Can We Retire in Hawaii? Please Critique

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SurferLife
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Can We Retire in Hawaii? Please Critique

Post by SurferLife » Tue Jan 16, 2018 12:34 am

Looking for multiple sets of eyes to review our dream retirement plan and provide guidance on how to make it happen.

We are a military family that is quickly approaching early retirement with great anticipation and trepidation. I will be retiring in 28 months, and our desire is to retire in Hawaii (Big Island), buy some land and build a house. We would kindly welcome the Boglehead Community to look at our situation/portfolio and provide some much-needed input about how we should go about building a house and moving our money (or not moving) to maximize all tax benefits and fund our retirement. I think I would like to put off social security to age 70 to maximize that benefit, and would like to delay touching the Roth IRAs for as long as possible. I’d also like to keep access to the G fund in the TSP, so I don’t think it’s wise to move everything out to do a Roth ladder (but perhaps I am wrong). We’d like to cap our land purchase at 200k and build a home for around 500-600k. So, all-in we’re looking at 800k max for a home (too much? It is Hawaii after all). We would like to keep around 50k in our taxable account for emergencies and other unplanned expenses. Hawaii does not tax military pensions but when we pull out our Traditional TSP contributions & earnings our tax base will already be at 60k (my pension without disability). With all that said, what should we be looking to do with our accounts and our home-buying situation? I feel we’ve done okay at saving (we got started late so it’s lower than I’d like), and have a good inflation-adjusted pension, but I don’t see the best way to execute our plan of buying/building the house since we will need to supplement our retirement income due to the expected mortgage payment. Again, any help is greatly appreciated. Thank you all for the advice you’ve given in the past, we’ve followed a great deal of it. If there's a better way to lay out our needs, please let me know and I'll reformat and resubmit.

Retirement Income:
Military pension: 84k (after tax - pension 64k + 20k disability)

Budget:
$70k/yr (does NOT include a future mortgage payment)

Taxes:
Married with 2 kids, ages 5 and 3 at retirement
Hawaii Income Tax: 8% (more or less - does not tax military pension)

His Accounts (age 49 at retirement):
--Traditional TSP: $468k
--Roth TSP: $84k
--Roth IRA: $147k
--Taxable: $380k

Her Account (age 41 at retirement):
--Roth IRA: $83k

Total Tax-advantaged: $782k
Total Taxable: $380k

mrpotatoheadsays
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Re: Can We Retire in Hawaii? Please Critique

Post by mrpotatoheadsays » Tue Jan 16, 2018 2:25 am

The assessments I see on these boards are terrible. I recommend you use a retirement planner like the one at Analyze Now dot com. It is quite a lot of work. Mr. Hebeler also has an associated book that has an interesting take on budgeting, specifically "reserves" for things like automobiles, roofs, air conditioners, etc.

Since your inflow in greater than your outflow, you should have no problems... until you start buying real estate... and your kids want automobiles... and someone needs surgery.

An interesting study recently showed a million dollars would last only 11 years and 11 months in Hawaii.... compare to 25 years in Tennessee. While Hawaii certainly is a dream for the heart, it is not one for the wallet.

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Van-Guard23
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Re: Can We Retire in Hawaii? Please Critique

Post by Van-Guard23 » Tue Jan 16, 2018 5:22 am

SurferLife,
I can't offer much feedback on your plans (as our early retirement is a bit different) but can share what my wife and I (both retired Army officers) have experienced during our early retirement here on Oahu. I retired just over 4 years ago and my wife retired just over 2 years ago. I tracked our expenses (I mean all our expenses to include mortgage, insurance costs, dining out, donations, travel costs, etc.) over a 2 year period before retirement and after retirement to make sure we are good with our early retirement. What I realized was that our combined pensions and VA disability are more than our expenses (by about $2,500 a month). Our kids are all grown so we can better control our expenses...kids are expensive, as I imagine you already know.

I don't know how solid your budget is (does it account for increasing kids expenses, more expensive groceries outside the military commissary system, possibly higher health/dental insurance premiums, life insurance, costlier utilities perhaps, etc.), but you might want to re-examine how this budget would hold up on the Big Island (or any HCOL are for that matter). Make sure you have a firm grasp of what you would truly have for expenses, down to the nitty gritty details, to give yourself a certain level of comfort with how the numbers would work out.

I suppose you can withdraw from your taxable accounts, at a reasonable rate (whatever that is) to provide for your needs, if required...but you would have to run the numbers to see what would be sustainable.

VG23
"I have only come here seeking knowledge. Things they wouldn't teach me of in college" | The Police "Wrapped Around Your Finger"

Admiral
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Re: Can We Retire in Hawaii? Please Critique

Post by Admiral » Tue Jan 16, 2018 7:05 am

My take: No. You're not even close. You're talking about going into retirement with either a) a big mortgage or c) a cash payment for a home-plus-land that will deplete ALL your taxable reserves. And...KIDS! Your kids are tiny. Kids are expensive, and so is college. Hawaii, too, is an expensive place to live.

25x70k = $1.75m (except you need more than 25 years)

hightower
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Re: Can We Retire in Hawaii? Please Critique

Post by hightower » Tue Jan 16, 2018 7:31 am

So you're saying you would spend all of your retirement savings on building a house and buying land? Or would you acquire an 800k mortgage? Then you would just live off of the pension? Doesn't seem smart to me. I don't know anything about military pensions or how safe/reliable they will be in the future, but to go from being an actual millionaire to spending every dime you have on a single house is a very unwise move IMO. Likewise, going into a massive amount of debt at the start of retirement is equally unwise.

Also, have you accounted for property tax? I would assume that would be pretty steep on an 800k house in Hawaii. What about energy costs? Medical?
Medical insurance/expenses could change drastically as you age and can be very expensive. It would be helpful if you expanded what you mean under the "budget" category so we can see what you're planning on spending.

Technically you might be able to accomplish this plan, but to me it seems very foolish. Especially since you're both still young and you'd be on such a tight budget. If you really want to live in Hawaii for retirement, that's fine, but come up with a plan that doesn't involve going into debt or spending all of your savings. You could find a condo for a reasonable price and sell your current home to help pay for it? And what about finding some sort of work/income once you're there?
Oh and I didn't even see the kids. No way with kids that age can you afford to do this. How will you plan on paying for their college if they desire to go to school?

Jags4186
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Re: Can We Retire in Hawaii? Please Critique

Post by Jags4186 » Tue Jan 16, 2018 7:40 am

1) Is the 70k in expenses inclusive of your current rent? Does it include child care? If not, what are you spending so much money on? To give you a comparison my wife and (admittedly no kids) spent $55k last year and that included 3 international vacations and $18,780 in rent.

2) An $800k house on an $84k income with $1 million in reserves is really tough. Now perhaps over the next 3 years your investments will grow to $1.5 million or more. In that case you might be able to swing it.

3) Do you plan on kicking your children out at age 18? You won't be able to afford to pay for their college. Not that you have to (they could very well go into the military like you) but if they don't are you okay with them being saddled with debt up to their eyeballs?

fasteddie911
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Re: Can We Retire in Hawaii? Please Critique

Post by fasteddie911 » Tue Jan 16, 2018 7:44 am

Besides the financial components of your plan, have you considered the practicality of such a move? Have you lived there before? There are countless people who "dream" of living in Hawaii, but many who move there end up leaving within a few years due to various reasons including COL, isolation, culture shock, etc.. Living in Hawaii is a lot different than visiting, maybe consider a longer term stay to get a feel for it. Countless people like yourself look to Big Island in particular due to its cheaper land and larger spaces, as such, you could have "interesting" neighbors

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Watty
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Re: Can We Retire in Hawaii? Please Critique

Post by Watty » Tue Jan 16, 2018 8:21 am

If you do move to Hawaii it would be good to rent for a while to make sure that you actually like living in Hawaii since living there is a lot different than visiting there.

One potential problem is allergies. I know one couple that decided to move to Hawaii to live only to find out that one of them had real bad allergies to something there. They had visited there a number of times but with a short stay, and being right on the coast, the allergies had not been a problem during their vacations. After a year, and many doctor appointments, they decided to return to the mainland because of allergies.

Hawaii also has a lot of problems with poverty, drugs, and bad public schools so it will take awhile to learn enough to know where you would want to live too.
SurferLife wrote:
Tue Jan 16, 2018 12:34 am
So, all-in we’re looking at 800k max for a home (too much? It is Hawaii after all).
How are you planning on paying for this? With $84K in income you will not qualify for a huge mortgage, or have the budget for a large mortgage payment even if you could get one.
SurferLife wrote:
Tue Jan 16, 2018 12:34 am
...buy some land and build a house.
I don't know about Hawaii specifically but inexpensive undeveloped land is often in areas that do not have good schools so be sure to watch out for that.

Building anywhere should be a last resort since there can be so many problems and I would assume that in Hawaii you would have a lot of special challenges. Buying an existing home would also mean that you did not need to rent someplace else for a year while the home is being built and that can save a lot.

It was in a different state but I know someone who used to laminate "Being at the end of the supply chain." and the difficulties it caused whenever he had a big home repair.

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Pajamas
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Re: Can We Retire in Hawaii? Please Critique

Post by Pajamas » Tue Jan 16, 2018 9:31 am

There are plenty of people who retire in Hawaii on $84k a year or less, but most of them probably don't do it in a house that costs $800k with only a few $100k in reserve, much less under those circumstances in their early 40s and 50s with young children. That's a lot of extra expenses and a long time with a lot of uncertainty and risk.

So it seems to me that the cost of your projected lifestyle and your resources are out of balance. If you are willing to work some or scale down your projected lifestyle, you could do it, but I suspect your current plan will lead to financial stress at some point.

jorodrig
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Re: Can We Retire in Hawaii? Please Critique

Post by jorodrig » Tue Jan 16, 2018 9:39 am

I recommend you move to the Dallas - Ft Worth area, move to a house in the cities of Bedford and/or Euless that is zoned to the Grapevine-Colleyville School district. Grapevine real estate is a little higher than those two cities, and Colleyville's real estate is a lot higher (but lower than Hawaii's). We have one of the top 5 districts in the state. Let your kids graduate from high school and then move to Hawaii. The school system in Hawaii is not good at all. You will have to put them in private school, and I am not sure there are any good ones in the big island. Give your kids a better education and retire once you know you have enough for their college expenses.

I have relatives in Hawaii. Have been there many times. Awesome place, but not the best to raise kids due to schools.

el George

SurferLife
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Re: Can We Retire in Hawaii? Please Critique

Post by SurferLife » Tue Jan 16, 2018 10:00 am

Perhaps I should have asked for how do we do the math when it comes to drawing down our accounts most effectively. As far as critiquing our plan, it was more for the financial aspect, not the practical aspect of living on an expensive island with poor schools. However, here are the answers to some of your questions. For those that say "no way can you do this", can you provide the objective analysis as to why? Am I wrong in that I only need to plan to withdraw our accounts until I get to age 70, so 21 years from retirement? FIRECALC gives me a 100% success rate by withdrawing 30k/yr for 21 years, which I think would be enough to supplement our pension.

1. We have lived in Hawaii before for years so this is a normal move for us, nothing special.
2. We will homeschool since schools are bad. Yeah, drugs are a problem as is homelessness, but drugs are also a major problem in rural Montana.
3. We will be covered medically.
4. Understand about not qualifying for a loan after retirement, but we hope to get a loan prior to retiring while we still have the income to qualify. There is also a VA loan, and I'm not sure but perhaps we can still qualify for that after retirement? My disability rating will reduce some of the expenses with a VA loan.
5. Kids have college fully funded through 529 savings and my GI Bill which has been rolled over to them.
6. We have no childcare expenses.
7. We have tracked our expenses. The 75k/yr is adjusted for Hawaii and again, does not include a mortgage payment. We could possibly bring our housing cost down to 700k, so with 300k down, a 400k mortgage? That seems reasonable and affordable with what we have saved. If I'm mistaken, please show me. This is our main issue and my main question. I think we can afford it, but what is the most advantageous way to draw down our funds to pay for it???

vested1
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Re: Can We Retire in Hawaii? Please Critique

Post by vested1 » Tue Jan 16, 2018 10:54 am

SurferLife wrote:
Tue Jan 16, 2018 10:00 am
Perhaps I should have asked for how do we do the math when it comes to drawing down our accounts most effectively. As far as critiquing our plan, it was more for the financial aspect, not the practical aspect of living on an expensive island with poor schools. However, here are the answers to some of your questions. For those that say "no way can you do this", can you provide the objective analysis as to why? Am I wrong in that I only need to plan to withdraw our accounts until I get to age 70, so 21 years from retirement? FIRECALC gives me a 100% success rate by withdrawing 30k/yr for 21 years, which I think would be enough to supplement our pension.

1. We have lived in Hawaii before for years so this is a normal move for us, nothing special.
2. We will homeschool since schools are bad. Yeah, drugs are a problem as is homelessness, but drugs are also a major problem in rural Montana.
3. We will be covered medically.
4. Understand about not qualifying for a loan after retirement, but we hope to get a loan prior to retiring while we still have the income to qualify. There is also a VA loan, and I'm not sure but perhaps we can still qualify for that after retirement? My disability rating will reduce some of the expenses with a VA loan.
5. Kids have college fully funded through 529 savings and my GI Bill which has been rolled over to them.
6. We have no childcare expenses.
7. We have tracked our expenses. The 75k/yr is adjusted for Hawaii and again, does not include a mortgage payment. We could possibly bring our housing cost down to 700k, so with 300k down, a 400k mortgage? That seems reasonable and affordable with what we have saved. If I'm mistaken, please show me. This is our main issue and my main question. I think we can afford it, but what is the most advantageous way to draw down our funds to pay for it???
You haven't provided enough information about your investments, your ages, or your plan for funding the purchase of the new home, so those who respond are making assumptions in an attempt to answer your questions, which are too vague. Your first paragraph is too long, making it hard to read so most, if not all will skip vital parts of it.

- I assume that you are 49, or will be in 28 months when you plan on retiring. How old is your wife?

- You say that you only need to make your money last until age 70, which I assume means your plan to delay SS until 70 is estimating your future benefits, which added to your COLA pension would exceed your income needs. What happens if SS is reduced? What is the COLA for pension and SS based on? The new tax bill made COLA increases on SS less attractive, did it also affect military pensions? A good plan takes all things into account, so you may be relying too heavily on future SS.

- You say that you are or will be receiving disability as part of your pension. Does your disability qualify you to receive SSDI? If so, your SS benefits could begin earlier than your FRA at your PIA rate (FRA age benefit). Your children and wife could also be eligible for SS benefits under SSDI, if I'm not mistaken (I'm no expert on SSDI). This could reduce the amount needed to be withdrawn from your portfolio and add another leg to your stool of income in retirement.

- A plan to completely exhaust retirement savings by age 70 and transition to only fixed income leaves your kids with no inheritance. Have you considered that?

- Most who responded seem as confused as I am about how you will pay for that 800k mortgage. A VA loan requires 10% down, or in some cases 0% if I'm not mistaken (my VA loan was 10%). A smaller down payment results in a larger monthly payment. Have you run the numbers?

- You list your basic accounts but don't list your AA. Are you invested heavily in stocks? If so, could you withstand a 50% drop in equities and still resist the urge to sell? Will your investments keep up with inflation?

These aspects would apply if you we're retiring anywhere. The HCOL in Hawaii only adds to the importance of taking all things into consideration.

onourway
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Re: Can We Retire in Hawaii? Please Critique

Post by onourway » Tue Jan 16, 2018 11:06 am

Yes, I think the big question everyone has is how you intend on paying for the house? You don't have enough cash to do it and you are talking about a mortgage, yet your listed expenses don't include the cost of that mortgage (nor I presume taxes, maintenance, insurance, etc).

Admiral
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Re: Can We Retire in Hawaii? Please Critique

Post by Admiral » Tue Jan 16, 2018 11:08 am

There's also a distinction to be made between "can we" and "should we."

Can you? Possibly. Should you? Likely not.

Also what are you planning to do all day with retirement at 50? Surf? There are cheaper places to live with decent surf breaks.

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Sandtrap
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Re: Can We Retire in Hawaii? Please Critique

Post by Sandtrap » Tue Jan 16, 2018 11:35 am

Here's some context: :D
I was born in Hawaii and grew up and worked there (forever). Retired several years ago. Moved from the state with the highest cost of living UHCOL, Hawaii, to a state in the bottom 5 cost of living ULCOL in the USA, Northern Arizona.

My options were, retire to the Big Island, specifically Kamuela, and do "okay", or retire to a ULCOL state in the mainland and "feel" rich for the lst time in my life. To give you an idea of "scale". My Bogle portfolio is "healthy". I've been blessed with being able to live in both places.

Some numbers: :annoyed
The last multiplier I remember was a 1.86 dollar/cost of living difference between Hawaii and the mainland. But it is actually much much higher than the spreadsheets can predict. Outer islands, COL is much higher than OAHU because of the added costs of shipping everything in from Oahu, whereas Oahu is the main port from the west coast and asia. This means everything, from gas to building materials, etc.

Some examples: :D
Here are some real life examples and you can draw your own conclusions: (names changed to protect the diligent). My close friends and family. "Locals" in Hawaii are familiar with this. Those not having lived there at length can only guess based on individual context. These examples might be helpful to you.
1
Sonny and Cher: Dual Retirement. Retired Coast Guard Master Chief. Retired City. DW, retired Fed. Age 70. That means military retirement with health coverage and base privileges. 2 SS benefits from each. 3 pensions. No mortgage. Home valued at 1.8 million. No debts.
They barely get by. 10-15 year old cars. Scrimp for 2-3 years to afford a vacation in Europe. And are very frugal.
2
Captain and Tennille:. Dual Retirement. Retired university professor. DW. Retired educator. Age 80's. No mortgage. No debts. Home value 1.2 million. They are a little comfortable. Very very frugal. And live well below their means. Sonny is a Boglehead with a large portfolio in a 50/50 allocation. 2 SS, 2 pensions.
They barely get by. Scrimp for 2-3 years to afford a vacation to Asia and Europe. And are very frugal.
3
Donny and Marie: Dual Retirement. 2 retired doctors. Building new home 2 million. on the Big Island. Donny plans to close private practice and continue working part time at a local clinic to subsidize income needs. Marie, same thing. In the mainland, they would be solidly retired and living in a McMansion. On the Big Island, where cost of living is higher than OAHU, they have to make do.

Some considerations: 8-)
I have known many in your shoes and projected costs to move, buy a home (building a new one costs more), and the lst 5 years, at best, of living costs, will suck every dime out of their savings and retirement funds. Many had far greater assets and resources than yourself.

Some input; :happy
IMHO your resources are marginal. Your estimates of land costs and building costs and COL are too low. A 1200 sf 2bdr 1 bath simple home with a carport on 5000 sf of land can easily cost 1 million dollars. Property taxes, car registration, safety check, insurance, food, etc. are all high. One advantage you have it base privileges where you can buy gas and so forth on base. But, where are the bases on the Big Island?

Some encouragement: :D
However, anything can be done if you truly want to live in paradise. (It is wonderful) But be prepared to lower your expectations and standard of living in a big way. If you are planning to work part time to supplement your income, be prepared for a very very tight employment scenario, especially on the outer islands, especially on the Big Island.

Also, if you in a similar situation to "Sonny and Cher" above, with about 90k net/year in income as they have, then it may be okay. As long as you are as frugal as they are. The "wild card" is getting a home that lives up to your expectations.

I think painting these real life scenarios will help you decide whether moving to Hawaii is a viable option for you. Everyone else here can help you look at the quantifiables.

I hope this give you some context and is helpful to you. Others may have their own viewpoints, of course.
mahalo.
Hawaii No Ka Oi
j :D

ps:
We’d like to cap our land purchase at 200k and build a home for around 500-600k. So, all-in we’re looking at 800k max for a home (too much?
I would double this to be safe.
Last edited by Sandtrap on Tue Jan 16, 2018 6:22 pm, edited 1 time in total.

MJS
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Re: Can We Retire in Hawaii? Please Critique

Post by MJS » Tue Jan 16, 2018 12:31 pm

Average single house construction cost in Honolulu is $760 per square foot, so for $500,000 you are looking at a 640 square foot house. Doing it yourself will be somewhat less, but permits and materials will, as you know, be quite dear. Also, building to earthquake & hurricane code can be a bit tricky if you don't have a certified architect & construction crew.

Good luck!

https://www.bizjournals.com/pacific/new ... ce-as.html

Admiral
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Re: Can We Retire in Hawaii? Please Critique

Post by Admiral » Tue Jan 16, 2018 12:38 pm

MJS wrote:
Tue Jan 16, 2018 12:31 pm
Average single house construction cost in Honolulu is $760 per square foot, so for $500,000 you are looking at a 640 square foot house. Doing it yourself will be somewhat less, but permits and materials will, as you know, be quite dear. Also, building to earthquake & hurricane code can be a bit tricky if you don't have a certified architect & construction crew.

Good luck!

https://www.bizjournals.com/pacific/new ... ce-as.html
Wha?? Ok that is insane.

OP: I think much of the reaction you're getting is because, in general, Bh's strive to REDUCE (or eliminate) expenses going into the draw-down phase. You seem to be contemplating the opposite: huge expenditures in a VHCOL area. Extravagance is nice, if one can afford it. As a starting point, an expense budget that does not include what will be a large mortgage payment isn't really an expense budget. It's a fantasy.

If you really want to make this move, I would consider working longer and continuing to save.

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MP123
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Re: Can We Retire in Hawaii? Please Critique

Post by MP123 » Tue Jan 16, 2018 12:42 pm

MJS wrote:
Tue Jan 16, 2018 12:31 pm
Average single house construction cost in Honolulu is $760 per square foot, so for $500,000 you are looking at a 640 square foot house. Doing it yourself will be somewhat less, but permits and materials will, as you know, be quite dear. Also, building to earthquake & hurricane code can be a bit tricky if you don't have a certified architect & construction crew.

Good luck!

https://www.bizjournals.com/pacific/new ... ce-as.html
That's crazy even by the crazy standards of VHCOL places. :shock:

I also wouldn't bet that building vs buying would save you much if any money.

vested1
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Re: Can We Retire in Hawaii? Please Critique

Post by vested1 » Tue Jan 16, 2018 12:46 pm

MJS wrote:
Tue Jan 16, 2018 12:31 pm
Average single house construction cost in Honolulu is $760 per square foot, so for $500,000 you are looking at a 640 square foot house. Doing it yourself will be somewhat less, but permits and materials will, as you know, be quite dear. Also, building to earthquake & hurricane code can be a bit tricky if you don't have a certified architect & construction crew.

Good luck!

https://www.bizjournals.com/pacific/new ... ce-as.html
To be fair, the construction costs for a house on the big island are about half of that rate, depending on quality of build and upgrades.

SurferLife
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Re: Can We Retire in Hawaii? Please Critique

Post by SurferLife » Tue Jan 16, 2018 12:56 pm

vested1 wrote:
Tue Jan 16, 2018 12:46 pm
MJS wrote:
Tue Jan 16, 2018 12:31 pm
Average single house construction cost in Honolulu is $760 per square foot, so for $500,000 you are looking at a 640 square foot house. Doing it yourself will be somewhat less, but permits and materials will, as you know, be quite dear. Also, building to earthquake & hurricane code can be a bit tricky if you don't have a certified architect & construction crew.

Good luck!

https://www.bizjournals.com/pacific/new ... ce-as.html
To be fair, the construction costs for a house on the big island are about half of that rate, depending on quality of build and upgrades.
Yeah, you are right, and I've account for housing cost. Never-the-less, people do not want to answer the hard questions I've asked and would just rather tell me I need a few more million to make it happen, retire in Dallas (really??? I live just south of Dallas now; it's awful), what will I do all day, or google Oahu sq foot prices and say we will have to live in a box. I know we can do it, that's not the question. The question I have is, and the questions I thought I asked were, how to draw down the accounts, rollovers, mortgage, etc... Maybe we need to bring our housing cost down a bit, and that's a fair comment, but again, it's a math problem, and nobody is willing to help me on the math to help me see the details. I'll have to resubmit my questions and ask it a different way.
Last edited by SurferLife on Tue Jan 16, 2018 1:17 pm, edited 1 time in total.

CnC
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Re: Can We Retire in Hawaii? Please Critique

Post by CnC » Tue Jan 16, 2018 1:10 pm

SurferLife wrote:
Tue Jan 16, 2018 12:56 pm
vested1 wrote:
Tue Jan 16, 2018 12:46 pm
MJS wrote:
Tue Jan 16, 2018 12:31 pm
Average single house construction cost in Honolulu is $760 per square foot, so for $500,000 you are looking at a 640 square foot house. Doing it yourself will be somewhat less, but permits and materials will, as you know, be quite dear. Also, building to earthquake & hurricane code can be a bit tricky if you don't have a certified architect & construction crew.

Good luck!

https://www.bizjournals.com/pacific/new ... ce-as.html
To be fair, the construction costs for a house on the big island are about half of that rate, depending on quality of build and upgrades.
Yeah, you are right, and I've account for housing cost. Never-the-less, people do not want to answer the hard questions I've asked and would just rather tell me I need a few more million to make it happen, retire in Dallas (really??? I live just south of Dallas now; it's awful), what will I do all day, or google Oahu sq foot prices and say we will have to live in a box. I know we can do it, that's not the question. The question I have is, and the questions I thought I asked were, how to draw down the accounts, mortgage, etc... Maybe we need to bring our housing cost down a bit, and that's a fair comment, but again, it's a math problem, and nobody is willing to help me on the math to help me see the details. I'll have to resubmit my questions and ask it a different way.
Ok just ask the actual math questions then.

onourway
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Re: Can We Retire in Hawaii? Please Critique

Post by onourway » Tue Jan 16, 2018 1:15 pm

You have been asked for more detail and seem to want to argue rather than provide said detail.

How are you thinking of paying for the house?

Since you haven't told us, let me run some numbers based on what I might do.

Target house price: $800k
Down Payment: $300k
Remaining taxable funds: $80k
Monthly mortgage payment - 30 years - $2400/month
Taxes? (no idea of rates in HI)
Insurance? (same, no idea of rates)
Yearly maintenance fund: 1.5% or $1000/month

So before taxes and insurance we have $3400/month of housing costs to add to your $70k/year of quoted expenses. That gets you to $110k in yearly expenses with an income of $84,000. So you have a $26k/year gap to close. If you can somehow access all of your tax-sheltered funds, you could conceivably receive about this much income from it after tax - but what is your plan for taking these withdrawals? Have you started a ROTH ladder? You need 5 years to get that going. Perhaps you reduce the amount of your down payment to give you a little more breathing room, but then you just increase your monthly cashflow needs. And you're looking at taking at least 4% annually from these accounts even though you may have a 50+ year retirement. There is significant chance of running out of money.

This is how I see things - very off the cuff. But this encapsulates the general skepticism here. You have zero breathing room in your budget at a time in your life that you are looking at massively increasing your expenses. Home builds always go over budget, even in LCOL areas. Kids are more expensive than you anticipate. etc. etc.
Last edited by onourway on Tue Jan 16, 2018 1:16 pm, edited 1 time in total.

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Sandtrap
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Re: Can We Retire in Hawaii? Please Critique

Post by Sandtrap » Tue Jan 16, 2018 1:15 pm

vested1 wrote:
Tue Jan 16, 2018 12:46 pm
MJS wrote:
Tue Jan 16, 2018 12:31 pm
Average single house construction cost in Honolulu is $760 per square foot, so for $500,000 you are looking at a 640 square foot house. Doing it yourself will be somewhat less, but permits and materials will, as you know, be quite dear. Also, building to earthquake & hurricane code can be a bit tricky if you don't have a certified architect & construction crew.

Good luck!

https://www.bizjournals.com/pacific/new ... ce-as.html
To be fair, the construction costs for a house on the big island are about half of that rate, depending on quality of build and upgrades.
In Puna 🌺

CnC
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Re: Can We Retire in Hawaii? Please Critique

Post by CnC » Tue Jan 16, 2018 1:21 pm

You need to give us more numbers if you want math questions answered.

Let's assume your 70k expenses a year takes into account all the increase in expenses from moving to Hawaii as well as expenses of kids growing up.


If you get an 700k loan (assume 100k down)

Your new yearly expenses is around $110,104 a year which is around 26k more than your retirement income.

You will have around 1million left before taxes which will put you at a little under 4% withdrawal after taxes which would be pretty close to working.


But that includes no extra expenses such as teens collage property taxes hcol budget adjustments or major medical for your wife/children.


That's the best math I can do with what we have.

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Pajamas
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Re: Can We Retire in Hawaii? Please Critique

Post by Pajamas » Tue Jan 16, 2018 1:27 pm

SurferLife wrote:
Tue Jan 16, 2018 12:56 pm
retire in Dallas (really??? I live just south of Dallas now; it's awful), what will I do all day
I always find it semi-amusing when people recommend moving to a low-cost area instead of answering the questions being asked about a high-cost area but you have to admit that suggesting Tennessee or Texas instead of Hawaii as has been done in this thread is absolutely hilarious as there is really no comparison.

I know we can do it, that's not the question. The question I have is, and the questions I thought I asked were, how to draw down the accounts, rollovers, mortgage, etc... Maybe we need to bring our housing cost down a bit, and that's a fair comment, but again, it's a math problem, and nobody is willing to help me on the math to help me see the details. I'll have to resubmit my questions and ask it a different way.
If you haven't worked out the math details then you don't actually know that you can do it. I really don't think you can without everything going perfectly and I don't need to crunch numbers in detail to know that.

You are assuming that your military pension and disability won't change, that Social Security won't change, that you can build a house for $800k, etc. All of your assumptions are optimistic. That is not reasonable, especially for a retirement that could easily be longer than your wife has already lived.

Plus if you are planning on home-schooling and actually give your children a decent education that allows them to succeed in college and life, then you're not really going to be retired.

I'm not trying to discourage you but think that you need to revisit some of your major assumptions such as not working at all and spending so much money.

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CAsage
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Re: Can We Retire in Hawaii? Please Critique

Post by CAsage » Tue Jan 16, 2018 1:33 pm

So you are looking for something like this:

Assume $200K of your taxable funds down on house, finance 600K mortgage at 4% for 30 years, 1% property taxes, 3% drawdown on IRA.

Assorted Income +84k
Plus IRA 3% of $800k = +24K per year
Current budget: -70k expenses
New Mortgage $2864 per month, $34k per year estimated
Property taxes, 8K per year

So, 84+24-70-34-8... Negative $4k per year. Roughly? Suggest you set up an Excel spreadsheet to play with income, mortgage size, taxes, etc and see how it rolls....
Edit to add: you really need to look out 20 years, make a spreadsheet with a column for each year, and a row for each item of income and withdrawal and expense. Such as, a row for Roth which you don't touch, SS starting in 20+ years, assumptions about inflation (on consumption) and return (estimate low). Good news - no heating bills in Hawaii! Houses don't come with heaters.
Edit 2: Shop Zillow or online for a comparable house, and do not assume you can build for less. That will get you real housing prices.
Last edited by CAsage on Tue Jan 16, 2018 3:19 pm, edited 1 time in total.
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Re: Can We Retire in Hawaii? Please Critique

Post by aristotelian » Tue Jan 16, 2018 1:50 pm

Pajamas wrote:
Tue Jan 16, 2018 1:27 pm
SurferLife wrote:
Tue Jan 16, 2018 12:56 pm
retire in Dallas (really??? I live just south of Dallas now; it's awful), what will I do all day
I always find it semi-amusing when people recommend moving to a low-cost area instead of answering the questions being asked about a high-cost area but you have to admit that suggesting Tennessee or Texas instead of Hawaii as has been done in this thread is absolutely hilarious as there is really no comparison.
At least there is surfing in Texas.

downshiftme
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Re: Can We Retire in Hawaii? Please Critique

Post by downshiftme » Tue Jan 16, 2018 2:14 pm

Doug Nordman (early military retiree living in Hawaii) writes a blog about military retirement issues, and has some good information about early retirement in Hawaii.

https://the-military-guide.com/lifestyl ... -vacation/

SurferLife
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Re: Can We Retire in Hawaii? Please Critique

Post by SurferLife » Tue Jan 16, 2018 2:19 pm

downshiftme wrote:
Tue Jan 16, 2018 2:14 pm
Doug Nordman (early military retiree living in Hawaii) writes a blog about military retirement issues, and has some good information about early retirement in Hawaii.

https://the-military-guide.com/lifestyl ... -vacation/
Nords is great and I plan on emailing him directly.

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Re: Can We Retire in Hawaii? Please Critique

Post by SurferLife » Tue Jan 16, 2018 2:20 pm

aristotelian wrote:
Tue Jan 16, 2018 1:50 pm
Pajamas wrote:
Tue Jan 16, 2018 1:27 pm
SurferLife wrote:
Tue Jan 16, 2018 12:56 pm
retire in Dallas (really??? I live just south of Dallas now; it's awful), what will I do all day
I always find it semi-amusing when people recommend moving to a low-cost area instead of answering the questions being asked about a high-cost area but you have to admit that suggesting Tennessee or Texas instead of Hawaii as has been done in this thread is absolutely hilarious as there is really no comparison.
At least there is surfing in Texas.
I've seen it and I wouldn't call it surfing.

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El Greco
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Re: Can We Retire in Hawaii? Please Critique

Post by El Greco » Tue Jan 16, 2018 2:38 pm

"I recommend you move to the Dallas - Ft Worth area"

I had to laugh at this suggestion. You're looking to move to Paradise, aren't you? Not the other place. :D

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HomerJ
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Re: Can We Retire in Hawaii? Please Critique

Post by HomerJ » Tue Jan 16, 2018 3:14 pm

Sandtrap wrote:
Tue Jan 16, 2018 11:35 am
Captain and Tennille:. Dual Retirement. Retired university professor. DW. Retired educator. Age 80's. No mortgage. No debts. Home value 1.2 million. They are a little comfortable. Very very frugal. And live well below their means. Sonny is a Boglehead with a large portfolio in a 50/50 allocation. 2 SS, 2 pensions.
They barely get by. Scrimp for 2-3 years to afford a vacation to Asia and Europe. And are very frugal.
You need to give numbers for this to make any sense at all. You say 2 pensions, 2 Social Security check, and a "large" portfolio and they "barely get by" and have to scrimp for 2-3 years to afford an expensive vacation?

And they are in their 80s? So it's not like they have to make their money last for the next 50 years.

Something doesn't add up.

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Pajamas
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Re: Can We Retire in Hawaii? Please Critique

Post by Pajamas » Tue Jan 16, 2018 3:23 pm

HomerJ wrote:
Tue Jan 16, 2018 3:14 pm

Something doesn't add up.
"Live well below their means" and "barely get by" and "scrimp" to afford a vacation and "are very frugal" do seem inconsistent.

I recently read a book, Uneasy Street: The Anxieties of Influence by Rachel Sherman. I wouldn't wholeheartedly recommend it but it did seem to make it clear that many affluent people downplay their affluence. Of course, we know that many exaggerate it, too.

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Re: Can We Retire in Hawaii? Please Critique

Post by Hawaiishrimp » Tue Jan 16, 2018 3:29 pm

SurferLife wrote:
Tue Jan 16, 2018 12:34 am

Looking for multiple sets of eyes to review our dream retirement plan and provide guidance on how to make it happen.
With the information given, my guidance:
Save more money in taxable (preferably double) before considering the move or buying a house.
I save and invest my money, so money can make money for me, so I don't have to make money eventually.

TRC
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Re: Can We Retire in Hawaii? Please Critique

Post by TRC » Tue Jan 16, 2018 3:31 pm

Can't really comment on your financials, but did want to share my dream of eventually winter'ing in Maui November - April and living in Maine the rest of the year. We plan to do that in our early 50s. My plan is long term rentals for the first year or 2.

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Watty
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Re: Can We Retire in Hawaii? Please Critique

Post by Watty » Tue Jan 16, 2018 4:09 pm

One thing you might want to do is to look at your numbers as if you are buying instead of building.

This would give you firmer numbers to work with and give you a better idea of what is possible.

I would be cautious about the plan on homeschooling your kids to make this work since being able to do this well will be very hard when they get into middle and high school.

Jags4186
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Re: Can We Retire in Hawaii? Please Critique

Post by Jags4186 » Tue Jan 16, 2018 4:35 pm

HomerJ wrote:
Tue Jan 16, 2018 3:14 pm
Sandtrap wrote:
Tue Jan 16, 2018 11:35 am
Captain and Tennille:. Dual Retirement. Retired university professor. DW. Retired educator. Age 80's. No mortgage. No debts. Home value 1.2 million. They are a little comfortable. Very very frugal. And live well below their means. Sonny is a Boglehead with a large portfolio in a 50/50 allocation. 2 SS, 2 pensions.
They barely get by. Scrimp for 2-3 years to afford a vacation to Asia and Europe. And are very frugal.
You need to give numbers for this to make any sense at all. You say 2 pensions, 2 Social Security check, and a "large" portfolio and they "barely get by" and have to scrimp for 2-3 years to afford an expensive vacation?

And they are in their 80s? So it's not like they have to make their money last for the next 50 years.

Something doesn't add up.
Yea I giggled a little reading that. What we don't know is what their definition of "scrimp" or "barely get by" means. To some people, downgrading from a S class Mercedes to an E class Mercedes is "scrimping". To some people, eating out 3x a week is "cutting back". To some people, cutting made service from 2x weekly to 2x monthly is "roughing it".

I don't have a Mercedes, I don't eat out 3x a week, and I don't have maid service but I certainly don't feel like I'm "scrimping" and I have no issues going on weekly European vacations.

That said, OP, there is a happy medium between Hawaii and Dallas. What is it that appeals to you about Hawaii? Is it the weather? The surfing? What is it that you will be "doing" there that you can't do in Dallas (not suggesting Dallas, just trying to get an idea). You might find you could live in California or Florida for less than Hawaii and get what you're looking for.

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Hawaiishrimp
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Re: Can We Retire in Hawaii? Please Critique

Post by Hawaiishrimp » Tue Jan 16, 2018 5:25 pm

Jags4186 wrote:
Tue Jan 16, 2018 4:35 pm
HomerJ wrote:
Tue Jan 16, 2018 3:14 pm
Sandtrap wrote:
Tue Jan 16, 2018 11:35 am
Captain and Tennille:. Dual Retirement. Retired university professor. DW. Retired educator. Age 80's. No mortgage. No debts. Home value 1.2 million. They are a little comfortable. Very very frugal. And live well below their means. Sonny is a Boglehead with a large portfolio in a 50/50 allocation. 2 SS, 2 pensions.
They barely get by. Scrimp for 2-3 years to afford a vacation to Asia and Europe. And are very frugal.
You need to give numbers for this to make any sense at all. You say 2 pensions, 2 Social Security check, and a "large" portfolio and they "barely get by" and have to scrimp for 2-3 years to afford an expensive vacation?

And they are in their 80s? So it's not like they have to make their money last for the next 50 years.

Something doesn't add up.
Yea I giggled a little reading that. What we don't know is what their definition of "scrimp" or "barely get by" means. To some people, downgrading from a S class Mercedes to an E class Mercedes is "scrimping". To some people, eating out 3x a week is "cutting back". To some people, cutting made service from 2x weekly to 2x monthly is "roughing it".

I don't have a Mercedes, I don't eat out 3x a week, and I don't have maid service but I certainly don't feel like I'm "scrimping" and I have no issues going on weekly European vacations.

That said, OP, there is a happy medium between Hawaii and Dallas. What is it that appeals to you about Hawaii? Is it the weather? The surfing? What is it that you will be "doing" there that you can't do in Dallas (not suggesting Dallas, just trying to get an idea). You might find you could live in California or Florida for less than Hawaii and get what you're looking for.
Somewhere between Hawaii and Dallas is a solid suggestion. Hawaii is such a high cost of living area. I won't even consider moving there for long term retirement unless I have a net worth north of 4 millions, personally. It's very expensive to thrive there financially. Big Island housing is cheaper compare to Oaha, Kauai, Maui, but still, not cheap compare to Continental US... With so little in your taxable and a big plan to build $800k worth of house in Hawaii. Building a house always run over budget so that's huge risk right there. I recommend rent for a year and slowly get into the vibe before going on in.
I save and invest my money, so money can make money for me, so I don't have to make money eventually.

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Re: Can We Retire in Hawaii? Please Critique

Post by marcopolo » Tue Jan 16, 2018 5:50 pm

There seems to be a lot of hyperbole here.

Someone mentioned high property taxes. Hawaii has some of the lowest property tax rates in the country. There is a homeowner exemption, and I believe, disabled veterans (maybe the OP qualifies), pay very little property taxes.

The $745/sq ft. build number someone threw out there (from linked article) was for a 5-star HOTEl in Honolulu. I am in the process of getting quotes for a custom build on the big island, I can assure you the build prices are no where near that.

The cost of living on the big island varies quite a bit depending on what part of the island you live on. Hilo, Puna are not that much more than a major coastal city. Now if you are talking Waimea, Kohala coast, that is a different story, and the amount you can spend is almost limitless.

Having said that, I do agree with many that the OP is cutting it close.

Assuming his $70K estimate for expense outside of mortgage is correct (i think that is actually quite reasonable for day-to-day living expenses minus the mortgage, even on the big island), that leaves him with a $14K surplus a year, plus what he can draw from his investments to fund his housing needs. He has over a $1M in his portfolio. Even with a 3% withdrawal rate, that gives him over $44k/year (or roughly $4k/month) to support his housing costs. Whether you do that with a larger down payment or a bigger mortgage is a matter of preference. But, You should be able to fund a $800k house with a $4k/mo budget, but it is tight. What part of the island are you targeting? That may or may not be sufficient.

Financially tight, but not as dire as many have made it out to seem.

The OP has a sizable COLA pension, medical taken care of, sound like kids college education also funded. Worst case scenario, they have to sell the house and move to a lower cost of living place in the distant future, but they still have a healthy pension and health care, and will still be better off than most.

I would not put all the taxable into a down payment, maybe 150-200k down, finance the rest to leave some wiggle room in taxable.
Start a Roth ladder.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: Can We Retire in Hawaii? Please Critique

Post by cowboy » Tue Jan 16, 2018 6:12 pm

Agree with marcpolo -- you are in a far better position than most are suggesting.

Putting 20% down on an $800k house, you're left with ~$1M. Withdrawing ~3% per year and with your $14k surplus, your total annual housing costs would need to be less than $44k. Should be doable, though you may have to slightly lower your total housing costs or your budget. Worst case scenario, you take up a hobby that pays a few thousand per year. So, this is more a question of how to withdraw your retirement funds.

You'll be in the 12% tax bracket in retirement. To minimize taxes, it may make sense to rent until the CY in which you will be in the 12% tax bracket since you are probably in the 22-24% tax bracket currently. The numbers will depend on your cost bases and tax situation, but I suspect the best way to withdraw from your retirement funds would be taxable, then roth contributions, then TSP or Roth earnings.

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Re: Can We Retire in Hawaii? Please Critique

Post by marcopolo » Tue Jan 16, 2018 6:50 pm

Hawaiishrimp wrote:
Tue Jan 16, 2018 5:25 pm
Hawaii is such a high cost of living area. I won't even consider moving there for long term retirement unless I have a net worth north of 4 millions, personally.
I agree, but that is essentially what the OP has.

He has $1160K in his portfolio AND a $84k/year COLA pension.

For long retirements and a conservative withdrawal rate, many poster suggest a 3% withdrawal rate.
A CPI adjusted Annuity at age 49, with survivor benefits probably also pays around 3%.
So, the $84k/yr is equivalent to $2800k currently.

That gets him to $3960k, plus he has two more years before he plans to do this, presumably he will be saving some more during that time.
He also seems to have medical coverage in place. So, ~$4M (effective) Net worth and a means to access affordable healthcare seems not a bad place to be. Certainly not as dire as many are making it out to seem.
Once in a while you get shown the light, in the strangest of places if you look at it right.

TravelGeek
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Re: Can We Retire in Hawaii? Please Critique

Post by TravelGeek » Tue Jan 16, 2018 6:58 pm

Sandtrap wrote:
Tue Jan 16, 2018 11:35 am
The last multiplier I remember was a 1.86 dollar/cost of living difference between Hawaii and the mainland. But it is actually much much higher than the spreadsheets can predict. Outer islands, COL is much higher than OAHU because of the added costs of shipping everything in from Oahu, whereas Oahu is the main port from the west coast and asia. This means everything, from gas to building materials, etc.
I guess it won't help for gas and building materials, but a lot of stuff many BHs buy comes via Amazon... free shipping (3-7 days, but who cares?) via Prime.

https://www.amazon.com/gp/help/customer ... =201118070

I assume they just fly one of their Prime Air 767s once a week to Kona :)

This thread strikes a bit of chord with me; it was our dream to one day retire to the Big Island. We even did some non-serious condo shopping during one of our vacation trips. Don't think we will actually move there even though it looks financially doable. But visiting for a month at a time every winter is a definite possibility.
Last edited by TravelGeek on Tue Jan 16, 2018 7:06 pm, edited 2 times in total.

westrichj312
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Re: Can We Retire in Hawaii? Please Critique

Post by westrichj312 » Tue Jan 16, 2018 7:02 pm

You have plenty to retire on in Hawaii just live within your means and enjoy yourself.

Admiral
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Re: Can We Retire in Hawaii? Please Critique

Post by Admiral » Tue Jan 16, 2018 7:20 pm

cowboy wrote:
Tue Jan 16, 2018 6:12 pm
Agree with marcpolo -- you are in a far better position than most are suggesting.

Putting 20% down on an $800k house, you're left with ~$1M. Withdrawing ~3% per year and with your $14k surplus, your total annual housing costs would need to be less than $44k. Should be doable, though you may have to slightly lower your total housing costs or your budget. Worst case scenario, you take up a hobby that pays a few thousand per year. So, this is more a question of how to withdraw your retirement funds.

You'll be in the 12% tax bracket in retirement. To minimize taxes, it may make sense to rent until the CY in which you will be in the 12% tax bracket since you are probably in the 22-24% tax bracket currently. The numbers will depend on your cost bases and tax situation, but I suspect the best way to withdraw from your retirement funds would be taxable, then roth contributions, then TSP or Roth earnings.
If someone who was not in the OP's situation told you they wanted their home to be half of their annual expense, what would you say? You'd say you're crazy, you're overbuying, you need more of a cushion etc. Why is it OK in this situation? His retirement could be 40 years. He has a large pension, yes, but that's not enough to cover this house and still, you know, live. He is facing major sequence of return risk if he's relying on such a small portfolio to keep him in his expensive house.

Anyone with a sub 1m portfolio who intends to STOP work and THEN buy a near-1m house strikes me as foolhardy at best. Add in two young kids and it strikes me as nuts.

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Re: Can We Retire in Hawaii? Please Critique

Post by marcopolo » Tue Jan 16, 2018 7:39 pm

Admiral wrote:
Tue Jan 16, 2018 7:20 pm
cowboy wrote:
Tue Jan 16, 2018 6:12 pm
Agree with marcpolo -- you are in a far better position than most are suggesting.

Putting 20% down on an $800k house, you're left with ~$1M. Withdrawing ~3% per year and with your $14k surplus, your total annual housing costs would need to be less than $44k. Should be doable, though you may have to slightly lower your total housing costs or your budget. Worst case scenario, you take up a hobby that pays a few thousand per year. So, this is more a question of how to withdraw your retirement funds.

You'll be in the 12% tax bracket in retirement. To minimize taxes, it may make sense to rent until the CY in which you will be in the 12% tax bracket since you are probably in the 22-24% tax bracket currently. The numbers will depend on your cost bases and tax situation, but I suspect the best way to withdraw from your retirement funds would be taxable, then roth contributions, then TSP or Roth earnings.
If someone who was not in the OP's situation told you they wanted their home to be half of their annual expense, what would you say? You'd say you're crazy, you're overbuying, you need more of a cushion etc. Why is it OK in this situation? His retirement could be 40 years. He has a large pension, yes, but that's not enough to cover this house and still, you know, live. He is facing major sequence of return risk if he's relying on such a small portfolio to keep him in his expensive house.

Anyone with a sub 1m portfolio who intends to STOP work and THEN buy a near-1m house strikes me as foolhardy at best. Add in two young kids and it strikes me as nuts.
It seems you may have this backwards. If anything, he has too little sequence of return risk, of the good kind.
One of the best ways to reduce bad sequence of return risk is to purchase an annuity with a portion of the portfolio, taking it out the vagaries of the market. In this case, the OP has effectively bought an annuity with a large portion of this portfolio, greatly reducing his exposure to sequence of return risk.

Would you think someone was crazy if they had a $4M portfolio, decide to buy $800k house, purchase an annuity (with COLA, no less) with a significant chunk of the rest (to be conservative) that covers most of their expenses, and then withdrew 3% from the remainder of the portfolio to cover the remainder of the expenses?

That is essentially where the OP is right now.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: Can We Retire in Hawaii? Please Critique

Post by Admiral » Tue Jan 16, 2018 7:47 pm

marcopolo wrote:
Tue Jan 16, 2018 7:39 pm
Admiral wrote:
Tue Jan 16, 2018 7:20 pm
cowboy wrote:
Tue Jan 16, 2018 6:12 pm
Agree with marcpolo -- you are in a far better position than most are suggesting.

Putting 20% down on an $800k house, you're left with ~$1M. Withdrawing ~3% per year and with your $14k surplus, your total annual housing costs would need to be less than $44k. Should be doable, though you may have to slightly lower your total housing costs or your budget. Worst case scenario, you take up a hobby that pays a few thousand per year. So, this is more a question of how to withdraw your retirement funds.

You'll be in the 12% tax bracket in retirement. To minimize taxes, it may make sense to rent until the CY in which you will be in the 12% tax bracket since you are probably in the 22-24% tax bracket currently. The numbers will depend on your cost bases and tax situation, but I suspect the best way to withdraw from your retirement funds would be taxable, then roth contributions, then TSP or Roth earnings.
If someone who was not in the OP's situation told you they wanted their home to be half of their annual expense, what would you say? You'd say you're crazy, you're overbuying, you need more of a cushion etc. Why is it OK in this situation? His retirement could be 40 years. He has a large pension, yes, but that's not enough to cover this house and still, you know, live. He is facing major sequence of return risk if he's relying on such a small portfolio to keep him in his expensive house.

Anyone with a sub 1m portfolio who intends to STOP work and THEN buy a near-1m house strikes me as foolhardy at best. Add in two young kids and it strikes me as nuts.
It seems you may have this backwards. If anything, he has too little sequence of return risk, of the good kind.
One of the best ways to reduce bad sequence of return risk is to purchase an annuity with a portion of the portfolio, taking it out the vagaries of the market. In this case, the OP has effectively bought an annuity with a large portion of this portfolio, greatly reducing his exposure to sequence of return risk.

Would you think someone was crazy if they had a $4M portfolio, decide to buy $800k house, purchase an annuity (with COLA, no less) with a significant chunk of the rest (to be conservative) that covers most of their expenses, and then withdrew 3% from the remainder of the portfolio to cover the remainder of the expenses?

That is essentially where the OP is right now.
I don't equate pensions with annuities. (And I would never, ever buy an annuity, but that's just me.) Pensions fail. Social security can be reduced. And, to answer your question, if your hypothetical person had two young kids and was the same age as the OP, I would say yes, they are crazy.

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Re: Can We Retire in Hawaii? Please Critique

Post by marcopolo » Tue Jan 16, 2018 7:51 pm

Admiral wrote:
Tue Jan 16, 2018 7:47 pm
marcopolo wrote:
Tue Jan 16, 2018 7:39 pm
Admiral wrote:
Tue Jan 16, 2018 7:20 pm
cowboy wrote:
Tue Jan 16, 2018 6:12 pm
Agree with marcpolo -- you are in a far better position than most are suggesting.

Putting 20% down on an $800k house, you're left with ~$1M. Withdrawing ~3% per year and with your $14k surplus, your total annual housing costs would need to be less than $44k. Should be doable, though you may have to slightly lower your total housing costs or your budget. Worst case scenario, you take up a hobby that pays a few thousand per year. So, this is more a question of how to withdraw your retirement funds.

You'll be in the 12% tax bracket in retirement. To minimize taxes, it may make sense to rent until the CY in which you will be in the 12% tax bracket since you are probably in the 22-24% tax bracket currently. The numbers will depend on your cost bases and tax situation, but I suspect the best way to withdraw from your retirement funds would be taxable, then roth contributions, then TSP or Roth earnings.
If someone who was not in the OP's situation told you they wanted their home to be half of their annual expense, what would you say? You'd say you're crazy, you're overbuying, you need more of a cushion etc. Why is it OK in this situation? His retirement could be 40 years. He has a large pension, yes, but that's not enough to cover this house and still, you know, live. He is facing major sequence of return risk if he's relying on such a small portfolio to keep him in his expensive house.

Anyone with a sub 1m portfolio who intends to STOP work and THEN buy a near-1m house strikes me as foolhardy at best. Add in two young kids and it strikes me as nuts.
It seems you may have this backwards. If anything, he has too little sequence of return risk, of the good kind.
One of the best ways to reduce bad sequence of return risk is to purchase an annuity with a portion of the portfolio, taking it out the vagaries of the market. In this case, the OP has effectively bought an annuity with a large portion of this portfolio, greatly reducing his exposure to sequence of return risk.

Would you think someone was crazy if they had a $4M portfolio, decide to buy $800k house, purchase an annuity (with COLA, no less) with a significant chunk of the rest (to be conservative) that covers most of their expenses, and then withdrew 3% from the remainder of the portfolio to cover the remainder of the expenses?

That is essentially where the OP is right now.
I don't equate pensions with annuities. (And I would never, ever buy an annuity, but that's just me.) Pensions fail. Social security can be reduced. And, to answer your question, if your hypothetical person had two young kids and was the same age as the OP, I would say yes, they are crazy.
I am not a big fan of annuities myself, but it is a way to reduce bad sequence of return risk, which was a concern you raised.
The OP has a US Government Military pension. Seems safer than an annuity from an insurance company. You are concerned that might fail? If it does, i think we have bigger problems...
I agree with your point about doing this with two little kids, but that is maybe less of a financial issue.
Once in a while you get shown the light, in the strangest of places if you look at it right.

Admiral
Posts: 1097
Joined: Mon Oct 27, 2014 12:35 pm

Re: Can We Retire in Hawaii? Please Critique

Post by Admiral » Tue Jan 16, 2018 8:03 pm

marcopolo wrote:
Tue Jan 16, 2018 7:51 pm
Admiral wrote:
Tue Jan 16, 2018 7:47 pm
marcopolo wrote:
Tue Jan 16, 2018 7:39 pm
Admiral wrote:
Tue Jan 16, 2018 7:20 pm
cowboy wrote:
Tue Jan 16, 2018 6:12 pm
Agree with marcpolo -- you are in a far better position than most are suggesting.

Putting 20% down on an $800k house, you're left with ~$1M. Withdrawing ~3% per year and with your $14k surplus, your total annual housing costs would need to be less than $44k. Should be doable, though you may have to slightly lower your total housing costs or your budget. Worst case scenario, you take up a hobby that pays a few thousand per year. So, this is more a question of how to withdraw your retirement funds.

You'll be in the 12% tax bracket in retirement. To minimize taxes, it may make sense to rent until the CY in which you will be in the 12% tax bracket since you are probably in the 22-24% tax bracket currently. The numbers will depend on your cost bases and tax situation, but I suspect the best way to withdraw from your retirement funds would be taxable, then roth contributions, then TSP or Roth earnings.
If someone who was not in the OP's situation told you they wanted their home to be half of their annual expense, what would you say? You'd say you're crazy, you're overbuying, you need more of a cushion etc. Why is it OK in this situation? His retirement could be 40 years. He has a large pension, yes, but that's not enough to cover this house and still, you know, live. He is facing major sequence of return risk if he's relying on such a small portfolio to keep him in his expensive house.

Anyone with a sub 1m portfolio who intends to STOP work and THEN buy a near-1m house strikes me as foolhardy at best. Add in two young kids and it strikes me as nuts.
It seems you may have this backwards. If anything, he has too little sequence of return risk, of the good kind.
One of the best ways to reduce bad sequence of return risk is to purchase an annuity with a portion of the portfolio, taking it out the vagaries of the market. In this case, the OP has effectively bought an annuity with a large portion of this portfolio, greatly reducing his exposure to sequence of return risk.

Would you think someone was crazy if they had a $4M portfolio, decide to buy $800k house, purchase an annuity (with COLA, no less) with a significant chunk of the rest (to be conservative) that covers most of their expenses, and then withdrew 3% from the remainder of the portfolio to cover the remainder of the expenses?

That is essentially where the OP is right now.
I don't equate pensions with annuities. (And I would never, ever buy an annuity, but that's just me.) Pensions fail. Social security can be reduced. And, to answer your question, if your hypothetical person had two young kids and was the same age as the OP, I would say yes, they are crazy.
I am not a big fan of annuities myself, but it is a way to reduce bad sequence of return risk, which was a concern you raised.
The OP has a US Government Military pension. Seems safer than an annuity from an insurance company. You are concerned that might fail? If it does, i think we have bigger problems...
I agree with your point about doing this with two little kids, but that is maybe less of a financial issue.
My point was not that the pension is not safe--it may be--but that his potential expenses are out of whack with his projected income. There is zero wiggle room. An 800k house, PITI+maintenance, could be $5k/month. (If he puts down 20%, a 640k mortgage at 4.5% for 30 years is $3242 just in P+I)

His after tax income is 7k, without the investment income. So, housing is more than 70% of that budget. (And if he's using the taxable for the downpayment--thus depleting it--it's still not clear to be how he's going to get at that income before he's of retirement age, maybe a SEPP?) If he needs that 3% withdrawal to pay the bills, what happens in a prolonged (5 year) downturn? I think the kids are a big financial issue. Ask me how I know.

hightower
Posts: 454
Joined: Mon Dec 12, 2016 2:28 am

Re: Can We Retire in Hawaii? Please Critique

Post by hightower » Tue Jan 16, 2018 8:05 pm

TRC wrote:
Tue Jan 16, 2018 3:31 pm
Can't really comment on your financials, but did want to share my dream of eventually winter'ing in Maui November - April and living in Maine the rest of the year. We plan to do that in our early 50s. My plan is long term rentals for the first year or 2.
I have the same dream:) Haven't been to Maui yet (but we're going in March this year). If I had to chose now I would probably pick the big Island. I love Kauai, but I fear it's too small for my tastes long term. I might get bored. There's a lot more to do on the big island.

CryingHawaiian
Posts: 14
Joined: Thu Nov 09, 2017 3:14 pm
Location: Honolulu, HI

Re: Can We Retire in Hawaii? Please Critique

Post by CryingHawaiian » Tue Jan 16, 2018 8:14 pm

Sandtrap wrote:
Tue Jan 16, 2018 11:35 am
Sonny and Cher:
Scrimp for 2-3 years to afford a vacation in Europe.

Captain and Tennille:
Scrimp for 2-3 years to afford a vacation to Asia and Europe.
maybe i don't understand this because i've only lived here for a little under a year, but why would you save up for a vacation when you live in paradise. If anything just buy a $200 round trip ticket to molokai or kauai and enjoy a nice, cheaper stay-cation.

Also I have no idea why every single one of my coworkers spends 3-4 times a year flying to Las Vegas and gambling their money away... Must be an Oahu thing?

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