Lagging behind newbie

[Zonker]

Hello all, newbie here. Seeking advice for retirement planning based on following: I am early 40's, wife and I have combined income of about 42,000. We have zero debt with the exception of two mortgages for two single family homes that we rent out. The combined mortgage amount is 140,000. We are able to live rent free presently - our housing is included where we work. We both have 10 years at our company (we work at same place) and will be fully vested in the pension plan in another five years. I have about 20,000 in a Roth IRA (target date fund w/ T-Rowe Price), 40,000 in an emergency fund (MMA & CD's), 8,000 in I & EE bonds, and a mutual fund with Putnam valued at about 12,000. I am sure my savings/investments are on the low side, but a good thing is the lack of debt. I have been paying extra principal on the first rental house, about 100.00 month on average. We fixed up both homes so they are very nice and fully rented, and we would not have a problem living in either one. The first home's mortgage is about 50,000; the second is about 90,000. So there you have it; I have tried to include everything. Hopefully I am doing some things right, but I know I am lagging behind where I probably should be with regard to savings. We don't expect an extravagent retirement but we'd like to retire not having to worry about running out of money. My wife will probably retire @ 60; I will likely go to at least 65 - 67 is my full SS retirement age. I don't really know our pension amounts; I'd guess around 800/month for my wife and 1100/month for me. Probably close to the same for Social Security, if it's there - but that's another post! Sorry to ramble but I wanted to give as much info as possible so I can get some input from others. Any advice/tips will be greatly appreciated.

[Coach]

Zonker, welcome to the board!

You're thinking about retirement savings -- that's a good first step. Have you tried out FIRECalc? It's a great tool that will help you in your planning.

Coach

[Zonker]

Thanks Coach. I will check out the link you provided. Still looking forward to any advise/tips/comments. Thanks

[Zonker]

OK Coach, now I really am worried. Plugged in my numbers and Firecalc gives me a zero percent chance of success

[Coach]

Quote:

Originally Posted by Zonker OK Coach, now I really am worried. Plugged in my numbers and Firecalc gives me a zero percent chance of success

Don't despair, Zonker. FIRECalc has an option that will estimate the withdrawal you CAN afford. Perhaps you're not as far from "success" as it seems at first.

Based on your first run you know your plan needs some adjustment. Perhaps your estimate of living expenses in retirement is too high? Developing a budget estimate of retirement expenses has helped many of us learn that our first guess was too high.

You're in great shape debt-wise, you've got pension income in the plan, and you've got quite a bit of time left before your planned retirement. It just feels like you should have a doable solution to me.

Coach

[Meadbh]

Welcome to the board, Zonker!

Now take a deep breath and let’s see what’s going on…..

Quote:

Originally Posted by Zonker We have zero debt with the exception of two mortgages for two single family homes that we rent out. The combined mortgage amount is 140,000

Well, you DO have debt. But this is “good debt” which is building equity for you and generating income. One thing you don’t want is a negative cash flow into those rental properties. It’s vital to get those mortgages paid down before you retire, so that the rent then becomes income.

Quote:

Originally Posted by Zonker We are able to live rent free presently - our housing is included where we work. We both have 10 years at our company (we work at same place) and will be fully vested in the pension plan in another five years.

Living rent free is great because your living expenses are minimized. But you will need to factor in the cost of housing after retirement. Yes, you could move into one of your rentals, but there goes the rent! (that’s “Opportunity Cost”). Meanwhile, how secure are your jobs? You both have your eggs in one basket by working at the same company.

Quote:

Originally Posted by Zonker I have about 20,000 in a Roth IRA (target date fund w/ T-Rowe Price), 40,000 in an emergency fund (MMA & CD's), 8,000 in I & EE bonds, and a mutual fund with Putnam valued at about 12,000. I am sure my savings/investments are on the low side, but a good thing is the lack of debt.

Ahem……read my lips post: there is no “lack of debt”. See above. Meanwhile, let’s calculate your Net Worth (NW). Assets = $20K + $40K + $12K = $72K. Liabilities = $140K. NW = Assets MINUS Liabilities = $72K - $140K = -$68K, plus whatever equity you have in the rental homes.

Quote:

Originally Posted by Zonker My wife will probably retire @ 60; I will likely go to at least 65 - 67 is my full SS retirement age. I don't really know our pension amounts; I'd guess around 800/month for my wife and 1100/month for me. Probably close to the same for Social Security, if it's there -

Your current monthly income is $3500. Sounds like you are pretty frugal already. If anything, your expenses will increase in retirement. Assuming the same expenses, let’s say pensions provide $1900 per month. Will SS cough up the other $1600? Probably not. Like most of us on the board, you will need to supplement your retirement income with savings. It’s generally accepted that you need approximately 25 times the amount you withdraw each year (invested properly of course). So, for example, if you needed to find $1000 per month, or $12K a year, you would need $300K in savings at retirement.

So the fundamental questions are:

• How much income can you count on in retirement? Include pension and SS.
• What will your expenses be in retirement? Document your current expenses in detail now. There may be opportunities to reduce them.

The two most important keys to your financial success will be to build up a larger portfolio of savings (you have 20 years) and to eliminate debt before retirement. The bad news: Firecalc indicates you have work to do. The good news: you have time on your side, and you’re here with a group of smart and knowledgeable people with similar aspirations.

Enjoy!

[Martha]

FIREcalc doesn't have data for historical real estate values so it is less useful if you are invested in income producing real estate.

Be sure not to forget your pensions, which look like will be a good part of your retirement income. You might want to learn more about your pensions so you know better what you can expect when you retire. Do they have cost of living adjustments?

[Sam]

Welcome Zonker,

Your situation looks fine to me. I don't think you're lagging behind. Since you plan to retire at 65 or 67, you'll be fine. Sounds like your pensions and your SS's will cover your expenses. You'll need to find ways to spend the extra incomes from rentals.

Of course, it's a completely different story if you decide later on to retire early (before you qualify for SS benefits).

Good luck

[mountaintosea]

Hello Zonker!

For whatever it is worth... At age 40 I had only saved $80,000 with a cabin paid off. Now at age 55 (in a couple of weeks) I have after taxes >$930,000 in the market and savings etc. That does not include equity in the house (cabin). I'm single and will have a pension. I plan on pulling the plug next year. I also think you are in good shape. Good Luck and welcome to the forum!

[Zonker]

Thanks to each of you for replying. Initially I was kind of frightened by the Firecalc when I plugged in my numbers. I also should mention that I will likely work until full retirement age, not that I want to, but I made a lot of bad choices in my 20's and 30's which I am now paying for. Anyway, seems like there is hope if I keep plugging away.

Thanks again, everyone!!