Worried In Tokyo

[Tokyo Expat]

Hello from Tokyo,

I am a Tokyo expat planning on returning to Colorado Springs, after 3 years here, to retire in July 2010 when I will be 54.5 years old. My wife and I are getting nervous now that we are FI. 3 things worry me - 1 flat market from here in my early years of retirement, 2 rising medical costs, 3 rising college costs. I want to retire early to spend more time with my children who haven't seen enough of dad.

We have 3 kids (11,11,8), a small mortgage that we plan to pay off when we return, no other debt, a retirement budget of $93K per year (see monthly budget below), and no plan to access retirement funds until I reach 60 in 2017. We will have saved enough to live within our budget until 60 by the time I retire.

Here is our montly and yearly retirement budget.
Expenses
Housing
400.00
4,800.00
Tuition
1,250.00
15,000.00
Automobile
500.00
6,000.00
Insurance-Auto
100.00
1,200.00
Insurance-Medical/LTC
1,000.00
12,000.00
Braces
300.00
3,600.00
Phone
150.00
1,800.00
Utilities
200.00
2,400.00
Travel
1,000.00
12,000.00
Recreation
300.00
3,600.00
Taxes
800.00
9,600.00
Donations
500.00
6,000.00
Gifts
100.00
1,200.00
Food
600.00
7,200.00
Clothes/Personal Care
200.00
2,400.00
Miscellaneous
400.00
4,800.00
Total Expenses
7,800.00
93,600.00



Why I am nervous.
1-Flat market. Although we have put enough in to retirement saving vehicles if the market performs to historical averages - if the market stays flat we would likely have to significantly change our lifestyle planned for retirement. I also believe SS will be means tested which is about 20% of our planned income in retirement.
2- Rising medical costs. I will have to pay for my own medical insurance becaue i am leaving the company prior to the medical benefit age. This recently has me less worried now because of recent legislation to allow Military gray area retirees like me to buy into the Defense Department TriCare medical insurance. Although they haven't set the rates yet I believe they will be within my budget of $12K a year.
3-Rising college costs. We have set a side about $110K in college savings accounts, but I worry if the market stays flat that it will not be enough to cover our 50% portion of the kids college costs.

I am hoping that joining this site will help me mitigate those risks to our plan to RE.

Tokyo Expat

[haha]

Quote:

Originally Posted by tsoconnor Hello from Tokyo, I am a Tokyo expat planning on returning to Colorado Springs, after 3 years here, to retire in July 2010 when I will be 54.5 years old. My wife and I are getting nervous now that we are FI. 3 things worry me - 1 flat market from here in my early years of retirement...

It could happen that a flat market might be vey welcome.

Ha

[Darryl]

If SS does become means tested that would be one more reason to RE no sense making your NW any higher. Braces at $3,600 a kid x 3 won't keep recurring and plenty of other fat in this budget if the market is flat. Congratulations enjoy your time with your family.

[Brat]

I live in the state of Washington. They have a program where parents or grand parents can pre-pay college expenses. Pay now at today's tuition unit rate for UW and when the child enters college they pay out at the then current UW tuition rate. [If the grand parent owns the accounts it doesn't go on the FAF]. The $$ can be used at any accredited college for tuition or living expenses.

The hook is that when the account is opened the funder or the child must live in Washington.

[LOL!]

On the college expenses front, here is how financial aid works:

You fill out the FAFSA form and it comes up with an expected family contribution (EFC). You subtract the cost of attending (COA) and that is the most need that might be met. It's very simple. At some private colleges, they use more than the FAFSA; they use the CSS which includes more of your assets in the calculation.

You can look up how the FAFSA works, but I will summarize here. They look at your AGI, add back in non-taxable income, and assume that above a subsistence amount that 47% will go to college each year. They look at your taxable assets and assume 5.6% will go to college each year (after excluding your emergency fund).

So if your retirement budget is $93K a year, if you have $50K in return of capital (not included in AGI) and $43K AGI, then that may be below the subsistence level. If your AGI was reduced because you put $22K or $44K in a 401(k) or other retirement plan, then add that back in. So your AGI might support $0 to $44K of college expenses.

If you have $1 million in investments, then $56K a year will be expected to go to college expenses. If you cash in investments to pay for college, that may raise you AGI. Let's say AGI goes up $40K. Since 47% of AGI above a subsistence level goes to college, then that $40K extra AGI adds about $20K to your EFC.

If your $93K slated for expenses mostly comes from SS and a pension, then it is all open to paying for college. I'm guessing the EFC from this income alone would be $30K to $100K.

If all your retirement assets are sheltered in IRAs, TSP, 403(b), then it does not count towards the FAFSA and its EFC. Those assets are included in the CSS however and I am not sure what their formula is.

So with a pension, SS, and taxable assets your EFC could be $50K to $96K a year.

Bottom line: If you are wealthy enough to retire at age 55, then you are wealthy enough to pay for your kids' colleges. There are other families working hard to make up to $35K to $40K per year with absolutely no savings who would like to send their kinds to college. You don't want to take any financial aid money way from those families.

And before you laugh (or cry), our EFC this year was well above the amount of our taxable income on our tax return.

[LOL!]

How are you going to pay only $4800 a year for housing in retirement? Our property & municipal taxes are more than that. Add some home maintenance is another $1000 to $2000 a year. Homeowner's insurance is another $1500 to $2000. Add in teenage drivers and your auto insurance is above $2000 a year. Umbrella liability another $250 to $500. All the kids will need cell phones, so another $60 a month.

If your kids play organized sports, then that's another $1000 per kid per year minimum during the teenage years. Maybe that's your "recreation" item?

Etc.

That written, we are a family of 4 and our budget is about the same as yours, but we pay less for health care (we are still working so it's subsidized) and less for travel. We are also making mortgage payments.

[LOL!]

May I suggest that you work up a budget that starts with realistic numbers for the absolute necessities, then add in the "wants"? Travel, donations, gifts, recreation could be in the "wants". If you can get your "needs" to less than half your budget, then you have a chance.

[W2R]

Quote:

Originally Posted by LOL! How are you going to pay only $4800 a year for housing in retirement? Our property & municipal taxes are more than that. Add some home maintenance is another $1000 to $2000 a year. Homeowner's insurance is another $1500 to $2000.

I wondered about that too. So, I got out my spending records to check. Now bear in mind that Colorado Springs has GOT to be more expensive than the New Orleans area, right? I would think so. But still, it looks like it might be possible.

The table below reflects my true expenses for the past two years here, for a 1558 square foot house worth substantially less than $200K. The category "maintenance" was mostly Hurricane Gustav repairs in 2008.

year	insurance	property tax	maintenance	TOTAL
2008	$1,996	$864	$3,159	$6,019
2009	$2,016	$873	$301	$3,190
average	$2,006	$869	$1,730	$4,605

[Nords]

Welcome to the board, tsoconnor.

Quote:

Originally Posted by tsoconnor 1-Flat market. ...if the market stays flat we would likely have to significantly change our lifestyle planned for retirement.

If your ER plan is founded on that assumption then it sounds like you're actually financially dependent.

This issue is an indication that your budget needs to be cut (perhaps the "bare bones" option mentioned by another poster) or you'd need to consider part-time work (like Bob Clyatt's 4%/95% plan) or you'd need to continue working until you're less dependent on market performance.

Quote:

Originally Posted by tsoconnor I also believe SS will be means tested which is about 20% of our planned income in retirement.

Well, since SS is currently subject to taxation above certain AGI levels then I guess it's already being means tested. Again if you feel obligated to include this assumption in your planning then you're restricting your options. Perhaps one way to mitigate the assumption would be to develop a plan that allows you to defer at least one SS withdrawal until age 67 or even 70.

Quote:

Originally Posted by tsoconnor 2- Rising medical costs. ...Military gray area retirees like me to buy into the Defense Department TriCare medical insurance. Although they haven't set the rates yet I believe they will be within my budget of $12K a year.

I remember seeing some MOAA e-mails about this, but I don't remember the details. I guess you could track the proposal through a veteran's organization that would let you know when the rates firm up.

Quote:

Originally Posted by tsoconnor 3-Rising college costs. We have set a side about $110K in college savings accounts, but I worry if the market stays flat that it will not be enough to cover our 50% portion of the kids college costs.

You're dealing with the classic debate over whether or not to delay your ER in order to subsidize your kids' college expenses. That's been a frequent topic of discussion here, with no real consensus. While you're under no obligation to fund their colleges (and while it's also unlikely that the effort will earn you their undying gratitude), helping them through college will also raise the likelihood that they'll successfully launch from the nest on the first attempt.

Again you could plan for the bare-bones option and decide if you want to offer more support later. For example you could look at that $110K as offering two full years at a community college while you assess the kid's ability to line up scholarships/loans at a state/private school.

Do you have any GI Bill benefits that you could transfer to your kids? Or, gosh, maybe they could go out and earn their own GI Bill benefits...

[Lakedog]

Quote:

Originally Posted by LOL! How are you going to pay only $4800 a year for housing in retirement? Our property & municipal taxes are more than that. Add some home maintenance is another $1000 to $2000 a year. Homeowner's insurance is another $1500 to $2000.

I was thinking just the opposite (that he may have planned too much for housing if no mortgage) so this very much depends on where you live. My home is assessed at $450k but property tax is $960 a year, maintenance has averaged less than $1000 a year, and insurance $600, so approximately half of his number.

[LOL!]

Lakedog, it's good to have another perspective on this. Yes, it does depend on where you live.

[Sea Kayaker]

When I see posts such as this, I feel less troubled by the fact that DW aren't going to have children. I still think we will regret the decision at some point down the road, but it sure removes alot of the obstacles for our early, early, retirement.

[W2R]

Quote:

Originally Posted by LOL! Lakedog, it's good to have another perspective on this. Yes, it does depend on where you live.

"LOL!" (not laughing, just your chosen username!), this is why those of us who live elsewhere are so horrified by the astronomical property tax levels in some parts of Texas. Plus, those of us who live near the Gulf Coast pay extra for insurance. I would suggest that probably your cost of housing is unusually high, for middle America anyway.

[Nords]

Quote:

Originally Posted by Sea Kayaker I still think we will regret the decision at some point down the road, but it sure removes alot of the obstacles for our early, early, retirement.

Whether you have kids or whether you don't, at some point you'll heartily regret the decision!

[HsiaoChu]

Quote:

Originally Posted by Nords Whether you have kids or whether you don't, at some point you'll heartily regret the decision!

Or maybe you'll have one that is incredibly high maintenance and one that is just wonderful, and you'll be happy you had two so that you knew the high maintenance one wasn't your fault(actually she got Lyme's disease at age 10 and was only the second diagnosed case in PA, and their solution back then was a week of oral antibiotics). After that things simply went down hill.

[Nords]

Quote:

Originally Posted by Zarathu Or maybe you'll have one that is incredibly high maintenance and one that is just wonderful, and you'll be happy you had two...

After our first one, neither one of us was interested in risking a second one.

[Coloradoblonde]

I thought the food budget of $600/month for a family of 5 seemed really low to me. Do you never eat out or dine on anything other than chicken or mac and cheese?

[HsiaoChu]

Quote:

Originally Posted by Nords After our first one, neither one of us was interested in risking a second one.

Got it. A prudence that many should have.

[HsiaoChu]

Quote:

Originally Posted by Coloradoblonde I thought the food budget of $600/month for a family of 5 seemed really low to me. Do you never eat out or dine on anything other than chicken or mac and cheese?

Yeah me too. Our food budget for just two is $800 a month and that is only the grocery bill, not the restaurant bill.

[Tokyo Expat]

Wow everyone,

This is better than I had hoped for. I will try to answer the questions from all the above posts.

Flat market - we can live with a flat market but the vacations go out the window and we will need to be more conservative spending than we want. If the market goes down and drags the nest egg with it we will be hurting. We manage our money ourselves and feel comfortable that we will start withdrawals at 60 - 7 years from now - with no less than we have now. In summary:
Down market - we could be hurting a little, definite change in lifestyle but we will survive - depends on how well we hedge our investment risks for a down market over the next 7 years
Flat market - possible lower lifestyle than planned if medical and college costs soar
Up market - maybe an inheritence


Rising College cost - the info above was an education. We expect to get no government assistance. We do pray for scholarships! My understanding of transfering post 9/11 G.I. bill education benefits, for which I qualify, required the service member to be on active duty last year when the bill was past and I was not. We also feel that working more years during the kids teenage years (when we hear they need lots of attention and guidance) is not best for us. We are willing to take the risk that we would not be able to fund all our portion of their schooling vice continuing to work for a few more years. Our income when the kids are in college will be military reirement pay, some SS if we decide to take it, and withdrawals from our retirement accounts - about 20% Roth the rest tax deferred. We expect to have very little non retirement assets remaining when the kids start college. The non retirement funds are for the next 5 years. I will look into if we can prepay the college costs for at least 1 child. I like that idea and I am sure one will stay in state and go to school in the state system.

Rising medical - my understnading is the DoD has not published the costs yet for Retired Reservist to join TriCare medical. I will track and let everyone know what I find.

Budget comments - this budget is actually for the first 2 years until the older kids start high school then we have a little higher budget for 4 years (car insurance increases but braces end) and then it start to drop when they head off to college. Becaue of no HS tuition, lower food bill, and my full military benefits kick in then allowing me to access medical much cheaper. Our plan is to only use our college savings to help them pay 50% of the costs.

Home taxes are currently $1300/yr - insurance currently $1000/year remaing $$ for maintenance. Colorado Springs is a cheap place to live.

Braces - I have one child no cavities at 11 then his brother a cavity every visit to the dentist and very big gaps in his teeth. So we thought it prudent to include braces - although we could make him cut neighbors lawns to pay for them!

Food budget - $600 might be low. That line is only for home meals. Eating out is entertainment. We will relook - but here in Tokyo we can not compare because the prices are at least double versus Colorado Springs.

Entertainment - kids sports costs are included in this line. YMCA membership is in misc line

On kids preventing ER. Very true with us. We could have and were actually starting to plan to execute ER 10 years ago if God hadn't blessed us 11 years ago with the first of our kids. He was the perfect baby also - slept through the night early and never a problem. So we think - hey let's do this again! Well I joke with my wife that God always plans the easy baby first!

I if I didn't answer something please let me know.

Thank you all so much for you inputs!

Tokyo Expat