42, want to retire by 55 in California

[retire by 55]

We''re Californians, hoping to retire in CA or maybe Thailand since the cost of living is much lower there.

About us:
I'm 42, DH is 47. We would like to retire when I'm 55, so by year 2030. I've entered the numbers in the FIRE calculator and it found 0 cycles failed, but I'm not sure if I entered it correctly.

DH has a son who is 16 right now, so he will be totally independent by the time we retire. I don't have any kids. We did not come from money, in fact, our parents were very poor. We worked and put ourselves through college and paid for everything ourselves (college, wedding, cars, homes, etc).

Debts:
Student loan: will be paid off in 3 years
Rental property: will be paid off in 7 years (rent covers 100% of rental exp)
Primary residence: will be paid off by 2030 when we retire
Child Support: will be done in 2 years

Here is our asset:
Taxable acct: $566,000
Non-taxable acct: $723,000 (401k, Roth IRA, Rollover IRA, etc).
Total: $1,289,000

We will be adding about $80,000 to $85,000/year to that portfolio (this amount includes his 401k and my Simple IRA contribution from our workplace, and whatever money we have left after all the expenses are paid for).

Rental: Zillow estimate $720K
Primary Residence: Zillow estimate: $700k

I've put all the income and expenses on the excel worksheet, and it shows we have about $4,800/month in expenses. That looks awfully low to me, especially in California. Am I missing something in my budget?

We will have to withdraw about $550 from dividend to cover the expenses after we retire. I've included the worksheet here (tried to attach my excel worksheet but couldn't, so I took a picture of it instead, sorry if it's not clear). I'm not sure how much medical insurance will cost in the future, so I put $600/month. How much should I budget for medical insurance? Maid service to clean the house once a month is nice, but that is optional. As for auto, we will need to buy a new car in 3-4 years because one of the car has over 150K miles, but it should be paid off by 2030.

Can you tell me what expense I'm missing so I can add that to my budget?
Will I still be able to retire by 55, even if I've made a mistake on the FIRE calculator or my budget?

Thank for your advice,
Retire by 55

 

[wmc1000]

retire by 55 you have a good start. However are your expenses based on 2017 costs? If inflation averages only 2% between now and then your $4790 becomes $6200 by 2030!

Off the top of my head a few questions:

Will your rental income and dividend plans increase accordingly? What about car maintenance, home maintenance, etc? Also is your rental income net of repairs, taxes, vacancy costs, etc.

 

[retire by 55]

Hi wmc1000,

Thanks. I didn't think about those extra expenses. I'll add that to my budget.

As for the expenses and the rental income, I've somewhat factored in the inflation, but don't know how to calculate the exact amount, so that's just as estimated amount. Is there a formula in Excel to calculate the inflation?

 

[Brat]

Are you planning to sell your home? Depending on where you live in CA you may be able to rent it to another housing strapped family, keep your property tax basis. If your dream retirement location turns out to be a nightmare you can return to your current home.

 

[wmc1000]

IF you are looking for a constant inflation rate, put the inflation factor in a cell, ie - 1.02 for 2% and then multiply the previous years result by that cell to get the next years result - for example if you put 1.02 in cell A1 - then in the cell below your current years expenses - lets' say B1 - you would go to cell B2 and enter "=B1*A$1 - this takes the expenses in cell B1 multiplies that by 1.02 and gives the inflated result in B2

The Dollar Sign in front of the in the A$1 means that if you then copy the result in cell B2 to a group of cells below - say B3 through B30 - every cell will take the answer in the cell before it and multiply by A1 so you don't have to keep entering the 1.02 number each time.

I am sure there are other ways to do this but it is the quickest for me.

 

[Rambler]

This isn't an exact science by any means. BUT, I think you are way off on your healthcare costs. We are in NorCal, paying $950 a month or so for a bronze level plan with huge deductibles and OOPs. I'd assume LA is more expensive, not less. We are not subsidized though, and I don't know if you would be in your situation or not. OTOH, if I were you, I wouldn't count on Obamacare being there in 13 years...there may be something better, and there may be something worse (in terms of subsidies), but the way I see it, with so many insurance firms jumping ship, it has no chance of survival in its current iteration.

Also, have you considered the tax situation? CA taxes are confiscatory at the high end, which is why we are on our way out. If you are at the low end, not so bad. Remember, everything you take out of a 401k or an IRA will be taxed. In a taxable account, only gains and dividends are taxed, not principle.

I notice your food budget is $600. I see that as a little bit low, but then again my DD and DSIL come every couple of weeks and we send them home with an ice chest full. I'd say we spend more on the order of $1000 per month, and we only eat out once or twice a month. You may want to take a closer look at what you are spending. I also note $400 per month in vacation accrual. Is that enough, once you have time to vacation a lot? We can easily spend, very easily spend, $5,500-$6,000 for a week long trip to Hawaii. We do that at least once per year. On top of that we take the RV out a few times and just road trip in the car a few times per year. 3 nights in a Fairfield by Marriott will set you back $400. Do you have pets you'll need to kennel? Part of the cost of a trip to Hawaii for us is Kenneling our two dogs, to the tune of about $400 for 9-10 days (we fly befor they are open, and get back after they are closed, so 9 days if we are gone seven, 10 if we are gone for 8). Will you be taking lots of vacations or just once a year? If just once a year, have you thought about what you will do with your newfound time and freedom? Any hobbies? Associated costs?

I'm not saying this is not do-able. I'm saying you may want to give thought to a few things.

 

[retire by 55]

Hi Brat,

We're not sure when we're going to sell our primary house. Our house is on a hill, and when we get old, I'm not sure if we can walk up our steep driveway. Our neighbor told us that the previous own was an old retired couple, and they had to drive their car up and down the driveway just to pick up their mail. We are not that old yet so we are able to walk up our driveway without any difficulties, but we may sell it once we're not able to. Our rental is a SFH in Orange County and it's on flat land, so if we do sell, we'll move into that house.

 

[retire by 55]

Hi Rambler,

We just started thinking about early retirement a few days ago. I know our budget and plan need a lot of fine tuning, that's why I'm turning to this site for advice. I've always had insurance through my employer, so I have no idea how much it'll cost once we retire. Is $950/month for a family or just you and your wife? DH has FSA and I have HSA through my new job. We are fairly healthy, so I don't think we'll use much of my HSA. Assuming we don't touch the HSA, we'll have about $40,000 to use to buy medical insurance when we retire. I don't that's not much, but it'll last a couple of years.

We currently have a budget app and we track our spending, so we spend around $450/month on food. I increased it to $600 for inflation. Food in LA is not as expensive as No. Cal, and we don't go to expensive restaurants.

As for taxes after retirement, I haven't calculated it yet. We are still researching how and when to convert Traditional IRA to Roth IRA so we don't have to pay that much taxes when we start withdrawing the money.

DH wants to travel more often (mostly to other countries), but I can't stand long international flights, so we agreed on 1 international trip per year. We did sign up for various credit cards that offer a generous sign up bonus, so we plan to redeem those points for travel.

I haven't thought about what to do with our free time once we retire. DH wants to write apps when he retires. I might just work part time, 1 or 2 days/wk. It's easy to find temporary fill-in jobs for my profession.

Thank you,

 

[Travelfreek]

what about other expenses?

Looks like you are doing very well accumulating wealth and living on less than you earn. I don't see cell phone bill on your list (ours is $100 for 2). I don't see any type of insurance like long term care insurance or term life insurance. Maybe you'll pick that up later? LTC insurance seems to be a real good idea to protect your assets one day. You have a good amount of assets (money) but I agree that the health insurance estimate is low from what I've heard. The estimate I'm hearing from the Financial planners on podcasts I listen to is often $1500 a month for a couple that are pre-medicare age and have no sponsored employer plan.

I also think the food/restaurant bill is low. Then again, maybe you eat very cheaply. We don't go to fine dining places and in fact pick up hamburgers from In N Out once a week ($6.81 for both), but I know our grocery/restaurant bill is at least $600-$700 per month for 2 of us. I can't imagine living in a house on a hill as I age. We sold our 2 story home with all bedrooms upstairs and bought in in an over 55 retirement community and can't believe how fun it is here (sports, activities, clubs, investment seminars -educational). We pay only about $133 a month for HOA fees here and that includes 2 gyms, 2 clubhouses and 4 swimming pools (2 indoor and 2 outdoor). The sports bar is inexpensive with great food. We are currently 59 (DH) and 61 (me). We play the following sports DH - softball, golf, water volleyball, poker. Me- water volleyball, knitting and crochet, sewing, volunteer at school (3rd grade), water aerobics, walking, bicycling. I retired at age 60 and my husband last month at 59. We fly to San Diego from NorCal frequently with our 2 "kids" living there and our granddaughter there too. The travel budget is very critical to us for that reason.

 

[exnavynuke]

Here's my "basic" budget with categories. I modify it based on the individual/personal circumstances to reflect what their actual spending shows. I track mine based on CC transactions by paying for 99.99% of everything with credit and paying it off immediately. Here's where you can download it if you'd like http://www.gceenterprises.com/jlcnuke/blank_budget.xls

 

[Brat]

Hi Brat,

We're not sure when we're going to sell our primary house. Our house is on a hill, and when we get old, I'm not sure if we can walk up our steep driveway. Our neighbor told us that the previous own was an old retired couple, and they had to drive their car up and down the driveway just to pick up their mail. We are not that old yet so we are able to walk up our driveway without any difficulties, but we may sell it once we're not able to. Our rental is a SFH in Orange County and it's on flat land, so if we do sell, we'll move into that house.

That makes sense..

 

[retire by 55]

Thanks! This is very helpful.

 

[wmc1000]

exnavynuke - Great job - I downloaded and filled it out to compare with my excel budget I keep.

For those doing this make sure to include property taxes on line for other taxes and I used one of the other lines to budget for travel/vacations - those 2 alone added up to a hefty portion of my overall monthly budgeting.

I also used the lines in gifts and donations to account for money spent on birthdays, anniversaries, holidays, etc.