When can we retire?

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anonforbogleheads
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When can we retire?

Post by anonforbogleheads » Sat Nov 07, 2015 7:38 am

Assets
Primary Residence: $900k
Rental: $500k
Taxable Accounts: $508k
Tax-deferred Accounts: $564k

Liabilities
Primary Residence Mortgage: $615k (3.125%, originally 15yr fixed)
Rental Property Mortgage: $207k (4.625%, originally 30yr fixed)
Rental Property HELOC: $51k (Prime - 0.75%, 4% floor)
Credit Cards: $30k (all 0%, come due over the course of the next 6-12m)

Annual Take-Home Pay (2 jobs + Rental Income)
$230k (after-tax, this is also net of 401k contributions)

Annual Expenses
$172k (includes principal payments for two mortgages above and all cash expenses associated with rental)

Our total principal payments (included in the Annual Expenses above) are $41k/year.

We have 3 children, who are currently in private elementary/middle schools, but will all be attending the public high school (all 3 will be attending at the same time 4 years from now) - this would decrease our annual expenses by $68k/year.

The house values are estimates based on appraisals we got done in the last 2-3 years, NOT the prices we paid for them.

I would estimate that after our primary residence is paid off and the rental property sold (hoping to sell in the next few years) that we could live a very luxurious life with all the travel, hobbies and entertainment we'd want for $80k/year (this does not include major expenses for children like college tuition or extra assistance, but would include normal everyday expenses of raising children i.e. the additional costs of food, utilities, activities, etc).

Putting aside the potential cost of college expenses, when can we realistically both quit and retire?

The Wizard
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Re: When can we retire?

Post by The Wizard » Sat Nov 07, 2015 7:53 am

Hard to say, but I'd probably wait till the triplets are at least IN college.
You have a fair amount of debt to deal with in coming years. After the rental property is sold for a handsome gain and the kids are in free public school, check in here again and we'll reevaluate your situation.
Well need things like age and expected SS benefits as well...
Last edited by The Wizard on Sat Nov 07, 2015 7:59 am, edited 1 time in total.
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Call_Me_Op
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Re: When can we retire?

Post by Call_Me_Op » Sat Nov 07, 2015 7:55 am

You didn't give your ages - which is part of the equation. Your annual expenses are quite high at $172k. How much income do you receive from the rental?
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prudent
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Re: When can we retire?

Post by prudent » Sat Nov 07, 2015 8:01 am

Insufficient data, but my guess is with 3 young kids you have too many years ahead of you and too many unknowns to forecast a retirement date.

The Wizard
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Re: When can we retire?

Post by The Wizard » Sat Nov 07, 2015 8:11 am

prudent wrote:Insufficient data, but my guess is with 3 young kids you have too many years ahead of you and too many unknowns to forecast a retirement date.
Correct, and that $80k per year figure for expenses seems low for the "very luxurious life" for a couple in 2015, never mind dependent offspring.
Still, it's good that the OP is beginning to frame this problem as something that needs to be solved...
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IlliniDave
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Re: When can we retire?

Post by IlliniDave » Sat Nov 07, 2015 8:18 am

No way to tell with the information provided. But if I were running the numbers for myself, without considering things like SS, it might take something upward of $3M to have $80K/yr after tax just from assets down to maybe a bit over $2M if SS will be a significant contributor without having to wait too many years to receive it. Maybe $1.7M if retirement started at FRA with SS. That's using ~3% for a withdrawal rate. If you like a different WR the numbers aren't hard to recompute. No idea how long it might take you to get there.
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TheTimeLord
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Re: When can we retire?

Post by TheTimeLord » Sat Nov 07, 2015 8:43 am

anonforbogleheads wrote:Assets
Primary Residence: $900k

I would estimate that after our primary residence is paid off and the rental property sold (hoping to sell in the next few years) that we could live a very luxurious life with all the travel, hobbies and entertainment we'd want for $80k/year (this does not include major expenses for children like college tuition or extra assistance, but would include normal everyday expenses of raising children i.e. the additional costs of food, utilities, activities, etc).
Just curious how much of that $80K would be property taxes. Those vary widely from state to state. Also, what is your definition of a luxurious life, while $80K/year would certainly provide a far nicer life than most Americans experience in their working years much less retirement, it seems a touch low for someone living in a $900K house unless you are in a HCOL area which being in a HCOL makes it seem low. Make sure you are accounting for day to day discretionary income in that figure. You will have a lot more time on your hands when retired and that can become expensive with new hobbies and activities or lunching with friends or you could save money by having time to DIY things and prepare your own meals.
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dbr
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Re: When can we retire?

Post by dbr » Sat Nov 07, 2015 9:06 am

I also would be concerned about the above. I think there is always a large risk in retirement planning that comes from range of error in estimating spending. On the other hand, spending at least is under more control than investment results. I think a good procedure is to allow contingencies, both by a percent addition to the spending and by stressing the retirement with need for one or more large expenditures at some point in time. Most retirement planning software allows entry of additional costs.

Another factor is to make sure taxes and investment expenses are included in either costs or expected investment returns. Retirement calculators may often be before taxes and before expense ratios and brokerage costs. I think there was some discussion lately about some of Wade Pfau's retirement withdrawal projections being rather pessimistic due to including fairly large costs.

cherijoh
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Re: When can we retire?

Post by cherijoh » Sat Nov 07, 2015 9:27 am

The Wizard wrote:Hard to say, but I'd probably wait till the triplets are at least IN college.
You have a fair amount of debt to deal with in coming years. After the rental property is sold for a handsome gain and the kids are in free public school, check in here again and we'll reevaluate your situation.
Well need things like age and expected SS benefits as well...
I don't believe OP has triplets :wink: , he has previously posted this:
Without going into too much detail, we have 3 children, the oldest of whom will be applying for college in 5 years.

That is also around when, with conservative estimates on income and mkt performance, we could envision becoming FI (based on our own spending ex-education expense) and maybe even fully exiting the workforce (i.e. quitting our W-2 jobs).
Note that the $80K/year for the "luxurious lifestyle" excludes paying for college education. Here is his current plan per the same thread:
We (as a family - after all it's not just up to the kids if the parents have to pay) are indeed targeting the "Need blind meets full need no loan" schools, not because of the economics/financials, but because they are typically the schools with the best academic reputations, whether deserved or not.

I have no problem with my kids attending other schools in the "Need blind meets full need" category as well if they can't get into the above.

I would have more of an issue with them attending private schools that have a high sticker price, don't have a great reputation and don't provide much aid (outside of loans - typically, as you mentioned, the liability of the parent). It seems to be the category with the least "bang for the buck" - a luxury.

ktd
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Re: When can we retire?

Post by ktd » Sat Nov 07, 2015 9:30 am

Traveling for a family of 5 is expensive. Unless you guys won't traveling.

letsgobobby
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Re: When can we retire?

Post by letsgobobby » Sat Nov 07, 2015 10:01 am

You say put aside college expenses, why?

Unless you plan to seriously downsize your primary residence as well as sell the rental, principal payments for both are still expenses from a cash flow perspective.

What about health care?

For myself, we have about 20x annual expenses saved but know we are not near financial independence yet, for three reasons: college savings; health care; and housing. It turns out those are far and away the big three for most Americans, retired or not.

Reconsider your plan accounting for those three expenses and see what you come up with.

cherijoh
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Re: When can we retire?

Post by cherijoh » Sat Nov 07, 2015 10:25 am

anonforbogleheads wrote:Assets
Primary Residence: $900k
Rental: $500k
Taxable Accounts: $508k
Tax-deferred Accounts: $564k

Liabilities
Primary Residence Mortgage: $615k (3.125%, originally 15yr fixed)
Rental Property Mortgage: $207k (4.625%, originally 30yr fixed)
Rental Property HELOC: $51k (Prime - 0.75%, 4% floor)
Credit Cards: $30k (all 0%, come due over the course of the next 6-12m)

Annual Take-Home Pay (2 jobs + Rental Income)
$230k (after-tax, this is also net of 401k contributions)

Annual Expenses
$172k (includes principal payments for two mortgages above and all cash expenses associated with rental)

Our total principal payments (included in the Annual Expenses above) are $41k/year.

We have 3 children, who are currently in private elementary/middle schools, but will all be attending the public high school (all 3 will be attending at the same time 4 years from now) - this would decrease our annual expenses by $68k/year.

The house values are estimates based on appraisals we got done in the last 2-3 years, NOT the prices we paid for them.

I would estimate that after our primary residence is paid off and the rental property sold (hoping to sell in the next few years) that we could live a very luxurious life with all the travel, hobbies and entertainment we'd want for $80k/year (this does not include major expenses for children like college tuition or extra assistance, but would include normal everyday expenses of raising children i.e. the additional costs of food, utilities, activities, etc).

Putting aside the potential cost of college expenses, when can we realistically both quit and retire?
If your retirement budget assumes that you are mortgage free and have sold your rental property, when do you see that happening? Without having that information, there is no way to address the "when". Based on your previous thread you mentioned that:

1. Your rental property is still 20% below what you paid for it.
2. You were waiting to sell the rental until the depreciated value and market value converged.
3. Your HELOC draw period was ending and would convert to a fixed amortization schedule.
4. You needed an alternate source of short-term funding to cover the roughly $5K/month of expenses that were not being covered by your regular take-home pay. <-- did you change your mind about that?
5. You were planning to roll the $30K in credit card debt into another 0% deal <-- did you change your mind about that?


Even assuming the reduction in private school tuition is 100% directed towards paying down the mortgage, It will take a while to whittle down your current debt. If your eldest is 5 years from college, then next year you will still have 2 kids in private school and it will be at least another year until you are down to one in private school.

Also you make no mention about how much you are currently contributing towards your 401Ks (are you maxing them out?) and whether you are making any new contributions towards taxable. Again, without this info there is no way to address your "when" question.

Are you still expecting to be able to finance your 3 kids through college by having them attending "Need blind meets full need no loan" schools? (The responses you received on that thread weren't very encouraging IMO). If that plan doesn't come to fruition, you will need to factor in how much of your taxable portfolio you will be expected to pony up as the "parental contribution".

Independent
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Re: When can we retire?

Post by Independent » Sat Nov 07, 2015 10:34 am

I'm having trouble with the $80k.

The average couple in the 60+ age range spends $54,000 after taxes. That includes about $2,750 in travel. It also includes taxes, utilities, insurance, maintenance, and repairs on house that might sell for $180k, your house is more expensive and probably bigger. I'd call $80k before tax "slightly above average".

So, I'd start by tracking actual expenses today, then estimating how much each category might change after retirement. Certainly, I'd want to separate personal expenses from business (aka rental) expenses. Somehow, I'd want to get some confidence in the lifestyle the $80k will support.

Here's a nice checklist of things to consider before retiring: http://www.early-retirement.org/forums/ ... 69999.html

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vitaflo
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Re: When can we retire?

Post by vitaflo » Sat Nov 07, 2015 10:55 am

IlliniDave wrote:No way to tell with the information provided. But if I were running the numbers for myself, without considering things like SS, it might take something upward of $3M to have $80K/yr after tax just from assets down to maybe a bit over $2M if SS will be a significant contributor without having to wait too many years to receive it.
Yup, agree with Dave. These numbers look about right. I know because we're targeting $80k after tax for our retirement spending (today's dollars). But, our spending is actually $80k right now.

To know whether you're on track, we'd need more info. Or you can take Dave's numbers and fairly easily figure it out with any of the numerous calculators out there.

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goingup
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Re: When can we retire?

Post by goingup » Sat Nov 07, 2015 10:56 am

In the most general terms, for our planning, I figure that $1mill will provide about $40K (pre-tax) if using a 4% withdrawal rate. If you want to retire early, before SS, you might want at least $2mill to have $80K per year. I don't think that amount would provide a luxurious lifestyle, however.

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TheTimeLord
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Re: When can we retire?

Post by TheTimeLord » Sat Nov 07, 2015 11:02 am

Independent wrote:I'm having trouble with the $80k.

The average couple in the 60+ age range spends $54,000 after taxes. That includes about $2,750 in travel. It also includes taxes, utilities, insurance, maintenance, and repairs on house that might sell for $180k, your house is more expensive and probably bigger. I'd call $80k before tax "slightly above average".

So, I'd start by tracking actual expenses today, then estimating how much each category might change after retirement. Certainly, I'd want to separate personal expenses from business (aka rental) expenses. Somehow, I'd want to get some confidence in the lifestyle the $80k will support.

Here's a nice checklist of things to consider before retiring: http://www.early-retirement.org/forums/ ... 69999.html
I am amazed the average couple over 60 has $54,000 after taxes to spend considering that is about the median household income in America.
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vitaflo
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Re: When can we retire?

Post by vitaflo » Sat Nov 07, 2015 11:06 am

TheTimeLord wrote:
Independent wrote:I'm having trouble with the $80k.

The average couple in the 60+ age range spends $54,000 after taxes. That includes about $2,750 in travel. It also includes taxes, utilities, insurance, maintenance, and repairs on house that might sell for $180k, your house is more expensive and probably bigger. I'd call $80k before tax "slightly above average".

So, I'd start by tracking actual expenses today, then estimating how much each category might change after retirement. Certainly, I'd want to separate personal expenses from business (aka rental) expenses. Somehow, I'd want to get some confidence in the lifestyle the $80k will support.

Here's a nice checklist of things to consider before retiring: http://www.early-retirement.org/forums/ ... 69999.html
I am amazed the average couple over 60 has $54,000 after taxes to spend considering that is about the median household income in America.
You should be. This article says the median retirement savings of households age 55 to 64 is $14,500. Hard to spend $54k per year when you only have $14k in retirement savings.

http://www.startribune.com/the-real-sto ... 334718191/

livesoft
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Re: When can we retire?

Post by livesoft » Sat Nov 07, 2015 11:12 am

Here is a post about a family with $200K of income and not much in the way of taxes:
viewtopic.php?t=79510

I'm sure someone in the OP's family could retire before the kids are in college.

Here are some (not all) annual expenses a retired family might have:
$8,000 property tax
$3,000 home owner and car insurance (those kids will be driving on the family dime for quite a while)
$3,000 utilities (could be low depending on where one lives)
$6,000 food
$15,000 health insurance
========
$35,000 that's just to tread water, so I suppose another $45,000 could be a semi-luxurious lifestyle and include money for car replacement, home maintenance, and travel.
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corn18
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Re: When can we retire?

Post by corn18 » Sat Nov 07, 2015 11:15 am

cherijoh wrote:Based on your previous thread you mentioned that:

1. Your rental property is still 20% below what you paid for it.
2. You were waiting to sell the rental until the depreciated value and market value converged.
3. Your HELOC draw period was ending and would convert to a fixed amortization schedule.
4. You needed an alternate source of short-term funding to cover the roughly $5K/month of expenses that were not being covered by your regular take-home pay. <-- did you change your mind about that?
5. You were planning to roll the $30K in credit card debt into another 0% deal <-- did you change your mind about that?
I remember that other thread. Based on ALL of the info on BH from the OP, you can't retire for a long while.
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JDCarpenter
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Re: When can we retire?

Post by JDCarpenter » Sat Nov 07, 2015 11:23 am

TheTimeLord wrote:
Independent wrote:I'm having trouble with the $80k.

The average couple in the 60+ age range spends $54,000 after taxes. That includes about $2,750 in travel. It also includes taxes, utilities, insurance, maintenance, and repairs on house that might sell for $180k, your house is more expensive and probably bigger. I'd call $80k before tax "slightly above average".

So, I'd start by tracking actual expenses today, then estimating how much each category might change after retirement. Certainly, I'd want to separate personal expenses from business (aka rental) expenses. Somehow, I'd want to get some confidence in the lifestyle the $80k will support.

Here's a nice checklist of things to consider before retiring: http://www.early-retirement.org/forums/ ... 69999.html
I am amazed the average couple over 60 has $54,000 after taxes to spend considering that is about the median household income in America.
The BLS data from the latest Consumer Expenditure survey come in quite close to that for households. http://www.bls.gov/cex/2014/combined/age.pdf Age 55-64 spend 56K, "over age 65" spend 43,365 (with a big spending break at age 75). Those are means. Hmmm. But the data that the social security administration put together from out of the 2010 survey are sufficiently different as to raise questions as to what the median spending may be for those in the 2014 survey: https://www.ssa.gov/policy/docs/chartbo ... d-2010.pdf

And I definitely am among those having a hard time seeing 80K as enough for a luxurious retirement--although it is more than any of my relatives alive or dead have retired on (and they have done ok, including some travel of the nonluxurious variety)....

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WolfpackFan
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Re: When can we retire?

Post by WolfpackFan » Sat Nov 07, 2015 11:40 am

What about health care? If thinking of using ACA then you could potentially take advantage of subsidies if your income doesn'tt exceed the 4 times the federal poverty limit.. sounds like with your expected expenses you'd be eligible.

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Watty
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Re: When can we retire?

Post by Watty » Sat Nov 07, 2015 11:51 am

You would also need to consider what Social Security you will get when you are older.

Many people in your situation would also downsize to a smaller house when the kids are grown up, or even move to a less expensive area. Even if you want to stay in the same city then once you are retired and don't commute you could move 30 minutes farther out and that can sometimes make a dramatic difference in home prices.
Independent wrote:The average couple in the 60+ age range spends $54,000 after taxes. That includes about $2,750 in travel. It also includes taxes, utilities, insurance, maintenance, and repairs on house that might sell for $180k, your house is more expensive and probably bigger. I'd call $80k before tax "slightly above average".
It sounded like the OP might have wanted $80K a year in spendable income in retirement which would probably be would be something in the ballpark of $100K a year before taxes and they would have a paid off house which many people don't have. Without things like a mortgage payment, retirement savings, FICA taxes, child rearing cost, that would be similar to having pretty high income when they had all those expenses.

$80K in spendable income would be about $6,700 a month so after covering necessities that would still probably leave $3,000 or more a month for extras.

I agree that calling that "very luxurious" is a bit of stretch but things like travel don't have to be real expensive since you don't need to stay in $300+ a night hotels or eat at expensive restaurants every day.

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anonforbogleheads
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Re: When can we retire?

Post by anonforbogleheads » Sat Nov 07, 2015 12:47 pm

The Wizard wrote:
prudent wrote:Insufficient data, but my guess is with 3 young kids you have too many years ahead of you and too many unknowns to forecast a retirement date.
Correct, and that $80k per year figure for expenses seems low for the "very luxurious life" for a couple in 2015, never mind dependent offspring.
Still, it's good that the OP is beginning to frame this problem as something that needs to be solved...
Why would $80k be low, if there is no mortgage or debt to pay?

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Re: When can we retire?

Post by livesoft » Sat Nov 07, 2015 12:50 pm

anonforbogleheads wrote:Why would $80k be low, if there is no mortgage or debt to pay?
For some people, luxurious lifestyle means $80K alone in annual property taxes.

One should not have to pay any income taxes with $80K in expenses. See this thread: viewtopic.php?t=87471
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Re: When can we retire?

Post by The Wizard » Sat Nov 07, 2015 12:59 pm

anonforbogleheads wrote:
The Wizard wrote:
prudent wrote:Insufficient data, but my guess is with 3 young kids you have too many years ahead of you and too many unknowns to forecast a retirement date.
Correct, and that $80k per year figure for expenses seems low for the "very luxurious life" for a couple in 2015, never mind dependent offspring.
Still, it's good that the OP is beginning to frame this problem as something that needs to be solved...
Why would $80k be low, if there is no mortgage or debt to pay?
Well first of all, in the initial post, he seems to want to retire while the kids are still dependents in college, so that could be a tight budget.

But if just the two of them, then yes the $80k/year in 2015 dollars is certainly doable, but not at a lavish level as regards travel etc.
I say this based on my own situation as a retired single person...
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amphora
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Re: When can we retire?

Post by amphora » Sat Nov 07, 2015 1:29 pm

To be honest, it doesn't seem like you understand how college financial aid works. Earning over $200k, you will have to pay close to full sticker price. You may get some aid for having multiple kids in college at same time.

Here's an example from the "need blind meet full need schools":
http://www.firstgenerationstudent.com/f ... ly-afford/

And those are for less than 100k in income and don't include looking at your assets. So with 200k in income and drawing 5% of nonretirement assets per year, college will be a MAJOR EXPENSE.

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Re: When can we retire?

Post by Wagnerjb » Sat Nov 07, 2015 2:41 pm

livesoft wrote:Here is a post about a family with $200K of income and not much in the way of taxes:
viewtopic.php?t=79510

I'm sure someone in the OP's family could retire before the kids are in college.

Here are some (not all) annual expenses a retired family might have:
$8,000 property tax
$3,000 home owner and car insurance (those kids will be driving on the family dime for quite a while)
$3,000 utilities (could be low depending on where one lives)
$6,000 food
$15,000 health insurance
========
$35,000 that's just to tread water, so I suppose another $45,000 could be a semi-luxurious lifestyle and include money for car replacement, home maintenance, and travel.
No, not even close.

The retiree who made $200,000 during his/her working life lives in a $500,000 house. Let me help you a little here:

Property tax (in Texas) would be $12,000
Car, Home, Flood and Umbrella insurance would be easily over $3,000
Utilities are well over $3,000 a year.
These people have cellphones, cable TV, internet. Add another $3,000 per year
The homeowner association fees are $1,000
Maintenance for the house and autos is easily $6,000
$6,000 for food? $500 a month? Are you kidding? That's what a college kid spends, not a retired couple who earned $200k a year.
How about gasoline, haircuts, hobbies, gifts, clothing, flowers and fertilizer for the yard, etc?
How about some new clothes occasionally?


Add all that up, and you have a lifestyle with zero luxuries.

You have to ramp it up another complete notch to have "luxuries" or whatever people want to call them:

The lady will have a maid service.
The guy will have a lawn care service.
They will have a fitness club membership.
They will eat out regularly, occasionally at high-end places too.
They will have a service to clean/maintain their swimming pool, one to trim their trees, etc.
They will attend local entertainment events occasionally - concerts, football games, etc.
They will travel, both in the USA and occasionally internationally. This can be a big number for some.

Best wishes.
Andy

livesoft
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Re: When can we retire?

Post by livesoft » Sat Nov 07, 2015 3:00 pm

Wagnerjb wrote:No, not even close.
Thanks. While your numbers are certainly possible, they do not have to be that high necessarily. Thank goodness my personal numbers are not that high. :)

I'll give one fer-instance: Sure, a $500,000 home could have $12,000 in property taxes, but if they have lived in the home awhile and always protested property taxes, then the tax appraiser will not have the home on the books for $500,000.
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Independent
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Re: When can we retire?

Post by Independent » Sat Nov 07, 2015 3:27 pm

TheTimeLord wrote:I am amazed the average couple over 60 has $54,000 after taxes to spend considering that is about the median household income in America.
Good point. I'd look at "median income of all households" vs. "mean spending of home-owning couples".

My data is from the Consumer Expenditure Survey. It isn't set up to provide medians, so I had to take the mean. I think median would be both lower and better for this comparison.

Lots of "households" are single people. I'm looking at couples.

Average renters spend less than average homeowners. In the CES sample, less than 10% of older couples are renters, but they only spend $36k on average.

The mean vs. median is a bigger deal than I expected. According to Table F-11 here https://www.census.gov/hhes/www/income/ ... /families/
for "families" (two or more related people living together) with householder over 65, the median in 2014 was $54,838, while the mean was $75,376.

Note that my $54,000 excluded mortgage principal and interest.

So, maybe the median couple spends $40k, and I should characterize $80k as "twice the median".
It's a matter of whether we'd call twice the median "luxurious".

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Re: When can we retire?

Post by Jack FFR1846 » Sat Nov 07, 2015 3:58 pm

I'm a huge car enthusiast. I actually still own a Lotus Elise that I'll be selling in the spring to pay for half a year of college expenses for my son. Instead of paying college expenses for my first son, I could easily buy a new Lamborghini Huracan. My second son is already talking ROTC which would make me very happy.....maybe I'll go buy a Lambo after all. I've saved for my kids college, so no big surprise on cost. I do know that it's quite popular here to boot the kid out the door and tell him to get a job and pay for his own college, but that doesn't work for me.

So what are your plans for your kids' college?
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anonforbogleheads
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Re: When can we retire?

Post by anonforbogleheads » Sat Nov 07, 2015 5:39 pm

Lots of responses so far

I guess I should have also mentioned that we would probably downsize once the kids are out of the house. We wouldn't need 5br for just the two of us.

Conservatively, we could move from a $900k home to something more like $500k in the same area without sacrificing much at all other than square footage. And of course all of the associated expenses with home maintenance would go down as well.

If we were to downsize, a $500k home could effectively be paid for given the equity we have in our current home + rental property, as well as ancillary debt (HELOC + CC) paid down. This would effectively mean savings of almost $100k/year + 401k contributions, which are maxed + employer matches. So effectively we would be looking at what size portfolio would we need to generate almost $90-100k/year in income.

We don't have a lot of concerns for college expenses. Without going into too much detail, their college expenses will most likely be paid for (not by us), if not in entirety, then at least a very large percentage.

letsgobobby
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Re: When can we retire?

Post by letsgobobby » Sat Nov 07, 2015 6:04 pm

Giving your claims the benefit of the doubt, you've got college and housing covered. That's two out of three of my checkboxes. What about health care? Outside of that you need 25x expenses, don't forget about taxes, for an early retirement, assuming you'll get social security down the road and could severely trim your expenses if circumstances warranted.

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corn18
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Re: When can we retire?

Post by corn18 » Sat Nov 07, 2015 6:12 pm

Housing sorts itself out as a paid off house. College is paid for. So you have $1M now and expect to need $100k of income ($80k after taxes). You need $2.5M to retire @ 4% SWR. If you are saving $$130k / year, you might be able to retire in 6-10 years, depending on returns.
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HomerJ
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Re: When can we retire?

Post by HomerJ » Sat Nov 07, 2015 8:01 pm

Can people who need more than $80k a year (with a paid off house) please break down their expenses?

$80k a year (with a paid off house) is plenty of money to eat out, see shows, and travel 6-8 weeks a year around the world (3-4 months if you rent a place in Belize or Thailand or something instead of hotel/cruising 1-2 weeks at time.)

OP, if you are retiring at 55 or later, I'd say $2 million is plenty, since Social Security will kick in 10 years later...

If you're talking retiring 45-55, you should probably have $2.7 million and a paid off house (3% withdrawal).

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HomerJ
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Re: When can we retire?

Post by HomerJ » Sat Nov 07, 2015 8:02 pm

tomhole wrote:Housing sorts itself out as a paid off house. College is paid for. So you have $1M now and expect to need $100k of income ($80k after taxes). You need $2.5M to retire @ 4% SWR. If you are saving $$130k / year, you might be able to retire in 6-10 years, depending on returns.
They won't have that much taxes in retirement. Especially since they have large taxable (i.e. most of it already taxed) accounts.

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TheTimeLord
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Re: When can we retire?

Post by TheTimeLord » Sat Nov 07, 2015 8:59 pm

Independent wrote:
TheTimeLord wrote:I am amazed the average couple over 60 has $54,000 after taxes to spend considering that is about the median household income in America.
Good point. I'd look at "median income of all households" vs. "mean spending of home-owning couples".

My data is from the Consumer Expenditure Survey. It isn't set up to provide medians, so I had to take the mean. I think median would be both lower and better for this comparison.

Lots of "households" are single people. I'm looking at couples.

Average renters spend less than average homeowners. In the CES sample, less than 10% of older couples are renters, but they only spend $36k on average.

The mean vs. median is a bigger deal than I expected. According to Table F-11 here https://www.census.gov/hhes/www/income/ ... /families/
for "families" (two or more related people living together) with householder over 65, the median in 2014 was $54,838, while the mean was $75,376.

Note that my $54,000 excluded mortgage principal and interest.

So, maybe the median couple spends $40k, and I should characterize $80k as "twice the median".
It's a matter of whether we'd call twice the median "luxurious".
I wonder if that includes expenditures like healthcare that are at least partially reimbursed by insurance? My perception is most retirees live very close to the edge and then large segment live comfortably. To a large extent it comes down to what the definition of luxurious is. For me, $80K would not give me what I would consider a luxurious life because it would limit my daily discretionary income and travel budget. For me it would provide a nice comfortable life but absent many of the luxuries I hope for in retirement. My definition of luxurious is to not have to have to even think about money for daily expenditures or when planning trips but just spend what I wish. For a couple in my mind it is definitely north of $100K/year spendable income and my tastes aren't that expensive, but I do enjoy international adventure travel.
Last edited by TheTimeLord on Sat Nov 07, 2015 9:07 pm, edited 1 time in total.
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corn18
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Re: When can we retire?

Post by corn18 » Sat Nov 07, 2015 9:02 pm

HomerJ wrote:
tomhole wrote:Housing sorts itself out as a paid off house. College is paid for. So you have $1M now and expect to need $100k of income ($80k after taxes). You need $2.5M to retire @ 4% SWR. If you are saving $$130k / year, you might be able to retire in 6-10 years, depending on returns.
They won't have that much taxes in retirement. Especially since they have large taxable (i.e. most of it already taxed) accounts.
Ok, $90k of income. $2.25M. Or maybe the taxable is indexed with low turnover and has large capital gains yet to be taxed.
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Re: When can we retire?

Post by JDCarpenter » Sat Nov 07, 2015 10:44 pm

HomerJ wrote:Can people who need more than $80k a year (with a paid off house) please break down their expenses?

....
Need is such a strong word. :happy

Just an example. Two week trip to Fiji (business class) with 10 days nitrox diving on the Nai'a: 21500. ....

Not retired yet, but planning.
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TheTimeLord
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Re: When can we retire?

Post by TheTimeLord » Sat Nov 07, 2015 11:15 pm

HomerJ wrote:Can people who need more than $80k a year (with a paid off house) please break down their expenses?

$80k a year (with a paid off house) is plenty of money to eat out, see shows, and travel 6-8 weeks a year around the world (3-4 months if you rent a place in Belize or Thailand or something instead of hotel/cruising 1-2 weeks at time.)
.
My experience tracking expenses tells me otherwise but I will be pleasantly surprised if you are correct.
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Re: When can we retire?

Post by Wagnerjb » Sun Nov 08, 2015 12:19 am

HomerJ wrote:Can people who need more than $80k a year (with a paid off house) please break down their expenses?

$80k a year (with a paid off house) is plenty of money to eat out, see shows, and travel 6-8 weeks a year around the world (3-4 months if you rent a place in Belize or Thailand or something instead of hotel/cruising 1-2 weeks at time.)
If you do that much travel - in a "very luxurious lifestyle" as indicated by the OP - you are talking about spending $40,000 just on that amount of travel. If you eat out regularly - and occasionally at high end restaurants - you can easily spend $1,000 a month if you want a very luxurious lifestyle. After you pay $15,000 in property tax on your $500k home and pay $20,000 in medical insurance and out of pocket costs, that leaves precious little for the rest of your "very luxurious lifestyle".

I guess luxury is in the eye of the beholder. Certainly $80,000 in annual expenses puts one well over the average retiree, but we may have to agree to disagree on how to describe that lifestyle.

Best wishes.
Andy

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HomerJ
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Re: When can we retire?

Post by HomerJ » Sun Nov 08, 2015 1:24 am

Wagnerjb wrote:
HomerJ wrote:Can people who need more than $80k a year (with a paid off house) please break down their expenses?

$80k a year (with a paid off house) is plenty of money to eat out, see shows, and travel 6-8 weeks a year around the world (3-4 months if you rent a place in Belize or Thailand or something instead of hotel/cruising 1-2 weeks at time.)
If you do that much travel - in a "very luxurious lifestyle" as indicated by the OP - you are talking about spending $40,000 just on that amount of travel. If you eat out regularly - and occasionally at high end restaurants - you can easily spend $1,000 a month if you want a very luxurious lifestyle. After you pay $15,000 in property tax on your $500k home and pay $20,000 in medical insurance and out of pocket costs, that leaves precious little for the rest of your "very luxurious lifestyle".

I guess luxury is in the eye of the beholder. Certainly $80,000 in annual expenses puts one well over the average retiree, but we may have to agree to disagree on how to describe that lifestyle.

Best wishes.
I own a $500,000 home in Kansas City and we only pay $6000 in property taxes... Health insurance, however, is indeed the elephant in the room.

We take multiple vacations a year, which usually cost about $4000-$5000 for a week for two people, including airfare... They seem pretty luxurious to us... balcony on the ocean, free drinks, etc.

I mean, we stayed here https://www.youtube.com/watch?v=SFkSGkV8mQo with other members of our family for 1 week for $8000 (split 3 ways it was only $2700 per couple)

I suppose it all depends on one's view of luxury... Seriously, watch that video and tell me that isn't an amazing place for $2700 (plus $1000 for airfare)

$80k a year (with a paid off house) definitely puts one in the top 10%... that's easily equal to $150k a year with a mortgage with kids while saving for retirement.

Are most Bogleheads in the top 1%, thinking that being in the top 10% is just crazy poor with zero luxuries?

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Re: When can we retire?

Post by anonforbogleheads » Sun Nov 08, 2015 8:03 am

Luxury is very subjective. We choose to only splurge occasionally, which makes it more meaningful. Fancy meals, worldly possessions and decadent experiences have a rapidly diminishing marginal utility - hedonic adaptation.

We will be in the 45-55 age bracket when our youngest child graduates from high school. Young enough (from a health/vitality perspective) to still enjoy almost everything in life, but old enough (from a maturity and experience perspective) not to chase things that won't make us happy.

Property taxes are not 3% of market value in our area - closer to 1-1.5%. We do wonder about healthcare costs though, which I really should do more research on.

It sounds like we will need around $2.5mm in various investment accounts after our primary residence is paid for.

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Re: When can we retire?

Post by Wagnerjb » Sun Nov 08, 2015 11:43 am

HomerJ wrote: I own a $500,000 home in Kansas City and we only pay $6000 in property taxes.
Yes, property taxes are high in Texas, but that is because we don't have a state income tax. In Missouri, I think you are paying 6% income tax, so the combined tax burden is a lot closer to $11,000 I would assume (If you withdraw $85k to spend $80k).

Best wishes.
Andy

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Re: When can we retire?

Post by ktd » Sun Nov 08, 2015 11:55 am

Wagnerjb wrote:
HomerJ wrote: I own a $500,000 home in Kansas City and we only pay $6000 in property taxes.
Yes, property taxes are high in Texas, but that is because we don't have a state income tax. In Missouri, I think you are paying 6% income tax, so the combined tax burden is a lot closer to $11,000 I would assume (If you withdraw $85k to spend $80k).

Best wishes.

Some counties in Texas have lower property taxes. We pay 2.25%.

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Re: When can we retire?

Post by TomatoTomahto » Sun Nov 08, 2015 12:04 pm

We are considering interim/retirement homes in NY, CT, and MA, and the different tax costs (property and income) for similar lifestyle homes is stunning.
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Re: When can we retire?

Post by Garco » Sun Nov 08, 2015 12:07 pm

anonforbogleheads wrote:Luxury is very subjective. We choose to only splurge occasionally, which makes it more meaningful. Fancy meals, worldly possessions and decadent experiences have a rapidly diminishing marginal utility - hedonic adaptation.

We will be in the 45-55 age bracket when our youngest child graduates from high school. Young enough (from a health/vitality perspective) to still enjoy almost everything in life, but old enough (from a maturity and experience perspective) not to chase things that won't make us happy.

Property taxes are not 3% of market value in our area - closer to 1-1.5%. We do wonder about healthcare costs though, which I really should do more research on.

It sounds like we will need around $2.5mm in various investment accounts after our primary residence is paid for.
That's a good target number (but adjust up for inflation) if (a) you also have Social Security kicking in at some point, (b) you are adequately insured (including possibly long-term care insurance), and (c) the kids don't generate huge college debt that you will be at least partly responsible for.

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Re: When can we retire?

Post by cherijoh » Sun Nov 08, 2015 12:10 pm

anonforbogleheads wrote:Lots of responses so far

I guess I should have also mentioned that we would probably downsize once the kids are out of the house. We wouldn't need 5br for just the two of us.

Conservatively, we could move from a $900k home to something more like $500k in the same area without sacrificing much at all other than square footage. And of course all of the associated expenses with home maintenance would go down as well.

If we were to downsize, a $500k home could effectively be paid for given the equity we have in our current home + rental property, as well as ancillary debt (HELOC + CC) paid down. This would effectively mean savings of almost $100k/year + 401k contributions, which are maxed + employer matches. So effectively we would be looking at what size portfolio would we need to generate almost $90-100k/year in income.
I agree that a couple of empty nesters who have down-sized and have no debt could comfortably (even "luxuriously") live on $90 - $100K. HOWEVER based on your previous posts, I don't believe you want to (expect to?) wait that long. But the immutable facts are that (1) you can't retire on this budget while you are carrying the debt level that you currently have and (2) you can't use the same dollars to save for retirement AND pay down your debt.

With 3 kids (and 4 years to go until the youngest enters high school?), I'm going to guess that empty nest status will happen in ~12 years assuming that means "all 3 kids graduating from 4-yr university". You also mentioned that you refinanced your mortgage on your primary residence "a few years ago" to a 15-yr fixed, so that probably means that it will be paid off around the time you are an empty nester. If you sell your rental property in the meantime and use your equity to pay down your primary mortgage, the timeline for being debt-free (ignoring college debt for the moment) would be even quicker.

IMO you need to figure out when you can retire AFTER you don't have $900K in debt hanging over your head. You are asking an anonymous group of people to estimate when you will be ready for retirement, when you haven't provided many of the pertinent facts.

I don't believe you have mentioned your ages anywhere in any of your posts, so we have no idea how long you would have to wait before drawing SS. Nor have you mentioned how much you expect to draw. Both are key pieces of information in determining the size of your starting nest egg. Some of the rosier posts suggesting you are in good shape also appear to assume that a good chunk of that money will come from SS on day 1 of retirement.

When do you anticipate being debt free? If you haven't worked that out, I would suggest that you take a hard look at your actual expenses and when you would free up chunks of spending (e.g., when each child is no longer in private school), project any spending increases (I assume that your private school tuition, real estate taxes, home owners and health insurance, etc. isn't stagnant), pick a date for putting the rental house up for sale, and then work with a mortgage pre-payment calculator to figure out when you could be be debt free assuming periodic additional principal payments.

We are 6+ years into a bull market, so I don't think you can assume super-charged growth in your portfolio to get your retirement up to where it needs to be in the next few years. IMO, you are going to need to beef it up with infusions of money beyond maxing out your 401k to get where you need to be to draw $90-100K per year --unless you start drawing SS immediately upon retirement.

Based on your previous posts, it sounds like you have two houses both worth less than you paid for them - even though one of them was purchased after the housing bubble burst. While neither of your mortgages is anywhere near being underwater, you have sunk a lot of money in illiquid real estate and you need to be realistic about how much they could appreciate before you put them back on the market. Just because you paid a lot more, doesn't mean someone else will be willing to do so in the future.

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Re: When can we retire?

Post by Independent » Sun Nov 08, 2015 6:23 pm

TheTimeLord wrote:
I wonder if that includes expenditures like healthcare that are at least partially reimbursed by insurance? My perception is most retirees live very close to the edge and then large segment live comfortably. To a large extent it comes down to what the definition of luxurious is. For me, $80K would not give me what I would consider a luxurious life because it would limit my daily discretionary income and travel budget. For me it would provide a nice comfortable life but absent many of the luxuries I hope for in retirement. My definition of luxurious is to not have to have to even think about money for daily expenditures or when planning trips but just spend what I wish. For a couple in my mind it is definitely north of $100K/year spendable income and my tastes aren't that expensive, but I do enjoy international adventure travel.
The CES data includes direct personal payments on healthcare and health insurance. But, it does not include expenses borne by someone else. For a worker with employer-subsidized health insurance, CES would count the employee's share of the insurance premium, the employee's payments for deductible and coinsurance expenses, but it would not include the employer's share of the premium.

Medicare would be similar - Part B premiums are included, as are deductibles and coinsurance, but the gov't cost in excess of the participants' premiums are not included.

Yes, definitions of "luxurious" vary. For many of us, it's something that seems just out of my reach. I can afford air travel, so I don't call that "luxurious". But, I can't afford first class, so that's the bottom rung of luxurious to me.

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Re: When can we retire?

Post by HomerJ » Mon Nov 09, 2015 11:09 am

Independent wrote:Yes, definitions of "luxurious" vary. For many of us, it's something that seems just out of my reach. I can afford air travel, so I don't call that "luxurious". But, I can't afford first class, so that's the bottom rung of luxurious to me.
Good point...

For me, a comfortable retirement is paid-off house with a deck and a view, heat and AC and electricity, all the food you want, all the books you want, TV, Internet, a fitness center, and a nice walking trail nearby.

And the above can be REALLY inexpensive. Once the house is paid off, utilities and food really isn't that expensive. Ah, but then there's also health insurance. :(

Still, anything above that is luxury in my mind.

Someone with $80k a year in retirement should easily have $2000-$3000 left over every month, for fun stuff... That seems pretty good to me.

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Re: When can we retire?

Post by goingup » Mon Nov 09, 2015 11:38 am

HomerJ wrote:Someone with $80k a year in retirement should easily have $2000-$3000 left over every month, for fun stuff... That seems pretty good to me.
I'm sure you understand that some folks are looking for more than that. I don't really presume to know the range of what constitutes luxury for a particular retiree, but I suspect that for those living in $1mill house, with an income of $250K scaling down to $80K may not feel super luxurious.

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