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About to lose my job at 55, I think I can do it....
Old 12-10-2016, 08:24 PM   #1
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About to lose my job at 55, I think I can do it....

Trying to determine whether or not I can join the ER group. The bad news I am losing my job next year at age 55, I am not rich and never made "big" money. The good news I am single, no kids, no credit card debit, and in good health, knock on wood, and low expense. Both my parents gone, my siblings are doing very well. No one is depending on me. I have come up with a retirement plan that involves spending down my savings and depending on pension, 401K, social security and other qualified money at 65.

Here are my numbers:

Liquid Cash : +411K
Brokerage (non-qualified) : +$110K
IRA, Annuity, Stock (qualified) : $100K
Lump Sum value of Pension and 401K about (50/50) (qualified): +$550K

Home Equity : +600K
Mortgage : -225K

My current expenses:

Today, excluding the mortgage payment, I need only 2K per month based on today's needs. This is a pretty low amount. I am not counting the mortgage payment for a reason.

My Plan:

After leaving employment: Pay off my house and live off of cash and brokerage, (non-qualified money) until 65. There will be some captial gains from the brokerage account. I will not have income, and largest payment will be property tax. Some people might think that is a crazy idea, but I am not interested to acquire wealth and die with money. I will likely have some cash left over, how much depends on how much I spend. I will have medical coverage until 65. I suspect I will start getting worried as cash supply gets depleted, but it should be doable. I haven't ruled out working again if the opportunity arises. Everything I have read, it is harder to find work over 55.

At 65 (normal retirement age): My pension benefit will have increased, hopefully my 401K as well. Medicare begins. Start taking the pension and 401K. This amount will be higher than what I was living on last 10 years, so I should have some breathing room. I have a 20 year withdrawal plan for my 401K which takes me to 85, (still alive, not sure). Social Security should sweeten the pot, but I am not counting on it being there for me, but will take it at 70 if it still exists. The other IRAs, small Annuity and company stock (worth $100K today, should have increased) are also a consideration for withdrawal at this point.

As most of you might have already guessed, I own an average car, and take public transportation. Being single all my life, I have already done most things I want to do, therefore I don't think I will need much money in retirement. My hobbies right now do not cost a great deal, and I have no interest in traveling, long vacations, etc. I need to figure out what is next.

So my golden years would involve freedom, and limited income. But it appears my needs would be met. At any point in the game, I could sell my house and downsize. I could also choose to leave the house to other family members, or sell the house in order to pay for a care facility, if the time arose. I am not particularly motivated to leave anything to anyone, best case scenario a clean exit with nothing.

Would appreciate any words of wisdom from people who have been in simular financial situation as me.
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Old 12-10-2016, 08:51 PM   #2
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If your expenses are truly under $30K/yr then I think you will be fine. One thing I would do to help a little would be to make sure you take enough out of 401K to take advantage of standard deduction and exemption. Right now it's about $10K/yr you can have as income and still pay zero tax. After the new regime takes hold next year, the standard deduction is expected to go up. Take advantage of that otherwise you will be paying more in tax in your later years. I wouldn't look for another job if I were in your position. Good luck.
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Old 12-10-2016, 09:26 PM   #3
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Hmm so you are a single person in a house worth 825k? (you have 600k in equity and 225 debt). That's a lot of house most anywhere. I'd consider selling/moving to something far less than that. The property taxes alone can't be very nice - are they in that 2k per month? If you could sell and move to something 300-ish you'd still have a nice home in most places, plenty enough for one person, and that would free up some NW for you?
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Old 12-10-2016, 09:34 PM   #4
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Hmm so you are a single person in a house worth 825k? (you have 600k in equity and 225 debt). That's a lot of house most anywhere. I'd consider selling/moving to something far less than that. The property taxes alone can't be very nice - are they in that 2k per month? If you could sell and move to something 300-ish you'd still have a nice home in most places, plenty enough for one person, and that would free up some NW for you?
Yes, property tax is figured in. I always knew I was in a huge house, and it has been an investment. I have been looking into smaller homes, maybe even a tiny home in another state and off-grid living sounds really interesting right now.
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Old 12-10-2016, 09:47 PM   #5
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What is the interest rate on your mortgage? Depending on the interest rate and your risk appetite it may not be wise to pay it off, especially since you may need some of those funds from 55 to 60.

+1 on that seems like a lot of house for a single person.

Can you take your pension earlier than age 65 if you want or need to? My former employer allowed us to start pension anytime between 55 and 65, but if you looked at how the benefits increased each year, the sweet spot for taking it was about 60-61. In any event, if you can take it earlier than 65 if you need to then that should be a comfort.

With SS, for a single person SS is allegedly actuarially neutral, so unless you expect to live long there is not a big advantage to delaying. I'm married so it makes a difference and we are better for me to delay, but it is nice that I can start it at anytime after 62 if I need to.

What is your asset allocation? What does Firecalc say? Do you have Quicken?... if so, what does Lifetime Planner say?

All of that said, I suspect that you will conclude that you are good to go if your expenses are really only $2k/month. That seems pretty low though... are you sure?
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Old 12-10-2016, 09:48 PM   #6
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Get a roommate. You should be able to get a younger person to take a room in your home. That will help out immensely.
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Old 12-11-2016, 05:54 AM   #7
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Originally Posted by kb50872 View Post
I have been looking into smaller homes, maybe even a tiny home in another state and off-grid living sounds really interesting right now.
I think this makes a lot of sense. It would give you a significant increase in your liquid assets to live on, and reduce your costs further as well.
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Old 12-11-2016, 06:36 AM   #8
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Quote:
Originally Posted by Aerides View Post
Hmm so you are a single person in a house worth 825k? (you have 600k in equity and 225 debt). That's a lot of house most anywhere. I'd consider selling/moving to something far less than that. The property taxes alone can't be very nice - are they in that 2k per month? If you could sell and move to something 300-ish you'd still have a nice home in most places, plenty enough for one person, and that would free up some NW for you?
kb50872 is west coast in a city with decent public transportation. To me, the house value is reasonable considering what has happened to real estate the last 6 years or so.

Quote:
Originally Posted by kb50872 View Post
Yes, property tax is figured in. I always knew I was in a huge house, and it has been an investment. I have been looking into smaller homes, maybe even a tiny home in another state and off-grid living sounds really interesting right now.
You should explore the idea. You can also explore other alternatives like RV boondocking, since you seem to be especially introverted. If, however, you have a lot of friends you depend on and get energy from today, a move may not make sense.

Good luck! Since you seem to have medical handled (my biggest worry), your plan sounds reasonable although slightly aggressive.
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Old 12-11-2016, 08:33 AM   #9
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Remember that since you will be separated at age 55 you can tap the 401K plan (not the IRA) as you need it, without taking SEPP as would be required in an IRA. That gives you some flexibility to take lump sums when you need it until you can also use IRA funds at age 59.5, or to withdraw just enough per year to take advantage of tax laws (enough to cover the standard deduction and personal exemption at an effective 0% rate).

You'll also be in low tax brackets where you can take advantage of 0% tax rates on dividends and long term capital gains. You could either tap those for some tax-free income or sell stocks that have long-term treatment and sell long term holdings (using FIFO) and immediately repurchase them, effectively giving you a "free" step up in cost basis in the taxable brokerage account. (I just did that -- captured about $17K in LTCG taxed at 0% in my 15% marginal bracket, repurchasing the shares and effectively increasing my cost basis by $17K without any cost or tax hit to me.)

The first thing I'd look at to make the numbers work is to move. You have $600K in equity. (Or is it $375K? It's not clear whether you are in a $600K home with a $225K mortgage, or an $825K house with a $225K mortgage.) Let's conservatively say you could sell and pull $500K out, after commissions and selling expenses. If you bought something nearly $250K cheaper you could pocket the remaining gains tax-free, assuming you've lived there as a primary residence for at least 2 of the last 5 years.

You haven't mentioned how you will approach the health insurance beast. That's a major consideration, especially until you turn 65.

Finally -- are you entirely sick of working or do you just think there is going to be nothing out there for you? If the latter, don't rule out finding part-time work somewhere.
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Old 12-11-2016, 10:57 AM   #10
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What is the interest rate on your mortgage? Depending on the interest rate and your risk appetite it may not be wise to pay it off, especially since you may need some of those funds from 55 to 60.

+1 on that seems like a lot of house for a single person.

Can you take your pension earlier than age 65 if you want or need to? My former employer allowed us to start pension anytime between 55 and 65, but if you looked at how the benefits increased each year, the sweet spot for taking it was about 60-61. In any event, if you can take it earlier than 65 if you need to then that should be a comfort.

With SS, for a single person SS is allegedly actuarially neutral, so unless you expect to live long there is not a big advantage to delaying. I'm married so it makes a difference and we are better for me to delay, but it is nice that I can start it at anytime after 62 if I need to.

What is your asset allocation? What does Firecalc say? Do you have Quicken?... if so, what does Lifetime Planner say?

All of that said, I suspect that you will conclude that you are good to go if your expenses are really only $2k/month. That seems pretty low though... are you sure?
Interest rate on mortgage is 4.375, could be lower. I am not comfortable carrying a mortgage into retirement due to limited income sources.

I can take my retirement at 62 if needed, slightly smaller pension, but this could be my out should I run out of cash. Great to know about SS, I am thinking then it is more feasible to take it before 70! My gene pool does favor beating the average lifespan for my demographic, but only by a couple years.

The non-qualified account is designed for capital preservation with growth potential. My 401K is a bit on the risky side, I should rebalance it. Same with the other qualified plans. I am meeting my broker this Monday to go over some options.

The 2K / month is a pretty close estimation without mortgage, after I have left the company. There is some padding build into that number, the actual amount is around 1,700. The numbers are from my current spending scenario. Of course, it could be higher. One thing I need to mention, utilities are low due to LED bulbs, NEST HVAC system and energy efficient appliances. And also water saving techniques such low GPM water flow on sinks. Also doing an energy audit of your appliances, a power center for your stereo system is on "Standby" burning energy 24/7, not much, but it adds up. HUGE difference those things will make. I don't use much anyway, but the savings there has been like night and day.

My insurance has somewhat high deductibles which could be a problem if I am on a fixed income. But I am risk-adverse and careful, and haven't really had any claims. Of course there is always that scenario of "unexpected expenses", but I know my house pretty well. This is why it is hard to leave. And the scenario if I sell my house, and cost of staying in a "cheaper" house might actually be higher, like high water or electricity prices or a major needed repair. That said, selling my house is not out of the question, the extra money might help.

Thank you, so many great responses giving me a lot to think about!
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Old 12-11-2016, 11:04 AM   #11
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Get a roommate. You should be able to get a younger person to take a room in your home. That will help out immensely.
That might not be for me as I have been in housing situations when I was younger, was pretty difficult for me. Maybe I was in with the wrong people, perhaps with the right person it could work.
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Old 12-11-2016, 11:05 AM   #12
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I think that if you plug your numbers into Firecalc that you will find that you can safely retire and spend even more than $24k a year.
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Old 12-11-2016, 11:10 AM   #13
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You're fine if your scenario is anything like mine was. Walked out at 52 with a 800k house but only 2982 prop tax (under prop 13). It's only 2050 Sq ft so not a mcmansion.

2k net a month can go a lot LOT farther than you think and I travel 2 a year (1 domestic, 1 international)
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Old 12-11-2016, 11:11 AM   #14
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I think this makes a lot of sense. It would give you a significant increase in your liquid assets to live on, and reduce your costs further as well.
I've been looking into this for a long time now, but reality is I am a city person. It would be difficult, but a change I am willing to make if I can find the right location. There are some communities that are zoned for this and the idea is gaining traction, which means prices for this kind of lifestyle are increasing.
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Old 12-11-2016, 11:14 AM   #15
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I think that if you plug your numbers into Firecalc that you will find that you can safely retire and spend even more than $24k a year.
Thank you very much, that is encouraging!
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Old 12-11-2016, 11:25 AM   #16
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You're fine if your scenario is anything like mine was. Walked out at 52 with a 800k house but only 2982 prop tax (under prop 13). It's only 2050 Sq ft so not a mcmansion.

2k net a month can go a lot LOT farther than you think and I travel 2 a year (1 domestic, 1 international)
Exciting to hear this news! 52 seems really young for ER, but I am glad to see there are people doing this. My parents were protected under prop 13, and I am as well as my property tax is reasonable in relation to home value. Buying a smaller house with the rise in prices might not save me much on taxes unless I move out of state.
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Old 12-11-2016, 11:35 AM   #17
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kb50872 is west coast in a city with decent public transportation. To me, the house value is reasonable considering what has happened to real estate the last 6 years or so.


You should explore the idea. You can also explore other alternatives like RV boondocking, since you seem to be especially introverted. If, however, you have a lot of friends you depend on and get energy from today, a move may not make sense.

Good luck! Since you seem to have medical handled (my biggest worry), your plan sounds reasonable although slightly aggressive.
You did hit on on the head, I am pretty solitary, however I am very active and know a lot of people from my activities. I am not very close to any of them, but I do have a connection with them, and giving that up will be a loss. Those activities are highly physical, and keep me healthy, also a passion I developed in my early 50s. I have to exit the world, that is what I want to be doing.
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Old 12-11-2016, 12:11 PM   #18
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Given that you're in the land of prop 13 (as I am) - you want to hold off downsizing till after age 55. You can transfer (within your own county) at age 55 as long as you move to a lower priced house. There are some counties that let you transfer between them... but not all CA counties. See prop 60 and prop 90 (google) for details.
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Old 12-11-2016, 12:16 PM   #19
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Remember that since you will be separated at age 55 you can tap the 401K plan (not the IRA) as you need it, without taking SEPP as would be required in an IRA. That gives you some flexibility to take lump sums when you need it until you can also use IRA funds at age 59.5, or to withdraw just enough per year to take advantage of tax laws (enough to cover the standard deduction and personal exemption at an effective 0% rate).

You'll also be in low tax brackets where you can take advantage of 0% tax rates on dividends and long term capital gains. You could either tap those for some tax-free income or sell stocks that have long-term treatment and sell long term holdings (using FIFO) and immediately repurchase them, effectively giving you a "free" step up in cost basis in the taxable brokerage account. (I just did that -- captured about $17K in LTCG taxed at 0% in my 15% marginal bracket, repurchasing the shares and effectively increasing my cost basis by $17K without any cost or tax hit to me.)

The first thing I'd look at to make the numbers work is to move. You have $600K in equity. (Or is it $375K? It's not clear whether you are in a $600K home with a $225K mortgage, or an $825K house with a $225K mortgage.) Let's conservatively say you could sell and pull $500K out, after commissions and selling expenses. If you bought something nearly $250K cheaper you could pocket the remaining gains tax-free, assuming you've lived there as a primary residence for at least 2 of the last 5 years.

You haven't mentioned how you will approach the health insurance beast. That's a major consideration, especially until you turn 65.

Finally -- are you entirely sick of working or do you just think there is going to be nothing out there for you? If the latter, don't rule out finding part-time work somewhere.
I prefer to take my 401K at 62 or 65, I will probably need it then, based on current calculations, but who knows the future, it is good to know that option exists. The FIFO repurchase is something my broker should know about. I suspect you are online trading handling your own account? I have used a full service broker for so many years. I have always thought this is too expensive of a service for someone in my financial position: I am not a multi-millionaire. I will ask him about this though. Without any changes to my living situation, I suspect my financial standing only allows me to sell enough every year to survive.

My house value around 825K. I can write off 250K after the sale, however, depending actual sales price, I could be on the hook for about 100K so timing will be important, I think it is best to do this after I do not have income, but not so late in the game I don't have enough cash to jump to the next location, which poses another set of questions, but I am already thinking about the issue of relocation.

Since I will be 55 when I leave, my employer will let me take my current medcal insurance at cost for as long as needed. I am heathy today and live a healthy lifestyle, but I know there are no promises as we age. In the end, health is something no one can control, there is no recovery from some ailments. But of course anything in-between could be costly as well. My only answer I hope I can remain relatively healthy as I age.

I am concerned I won't be able to find work due to my age. Most people getting hired in my field are significantly younger than me. That said, I do have a good skill set that someone will need, and I am happy to return back into the workforce, even at a reduced rate. But at some point, I need to evaluate how much happiness or financial security that is really going to give me. My current situation might not justify having a little more money at the end; but I might actually need it. Best case scenario, I can find something that fulfills me and improves my financial situation if only by a tiny amount, that way I will have done everything possible.
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Old 12-11-2016, 12:20 PM   #20
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Your situation is similar to what mine was, see below link. I pulled the trigger 12 months ago at age 54 and am very happy about it. In short, I spent less than I planned, and made more money than I hoped. The increased wealth will be a buffer for stock market down year or two. There are very conservative folks in this forum - "no amount of money is safe" type. But many will provide valuable info for you to chew on. Personally, I think you are good to go but can use more investment capital (i.e, don't pay off the mortgage, convert cash to work for you). I only keep about 100k in cash and the rest is invested.

http://www.early-retirement.org/foru...ere-77520.html
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