Early retirement questions

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Early retirement questions

Postby Near retirement » Sun Dec 22, 2013 9:10 am

I am in an early retirement mode, working part time with modest income and health care benefits being provided by my employer. My home is paid for, I have no debt, and I have accumulated in the low 7 figures. I have additional assets (home and condo) which add another .5M to net worth. I will be 60 years old early in 2014. I am single and in excellent health. I will inherit another 7 figure amount upon my remaining parent's death but I hope that will not be anytime soon. I plan to delay SS until 70 years of age. I may work one or two more years.

I have a few questions for which I would appreciate members' sage guidance.

1. Before I stop working, would it be prudent to apply for a home equity line on my home? I currently do not have one.
2. Another option I have contemplated is selling my home (and my condo which is on the market... No debt on it) and either buying an RV for a couple years of travel extensively and then buy a smaller home with no yard maintenance. I currently have over an acre to maintain.
3. I currently have an asset allocation of 45/55 with a tilt toward SV. I am concerned about my bond percentage in this environment. Would it be advisable to stay the course, or make an adjustment in AA toward equity exposure?
4. The main reason I continue to work is for health insurance coverage. I am ~5 years from Medicare eligibility. From my research, it appears that I would need to plan in ~$500/month for insurance if I retired now, and closer to $300 once 65 years old. Are there any insights into health care options others' might have?
5. Any other insights and guidance would also be appreciated.

Thank you.
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Re: Early retirement questions

Postby klneutral » Sun Dec 22, 2013 9:42 am

A home equity loan gives you another option for cash on short notice. But if you sell your house as you indicated you might, you would have to give it up. So what would be the point of going through the exercise then?

Simplicity in retirement sounds attractive to a lot of people. As you point out, it also gives you flexibility to pursue more interesting activities.

Stay the course. Bonds are in the portfolio to act as a shock absorber, not to make you rich. They may even go down in value. If bonds go down 10%, but you put the money in stocks and they go down 60%, would you feel better?

Depending on your current income, you might investigate ACA and try to manipulate your income/deductions to lower your MAGI enough to be eligible for a tax credit (subsidy). There are recent posts on this forum along those lines, if you are interested.

You don't give much detail about your situation, but as long as your expenses are reasonable, you appear to be sitting pretty for retirement. Enjoy!
Last edited by klneutral on Sun Dec 22, 2013 9:50 am, edited 5 times in total.
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Re: Early retirement questions

Postby richard » Sun Dec 22, 2013 9:43 am

Near retirement wrote:1. Before I stop working, would it be prudent to apply for a home equity line on my home? I currently do not have one.

I suppose it can't hurt, and could be good in an emergency, but if you have a need to borrow it suggests you don't have adequate savings.
Near retirement wrote:2. Another option I have contemplated is selling my home (and my condo which is on the market... No debt on it) and either buying an RV for a couple years of travel extensively and then buy a smaller home with no yard maintenance. I currently have over an acre to maintain.

Counting home equity in net worth risks a decline in home equity (this is of course true for any asset, but especially for a single large asset). I'd think it less risky to reposition your holdings before retirement
Near retirement wrote:3. I currently have an asset allocation of 45/55 with a tilt toward SV. I am concerned about my bond percentage in this environment. Would it be advisable to stay the course, or make an adjustment in AA toward equity exposure?

Stocks are riskier than bonds. A rise in rates and the associated decline in bond values is good for the long-term investor - there's a temporary decline in value, but higher yield soon makes it up and thereafter returns are higher.
Near retirement wrote:4. The main reason I continue to work is for health insurance coverage. I am ~5 years from Medicare eligibility. From my research, it appears that I would need to plan in ~$500/month for insurance if I retired now, and closer to $300 once 65 years old. Are there any insights into health care options others' might have?

Check pricing and coverage under the Affordable Care Act (aka Obamacare)
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Re: Early retirement questions

Postby Rob54keep » Sun Dec 22, 2013 10:04 am

I am in similar phase of life and similar stats as yourself. The answers of course depend on answers to other questions.

I assume you have a retirement budget and know how much you need when you retire? It sounds like you want to continue to work...at least part-time? Do you have other post-retirement plans? Just working to keep health insurance premiums slighly lower seems a waste to me if you have other plans for the remainder of your life.

Home equity line of credit....why? Do you have a future need? But if it makes you sleep better then do it.
Stocks/bonds...stay the course. Sounds like you have met your financial goals already?? Why addd additional risk at this point?

I do not know how much of your assets are in taxable versus tax-defered/tax-free accounts. Much thought should be made on the deaccumulation phase of your life and the tax implications. Traditional IRA to Roth conversions before 701/2 to reduce RMD?
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Re: Early retirement questions

Postby Near retirement » Sun Dec 22, 2013 10:22 am

Thanks for comments so far.

Richard. I am not counting home equity in my portfolio for generating retirement income. Noted the homes as additional resources. I am currently trying to sell condo. Are you advising that I might consider selling primary before retirement? I had not considered that option yet. And, of course, if I choose the RV life I would not have the home equity option!! :happy

Rob54keep. My taxable and tax advantaged are about 55/45 respectively. Interested in your perspective RE: working for benefits? Could you elaborate? I guess I have cold feet about completely retiring ... Normal? I believe my resources are adequate to retire, but giving up even modest monthly income gives me the jitters.

KLneutral. My monthly expenses are about 3k and I would like to have about the same amount for discretionary for travel, etc.
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Re: Early retirement questions

Postby jeffyscott » Sun Dec 22, 2013 10:31 am

Near retirement wrote:4. The main reason I continue to work is for health insurance coverage. I am ~5 years from Medicare eligibility. From my research, it appears that I would need to plan in ~$500/month for insurance if I retired now, and closer to $300 once 65 years old. Are there any insights into health care options others' might have?


For my planning I am assuming $4000-$5000 per year per person in insurance premiums and out of pocket costs for Medicare, supplement, and prescriptions. To estimate costs prior to that, I used the healthcare.gov exchange to get premium and out of pocket costs...that came to a maximum of about $7500 per person. But, a big part of that is the $6000 or so deductible, so not likely to use all of that every year...and if we did, I figure other expenses (travel) would be reduced.

I will also have a few years of health insurance from my employer and lower costs during those years. So in the end, averaging everything together, I have just used $10K per year for the two of us in planning post-retirement health care expenses.
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Re: Early retirement questions

Postby VictoriaF » Sun Dec 22, 2013 10:31 am

Rob54keep wrote:I am in similar phase of life and similar stats as yourself. The answers of course depend on answers to other questions.

I assume you have a retirement budget and know how much you need when you retire? It sounds like you want to continue to work...at least part-time? Do you have other post-retirement plans? Just working to keep health insurance premiums slighly lower seems a waste to me if you have other plans for the remainder of your life.

Home equity line of credit....why? Do you have a future need? But if it makes you sleep better then do it.
Stocks/bonds...stay the course. Sounds like you have met your financial goals already?? Why addd additional risk at this point?

I do not know how much of your assets are in taxable versus tax-defered/tax-free accounts. Much thought should be made on the deaccumulation phase of your life and the tax implications. Traditional IRA to Roth conversions before 701/2 to reduce RMD?


My situation is also similar, except that I don't have any real estate holdings.

I am planning to do Roth conversions before the age of 70 to reduce my taxable income by the time I start collecting Social Security. The things to consider are:
(a) Roth conversions increase AGI and thus may disqualify the OP from a subsidized ACA plan (for me, it's a non-issue because I will be eligible for an employer-provided health coverage in retirement)
(b) If the OP is not tied to his current place of residence, he can establish residence in a state without state income tax, so that his Roth conversions would not be taxed at the state level.

While the OP is working part time, he should maximize his IRA contributions in 2013 and 2014.

Victoria
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Re: Early retirement questions

Postby Near retirement » Sun Dec 22, 2013 9:50 pm

Thanks for all responses. Guess I have cold feet about changing from accumulation to decumulation.
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Re: Early retirement questions

Postby The Wizard » Sun Dec 22, 2013 10:24 pm

Near retirement wrote:Thanks for all responses. Guess I have cold feet about changing from accumulation to decumulation.

That's normal, to a degree for most of us.
Focus a bit more on the positive aspects of having more time to pursue your interests.
Enjoy...
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Re: Early retirement questions

Postby The Wizard » Sun Dec 22, 2013 10:29 pm

Also, I don't think you'll have much difficulty getting a HELOC or car loan AFTER you retire either, provided you can show decent income numbers and have a good credit score...
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Re: Early retirement questions

Postby J295 » Sun Dec 22, 2013 10:42 pm

First, congratulations on your current status and the options you have. My thoughts on your five questions:

1. You will want to confirm, but I think local banks often provide home equity loans on unencumbered homes like yours up to a percentage of assessed value. Thus, since you have no need for using the line now you might just wait until a time you need it (which under your case may be never). If you needed a line in the future and the bank wanted more collateral than the home you could always pledge your investment account (easily done with a control agreement). Waiting is the option we have chosen (I transitioned to part time this year).

2. We decided to downsize to a town home, so we think it is a good option. As for RV travel, it is not something we both want to try, but if we were interested we'd rent and try it out for an extended period before making a purchase. Perhaps you already know this type of travel will fit you.

3. You might go 50/50, or on the current bond side put more in "cash" (like AMX Bank accounts, CDs, iBonds, etc.)

4. I choose not to work just for health coverage, although my situation was different because I was paying the full premium as a partner in the firm. When I went part time I no longer qualified for the group. We signed up for ACA coverage (and have a 30% premium reduction). We remain with BCBS for our insurer. So far so good.

5. Happy that you have options. Best wishes.
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Re: Early retirement questions

Postby freebeer » Sun Dec 22, 2013 11:13 pm

Near retirement wrote:...My home is paid for, I have no debt, and I have accumulated in the low 7 figures. I have additional assets (home and condo) which add another .5M to net worth. I will be 60 years old early in 2014. I am single and in excellent health. I will inherit another 7 figure amount upon my remaining parent's death but I hope that will not be anytime soon...


Congratulations on your financial success and on your parents longevity!

Re: RVing, I believe this is a case where buying used could make a lot more sense if you aren't sure whether you'll like the lifestyle. Especially if you stay a couple notches below your "ultimate" RV, what you buy on craigslist you can later sell on craigslist for essentially what you paid for it either to exit or trade up, whereas a new RV will lose a lot of value off the lot and renting long-term as suggested by someone else on this thread would be an expensive proposition. I haven't done this with RVs but it worked well with a couple of sailboats. Also there are a wide variety of RV lifestyles ranging from very settled and residential parks to "boondocking", you might want to carefully consider what kind of travel you want to do and pick RV accordingly rather than based on fancy amenities (for my taste something like a camper van would be way more suitable to "roughing it").
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