Opinions, please!

[Tracy42]

Hi all, I am hoping to ER by the end of 2007. I am 42 and my husband is 43. I've planned out a 4 stage retirement/partial retirement plan, but would appreciate some feedback from folks who are traveling the same path as we are!

I have estimated our living expenses to be approximately 90- 100k a year (but because we want a pretty large fudge-factor we are planning for 120K), which includes an estimate of 15k a year for insurance and medical expenses. My husband has fairly expensive medical problems and will need to be covered through our state high risk insurance pool. Our daughter, age 8, and I will obtain a high deductible HSA eligible policy.

My husband will continue working part-time, earning approximatey 60k a year for 10-12 +/- years. He has a law practice and our plan is to ramp it up or slow it down as needed/desired over the years. Cutting back to 60k should allow him to put in 2-3 days a week on average, with several weeks off throughout the year for travel.

Our home will be paid off prior to my retirement. We do pay for private school for our kiddo (10k a year), and that will most likely continue (but is part of the 90 - 100k estimate).

So, here's what the income equation looks like to fund retirement:

1st 5 years: (Ages 43-47/44-48) 124K a year

Payout from deferred compensation program (mine) of 40k a year.
Income from commercial properties: 24K a year.
Spouse's income 60k a year

2nd 5 years: (Ages 48 -52/49-53) 136k a year

Deferred comp goes away, but begin spending after tax savings (approx 300k today, will be 450k at my retirement, grows at 7% to 630k by 2012) $40k a year
Income from commercial properties grows to 36k
Spouse's income 60k a year

3rd 5 years: (Ages 53-58/54-59) 148k

After tax savings spend-down: 60k a year
Commercial property income: 48K a year
Spouse's income: 40k a year

Next 35+ years:

Commercial property income grows to 60K+ a year (equity increases as we must refinance every 5 years. Income should incease by 12k every 5 year period) Value of properties is 2 million today with 335k in current equity.
Income from pre-tax accounts: 88K a year (current value 800k, grows at 7% annually to 2.2M by time husband is 60 and we can tap without penalty. Assumes we don't add anything more to it during working years, but we probably will if we need to shield excess income.) Assumes a 4% withdrawal rate.
Social Security income? Who knows by then.

Anything glaring that I am missing? I appreciate your insights. Thanks, Tracy

[samclem]

Initial thoughts:
-- Assumption that your equities will grow by 7% per year: I'm assuming that and all your other numbers are not corrected for inflation (e.g. that 7% is maybe 3% real growth and 4% inflation). That would be reasonable. 7% real growth is too much to expect IMO.

-- Your commercial RE produces income of 7% on your equity, plus the appreciation on the value of the property. That seems reasonable. I didn't understand "(equity increases as we must refinance every 5 years . . .)". It seems to me your equity would decrease each time you refinance.

[crazy connie]

My husband has fairly expensive medical problems and will need to be covered through our state high risk insurance pool.

Do you have adequate life & disability insurance to cover in event husband is unable to continue producing income?

Been there, done that experience speaking.

[Tracy42]

Connie, no disability/life insurance once I am unemployed, however, if need be I can step into his business and produce the 60K income (I am also an attorney). Also, our spending would decrease due to less travel, etc. should his medical condition take a turn for the worse. We'd also be able to collect social security disability of about 28k a year in that event. Thanks for the insight.

Samclem, I haven't adjusted anything really for inflation. I'm assuming an average annual return on my investments of 7% based upon about 75% investments in equities.

On the commercial real estate, our equity in the properties grows about 35k a year. The loan terms require refinancing every 5 years, meaning our equity in the property grows about $180,000 with the loan paydown every 5 years. They cashflow currently at 24k a year and 180K mortgage reduction x 7% average interest rate means about 12k more cashflow from the properties every 5 years.

[macdaddy]

Welcome to the board Tracy.

I would just sound one note of caution. In a recession, commercial property can be hit hard. How many tenants does your property have? I have seen 1 or 2 tenant commercial properties sit empty for a year or longer, while the owners bled cash. You may want to build a vacancy plan into your scenario.

On the flip side - I would go ahead and count on some social security. People whine about it a lot but it will still be around to pay out for you when you need it.

Also - what about college for your kid? Your high savings will essentially preclude them from getting any financial aid from universities. I would say that a public college is fine, but after 10k/year for private school, you may be setting your sights higher. Costs will soon be 50k/year for a top tier private university.

[rs0460a]

Quote:

Originally Posted by Tracy42 We'd also be able to collect social security disability of about 28k a year in that event.

Are you confident on this point? Being in a position of "been there - done that" (with my son) of meetings upon meetings with Social Security, and only being able to "convince them" after getting a lawyer, I know that it is not easy (regardless of what they show you on your annual SS statement).

Not to discourage you; just to make you aware...

- Ron

[Tracy42]

Thanks Macdaddy, we have 2 properties, with 10 tenants. My 24k cashflow estimate is under actual (30k actual). I'm trying to be as conservative as I can be with my estimates.

We are paying for private school now, but I'm actually a fan of public universities. As well, I don't feel you appreciate it if you don't contribute (get a job!) and pay part of your own way...We have put aside some $$ for college, outside of our other accounts, but we will likely fund the rest (maybe after going to private school 13 years she'll earn some scholarship money, lets hope!) with student loans.

Hey Ron'Da, that's actually the only thing I AM certain of! My husband's practice is exclusively helping people get social security disability benefits! If he got to the point where he was unable to work because of his medical condition, he would basically "meet a listing" for social security disability purposes.

[Martha]

Quote:

Originally Posted by Tracy42 My husband's practice is exclusively helping people get social security disability benefits! If he got to the point where he was unable to work because of his medical condition, he would basically "meet a listing" for social security disability purposes.

I have a friend that is in solo practice and this is all he does too. Is your husband solo? You mentioned taking off a few weeks a year. Has he done that in solo practice? How does he manage to schedule the time off?

Best of luck to you and your husband.

[Tracy42]

Hi Martha, Yes, he's in solo practice, but he has 2-3 people working for him who keep things going when we take off for a week or two here or there. We simply schedule around his vacations. I think you have to accept that you may miss out on some business (there may be people who don't want to wait 2 weeks for an appointment, for instance) but it actually doesn't happen that much. Because he does this work pretty excusively, most people are willing to wait to see him if necessary. Thanks for the good wishes!