46 year old needs some advice

[Time2]

Time,

Did you figure in kid's college, and increased medical costs?

I didn't figure it, he's already got $40k and plans to contribute $15k to $20k more over the next 4 years. He would have about $20k income over his spending. The kid can work if he needs to, the kid can get loans, or dad can get a part time job. The kid does not necessarily need to ruin his retirement.

[Mod edit]

 

[Toocold]

Great job of saving. We're similar age and I recently left work with couple of teenage children, so I understand the discomfort.

Out of curiosity, how much are your living expenses outside of mortgage payments? I put your figures into a calculator and got ~1700/month for both homes. If that is the case and your annual spending is $20k per year, I think you're more than enough set if you sell your TX home and payoff your MI mortgage over the next 3 years.

In terms of children expenses, I would bucket them into 1) food, 2) childcare, 3) after school activities/sports, 4) their car, 5) college, and 6) other goodies they want. All of these can be managed and it seems like your family has a good handle on spending.

Over the next 3 years, you should come up with a reasonable withdrawal strategy.

 

[lalanian6]

Great job of saving. We're similar age and I recently left work with couple of teenage children, so I understand the discomfort.

Out of curiosity, how much are your living expenses outside of mortgage payments? I put your figures into a calculator and got ~1700/month for both homes. If that is the case and your annual spending is $20k per year, I think you're more than enough set if you sell your TX home and payoff your MI mortgage over the next 3 years.

In terms of children expenses, I would bucket them into 1) food, 2) childcare, 3) after school activities/sports, 4) their car, 5) college, and 6) other goodies they want. All of these can be managed and it seems like your family has a good handle on spending.

Over the next 3 years, you should come up with a reasonable withdrawal strategy.

You are correct, we're close to 20,000/year for utilities, groceries, fuel, etc.

 

[Toocold]

That's that path I would choose and revisit in 3 years. You'll have a 1.3% withdrawal rate and should be fine, as long as you manage your withdrawals and any lifestyle inflation from your child. You should also look at healthcare cost to make sure you minimize those costs.

 

[38Chevy454]

I agree, sell the TX house. Now your question on what to do with that money? Since interest rates are so low now, I would not pay down the MI house loan at this time. I would certainly refi the MI mortgage now, just straight refi and consider 15 year if you can swing the extra payment amount. That will help build some equity sooner so once you retire you can make a choice on what to do as far as location.
What would I do with the money from the house? Since you have enough after tax money now to help with income, I would put the TX house money into investments. Maybe use portion to pay the tax due on some Roth conversions. Invest some in longer term equities type low fee funds. Then put some into the after tax money to help with any unexpected expenses once retired. Notice that none of these are cash type suggestions. Go with investments that can grow more since you are looking at min 4 years.
You've done great so far with savings and looking at expenses. I assume your TX house was your previous residence before moving to MI 1 year ago? Why did you not sell it then? Or rent it out? That's a big drain on your finances having that mortgage and prop tax bills.

 

[lalanian6]

I assume your TX house was your previous residence before moving to MI 1 year ago? Why did you not sell it then? Or rent it out? That's a big drain on your finances having that mortgage and prop tax bills.[/QUOTE]


Thanks 38chevy454.
Nice user name; we have a '30's coupe with a big block cadillac...


The tx house was our residence before MI. We had bought the tx house on a short sale, cheap. It has appreciated over the years & we figured if we ever decided to move back (my wife's family is there), we probably couldn't afford to buy in that area again. We didn't want to rent it out (didn't want to deal with wear/tear/damage...nor did we want to deal with a property management group).

 

[Starsky]

Great job!, and lots of helpful answers. A few thoughts to add...

Have you looked at your Social Security calculator? Do you qualify? You should know how your ER would impact your eligibility or payout. When I retired I knew that I had paid in more than enough to qualify, and how much I would receive. It's nice to include that we will eventually get another income bump [and cheaper medical care] in the long-term analysis. It is highly relevant in our financial plan.

You also may want to research how the ACA works in Michigan vs. Texas. The system seems to vary widely from state-to-state. It looks like it will probably change a lot over time as well, so it's very hard to predict the cost years out. It's not a cheap system, but it made my ER possible, since the cost was prohibitive for individual medical plans pre-ACA - if I could get even access with my pre-existing conditions.

In retirement, it's also interesting to identify costs that you didn't anticipate like a new car, home repairs and dental bills; as well as marginal savings on lots of things you might otherwise take for granted, like unused coupons, a daily cup of Starbucks or even the amount of extra gas/miles used each day to commute back and forth to work.

In my experience, it seems like some retirees have an easier time adjusting their spending habits than others. It took me awhile to control my spending on new hobbies and travel because I was having to entertain myself - until I found friends in nice places, and my clan of older musician friends who were similarly unoccupied. Those things develop slowly sometimes. (It doesn't sound like you'll have that problem.) Good luck!

 

[ut2sua]

Thank you for this comprehensive post.

I'll read your withdrawal strategy over and over to make sure that I understand it as best I can.

+1

 

[Rdub]

+1

This was advice I got from Schwab years ago for a tax efficient withdrawal strategy, when retiring early. I think it is still a good guide for me and it is what I use to generate cash for my FIRE spend. Again, everyone's situation is different and the guide may not work well for everyone, but it works well for me.

 

[PoorOldCountryBoy]

You are correct, we're close to 20,000/year for utilities, groceries, fuel, etc.

OP,
Congrats on the savings up to this point. You may just be a one percenter (more likely a two or three percenter...)

Do I understand your situation correctly? The annual mortgage numbers are from an online calculator based on the principal and interest rate in your original posting.

Mortgage 1 (MI): 12984 [12 months @1082]
Mortgage 2 (TX): 6684 [12 months @ 557]
Medical: 9164
Other: 20000

That comes to $48,832. Have you included all housing expenses including taxes and depreciation/maintenance (figure about 1-2% of total structure value)?

Based on your replies it sounds like this is less about ER and more about a forming midlife crisis. Don't worry, this is not something to be ashamed about, it is quite normal when you realize you likely are crossing the point when you have more yesterdays than tomorrows. Parents getting older, kids young only once etc. We all go through it in some way or another. It generally feels like a reverse adolescence, trying to figure out new societal rules along with physical changes.

If the numbers above are correct, then you're not the person to do your financial plan. You likely need a trusted financial planner (preferably for a fixed price) to help out. You sound like an emotional decision maker and this decision is one that needs some cold hard numbers behind it. My guess is someone in your area could do it for $1000-1500. Their value is not in being a spreadsheet jockey but in showing you the gaping holes in your plan. That is a lot of money but cheap compared to falling short in retirement.

Please watch out for online advice--this forum is much better than most but a lot of them will tell you financial fairy tales that have no bearing in reality. They're selling a dream.

My guess is that most legit planners would say you're in great shape financially but a few more years would be highly recommended. If you are emotionally drained right now, see if you can somehow organize a sabbatical. Is your work situation flexible? Are you happy where you are? Even small bosses will respond to "You can lose me forever or for 3 to 6 months--your choice". Just be ready with that plan in place if they say forever!

 

[RxMan]

Congrats! I turn 46 next month and our numbers are a little less than yours but very similar. Big difference other than only having one house is we don’t have any children.

I see lots of good advice here already. The first thing I noticed is those mortgage rates. It’s already been mentioned but consider refinancing the Michigan home mortgage. You might save quite a bit with the current interest rates.

I’d make sure you estimate taxes and health insurance into any retirement monthly budget. Also, keep in mind that you’ll have to plan where you fund those early retirement years before you have access to your retirement plans.

I can tell you after taking an honest look at our situation I don’t expect to feasibly retire before 50 without having a tight budget. We want to build in extra funds for travel and safety so I’m probably looking at retirement at 52-53 but time will tell.

We also have a similar asset allocation as you. Just keep in mind if there is a recession in the next few years those accounts could take a significant hit.

Finally, I’d go look at your SS statement and see what your estimated benefit will be. That will play a role in you final numbers when determining if retirement is possible.

Good luck! Who knows, we could end up retiring in the same year! If I see you on the beach I’ll buy you a beer!

 

[Helen]

Hi lalanian6,

My parents had a cabin on Athey Ave in Harrison, MI. I spent a lot of time there on the Tobacco River.

Good luck to you, I hope you can leave the rat race soon.

 

[Another Reader]

Is the house in Texas vacant? If so, you may have a problem with your insurance. Property insurers don't like vacant houses. There may be a clause in your homeowner's policy that requires you to notify the insurer if the house will be vacant for an extended period. They may cancel your insurance. Worse, if you did not inform the insurer of the vacancy in a timely manner, the policy may lapse, even if you pay the premiums. In your shoes, I would look into that immediately.

 

[NgineER]

The tx house was our residence before MI. We had bought the tx house on a short sale, cheap. It has appreciated over the years & we figured if we ever decided to move back (my wife's family is there), we probably couldn't afford to buy in that area again.

It would probably have been a better decision to sell the property and invest the proceeds rather than having it sit vacant and paying for utilities and wear and tear as an absentee owner.

 

[StuckinCT]

Hi,
I’ve been ‘stalking’ this site for quite some time now but have never posted. I am interested in early retirement but am apprehensive. I’ll give you some stats; if I’ve left out anything pertinent, please let me know…
I’m 46 years old, and live in Harrison Township, MI; I would like to retire at 50 years old. I am married; my wife is 39 years old. We have a son; he is 7 years old.
We have been saving for years. We currently have the following assets with Vanguard, allocated at 70% stocks, 30% bonds:
- Roth Ira: 400,000
- 401k: 550,000
- Brokerage: 400,000
I earn 90,000/year; my wife is a stay at home mom. We have no credit cards, auto loans, student loans, etc.
We do, however, have 2 houses; one in Michigan, one in Texas. Both houses have a mortgage (Michigan – 220,000@4.625%, Texas – 130,000@3.125%). Our expenses are 3,400/month (roughly 40,000/year).
Our plan would be to continue living in Michigan, then possibly move to Texas when our son graduates High School & goes to College.
I guess what I’m worried about are the unknown expenses that may arise. I had done a little bit of research regarding health insurance & have found it to be a little daunting.
Is anyone in a similar situation? Does anyone have experience with retiring early while still raising minor children? If we were to sell the house in Texas (equity of 160,000) would you suggest investing the proceeds, or would it make more sense to use the proceeds (and 65,000 of our retirement money) to pay off the mortgage on Michigan house?
I greatly appreciate any experience or advice you could offer.
Thanks.

My well pump went today and it will be a $3k expense. With two homes, and AC in Texas Furnace in Michigan, roofs etc I would budget for those things. My house I budget $6k a year, every house is different- if it were an older home I would budget $10k.

I've got three kids and a dog so our furniture gets beat up, rugs etc so I also continue to work so I can replace these things without a sweat.

If your taxable income is under $40k which is quite possible with the Roth, you will likely pay peanuts for health insurance with the ACA subsidy so that's good, but keep in mind higher deductible out of state out of network.

If you are handy and can do some of these things that changes the cost some but I've been called athletic and in five or ten years, I don't know if I could pull 400 feet of pipe out of my well! As you get older, a lot of things get more expensive and Medicare doesn't even cover everything. I read about people who live on $40k in their 30s/40s, but when you need help, that becomes more difficult I guess is my point.

 

[StuckinCT]

Congrats! I turn 46 next month and our numbers are a little less than yours but very similar. Big difference other than only having one house is we don’t have any children.

I see lots of good advice here already. The first thing I noticed is those mortgage rates. It’s already been mentioned but consider refinancing the Michigan home mortgage. You might save quite a bit with the current interest rates.

I’d make sure you estimate taxes and health insurance into any retirement monthly budget. Also, keep in mind that you’ll have to plan where you fund those early retirement years before you have access to your retirement plans.

I can tell you after taking an honest look at our situation I don’t expect to feasibly retire before 50 without having a tight budget. We want to build in extra funds for travel and safety so I’m probably looking at retirement at 52-53 but time will tell.

We also have a similar asset allocation as you. Just keep in mind if there is a recession in the next few years those accounts could take a significant hit.

Finally, I’d go look at your SS statement and see what your estimated benefit will be. That will play a role in you final numbers when determining if retirement is possible.

Good luck! Who knows, we could end up retiring in the same year! If I see you on the beach I’ll buy you a beer!

Good point on Social Security- also make sure you re calculate your Social Security not working until full retirement age as that will lower your benefit- Social Security assumes you keep earning the same until retirement. Your benefit will be substantially lower retiring early in all likelihood.

 

[lalanian6]

I am refinancing the Michigan house; should close at the end of the month. The refinance is 30yrs@3.5, dropping the payment from 1,681 to 1468. The payment on the texas house is 886/month (710 interest/principle, 175 escrow for taxes & insurnace).

 

[badatmath]

I would keep paying 1681, (well actually I would round up to 1700).