Should I stay or should I go?

[no more rat race]

Hi –
I stumbled onto this website a few months ago and have been reading various posts since then. I am impressed by the insight and knowledge displayed here and so I would like to kindly ask for advice, comments and questions concerning my own situation.
Personal Details:
I am 51 yrs old and my husband is 54 yrs old. He has a 25 yr old son from a previous marriage who is on his own. I have no kids. I am a manager in a large company and my husband is an elementary school teacher. We live in an expensive area of CA and while our salaries are high, our expenses are high also. Neither one of us is particularly attached to our job and we could retire tomorrow and not look back. We LOVE to travel and would travel a lot more, if we were no longer working. Although we both have family in CA, we realize we would need /want to move out of state to lower our expenses.
Assets:
Non Retirement Investments: 1.2 million
Cash: 300,000
My IRA: 230,000
My 401(k): 145,000
Husbands 403(b): 51,000
Variable Annuities: 490,000
Total: 2.4 million
Rental Property (townhouse) – 80,000 mortgage, value approx 240,000 (basically a break even situation when tenant occupied all year). Mortgage will be paid off in 2018 and then the rent will provide an income stream (hopefully).
Pension, Settlement and SS Income:
In 2011 (at age 55 yrs) my husband is eligible for early retirement and the following:
Pension: 2,100/month or 25,200/year (2% increase yearly)
Defined Benefit Supplement: 200/month or 2,400/year for his lifetime only
Settlement payments: (start at age 60 for husband): 1,370/month or 16,440/year for his lifetime only
My SS benefits (assume age 62 start date): 1,465/month or 17,580/year

I have just recently subscribed to Mint.com in an effort to get a realistic picture of what we are spending on a monthly/yearly basis so I don’t have enough data yet to be certain of all our spending. Here are the basics:
Mortgage: 2,850/month or 34,200/year (owe 495,000 on mortgage, house valued at 505,000)
Property Taxes: 5,700/year
Home Insurance: 1,200/year
Car Insurance: 1,600/year
Gas/Electricity: 2500/year
Water/Garbage: 1500/year
Groceries: 5000/year
Long term Health Insurance: 11,500/year (5 years of premiums left)
Medical/Dental/Vision (current out of pocket costs): 2500/year
Car Maintenance /Gas Costs: 2500/year
Miscellaneous (categories I have forgotten to mention like home repairs, travel, gifts etc...): 10,000/year
Total: 78,200/year
NOTE: RELOCATING TO A LESS EXPENSIVE STATE WOULD REDUCE OUR MORTGAGE OR RENT CONSIDERABLY AND WOULD ALLOW THAT EXTRA MONEY TO BE DIVERTED TO PAY FOR HEALTH COVERAGE.
I have run FireCalc multiple times, along with other financial calculators (Fidelity, etc…) and have used 7,000/month or 84,000/year as the amounts we spend per year and the calculations usually show that we will be ok for another 45 years.
However, I would like to hear from real people who are in our situation (i.e.…considering early retirement) or those who have “been there and done that” already and would be willing to look at the numbers and tell me what I may be missing. We would be overjoyed (extreme understatement!) if we could retire next year but want to be sure that we won’t run out of money and have to go back to work sometime in our old age (I know we are already old compared to the 20’s and 30’s crowd that I see posting here)!
Thanks in advance for all feedback!

 

[Moemg]

Welcome ! If you have not done it yet I would recommend tracking every penny you spend for six months . This will give you an idea whether that budget is realistic or not .

 

[Amethyst]

Welcome! and don't forget to include income taxes in your expenses. You will probably pay a lower rate when you retire, but pay you will!

Your food, auto, and utility expenses are similar to ours (we are very frugal in those areas).

Amethyst

 

[dex]

Looking at the way you laid out your situation I would guess you have the finances and option to retire. I would suggest preparing different scenarios with your husband and discuss them. Such as Retiring and: Staying where you are forever or for x years Moving to a lower cost area with a less expensive home. Also, discussing why you want to retire and what you want to do.

 

[Nords]

Welcome to the board!

You haven't expressly said it, but you don't show your ER expenses for health insurance. I see LTC premiums and I see out-of-pocket expenses and I understand that healthcare insurance might be cheaper if you move to a different ER location (a mighty big "might") but you don't show the cost of regular ol' healthcare insurance.

You need to include your income taxes (federal, state, local) in your budget. FIRECalc assumes you're paying all expenses (including income taxes) from your withdrawals.

If you haven't done so already then you'll want to look at lumpy expenses during ER-- a massive rental renovation, a new roof on your residence, replacement vehicles every 10 years or so, a fantasy vacation.

If you're assuming that your rental is a wash for the next eight years, you'll be able to use its 2018+ rental income to fill in any gaps that show up in ER. The trick is to not have to count on a full-time tenant and have it turn into a big expense.

 

[no more rat race]

Welcome ! If you have not done it yet I would recommend tracking every penny you spend for six months . This will give you an idea whether that budget is realistic or not .

Thanks Moemg - yes I agree. I need to track all expenses for at least 6 months (and probably much longer) to find out where the money is going and where we can cut if need be. This is an important pre-retirement exercise that will reveal a lot.

 

[no more rat race]

Welcome! and don't forget to include income taxes in your expenses. You will probably pay a lower rate when you retire, but pay you will!

Your food, auto, and utility expenses are similar to ours (we are very frugal in those areas).

Amethyst

Ughh!!! Yes you are right, I didn't include taxes. I guess I am not really sure how to do that - it could be quite different from our current tax situation since we are strongly considering renting whereever we move to and therefore would not have the property tax or interest write off (which is currently quite substantial).
I tend to be fairly frugal no matter how much money I make, so if we had to cut back in some areas I don't think it would be the end of the world.
Thanks for your input...

 

[lhamo]

Would your husband consider teaching at an international school overseas? That might be a great way to transition into retirement. Some of the schools here in Beijing have excellent salary/benefits packages. Here are a couple of examples from the two best American-style schools:

Faculty Salary & Benefits - International School of Beijing
Teacher Compensation & Benefits | Western Academy of Beijing


lhamo

 

[donheff]

Ughh!!! Yes you are right, I didn't include taxes. I guess I am not really sure how to do that - it could be quite different from our current tax situation since we are strongly considering renting whereever we move to and therefore would not have the property tax or interest write off (which is currently quite substantial).
I tend to be fairly frugal no matter how much money I make, so if we had to cut back in some areas I don't think it would be the end of the world.
Thanks for your input...

You can use tax software or forms/tables to run scenarios using your expected expenses. Withdrawals from no retirement accounts will involve capital gains on estimated profits (a good guestimate will get you there). The pension, IRAs, etc will be taxed as normal income. You will undoubtedly be in a much lower bracket - especially with the big mortgage deduction.

 

[no more rat race]

Would your husband consider teaching at an international school overseas? That might be a great way to transition into retirement. Some of the schools here in Beijing have excellent salary/benefits packages. Here are a couple of examples from the two best American-style schools:

Faculty Salary & Benefits - International School of Beijing
Teacher Compensation & Benefits | Western Academy of Beijing


lhamo

Interesting thought....I visited the links you provided and you are right, the salaries and benefits look very good. It has started us thinking in a different direction, which is good since we need to explore a bunch of options for what we want to do. I didn't mention the fact that my husband is a music teacher (vocal music not instrumental) and all his years of teaching are just in this one area. The expectations for these teaching positions look rather high and it may be more work/stress than we want to tackle. (That is what we are trying to leave behind by retiring). I do appreciate your ideas and thanks so much!

 

[no more rat race]

You can use tax software or forms/tables to run scenarios using your expected expenses. Withdrawals from no retirement accounts will involve capital gains on estimated profits (a good guestimate will get you there). The pension, IRAs, etc will be taxed as normal income. You will undoubtedly be in a much lower bracket - especially with the big mortgage deduction.

Great - I will look into tax software and also online to see what I can find to help me estimate our future tax situation. Is there any particular program you would recommend?
Thanks

 

[no more rat race]

Welcome to the board!

You haven't expressly said it, but you don't show your ER expenses for health insurance. I see LTC premiums and I see out-of-pocket expenses and I understand that healthcare insurance might be cheaper if you move to a different ER location (a mighty big "might") but you don't show the cost of regular ol' healthcare insurance.

You need to include your income taxes (federal, state, local) in your budget. FIRECalc assumes you're paying all expenses (including income taxes) from your withdrawals.

If you haven't done so already then you'll want to look at lumpy expenses during ER-- a massive rental renovation, a new roof on your residence, replacement vehicles every 10 years or so, a fantasy vacation.

If you're assuming that your rental is a wash for the next eight years, you'll be able to use its 2018+ rental income to fill in any gaps that show up in ER. The trick is to not have to count on a full-time tenant and have it turn into a big expense.

Nords - thanks for your comments. You are right, I did not factor in ER health insurance because I was just trying to get a picture of current annual spending. The $ amount for medical/dental/vision coverage now takes into account the fact that my company covers about 90% of the costs of this coverage. My idea is that by moving out of state we can probably save $1600 to $1800 per month on mortgage or rent (compared to what we are spending now) and divert that money to pay for the full cost of our own health insurance. So whether we are spending $2850 just on a mortgage (as we are doing now) or $2850 on rent plus health care insurance, it would come out to approximately the same amount.
Thanks for clarifying that FireCalc calculations assume that taxes are included - I need to keep that in mind and adjust the numbers accordingly and run it again.
Never heard the term lumpy expenses before but I understand what you mean from the examples you provided. It is probably the unexpected large lump sums that ruin the "best laid plans" - so I will factor in extra money for those things also.
I have been fairly lucky with the rental so far - rented for the last 6 years continuously until this year when it was vacant for 4 months. I also have a property management company handling it for me so that I don't have that hassle and can write off those expenses. If it becomes too much of a headache I can always sell it but with the prices so depressed, I would rather not have to consider that at this time.
Many thanks for your thoughts....

 

[no more rat race]

Looking at the way you laid out your situation I would guess you have the finances and option to retire. I would suggest preparing different scenarios with your husband and discuss them. Such as Retiring and: Staying where you are forever or for x years Moving to a lower cost area with a less expensive home. Also, discussing why you want to retire and what you want to do.

Dex - yes, I am starting to think the emotional/psychological part of retiring is the part we need to pay more attention to. We could be fine financially and have everything fall apart because we haven't planned out different scenarios as you suggest. We both need to be on the same page or else retirement could be a nightmare rather than the exciting adventure I am hoping it will be.
Wonderful suggestion!