Job loss

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Topic Author
On the way
Posts: 61
Joined: Sat Aug 31, 2013 12:31 pm

Job loss

Post by On the way »

Well, I was on my way until this week when I lost my job due to down sizing. Here's my situation.

Emergency funds: 3 months
Debt: $137,000 mortgage @5.25% 22 years left on the mortgage
Tax Filing Status: Married Filing Jointly
Tax Rate: 15% marginal Federal, 3.04% State, 1% Local
State of Residence: PA
Age: 56. Turn 57 later this year.
Pension today $8,600/yr @ 65: $13,800/yr - no cola

Total Retirement Assets in all accounts $998,000. 74% stocks / 26% bonds
International stock portion is 14.5% considering all sources.

His 401K at Vanguard
34.6% Vanguard Wellington Fund - VWELX - 0.26% - 35% intermediate term bonds. 8.6% international stocks
17.4% Vanguard Institutional Index Fund - VINIX - 0.04%
13.0% Vanguard Primecap Fund - VPMCX - 0.45% 10.2% international stocks
13.6% Vanguard Extended Market Index Fund - VEXMX - 0.24%
10.2% Vanguard Retirement Savings Trust III - Stable Value Fund - 0.37%
6.5% Vanguard Total International Stock Index Fund - VGTSX - 0.22%
1.8% Vanguard Total Bond Index Fund Signal Shares - VBTSX - 0.08%

His Roth IRA at Vanguard
1.1% Vanguard Short Term Investment Grade Bond Fund - VFSTX - 0.20%

Her Roth IRA at Vanguard
0.9% Vanguard Intermediate Term Investment Grade Bond Fund - VFICX - 0.20%

H.S.A.
0.9% Vanguard Total International Stock Index Fund - VGTSX - 0.22%

Severance will run through the end of November. I am eligible for a retirement medical plan but do not know the cost yet. Living expenses are about $58,000/yr (actually somewhat less than this but I have not run a bare bones budget yet). I do not think I can make a full retirement work with current assets - any opinions? I am considering rolling the 401 k to an IRA. Any opinions on if this is a good idea?
Last edited by On the way on Sat Jun 21, 2014 1:01 pm, edited 1 time in total.
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PaddyMac
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Re: Job loss

Post by PaddyMac »

Sorry about your job loss. You don't mention how much your wife earns, assuming she's working. How much equity do you have in your home?

I agree that with $65K a year in expenses, you need some income or your retirement fund will be drawn down too fast.
Topic Author
On the way
Posts: 61
Joined: Sat Aug 31, 2013 12:31 pm

Re: Job loss

Post by On the way »

Thanks PaddyMac.

My wife does not work. Equity in the house is 20%.
stan1
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Re: Job loss

Post by stan1 »

Sorry about the bad news. If you were to pay off the mortgage and reduce some other expenses, can you get down to about $35K/year in expenses? If so I think you'd be in OK shape with the pension plus SS. You'd have to run the numbers for yourself. You are in far better shape than most retirees in the US. It might not be the way you planned to retire but I think you can make this work if there is any possibility of reducing expenses somewhat.
Warning: I am about 80% satisficer (accepting of good enough) and 20% maximizer
Dandy
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Joined: Sun Apr 25, 2010 7:42 pm

Re: Job loss

Post by Dandy »

Sorry about your job loss late in your career - been there done that twice. I guess some lower comp employment is needed for a few years. I'm assuming that you don't have good prospects at a similar job.
I would rollover your 401k to a Vanguard IRA just for the lower expenses. I'd also reduce the number of funds e.g. lose Prime cap? and maybe tone done your overall equity allocation a bit.
I guess you can't fund waiting for a better retirement pension and SS but if you could it would be great. Have you considered selling your house and renting? a 5.5% mortgage is a bit high and houses are expensive to maintain especially to maintain in top selling condition. You could use your "free" time to get the house in good shape with sweat equity work.

Best of luck
Topic Author
On the way
Posts: 61
Joined: Sat Aug 31, 2013 12:31 pm

Re: Job loss

Post by On the way »

Thanks Stan1.

I am already slimming the budget to make the severance last longer. I do not have enough in savings outside the retirement accounts to pay off the mortgage. I doubt I could get down to $35 K expenses as medical will be a hit once the severance runs out. I pretty much knew the answer but thought I'd post the question anyway. I am already submitting resumes.
WHL
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Joined: Mon Dec 10, 2012 1:22 pm

Re: Job loss

Post by WHL »

I realize this isn't what your post asked, but I have a question...how do you have 65k a year in expenses with only a 137k mortgage? It would be a huge benefit if you could knock those expenses WAY down...
Leeraar
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Re: Job loss

Post by Leeraar »

Wow, sorry about that. Looks like you were cruising along to be in decent shape retiring around age 62-65.

Rolling the 401k to a lower expense ratio IRA is a good idea, but make sure you understand the backdoor Roth, Roth conversion, and future RMD implications.

You need a bridge strategy that will take you from now to the pension and SS, about 8 years. Of course, you have not said what your re-employment prospects are.

Take a look at refinancing the mortgage asap for a lower rate and shorter duration. 22 years is a long time at your age. Your job situation may make this problematic.

I suggest you make a spreadsheet, starting at age 65 with SS and the pension and 4% of your current nest egg. Is that enough? Then work backwards to age 62 and your current age. List your necessary expenses vs. possible sources of income.

Best wishes, and good luck!

L.
Last edited by Leeraar on Sat Jun 21, 2014 12:21 pm, edited 1 time in total.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
Topic Author
On the way
Posts: 61
Joined: Sat Aug 31, 2013 12:31 pm

Re: Job loss

Post by On the way »

Thanks Dandy,

My age is what worries me as far as getting a new job. I hadn't considered selling the house, but it is a good point. I've been slowly lowering equity over the last couple of years, now I'm starting to think I need to speed up the process. I've been lowering my allocation to Prime Cap due to it's expense. I have up to this point been hesitant to get rid of it entirely, during the downturn in 2008/2009 it lost significantly less than Institutional Index. But all things change. I'm going to wait for a few weeks before I do anything.
dharrythomas
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Re: Job loss

Post by dharrythomas »

Sorry about the job loss. It's something I worry about.

Looks like you need some type of job to cover expenses for several years or cut your expenses. There is nothing you can reasonably do with $1M that will cover your expenses.

Leaving the funds in the 401(k) may give you some penalty free withdrawal options at your age.

Don't rush any decisions.

Good luck.
Topic Author
On the way
Posts: 61
Joined: Sat Aug 31, 2013 12:31 pm

Re: Job loss

Post by On the way »

Thanks WHL,

It's what they add up to, obviously I will have to go through to look at necessities versus wants.
Topic Author
On the way
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Joined: Sat Aug 31, 2013 12:31 pm

Re: Job loss

Post by On the way »

Thanks Leeraar,

22 years is a long time. I was paying additional principal to have the house paid off at 67. Employment prospects are unknown, age will probably be a factor. I have already started the job search.
WHL
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Joined: Mon Dec 10, 2012 1:22 pm

Re: Job loss

Post by WHL »

On the way wrote:Thanks WHL,

It's what they add up to, obviously I will have to go through to look at necessities versus wants.
Your explanation / details would be helpful. One, to potentially help you, and two, to not get in the same predicament myself (if it's something avoidable!).
Topic Author
On the way
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Joined: Sat Aug 31, 2013 12:31 pm

Re: Job loss

Post by On the way »

Thanks Dharrythomas,

I'm not in a rush on the 401k conversions. I do not think a traditional IRA has the ability to take withdrawals prior to 59 1/2 as the 401k does.
Topic Author
On the way
Posts: 61
Joined: Sat Aug 31, 2013 12:31 pm

Re: Job loss

Post by On the way »

WHL wrote:
On the way wrote:Thanks WHL,

It's what they add up to, obviously I will have to go through to look at necessities versus wants.
Your explanation / details would be helpful. One, to potentially help you, and two, to not get in the same predicament myself (if it's something avoidable!).

Oops I just looked at my budget and realized that the $65 K included what I was prepaying on the mortgage. I'm now down to $58 K. I also budget on a 5 week month (depends on the credit card closing) which is not always the case.
stan1
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Re: Job loss

Post by stan1 »

On the way wrote:
WHL wrote:
On the way wrote:Thanks WHL,

It's what they add up to, obviously I will have to go through to look at necessities versus wants.
Your explanation / details would be helpful. One, to potentially help you, and two, to not get in the same predicament myself (if it's something avoidable!).

Oops I just looked at my budget and realized that the $65 K included what I was prepaying on the mortgage. I'm now down to $58 K. I also budget on a 5 week month (depends on the credit card closing) which is not always the case.
Good news, now: how much is the monthly mortgage?
Warning: I am about 80% satisficer (accepting of good enough) and 20% maximizer
Globalviewer58
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Joined: Fri Jul 18, 2008 3:26 pm

Re: Job loss

Post by Globalviewer58 »

Count yourself fortunate to have a severance for a few months. Have you asked your employer to allow you to receive outplacement services? I had this years ago and was encouraged by the employment counselor's advice. I encourage you to pick up the book, What color is your parachute?, at your local library. The next opportunity for a career change is one day closer than it was yesterday. There is a role for you somewhere! Once you have gathered your ideas and set a direction for an ideal job start networking with folks to find the unadvertised jobs usually filled through word of mouth. Good luck with your search!!
twindad57
Posts: 132
Joined: Fri Jan 03, 2014 2:30 pm

Re: Job loss

Post by twindad57 »

Sorry about the job loss. At least your planning and savings have you in a pretty decent place all things considered. What type of work do you do? Do you have any taxable investment assets beyond the emergency fund? I wonder if part time or consulting combined with a small annual draw from available assets might get you there? If you also refinance and/or sell you might be able to get there.

Random question: Are you a veteran? If so, there might be options including disability compensation for injuries/conditions as a result of service. That could also get you access to healthcare. Some disabled veterans are also entitled to a program called vocational rehabilitation and employment.
Topic Author
On the way
Posts: 61
Joined: Sat Aug 31, 2013 12:31 pm

Re: Job loss

Post by On the way »

stan1 wrote:
On the way wrote:
WHL wrote:
On the way wrote:Thanks WHL,

It's what they add up to, obviously I will have to go through to look at necessities versus wants.
Your explanation / details would be helpful. One, to potentially help you, and two, to not get in the same predicament myself (if it's something avoidable!).

Oops I just looked at my budget and realized that the $65 K included what I was prepaying on the mortgage. I'm now down to $58 K. I also budget on a 5 week month (depends on the credit card closing) which is not always the case.
Good news, now: how much is the monthly mortgage?
The P&I, taxes, insurance, and PMI is $1,400/mo.
Topic Author
On the way
Posts: 61
Joined: Sat Aug 31, 2013 12:31 pm

Re: Job loss

Post by On the way »

Thanks Globalviewer58,

I will receive outplacement. Thanks for the encouragement.
Topic Author
On the way
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Re: Job loss

Post by On the way »

Thanks twindad57,

I was a manager for a chemical company. No taxable investments. I am not a veteran. Consulting is on the option list if I can't get direct employment.
stan1
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Re: Job loss

Post by stan1 »

OK:
If it was me I would work to pay off the mortgage quickly by withdrawing from the 401K -- but not too quickly as I would want to stay in the 15 or 25% tax bracket.

Here are some very rough calculations:

Expenses: $58K/year
Mortgage: $1400 x 12 = $16800/year
Modest spending cuts: $100/month = $1200/year

Expenses less mortgage less spending cuts: $40K/year

401K: $1M
Mortgage $137K + 25% taxes = $171K
Balance in 401K if mortgage were paid off (including payment of taxes): $829K

Withdrawal rate of 3% based on $829K balance = $25K/year
Withdrawal rate of 4% = $33K/year

Pension: $8600/year
Social Security: $15-22K/year I'm assuming. Do an estimate for you and your wife at the SS website.

Please look at the numbers yourself as these are rough numbers based of the information you've given us but I think retirement is doable for you. You'd be at about a 4% withdrawal rate for the first years until you take SS, then at a much lower rate giving you leeway for new cars every 10-15 years, etc.

If you can find a part time job -- maybe based on a hobby you enjoy or consulting -- so much the better.

You may not be psychologically ready to retire -- especially since it is sudden -- but if you have to make it work I think there's a way to do so. Take some time to decide what to do and try your best to keep a positive attitude (the old make lemonade out of lemons adage).
Warning: I am about 80% satisficer (accepting of good enough) and 20% maximizer
Topic Author
On the way
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Joined: Sat Aug 31, 2013 12:31 pm

Re: Job loss

Post by On the way »

Thanks Stan1,

You presented some encouraging calculations. SS would be about $22K at 62. Wife is 1/1/2 years younger than me. I'm going to have to run the numbers. To this point I have been putting most of my time on the job search (just applied for another one). I have not figured in unemployment yet, but I do know that I am not eligible until after the severance. Thanks for the insight.
Dandy
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Re: Job loss

Post by Dandy »

I have not figured in unemployment yet, but I do know that I am not eligible until after the severance.

I would have thought the same thing. When I lost my job I got a lump and x months of pay. I applied for unemployment and they asked for a copy of the separation agreement (which may be different from downsizing) and then on the spot said I was eligible. So, I would check it out just to make sure -- if you haven't don't it.
Topic Author
On the way
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Joined: Sat Aug 31, 2013 12:31 pm

Re: Job loss

Post by On the way »

Thanks Dandy,

I will certainly check it out. That would be great if it started right away.
Herekittykitty
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Re: Job loss

Post by Herekittykitty »

Miscellaneous comments:

I am wondering if your mortgage holder could drop the PMI given that you have 20% equity in the home.

Make sure your LinkedIn profile is buffed up and that you are actively seeking connections through LinkedIn.

If your wife is able to work for awhile the income could buy you some more time to look for work, even if her income wouldn't entirely replace yours.

Best wishes.
I don't know anything.
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Will do good
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Re: Job loss

Post by Will do good »

Sorry about your job loss. If you have any un-use vacation days claim it. When I was layoff years ago I have 2 weeks and HR pay up, better than nothing. Good luck.
Topic Author
On the way
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Re: Job loss

Post by On the way »

Thanks Herekittykitty,

I'll check in with the credit union.

I'm working on my LinkedIn profile and contacts.

Unfortunately my wife can not work.
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retiredjg
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Re: Job loss

Post by retiredjg »

On the way wrote:Thanks Dharrythomas,

I'm not in a rush on the 401k conversions. I do not think a traditional IRA has the ability to take withdrawals prior to 59 1/2 as the 401k does.
You might find an exception that would help you out with an IRA, but why bother? Since you are separating in or after the year in which you reach 55 years old, you are eligible to withdraw from the 401k without jumping through any hoops.

I'd leave it where it is, especially since you have very good choices there.

Good luck!
Topic Author
On the way
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Re: Job loss

Post by On the way »

Thanks Will do good.

I will get paid for 8 unused days.
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Watty
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Re: Job loss

Post by Watty »

At a high level view I see a lot of positives.

1) You have a pension that about enough to pay your mortgage each month.
2) You have essentially a million dollars in investments.
3) Social security can start in as early as five years.
4) The economy is a lot better now than just a few years ago.
5) You probably live in a low cost of living area judging by the cost of your house.

A back of the envelope calculation using the $58K in expenses number.

If you spend $50K from you nest egg each year(plus your $8K pension) for the next five years when you will be 62 and can start social security that is $250K(5*$50) that you would have spent which would leave you $750K. Starting at 62 with $750K and a 4% safe withdraw rate, that would give you $30,000 a year plus your social security. (waiting to start social security is likely a better option though) Once medicare starts your costs may decrease too.

With those rough numbers it really looks to me like you are close to being able to retire if you have to so don't be too freaked out by the financial situation.

stan1 wrote: Do an estimate for you and your wife at the SS website.
+1

That is the key to seeing how to make this work. Be sure to get the numbers for both you an your wife at 62, full retirement age, and at 70. You can also get them at a few more years in between since it is easy to do.

Once you find out the social security numbers the the overall situation will be a lot clearer and you could focus on the beat way to handle all the other decisions like what do do with the mortgage, when to start social security, etc
On the way wrote: 74% stocks / 26% bonds
That is to much in stocks at your age even before the layoff.
dharrythomas wrote:Leaving the funds in the 401(k) may give you some penalty free withdrawal options at your age.
+1

Usually 55 instead of 59.5
harrychan
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Re: Job loss

Post by harrychan »

Sorry you are in this situation. I'll be more than happy to look at your resume to see if I can help. I am not in chemical industry but know a bit or two about resumes and how to optimize your outlook. Please remove any identifiable information. Unfortunately, I have had to let people go and I have coached them on how to find jobs including conducting resume workshops.

Send me a PM and I will give you my email address.
This is not legal or certified financial advice but you know that already.
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retiredjg
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Re: Job loss

Post by retiredjg »

Watty wrote:
On the way wrote: 74% stocks / 26% bonds
That is to much in stocks at your age even before the layoff.
I agree.

You simply can't afford to enter another crash with that AA unless you get another job. I'd give your stocks a well needed haircut and cut back to at least 60/40 or 50/50. You do have one thing on your side - you got laid off at a good time in the market. It is very fortunate you didn't get laid off in a crash.
Topic Author
On the way
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Re: Job loss

Post by On the way »

Thanks retiredjg
Topic Author
On the way
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Re: Job loss

Post by On the way »

Thanks Watty.

My SS estimate is $22K at 62, I am guessing but my wife's would be about $8K. I admit to the freaking out part, but am encouraged at the responses. I am re-evaluating my risk tolerance. I was comfortable at 74% stock with the job, but not any longer.
Herekittykitty
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Re: Job loss

Post by Herekittykitty »

If your wife cannot work due to being disabled it might be worth her applying for social security disability benefits. I am not remotely an expert on this but as it hasn't been mentioned I do want to put it out there for consideration. What type would apply in her case, assuming she meets criteria for being disabled, would depend on her work history if any. I believe what you would want to look into would be SSDI and SSI. If she is in fact disabled - then hopefully someone who knows about social security disability benefits can tell you more.
I don't know anything.
lostinjersey
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Re: Job loss

Post by lostinjersey »

Your wife may be able to claim half of your Social Security benefit, instead of her own, which would bump hers up to $11k. You may want to research that option.
CFOKevin
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Re: Job loss

Post by CFOKevin »

On the Way,

You are getting a lot of good advice. Put me down as one who thinks you could pull off retirement now if that is what you'd like to do.

My first suggestion would be to breathe, relax and clear your head. If you only found out this week, it is likely too early to be sending out resumes, especially if they have not been professionally reviewed, etc. better to start out by getting the word out within your network. Next, get the numbers on your health insurance options, including ACA. After that, I would suggest sharpening the pencil on a bare bones budget. Try to live as reasonably cheaply as you can for the next few months and you may find a lower annual number would work for you.

Finally, spend some time thinking about how you and your wife would like to spend your time. If there is a disability, it may make sense to make the most of your time when you are able to fully enjoy it.

My guess is that you may find you can afford to be picky about your next employment situation since it will be your last (if you are not already there). Try not to rush into anything. Reduce your stock exposure and study methods to access your funds prior to 62/65. Choosing your best approach to SS is also worth the research this board is great at helping with.

If you find that there is a small current gap that can be filled with $10,000 or so in annual earnings, you'll likely have lots of ways to earn that much in ways that are more fun then 9-5.

Best of Luck,

Kevin
Topic Author
On the way
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Re: Job loss

Post by On the way »

Herekittykitty wrote:If your wife cannot work due to being disabled it might be worth her applying for social security disability benefits. I am not remotely an expert on this but as it hasn't been mentioned I do want to put it out there for consideration. What type would apply in her case, assuming she meets criteria for being disabled, would depend on her work history if any. I believe what you would want to look into would be SSDI and SSI. If she is in fact disabled - then hopefully someone who knows about social security disability benefits can tell you more.
I have checked into both SSDI and SSI for her. Unfortunately, she does not qualify for either.
Topic Author
On the way
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Re: Job loss

Post by On the way »

lostinjersey wrote:Your wife may be able to claim half of your Social Security benefit, instead of her own, which would bump hers up to $11k. You may want to research that option.

My wife does not qualify on her own. As I understand, she will qualify for half of my benefit up to my FRA, whichever is less. Her FRA is 66 and 10 months, so at 62 she would have reduced benefits.
Topic Author
On the way
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Re: Job loss

Post by On the way »

CFOKevin wrote:On the Way,

You are getting a lot of good advice. Put me down as one who thinks you could pull off retirement now if that is what you'd like to do.

My first suggestion would be to breathe, relax and clear your head. If you only found out this week, it is likely too early to be sending out resumes, especially if they have not been professionally reviewed, etc. better to start out by getting the word out within your network. Next, get the numbers on your health insurance options, including ACA. After that, I would suggest sharpening the pencil on a bare bones budget. Try to live as reasonably cheaply as you can for the next few months and you may find a lower annual number would work for you.

Finally, spend some time thinking about how you and your wife would like to spend your time. If there is a disability, it may make sense to make the most of your time when you are able to fully enjoy it.

My guess is that you may find you can afford to be picky about your next employment situation since it will be your last (if you are not already there). Try not to rush into anything. Reduce your stock exposure and study methods to access your funds prior to 62/65. Choosing your best approach to SS is also worth the research this board is great at helping with.

If you find that there is a small current gap that can be filled with $10,000 or so in annual earnings, you'll likely have lots of ways to earn that much in ways that are more fun then 9-5.

Best of Luck,

Kevin
Thanks Kevin,

The advice given here has been awesome. My first take was that there was no possibility of retirement, I need to revisit this. The reality is, I was/am not mentality prepared for retirement. I'm still trying to process this possibility. As you summarized, there is a disability involved.
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