Help convince husband it's time to retire!

[msbearkeley]

HI - hubby just told me today that we can't retire in May as we had planned. He thinks if we work for just a couple more months, we'd be better off -- OF COURSE WE WILL! But with that argument, we'll never retire! .....he said the same thing last year, and at that point, I agreed...but now it's time to stop dreaming about retiring and pull the plug, but I need help convincing him.....can you chime in please!!!?

Our situation:

* No kids - he's 48, I'll be 46 in May
* Income needed to live the way we want to is 40k - 60k/yr after income tax (variance based on living in the US or living internationally as we plan)
* Income stream
- 58k income from rental properties (very conservative income after reserves, taxes, insurance, vacancy rates, etc)
* Additional income stream for higher expenses will be a draw down of 500k in liquid assets (50% cash/bonds; 50% stocks) -- to minimize tax, we'll use income to contribute to HSA and IRA and use this to off-set whatever we end up needing
* Over the next 10 years, will also plan to leverage best tax positioning and market conditions to exit out of our primary home and 8 rental properties, converting approx. 1M in equity to REIT (1031 exchange) and about 250k max, for a primary home when we are ready to settle down somewhere (10 - 20 years from now?)
* At retirement age, we also will have about 1.2M in 401k/IRA, SSI (if still available) and about 20k/yr from husband's pension

 

[REWahoo]

Tell him he's welcome to keep working if he wants to but you're retiring in May.

 

[Walt34]

Tell him he's welcome to keep working if he wants to but you're retiring in May.

+1

BTW, that happens a lot!

Perhaps asking him to answer these will help put his mind at ease: http://www.early-retirement.org/for...re-asking-can-i-retire-69999.html#post1399715

 

[Bestwifeever]

The part about the rentals generating $58k in income is confusing to me (happens all the time to me ): you are also planning to gradually sell all of them plus your current house to then put those proceeds of $1 million into a REIT and another $250k in cash to build a house? Will the REIT continue to generate $58k? The expense range of $40k to $60k is pretty vague too.

I think you will be really well set at "retirement age" with the big 401k and SS and DH's pension, and probably well set right now, but I can see why your DH isn't quite ready to pull the plug 15 to 20 years before then. Maybe it's a presentation issue--show him a breakdown to the penny of both expected income and expected expenses to show how it could happen, year by year?

 

[steelyman]

You could find a gigolo to keep you company while your husband works. He'd retire right quick.

 

[heeyy_joe]

Call your favorite life insurance salesman and buy a BIG policy on him. That'll get him thinkin'.

 

[Senator]

500k in liquid assets (50% cash/bonds; 50% stocks).

Income needed $40K to $60K, $58k income from rental properties.

Do you have any other income? A large part of that $58K could be used up on one bad tenant. Or a new roof. Or a 10% rent reduction. What about healthcare expenses?

It looks to me that you have just barely enough, unless you start tapping the $500K, or RE equity.

What amount do you have set aside for tenants deposits, maintenance?

I have a lot more monthly rent income (~$140K), a lot more investable assets (~$930K), a lot more RE equity ($1.5M), am a bit older and closer to pensions and SS (55) and free healthcare (VA). But about the same expenses, ($40K)

I am waiting one more year.

 

[EastWest Gal]

Agree with Senator--it seems to me like you have barely enough. And if there is a downturn in the market $500K could become $400K or less. Selling assets low isn't good, especially if you have just enough right now. Also, do you have your healthcare expenses covered for the next 19 years. You will continue to need to pay some expenses and premiums even while on Medicare. Last, the SS estimates that we get are based on your best 35 years of work. You will be putting zeros in some of those years. The estimates you receive from SS are based on continuing to work at the same level you are at now. If you receive an estimated SS it is overestimated.

You may want to consider the possibility that DH's idea is worth considering.

 

[msbearkeley]

Tell him he's welcome to keep working if he wants to but you're retiring in May.

I LOVE IT! Same with steelyman and others' comments (just cant figure out how to requote something!)

Unfortunately, retiring early was his idea 18 months ago and I talked him out of it so I can take a new job

Bestwifever and Walt34 might be on to something so will certainly look into it....

Senator / EWGal - wasn't crazy about your responses, but definitely what I was also hoping for....if you don't mind confirming if the clarity below changes your initial response, would appreciate it (I promise to share it with DH either way!)

* RE Income of 58k is after all operating expenses that is highly padded...56k is conservatively at 47% of actual rental income of 118k; 2k is from an 8% RE loan (owner financing on a property we sold a year ago)

* Plan for the 500k is to of course, have gains north of 4% if we can, but it is also what we plan to live off of to minimize our taxes (we'll use our 58k rental income to contribute to IRAs and healthcare to minimize our taxes; major rental expenses that are unexpected will also come directly from our rental income). We don't have kids so we are not concerned about protecting our assets beyond our lifetime (would be nice of course, but not a primary concern)

* RE to REIT: Current value of RE is based on liquidating in today's market. Given that all of our investments offer positive returns (we took advantage of the 1231 loss on bad investments last year during our high income years), we plan to keep them until the market conditions are in our favor. We are also both very handy, so if we need to make improvements before we sell, we generally can do it at a very low cost (and might actually enjoy it if we are retired!)

* Senator - We also have 1.1 M in our 401k now that we plan to continue to invest in to lower our income taxes and have the flexibility we might want later in life. Curious if you are as 'selfish' as some of our relatives might say we are, if they find out we're ok with not leaving them an inheritance or if our math is off -- really would appreciate what you are willing to share!

* EWGal - you are absolutely correct. Didn't know about SS until recently when I helped my mom get my dad's upon his death --- he didn't work for the last 20 years so his calculation was actually $25 less a month than hers so she didn't get what she was expecting. As such, SS would only be a nice icing on the cake for us if we actually get it. We're already assuming it would be a much smaller amount by the time we retire....one thing, we were wondering (but haven't calculated) would be the benefits (and possibilities) of rolling our rentals into a corp and paying ourselves for managing it (and paying SSI). Not sure if that is a tax option for pass through entities or something silly (research to date seems like Medicare Tax for RE income is only for those who make 200k+ a year...once we're retired, seems like we're excluded but still need to research - anyone know more about this?)

 

[Senator]

* Senator - We also have 1.1 M in our 401k now that we plan to continue to invest in to lower our income taxes and have the flexibility we might want later in life. Curious if you are as 'selfish' as some of our relatives might say we are, if they find out we're OK with not leaving them an inheritance or if our math is off -- really would appreciate what you are willing to share!

I do not have any kids, only a sister that is older and less healthy. I suspect that unless I fall off a roof, or have a bad accident, I will out live my sister. I have a nephew and a couple of nieces that I speak with every few years. I do not even know when their birthday's are. All live out of state. I have a DGF of 24+ years who will make out OK. When I get close to the end, some stripper is likely going to be awful happy.

So, I am not planning on any relatives needing or getting anything.

I am planning on doing some traveling. If I want to take a summer and spend $20K on a RV trip over three months, I will do it. And I may take another one over the Winter. Or it may be a weekend spur of the moment trip to a warm place.

Rental property numbers are always suspect. I do all my own maintenance so I save a lot of money that way. I keep up with it, and try not to let things get too bad so my properties do not need a lot at each turnover. But I know furnaces and windows and other items are expensive, especially if all done in a year. I know a bad tenant can cost $10K or more in legal fees, lost rent and rehabs very easily.

You should be spending/saving at least 10% of your rents on maintenance, or putting it aside. 5% for vacancy, 10% for management. Do your numbers include those expenses? My actual costs for my maintenance are at least that, especially of you include any free labor. Some expenses are capitalized, and I hopefully am ahead of the curve. A simple call I do myself for free can cost $200+. I do several of those every year.

I probably spend less than $30K a year to keep myself going as I am working almost all the time. My house is paid off, and 12 of my 24 units are paid off too. My mortgages (P&I) are 13% of my total rents if 100% collected. The mortgage balances are ~30% of the equity. Read my personal blog for my cash flow, I do very well.

The buildings with mortgages have significant equity as I had to put 30% down, and have done major remodels since the purchases. Each remodel was ~$10K+, plus plenty of free labor. New kitchen cabinets, sinks, vanities, floors, appliances, adding washers and dryers, etc.

I definitely could FIRE now, but I do plan on hiring out more help to manage and fix the rentals as I travel. I do not ever want to think about whether or not I can spend $60 on a dinner at Red lobster, or $100 at a strip club. (I still won't spend $100 at a restaurant...).

If I want to buy a new truck, or car, I want to be able to do it. If inflation is higher than my rent increases, I do not want to suffer a cutback. If the market stinks, I want to be able to survive without worries. I want to be able to generate more income than I spend, even in FIRE. If I spend everything, I have no cushion.

When I slowly start selling my rentals in ~7 years, I assume 10% for commissions and selling expenses. There is also depreciation recapture of 25%. So, take home equity is a lot less than what you (or I) think.

It really all depends on what type of lifestyle you want to lock yourself into for the next 40 years. Once you quit, you likely cannot go back to working your 'old' job. Skills needed change, and managers do not want someone that has been out of work.

What if we have 18% inflation for a couple of years, will you be OK? A market correction of 20% every three years is common. Once you leave work, you will likely not get any more mortgages for more property, or even a refinance.

There is a lot to think about, and working another year or two is not all that painful, compared to living in a place, or a lifestyle, that I do not want to live.

 

[robnplunder]

Tell him he's welcome to keep working if he wants to but you're retiring in May.

+2. That's an ideal compromise. Take a long leave of absence if he is allergic to the word "retirement."