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Retiring at 32
Old 02-21-2014, 01:19 PM   #1
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Retiring at 32

Hi all,

My first post here and a little about me. I'm a former dot com guy and have acquired a little wealth and got out when it was right. Been retired almost a year now. I have about 5.5 million in net worth now. I own about 13 residential single family homes that I rent out for rental income and own them for cash. They total about 3.2 million.

Then I have about 400k in the bank, and another 1.9 million tied up in personal homes of mine that are currently on the market (1.9m represents actual cash position once sold at fair market value minus expenses).

My plan is to sell those personal homes and invest that extra 1.8 million in either a mutual fund or more residential rental homes, after I purchase a home for myself. Currently, the rentals are bringing in about 175k net income before taxes for me.

Some questions...

Given about 5.5M net worth @ 32 and making about $175k/year currently - how much should I spend on a home for myself, and fiance (who I'll be supporting), and 2 kids in the future? My current main home is 1.7M, but there is a loan on it. Next one will be owned for cash. I was thinking $500k, but fiance thinks 1M. Any money left over from the 1.7M will be invested and I'll add that to my yearly income/grow wealth. I want to live off the interest.

Secondly at my age, future plans for children etc, am I financially set to be able to retire for good, for myself and family?

I did a cost calculation and figured costs for myself, fiance and $2k extra a month for kids, and came up with $6200 a month in expenses on a $500k house, and $9145 a month on a 1M house. That includes everything - restaurants, traveling, entertainment, utilities, gym, insurance, gas, prop taxes, etc, plus that $2k for kids.

Thanks for the help and advice.
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Old 02-21-2014, 02:05 PM   #2
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The good news is that you have an extraordinary level of wealth for someone so young. You already know this, of course.

The not so good news is that you appear to have champagne tastes ($1.7M home) and, not yet having entered into marriage and parenthood, there are countless unknowns wrapped around all that. Although one could almost certainly convert a $5.5M net worth at age 32 into a durable 60+ year retirement plan, much of that would hinge on what your expense profile looks like. Your estimates look like just that - rough estimates. My advice would be to map out much more precise numbers and see what that looks like.

I do think that one of the two great threats to a long-term retirement plan is a large expense footprint. That can have cascading impacts in so many ways.
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Old 02-21-2014, 02:19 PM   #3
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PRENUP,PRENUP,PRENUP and buy the house before you get married!
I retired at 33,26 years ago and my ex wife is still living in my 1 million dollar home that I grew up in as a child and bought from my father right after our wedding!
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Old 02-21-2014, 02:20 PM   #4
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Thanks, yes, too expensive of taste! I know it and I'm trying to sell all that and live much more modestly.

This is my estimate/cost factor taking my real costs and adding a little fluff, with the exception of children. I have no idea what those little things cost! Much of the categories can be re allocated. Ie, not spending as much on travel but more on entertainment, or maybe saving more etc. But was supposed to be a general idea. Could even be too extravagant as it is, but wanted to be safe than sorry.
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Old 02-21-2014, 02:22 PM   #5
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PRENUP,PRENUP,PRENUP and buy the house before you get married!
I retired at 33,26 years ago and my ex wife is still living in my 1 million dollar home that I grew up in as a child and bought from my father right after our wedding!
Yikes!! Yes thanks, this is something I think I definitely need to have. Am a little hesitant on starting the conversation, but it needs to be done!
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Old 02-21-2014, 02:26 PM   #6
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Hi all,

My first post here and a little about me. I'm a former dot com guy and have acquired a little wealth and got out when it was right. Been retired almost a year now. I have about 5.5 million in net worth now. I own about 13 residential single family homes that I rent out for rental income and own them for cash. They total about 3.2 million.

Then I have about 400k in the bank, and another 1.9 million tied up in personal homes of mine that are currently on the market (1.9m represents actual cash position once sold at fair market value minus expenses).

My plan is to sell those personal homes and invest that extra 1.8 million in either a mutual fund or more residential rental homes, after I purchase a home for myself. Currently, the rentals are bringing in about 175k net income before taxes for me.

Some questions...

Given about 5.5M net worth @ 32 and making about $175k/year currently - how much should I spend on a home for myself, and fiance (who I'll be supporting), and 2 kids in the future? My current main home is 1.7M, but there is a loan on it. Next one will be owned for cash. I was thinking $500k, but fiance thinks 1M. Any money left over from the 1.7M will be invested and I'll add that to my yearly income/grow wealth. I want to live off the interest.

Secondly at my age, future plans for children etc, am I financially set to be able to retire for good, for myself and family?

I did a cost calculation and figured costs for myself, fiance and $2k extra a month for kids, and came up with $6200 a month in expenses on a $500k house, and $9145 a month on a 1M house. That includes everything - restaurants, traveling, entertainment, utilities, gym, insurance, gas, prop taxes, etc, plus that $2k for kids.

Thanks for the help and advice.
So, your rentals are bringing you $175,000 in income, you will have even more money invested that you could draw from and you have a total net worth of about $5.5 million. Seems to me that you can spend $500,000 or a million for a house if you want. I wouldn't do it based on anything other than if the house fits your needs. You might find a $600,000 house that you like much better than a million dollar one.

Unless you go crazy with spending, I see no problems here. Your rental properties are bringing in income, they will likely continue to gain in value, and then you have more money beyond that than most people retire with.

I would just make sure to spend below your means so that your invested money can continue to grow...at some point, you will have some MAD wealth if you can leave it alone as much as possible.

You budgeted for about $110,000 a year (for a million dollar house), and you already have more than that coming in just on the rentals (I realize there are taxes), but then you have whatever you can get from the investments too.

Bottom line is that YES, you can raise a family on that...easily. Just want to have a ton more money, then get the $500,000 house. My house is only worth about $190,000, so $500,000 seems like a very nice house to me (though that depends on where it is.

With your penchant for owning property, you could always buy the $500,000 house, live in it for a few years and then see how your investments are doing and perhaps move up to a million dollar one then.
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Old 02-21-2014, 02:34 PM   #7
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Kids......expensive......especially college. Also, kids will drive up health care, then you have private vs. public schools. I THINK each kid could cost you at least $300,000, certainly affordable with your net worth.......but, what will you and your future wife do all day after you are retired and married? As I see it most people have two choices.....you're either making money or spending money. So, the major question is what will you and your wife do with your time and.....let me second the absolute need for a pre-nup......otherwise you could find your entire financial plan out the window. Good luck, you have enough.....hope you enjoy spending it as much as you enjoyed making it!
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Old 02-21-2014, 02:45 PM   #8
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My gut tells me your monthly expense summary is quite low.
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Old 02-21-2014, 02:46 PM   #9
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Yikes!! Yes thanks, this is something I think I definitely need to have. Am a little hesitant on starting the conversation, but it needs to be done!
It's best to use "bait & switch"! Make sure she is involved in the choice of the house and furnishings, all before you take your vow's.

Then in the most honest voice you can muster say:
BABY, I love you no sh*t BUT.....

IMHO, you would be crazy to get married now, without living a life filled with fun,travel and a touch of debauchery!

Fortunately, I got the divorce behind me in my early 40's so I could have fun and even live in another country.

My second marriage was too a 22 year old Peruvian girl (I was 50) with a heart of Gold and no aspirations of living off my dime. We have an 8 year old son and are planning another child in 2015.

I do not have one friend in this world who did not divorce the first wife other than the few who died in their 20's and 30's.
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Old 02-21-2014, 02:56 PM   #10
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PRENUP,PRENUP,PRENUP and buy the house before you get married!
I retired at 33,26 years ago and my ex wife is still living in my 1 million dollar home that I grew up in as a child and bought from my father right after our wedding!
Yow, that has to hurt! A lot more costly than my divorce.

+1 on the prenup.

I know it is difficult to think coldly and logically about something like marriage but from strictly that standpoint there is a chance that the marriage will end in divorce. Right now you're set for life. Don't put yourself in a position where you may have to start over from scratch.

I was about to repeat the often-heard figure that 50% of marriages end in divorce but it's a bit more complicated than that with lots of variables affecting the outcome. You have some age/experience and money in your favor that gives you more options that can ease some frustrations.

But still, it is something that should be discussed with the bride-to-be. And attorneys.
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Old 02-21-2014, 03:10 PM   #11
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Thank you all for your help!

Hah, I'm actually scared to death to get married!! I do love her, but fear I'll lose my freedom! Maybe I'll come to my senses, and maybe not I dunno. I've told her how I feel so we are just postponing any wedding talks for now.

But yes, thank you all for the pre nup encouragement. I will definitely insist on one.

I'm happy I'm not wrong in my plan to retire now. So now just have to be smart with it, so it lasts. Sounds like kids are the biggest wildcard.

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My gut tells me your monthly expense summary is quite low.
Can you elaborate?
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Old 02-21-2014, 03:12 PM   #12
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So, $5.1m of your $5.5 m NW is tied up in residential real estate, or in excess of 90%. Are these homes also in the same geographic area? If I were in your shoes, I would diversify. If you sell the $1.9 million, I would not plow it back into more real estate.
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Old 02-21-2014, 03:45 PM   #13
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Live it up first

I second the live it up first.

After I graduated from college, I got a job and spent 4 years in southeast Asia and contributed to the alleviation of poverty for many a poor family .

I then met my wife at age 30, and proposed to her 2 weeks after we met, and I can't imagine my life without her. The main thing was, I've been around the block, and understood what I was looking for and being honest with myself regarding what I am not.

You meet a person, u have to ask yourself, if they don't change (for the better), are you gonna be truly okay with that? If you don't change (for the better), will she be okay with that? If she's dying of liver disease and needs half your liver, how'd you feel, or more importantly, how would you react? If she or you became disabled, will your relationship persevere...or are both of you only wanting to hang around as long as you're not unduly burdened by the travails of life?

Also, a million dollar home sounds like alot, but my home is almost worth a million, and I feel far from rich. That's because Orange County, CA is expensive. I bet you live in the Bay Area in Silicon Valley.

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Old 02-21-2014, 05:40 PM   #14
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Be wary. The home you choose, in large part, drives future expenses. I really wish I had insisted on a smaller, cheaper home. Also, my girlfriend's "needs" increased multifold when we got married and had kids. Make sure to discuss lifestyle creep with the fiancé now before the wedding. And +1 on pre nup.
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Old 02-21-2014, 06:34 PM   #15
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Can you elaborate?
I am not sure where you contemplate living, but those property taxes look quite low on a $1M home. What about other utilities (water/sewer, oil/gas). What about taxes on your income from the rental properties? What about maintenance expenses for the rental properties?

When I referred to gut feel, I'm retired with grown kids and living in something less than a $500K home, and fairly frugal, and my budget is close your $1M one. May be you are quite a bit more frugal than me, but after being use to living at a higher level, it may not be so easy to cut back, although you did say there may be some opportunity to reallocate. Anyway just food for thought since you asked for feedback.
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Old 02-21-2014, 07:27 PM   #16
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My gut tells me your monthly expense summary is quite low.
+1. especially food, clothes, gas, education, and medical bills for a family.

DW and I don't have kids and our expenses (including taxes, work costs and commute, and travel) are $10K per month. After retirement, it will be about $8K a month if we don't want to cut out trips and things like therapeutic massages. We have an older 1,332 sq ft house, which costs money as it is. I can't imagine how much more a bigger house has for maintenance. So your figures look low to me.
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Old 02-21-2014, 07:29 PM   #17
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After reading your initial post and then glancing over the others (pre-nups) I couldn't help but ask myself some questions (actually for you). You seem to have done very well for yourself in the business sense. Then you cautiously plan for a $500K house but fiance wants a $1M house. Boy, does that sound familiar. What is her stake in that home? Is she going halves? If not, tell her the decision is yours alone and she gets what you want.
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Old 02-21-2014, 08:10 PM   #18
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Hi all,

My first post here and a little about me. I'm a former dot com guy and have acquired a little wealth and got out when it was right. Been retired almost a year now. I have about 5.5 million in net worth now. I own about 13 residential single family homes that I rent out for rental income and own them for cash. They total about 3.2 million.

Then I have about 400k in the bank, and another 1.9 million tied up in personal homes of mine that are currently on the market (1.9m represents actual cash position once sold at fair market value minus expenses).

My plan is to sell those personal homes and invest that extra 1.8 million in either a mutual fund or more residential rental homes, after I purchase a home for myself. Currently, the rentals are bringing in about 175k net income before taxes for me.

Some questions...

Given about 5.5M net worth @ 32 and making about $175k/year currently - how much should I spend on a home for myself, and fiance (who I'll be supporting), and 2 kids in the future? My current main home is 1.7M, but there is a loan on it. Next one will be owned for cash. I was thinking $500k, but fiance thinks 1M. Any money left over from the 1.7M will be invested and I'll add that to my yearly income/grow wealth. I want to live off the interest.

Secondly at my age, future plans for children etc, am I financially set to be able to retire for good, for myself and family?

I did a cost calculation and figured costs for myself, fiance and $2k extra a month for kids, and came up with $6200 a month in expenses on a $500k house, and $9145 a month on a 1M house. That includes everything - restaurants, traveling, entertainment, utilities, gym, insurance, gas, prop taxes, etc, plus that $2k for kids.

Thanks for the help and advice.
Great job so far with your savings, etc. 500k should be good to spend. That being said I live in a 120k house and have a net worth of over 5 million. Most of it is liquid cash. If you don't need the one million dollar house, don't buy it.
I also own a few rentals (3) and that's enough for me. I could not see myself buying a million dollar home, but to each his own. I would save that money and live off the interest plus your rental income. Good luck
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Old 02-21-2014, 08:12 PM   #19
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We have an older 1,332 sq ft house, which costs money as it is. I can't imagine how much more a bigger house has for maintenance. So your figures look low to me.
I've seen a number of comments on this forum making the assumption that an expensive house, or a "big" house, must cost much more to own than a smaller, less expensive house. This simply does not apply to people who live in California.

My home is 4,000 square feet, and my utility bills (water, electric, gas, trash) are consistently $200/month or less. I suspect there are some people living in the mid-west in a 1,300 square foot home who have electric bills in the summer that cost more than my total utilities, as well as gas bills in the winter that can get quite up there.

Coastal California winters rarely dip below 60 degrees, and summers rarely go above 80 degrees. There are only a few days each year that my home needs heat or air conditioning.

In addition, land is at a premium in California, so lots tend to be very small. Mine is the size of a postage stamp. My gardener charges me $45 per month to mow my lawn once a week. And I probably use less than 2 gallons of water per day to keep the lawn moist.

In a less expensive part of the country, an expensive home typically comes with a large yard, which drives water bills up significantly. And gardeners charge much more, flowers and tree care costs more, etc.

And finally, California property taxes can not increase more than 2% a year thanks to Prop 13, so for many of us who have lived in our homes for many years, our taxes are a fraction of what they would be if we bought the same home today.

As for the OP, I guess we are assuming he lives in California, but I don't believe it was actually stated. If it's the Bay Area, $500K is not going to buy much home at all. Even $1M would be a very modest home.
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Old 02-21-2014, 08:36 PM   #20
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To the OP, since you are a tech type buy yourself a copy of Esplanner from esplanner.com and start the learning curve. Then run many scenarios and see what the long-term effect various factors might be on your living standard, e.g. tax rates, move to a no-income tax state, have children, etc. Since you're planning for such a long time frame small changes in any of the variables (including the ones that you don't control) could lead to big differences in outcome. The point in using Esplanner, or any planning software, is not to expect to plot out the future, which cannot be known after all, but to get a feel both for the long-term impact of variables whose short-term impact may not be much and for the great instability in long range planning. One result that you will notice in running many different planning scenarios is that it most often happens that you either end up with more than you had when you retired or you go broke. That should give anyone pause.

Beyond that, since you are off to such a terrific start is that biggest factor in your long-term success is the ability to curb your appetites and live within your means.
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