with your assets and eventual SS. I suspect you can increase your spending and still have a 95+% FIRECalc outcome. Go run the numbers.
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Old 01-17-2009, 03:14 PM   #23
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Hi Tom,

My husband and I are a few years older than you (I'm 62 and he's 59) and when I read your story I thought, "been there, done that".....and we survived. I won't go into detail because I just want to offer encouragement. I just want to say that if you and your wife are as devoted to each other as you seem to be, you will be okay.

We planned, we saved, we lived way beneath our means, we had goals......and then life just took a few awkward turns of its own. From the time I was young, I believed that if I had a plan and followed it carefully, my life would be perfect. HA HA HA

But the nice thing is that we have a paid-in-full roof over our heads, we are both currently very healthy, and we do have enough money accumulated to live modestly for the rest of our lives. My husband and I are each other's best friends, and we are so grateful to have one another.

Life isn't over, it will just be different from what you expected. Our experiences have taught us to be more flexible. I honestly could give up almost everything we own and live out of a backpack....having less is very freeing. You may not believe me now, but post back here again in a couple of years.

Practical note: my sister went back to work two years ago at 67 so she could earn enough to pay for extensive dental work for her husband and so they could buy a new car (she's a nurse). The hospital offered medical coverage, 401(k), dental, life insurance and other benefits -- it is mostly an office job. She says it is the best job she has ever had. Her husband's teeth were falling apart, and her dental is covering nearly 100% of his restorations. Perhaps your wife could look into hospital work. When I was young, I helped work my way through college as a nursing assistant. The pay wasn't great, but the benefits were good and hospital people are great coworkers.

Finally, I saw from one of your other posts that you live in Naperville. Take a drive through some less affluent areas, maybe some of the poorer parts of Joliet. Or come up here to Lake County where I live and drive through North Chicago or most of Waukegan. When I had some down days, I used to drive through those poorer neighborhoods, and I would feel ashamed of being sorry for myself. Those are the kind of neighborhoods where I was raised, and it was such a horrible struggle to live when you are REALLY poor.

Good luck to you. You're going to be fine.

Pie
Pie, thank you for the kind words of encouragement and wisdom. My DW is also my life long best friend and we both have worked hard and always LBYM. You are right that we are better off than many, it is just really distressing for me to be in a position where future events that so greatly impact my livelyhood seem so out of my control. I have never experienced that before. I try to put up a good front to DW so as not to stress her unnecessarily, but that just seems to compound my anxiety.
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Old 01-17-2009, 03:25 PM   #24
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Tom52,

I'm not going to comment on your finances because it looks like you got some good info and comments on that already, but I will comment on the huge amount of stress you are feeling.

I'm in the car business (own a small Chevy dealership), and my life has been on a real roller coster since September of 2008, so I think I can relate. I went from making 400K in 2007 to losing big money in 2008. To make matters worse, we bought too big of a house in 2007 and now have a big payment and big living expenses ($9500 per month with the house payment), so I really feel pretty stupid at this point financially, especially since we had lived in a small, paid off house for the last 10 years. But, the wife wanted to update, so......... As a result of all of this, my stress level has been off the charts and my health is starting to suffer in various ways (no energy, some weird chest tightness and other stuff I don't need to mention). I'm only 43 and was planning on selling the store and hanging it up in 2009, and while I still might hang it up there is not much to sell now.

So anyway, on the surface it looks like things have really gone to hell for me, but I'm trying to stay positive. If I can get this store closed and stop the losses I can still quit and we can live off our investments. Maybe not the way I had envisioned, but we can still do it with some trimming.

I guess my point after all this rambling is DON'T LET THINGS GET YOU DEPRESSED, it is usually not as bad as it seems to be.

Take care.
Cardude, I am really sorry to hear about your situation. I can really relate to a lot you say. My sister and BIL own a dealership as well and they are really having a tough go of it. I sure hope the economy turns around soon.

I can also relate to the stress related issues you have experienced. I have been to the Dr. recently due to chest pains and related problems. Luckily it was not the heart causing the problem, the symptoms were caused by stress and anxiety.

I hope everything works out O.K. for you and your family.
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Old 01-17-2009, 03:35 PM   #25
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I am sorry to hear about your health problems. My father always said your health is worth more than your wealth. I will tell what I would do if I were in your shoes. I think you are in good shape money wise but if you lose your job I would sell the home and move even for 20k to 50k less than the 275k. What are your house taxes? You need to get to a low cost area where your money can buy more. If it were me I would head to a small town in MO,AR or OK where the cost of living is very low. A nice small house in a safe area can be bought for 50k and the taxes would be around $600 a year. I also think when you are in the midwest you can knock 10k off your spending going down to about 30k a year. Spend the taxable money first then when it is all gone go to the retirement money. This will help with taxes. I am in the midwest and know many couples that live on SS and their net worth is less than 500k. Money wise I think you are in great shape. What will your SS be when you both can collect at 62?
rec7, your suggestion of moving to a area with lower cost of living is exactly what I think we would do. What I have not mentioned before is that my parents are fortunately still with us, but not in the best of health. I am thinking that when the job goes south we should move back closer to them and then try to find some kind of job to offset expenses. Fortunately, the cost of living can be less there, especially if you live in the rural areas. My property taxes were $5,000 last year, which was $1,400 less than the year before that. I had to protest the taxes to get the reduction but I expect they will be at least $5,500 this year. Property taxes are my single biggest yearly expense.
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Old 01-17-2009, 03:44 PM   #26
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How much can you save on housing in this area?
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Old 01-17-2009, 03:45 PM   #27
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I think your health care costs will be high but otherwise your finances sound all right even if you don't move (but that is a very good idea to sell your house even below market value--you will likely sell it for more than you bought it for?--and move somewhere where taxes are lower). Imagine the stress if you hadn't started your 5-year-plan, and more importantly, if you hadn't started saving even before that.

I hope your wife continues to enjoy good health and you are so right about man plans while God laughs. But sometimes we laugh as well, and I hope you can too.
Actually, I probably will not break even on the sale of my house. I paid $125,000 in 1987, then I did two major remodels and landscaping about 8 and 10 years ago, totalling another $200,000. Before the real estate market tanked a year or so ago, I was just getting ahead as the house would have likely sold for $375,000-$395,000. I am truly guessing when I said my house is worth about $275,000 in today's market.
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Old 01-17-2009, 03:52 PM   #28
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How much can you save on housing in this area?
If we move back to our home state of Iowa, I think the housing is cheaper if you can stand to live the rural or small community life. I would guess a house in the $150,000 - $200,000 range. I might consider renting first, just to see where this whole adventure leads. If it were not for the parents I would head further south.
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Old 01-17-2009, 04:00 PM   #29
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I still do not think you are in bad shape. I am guessing you both would have at least 3k a month in SS at 62.
Good guess, I just looked at the most recent SS statement, mine is $1679, DW = $1,416. But I assume these amounts drop if you stop contributing before retirement age.
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Old 01-17-2009, 04:15 PM   #30
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Good guess, I just looked at the most recent SS statement, mine is $1679, DW = $1,416. But I assume these amounts drop if you stop contributing before retirement age.
No they would not drop very much. The SSA uses 35 years of earnings. They also adjust them each year (well 2009 may be an exception) up for the CPI or Wage Increases (depending on age). At your age you can pretty much plan on the amounts they show you a FRA (or an amount very close to it).
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Old 01-17-2009, 04:15 PM   #31
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If we move back to our home state of Iowa, I think the housing is cheaper if you can stand to live the rural or small community life. I would guess a house in the $150,000 - $200,000 range. I might consider renting first, just to see where this whole adventure leads. If it were not for the parents I would head further south.
I am not an expert on Iowa but I am guessing a 100k would do the job.
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Old 01-17-2009, 04:20 PM   #32
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Good guess, I just looked at the most recent SS statement, mine is $1679, DW = $1,416. But I assume these amounts drop if you stop contributing before retirement age.
They will drop a lot less than you think. If go to the SS site Social Security Online - The Official Website of the U.S. Social Security Administration you can use their calculator to get an accurate estimate assuming you stop work at a particular age. Do this just to set your mind at rest.

My guess is you'll also get a job between now and drawing SS - I get the impression that you are pretty well motivated and are going to get through this set back okay.
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Old 01-17-2009, 05:32 PM   #33
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Tom, just a few thoughts as there has been a lot said here (and I've only read parts of it). If the Ibonds are high rate ones (like 3.2% for the fixed part) then you do not want to sell them as they are good for 30 years and should be considered keepers. You said you have Vanguard funds, good start. Why not consolidate everything with VG if you have not already done so. It will make record keeping much easier. CD's can be purchased through their VBS accounts (you may have to open one of these). You may be able to transfer CD's to VG -- not sure about this.

Vanguard offers a free investment anaylsis and even a retirement estimate if you have something like $1M with them. It's at least a starting point and when I did it the rep was very knowledgeable and brought up some points I had not considered.

The way I deal with anxiety is to spend a lot of time planning. So you might want to become much more financially informed. This will take some time of course.

FIRECalc is an excellent tool. When you run it keep in mind we've already gone down a lot, so the worst case declines should be considered to have already happened to your portfolio. It could go down some more, of course. But I'd also focus on what has happened in the past after major declines i.e. how recoveries of the past have done given your AA.
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Old 01-17-2009, 05:53 PM   #34
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I just put in all your number and you have enough money until 95 if you keep your spending to 38k and earn 5% on all you money. I also put in your SS at 36k a year starting at 62. That is if you do not work again. I even bumped your spending up to 50k a year and you still had money at 95. Flexible Retirement Planner
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Old 01-17-2009, 06:18 PM   #35
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Tom52,
The better I understand your situation, the more clear it becomes that you and your wife are going to be fine. From a financial side, it was good to read that your $40K yearly expenditure budget is not an estimate you built one night, but an "as we lived it" figure. Lots of folks believe they can tighten their belt, but have trouble actually making the one big mindset adjustment and thousands of little behavioral adjustments needed to cut their expenses. You and your wife are miles ahead of the game there.

As Alan suggested, you can go to the SS site right now and get an estimate of what your checks will be. Be sure to use the version of the calculator that asks you to manually enter your income for each year. It will only take a few minutes, and you can do it for both yourself and your wife. Together you guys will probably be receiving $25k per year from SS, which will rise with inflation. That will go a long way toward meeting your living expenses.

Medical insurance: I'd second the recommendation that you read Martha's FAQ on private health insurance. Also, the idea of getting a job, any low-stress job you'd enjoy, for the health coverage is something to consider.

I agree with the idea to move to a lower cost area. After you figure out what your health insurance/health expenses budget will be, you can add it to your existing budget and you'll have a good idea of the amount you'll need for the next 8-10 years until Social Security and Medicare kick in. I think you'll find that you and your wife will be able to afford a very comfortable house--certainly not a mansion, but a home that you'll be happy to live in for many years and which will meet all your needs. It sounds like you and your wife enjoy simple pleasures and spend most evenings (and soon most days) right at home. It makes sense to find a home with the amenities you want in a neighborhood in which you'll feel safe (and which is not declining). Think about the town, too--look for a town of the size and with the amenities you'll want for the next decade or two at least. I'm only saying that you should take your time and make a careful selection of the home, and be sure to think through your priorities carefully. Right now, because of the immensity of the changes in your life, I sense you might reflexively cut to the bone when budgeting for the house, which could prove to be a mistake.

In a similar vein: I wouldn't cut back much on your expenses right now. You are comfortable with your life, you don't spend too much, your wife enjoys going to the beauty salon occasionally, you eat out every few weeks--keep doing all of that. You've had a lot of stressors in your life recently, and more are coming. These little items are part of your lives and are not extravagant--these small things will become more important to your morale as the big stuff starts changing around you.

Some short comments on your investments: If I were in your shoes, I'd probably make the I-Bonds the last of my non-tax-favored investments that I sold. Though inflation is low now, it could very well accelerate as our goverment pulls out all the stops to stimulate the economy, then has to increase the money supply to pay back those who loaned the US money. The I-Bonds will provide some protection from inflation. Also, regarding your IRA and 401K money: You may be tempted to get out of the turbulent stock market as your own financial situation is in flux, but I'd resist this impulse. That money has to grow faster than inflation over the long term, and has to last for the rest of your lives. Stocks have the best long-term record of accomplishing this. Yes, you should also have a lot of bonds, but don't flee equities entirely.

Sorry for the long post. Spend some time playing around with FIREcalc and your spreadsheets until you are comfortable with things. Sure, this wasn't what you'd planned on , but you guys are going to be fine. You are in a good position because you have put aside some money and are already living modestly.
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Old 01-17-2009, 09:35 PM   #36
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I'm happy to see that you have taken a look at the 401K damage.
We have all sustained major declines in our equity accounts and it is tempting and perhaps less stressful to ignore it with the thought that it will heal itself. In fact, the coming rally may well be a story of a rising tide lifts all boats, but they have never been lifted equally.
You owe it to yourself to review every holding you have to ensure the damage has not left you completely out of balance and provide fixes where needed.
FWIW, over the last 5 months I have totaled our holdings only once--year end. However, during that time I have looked at individual holdings and made fairly major changes. I have a dow/S&P 500 figure on the wall. Not until the markets reach those targets will I start talking totals.again.
Much less stressful.
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Old 01-17-2009, 09:38 PM   #37
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I have a dow/S&P 500 figure on the wall. Not until the markets reach those targets will I start talking totals.again.
Wuss.
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Old 01-17-2009, 09:41 PM   #38
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Wuss.
Geez, glad I didn't mention my blankie...
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Old 01-17-2009, 09:46 PM   #39
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Health insurance will be high for ten year but after that dirt cheap.
If you are referring to Medicare +Medigap+ Plan D, I would definitley not describe this as dirt cheap. The above for two people would make up a large hunk of the budgets published by many forum members. Quite a bit more than food, for example.

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Old 01-17-2009, 09:47 PM   #40
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well, i first must say that i wish your wife luck on her battle with cancer. i am a firm believer that attitude is 50% of that battle...keep her positive

secondly, i think you are fine right now...just like others have stated. you could liquidate everything and put it into cd's or money market, spend the same as you have been, and your money will outlast you

would you consider a downsize....housing wise? something to put some $$ in hand and lower taxes....thus lengthening the staying power of your portfolio?

with your wife's health, in your position, i'd probably say f$@! it all right now and start enjoying life....retire....spend time together....enjoy life! SS will be a few extra bucks in the bank in 10 yrs which helps too

just think...someone out there is feeling the same as you right now but doesnt have over 1mm in assets....the motto i try to live by when i am 'down' is "an attitude of gratitude...."
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