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54/49 year old couple, how many more years?
Old 08-21-2010, 09:25 AM   #1
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54/49 year old couple, how many more years?


(Warning: English is not my mother tongue so please be gentle with me.)
My wife and I met in graduate school. We started working in the same year. Twenty two years later, we started to think about RE. Our question is how many years of w**king should we continue until either one of us become RE, or both of us RE?

Family Situations: I am 54. My wife is 49. We have a 16 year old (high school junior), and a 13 year old (high school freshman). We live in S. California.

Financial Situation: We have total 1.5M saved (500K 401k + 700K in brokerage + 200K UGMA account for kids' education + 100K cash). Our house is about 450K value with 50K mortgage to go. Our two relatively new cars are paid off. We have no other debt. My wife and I earn about the same in IT field with combined salary of $250K last year. We only reached higher earning from just few years ago, and we appear to be at our highest earning stage at the moment, but our companies do annual layoffs at year end to trim down the lower 5% or so non-performers, so we never know if we will keep our jobs in the future. We have no pension. We plan to receive Social Security at age 62 with about $18K annually for each of us.

Average spending for the last 3 years: I roughly calculated that we spent about 90K annually for the last 3 years. This included the mortgage (25K monthly payments), kids' piano lessons, swimming lessons, summer camp, family vacations, etc.

Current Plan: Our current plan is to pay down the mortgage as quickly as we can by adding about $1000 extra each month. When it is all paid off, this would reduce our annual spending down to about 65K.

The unknown: health care is likely the biggest unknown. We both have company health care at the moment, but if we both RE, how do we access reasonable health plan? Children's fate in the future is also unknown whether they can get in state college as we plan, or they will need to pursue expensive private college? How about graduate schools after that? How about job market after schools? Do we have to continue to provide for them after that?

Question from us: when you calculate total asset, do you include your house value? If we do include house, but leave out education fund since that are really not ours but kids', we have about 1.75M. 4% of SWR will provide 70K annually. If we do not include house which will bring down to 1.3M, and the 4% SWR is about 50K so we will have to keep working for few more years.

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Old 08-21-2010, 11:22 AM   #2
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Welcome, fh.

I would not include the house value in the calculations, it is an illiquid asset that is difficult to draw day-to-day living expenses from.

You are on the right path in my opinion. The questions you ask about health care are questions everyone has, and no one has solid answers for, unfortunately. It is one of the biggest risks in retirement in my opinion.

PS, your English is excellent so no need to apologize for it!
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Old 08-21-2010, 11:29 AM   #3
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Welcome. Normally the value of your house is not included in the 4% calculation, as it is not invested and returning income. If you sold your house and bought a less expensive house, you could include the difference in your calculation.

The search function here will provide you with some leads on where to look for health insurance to get a general idea of what it will cost you.
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Old 08-21-2010, 11:34 AM   #4
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Welcome to the forum.

I do not include my home equity into SWR calculations. If and when we downsize, we'll include any freed up equity at that time.

The questions you ask about funding your children through their education and beyond are very personal questions having a lot to do with your personal values. should give you an estimate of what health insurance will cost you. There are calculators on the web to tell you what insurance will cost in 2014 if the current healthcare reform law stays in its current form.

Please use Firecalc to see how you fare. See link at the bottom. Also, there are wonderful books/articles mentioned in the FAQ section of this forum.

All the best.
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Old 08-22-2010, 09:31 AM   #5
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Thank you all who replied to my post so far.

Your answer about not including the house value gives me a realization that we should stay in the work force for at least a couple more years. We plan to add $1000 extra to the monthly payment and we can fully pay off the mortgage by the end of 2011.

I used FIRECalc (I left Spending Models and Portfolio tabs as default for the moment since I am not sure what to enter) and I can see we need 150K more savings to meet 65K annual spending for 30 years. With our current saving rate, this takes 2 more years. So, this gives us a near term goal for both of us to work till the end of 2012.

My wife's suggestion is to just work until we get laid off. At which time, we will receive severance pay, and we can claim unemployment. We can join COBRA and hope to take us to 2014 when new health plan takes effect. Mentally, we can consider ourselves SRE (Semi-retired early) already, which means I just need to meet the minimum work requirement with no more extra long hours, no need to get tangled up with the office politics or feeling low that I now report to a young manager half of my age and experience.

One other unknown is if we will experience another market down turn that will reduce my portfolio value. I now have a lot of homework to review my holdings and do adjustments to protect it.
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