Christmas present = forced retirement

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Topic Author
fulliautomatix
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Christmas present = forced retirement

Post by fulliautomatix »

Dear BHers -

(edited to add more details)

My last day at our company will be December 22 and the company is sending me off with two weeks severance and healthcare. My job and industry are very volatile and prefers younger workers. I have been mentally ready for the eventuality that I will be forced into retiring but I need a reality check from this awesome team here whether I am financially ready. Please advise if I am ok to call it quits or whether I need to be afraid. So here goes:

Tax status: Married filing jointly (Texas)

Health status: Good diet, good health, good habits

Him 52 yrs age - lot of ups and downs in income over the years plus multiple relocations. Wants to retire
Her 49, income 42K, does not desire to work after 3 more years, so will also want to retire when she turns 52. Her company does not offer health insurance so we need to find our own health insurance from here on
Kid #1 is 21, college junior, wants to go to med school
Kid # 2 is 16, high school sophomore, may go into engineering or accounting or finance

Assets:
Cash:
75K yielding 5% currently at Vanguard brokerage settlement fund

HSA:
48K, growth stock index fund

Roth IRA:
400K, growth stock index fund

Traditional IRA:
870K
(65% S&P500; 30% growth index fund; 5% bond fund)

Taxable brokerage:
920K (basis 750K, gain 170K)
(240K in oil pipeline MLPs
145K in S&P 500
535K in preferred stocks of stable dividend payers)

Taxable account + cash yields 68K in income annually which I have been reinvesting so far.
This 68K income has the following mix:
30% tax deferred but payable at ordinary income rates in the year the securities are sold
15% as dividends at dividend rates
55% taxed as ordinary income in current year

Real estate:
Primary house: value 750K, outstanding mortgage 430K at 15 year, 2.25% fixed; monthly total payment $4,100 (includes mortgage, prop tax, insurance, HOA)
Rental property 1: value 725K, has a 3.125% 30 year mortgage with 28 years remaining (370K to go) and is cash flow positive about $250 per month. Return on invested capital is 14%.
Rental property 2: value 650K, has a 3.125% 30 year mortgage with 28 years remaining (330K to go) and is cash flow positive about $350 per month. Return on invested capital is 18%.

If I liquidate rentals and pay off the loans and all associated taxes, fees and commissions, I will realize after-tax proceeds of 285K free and clear. However, I'd like to hang on to these for a few more years, see where kids settle, then we may want to sell our primary and use one of these as our retirement home. As rents have gone up, these have pretty good return on invested capital.

Kid #1 has a 529 valued at 155K. I can cashflow the undergrad and the 155K will be used in med school. Do I have room to spare to help more?
Kid #2 has a 529 valued at 125K and will enter college in 2026. This will be used for undergrad. Do I have room to spare to help more?

Auto loan 48K balance at 3%, payment is $2K per month, 24 months to go (2 out of 3 cars are owned free and clear and are newer and in good condition)
My student loan: $155 per month payment, 6 years to go at 1.625% interest

So all of my debts are at very low fixed rates so would not like to accelerate the payoff unless I have to.

No pensions; no other debt.

So my balance sheet looks like this:

Assets:
Cash 75K
HSA 48K
Roth 400K
Trad IRA 870K
Taxable accts 920K
Real estate equity at liquidation value 285K
Total assets = 2598K

Liabilities:
Student loan 12K
Car loan 48K
Primary home loan 430K
Total liabilities = 490K

So net assets = 2598 - 490 = 2,108K (assumes I pay off all loans and liquidate rentals)
3.5% SWR = 63K per year

Current yearly expenses not including the $4,100 primary housing payment and not including health insurance (how much going forward???) and not including the 2K monthly car payment is $70K annually. The $70K estimate includes some discretionary travel and repair reserves (edit: does not include taxes - I need to add another 15K - I think)

Please comment on all the elements above (asset mix, asset location)

Will I be able to sustain my life from now to age 67 when I can get SS valued at $3210 per month and wife gets $1605 per month? (Edit: this is what the SS benefits calculator shows assuming zero income going forward. If I continued working the payment would go to $3981 per month) What accounts should I sell first, what next etc? Which liabilities should I payoff first, which next? How much should I account for health insurance for us? For the kids? Should I maximize my wife's 401K for the next three years that she will be working? Should we sell taxable and put into yearly Roth IRAs?

Appreciate all the inputs.

-Fulli
Last edited by fulliautomatix on Thu Dec 07, 2023 11:12 pm, edited 1 time in total.
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retired@50
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Re: Christmas present = forced retirement

Post by retired@50 »

fulliautomatix wrote: Thu Dec 07, 2023 6:36 pm
How much should I account for health insurance for us? For the kids?
As to the health insurance question, start at healthcare.gov unless your state has its own health exchange website. If you don't know, go to healthcare.gov and tell it which state you live in and it should re-direct you if needed.

ACA plans sold on the exchanges are state and county specific, so to get a decent estimate for a household of 2 (or more) you'll likely need to create an account and describe your estimated income. You can usually shop for plans without providing the full suite of personal details, but if you become ready to purchase, then you will.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
Grt2bOutdoors
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Re: Christmas present = forced retirement

Post by Grt2bOutdoors »

Sorry to hear.

Is there any possibility at all of obtaining any employment, even if reduced hours/part-time? Your spouse may want to retire, but I wouldn't advise that unless her health required it.

Kid 1: would not advise making that ? of contributing more a focus. My response would be "not at this juncture", med school can be either financed or perhaps consider joining the military and let them finance it in return for some period of service.

Kid 2: Not at this juncture. How is merit aid looking with the current academic record? Consider less expensive schools, and/or loans if merit not forthcoming.

Retirement?: Perhaps short-term, but would try to find some kind of employment, 52 is still young, much of your assets are tied up in illiquid assets.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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whodidntante
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Re: Christmas present = forced retirement

Post by whodidntante »

I would stress the importance of getting a college education to your children, and wish them the very best of luck in paying for it. :P
Bmac
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Re: Christmas present = forced retirement

Post by Bmac »

Hmm. $70k expenses NOT including $49k housing costs or health insurance (if I understand correctly) with annual investment income of $68k and earned income of $42k seems tight. You can’t take traditional IRA distributions penalty free for 7 years. And your SS benefit estimates are probably too high as they are likely assuming that you continue working to FRA at your current income (both of you). Also, the rentals could turn upside down in a heartbeat depending on the economy and tenant situation. So to make it work I would think you would need to really look at cutting down your expenses.
fortunefavored
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Re: Christmas present = forced retirement

Post by fortunefavored »

My usual early retirement mantra: expenses expenses expenses...

Does your $70K include taxes? Makes sure you run ACA quotes up until your max ages before medicare, as most states allow age-related increases. ACA plans will be a SHOCK coming from corporate insurance plans. Assume any year you need significant healthcare you will hit the maximum out-of-pocket max. I'd wager you'll need to budget about $40K/year for healthcare.. which then increases your taxes.. so your $70K can go to $115K real quick! If you're also planning to cashflow your mortgage (another 48K) and then your kid's school (??) - I'm not real clear how this is $70K.

Everything else depends on that expense number. Sharpen that pencil.
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whodidntante
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Re: Christmas present = forced retirement

Post by whodidntante »

Bmac wrote: Thu Dec 07, 2023 7:07 pm Hmm. $70k expenses NOT including $49k housing costs or health insurance (if I understand correctly) with annual investment income of $68k and earned income of $42k seems tight. You can’t take traditional IRA distributions penalty free for 7 years. And your SS benefit estimates are probably too high as they are likely assuming that you continue working to FRA at your current income (both of you). Also, the rentals could turn upside down in a heartbeat depending on the economy and tenant situation. So to make it work I would think you would need to really look at cutting down your expenses.
Roth conversion ladder will avoid the penalty. OP has plenty of taxable assets to ride through that.
You can detune the SS estimator by telling it to assume you are retired.
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whodidntante
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Re: Christmas present = forced retirement

Post by whodidntante »

fulliautomatix wrote: Thu Dec 07, 2023 6:36 pm 240K in oil pipeline MLPs
535K in preferred stocks of stable dividend payers
Consider selling all of that. Preferred stocks, stable dividend payers, and oil pipeline MLPs are the kind of thing that goes down by 80%, then gets cut in half. Discuss idiosyncratic risk and investment concentration risk with ChatGPT.
Oldaroo3
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Re: Christmas present = forced retirement

Post by Oldaroo3 »

$2000 a month car payment! No thanks. First thing I would consider is getting rid of that albatross.
pizzy
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Re: Christmas present = forced retirement

Post by pizzy »

I'll be the optimist, yes, you can retire with $2M+ (of course)
Vanguard/Fidelity | 76% US Stock | 16% Int'l Stock | 8% Cash
welldone
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Re: Christmas present = forced retirement

Post by welldone »

Bmac wrote: Thu Dec 07, 2023 7:07 pm Hmm. $70k expenses NOT including $49k housing costs or health insurance (if I understand correctly) with annual investment income of $68k and earned income of $42k seems tight. You can’t take traditional IRA distributions penalty free for 7 years. And your SS benefit estimates are probably too high as they are likely assuming that you continue working to FRA at your current income (both of you). Also, the rentals could turn upside down in a heartbeat depending on the economy and tenant situation. So to make it work I would think you would need to really look at cutting down your expenses.
You missed the $24k in car payments each year as well.
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Wiggums
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Re: Christmas present = forced retirement

Post by Wiggums »

fulliautomatix wrote: Thu Dec 07, 2023 6:36 pm Current yearly expenses not including the $4,100 primary housing payment and not including health insurance (how much going forward???) and not including the 2K monthly car payment is $70K annually. The $70K estimate includes some discretionary travel and repair reserves.
I’m very sorry for the job loss. Keeping in mind that your spouse wants to retire in three years, your expenses will be much more than your income for many years. You have over one million in real estate debt. You will be in serious trouble if payments are missed.

My suggestion is that you create an income and expense spreadsheet adding taxes, UG expenses, etc.

We are a family of four, 1 just graduated college and 1 college junior. They are still on our insurance and live at home. We are spending double your $70,000 estimated expenses.

Expenses:
$4,100 house + $2,000 car *12=$73,200 + $30,000 healthcare estimate =$103,200 + S&L taxes + cash flow for kid #1 undergrad

Income:
Spouse $42,000 (3 years only) + $68,000 portfolio + $7,200 rentals = $117,200
Last edited by Wiggums on Thu Dec 07, 2023 9:04 pm, edited 2 times in total.
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Watty
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Re: Christmas present = forced retirement

Post by Watty »

fulliautomatix wrote: Thu Dec 07, 2023 6:36 pm Real estate:
Primary house: value 750K, outstanding mortgage 430K a
Rental property 1: value 725K, ... (370K to go)
Rental property 2: value 650K....330K to go)
You have about $2.1 million in real estate and $1.1 million in real estate debt. I would not be able to sleep well at night with that especially if I was unemployed in my early 50s.

A 20% (or more) decline in your local housing market would not be all that unusual and that could wipe out a significant percentage of your net worth.
fulliautomatix wrote: Thu Dec 07, 2023 6:36 pm and is cash flow positive about $250 per month.
....
and is cash flow positive about $350 per month.

(combined $600 a month, or $7200 a year but it was not clear if that includes things like taxes, vacancies and maintenance)

If I liquidate rentals and pay off the loans and all associated taxes, fees and commissions, I will realize after-tax proceeds of 285K free and clear.
So if you put that $285K into CDs at 5% you could get $14,250 a year.

That might not include all the details but you could make almost twice as much with CDs.

Am I missing something?

You might want to get all the details about these rentals together and start another "Should I keep this rental?" post which would get some feedback from people who know more about investment property.
fulliautomatix wrote: Thu Dec 07, 2023 6:36 pm 240K in oil pipeline MLPs
I don't know anything about that but it sounds risky for a retired person.
fulliautomatix wrote: Thu Dec 07, 2023 6:36 pm Appreciate all the inputs.
You might want to add up your numbers to get some totalls but just eyeballing it it looks like you have somewhere around $2.5 million in investments and equity in the rentals and $300K in home equity in your primary residence.

The problem is that you are invested way too aggressively for someone who will be soon be unemployed in their 50s and still have has two two kids to support for a probably 6 more years.

A couple of things I would do if I was in your situation;

1) Sell of the rentals since you can make more with CDs, unless you are going to move into one of them very soon. If you decide you want to move in a few years buy a house then and you may even be able to get a better home for retirement with things like no stairs, handicap friendly, low maintenance yard, etc.

2) Pay off the $48K car loan. It is at 3% but to invest the money and earn 3% after taxes you would need to earn around 5%.

3) Paying off your 2.25% $403K mortgage does not make sense but I would look at putting $403K into a seperate account which is earning 5% or so and pay the mortgage out of that account and consider that money separate from the rest of your retirement calculations.

4) Sell the MLP's. At best they are too complicated and having around 10% (????) of your net worth in oil pipelines is a diversification problem.

5) Figure out what your asset allocation should be. The Vanguard 2025 fund is roughly 50% bonds and unless I missed it you hardly have any bonds. Preferred stocks are not a substitute for bonds since they are a different, and more complex, investment. https://investor.vanguard.com/investmen ... omposition
fulliautomatix wrote: Thu Dec 07, 2023 6:36 pm Her 49, income 42K, does not desire to work after 3 more years, so will also want to retire when she turns 52. Her company does not offer health insurance so we need to find our own health insurance from here on
It would really help if she could find a job with health benefits. I have no idea if it would be remotely appropriate for her but I know people who got jobs as school bus drivers or high school cafeteria workers because those jobs came with benefits. The jobs did not pay a lot but they seemed to like the jobs since they got benefits and school holidays and summers off.
123
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Re: Christmas present = forced retirement

Post by 123 »

fulliautomatix wrote: Thu Dec 07, 2023 6:36 pm ...240K in oil pipeline MLPs...
Do you have specific industry knowledge in this area or were these "sold" to you? Seems like a concentration of risk (and complexity).
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Atomic
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Re: Christmas present = forced retirement

Post by Atomic »

Only novel idea I had was to sell the house and move into the rentals in series as you establish homestead and avoid capital gains.
SuzBanyan
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Re: Christmas present = forced retirement

Post by SuzBanyan »

Atomic wrote: Thu Dec 07, 2023 9:26 pm Only novel idea I had was to sell the house and move into the rentals in series as you establish homestead and avoid capital gains.
If you move in to former rental house, it will not automatically wipe out all the prior capital,gains. That loop hole was closed more than 10 years ago.
Dufus
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Re: Christmas present = forced retirement

Post by Dufus »

What is the health insurance situation in your state? If you are too young for Medicare (and you are) your choice will likely be the marketplace once your spouse stops working. (Unless you are a member of some union or association that offers an option). In my state the marketplace choices are 1. Bad 2. Worse

I live near a state line. All of the good Drs are on the other side of the line, and unavailable to me if I go marketplace. Once I go Medicare Plan G, I'm good wherever, but until then...

You may have a better insurance scenario than me, and you probably do, but make sure you know what it is before you get there.
OldSport
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Re: Christmas present = forced retirement

Post by OldSport »

I'm sorry about your job loss. That is unfortunate.

Unexpectedly losing a job is a shocking disturbing experience that needs time to process. But, at 52, there are a lot of shades of gray between your previous job and full retirement.

I'll be blunt. You can retire now, but it would be "Lean FIRE" at a much lower standard of living, with far lower expenses than you posted. You could max a 3.5% SWR, INCLUDING health care and All expenses. I would not recommend it. You cannot yet fully retire maintaining your current standard of living and desired obligations, especially with ACA premiums and OOP expenses.

Here's some rough math. I'm calculating ~$70k house + car. $70k other expenses and $30k ACA health care all in. That's $~$170k. While 4% SWR may be OK for traditional retirement, 52 is FIRE, so that has a 3.5% SWR. With 3.5% SWR, you need a $4.8M portfolio, or if your spouse makes $40k, then $130k needs a $3.7M portfolio for FIRE at current standards.

But, you do appear to be "Coast FIRE". You may just need to find employment that just matches your current expenses, that offers health care, so you don't have to touch your investments.

You could also do "Barista FIRE", which is a ~$50-60k year position with healthcare benefits. Your dividends plus your 2 incomes should cover that, if you'd prefer that route.

But after the shock, just take time to process it. There is A LOT of gray between unemployment forced "Lean FIRE" and what you had before.
Topic Author
fulliautomatix
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Re: Christmas present = forced retirement

Post by fulliautomatix »

retired@50 wrote: Thu Dec 07, 2023 6:44 pm
fulliautomatix wrote: Thu Dec 07, 2023 6:36 pm
How much should I account for health insurance for us? For the kids?
As to the health insurance question, start at healthcare.gov unless your state has its own health exchange website. If you don't know, go to healthcare.gov and tell it which state you live in and it should re-direct you if needed.

ACA plans sold on the exchanges are state and county specific, so to get a decent estimate for a household of 2 (or more) you'll likely need to create an account and describe your estimated income. You can usually shop for plans without providing the full suite of personal details, but if you become ready to purchase, then you will.

Regards,
I will edit the original post and add more details.
Topic Author
fulliautomatix
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Re: Christmas present = forced retirement

Post by fulliautomatix »

fortunefavored wrote: Thu Dec 07, 2023 7:11 pm My usual early retirement mantra: expenses expenses expenses...

Does your $70K include taxes? Makes sure you run ACA quotes up until your max ages before medicare, as most states allow age-related increases. ACA plans will be a SHOCK coming from corporate insurance plans. Assume any year you need significant healthcare you will hit the maximum out-of-pocket max. I'd wager you'll need to budget about $40K/year for healthcare.. which then increases your taxes.. so your $70K can go to $115K real quick! If you're also planning to cashflow your mortgage (another 48K) and then your kid's school (??) - I'm not real clear how this is $70K.

Everything else depends on that expense number. Sharpen that pencil.
Thanks. Will look into ACA. Seems like the biggest wildcard here.
HomeStretch
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Re: Christmas present = forced retirement

Post by HomeStretch »

I am not sure why you are excluding certain significant spending items to calculate a $70k annual spend. Your spend is much higher than $70k. What matters is your total annual spend which includes everything - housing costs, healthcare, income taxes, periodic expenses like a new car or home repair.

I don’t think your portfolio is quite retirement-ready yet.
Topic Author
fulliautomatix
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Re: Christmas present = forced retirement

Post by fulliautomatix »

Atomic wrote: Thu Dec 07, 2023 9:26 pm Only novel idea I had was to sell the house and move into the rentals in series as you establish homestead and avoid capital gains.
Yes one of the scenarios we are envisioning is that after three years when wife stops working and kids have flown that we sell our primary house and move into one of our rental homes. I still have to pay tax on all the depreciation recapture, there is no escaping any of that, and that is ok.
Topic Author
fulliautomatix
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Re: Christmas present = forced retirement

Post by fulliautomatix »

123 wrote: Thu Dec 07, 2023 9:24 pm
fulliautomatix wrote: Thu Dec 07, 2023 6:36 pm ...240K in oil pipeline MLPs...
Do you have specific industry knowledge in this area or were these "sold" to you? Seems like a concentration of risk (and complexity).
Yes I need to diversify but I bought them when low and they yield 12%+ so I am dragging my feet on this decision.
Topic Author
fulliautomatix
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Re: Christmas present = forced retirement

Post by fulliautomatix »

Wiggums wrote: Thu Dec 07, 2023 8:49 pm
fulliautomatix wrote: Thu Dec 07, 2023 6:36 pm Current yearly expenses not including the $4,100 primary housing payment and not including health insurance (how much going forward???) and not including the 2K monthly car payment is $70K annually. The $70K estimate includes some discretionary travel and repair reserves.
I’m very sorry for the job loss. Keeping in mind that your spouse wants to retire in three years, your expenses will be much more than your income for many years. You have over one million in real estate debt. You will be in serious trouble if payments are missed.

My suggestion is that you create an income and expense spreadsheet adding taxes, UG expenses, etc.

We are a family of four, 1 just graduated college and 1 college junior. They are still on our insurance and live at home. We are spending double your $70,000 estimated expenses.

Expenses:
$4,100 house + $2,000 car *12=$73,200 + $30,000 healthcare estimate =$103,200 + S&L taxes + cash flow for kid #1 undergrad

Income:
Spouse $42,000 (3 years only) + $68,000 portfolio + $7,200 rentals = $117,200
Yes I think I need a detailed year by year spreadsheet to keep track of so many moving parts. Jeez how are people retiring if it's out of reach even with a 2.1M net worth.
Wannaretireearly
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Re: Christmas present = forced retirement

Post by Wannaretireearly »

Sorry to hear of your layoff. Good news is your kids are almost launched.

Curious, if you didn’t travel, what would be your rough fixed+discretionary expenses each year?
“At some point you are trading time you will never get back for money you will never spend.“ | “How do you want to spend the best remaining year of your life?“
WhiteMaxima
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Re: Christmas present = forced retirement

Post by WhiteMaxima »

Roth conversion you hear me? Sell you primary and take the 500k gain tax free. Moved to your rental and do the same 5 years later tax free. total 1 mil cap gain tax free. Live on proceed an convert trad IRA to 12% tax bracket.
Last edited by WhiteMaxima on Fri Dec 08, 2023 12:10 am, edited 2 times in total.
LeftCoastIV
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Re: Christmas present = forced retirement

Post by LeftCoastIV »

fulliautomatix wrote: Thu Dec 07, 2023 11:13 pm
fortunefavored wrote: Thu Dec 07, 2023 7:11 pm My usual early retirement mantra: expenses expenses expenses...

Does your $70K include taxes? Makes sure you run ACA quotes up until your max ages before medicare, as most states allow age-related increases. ACA plans will be a SHOCK coming from corporate insurance plans. Assume any year you need significant healthcare you will hit the maximum out-of-pocket max. I'd wager you'll need to budget about $40K/year for healthcare.. which then increases your taxes.. so your $70K can go to $115K real quick! If you're also planning to cashflow your mortgage (another 48K) and then your kid's school (??) - I'm not real clear how this is $70K.

Everything else depends on that expense number. Sharpen that pencil.
Thanks. Will look into ACA. Seems like the biggest wildcard here.
In our state, family of four ACA insurance for a bronze plan will be around $1,500/month in 2024, $18,000/year without any subsidies. You’ll need to see if you qualify for subsidies based on your income. This is for a high deductible plan, so you would want to assume out of pockets costs on top of that depending on the health care needs of family members.
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Watty
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Re: Christmas present = forced retirement

Post by Watty »

fulliautomatix wrote: Thu Dec 07, 2023 11:25 pm Jeez how are people retiring if it's out of reach even with a 2.1M net worth.
I retired with a fraction of that when I was in my late 50s but I had no debt including having a paid off house so I had no mortgage and my kid was through college and out on his own.

In addition to your normal living expenses and health insurance you and your spouse you will also have;
1) Mortgage payment on your house
2) Health insurance for two kids through college.
3) Car payment
4) Paying kids #1 undergraduate college with cash flow. (I am not sure how that works since with no job you will have limited cash flow from your wifes job and the small net rental income.) If you contribute a lot towards medical school then also consider what you will do if kid 2 wants to go to medical school too.

You also have;
5) Mortgage payment on rental 1
6) Mortgage payment on rental 2

Which could be a problem if you get a bad tenant, a long vacancy, or there is something like a fire that takes six months to repair then you could go a long time with no rental income.

I don't have a good handle on what those numbers would look like but those expenses set a pretty high bar when you consider that a safe withdrawal rate(with all of its problems) at 52 might be around 3% so $2.1 would allow you to spend around $60K and your wife only expects to work another 3 years.
DoubleComma
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Re: Christmas present = forced retirement

Post by DoubleComma »

fulliautomatix wrote: Thu Dec 07, 2023 11:25 pm
Wiggums wrote: Thu Dec 07, 2023 8:49 pm
fulliautomatix wrote: Thu Dec 07, 2023 6:36 pm Current yearly expenses not including the $4,100 primary housing payment and not including health insurance (how much going forward???) and not including the 2K monthly car payment is $70K annually. The $70K estimate includes some discretionary travel and repair reserves.
I’m very sorry for the job loss. Keeping in mind that your spouse wants to retire in three years, your expenses will be much more than your income for many years. You have over one million in real estate debt. You will be in serious trouble if payments are missed.

My suggestion is that you create an income and expense spreadsheet adding taxes, UG expenses, etc.

We are a family of four, 1 just graduated college and 1 college junior. They are still on our insurance and live at home. We are spending double your $70,000 estimated expenses.

Expenses:
$4,100 house + $2,000 car *12=$73,200 + $30,000 healthcare estimate =$103,200 + S&L taxes + cash flow for kid #1 undergrad

Income:
Spouse $42,000 (3 years only) + $68,000 portfolio + $7,200 rentals = $117,200
Yes I think I need a detailed year by year spreadsheet to keep track of so many moving parts. Jeez how are people retiring if it's out of reach even with a 2.1M net worth.
People aren’t at 52 with $2m, a decade later a retiring on a $2m net worth is entirely different animal.

I’m in my late 40s with a non-real estate net worth slightly higher and I don’t think for a minute we can retire. Our goal is 55, but even then we get heavily subsidized health insurance through DW retirement benefits until Medicare kicks in.
mortfree
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Re: Christmas present = forced retirement

Post by mortfree »

Never understand rental math but I’m not getting excited over two rentals bringing in $600 per month.

I understand the mortgage is being paid for by tenants but any remodel or upgrade or maintenance or property taxes etc wipes out that $7200 per year really quick. (????)
Mid-40’s
onourway
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Re: Christmas present = forced retirement

Post by onourway »

fulliautomatix wrote: Thu Dec 07, 2023 11:25 pm Yes I think I need a detailed year by year spreadsheet to keep track of so many moving parts. Jeez how are people retiring if it's out of reach even with a 2.1M net worth.
As others have pointed out - they aren't - unless a) they are 10+ years older, b) their expenses are much lower, or c) both.

You are relatively young, have high expenses, and a fairly complicated portfolio of assets with a large amount of debt. If you want to retire now or soon, I would work on simplifying things. Down-size the car and get rid of the rentals. Two expensive rentals that are cash-flowing just a few hundred dollars per month (less than you could be earning in a CD) is not a good investment. The only reason you are seeing double digit returns on your cash invested is because you are highly leveraged. If there is a real-estate bust in the next decade, you will really suffer.

The good thing is you have plenty of assets such that there is no immediate emergency. I would ride out the end of this job, enjoy the holidays, and then in the new year, make figuring this out your new full time job.
Bikesy
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Re: Christmas present = forced retirement

Post by Bikesy »

You should be looking at ROE for your rental properties, not ROI. ROI breaks down pretty quickly after a couple years. Not saying you should sell them, but since your alternative to keeping them is liquidating for 285k, thats the number you should be comparing your return against. That said, don't take real estate advice from the bogleheads forum. At bogleheads we will liquidate anything we can and convert to a 3 fund lol.
grkmec
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Re: Christmas present = forced retirement

Post by grkmec »

fulliautomatix wrote: Thu Dec 07, 2023 11:19 pm
Atomic wrote: Thu Dec 07, 2023 9:26 pm Only novel idea I had was to sell the house and move into the rentals in series as you establish homestead and avoid capital gains.
Yes one of the scenarios we are envisioning is that after three years when wife stops working and kids have flown that we sell our primary house and move into one of our rental homes. I still have to pay tax on all the depreciation recapture, there is no escaping any of that, and that is ok.
That’s a false statement. Depreciation recapture can be “escaped” by executing a 1031 or dying.
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dogagility
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Re: Christmas present = forced retirement

Post by dogagility »

fulliautomatix wrote: Thu Dec 07, 2023 6:36 pm Assets:
Cash 75K
HSA 48K
Roth 400K
Trad IRA 870K
Taxable accts 920K
Real estate equity at liquidation value 285K
Total assets = 2598K

Current yearly expenses not including the $4,100 primary housing payment and not including health insurance (how much going forward???) and not including the 2K monthly car payment is $70K annually.
I suggest using the VPW Retirement Worksheet to determine the withdrawal that your portfolio can support. https://www.bogleheads.org/wiki/Variabl ... withdrawal

My quick estimate of your age and assets (assuming you sell the rentals) gives you an annual withdrawal now of 140K (60:40 asset allocation... I didn't calculate your specific AA) with this amount reduced to 108K after a 50% portfolio drop.
...age 67 when I can get SS valued at $3210 per month and wife gets $1605 per month?

It will likely be better for you to wait to start SS until you are 70 and your wife starting at an earlier age. These calculators can help with that decision.
https://opensocialsecurity.com/
https://ssa.tools/
What accounts should I sell first, what next etc?
This is about managing your marginal tax bracket. If you use the ACA for healthcare and the cliff is reinstated in the future, you may want to manage taxable income to avoid the cliff.
viewtopic.php?t=406347&start=100
Should I maximize my wife's 401K for the next three years that she will be working?
This may be a good strategy to reduce taxable income.
Should we sell taxable and put into yearly Roth IRAs?
If you have low enough income while your spouse continues to work, traditional IRA investments may make more sense.

Other suggestions.

Reduce you portfolio volatility during retirement by selling the oil and dividend stocks. Consider tax consequences when deciding how much to sell each year. Invest the proceeds according to your portfolio asset allocation.

Consider investing in a TIPS ladder as a bridge to social security.

Invest your stock portfolio in total market index funds rather than placing a bet on the growth sector.
Make sure you check out my list of certifications. The list is short, and there aren't any. - Eric 0. from SMA
cas
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Re: Christmas present = forced retirement

Post by cas »

fulliautomatix wrote: Thu Dec 07, 2023 6:36 pm
My last day at our company will be December 22 and the company is sending me off with two weeks severance and healthcare. [. . .]
fulliautomatix wrote: Thu Dec 07, 2023 11:13 pm Thanks. Will look into ACA. Seems like the biggest wildcard here.
Don't dawdle on looking into the ACA option. *If* your first quote means that you would need ACA health insurance in place by January 1, 2024 ... I think your deadline for buying on the ACA exchanges is December 15, 2023, i.e. next week. (I'm sure somebody will jump in if I'm wrong about that.)

You can take a quick preview look at ACA plans available in your county and possible subsidy amount available to you here: https://www.healthcare.gov/see-plans/#/

(The above link is just a preview that requires only a few items of basic info, e.g. county/state, # people to cover with ages and smoking status, broad income guesstimate so subsidy can be estimated.) Should take only 5 to 10 minutes to get the list of available plans popped up in front of you and get a feel for prices. (The time-consuming part is digging into plans and get a feel for quality and size of doctor networks, etc.)

(If your state has its own exchange, you may get redirected over there, in which case I don't know if you'll be able to preview plans.)

Sounds like 18 months of COBRA via your (former) employer should also probably also be an option, but that tends to be expensive. (102% of the unsubsidized cost of plan to employees, IIRC.) So you probably want to get a feel for your ACA vs COBRA options ASAP.
YeahBuddy
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Re: Christmas present = forced retirement

Post by YeahBuddy »

First, you already received great answers here (as expected from this awesome group). Second, my question is why is this retirement? Maybe I missed something. I read the part that this is volatile work and your employer prefers younger employees. Can you not find other employment at a similar or lesser salary? Or would you rather retire vs find new employment?

From the sounds of it, this is something you have been preparing for for a while now. So moving on to the "Can I retire" part, I vote yes, you can retire with $2.5M. I personally plan to keep most of my nest egg invested, with some cash and some in MM or "safer" investments. Probably some CDs and such. This plan will probably change over the next 25 years. Note, I will also have a pension as long as my employer doesn't modify it.
Light weight baby!
OnTrack2020
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Re: Christmas present = forced retirement

Post by OnTrack2020 »

Sell the $48k car and buy a $25k car, especially if you want to retire. Since retirement, we do very little driving---usually under 5k miles per year.

Regarding college expenses for your kids. For Child #2, I would have them get their general education at a community college and then transfer to a 4-year college/university to complete. Assuming some scholarships to your local CC, this may end up costing you little to nothing. (Our youngest child is attending CC on scholarship---we are paying $0. Also, there are many programs out there that allow seniors to start taking college courses while they are a senior. Our child at CC already had 15 credit hours when they started CC.) They can live at home with you, if need be. Two years to complete at 4-year would be around, let's say, $50k. Are you able to shift any monies between those 529 plans, or does it have to stay in separate "pots," so to speak? If you can shift the money, the remaining estimated $75k from Child #2 could be shifted to Child #1 to help with medical school.

Regarding health care, we are on an ACA bronze plan (currently family of 4 (two college students)). We started with a gold plan a few years ago, but the premiums increased to as much as a mortgage payment, so we switched to a bronze plan. Last year, on a bronze plan, our premium was very reasonable. This year, not so much---close to $900 per month. Plus, we are close to reaching our OOP max this year due to a trip to the ER and a "procedure." Our OOP max is over $17k per year. So, for this year, we've spent around $25k for premiums and medical costs. In 2024, our premium is dropping to around $500 per month. Normally, in the past few years on an ACA plan, we've spent around $10k. We try to keep the OOP max amount in a separate account in case we need to use it, and then replenish that account with tax refund money. Also, ACA plans are based on total household income (including your dependents' income). If they make over the amount required to file a tax return, their income will be added in. You will need to think through where money will come from in terms of health care; i.e., earned income, interest, dividends, capital gains, etc. and figure that all out. If your income is less than poverty level for a family of 4, they will push you over to Medicaid. Husband was around age 60 when he had a buyout. We were on COBRA for quite a while and then moved over to ACA plan.

How long is your company giving you health insurance for? I'm assuming they are subsidizing it for a while? Do you know how long?
cableguy
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Re: Christmas present = forced retirement

Post by cableguy »

Don't retire. Take a break. Clear your mind. Go get a job in 6 months....any job. You are young, you have kids that still need financial support. Could you retire? Yes. Would you spend your next 30 years micro managing your finances to make sure you "get by"? Yes. Vacations, study abroad, new kitchen, new roof, etc. These are all possibilities. I get it....they call it a grind for a reason. Maybe just step away for a few months, workout, go on a trip, read some books, etc.....and then go back to work. Even if its part time and/or less income....keep some $$$ coming in for next few years. Best of luck! You've done well....you should be proud of what you've done so far...
finite_difference
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Re: Christmas present = forced retirement

Post by finite_difference »

whodidntante wrote: Thu Dec 07, 2023 7:03 pm I would stress the importance of getting a college education to your children, and wish them the very best of luck in paying for it. :P
Or maybe pay up to a reasonable amount, like $25k per year. Encourage selecting a good school at a good price.

Med school is expensive but you’ll be able to
pay back a loan pretty easily.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh
Longdog
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Re: Christmas present = forced retirement

Post by Longdog »

fulliautomatix wrote: Thu Dec 07, 2023 11:25 pm Yes I think I need a detailed year by year spreadsheet to keep track of so many moving parts. Jeez how are people retiring if it's out of reach even with a 2.1M net worth.
Yes, it sure seems like A LOT of money. I think there are people who retire early without having a full understanding of their expenses as they relate to their time in retirement and their assets. Those people may live fine for a while, but may be forced to reduce their lifestyle at a time when they are less able to work to supplement their future, reduced income.
Steve
pizzy
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Re: Christmas present = forced retirement

Post by pizzy »

onourway wrote: Fri Dec 08, 2023 5:17 am
fulliautomatix wrote: Thu Dec 07, 2023 11:25 pm Yes I think I need a detailed year by year spreadsheet to keep track of so many moving parts. Jeez how are people retiring if it's out of reach even with a 2.1M net worth.
they aren't
:confused only around here...
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onourway
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Re: Christmas present = forced retirement

Post by onourway »

pizzy wrote: Fri Dec 08, 2023 7:26 am
onourway wrote: Fri Dec 08, 2023 5:17 am
fulliautomatix wrote: Thu Dec 07, 2023 11:25 pm Yes I think I need a detailed year by year spreadsheet to keep track of so many moving parts. Jeez how are people retiring if it's out of reach even with a 2.1M net worth.
they aren't
:confused only around here...
You conveniently edited out the context.

No, there aren't a lot of people retiring at 52 with $2.5m, a couple of kids in college, and $1m+ in debt.
pizzy
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Re: Christmas present = forced retirement

Post by pizzy »

onourway wrote: Fri Dec 08, 2023 7:38 am
pizzy wrote: Fri Dec 08, 2023 7:26 am
onourway wrote: Fri Dec 08, 2023 5:17 am
fulliautomatix wrote: Thu Dec 07, 2023 11:25 pm Yes I think I need a detailed year by year spreadsheet to keep track of so many moving parts. Jeez how are people retiring if it's out of reach even with a 2.1M net worth.
they aren't
:confused only around here...
You conveniently edited out the context.

No, there aren't a lot of people retiring at 52 with $2.5m, a couple of kids in college, and $1m+ in debt.
You are correct, people in the United States are retiring with MUCH less.

https://finance.yahoo.com/news/heres-ne ... 00526.html
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onourway
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Re: Christmas present = forced retirement

Post by onourway »

pizzy wrote: Fri Dec 08, 2023 7:41 am
onourway wrote: Fri Dec 08, 2023 7:38 am
pizzy wrote: Fri Dec 08, 2023 7:26 am
onourway wrote: Fri Dec 08, 2023 5:17 am
fulliautomatix wrote: Thu Dec 07, 2023 11:25 pm Yes I think I need a detailed year by year spreadsheet to keep track of so many moving parts. Jeez how are people retiring if it's out of reach even with a 2.1M net worth.
they aren't
:confused only around here...
You conveniently edited out the context.

No, there aren't a lot of people retiring at 52 with $2.5m, a couple of kids in college, and $1m+ in debt.
You are correct, people in the United States are retiring with MUCH less.

https://finance.yahoo.com/news/heres-ne ... 00526.html
Not at 52 they aren't. (Hard to believe we are still having this conversation...) :oops:
ScubaHogg
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Re: Christmas present = forced retirement

Post by ScubaHogg »

onourway wrote: Fri Dec 08, 2023 7:38 am
pizzy wrote: Fri Dec 08, 2023 7:26 am
onourway wrote: Fri Dec 08, 2023 5:17 am
fulliautomatix wrote: Thu Dec 07, 2023 11:25 pm Yes I think I need a detailed year by year spreadsheet to keep track of so many moving parts. Jeez how are people retiring if it's out of reach even with a 2.1M net worth.
they aren't
:confused only around here...
You conveniently edited out the context.

No, there aren't a lot of people retiring at 52 with $2.5m, a couple of kids in college, and $1m+ in debt.
The “net” in “net worth” includes debt
There are more things in Heaven and Earth, Horatio, than are dreamt of in your Expected Returns
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HMSVictory
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Re: Christmas present = forced retirement

Post by HMSVictory »

I'm going to write you a tough script, but you need it:

You have way, way, way too much debt. You have convinced yourself this is wise due to the interest rates.

So, while you have a great net worth ($2M) your mandatory spend (debt repayment) is high. This creates the hammer and anvil action of mandatory payments and hopeful withdraws from investment accounts. You don't want to retire like this. You want to retire and be free.

I would draft a plan to liquidate all rental properties and pay off your primary residence (or sell it) within 5 years.

Just close your eyes and imagine having zero payments at all.... that's where you want to be (mathematically and emotionally).
Stay the course!
fortunefavored
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Re: Christmas present = forced retirement

Post by fortunefavored »

pizzy wrote: Fri Dec 08, 2023 7:26 am
onourway wrote: Fri Dec 08, 2023 5:17 am
fulliautomatix wrote: Thu Dec 07, 2023 11:25 pm Yes I think I need a detailed year by year spreadsheet to keep track of so many moving parts. Jeez how are people retiring if it's out of reach even with a 2.1M net worth.
they aren't
:confused only around here...
Nobody sane is retiring in their 50s on 2.1M with expenses of $70K + $30K ACA + $50K mortgage + $24K car payment + 25K taxes = $200K/year. It's always expenses.

$2.1M is an entirely reasonable amount of money if you're 65, with low expenses and social security is picking up half or more of the tab.

I think OP's best path is dramatically simplifying and consolidating and cutting expenses. However the latter is a lot easier if OP has a job - he can just pay off the $2000/mo car instead of selling it and buying something cheaper, he can fund his kid's undergrad in advance and put that in a separate bucket, take any tax hits up front while simplifying the portfolio, etc.
pizzy
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Re: Christmas present = forced retirement

Post by pizzy »

fortunefavored wrote: Fri Dec 08, 2023 8:00 am
pizzy wrote: Fri Dec 08, 2023 7:26 am
onourway wrote: Fri Dec 08, 2023 5:17 am
fulliautomatix wrote: Thu Dec 07, 2023 11:25 pm Yes I think I need a detailed year by year spreadsheet to keep track of so many moving parts. Jeez how are people retiring if it's out of reach even with a 2.1M net worth.
they aren't
:confused only around here...
Nobody sane is retiring in their 50s on 2.1M with expenses of $70K + $30K ACA + $50K mortgage + $24K car payment + 25K taxes = $200K/year. It's always expenses.

$2.1M is an entirely reasonable amount of money if you're 65, with low expenses and social security is picking up half or more of the tab.

I think OP's best path is dramatically simplifying and consolidating and cutting expenses. However the latter is a lot easier if OP has a job - he can just pay off the $2000/mo car instead of selling it and buying something cheaper, he can fund his kid's undergrad in advance and put that in a separate bucket, take any tax hits up front while simplifying the portfolio, etc.
"Nobody sane..." is when the Boglehead mentality gets a bit out of touch... $2.1M net worth is more than the overwhelmingly majority of people on planet Earth will ever have in their entire lifetimes, at any age. It's enough. Whether the person retiring blows through it unreasonably is a different story, but the amount is enough. There's no question.
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KingRiggs
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Re: Christmas present = forced retirement

Post by KingRiggs »

"Nobody sane..." is when the Boglehead mentality gets a bit out of touch... $2.1M net worth is more than the overwhelmingly majority of people on planet Earth will ever have in their entire lifetimes, at any age. It's enough. Whether the person retiring blows through it unreasonably is a different story, but the amount is enough. There's no question.
[/quote]

How can you divorce the amount needed for an INDIVIDUAL'S retirement from their spending needs/plans? That makes no sense.
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AnnetteLouisan
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Re: Christmas present = forced retirement

Post by AnnetteLouisan »

Plus the spouse’s $42k plus $7200/yr in rental income. Plus maybe the properties will appreciate in value and they do entail some deductible business expenses presumably. Plus perhaps OP could do some part time work, negotiate a more suitable severance or raise the rents, and the properties are at least theoretically an inflation hedge and give them a place to live if they sell their primary residence, as they expect to do. Plus they may have bought them thinking the kids could one day live nearby, which could save them on nursing care costs.

But overall I agree that 200k expenses on a $50k income is impractical.
Last edited by AnnetteLouisan on Fri Dec 08, 2023 8:41 am, edited 1 time in total.
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