Finally FIRE’d @55 in Silicon Valley

[FIREd_2015]

This forum has been a wealth of information. Too bad I didn’t come across it earlier. I spent my career in engineering and marketing. I’ve been working part time the last couple of years. My last assignment ended in December. Various retirement calculators show I should be ok so I’ve lost the motivation to look for more work My main concern with ER was health insurance premiums but now with Obamacare I’m more confident that it’ll be manageable. I am thinking of converting $250k of 401k money into a SPIA at 65 to hedge against longevity since I am in pretty good health. I have always enjoyed traveling and would like to do more of it while I’m still healthy. My situation:

Age 55, single, no kids
Cash - $ 450k
IRA - $730k
ROTH - $650k
401k/403B – $295k
Pension @ 60 y.o. – $8k/yr (w/ COLA) or $105k cash out
SS @ 70 y.o. - $32k /yr
Net rental income – approx. $21k/yr
Mortgage – approx. 2.5 yrs left with $60k balance on primary residence
Real Estate equity – rental + primary residence approx. $2 million (Bay Area housing prices are crazy)

Avg. expenses over past 15 yrs – approx. $60k/yr but will drop by $27k/yr once mortgage is paid off.
I’m estimating I’ll have additional $10-15k/yr in travel expenses going forward.

Any thoughts, comments or suggestions?

 

[Katiek]

I don't know how your portfolio is invested, but from that info, it certainly looks like you'll be fine. Welcome to the forum, I look forward to hearing from you in the future.

 

[FIREd_2015]

I don't know how your portfolio is invested, but from that info, it certainly looks like you'll be fine. Welcome to the forum, I look forward to hearing from you in the future.

Mostly cash at the moment. I am a market timer and value investor. I spent a lot of time reading various financial blogs to help me time the markets. I saw a posting recently though (I believe it was on this forum) titled something like "If you have won the game why keep playing..." so my strategy might be a bit more conservative going forward...just in case my luck has run out.

 

[MBAustin]

Welcome! If you've run FIRECALC and it says you're good and you're comfortable with that, then doesn't seem like you have any reason to look for more w*rk.

You probably already know that most of us here are low-cost mutual fund investors, but there are a few folks who are more active in the market who will appreciate the company.

 

[wingfooted]

So $2.2MM investable net worth that should support a SWR of 3.5% or $75K per year. A caveat is that having that $2.2MM all in cash at 1% interest probably won't support a 3.5% SWR and perhaps you would be better served with a conservative portfolio mix with some stock exposure.

Real estate nets $20K per year plus pension of $8K starting up in another 5 years.

You don't mention medical, so say it's ACA and your expenses, including travel and tax liabilities stay at $80K per year - which sounds conservative for the Bay Area but offset by being single / LBYM.

It sounds like you are OK to go with even a backstop plan of cashing in your Bay Area real estate equity and moving to a lower cost of living area if you had to monetize assets.

 

[FIREd_2015]

So $2.2MM investable net worth that should support a SWR of 3.5% or $75K per year. A caveat is that having that $2.2MM all in cash at 1% interest probably won't support a 3.5% SWR and perhaps you would be better served with a conservative portfolio mix with some stock exposure.

Real estate nets $20K per year plus pension of $8K starting up in another 5 years.

You don't mention medical, so say it's ACA and your expenses, including travel and tax liabilities stay at $80K per year - which sounds conservative for the Bay Area but offset by being single / LBYM.

It sounds like you are OK to go with even a backstop plan of cashing in your Bay Area real estate equity and moving to a lower cost of living area if you had to monetize assets.

Yes, I do plan on getting back into the market at some point and I am on ACA so the medical expenses are pretty reasonable.

My backup plan is to rent out my primary residence which should net me another $30-35k/yr (in 2.5 yrs) and head overseas or move out of the Bay Area. Cashing out the RE is another option but given how hot the RE market has been here I'd hang onto it for as long as possible. Market valuations in some areas are now 30-40% above the peak of the 2008 bubble.

 

[FIREd_2015]

...You probably already know that most of us here are low-cost mutual fund investors, but there are a few folks who are more active in the market who will appreciate the company.

I've found this forum to have a more diverse group of people with differing opinions which makes it more interesting and thought provoking.

 

[wingfooted]

Yes, I do plan on getting back into the market at some point .

A dangerous statement.

How long have you been out of equities and how much have you left on the table as this market continues to make new highs ? Sure there will be a correction - someday - but the right move for the last five years has been to buy on each and every dip. This could go on for quite some time.....until you finally capitulate and decide to commit... at a much higher price point.

 

[FIREd_2015]

A dangerous statement.

How long have you been out of equities and how much have you left on the table as this market continues to make new highs ? Sure there will be a correction - someday - but the right move for the last five years has been to buy on each and every dip. This could go on for quite some time.....until you finally capitulate and decide to commit... at a much higher price point.

My Fidelity advisor said pretty much the same thing when I met with him recently. My response to him was, yes, I mistimed my exit. I got out 4-5 years ago which was way too early but I am planning to get back in. My 10 yr and 20 yr returns are still greater than the S&P 500. Of all the money in the various retirement accounts, less than $250k is from contributions, the rest are market gains so my strategy has worked pretty well up until recently. I know past performance isn’t a guarantee of future performance but I think I’ll stick with my strategy a little bit longer.

 

[papadad111]

Your real estate gains to total net worth seem to more than make up for being out of the market for extended periods. I guess I would stick to your current plan.

4+mm net worth along with approx 30K income with no kids or wife seems good to go to me ...

Are you originally from somewhere overseas or just have a desire to go somewhere ? Where are you considering ?

 

[daylatedollarshort]

Good work. I'd say you are in great shape financially. I'm personally not a risk taker and in the won the game, time to stop playing camp. We live in the Bay Area and other than housing find it is actually not too expensive to retire here. Housing is always a roll of the dice, but between older friends who moved and cashed out when they retired and friends that stayed, the ones that stayed have not done too shabby because of the increase in property values.

If I were you I'd focus now on travel, self actualization or whatever else you want to do with the rest of your life.

 

[FIREd_2015]

Your real estate gains to total net worth seem to more than make up for being out of the market for extended periods. I guess I would stick to your current plan.

4+mm net worth along with approx 30K income with no kids or wife seems good to go to me ...

Are you originally from somewhere overseas or just have a desire to go somewhere ? Where are you considering ?

Diversification into real estate has definitely been a life saver. I don't think I would have ER'd without the extra RE equity. It's funny because I just saw a post either here or on bogleheads advising a new investor to avoid real estate. Don't know what part of the country they were in but real estate has been a pretty good investment in the Bay Area for at least the past 45 years unless one got sucked into the NINJA loan craze.

I was born in Asia but grew up in the Bay Area. I've been to every continent except Antarctica and I'm hoping to get there in the next 2 years.

 

[FIREd_2015]

Good work. I'd say you are in great shape financially. I'm personally not a risk taker and in the won the game, time to stop playing camp. We live in the Bay Area and other than housing find it is actually not too expensive to retire here. Housing is always a roll of the dice, but between older friends who moved and cashed out when they retired and friends that stayed, the ones that stayed have not done too shabby because of the increase in property values.

If I were you I'd focus now on travel, self actualization or whatever else you want to do with the rest of your life.

Thanks for the link to the Bernstein article, I'd hadn't seen that before. I also have friends that are talking about moving out of the area to retire but have told them if their mortgage is paid off, it really isn't that bad here. A couple who's both maxed out on SS benefits could live a comfortable lifestyle in the Bay Area without a mortgage and that's not including retirement savings.

 

[daylatedollarshort]

Thanks for the link to the Bernstein article, I'd hadn't seen that before. I also have friends that are talking about moving out of the area to retire but have told them if their mortgage is paid off, it really isn't that bad here. A couple who's both maxed out on SS benefits could live a comfortable lifestyle in the Bay Area without a mortgage and that's not including retirement savings.

I got invited to a group lunch a few years back and a couple of the women there were retired widows living in the Bay Area. They each had Prop 13 for taxes with a baseline of maybe 40 years ago and mortgage free homes they fixed up before they retired. They told me they had a hard time spending more than $30K a year on themselves so they ended up spoiling the grandkids.

 

[LinCella]

I live in the Bay Area and if I owned a house I would be dancing in the street! Unfortunately, I didn't buy when I should have and am now unable to purchase here. Looking to move away.

 

[daylatedollarshort]

I live in the Bay Area and if I owned a house I would be dancing in the street! Unfortunately, I didn't buy when I should have and am now unable to purchase here. Looking to move away.

If you are 55+, have you considered Rossmoor? The prices are much lower there than surrounding areas.

 

[LinCella]

daylate - I have looked at Rossmoor but I think I am still a bit too young for it. The average age is a bit higher than my 55. Nothing against anyone older than 55 but I've read too many things about ambulances coming everyday.

Also, HOA fees are stiff, hundreds of dollars

 

[M Paquette]

If you are 55+, have you considered Rossmoor? The prices are much lower there than surrounding areas.

Yeah. Properties are always coming onto the market there, without regard to overall state of the market elsewhere. It's a peculiar area, though. The community is broken into a bunch of smaller HOAs, with different rules in each area. Some are pretty loose, some require board approval to replace a kitchen appliance (seriously).

It's a fairly weird neighborhood. Effectively one road in or out, and the inside has a very odd feel to it.


Sent from my iPad using Early Retirement Forum

 

[FIREd_2015]

Yeah. Properties are always coming onto the market there, without regard to overall state of the market elsewhere. It's a peculiar area, though. The community is broken into a bunch of smaller HOAs, with different rules in each area. Some are pretty loose, some require board approval to replace a kitchen appliance (seriously).

It's a fairly weird neighborhood. Effectively one road in or out, and the inside has a very odd feel to it.

I'll have to check the place out the next time I'm over that way. Maybe something my aging parents would consider.

 

[daylatedollarshort]

I'll have to check the place out the next time I'm over that way. Maybe something my aging parents would consider.

I think for sure when we are older we will want to live in a place like this with no lawn to take care of, lots of on site clubs and activities, and bus service into town and to BART. We were originally thinking of having a lock and go condo and traveling more in the near term so we have considered Rossmoor or a couple of places down south that also started out as Leisureworld (Laguna Woods and Seal Beach).

Here is a write up on Rossmoor and the area -

Best Healthy Places to Retire: Walnut Creek, California - US News

For now we decided the adult kids still need a home base for at least a few more years and there are a lot of local attractions and weekend places we either have never been to or not been to in years so we'll probably be doing that and staying put for awhile.

 

[LinCella]

The places I can afford are 1 bedrooms and I need more room than that, then the HOA was $674. A mortgage and that? I'm on a waiting list in Davis for 3 bedroom, 2 bath townhouse limited equity co-op. I put in $30k and then pay less than what I am paying for rent for my monthly assessment. A friend lived there for ten years and I loved it. Next to a greenbelt, Safeway and Davis has everything I want (except for the ocean...) - I love college towns.

 

[daylatedollarshort]

The places I can afford are 1 bedrooms and I need more room than that, then the HOA was $674. A mortgage and that? I'm on a waiting list in Davis for 3 bedroom, 2 bath townhouse limited equity co-op. I put in $30k and then pay less than what I am paying for rent for my monthly assessment. A friend lived there for ten years and I loved it. Next to a greenbelt, Safeway and Davis has everything I want (except for the ocean...) - I love college towns.

Davis is a good choice. Closer in to the Bay Area, though it is all relative. If I remember right, the Habitat for Humanity townhomes near Rossmoor with less amenities and greenspace and closer to the freeway were selling for ~$450K, for those even accepted into the program, were willing to build part of it themselves and I think they have restrictions on selling in the future which would have limited the upside potential.

 

[FIREd]

If you are 55+, have you considered Rossmoor? The prices are much lower there than surrounding areas.

I noticed that houses in 55+ communities are often markedly cheaper than the surrounding areas. When I do a Zillow search, the best deals are often in such communities. Any idea why? Is it because the market is smaller for this type of properties?

 

[daylatedollarshort]

I noticed that houses in 55+ communities are often markedly cheaper than the surrounding areas. When I do a Zillow search, the best deals are often in such communities. Any idea why? Is it because the market is smaller for this type of properties?

I am not entirely sure, but I think these are the reasons:

1. The young tech workers can't buy there and bid up the prices - even if they wanted to - they are not old enough. Owners can't even have adult kids under 55 living there except in certain circumstances.

2. Some of the places have restrictions on renting, which keeps out investors, especially overseas investors and hedge funds or even people who might want to live some other place half the year and use the condo as a rental the other half.

3. They have minimum income requirements, which even for those over age 55 limits the pool of potential buyers even further.

4. Some are co-ops, which might make it harder to get a loan. Also not everyone is a co-op kind of person. We have some acquaintances that decided against Rossmoor due to the upgrade approval process and high HOA fees.

5. The HOA fees at the former Leisureworlds are double other places, so potential buyers who have their own interests and clubs and are still driving might not want to pay an extra $350 a month for those extras. The HOA's include all the amenities, but they are assessed per condo, not per person, so it is probably a better economic deal for a household of two than one.

6. The less expensive places probably have not been updated in years, so if you want something new looking they might need a lot of work.

7. Prop 13 keeps a lot of local retirees from moving at all and retirees from lower COL areas might still think twice about the prices, even though they are relatively lower than outside the 55+ community.

I'm kind of hesitant to move some place and not be able to have the kids move back home if they ever needed to, in case of some event like a divorce or job loss.

 

[FIREd_2015]

I am not entirely sure, but I think these are the reasons:

1. The young tech workers can't buy there and bid up the prices - even if they wanted to - they are not old enough. Owners can't even have adult kids under 55 living there except in certain circumstances.

2. Some of the places have restrictions on renting, which keeps out investors, especially overseas investors and hedge funds or even people who might want to live some other place half the year and use the condo as a rental the other half.

3. They have minimum income requirements, which even for those over age 55 limits the pool of potential buyers even further.

4. Some are co-ops, which might make it harder to get a loan. Also not everyone is a co-op kind of person. We have some acquaintances that decided against Rossmoor due to the upgrade approval process and high HOA fees.

5. The HOA fees at the former Leisureworlds are double other places, so potential buyers who have their own interests and clubs and are still driving might not want to pay an extra $350 a month for those extras. The HOA's include all the amenities, but they are assessed per condo, not per person, so it is probably a better economic deal for a household of two than one.

6. The less expensive places probably have not been updated in years, so if you want something new looking they might need a lot of work.

7. Prop 13 keeps a lot of local retirees from moving at all and retirees from lower COL areas might still think twice about the prices, even though they are relatively lower than outside the 55+ community.

I'm kind of hesitant to move some place and not be able to have the kids move back home if they ever needed to, in case of some event like a divorce or job loss.

I checked the prices on some of the units that are for sale there. It looks like the 1 bed/1 bath are pretty inexpensive but a large 3/2 was quite pricey. Not sure though how it would compare to a house just outside the community. I'll definitely have to check it out when I'm up that way. I'm assuming it's not gated and anyone can drive thru the community and check out the clubs and various other facilities?? Something to keep in the back of my mind in 15-20 yrs. Hopefully self driving cars will be commonplace by then and I won't need to worry about getting around. In the meantime, I need those young tech workers to keep driving up the price of houses in the Bay Area.