Possible To Retire On $600,000?

[eridanus]

I'm sure there will be plenty on here to tell you how stupid the idea is, but I'm throwing it out there anyway. A V.A. at age 50 would pay you 4% FOR LIFE, with increases as you grow older. 4% equals $24k per year. .....I'm just sayin'.

As long as you trust your insurer to last FOR LIFE.

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[lazygood4nothinbum]

Hi, would like very much your thoughts. I'm 50, single, no kids, no debt except $14K on mortgage. Have $600,000 in savings in the form of my 401(k). Wondering if it's feasible to retire and live off these funds.My overhead is low, just need around $2,000 month,which takes care of apartment maintenance, utilities, healthcare insurance. Thanks for your advice.

you never know where life is going to leave you or lead you. being unemcumbered neither by spouse nor kids nor debt adds lots of value to a relatively smaller nestegg. most of the people here think you need a million plus plus but speak from a perspective of being married and having kids and then grandkids. but we, the childless singles, don't have to buy so many presents. we don't care if we don't leave legacy. who knows where life will bring you tomorrow. all it takes is one little divorce to cut their nest eggs in half or a new & good partnership for you to double yours.

There is no way. Keep working or move to the Ozarks. You think it is $2k but you have not considered all your costs.

hey, i'm considering downsizing to daytona, jacksonville, gainesville or tampa even (no offense, doc), the ozarks of florida. nothing wrong with that. in fact, i've been running numbers and i am way pleasantly stunned by the cost of living savings of downsizing to there.

check out boglehead ..there is a guy there that retired on that amount. He grew his 600000 to 1.4 mil in 10years

haven't seen that but i've been running similar scenerios and guess what, it looks like lbym will work even after you stop working.

Of course it all depends on your projected expenses including health care which is increasing at a rate faster than normal inflation.

that would be a huge concern of mine. but as i want to travel overseas, i'll be able to take advantage of lower cost insurance and healthcare elsewhere. so i just might wind up with, at least somewhat, deflationary health care expenses instead. afterall, i've been in the states for 51 years; time (the time that's running out) to experience the rest of the world now anyway.

Did you factor in large ticket items like car purchases, root canals, purchase of a dog, etc?

What do you plan on doing after retirement that you didn't do pre-retirement? Will it cost more? $2K a month may not leave enough wiggle room for travel and entertainment, although you might be doing activities that don't cost much like walking in the park, reading at the library, riding your bike.

also good points. though you need to account for the dental, i've solved the dog problem. i simply play with other people's dogs whenever i get the chance. as to travel and car, i can solve that with one quick swoop: a vagabond life. sell the home, add that money to the portfolio and suddenly you've got more freedom to travel even then those with more money but also with a house to worry about. you'll use local transport so you don't need a car so there goes that huge expense too. without a house and its rec room, your entire lifestyle becomes your wiggle room.

There, I would buy a house for about $125K. I would add any excess from the sale of my previous home to my nestegg. That nestegg addition of several hundred thousand should give you some extra income as well...

love what want2 has to say on this. in fact. a lot of that thinking is already part of my planning options as well.

edit: think i'm gonna start a thread on cost of living savings that come from downsizing but to check things out i am just now off the phone with my car insurance company. i requested quotes for three different towns in considering downsizing from fort lauderdale. here are the not insignificant savings on a six-month policy: daytona beach $261; tampa $71; gainesville $343. so by the x25 formula, moving to g-ville equals $17k that i don't need in my portfolio, just on my auto insurance savings alone. i have my health insurance company working on similar numbers and should get results to me by next tuesday. will report same on new thread.

 

[megacorp-firee]

Only you know what you can REALISTICALLY live on. So given that the 2K/mth is realistic, then you $600k is what most on this forum would deem the absolute minimum to last you 30 years or so.
Questions to ask yourself.
1) how long do I think I will live? What is the family history?
2) what happens if something 'bad' happens and I need to pay for ?, ... extra medical that insurance doesn't cover, a new transmission for the car, ... katrina like catastrophe, ? Where would I get these 'emergency' funds from?
3) what happens if the market doesn't turn around and the next 3 or 4 years you don't see any appreciation (which the 4% withdrawal rate eventually relies upon to keep even/ahead of inflation), ... i.e. bad personal timing of retirement

... there are probably other questions you should consider also.

the net of what I would do if I were you would be to work as long as you can to build an emergency fund. Then you will be in a bit better position to weather some of the 'bad things' that can happen in life.
Being out of work for a while will make it even more difficult to get a (meaningful, i.e. decent paying) j*b.

Best of luck on your decision.

 

[sarahsays]

As others have said, you might be able to do it based on your own calculations. I would definitely strongly consider working part time if your job does disappear. It'll give you an added cushion and put-off drawing down your assets.

 

[zoey]

We have less saved for retirement than you do and it's working for us. Our monthly expenses are less than $1,600 and we're not in the Ozarks. We're in Hawaii, which has to be one of the more expensive areas in the nation.

However, it all depends on your lifestyle. We live simply, which is our preference. Just happier that way. Since we're already in a beautiful place and don't enjoy travel, we spend zero in that category. We have one vehicle, no mortgage, low property taxes, use very little gasoline, are watt watchers with low utility usage (although our rates are highest in the nation), and are frugal. in general. Our highest expenses are food, prescriptions, and medical insurance (pay a retiree rate, which is very reasonable).

So, I think it just depends on how you live and what you enjoy doing. If you are a big shopper, like to travel, or have expensive hobbies then you may need more savings.

 

[kcowan]

There is no way. Keep working or move to the Ozarks. You think it is $2k but you have not considered all your costs.

hey, i'm considering downsizing to daytona, jacksonville, gainesville or tampa even (no offense, doc), the ozarks of florida. nothing wrong with that. in fact, i've been running numbers and i am way pleasantly stunned by the cost of living savings of downsizing to there.

Our budget is $9k but we are moving to Mexico for much the same reasons. Cost of housing is $150/sq.ft. compared to $1100 where we live. Living costs are 35% lower. Where there is a will, we will find a way...

(BTW I know some retirees that pay $1k just for health coverage so that is a big deal in the US.)

 

[W2R]

Our budget is $9k but we are moving to Mexico for much the same reasons. Cost of housing is $150/sq.ft. compared to $1100 where we live. Living costs are 35% lower. Where there is a will, we will find a way...

(BTW I know some retirees that pay $1k just for health coverage so that is a big deal in the US.)

Spending $9K/month sounds like work! I think when your housing cost goes down you will be surprised at how quickly the money piles up. Housing in my neighborhood in suburban New Orleans is going for about $125-$130/sq. ft.

 

[Bikerdude]

As others have said, you might be able to do it based on your own calculations. I would definitely strongly consider working part time if your job does disappear. It'll give you an added cushion and put-off drawing down your assets.

I agree with this. A part time job, say 20 hrs a week @ $8 per hour is about $7680 yr plus an earned income credit of $300. This can be a low/no stress job at a place on a bus route. Pack a lunch and enjoy the rest of your life.

 

[2B]

I'm sure there will be plenty on here to tell you how stupid the idea is, but I'm throwing it out there anyway. A V.A. at age 50 would pay you 4% FOR LIFE, with increases as you grow older. 4% equals $24k per year. .....I'm just sayin'.

Ah yes, the old annuity ploy. I'll take your word for it that you aren't shilling for the annuity industry but I'll also comment on the approach.

Annuity contracts are just that - contracts. They are only as good as the company issuing them and, even worse, they can be sold to another company without the consent of the person that bought the annuity.

It's happened twice to my level term life insurance policy and amazingly the rating of the acquiring company was always just a little bit lower.

Annuities also seriously limit the amount of inflation protection and usually have a more restrictive way to calculate it buried in the 240 pages of fine print.

As an option, what about buying preferred shares in top rated companies. The position of preferreds in a bankruptcy is above the holder of annuity contracts who would become simple creditors. Admitidly, they are below bond holds in priority. Right now Bank of America with a very high credit rating has preferreds yielding about 7%. There are numerous other companies that have excellent credit rating that will yield about there or higher. With good diversification, credit risk to any one company would be very limited. You could recover your principle at any time although the value would vary with the current interest rate. They do "mature" but usually over terms of 40 years or longer.

The advantage of preferred is that they are available in smaller amounts - typically original issue prices of $25. They are more readily sold in small lots than bonds. They usually have a slightly higher interest rate than bonds due to their less senior position in the event of bankruptcy.

If you don't want to buy 50 different preferred to get your broad diversification, you can buy a closed end mutual fund that will do it all for you. They usually sell at a discount and use a certain amount of leverage to juice their return. They also payout 8 to 12%.

There are all sorts of better alternatives than giving your money to an insurance company and hope they pay you a poorer return than you can get on your own without giving up your capital.

 

[RockOn]

Bank of America with a very high credit rating......

If you don't want to buy 50 different preferred to get your broad diversification, you can buy a closed end mutual fund that will do it all for you. They usually sell at a discount and use a certain amount of leverage to juice their return. They also payout 8 to 12%.

That BofA with the high credit rating, which one would that be? Also Preferred Funds are heavy invested in Financials, paying 8 to 12%, no risk there .

I actually own some of both, but IMO there's no free lunch.

 

[2B]

That BofA with the high credit rating, which one would that be? Also Preferred Funds are heavy invested in Financials, paying 8 to 12%, no risk there .

I actually own some of both, but IMO there's no free lunch.

There never is unless it's at one of those VA presentations where you walk away laughing.

BAC preferreds have a Aa2 (Moodys) and an A+ (S&P) credit rating. That's safely investment grade but they can change in a heartbeat. There are many non-finacial preferreds with equal or better ratings. It is truly possible to diversify across the whole world and almost every industry.

As far as investing in financials is concerned, what do you think an insurance company is? The problem with buying an annuity is that you've just put all of your financial eggs in one basket and the return is less than equally or better credit worthy alternatives. You can buy multiple annuities from different companies but that is still a poor level of diversification and a lower return.

 

[RockOn]

There never is unless it's at one of those VA presentations where you walk away laughing.

BAC preferreds have a Aa2 (Moodys) and an A+ (S&P) credit rating. That's safely investment grade but they can change in a heartbeat. There are many non-finacial preferreds with equal or better ratings. It is truly possible to diversify across the whole world and almost every industry.

As far as investing in financials is concerned, what do you think an insurance company is? The problem with buying an annuity is that you've just put all of your financial eggs in one basket and the return is less than equally or better credit worthy alternatives. You can buy multiple annuities from different companies but that is still a poor level of diversification and a lower return.

I don't want to be defending annuities or insurance companies, but the guaranteed payouts from SPIA's (realizing it really isn't guaranteed; and that SPIA's are not VA's, even though payouts can be very similar) are interesting to me. There is a lot of fine print no doubt. I'm not so sure about poorer returns, I ran some IRR calcs recently that showed an IRR of about 6% for a 53 age living to mid 80's. Compared to a 60/40 portfolio over the next 30 years, a 6% IRR might not be too bad, we do not know. When comparing risks, annuitites seem to be a reasonable investment. But again, to each their own. I don't think annuities should be trashed out of hand. I have owned VA's for almost 20 years now, they have been ok for me. The fees do not have to be huge, Fidelity has a VA for an extra 0.25% a year in fees. Each investment has it's own merits. Preferred Stocks have their pluses and minuses too.

 

[Meadbh]

Our budget is $9k but we are moving to Mexico for much the same reasons. Cost of housing is $150/sq.ft. compared to $1100 where we live. Living costs are 35% lower. Where there is a will, we will find a way...

(BTW I know some retirees that pay $1k just for health coverage so that is a big deal in the US.)

If you are moving to Mexico, how much will the CRA's deemed disposition eat into your assets?

 

[2B]

RockOn,

Your annuity IRR was for living beyond the actuarial tables for a 53 year old man. I didn't look it up but I think a 53 year has a life expectancy of the mid 70's not the mid 80's. You're giving yourself an extra ten years of average life and then your return is at best marginal.

 

[citrine]

I say that you go for it! You have definitely worked hard and seem to be at a point in your life to do something else. If you work in Pharma sales....the bottom is definitely going to be dropping.
You can always move to a lower cost of living....or rent out a room for some passive income. There are many other part time things you can do which will give you health insurance like substitute teaching. Life is too short.....go for it!

 

[limpid lizard]

I'm just about in the same situation. Single, 56 and 600K. It is not where I wanted to be financially when I retired, but life got in the way a couple of years ago and that cost me a good portion of my assets.

However, even though I cannot spend what I used to on the frivolties of life, I would rather go out into the garage and hang myself than go back to my old job. I turned down a chance to contract back to them solely based on the value I place on my sanity. I may have to find a part time job at some point, but it will be for the relief of not watching my nest egg dwindle in a down market, rather than thinking I really have to. I need $1400 a month to make it, I have been spending about $1800 average due to travel and having started to date.

Be aware that should you find someone you wish to partner with, it can quickly impact your monthly expenditures. I used to buy a tank of gas every couple of months, now it is two or three time a month. I have been retired 14 months.

 

[aaronc879]

Spending $9K/month sounds like work! I think when your housing cost goes down you will be surprised at how quickly the money piles up. Housing in my neighborhood in suburban New Orleans is going for about $125-$130/sq. ft.

The condo I just bought is $50/ sq. ft. and everyone has been saying how much they like it. $2000/mo would be a raise for me even with health ins. costs and a mortgage.

 

[RockOn]

RockOn,

Your annuity IRR was for living beyond the actuarial tables for a 53 year old man. I didn't look it up but I think a 53 year has a life expectancy of the mid 70's not the mid 80's. You're giving yourself an extra ten years of average life and then your return is at best marginal.

I agree but both parents and almost all relatives have made it to mid-80's so I don't think it's unreasonable. What do you use in your calcs? I think most planners would say to use mid-80's. A few longevity websites gave me a 79 last time I looked. I didn't recalc it for 79, but it would be less than 6%, maybe 5.65% or so. A 6% IRR is pretty decent I think, because it includes a lot of years. Many older people go to CD's in their 70's or 80's, 6% might not be available there. If the insurance company doesn't get in trouble (which is big), one can sleep pretty well at night if one chooses a steady COLA'd income. It is similar to a government pension except it has insurer risk. I haven't bought a SPIA but I think it makes pretty good sense for maybe 1/2 to 1/3 of my money, maybe at age 60, with inflation protection and 100% survivorship.

 

[W2R]

The condo I just bought is $50/ sq. ft. and everyone has been saying how much they like it. $2000/mo would be a raise for me even with health ins. costs and a mortgage.

I'm glad your new condo is working out for you!! I remember when you were posting that you were thinking of getting it.

$50/sq. ft. is very nice. I am hoping to ER to southern Missouri, where housing is cheaper, too.

Your insurance will probably become more expensive once you are over 50. But as I recall, you are young. By then maybe we will have some sort of nationalized health care.

 

[2B]

What do you use in your calcs? I think most planners would say to use mid-80's. A few longevity websites gave me a 79 last time I looked. I didn't recalc it for 79, but it would be less than 6%, maybe 5.65% or so. A 6% IRR is pretty decent I think, because it includes a lot of years.

You seem pretty much sold on an annuity so go for it. When I do IRR calcs I just plug them into my HP-12C (almost an antique). I said I didn't look anything up in the mortality tables and 79 seems reasonable. Your relatives may have lived longer so it may be reasonable to use mid-80s. Mind didn't so I won't. It's been my experience that the typical financial planner will tell you almost anything to keep you putting money into your account. Once you really retire, they know you will suddenly be shocked at how much money they are charging you for almost nothing. I'm referring to planners that "only take a small fee from your account for their services."

I don't think a 6%, sorta indexed for inflation, locked in return with your flexibility and capital gone to be all that good. I don't think it is a fair comparison to say "it's more that the 4% SWR." With the 4% SWR, your capital is always there for you to deplete for LTC or gifting prior to death. Any left is a benefit to your heirs.

If you are willing to take the credit risk of a single insurance company, you can still get the 7 to 12% available in preferreds and your capital is still available.

 

[2B]

Hi, would like very much your thoughts. I'm 50, single, no kids, no debt except $14K on mortgage. Have $600,000 in savings in the form of my 401(k). Wondering if it's feasible to retire and live off these funds.My overhead is low, just need around $2,000 month,which takes care of apartment maintenance, utilities, healthcare insurance. Thanks for your advice.

RockOn and I have pretty much had our own running hijack of your thread and I'm sorry. I'll come back on topic.

You haven't posted anything about any FIRECalc runs you might have made. If you have I must have missed them. A decent run will tell you your probability of success.

As others have posted, there are people living on far less than $2K/month. I have no doubt that without DW I could be satisfied with that amount of money if I was so limited. My youngest child just got out of college and she was spending about $14K/year and that included about $8K in college tuition and fees. She had a ratty car. I covered her medical but that was all. Even if she had to buy her own medical it still wouldn't have run her cost above $24K/year.

You can certainly do it but you may have lifestyle choices to make you otherwise might not like. That's where FIRECalc comes in. Really chew on your budget. Give yourself some room to have some free cash. Consider periodic low stress, part-time gigs for a little extra cash. If you are so inclined, some companies will give part-timers medical coverage with as little time as 20 hrs/wk.

 

[2B]

I'm glad your new condo is working out for you!! I remember when you were posting that you were thinking of getting it.

$50/sq. ft. is very nice. I am hoping to ER to southern Missouri, where housing is cheaper, too.

Your insurance will probably become more expensive once you are over 50. But as I recall, you are young. By then maybe we will have some sort of nationalized health care.

I looked at a condo outside of Branson that was about $60/sq ft. There are cheaper ones. I'm still thinking I'll rent for awhile.

Shelter is typically the largest budget item. That would include the rent or mortgage or lost opportunity cost if paid for in cash. Utilities, taxes, maintenance are also there. Right now our "shelter" costs are over half of our basic living expenses.

 

[W2R]

I looked at a condo outside of Branson that was about $60/sq ft. There are cheaper ones. I'm still thinking I'll rent for awhile.

That is an excellent plan. It seems the housing market in some parts of southern Missouri is very slow and it can take a long time to sell. I would imagine real estate is moving a little more briskly near Branson, but still it might really pay to rent for a while until one is sure about the area.

Shelter is typically the largest budget item. That would include the rent or mortgage or lost opportunity cost if paid for in cash. Utilities, taxes, maintenance are also there. Right now our "shelter" costs are over half of our basic living expenses.

Ooof!!! That's pretty steep and I think you will find that you are spending considerably less on shelter in Missouri.

I know that I will be spending less on shelter in Missouri than I am presently spending on it. I am not sure what I will do with the excess, though - - I am used to living the way I live. I suppose that something will come to mind.

 

[limpid lizard]

For clarification, the $1400 I need per month does not include taxes, and I do have medical insurance paid. My mortgage is $729. If I spend a little above the $1400 per month, and then figure in taxes, I am right at your $2000 limit.

As things are today, in 6 years, I'll be mortgage free and able to pick up SS if I need it. My big panic is that the house may need to be refinanced. The ex's name is still on the low interest rate mortgage. I am fixing it up to sell, and I hope the equity will allow me to purchase a home in a different location mortgage free. If I cannot get the amount out of it I want, I will stay.

This is doable, but you have to value your freedom over new cars, nights out, etc..

 

[emilylynn]

Here's an extreme opinion, but an honest one nonetheless:

I think that within the next few years we will see in this country a significant move toward a socialistic economy. In my view, such a trend is inevitable because the vast majority of individuals approaching retirement have done nothing at all to plan for their future, and the relatively small proportion that have are woefully short in terms of what would realistically be needed to maintain even a modest standard of living in retirement. In my view, the move toward socialism is also inevitable because although the younger generation may proclaim their opposition to paying anything toward the support of the "boomers," they--above all--are constitutionally unfit to function in anything less than a socialistic environment, having been coddled and supported all their lives. So although in principle I continue to believe in the virtue of self-responsibility, on a purely practical level I'm not sure there's a lot of benefit to amassing several million in assets that most likely will be taxed away in the interest of providing something for everyone. So the purely utilitarian answer, in my view, is to aim for the mean.