49 yr old father of 4 wants to ER now

[fire53]

I am so glad to run across this forum and learning a lot here.
DS and I are both 49, our plan was to ER at 54 when our youngest child going to college. However lately, I fell pretty fed-up with work and not looking forward to go back to the office each Monday morning. I check our numbers and run them on a finance calculator and I think we are good. I have been hinting to DS regarding ER but she thinks that we should stick with our plan. Here are the details:

Total 401K: 1M @ 60/40 (Her 350K, His 650K)
Cash Accounts: 500K (250K Saving AC, 150K Cash, 100K brokerage ac)
Home Equity: 500K (300K mortgage and home value 800K)
SFH Rentals Equity: 1.2M - Monthly income 4.5K after expenses
Non COLA pension 10K/Yr at age 55
Annual Salary: Her 70K, His 140K
Kids college funds: We've saved enough for their first 4 yrs

Annual expenses 90K;
Plan to pay off home mortgage when retire and use the 2K mortgage monthly payment to pay for medical insurance.

If you think that we are good to ER, any suggestion on how to convince DS.
Or she can stick with the original plan and agree with my plan to ER now - wishful thinking

Many thanks,

 

[Golden sunsets]

WBfire; Welcome and a few questions:

Does the 90k in annual expenses include taxes?
Does the 90k include post retirement health insurance?
What will your social security be at 62, 67?
Have you plugged your info into firecalc?
How sure are you about your run rate-have you tracked expenses?


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[aida2003]

WBfire; Welcome and a few questions:

Does the 90k in annual expenses include taxes?
Does the 90k include post retirement health insurance?
What will your social security be at 62, 67?
Have you plugged your info into firecalc?
How sure are you about your run rate-have you tracked expenses?

+1

Also, add to the above:
Current ages of the kids?
How will your annual expenses change after the kids leave the house and hopefully not boomerang?
Are your rentals LT or planning to landlord in your retirement?

Your DS will probably oppose you quitting now (your salary is nicer after), but perhaps you can both negotiate a compromise say both or you alone quit at 51 and you cook/clean/run errands until she retires.

 

[EastWest Gal]

Also what happens to that pension if you quit before 55?

It's probably not a good idea to count the equity in your home toward your retirement. You need a place to live.

Check with Firecalc but you may need a bit more to bridge the gap to SS and to your 401K. Have you figured major expenses, such as replacement cars, new roof, out of pocket medical expenses?

I agree with above posters. Track expenses and add in insurance costs.

If it's any help, I decided when I started residency that I simply could not imagine working until 65. My target was 55. 6 years into my first practice experience and I was hating the workload and the politics. In my career there was only one position I really enjoyed, but politics ruined that too.

Don't fret about hanging in there a couple more years. You have great income and should be able to save and invest well to give you a cushion.

Last, I hope you have enough for college. Tuition is increasing well above the rate of inflation.


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[ivinsfan]

Are you in a HCOLA..that's quite a pricey house, I assume you plan to stay there.
On the paying off the house I don't think you have payed much attention to the ACA rules..that large wad of cash you have saved does not count as income for ACA purposes, I suggest you study up on that before you decide to retire.

 

[Cobra9777]

I just ran your numbers through ******** and the results look fine. I assumed your investment portfolio is $1.2M... current $1.5M less $300K to payoff mortgage. AA is $600K stock, $400K bonds, $200K cash. Included $54K/yr rental, inflation adjusted. $10K/yr pension at 55, no-COLA. You didn't mention SS, but I estimated your SS at 62 to be $20K and $14K/yr based on your age, salaries, and assumed retirement date this year (ssa quick calculator). Expenses at $90K to start, inflation adjusted, with healthcare covered by mortgage payoff. Assume taxes were in the $90K. College covered by other savings. Both retire this year, with 36-year retirement to age 85.

The historical analysis gives 100% success rate with average ending portfolio of $3.5M. This is not surprising because rental income covers 60% of your spend and is inflation adjusted. Excluding pension and SS, you only need to generate $36K per year from the $1.2M portfolio, which is a 3% initial withdrawal rate. That will drop to 2% when the pension starts at 55, and if the SS numbers are correct, you won't need withdrawals at all, after that point.

A big assumption however is that the rental income keeps pace with CPI. When I drop that assumption to a constant 1% inflation, the success rate drops to 93%. Still fine by most standards and 1% is probably too low. Plus you still have lots of other moving pieces to throw into the mix, such as:

1. Would I be better off keeping the mortgage and the $300K invested? Perhaps refinance at very low rate for 30 years.
2. When to take SS... 62, 66, 70?
3. Possibly reduce the cash in the portfolio to something like 5%?
4. Longevity... perhaps the analysis should go to 90 or beyond?
5. Spending profile... lots of reasonable options here other than $90K inflated forever. Kids leaving should drive that down.
6. Perhaps model downsizing the house at some point, and/or selling the rentals.

Anyway, congrats on getting to this point. In terms of convincing your spouse, I'd say you still have some homework to do to show that you've covered all the bases. But unless I've made an error in the assumptions, you seem to be in pretty decent shape. Good luck!

 

[fire53]

Thank you all. Our Apr 7, 2020 Update:

I hope everyone is safe and sound during this challenging time.
I failed to convince DW to pull the plug early (we both will be 53 later this year) and go along with her plan to RE when the youngest finish 4 year college in 2024 (happy wife happy life). We wanted to help the kids education (some grad school tuitions), build some cushion, and at least see some of them launch. 3 currently in college and youngest one will start in Sept.
Unfortunately (or fortunately) I was just laid off.
Here is our current numbers:
401K/IRA: 1.4 M (50/50 AA)
Tax Accounts: 600K (500K Saving/CD, 100K brokerage AC)
My expected severance/vacation pay is $60K net after taxes
Home: Paid off (value 850K)
SFH Rentals Equity: 1.8M (mortgages 500k) - Monthly income 6.3K after expenses
Non COLA pension 10K/Yr at age 55 from previous employer
Annual Salary: DW 71K. Only been with this company for 2 years.
Social Security @ 62: DW $1350/m; DH $2060/m - If SS still there.

Annual expenses: $112K (including 17K taxes; 24K health insurance; 18K House/Car maintenance, misc and unexpected; 6K travels)
Kid’s college funds: We've saved enough for their first 4 yrs

Questions:
1. Not sure I did it correctly, but Firecal said I am good to go.
2. How to convince DW that I won't need to find another job. (It will be very tough anyway given my age and current market situation). I will still manage my rentals but it takes very little of my time. I am lucky that since 2010, I have good tenants and only have to evict one.
3. I would love to have DW RE at the same time with me and enjoy our time together. How to convince her?
4. Are we holding too much cash? Should I deploy some of the $500K in equity market?
5. I am thinking of cash out refinance the rentals to get $400K, do you think it is a good idea? And what to do with that cash?

Thanks much for your time reading this thread and I appreciate any input.

 

[Montecfo]

Have you walked through your numbers with DS? It may take a few times to do that to help her understand that you do not "need" to work. I update my bride regularly, and that helps her to understand and be comfortable with it (though now she is at the "ignorance is bliss" stage).

My wife is still working (in education) and frankly her continuing to work ( I retired last year) has not been a bad thing altogether. Our lives are far less stressful with just one working. And j have taken a few solo trips to visit family and friends and do things I enjoy.

She has decided she no longer wishes to "miss out" on things I am doing, so she finally set a retirement date for next year. This is all her choice, no attempts to convince her. That would be hard to do anyway.

Good luck!

 

[fire53]

Have you walked through your numbers with DS? It may take a few times to do that to help her understand that you do not "need" to work.

Thank you Montecfo. A few years ago, I have shown her all the detail numbers but it may have been forgotten. I will show her the current spreadsheet tracker that we are good to pull the trigger even with the current market retreat. Recently I just told her we are fine financially and joking with her that if she won't RE with me and if God calls her before me, I may have to re-marry and the new spouse will have to spend the money that we have been saving

On another the note, it probably feels better to go on my own terms instead of "force" RE, but I will manage to let my eagle down and take the severance any time.

Cheers

 

[Retired Expat]

You have been forcibly retired, at least for the moment, so take this time to see how you might change your spending, reduce expenses and plan for that retirement. Unless you have an offer of a new job to step into this is hardly the time to go job hunting.

It is also not the time to be selling real estate or much of anything unless you need to...

Develop your retirement plan, what you want to do, where do you want to live etc. you may find that your current expenses will have little to do with your retirement expenses especially if you sold your home and moved to a LCOL area in a less expensive home. Unless your kids are all planning to live at home while in college perhaps.... if you have much more free time would you be on the golf course everyday and joining a better golf club? Would you travel much more? Follow your dream of getting a pilots license or something else. All about the plan for your life to reverse engineer what it would cost to live that life.

But I can tell you it was the best decision of my life....

 

[targatom2019]

Op, what is the purpose of holding 500K and still have 300K mortgage. Pay off that mortgage, that's 3% guarantee return and build up cash again with new human capital. You will be surprised how fast you can build up reserve without a mortgage.

 

[Dtail]

I ran your numbers through Firecalc using a 40/60 AA with a 42 year retirement through 95 y.o. Used the SS at full value and the rental income non inflation adjusted.
I get a 100% success rate with a rough 142k maximum spending rate at 100% success rate.
If your net rental income numbers are solid, I would go for it.
Also agree with Vipertom to pay off the mortgage.

 

[pb4uski]

Op, what is the purpose of holding 500K and still have 300K mortgage. Pay off that mortgage, that's 3% guarantee return and build up cash again with new human capital. You will be surprised how fast you can build up reserve without a mortgage.

WADR, IMO not enough information to conclude. $500k says cash and CDs... could be 3.5% CDs for all we know.

Also, it looks like the $300k mortgage that you are so keen to pay off has been paid off:

Thank you all. Our Apr 7, 2020 Update: ...
Home: Paid off (value 850K) ....

Ready. Fire. Aim.

 

[Gumby]

In the current environment, how strong is your rental income? Tenants may be out of a job themselves.

 

[gauss]

In the current environment, how strong is your rental income? Tenants may be out of a job themselves.

Could some of the SFR be liquidated and converted into financial assets at the stated (1.8M) value?

 

[fire53]

If your net rental income numbers are solid, I would go for it.

In the current environment, how strong is your rental income? Tenants may be out of a job themselves.

Great point Dtail and Gumby. Rental income has been quite solid in the last 10 years or so. However, this month, I already have a couple tenants who can only pay partial rents. It is a tough time now impacting lots of people, I did not push them and willing to work out some plan until things get better.

 

[fire53]

Could some of the SFR be liquidated and converted into financial assets at the stated (1.8M) value?

Good question Gauss, if you asked me this question a couple of months ago, I would say yes. But now, who knows?

Zillow currently estimated SFRs at 2.5M (minus 500k mortgages) I estimate convervative at 1.8M.

I have no plan to sell these rentals, I want to manage them as it takes very little of my time. Maybe because I rented below market rate so tenants don't bother me.

Besides, when I sell them I will take a big tax hit as I was lucky to buy them between 2009-2014 and they have appreciated quite a bit.

 

[pb4uski]

.... However, this month, I already have a couple tenants who can only pay partial rents. It is a tough time now impacting lots of people, I did not push them and willing to work out some plan until things get better.

I'm hoping that there are many more landlords like you who will work with tenants impacted by the COVID crisis.... I think it is a smart move on your part.

 

[fire53]

...so take this time to see how you might change your spending, reduce expenses ...

Develop your retirement plan, what you want to do, where do you want to live etc. you may find that your current expenses will have little to do with your retirement expenses especially if you sold your home and moved to a LCOL area in a less expensive home.

We are pretty frugal, cars are 5 and 10 years old reliable Toyota and Honda . We will retire in SCAL as we love it here, good weather, beaches, good food, close to DW family and many things to do, etc. (minus are earthquake, HCOL, state income tax, etc.)

Our current budget probably will go down as the kids moving out. And I think we have some cushion:
- 24K budget for health care that we may not use them all, when DW quit and if ACA is still around.
- 18K for house/car maintenance and unexpected things are high. So far we only spend an average of about 6K/year.
- 6K budget for travel. I think this will need to be increased in the first few years of ER as we would like to travel more.
- We can always downsize and pocket the extra cash if needed as the current home will be too big for the 2 of us.

My RE plan will involve more volunteers and more travel and other hobbies, but those will be on hold until this COVID situation is under control. For the time being, I will enjoy the time with my family as all the kids have moved back home and do remote school.

All the best.