What now?

[ERguy]

Like so many others around here I've been reading this forum for while, and I thought it was high time I said hello. Here's a little background on my situation:

I ER'd a couple of years ago, and last year was my first full year of ER. I'm a single guy who was 53 when I ER'd. Now I'm pushing 55.

I was in the federal civil service and have a small pension and federal employee health insurance/LTC insurance as my core ER package. I also have about $600K in investments and about $300K in home equity.

My expenses for my first full year of ER were $52K. That's interesting because my estimate, based on two years of record keeping, was $54K. Came in right on the money! Even crazier, my non-investment income last year was $52K. That's right, an exact match.

This year I know I'll have a lot less non-investment income coming in, so something has to give:

Do I downsize my house to save on the mortgage? (Yes, I'm still carrying a mortgage--and boy do I hate it.) Sell the house and rent for a while?

Do I get a part time job? Not too keen on this option after a full year of ER but it could happen.

Move to a cheaper location? I'm located in an incredibly expensive city. Move to a smaller home in the same city?

Last choice is to pull expense money from investment income. This was the whole basis of my ER in the first place (4% SWR), but now I'm just not going there. Am I trigger shy, or is it really a better plan to save the investment bucket for later on in life?

Good to be here with you all. Looking forward to picking your brains about ER options.

ERguy

 

[brewer12345]

Hi, guy. How much is the mortgage and what is the rate? If you blow out the mortgage, would the picture improve enough that you have positive cash flow?

 

[uncledrz]

ERG
Many discussions on this board about changing from accululator to withdrawer (is that a word ). Well anyway, its your money, you earned it, saved it, held onto it, made it grow. Now is the time to make it work for you. If you like where you are, I suggest figure out a way to live there taking out a SWR from you assets and live you life!!!
Just MHO.
Tio Z

 

[ERguy]

brewer, the mortgage has a balance of $100K. I had it all timed carefully to pay off when I retired at age 62. Then I gosh darn up and ER'd at 53! What can you do with a guy like that? Interest rate is 5.1%. If I didn't have the mortgage payment anymore, yes I would have positive cashflow.

The positive cashflow would last for two years. I am receiving a special payment of $12K/year for the next two years. The special payment will probably disappear after that. When it disappears, the cashflow would be negative again.

 

[brewer12345]

brewer, the mortgage has a balance of $100K. I had it all timed carefully to pay off when I retired at age 62. Then I gosh darn up and ER'd at 53! What can you do with a guy like that? Interest rate is 5.1%. If I didn't have the mortgage payment anymore, yes I would have positive cashflow.

The positive cashflow would last for two years. I am receiving a special payment of $12K/year for the next two years. The special payment will probably disappear after that. When it disappears, the cashflow would be negative again.

In that case, I would probably pay off the mortgage now, and re-evaluate in 2 years when the extra money stops coming in. By then you will be 57, your remaining assets will have hopefully grown, and you can re-evaluate. Are you eligible for social security? In a couple of years you will only have a 5 year gap to bridge to early SS, which shold be pretty easy to fill just by skimming some of the income off your investments.

 

[ERguy]

Tio, thanks for the good advice. I tend to agree with you but it's hard to dip into savings after all those years of socking it away. I would like to make a Roth contribution for last year but that would make my cashflow even worse for this year. Having maxxed out 401K and Roth for many years it's hard to stop.

 

[HobbyDave]

Well, you have 600k now? Instead of the 4% SWR, why not try a 2% VSWR? (Very Safe Withdrawal Rate). You'd be pulling off a starting 12k per year, and your money is almost guaranteed to grow year over year (assuming it's invested in the market enough). Then you have a safe investment that can continue to grow for you.

That should help you keep a positive cash flow, and should keep your funds growing

 

[smickey]

Greetings ERG,

Would think that downsizing the house would be a prudent move, and better then some of the other options you are contemplating?? Sounds like it's worth 400K?...not sure what that gives you in the expensive market you are in, but, being single, there must be some room to maneuvre to something smaller??....maybe pocket 100 - 150K?, not to mention the reduced taxes/hydro/maintenance.

Relocating to a lower cost city might be an option, but i would think that would depend on the size of the social network you have in your current location. Not sure that a loss of the social network would be worth the extra bucks.

 

[dex]

Is the $52K investment income after taxes?

Do you have a detail of you actual expenses equaling the $54K that you want to share with us?