Will my plan work?

[BearlyWorking]

My name is Mike, here is my story. I did not start working seriously until I was 30. Before that I was dedicated to having fun. At 30 I got a job with the government and began a 20 year ‘experiment’ with the work world. Unfortunately I am a typical American, which means I am largely incapable of either budgeting or saving. I can save for a while, but when the amount gets large I end up buying something.
Fortunately fate intervened and I discovered real estate when my job moved to Southern California in the mid-1990’s. It was a home buyers dream. A colleague introduced me to a real estate agent who sold Freddie Mac repossessed homes. They were often in poor condition, but they were very cheap and I was energetic or stupid enough to spend my weekends fixing them up.

Buying homes solved our saving and spending problems. When we accumulated 5-10k, we just used it as a down payment to purchase a new house. We rented the old house and moved into the new house while I fixed it up. After we had used up all of our home buying credit we switched to using home equity as a savings account by increasing mortgage payments with any excess money before we could spend it.

In 8 months I will be 50 years old and will have 20 years into the federal retirement system. Here are what our approximate numbers will be at that time:

Rental Real Estate Value 950k
Rental Mortgage 200k
Home Equity 550k
401(k) and IRA 450k
Fed Pension 20k/year, not indexed but will increase to 28k in 5 years
Wife’s Salary (44) 60k/year
Rental Income 30k/year

We have moderate lifestyles, and health is paid through my wife’s work. Monthly expenses are about 4k, with room for reducing. Most discretionary money goes into two kids. We will also need to pay for college in a few years. My plan is for us to live off of the pension, Wife’s salary and rental income. My wife thinks that I will need to get another job.

Will this plan work, or is there a better one that will enable me to avoid having to go back into the work world?

Mike

 

[Mr._johngalt]

My name is Mike, here is my story.  I did not start working seriously until I was 30.  Before that I was dedicated to having fun.  At 30 I got a job with the government and began a 20 year ‘experiment’ with the work world.  Unfortunately I am a typical American, which means I am largely incapable of either budgeting or saving.  I can save for a while, but when the amount gets large I end up buying something. 
Fortunately fate intervened and I discovered real estate when my job moved to Southern California in the mid-1990’s.  It was a home buyers dream.  A colleague introduced me to a real estate agent who sold Freddie Mac repossessed homes.  They were often in poor condition, but they were very cheap and I was energetic or stupid enough to spend my weekends fixing them up. 

Buying homes solved our saving and spending problems.  When we accumulated 5-10k, we just used it as a down payment to purchase a new house.  We rented the old house and moved into the new house while I fixed it up.  After we had used up all of our home buying credit we switched to using home equity as a savings account by increasing mortgage payments with any excess money before we could spend it.
 
In 8 months I will be 50 years old and will have 20 years into the federal retirement system.  Here are what our approximate numbers will be at that time:

Rental Real Estate Value 950k
Rental Mortgage             200k
Home Equity       550k
401(k) and IRA              450k
Fed Pension                         20k/year, not indexed but will increase to 28k in 5 years
Wife’s Salary (44)        60k/year
Rental Income 30k/year

We have moderate lifestyles, and health is paid through my wife’s work. Monthly expenses are about 4k, with room for reducing.  Most discretionary money goes into two kids.  We will also need to pay for college in a few years.  My plan is for us to live off of the pension, Wife’s salary and rental income.  My wife thinks that I will need to get another job. 

Will this plan work, or is there a better one that will enable me to avoid having to go back into the work world?

Mike

Unless you can get paid for doing what you love, walk away from
"the work world" and never look back.

JG

 

[BUM]

Welcome Mike,

I hope you've gotten over that "buying something" habit. In the 8 months you've got left consider trimming back your debt and if possible making the rental business run nicely without you. Maybe it does already... Does DW want to ER at the same time?

The numbers look doable but you are heavily dependent on the rental income. Is it stable? Going up? Whats in the 401k? Does that need adjusting?

Your situation looks like a diamond in the rough. Might need to be polished up a bit.

 

[Martha]

Have you carefully looked at your current expenses and anticipated expenses?

 

[rapoole]

Bearly-

Unless your wife is also a fed, her health insurance probably goes away when she retires/quits/gets laid off etc. One of the best benefits available to feds is lifetime health insurance. The catch is you have to be in the insurance program 5 years before your retirement date. If you are in it now, and have been for 5 years, you may want to consider carrying it into retirement. Medicare kicks in at 65. 15 years can be a long time to wait.

rapooole

 

[grumpy]

What kind of fed pension do will you have that is NOT indexed?

Grumpy

 

[Nords]

We have moderate lifestyles, and health is paid through my wife’s work. Monthly expenses are about 4k, with room for reducing.  Most discretionary money goes into two kids.  We will also need to pay for college in a few years.  My plan is for us to live off of the pension, Wife’s salary and rental income.  My wife thinks that I will need to get another job. 

Will this plan work, or is there a better one that will enable me to avoid having to go back into the work world?

Welcome to the board, Mike! Let me make sure that I understand the numbers. You state that you have a $20K/year pension and $30K/year rental income, for $50K/year spending money, and $48K/year expenses. It sounds like you're pulling more than your own weight even without your spouse's income.

You'll have an additional $8K/year over the next five years, and in 12 years you'll hypothetically be eligible for Social Security (you can more accurately estimate the amount of your SS distributions using their online calculator. So your plans seem to have sufficient room for inflation.

Your $1.3M equity is fairly illiquid and, if you're in San Diego, not likely to stay that high over the next few years. So I wouldn't count on it unless you're planning to sell soon, although there's no imperative to sell if you have your expenses covered by rental income...

Rapoole makes a very good point about medical insurance. Don't leave work until you know the whole family can bridge the gap.

It sounds like the only remaining variable is paying for college. This board has a number of opinions on that subject, mostly leaning toward having the kids pay a portion of the expenses, which means you'll have to decide how much you two want to save in the college fund. At $60K/year your spouse's income could fill that up pretty quickly! And then again there's the rental property.

You also sound like you'll be more than adequately employed taking care of two kids, your home, and your rental property. What other kind of job does your spouse think you'll need?

 

[WhodaThunkit]

Hi, Mike. If your wife is not comfortable with the plan, you are asking for trouble. (This is not intended to be a joke). Beyond that, nobody here can read the tea leaves and tell you the future. Early retirement carries a certain element of financial risk, although by conventional thinking you seem to me to be reasonably secure.

 

[BearlyWorking]

Let me see if I can cover everything in one message.

JG - Thanks. That is exactly the way I feel. Life is short.

Bum - 401k is in a lifecycle fund. I tend to be a higher risk investor than most, so the fund keeps me from puting it all in stock funds. Rentals are stable and well cover the debt. I am switching mental gear from the buy mentality to the frugal mentality. I should be all the way there by next summer.

Martha - Unfortunatley I do not have the patience for detailed budget analyses. My estimate is that we could get down to 3k per month with kids if needed and less when they leave. Presently we are living off of just my DW's income as a test. The rest is going to pay down mortgage. I am afraid I have a bit John Gault's philosophy - I am confident that I can handle any bumps in the road along the way using guile and ingenuity. My DW is more conservative.

rapoole - Wife is a middle school teacher. She loves her job and her health insurance is much better than Fed. We will keep that. If she decides to stop we will go for a high deductible catastrophic policy and cover the little things ourselves. Good point though, I need to start gaming several more options to make sure this is well covered.

grumpy - Federal pension system is byzantine, arbitrary and illogical, as anything done by Congress tends to be. If you are interested I can explain the details in a later post. Let me know.

Nords - The experts predict a soft landing for real estate in SoCal. I am planning for a 20% decline in prices. It is a full blown bubble mentality down here. People now expect to have their house increase by 20-30% every year!
- We will need to sell a house to cover college expenses. Our thinking is that we will pay half, and the kids will earn or find money for the other half. We want them to value their education.
- My wife likes the security of me being employed.

Thanks Everyone!

 

[WhodaThunkit]

  Life is short.

I'll tell my Aunt, who just turned 104 . . .

 

[BearlyWorking]

Hi, Mike. If your wife is not comfortable with the plan, you are asking for trouble. (This is not intended to be a joke). Beyond that, nobody here can read the tea leaves and tell you the future. Early retirement carries a certain element of financial risk, although by conventional thinking you seem to me to be reasonably secure.

Actually the impact on my marriage and social life are my biggest concerns. I am getting my wife used to the idea. I have also learned never to use the word 'retire'. Instead I am taking time off, transitioning carreers, going to part time, ect. Several threads have discussed this issue, but I never realized the emotional reactions that I would get from my peer group.

Mike

 

[Mr._johngalt]

Actually the impact on my marriage and social life are my biggest concerns.  I am getting my wife used to the idea.  I have also learned never to use the word 'retire'.  Instead I am taking time off, transitioning carreers, going to part time, ect.  Several threads have discussed this issue, but I never realized the emotional reactions that I would get from my peer group.

Mike

For what it is worth.................when I decided to quit, my previous
spouse said "If you are going to retire, then I am retired too. "
(She had been "retired" forever IMHO), and................"I already have a
full time job." (Housewife and a 12 year old at home).
Anyway, that attitude killed the marriage, although I could understand the
"I already have a full time job" comment better once I regained
bachelor status.

JG

 

[BUM]

Mike,

Never mind the reactions from your peer group. Its sour grapes! I got the same reaction. Fact is, they're not my peers anymore since most were work related buddies.

Don't be afraid to use the "R" word.

 

[tozz]

I assume they are offering early-outs where you work?

In 8 months I will be 50 years old and will have 20 years into the federal retirement system.  Here are what our approximate numbers will be at that time:

 

[jug]

My name is Mike, here is my story.  I did not start working seriously until I was 30.  Before that I was dedicated to having fun.  At 30 I got a job with the government and began a 20 year ‘experiment’ with the work world.  Unfortunately I am a typical American, which means I am largely incapable of either budgeting or saving.  I can save for a while, but when the amount gets large I end up buying something. 
Fortunately fate intervened and I discovered real estate when my job moved to Southern California in the mid-1990’s.  It was a home buyers dream.  A colleague introduced me to a real estate agent who sold Freddie Mac repossessed homes.  They were often in poor condition, but they were very cheap and I was energetic or stupid enough to spend my weekends fixing them up. 

Buying homes solved our saving and spending problems.  When we accumulated 5-10k, we just used it as a down payment to purchase a new house.  We rented the old house and moved into the new house while I fixed it up.  After we had used up all of our home buying credit we switched to using home equity as a savings account by increasing mortgage payments with any excess money before we could spend it.
 
In 8 months I will be 50 years old and will have 20 years into the federal retirement system.  Here are what our approximate numbers will be at that time:

Rental Real Estate Value 950k
Rental Mortgage             200k
Home Equity       550k
401(k) and IRA              450k
Fed Pension                         20k/year, not indexed but will increase to 28k in 5 years
Wife’s Salary (44)        60k/year
Rental Income 30k/year

We have moderate lifestyles, and health is paid through my wife’s work. Monthly expenses are about 4k, with room for reducing.  Most discretionary money goes into two kids.  We will also need to pay for college in a few years.  My plan is for us to live off of the pension, Wife’s salary and rental income.  My wife thinks that I will need to get another job. 

Will this plan work, or is there a better one that will enable me to avoid having to go back into the work world?

Mike

Just looking at the numbers says you are in very good shape if you net everything or even keep the rental property and collect from it.

You're ok, it will work itself out if you really feel the need to chuck it. Many here, including myself, do not have spouses earning 60K nor have your assets, but being cheap sobs, we can eke out a healthy and fulfilling retirement. Go for it, and dont listent to the guys at work or whatever, just follow your heart.

My peers also think Im crazy opting out soon instead of waiting 4 years in hell to get another 20K on my pension.


I live in NYC, and am having a house built in vegas, as soon as my house here sells, I go. My pension will be smaller, but bank interest will make up for it. IF I run out of money in 25-30 years, I'll cash in my house and take an apartment. Im 53 now, but I may not live that long anyhow.

Years are worth something too, especially after I just saw my friend, who was loaded with money and RE, murdered in a split second a few weeks ago.

With your assets, follow your dreams and passions, not other people's dreams and passion.
jug

 

[Dawg52]

Just looking at the numbers says you are in very good shape if you net everything or even keep the rental property and collect from it.

You're ok, it will work itself out if you really feel the need to chuck it.  Many here, including myself, do not have spouses earning 60K nor have your assets, but being cheap sobs, we can eke out a healthy and fulfilling retirement. Go for it, and dont listent to the guys at work or whatever, just follow your heart.

My peers also think Im crazy opting out soon instead of waiting 4 years in hell to get another 20K on my pension. 


I live in NYC, and am having a house built in vegas, as soon as my house here sells, I go. My pension will be smaller, but bank interest will make up for it.  IF I run out of money in 25-30 years, I'll cash in my house and take an apartment. Im 53 now, but I may not live that long anyhow.

Years are worth something too, especially after I just saw my friend, who was loaded with money and RE, murdered in a split second a few weeks ago.

With your assets, follow your dreams and passions, not other people's dreams and passion.
jug

Amen brother.

 

[Mr._johngalt]

Amen brother.

I have witnessed a killing and seen my share of "early exits".
When someone says to me "Oh, if I just hang on for ____________
(fill in the blank), I will get _______(fill in the blank) more $ in my SS/pension/IRA, truly, I question their sanity (or at least their
intelligence) .

I will add a "Mega-ditto!" to DOG's "Amen!"

JG

 

[MooreBonds]

Wife is a middle school teacher. She loves her job and her health insurance is much better than Fed. We will keep that. If she decides to stop we will go for a high deductible catastrophic policy and cover the little things ourselves. Good point though, I need to start gaming several more options to make sure this is well covered.

What kind of a pension does your wife have? That could be a big difference in how it might combine with your SS/rentals/pension.

Also, you mention that your rental income covers the mortgage, as you are currently just living off of your wife's income as a test-run....is the 30k 'net after-tax cash-flow'? Don't forget that if you're depreciating your real estate, you might have a sizable recapture gain once you sell a house or two for college...

Apart from that, it appears that you're in pretty good shape.

 

[Mr._johngalt]

Just looking at the numbers says you are in very good shape if you net everything or even keep the rental property and collect from it.

You're ok, it will work itself out if you really feel the need to chuck it.  Many here, including myself, do not have spouses earning 60K nor have your assets, but being cheap sobs, we can eke out a healthy and fulfilling retirement. Go for it, and dont listent to the guys at work or whatever, just follow your heart.

My peers also think Im crazy opting out soon instead of waiting 4 years in hell to get another 20K on my pension. 


I live in NYC, and am having a house built in vegas, as soon as my house here sells, I go. My pension will be smaller, but bank interest will make up for it.  IF I run out of money in 25-30 years, I'll cash in my house and take an apartment. Im 53 now, but I may not live that long anyhow.

Years are worth something too, especially after I just saw my friend, who was loaded with money and RE, murdered in a split second a few weeks ago.

With your assets, follow your dreams and passions, not other people's dreams and passion.
jug

jug, I reread your post and I think is is just excellent! (almost
sounds like me - high praise indeed).

JG

 

[jug]

jug, I reread your post and I think is is just excellent!  (almost
sounds like me - high praise indeed). 

JG

Dont think it doesnt bother me loosing out on the 20k if I wait just another 4 years or so. With the 20K more, I wouldnt even be thinking about how to invest money safely for income. I fight with my mind each nite, then I feel better in the day time.

I bought the house in vegas after having a rough situation at work that has finally calmed down. But I already made my bed, might as well take the leap.

But on the other hand, after 50, your health is iffy. My wife fortunately simply says,

"you bought the other house, so lets look at this as an adventure, we are not broke, and we can always work part time if things get tight." She is all for it.

There is no perfect decision, some have less, some have more, but we all have limited health and time.
jug

 

[SteveR]

Lost Wages Las Vegas has a lot of differnet kinds of jobs. The casino jobs tend to pay pretty low unless you get into dealer positions in the High Roller areas were you can make a ton on tips. LV is expanding very very fast as you no doubt know. That makes for lots of jobs in the service sector. I don't know what area of work would interest you or how much you want (need) to make to get buy.

Income taxes and RE taxes should be a lot lower in LV due to the gaming industry. Housing prices are going up pretty fast and contractors are backup up for months with all the building going on.

Walking away from a $20k (additional?) pension is certainly a personal issue. I left a lot on the table when I did my ER the first time. I am still working on FI and we are shooting for ER in two years with no need to ever work again unless we want to for fun. We think the extra two years is worth the peace of mind we will have by sucking it up and staying in the working world for another 24 months. DW has invested 20 years of her life in the same company and wants to get her hard earned retirement benefits. A small pension and almost free healthcare insurance for life is worth the price of admission to us.

Waiting also means not drawing on our savings or investments until we have to. Each month we don't draw on them, and actually adding to them, will provide a nice cushion in our income when we do need to live on it. Be plan on keeping close to our current standard of living, with some reductions in some area, for several more years. After that who knows? As long as we have the funds we can travel as much as we feel like it and also help out the grandkids and kids as needed.

These comments are not intended to say you are not doing the right thing; rather, they are only to share our way of thinking which is unique to us. We each have to plow our own fields and what works for you may not work for me.

We see it as something we Want to do to make our lives very easy when we do ER. Some see ER in a different light and that is what makes us all different.

 

[jug]

Lost Wages
Income taxes and RE taxes should be a lot lower in LV due to the gaming industry.  Housing prices are going up pretty fast and contractors are backup up for months with all the building going on. 

Walking away from a $20k (additional?) pension is certainly a personal issue.  I left a lot on the table when I did my ER the first time.  I am still working on FI and we are shooting for ER in two years with no need to ever work again unless we want to for fun.  We think the extra two years is worth the peace of mind we will have by sucking it up and staying in the working world for another 24 months.  DW has invested 20 years of her life in the same company and wants to get her hard earned retirement benefits.  A small pension and almost free healthcare insurance for life is worth the price of admission to us. 

The 20K is in addition to the 30K or so I would get by walking now.

Four years makes a such a difference due to penalty in state pension system. But 30k is like taking SWR from a 750000 dollar stash anyhow.

I wasnt doing much planning, since I thought I would hang around and get the 50K at the end of 30 years. But each day I would tell my friend, "if they would give me 30 or 40 K right now, plus health bennies, I would jump right now" Ive said this many times.

Ive been abused and bullied on the job, demoralized, all sorts of psyche trauma that I became involved in a workabuse/bully program on the web that took me to London and SF many times. I can lecture on workabuse, but there is no money in it, and very few people would beleive what I say. They stopped bothering me a few years ago but trauma of being isolated and demoralized has given me a bad taste. I cope with this using spirituality. Ive also had trouble with my son who at the time I was "battling" at work, has alcohol problems and tried to skewer my wife and myself twice.


That also leaves marks on your psyche. We are 2 damaged souls, but we are survivors.

The workplace is nothing more than a system consisting of a pecking order with the narcissists on top, and the drones below them defferring power on up and sucking contempt on down. A mddle manager simply sucks up to his bossman, and throws comtempt downward to his subordinates. Its a game, and its an abusive one. I can give you a great website on this, all you need do is ask

It took me a few years to integrate/hardwire these concepts into my mind, but the abuse and humiliation I suffered here stays with you, even though things have calmed down. The last incident this past April caused me to break out in hives and shake like a leaf for a few months. I made a quick decision this past july when overlooking Vegas from the clubhouse of the retirement comm I bought into. I said "things have got to change"

Now that I feel more secure, my nerves have calmed down, I realized that I may be able to stick it out another 4 years. I keep thinking I made an error, and I close on the vegas house next month. Yeah, I can hang onto it for 4 years..

But who knows?

I dont work hard, am left alone, but when will the next insane thing come and work on my already fragile psyche? When will my already sensitive mind be rattled? Abuse leaves very bad scars you never heal from. Some days I feel like I can conquor the world, some days I feel like shooting myself (especially when thinking of the 20)

So there is no right decision. but I do know Im paid well but bored out of my skull and I look at the new community and city of Vegas as an opportunity to "reinvent" myself, to try something different, to meet new people, a new environment. I picked vegas simply cause it has the entertainment/tourist industry, so much opportunity to do many things. Im a forensic accountant by trade, but dont care to do that.

I like the idea of a new house, a pool club, sunshine each day, day trips by car to other places. My wife has no financial ties here, so all is resting on me, and she is willing to do some work. I would love to buck out with a full 50K pension, but not everything works out. So its a matter of when I sell my house.

Some think Im crazy walking away from money, some say to go for it. The fellow who was murdered spoke to me about the foolishness of walking away from good pay and pension. Interesting, then he was murdered. There is no right answer, life is a chance at getting some happiness, we die anyhow
jug

 

[Nords]

Don't forget that if you're depreciating your real estate, you might have a sizable recapture gain once you sell a house or two for college...

Wrong, wrong, wrong-- very common tax trap for blissfully ignorant rental-property owners.

The IRS assumes that you've been depreciating your rental property and will expect you to pay the depreciation recapture.  You will ALWAYS have depreciation recapture when you sell a rental property.  You will pay the depreciation recapture whether you've actually been depreciating the property or not, so failure to depreciate is not an excuse.  

It's not logical, but it's the IRS' rule.

A 1031 exchange is one way to deal with this issue, but it only delays the inevitable reckoning.

 

[SteveR]

Jug,

You sound like a man wrongfully imprisioned that is making a scratch on the wall for each day that passes by like the Count of Monti Cristo.

You have to do what is best for you and your wife. Staying in a toxic environment will take years off your life. Get out and don't look back. There are lots of things you and your wife can do to make some $$ in Vegas. I am sorry you had to endure so much in your job and in your personal life.

Like the Count, you too can escape the prison and make a new life for yourself.

 

[Mr._johngalt]

Dont think it doesnt bother me loosing out on the 20k if I wait just another 4 years or so.   With the 20K more, I wouldnt even be thinking about how to invest money safely for income.  I fight with my mind each nite, then I feel better in the day time.

I bought the house in vegas after having a rough situation at work that has finally calmed down.  But I already made my bed, might as well take the leap.

But on the other hand, after 50, your health is iffy. My wife fortunately simply says,

"you bought the other house, so lets look at this as an adventure, we are not broke, and we can always work part time if things get tight."  She is all for it.

There is no perfect decision, some have less, some have more, but we all have limited health and time.
jug

You and your wife sound pretty sharp to me. I think you will be fine.

JG