58 and dreading sunrise

[workedout]

I'm 58 and my wife is 56. We live in rural MN. I've been preparing taxes for the last 36 yrs and am burned out. Have been self employed since 1984 with my wife as a coworker. We would like to quit ASAP. We make approx 100,000 and spend 80,000. Have 3 kids, grown up and mostly independent. We have approx 1.6 million in investments and retirement accts. 7% cash; 20% bonds; and the rest stocks and mutual funds. We have some real estate worth 500,000 and a nice lake home worth 500,000. My wife insists these get left to our children so we are basing out retirement goals on the investments and retirement accts. I'm no financial planner but I took the 1.6 million and amortized it over 25 yrs at 4% and figured we could take out 8,000 a month if we needed to. Real estate and house would be in reserve if needed. Please advise!!!

 

[omni550]

Welcome, workedout.

Have you tried running your numbers through Firecalc (at the bottom of this page)?

omni

 

[Bestwifeever]

I'm 58 and my wife is 56. We live in rural MN. I've been preparing taxes for the last 36 yrs and am burned out. Have been self employed since 1984 with my wife as a coworker. We would like to quit ASAP. We make approx 100,000 and spend 80,000. Have 3 kids, grown up and mostly independent. We have approx 1.6 million in investments and retirement accts. 7% cash; 20% bonds; and the rest stocks and mutual funds. We have some real estate worth 500,000 and a nice lake home worth 500,000. My wife insists these get left to our children so we are basing out retirement goals on the investments and retirement accts. I'm no financial planner but I took the 1.6 million and amortized it over 25 yrs at 4% and figured we could take out 8,000 a month if we needed to. Real estate and house would be in reserve if needed. Please advise!!!

I thought from the thread title that we had our first vampire early retirees.

Agree with the firecalc suggestion.

 

[MichaelB]

Don't forget to include inflation in your calculations. Lots of members here plan for 30 or 35 years of retirement, choosing to err on the side of safety.

 

[RunningBum]

I was going to suggest working nights, so that you can look forward to sunrise and the end of the workday.

I'll third the firecalc suggestion. Or, a simple rule of thumb would be to take 4% of you savings as your starting withdrawal rate, and increase spending with inflation. that's $64K, so you'd be a bit short, though once you collect social security that would likely fill the gap so you might be ok.

With your method, it only takes you out to 83/81 before you'd have to tap the assets you don't want to. I personally wouldn't be comfortable with that, but it depends on how insistent your wife is about leaving the real estate.

Would you be able to cut back? No new clients, and maybe drop some of the more complex, difficult and/or time consuming ones? Some of us have found part-time work to be an excellent transition to retirement. It's not easy for some, but it seems to me you would be able to do it unless you just have a couple of large clients. Some of the clients you drop may not be pleased to find you are still working for others, but if you give them plenty of notice, does it really matter what they think?

 

[pb4uski]

I use Quicken Lifetime Planner for my basic retirement plan. It is part of Quicken Deluxe or higher. You will need to enter your portfolio (tickers and share amounts) in Quicken and then go to the Lifetime Planner and work through the various screens that cover your assumptions as to rates of return, inflation, taxes, living expenses, college expenses, special expenses, pensions and SS, etc. and based on the information that you provide it will do a year-by-year projection of your retirement assets. While it has its imperfections, it is a good place to start, get a basic plan and think through all the various things that will financially affect your retirement. I suspect that you will find that you are pretty close.

Once you have a base plan in place, you can do what-if analysis using different assumptions and it provides a line graph showing the growth/decay of your retirement nestegg under each set of assumptions. If you think the what-if set is more realistic, you can reset your base plan to use those assumptions with a single click.

I then supplement the QLP analysis with FireCalc, Vanguard's Monte Carlo analysis, and Financial Engines which adds a stochastic test of the plan.

When you say real estate do you mean your main home? or investment real estate? We previously had two homes and ended up selling one and using our lakehouse as our main home. The reduction in expenses (property taxes, insurance, maintenance, etc) plus adding the proceeds from the sale of our main home to our nestegg put us in a much more comfortable position to retire.

We have told our kids that if there is something left that it is estimating error on my part even though the reality is that there will be a significant estate at the end.

 

[daylatedollarshort]

I would add in Social Security (use 75% if you want) and run the numbers through a retirement planner, use 2 - 3 % return rate and a much longer potential life span.

If that doesn't give you a 100% success rate, can you cut your expenses or work part time, or a little of both? Or switch to a less stressful career?

I am curious why your expenses are 80K living in rural Minnesota with what seems like a paid for house.

 

[MBAustin]

Having been the beneficiary of both rental real estate and a lake home from my parents (who inherited them from my grandparents), I strongly suggest you discuss the future of these with your children before labeling them as "untouchable".

Rental real estate - my sister and I have both moved away from the area where the real estate is and the properties have declined over the years. We started to sell them about 10 years ago and still have one left that we hope to get rid of this year (even donated a few to the town they are in). The tax hassles have been huge (especially since neither of us lives in that state). In hindsight, I wish we had asked my parents to dispose of the properties rather than give them to us.

Lake house - although we have the same geographic challenge with this property, it has so many wonderful family memories and we are able to use it a reasonable amount, so thus far we're happy to have it. But it is a significant amount of work for her to manage the upkeep (I'm too far away) and the costs are definitely higher than renting a place for a week or two each summer. That said, when my mother and her sister inherited it from her parents, arguments about who used it when and who paid for what (in truth, her sister never helped with it financially at all) caused a long-term falling out between them. I also have a friend with a similar situation in her husband's family that required multiple lawyers to sort out the issues between the siblings.

In any case, I do think an honest family discussion to bring in all perspectives and options is a good thing.

 

[pb4uski]

Having been the beneficiary of both rental real estate and a lake home from my parents (who inherited them from my grandparents), I strongly suggest you discuss the future of these with your children before labeling them as "untouchable"....

I grew up on a lake and had a friend who inherited a lake house with his sister. His sister was in a position to afford her half of the property taxes, insurance, maintenance, etc. My friend wasn't able to afford the cost. Ironically, the sister wanted to sell and my friend didn't due to emotional attachments to the property., but i think he ultimately understood that he couldn't afford to keep it so he eventually conceded to sell.

In his last years my Dad adopted a view that inheriting the family lakehouse was like inheriting a liability because they are so costly so I ditto the suggestion to talk about this with your kids before assuming they are untouchable.

 

[NW-Bound]

You should make some FIRECalc run for yourself, but in general, a mixed portfolio can support a 4%WR, particularly when you have SS coming in a few years down the road, and then Medicare kicks in and reduces your healthcare cost some more.

I myself do 3.5%WR because I try to avoid drawing down principal, but then I am scroogy and like to count my money. This, from a guy who thinks a 30-yr FIRECalc run is way too long for himself. Am I greedy or what?

PS. We also have a 2nd home, which is "in the mountain". When I slow down too much to enjoy it, or becoming dependent on healthcare available in the city, I will sell it myself. I'll save my children the trouble, and would leave them with my Roth account, which is more straightforward.

PPS. In the short term, it really makes no difference whether one draws 3.5% or 4.5%. The 1% difference is down in the noise, when a portfolio can vary +-20% or 30% in a year. In the long run, it does. I guess the peril of drawing a higher WR is that one gets used to it, and builds expenses permanently in one's budget that becomes difficult to reverse when the going gets tough. A second home like yours and mine is an example.

 

[jarts98]

Could you sell your tax prep business to someone else? It could add a nice amount to the kitty.....

 

[SumDay]

Having been the beneficiary of both rental real estate and a lake home from my parents (who inherited them from my grandparents), I strongly suggest you discuss the future of these with your children before labeling them as "untouchable".

+1. I inherited investment real estate from my parents, and it has been a nightmare. I know my dad thought he was doing me a favor, but my new motto is "If you love your children, you won't leave them real estate."

And a close friend is going through disposing of her parent's lake home since dad died and mom has Alzheimer's. She told me last weekend that she now knows why I was so crabby with my inheritance.

My guess is they'd much rather have the $$$.

And ditto on the part time suggestion. DH has been transitioning since 2009, and really likes the opportunity to interact with someone besides me.

 

[Katsmeow]

I'm no financial planner but I took the 1.6 million and amortized it over 25 yrs at 4% and figured we could take out 8,000 a month if we needed to. Real estate and house would be in reserve if needed. Please advise!!!

$8,000 a month is $96,000 a year which is a 6% withdrawal rate which is not likely to succeed. I'm not sure why you are using a 25 year period if you plan to retired soon. I more typical period to plan for at your age is closer to about a 35 year period.

Do some research on safe withdrawal rates. The studies on SWR have usually used a portfolio and have taken, say, 4% the first year and then thereafter inflation adjusted it. Historically, for a 30 year retirement, 4% has been safe with a portfolio reasonably balanced between equities and fixed income. 6% has not been safe. Many believe that going forward 4% is too high. We can debate that, but I don't think 6% is debatable at all.

Bear in mind, that even if your portfolio averages a certain return over time, it is the volatility that keeps something like 6% from being safe. Portfolio don't always go up the same amount each year. Sometimes they go down and can actually go down a lot in a single year. SWRs are lower because this is supposed to be the rate where the portfolio would survive even in adverse market conditions.

 

[daylatedollarshort]

Could you sell your tax prep business to someone else? It could add a nice amount to the kitty.....

Yes, great idea. We just got an unsolicited offer for ~3 years net income for our home business.

 

[Larro Darro]

My parents gave me their old house [the one I was raised in] when they built a new one. We used it as a rental for a few years, but it was such a pain we gave it up. Now it is just expensive storage. Because my mom would throw a hell spell, I'm waiting to sell it until she dies.

Workedout, if you do leave the properties to the kids, break them up. Owning jointly can lead to family disputes.

My sister and I got the last of the farm land in our names a few of years ago. Our mother wanted to put both of our names on all of it but the two 40 acre lots we have our houses on. We insisted on at least another 40 each for ourselves, but own the rest jointly. The most valuable of it is two pieces of land on the Chipola River. Each one a quarter mile of riverfront. Across the river from us, 100' X 200' lots sell for $20 to $30K.

This is family land, and it is assumed we will not sell. But the DW and I don't have any kids. We would be giving my grand niece and nephew a couple of million dollars. [I'm not going to leave it to my niece]

I don't think we would need to sell the land to get by. But if half of it was mine outright, it would make things simpler.

And as far as how long to plan for, how old are your mom and dad? If they have passed, add five years for science, then five more for diet and exercise. The worst that can happen is you leave some cash to your kids.