Starting Over After Losing It All

[ferco]

This is a hypothetical question but possibly applicable to someone(s) out there. Say you're 55 y/o, in 100% equities, and found out the value of the portfolio has gone to nothing. You still have a "job" paying 50k per year, with a mortgage (single/no kids) but you want to still traditionally retire at 65.Your current monthly expenses are 3k. What would be your game plan (adding in of course the cost of psych counseling) over the next 10 years? What would you invest in? How much risk would you now take?

 

[Dennis]

IMO? You only making $50k yr, have a mort, your 55 yrs old and you want to be able to Financially Retire by age 65 ( 10 yrs? )

Assuming you will need at least $50k yr Income to Retire? And You don't have anything but SS say at $25k yr? Leaves you having to make at least $25k yr Net or about $30 k yr Gross B4 taxes..

using 7% as a guide? Your going to need about $430,000 saved up by then ( Min)
Probably more like 750 k using the 4% WD guide..

I would guess, to use what extra $ you have and start Socializing with the Upper Class Women of Widowers or Divorcees.. and Hope they don't want a Pre Nup..or buy lotto Tickets..

A Buddy of mine did that and met a Gal On a Cruise a few yrs ago and has worked out fine for him.. Lucky devil..

LOL

 

[militaryman]

I would work it from both ends.

As important as "what to invest in" is "how can I lower the amount of $$ I live on"

You are in a tough spot but my parents live (paid off mortgage) on about 24k a year and they have enjoyed 10 yrs retirement at this income.

I would work hard to make sure at 65 --

1. No Mortgage
2. The house I owned was in an area with low Property Taxes
3. The house I owned was designed for or small enough to enable low low utility bills
4. Close to grocery and entertainment venues to cut down or eliminate transportation costs.
5. I'd have a car that was decent, reliable but only required liability insurance coverage.

 

[Bikerdude]

I seriously doubt you could pull it off within 10 years. I would use all or a combination of the following as a substitute.

1.) Invest 75/25 or Target Retirement fund.

2.) Find ways to reduce expenses.

3.) Plan on working part time to supplement your SS. (SS not taxable so 25K per yr. = $2,083/mo leaving $917/mo. from work.)

4.) Stay healthy so you can work and reduce medical expenses.

5.) Pray it all works out.

 

[LOL!]

Yep, I'd invest in a new spouse or two. And perhaps a couple of backups just in case.

 

[OAG]

From what you say you could not draw traditional SS (FRA) until age 67 (as it stands now; who knows in 10 years). BTW there is a study in another thread (authored in part by President Obama's incoming OMB director) that states MEDICARE should be pushed to age 67 or 70 (over time). Additionally, President (about 12 days away now) Obama is making comments on SS. And at 11 AM today he is making a "major" economic adress - may want to temper the forgoing assumptions a bit to the more conseravitive mode. Frankly, I have doubts, about the ability of someone to make retirement in the timeframe and at the amounts indicated by OP without some major outside help and/or a bucket of good luck.

 

[W2R]

This is a hypothetical question but possibly applicable to someone(s) out there. Say you're 55 y/o, in 100% equities, and found out the value of the portfolio has gone to nothing. You still have a "job" paying 50k per year, with a mortgage (single/no kids) but you want to still traditionally retire at 65.Your current monthly expenses are 3k. What would be your game plan (adding in of course the cost of psych counseling) over the next 10 years? What would you invest in? How much risk would you now take?

Your present salary is $50K, and your expenses are $36K; after taxes, that is probably about 100% of your take-home pay.

So no - - I don't think you can do it using these constraints. I think I know whereof I speak, since I was in a similar situation 10 years before retirement but with much lower expenses, and the economy is such a trainwreck right now that I think you are facing a tougher situation.

Now, if you LOWERED your expenses and at the same time perhaps even took a second job or managed to wangle some pay increases or a promotion in your present job, you would have a fighting chance. In my opinion you would need to put the maximum plus over-50 catch-up into your retirement accounts ($22K + $6K?), and then of your take-home pay after that is done, put aside at least 1/3 towards your future - - paying off your house over and above the usual mortgage payments, or investing, or whatever you decide is most advantageous for you.

Even then, it would not be easy and would be touch and go. I think you can do it but you have to drop the attitude of having rigid expenses like that, you have to attack the challenge with everything you've got in the way of self-education and logical thinking, and you can't make mistakes. If you can retire, you would need to retire in a place with very low cost of living and on a minimal budget. Good luck!

 

[ziggy29]

Hate to be the bearer of bad news, but with any realistic investment strategy, without a pretty solid pension coming to you I don't see this as being feasible.

If you're willing to supplement that with part-time work once you're eligible for Medicare, then investing until it hurts in a reasonable allocation (say 60/40 or 70/30 given your need to take a fair bit of risk) might help.

Or find a spouse with a nice nest egg and/or a pension.

 

[Moemg]

I'd find ways to cut my expenses to the bare bones . I'd take in a roommate maybe two . I'd get a part time job and I'd sock away as much money as I could . I'd also realize that instead of fully retiring maybe I could go part time . I'd probably take a decent amount of risk say 70 stock 30 bond and search out really low cost of living areas .

 

[Running_Man]

This individual is in trouble. I would immediately create a 10 year plan based on conservative risk profile (investing no more in stocks than 100 less my age). Any money over Social Security makes a huge difference, yes one could take the risk this individual did previously and risk going to zero again, but you have to take the chance of living only on Social Security as 20-25 % of senior citizens do and see that is a bad gamble.

I would also probably eliminate the home repair and maintenance risk and sell the house and move into a smaller and cheaper apartment, probably closer to work to save as much as possible over the 10 years.

If enough was cut to save 15,000 per year and earn 3 percent over inflation per year - and investing in pretax assets might make this doable in a small apartment. And taking a 4 percent withdrawl rate will give about an additional 600 per month in today's income to assist in Social Security at age 65. Which combined should be near or slightly over 2K per month.

 

[honobob]

I'd buy a rental property every three years in one of the many areas throughout the country that will probably appreciate in the double digits every year like it has for at least the last 18 years. He needs an income stream that will continue to grow even after his retirement date.

 

[crazy connie]

One thing that pops into my mind is to get the home paid off and look at a reverse mortgage to augment SS along with saving every extra cent. Also, potential exists to take in a roomie to share expense and increase potential investment. Another option is to join the Peace Corp for a few years and see the world while everything is in storage and investments try to buy time for some growth.

 

[lawman]

This is a hypothetical question but possibly applicable to someone(s) out there. Say you're 55 y/o, in 100% equities, and found out the value of the portfolio has gone to nothing. You still have a "job" paying 50k per year, with a mortgage (single/no kids) but you want to still traditionally retire at 65.Your current monthly expenses are 3k. What would be your game plan (adding in of course the cost of psych counseling) over the next 10 years? What would you invest in? How much risk would you now take?

After careful deliberation I think his best chance would be to go into some type of sales where there is great demand and lot's of profit..The only thing I can think of that fits that bill now is drug sales..

 

[sailor]

Sell the house, move aboard (a sailboat). Sell the car (use a bicycle).
This should lower monthly expenses to let's say 2k per month, saving 20k per year.
Get your sailboat ready for cruising. Retire at 60 with 100k in the cruising kitty (assuming house equity -> sailboat exchange was a wash).
Sail outside of US until you are eligible for Medicare.
Hope for a Good Run: YouTube - Good Run - A Boating Story

 

[ziggy29]

I'd buy a rental property every three years in one of the many areas throughout the country that will probably appreciate in the double digits every year like it has for at least the last 18 years. He needs an income stream that will continue to grow even after his retirement date.

Well, see, there's this little glitch here. Someone in this situation can NOT afford to eat negative cash flow, even if they were able to get a loan for rental property.

And the only way to avoid negative cash flow when you buy rental property (in most cases) is to put a lot of money down -- money this person doesn't have.

 

[FANOFJESUS]

I knew a guy that pulled this off. In his case he was 45 and retired at 55. He lost everything in a divorce. He live in a used moblie home he bought for $600. The lot rent was $130 and at the time he made about 40k a year. He saved like crazy for 10 years. He also had a pension at 55 and SS when he hit 62. The retirement home was out in the country costing about 30k. I always looked up to this guy, his co workers lived in homes that cost 120k and he lived in a $600 moblie home. He told me he would sacrifice for 10 years then his goal would be reached.

 

[FIREd]

MIL also had to almost start over after a divorce. She divorced in her early 60's and she asked me to help her setup a 10-year plan to retirement. After the divorce she found herself owning a paid-for modest house in an area with a lower cost of living. Her retirement portfolio was around $200K. Her gross annual income was projected to be around $70K for the next 10 years and initially her annual expenses hovered around $45K per year.

The first thing we did was to cut her annual expenses from $45K to $36K. At $36K a year, once you factor in income taxes, it leaves her about $20K annually to add to her portfolio or $200K in new contributions over the next 10 year period.

So she needs $3K net per month to meet her living expenses. SS will provide about $900 a month. Her portfolio will have to generate $2,100 a month or $25,200 net per year. Assuming no income taxes (say Obama's promise to eliminate income taxes for seniors making less than $50K a year comes to pass), and assuming her portfolio has to last at least 30 years (4% SWR), it would require a $630,000 portfolio in 2009 dollars at retirement.

Note: In reality, my MIL will already be in her seventies when she starts drawing money from her retirement accounts, so she'll be able to use a higher SWR to cover her expenses. But given the OP's example (retirement at 65), I think a 4% SWR is more realistic.

So she started with about $200K and added another $200K over 10 years. So, over the next 10 years, her portfolio has to grow by $230K (in 2009 $). According to my back-of-the-envelop calculation, it would require at least a net real return of 6% a year for the next 10 years. Good luck with that!

Ideally, I would like her to cut her expenses further ($30K a year is, I think a more sustainable number for her), but she refuses to go along.

So, for someone starting with nothing, making only $50K gross and spending $36K annually, insisting on retiring at 65 without significant SS and pension benefits, the chances to pull it off are slim to none IMO.

 

[kyounge1956]

I'd (snip) search out really low cost of living areas .

I don't know specifics about expat living but one of the things I've heard is that the cost of living is much lower in some other parts of the world than anywhere in the U.S. If I personally were in this situation I would check out my ancestral stomping grounds of Barbados, and other places in the English-speaking Caribbean.

 

[Gardnr]

This is a hypothetical question but possibly applicable to someone(s) out there. Say you're 55 y/o, in 100% equities, and found out the value of the portfolio has gone to nothing. You still have a "job" paying 50k per year, with a mortgage (single/no kids) but you want to still traditionally retire at 65.Your current monthly expenses are 3k. What would be your game plan (adding in of course the cost of psych counseling) over the next 10 years? What would you invest in? How much risk would you now take?

I realize that this is a hypothetical but I don't understand why the assumption of the portfolio having gone to "nothing." Unless they were a Madoff investor or other extremely risky and/or leveraged investments.

Is that your intent? Just wondering.

 

[kyounge1956]

I'd buy a rental property every three years in one of the many areas throughout the country that will probably appreciate in the double digits every year like it has for at least the last 18 years. He needs an income stream that will continue to grow even after his retirement date.

Well, see, there's this little glitch here. Someone in this situation can NOT afford to eat negative cash flow, even if they were able to get a loan for rental property.

And the only way to avoid negative cash flow when you buy rental property (in most cases) is to put a lot of money down -- money this person doesn't have.

But honobob's suggestion makes me wonder if "Mr Lost-it-all" could rent out the house he lives in now, and move to a small apartment or a mobile home as described by rec7. Depending on the existing mortgage, maybe that would give him a foot in the door of rental property investing.

 

[FinanceDude]

Whomever can write an eloquent book about it will become rich by running seminars about "How To Make Due on $1,000,000 a year".........

 

[REWahoo]

Whomever can write an eloquent book about it will become rich by running seminars about "How To Make Due on $1,000,000 a year".........

Shouldn't that be Make [-]"Doo"[/-] "Do"?

 

[FinanceDude]

Shouldn't that be Make [-]"Doo"[/-] "Do"?

It's a play on words..........

 

[haha]

Sell the house, move aboard (a sailboat). Sell the car (use a bicycle).
This should lower monthly expenses to let's say 2k per month, saving 20k per year.
Get your sailboat ready for cruising. Retire at 60 with 100k in the cruising kitty (assuming house equity -> sailboat exchange was a wash).
Sail outside of US until you are eligible for Medicare.
Hope for a Good Run: YouTube - Good Run - A Boating Story

Beautiful clip. I've never seen a better ad.

Ha

 

[FUEGO]

Cut expenses, expect a lower standard of living in the future. Save as much as possible, probably a little more aggressive than typical. Maybe work till 67 to postpone and maximize social security. Hopefully SS would fund a significant portion of future spending needs.

If there is equity in the house, it might be possible to sell and buy a cheaper place outright, or at least reduce expenses. Reverse mortgage is also an option.

Withdrawal rates higher than 4% might also be appropriate (even though it is risky) if retirement at 65 is a must.