Suddenly retired with less than $500K

[zoey]

Hi. I'm 55 and had planned to work for at least a couple more years at a very high stress corporate job, however I was recently laid off. After some consideration and listening to my family's concerns about the stress of the job "killing me", I decided to retire. I may work part-time after taking a year, or so, off, but I don't intend to work full-time again.

I've been reading posts on the forum and I'm surprised that the majority of people say that they need at least a million in order to retire. There were very few exceptions that I've come across so far. One man in Tennessee who lives very frugally did say that he can live on about $600 per month, but most said they required $50K or more per year. I think I have more in common with the man from Tennessee although we do require more than double what he does. We tend to be somewhat frugal and enjoy living simply. We don't like to travel and don't have any expensive hobbies, so we're very happy living on our present budget.

I'd like to hear from others who have retired on less than $500K; about their needs and how they plan to make it on less than a million or more. I'll start by sharing what we have saved and what it takes for us to live.

Between my pension, which I plan to take as a lump sum and roll-over, and my 401K, we have $367K. In addition, we have about $75K in savings. Our children are grown and on their own, we don't have a mortgage, and we have one vehicle (a truck). My husband is disabled, so no income coming in and no other retirement funds. When I worked I made a bit over $100K per year, however in recent years we lived on about $2,700 per month ($1,144 of which was our mortgage payment) and the rest went to additional principal payments on the mortgage, to savings, and to my $401K. So, we're not used to spending a lot to live. Now, without the mortgage, here's what our expenses are:

Utilities:
Electric: $70
Gas (propane): $30
Water: $20
Phone: $25
Cell: $8 (prepaid: one phone that we share--mostly for emergencies)
Internet: $10 (dial-up)

Auto:
Gasoline: $65
Registration: $8
Insurance: $55
Maintenance: $100 (put aside each month for scheduled maintenance and any needed repairs)

Food: $450
Prescriptions: $90
House insurance/property tax: $105
Misc: $250 (on average. Covers fast food, movie rentals, misc. household, hobbies, vitamins/supplements, doctor/hospital copays, cat food/vet, haircuts, etc.).
Health insurance: $245 (my last official day at work was Friday, so start paying these retiree rates now for medical and dental)
Dental insurance: $82
Total: $1,613

So, we need about $20K a year. We do have $20K set aside for maintenance on the house, as well. As for any other emergencies, that's why I plan to work part-time.

That's it. What do you think?

 

[RetireeRobert]

You have $442k in retirement accounts. At SWR of 4% that would yield about $17700 annually. Working part-time should close the gap easily to get to the desired $20k annually. Also in 7 to 11 years SS will be available.

How much SS do you estimate?

DH is disabled---has he ever qualified for SS disability income?

You also mention taking your employment pension as a lump. If you took it as monthly pension (if that is an option), what would that be?

 

[haha]

That's it. What do you think?

Hi Zoey,

Welcome to the board.

This as you pointed out is not very much money. Using the standard 4% withdrawal rate, your $442,000 nest egg would produce $17,680. But your budget calls for $19376. So I don’t see how you can quit without finding some more income. You are still some years from social security, and there isn’t much play for price increases, etc, in your budget.

I don't understand your utilities. Where so you live that your gas and electric can average this little?

Electric: $70
Gas (propane): $30

Can your husband maybe qualify for SSDI? Any regular income might make a huge difference.

Failing this, can you step down the stress ladder, and still get a job with pretty good pay? You have been a high earner, so you clearly have valuable skills. Maybe part-time consulting in your field, with former clients or even your old employer?

Having the subsidized health insurance is huge. Do you feel that is pretty stable?

Just as disclosure, I am single, pay rent, have quite a bit more money, and yet I don’t feel totally secure.

Ha

 

[zoey]

RetireRobert, I'm going to have to enter all of my earnings on the SS site to get an accurate estimate. Been meaning to do that. Also, depends on when I take it. I think it will be at least $1,400 per month.

To answer your other questions:

* "DH is disabled---has he ever qualified for SS disability income?"
No, unfortunately.

* "You also mention taking your employment pension as a lump. If you took it as monthly pension (if that is an option), what would that be?"
Yes, it's an option, but not one I feel comfortable with. Would rather have it in my control.

 

[zoey]

Hi Haha,

We live in Hawaii. Although, the utility rates in this state are the highest in the nation, we don't have a heater or air-conditioner. Not needed here. We just use ceiling fans when it's hot and that keeps us comfortable. Our water heater is turned off. It's outside and the sun hits it part of the day, so the water is pretty warm most of the time. We do what we can to use less electricity and propane, so our bills are low. Also, the water rates are low in our town. Maybe because it rains here a lot. Dunno.

The phone is a basic land line. No frills.

Yes, I feel that the subsidized health insurance is stable. I worked for Hewlett-Packard.

I do plan to work part-time after taking some time off. The last year I worked was killer, so need to take care of myself and just relax for a while. I do have some marketable skills, however I would really like to do something low-stress and part time. I'm going to give it some time and some thought. Not ready to make any decisions, yet. I think even a regular part-time income will help quite a bit.

I don't think that in this country we can ever feel totally secure. Not to get into a political discussion, but without universal healthcare and some other nets, most of us don't really have a shot at security.

 

[clifp]

Aloha Zoey

I didn't know that HP had employees in Hawaii. Unfortunately, I suspect you were partly a victim of being out of site (intended) and hence out of mind, and out of a job.


My utility bills in Oahu aren't much higher than yours. Although, most everything else is higher. Do you live on the Big Island?

I'd highly encourage you to play around with Firecalc it is a good planning tool.

In your case a huge factor in your success in retiring will be Social Security. I plugged in $15,000 a year for your SS benefits started at age 62. Based on maxing out your FICA contribution the last few years and earning $0 in the future.
Firecalc gave you 95% safe spending rate of $27K

As word of encouragement, as you well know pleny of people in Hawaii work two or three part time jobs around 40-50 hours/week at $12-$15. This equals a gross pay is in the range of $24-30K/year and net pay in the 21K-24K. Unlike you they have to pay rent. They survive here so I am sure you two can also.

 

[chris2008]

Hi,
Happy retirement to you and your husband.
Although a lot of money is nice and helpful, there are ways how to make do with what you have. I found the book "Get a life - you do not need a million to retire well" by Ralf Warner very helpful, also "Your money or your life" by Dominguez/Robin. A lot of the people here also look into www.slnet.com and the forums there to get ideas for a frugal lifestyle, pre- and after retirement.
I am not retired yet but found that tracking expenses in great detail helped us to reduce our spending by 10% at least.
Take care,
Chris

 

[Dawg52]

Hi Zoey and welcome! Sounds like you are a level headed person so I think you will be fine. As Ha pointed out, even those with a lot more money never really feel totally secure. We all have to watch where our money goes.

Living in Hawaii should make it fairly easy to find a 'fun' part time job. I would think you could find a 20 hour a week one bringing in enough to make up the difference. Take a few months off to chill and then give it a try.

Good luck with it all!

 

[EngineeringMyFinances]

Although single, I'm around your age and have a bit more in savings. I don't feel that I could live quite frugally enough to retire now even though my bare-bones budget isn't tremendously higher than yours.

Looking at your budget, I think you should increase it for at least two items. One is depreciation on your truck. From your numbers looks like you drive it 400-500 miles per month, so eventually you will need to replace it. The other is for major repairs on your house -- what about when the roof needs to be replaced, or if you have a major plumbing/sewer problem? And what about other unexpected expenses? Are your husband's disabilities severe enough that you have to provide care, and if so what would happen if you died or were not able to provide the care? Inflation needs to be considered as well.

From the scenario you've provided, I think you should work and generate at least enough income to meet your expenses and may need to continue that past the age of 62. I'd try to avoid tapping your retirement funds while you are still young enough to have the option of working.

While your husband is not eligible for SS disability, if he has enough credits he could apply for benefits on his own record. Then later on when you draw SS benefits, he can draw spousal benefits if they're higher than benefits based on his own record. I'm assuming that your husband is close to your age. However if your husband takes benefits at age 62 on his own record, it may lower his spousal benefits as well so it may be better for him to wait. SS rules are somewhat complicated and need to be understood.

Take a few weeks to unwind from your job, study your finances carefully, and then start looking for less stressful employment options.

 

[dex]

Did you miss income taxes in your budget?

Also, I would suggest doing a annual cash flow schedule for the next 8 - 9 years at least. You might find you have some extra money from the part time job and when social security kicks in.

 

[zoey]

Aloha Zoey

I didn't know that HP had employees in Hawaii. Unfortunately, I suspect you were partly a victim of being out of site (intended) and hence out of mind, and out of a job.

Hi Clifp,

HP has a sales office in Honolulu, but that's about it. I was a virtual employee, which is a bit of a trend. Actually, it wasn't an out-of-sight out-of-mind situation. My entire team was done away with and they were all over the US. Several in the bay area; living right near the "mother ship". Our team's function was offshored to India. Pretty common these days. The cost savings to the company was just too compelling. I had anticipated this happening, but thought it was at least two years out. Turns out we are the first marketing team to be impacted--the guinea pigs, if you will. For all other marketing teams, the move will be at least a year out. First need to see how the experiment goes.

Yes, you guessed our location--on the wet side. I think the reason our other expenses are lower is that we are pretty darn frugal. Given our location, we don't feel the need to vacation. All of our relatives are here, so no connection to the mainland. I cook everything from scratch. We don't dine out and probably spend only $5 - $10 per month on fast food. A burrito at taco bell is cheap and we order off the $1 menu at McDonald's. In general, we spend very little on extras. We consolidate our errands, so that saves on gasoline (last time we filled up it was $3.41/gallon, so we do what we can to conserve). We live in town and since we drive only about 3K to 4K miles per year, our insurance is low (I think it's in the pleasure driving category--something like that). I'm trying to think of what would be more expensive in Oahu, but dunno. It may be that we just work really hard to conserve and keep the spending to a minimum.

Yes, SS will be a big factor in our success as will part-time work. Thanks for the words of encouragement. I know lots of people who live here have much less than us and you're right they have rent and we don't, which is very expensive even here on the wet side. By the way, it's pouring rain right now and has been really wet lately. Kind of cold, too. At least to us it feels cold. Getting down in the 60's in the morning. It's not like we can turn on the heater, since we don't have one. : )

 

[maxer]

Hi Zoey,

It is indeed a shame that many firms let their employees go at around 55 yrs of age and with no affordable health care beyond cobra, its tough.

I have just one thing to suggest: If you haven't received any SS Benefit estimate from SSA, I think you can ask for one by toll free no or online. They have all the data they need to give you an estimate. I believe, they are required to do that every year - I just dont know the specifics of when. I have been receiving them for DW and myself for the past 7 or 8 years.

I understand you are 55 and your DH is disabled, but you might be pleasantly surprised if you contact SS - both for the estimate as well as the potential of DH's disability benefit.

Just some thoughts. Just wish I had the same problems I have now except I was living in Hawaii!! Good luck!

 

[Rich_by_the_Bay]

Hi, and welcome.

The message you are getting repeatedly here is one of caution. Yes, with your austere expenses, you seem to be getting in just under the wire with your current nest egg.

But even if you are frugal, inflation, increases in health insurance premiums and deductibles, a long downturn in the economy, SS cutbacks, a flood, long nursing home stay -- stuff too numerous to mention -- are bound to strike all of us somewhere along the line.

Personally, I don't think it is either useful or wise to plan for the worst all the time. But I wouldn't plan on things being continuously peachy or predictable for the rest of your life either.

Nonetheless, getting out before the stress did you in sounds wise and you have plenty to get you through a period of readjustment. That new low stress job with continued living beneath your means for a few more years should help it all come together for you.

 

[Billy]

Hi Zoey,

Welcome to the board, and congratulations on your new lifestyle.

Along with your marketable skills, it sounds like you have a good head on your shoulders and that you are also both loyal and dedicated. Being laid off from work unexpectedly can be viewed as either a tragedy or as an opportunity. It seems as though you prefer the latter approach. Good on you.

Even though caution seems to be the theme of this thread, don't let anyone steal your dreams. You're not a fool. You are simply finding yourself in a situation that was perhaps unforseen. Give yourself the rest you need, and let your mind clear. You'll make the best decision for you and your husband.

HP has a sales office in Honolulu, but that's about it. I was a virtual employee, which is a bit of a trend.

If you have already been a virtual employee, you may find the links on our Retirement Jobs page: Relocation Retirement Jobs Community Service useful to you. (it's about the center of the page under working part time in retirement)

Also, Billy and I would like to give you a copy of our book, The Adventurer's Guide to Early Retirement, (Table of Contents) as our way of showing you support. You may find our Track Spending Method easy to use and it will build confidence as well as give you a sense of control and peace of mind.

If you are interested, just PM us with your email address for the download version or let us know your mailing address and we'll send you the CD-Rom version.

Consider it a Christmas gift that we'd be honored to give to you.

Meanwhile, the best to you and yours in every way.

Be well,

Akaisha
Author, The Adventurer's Guide to Early Retirement

 

[Rambler]

Hi Zoey and Welcome.

I would feel a little hesitant to fully punch out in your situation, but if you are willing to work part time, as you said you were considering, I'm sure you'll make it. I visit Oahu a couple times a year, and it always seems that there are plenty of part-time jobs available. I can see how you would not necessarily need vacations either, living in the paradise that Hawaii is.

Good luck, and keep us posted. I think you have seen it already, but the members of this forum seem to like to help each other out.

R

 

[zoey]

Hi Chris,

Thanks! I'll have to check out "Get a life--you do not need a million to retire well". Sounds like a good one. I recently read "Your money or your life" and frequent the simple living discussion forum. I found lots of great info that has helped us scale back on expenses. We have been tracking every dime for some time now, so have a really good sense of what we spend. Great suggestions--thanks!

 

[clifp]

Aloha Zoey

Billy and Akaisha are inspirations to the many on the board who weren't fortunate enough to have accumulate a lot of money before ERing.

Looking at your financial situation, I see a short term and long-term problem. The long term problem is will SS+saving and part time work be enough to overcome living in a relatively expensive place (biggest problem with Hilo IMO is no Costco) and likely increasing health cost.

In the short-term problem is your $75K needs to last 4 or 5 years until you can easily withdraw money from your 401K. If you turned 55 before being let go you probably are eligible to withdraw money from your 401K if HP allows it. If not you can use a SEP/72(t) to withdraw money. Also when you do get part-time work you maybe eligible for Earned Income Tax Credit.


My real advice is to become smart about retirement financing. There are a lot interesting angles which are not commonly know. This board is helpful and there are plenty of other sites on net. I learned a lot my first two years of being retired and still learn something virtually every month 8 years later.

P.S. I hear you about being cold and rainy (I live at the top of hill) lately. Of course, the mainland folks laugh hysterical between discussion of the best snow removal technique, at our weather complaints ...

 

[Nords]

Welcome to the board, Zoey. I'm with Clif on Oahu. My family has been here since 1989 and I've been ER'd five years.

ER lifestyles are a huge bell curve with fat tails, but there are two humps-- one around $2000/month and another around $4000/month. Both work equally well without deprivation and you can probably make your budget work with part-time employment. But it's going to take effort and monitoring.

You mention that you're pretty frugal already so the following paragraphs may be preaching to the choir. However the difference is that you now have the time to spend on the research and the execution. No one is paying you for your labor (right now), but if your labor saves you $100/month then you have that much more of a safety net or that much less need to work at a part-time job. I've also included the local resources that work for us.

One of your ER options is a thorough scrub of your expenses and your lifestyle. Along with the other books & websites (especially the SimpleLiving.net recommendation) you may want to try Bob Clyatt's "Work Less, Live More". There's a couple library copies at Hilo & Pahoa (Horizon Information Portal) and a dozen more interlibrary-loan available on the other islands. Bob suggests a slightly higher withdrawal rate (which you may be contemplating) along with part-time work to allow for variable spending. It's different from the other books & calculators that assume a largely fixed withdrawal rate. Bob also posts here as "ESRBob".

While you're getting library books, try Debi Taylor-Hough's "Frugal Living for Dummies" and Amy Dacyczyn's "Tightwad Gazette" books. You already understand the concepts, but these two ladies have elevated frugal living to a no-nonsense art form with very specific suggestions. They were a big help to us with food, insurance, and maintenance/repair issues.

You may also want to sign up for the DollarStretcher newsletter at stretcher.com. The website (along with BankRate.com) is overwhelmingly filled with more articles than you can absorb in one sitting, but the weekly newsletter boils it down to a few areas that you can research. The first couple months may have dozens of things for you but after five years my "hit rate" is down to one or two out of a hundred.

Your $1613/month budget includes $250/month "miscellaneous". It's the equivalent of saying that you don't really track where 15% of your money is going. When you overhaul your budget, try to get the "miscellaneous" category down to under 1% by tracking categories like "entertainment" and "dining out" and "supplements" so that you can decide what's necessary and what brings you value. I'm not saying that you should stop spending on these categories-- only that you give yourself the chance to see what they really cost, and then to decide if that's what you want to keep doing.

$82/month for dental insurance? Unless you're dealing with root canals or periodontia, your dentist may charge you less for 2x routine visits/year (both of you!) than you're paying for insurance. I'm fortunate enough to have decent teeth and with rigorous brushing & flossing I'm down to a $175 visit every two years. The dentist probably has someone filing his insurance claims-- show them what you're paying and see if you can work out a lower fee for dental care without insurance. Dentists don't like insurance bureaucracy and they'll share the savings with you-- when I ER'd our dentist cut our kid's checkup fees by 20%.

Now that you have the time, I highly recommend researching the prescription meds for generic equivalents. Dollar Stretcher has some suggestions in this area and you can interrogate your doctor with specific questions that may cut this cost down... especially at Wal-Mart.

As part of the newly-available time in your life, take a look at your grocery bill. Many ERs find themselves cooking more, eating healthier, exercising more, and spending less on convenience foods & dining out. You can also track store prices to sort out whether it's worth Safeway's Kupa'a card or just monthly runs to Costco. If you enjoy fruit trees or gardening as a hobby, you'll get twice the growing season of Mainland people. If you're really into growing food or flowers you can try selling at the local farmer's market. We can also take the time to price & store those bargain 100-pound bags of rice, although this may or may not work for you. With these techniques, our grocery bill took a huge drop in ER.

If you're still paying a mortgage (I can't tell) then hopefully your lender no longer charges PMI. It may also be worth your effort to switch yourself to biweekly payments. This can cut a 30-year mortgage down to 23-24 years (since you're paying a bit of the principal two weeks early every month) but you'll have to look at your specific situation. Many lenders will do biweekly for free and it's not worth paying for the privilege.

If you don't already, you may want to post at HawaiiThreads.com and get more ideas for your area of the island. (For example CraigWatanabe works at Home Depot and there are many IT people on the board.) Craigslist.org may help you with buying & selling instead of shopping retail.

Because you're no longer employed and your spouse is disabled, HELCO may offer a lower electrical rate. At a minimum they can give you a free energy-use survey for more ideas on cutting your electrical bill even further. However you're probably not going to save more than $10-$25/mnoth over your already low bill.

When you look at your Social Security numbers, you may decide that you're able to spend a bit more of your savings now and make it up by starting SS the minute you turn age 62. Of course the longer you can delay starting up SS, the more money you'll get. The RetireEarlyHomePage.com website has several articles on this consideration as well as on the 72(t) process.

Hope this helps!

 

[lazygood4nothinbum]

hi zoey. between akaisha's generosity and nords' attention to detail ("Your $1613/month budget includes $250/month "miscellaneous". It's the equivalent of saying that you don't really track where 15% of your money is going."--wow nords, that's fairly supurb analysis) & everyone else's great input, you sure did get your money's worth.

i can only think of adding what many here might avoid mentioning. but as i retired with downsizing in mind--and since having lost a few 100k to the bubble so that i might even just sell out completely and live overseas for a few years while the money tree grows back--what i would add that is possibly more reliable than social security is the value of your home and the reverse mortgage. AARP Webplace | Reverse Mortgages | Loan Calculator

 

[zoey]

Thanks!

Thanks everyone for the great input. I appreciate all of the suggestions, wise advise, links and resources. You are amazing! What an overwhelming response.

I hadn't forgotten about taxes, but not sure how much they will be. I think state taxes for our new lower bracket will be in the 6% range. For federal, I'm thinking that with an annual income of $20K less the standard deduction and two exemptions minimally that puts us at about $4K, which can't be much on the tax table. Am I way off here?

I have retirement health insurance for life and for 2008, it's gone up $21 per month (more than 2007, which was $245 per month). I expect that the premiums will increase each year and the coverage will be less and less, which has been the trend. I'm not complaining though since we're plain lucky to have it.

We just got dental check ups and are in good shape, so not going to continue the dental insurance, which would have been at least $82 per month, which is what it was in 2007. Instead, I'll put that amount aside and if we need any work done in the future we will have the money. The dental insurance wasn't available in retirement, so would have just been COBRA for 18 months any way.

Well, I've got my work cut out for me. Lots to learn. Thanks so much for all of the input.

Zoey