@AlmostThere2018 – These additional details help paint a very different story.
So, is the question now…how much can you afford to scale back right now and still cover your monthly outflows? In three years, your H should be bringing in a fair bit more than he is now, but can you swing the expenses until that time?
I wouldn’t touch the IRA even at 59.5 because you may need that money to live on decades down the road, even with $60K/year in SS and $50K pension.
Maybe take a closer look at expenses to see if your estimate is accurate? That may help you figure out how much you can ‘afford’ to scale back during the next three years? If expenses are running $120K/year, you will need more than your H’s current salary.
I’m surprised anyone would be comfortable retiring with a new (15 year?) $2000 per month mortgage. Is the plan to pay that off with the expected inheritance?
I would also be extremely nervous about spending the majority of one’s home equity on college fees, especially so near retirement. What happens if HELOC withdrawals are suddenly frozen like in the last recession?
It may help you if you figure out what your retirement spending will be. Subtract kid and work related costs, but add costs associated with retirement activities like travel and costs currently provided by work benefits (e.g. medical, dental, etc.). Consider occasional replacement of cars and other things that you may own long term but occasionally need to be replaced.
Note that $9-10k per month is $108-120k per year (around double the median household pre-tax income), so you may want to reevaluate your spending to see if there are any unnecessary expenses that are not improving your lifestyle and therefore can be cut.
Yes, agreed we could cut expenses. Downsizing our home and reducing mortgage will help but there are other fixed costs we could reduce, and I’d like to get started on that. That said, eventually we’ll have the $60k in SS, $50k in pension plus start to draw down from a decent 401k/SEP so that seems pretty good, right? That said, life is expensive – I hear kids don’t wean themselves from the family payroll as fast as you’d think, weddings, etc. Reality is I won’t scale back until we see how my husband’s job situation plays out which should be in the next 3 years. But after that, it does seem like that’s a path forward that would involve at least semi-retirement so hooray for that!!
One thing I will not recommend to @AlmostThere2018 is to downsize your home for merely $300 /mo. If it is $1,300/mo then maybe it is worth it. The buying/financing and selling a home takes a lot of money and to break even with $300/mo saving will take you life time to accomplish.
I retired today.
Now that I’ve actually done it I’m fairly anxious to learn if we’ll be ok financially. At 63 years old, and 41 years FT, I had nothing left to deal with an ever changing and increasingly stressful workplace.
Last year we downsized locally to a house on a lake. half the old houses size and half the property taxes as well. No mortgage.
I’ve put in for my substantial lump sum fron cash balance pension. Moving my 403b account to Fidelity target date funds.
Can claim $24000/year SS now but might wait a bit longer to see how it goes.
Do we have enough? Maybe.
If not we’ll cut something somewhere cause I’m not going back to that dark place called work ever again.
Agree that for @AlmostThere2018 downsizing the house to save $300 per month ($3,600 per year) seems like a lot of hassle and transaction costs for an amount that is relatively small compared to your $9,000 to $10,000 per month ($108,000 to $120,000) spending. It is likely that there are other line items that you may not realize cost too much relative to the lifestyle improvement you get that you can cut back on.
Now, if you can downsize to save a lot more than $300 per month, or if there are other benefits to downsizing (e.g. you would rather have a smaller house to clean/maintain), that may be worth it.
@doschicos – No debt except the mortgage. Not even a car loan.
Regarding downsizing, I was rounding and $2000k would be the high end. Likely more like $1800. We live in a very kid-oriented neighborhood w/in walking distance of two schools. Almost all empty nesters here move so it’s partly about wanting a different, smaller place with a ground floor master – as well as a lower mortgage. $400 or 500/mo over (hopefully) many years will add up. We’ll also move to a lower tax district which should save a couple thousand a year.
Regarding expenses, I threw out that $9k to $10k a little flippantly and I’m not sure how accurate it is. My husband travels a lot for work but has to use his personal card so he’s always got these really high credit card bills but then gets reimbursed later. This is good reminder to dig deeper into truly understanding monthly expenses.
A good first step may be tracking your expenses in a simple spreadsheet over the coming year to get a better idea of your spending habits and living expenses.
@AlmostThere2018 – Even if you do not have the time now to drill down on the #s, pull down your online banking activity and save the Excel file for later use. Same with CCs. Many of my institutions only provide easy access for 18 months, so maybe pull down calendar year 2018 now, and then look at it once you have full year 2019.
Assuming that all spending goes through one checking account, you will see the net of your H’s expense reimbursements, and have a better handle on total annual outflows.
In addition to considering health care costs, you may want to add a line item for car & house updates. I drive my cars forever, but then when a new one is needed, it has to be paid for.
@notrichenough
Re: Use Real Estate Income to pay RMD
Yes, if you live long enough, it will be necessary to liquidate. But the scheme can last longer if I have some cash equivalent on the side plus the Senate may pass the bill to give me 18 months more to add to the coffer.
Lets say, my real estate is throwing off 5%, after expenses. And 15% of my 401k is in cash equivalent and rest is in real estate. Not until age 80 will I reach the 5% RMD level and it will be even with my cash flow. Before then, I still can keep the difference between cash intake and RMD in my cash equivalent, in addition, there will be rent increases. So, even I am well into the 80’s that I will still be cash flow positive. I figure at 8%+, or at age 90+, the cash portion will be depeleted and need start to liquidate the real estate.
I probably will liquidate my real estate way before age 90, because the upkeep of real estate is a lot of work that a mid 80er cannot bear. OTOH, my neighbor who is in the mid 80s and he still have his 5 units commercial and one residential going.
How do you keep real estates in an IRA? I thought if you do, you couldn’t manage it on your own since that is equivalent to contributing cash equal value of your labor to IRA.
Tracking ALL expenses is really really important when figuring out retirement numbers. Don’t forget about things like gym memberships, wine budget, expensive athletic shoes, cars every X years, house repairs, travel budget, money you will likely give to kids for weddings, etc. I suspect there are on-line forms that break things into categories.
Until you have a pretty good handle on expenses, it’s very hard to know how much is enough.
This year I am tracking every single expense (just looking at credit card statements and checks written, plus cash taken out), but not changing lifestyle at all, to help figure out those numbers for us.
Looking at @AlmostThere2018 's plan, I think she can do it. Probably. The fact that she is self employed means that she can scale back significantly, or return to full time if she needs to. At the time she decides to retire, it’s not like it’s all or nothing. If she feels short of income, she can always increase her workload back to what it was.
There is a cost of working, different for everyone, which is a player. I have to deduct taxes, FICA, Medicare, union dues, unreimbursed travel expenses, the cost of eating out all the time, dry cleaning, etc. And now I can’t use those expenses as a deduction anymore. When you take all your expenses into account, you might be actually taking home only half of your salary.
Here’s one thing that is a huge factor for AlmostThere…the cost of college for her son. She said it could be an extra 175K (that they will use from a HELOC), if he decides on a private or out of state school. That would most likely delay retirement and delay moving to a cheaper house (unless you could pay off the HELOC with the home sale). I would make darn sure that he doesn’t make this choice lightly, as so many times students do, without a thought to the costs when parents are paying. People don’t always ask themselves, “Is the school that special? Is this really going to help him get a better job or change his life? Is there a program that is only offered there? is there anything wrong with his potential in-state schools, can he get scholarships elsewhere?” I know everyone wants their kid to find that perfect school, but having to take HELOC debt of 175K right before retirement is a burden.
@busdriver. Thanks for the vote of confidence! We’ve given S21 top budget of $50k/year which is what we are paying for D18. This means he won’t do full pay private. If he chooses in-state public all the better and we’d ‘sweeten’ the pot a little out of fairness.
We have almost $40k in his 529 plus we’re doing some ‘pay as you go’ so we will pay year one out of pocket. We have about $260k ($275k if you believe Zillow) in home equity so we’d used about $150k of that for rest of his college. Assuming we sell by sophomore year of college we’d put aside the $150k for college and plan is to roll the other $100 to $120k into a home that’s about $100k less than current home. Top range of new mortgage would $280k which is doable monthly payment. Down the line we’d consider paying home off with inheritance I suppose given the fact that there’s cap on home mortgage deduction now. Make sense?
Yes, it does make sense, @AlmostThere2018. I suppose there’s always the possibility of real estate values plummeting, and inheritances are never certain. But the fact that you have money saved, can always go back to work, and your husband might end up with a higher income overall, I don’t think it’s much of a risk to scale back your work or quit entirely. It’s not like you can’t go back to work if you change your mind. For me and my husband, when retire, it’s the end of the gravy train, no part time or second chances, but you have options.