Author Topic: Case Study - Can I Retire? I think I can, I think I can...  (Read 2905 times)

Trudie

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Case Study - Can I Retire? I think I can, I think I can...
« on: June 05, 2014, 10:57:43 AM »
It probably is a sign that you should leave your current job when you spend your lunch hours and free time mapping out budgets, elaborate Excel spreadsheets with retirement savings scenarios, and reading MMM and other personal finance blogs.  What you learn after awhile is that we’re more adaptable than we think, that life is full of many possibilities, and that if you can get off the panic treadmill long enough to think them through it all might come out okay.  But first, you have to get over the fear, and I am not over the fear yet.

Here’s the situation that has led me to this decision point:
I am 43.  My husband is 52.  We lived in the upper midwest in a quaint little college town (population 8800) with some great cultural and outdoor amenities (more on this later).  We don’t have kids.  He has a decent-paying administrative position at the college, which is within walking/biking distance of our house.  I on the other hand -- like so many other dual-career couples in our small  town with limited job prospects -- have a commute to my job.  I am a CPA and work as a finance/accounting manager at a small company 45 minutes away.  I see the commute eating into my life and my days and short-changing my enjoyment of other people and experiences.  This past winter was brutal and depressingly long.  I had many sleep-interrupted nights worrying about the weather.

So what keeps me here?  Fear of the unknown and some great benefits.  A quick run-down:
(1)  Annual employer 401K contributions of 10-11%
(2)  Low-cost employer-provided health and dental insurance that costs me $97/month
(3)  Doing a job that -- at least on paper -- is consistent with my background and allows me to hold myself out as a “professional”
(4)  EGO (just being honest)... I’m afraid of losing professional identity without a “real” job
(5)  Reasonable -- although not great -- pay increases of 3-4% annually
(6)  Casual workplace -- Most of my wardrobe is from Target, Costco, consignment stores
(7)  Decent vacation/sick time -- 4 weeks’ vacation; 5 weeks’ accumulated sick time
(8)  Thinking, “What if I get bored/lonely not coming here everyday?  What if I am glorifying semi-retirement?  What if I leave and miss it?”

Here’s our net worth snapshot:

Net Worth = Approx 1.1 Million
Assets
Cash (Emergency Funds) = $10,191
Retirement Accounts:
401Ks/IRAs = $593,472
Roth IRAs = $203,367
Unqualified Investments (Stocks, High Dividend Mutual Funds) = $91,730
House  = $327,000
Cars (2) = $12,500 (no loans)

Liabilities
Mortgage = 133,213 (15-year, 3.25%, scheduled 11/2026 pay-off)
HELOC = 0 (available to draw up to 70,000)

We also stand to inherit between $500K and $750K in the next decade or so, although the timing is uncertain and we have never factored this into our decisions.  I am wondering if we should though.

Here’s our budget snapshot:

I have always subscribed to the “pay yourself first” mentality and have not been a huge personal budget guru, and this has served us okay, but some of my expense numbers are soft.  Admittedly, we could probably pare down some of our expenses, but I have never tracked the small stuff for a longer period of time.  We use credit cards (for rewards) but pay off balances every month.  We have never had a car loan. We do not buy on credit.  I guess we’ve never had any debt other than our mortgage.   I do analyze big expenses annually and shop around (insurance).  We have a newer home (that we built) that is energy efficient.  We do not have memberships to clubs or regular tickets to sports teams.  We do not buy “toys.”

Where we do spend our money:  golf at public golf courses, running shoes/gear/race entries, eating out, cable TV (to get the games of our favorite sports team, in lieu of getting tickets and traveling to games), travel, entertaining (in our home).

Inflows = 144,000
Husband = 76,000 (employer contributes additional 10% to retirement)
Me = 66,000 (employer contributes additional 10% to retirement)
Interest/Dividends = 2,000

** On a monthly basis right now, after deductions (401k, health insurance/FSA, taxes, some charitable contributions) our take home is $5717. (Husband $2900; Me $2800)

Outflows =
Retirement Contributions = 44,000
Health Insurance/FSA = 1900
Federal/State Income and Payroll Taxes = 18,100
Cash Contributions to Charity = 5000
Mortgage Payments = 13000
Property Taxes = 5600
Insurance (Auto, Property, Umbrella Liability) = 2000
Phone/Cable/Internet = 1380
Utilities (gas/electric/water/trash) = 3000
Food = 6000
Everything else = 53000

The Intangibles:

Benefits of our living situation:
(1)  My husband is within walking/biking distance of his job.
(2)  The college where he works offers other benefits to both of us including:  free use of athletic/recreational facilities, free use of academic library (including interlibrary loan), free/low cost entertainment, low cost community gardens, subsidization of our CSA membership.
(3)  I can take a couple of college courses at almost no cost per year.  Since I am an alum, I receive an additional tuition benefit.  It cost me a total of $1500 (tuition, books, study guides) to take the approximately 6 additional accounting courses I needed to get my CPA license.  HUGE return on investment!
(4)  We currently live 3 hours from extended family (close enough, but not too close.)  We have been able to be there when family crisis has dictated it.  Although stressful, I have considered myself fortunate to be with my parents as they get older. 
(5)  The housing market in our town has held up very well (even at the 2008 slump) and there is a housing shortage.  If you’re on the right side of it you are all-but-guaranteed to get a great price for your house.  Our town is a popular retirement destination, so I think there will be a market for our house, which is in a very walkable neighborhood and on the smaller side (1700 square feet).  It is a newer attractive house.  I enjoy it.
(6)  There is a strong walking/biking/health ethic in our town.
(7)  Other than housing, the cost of living is low.
(8)  Great thrift stores.
(9)  Decent public library.
(10)  Nice neighbors.  I feel part of a neighborhood.  We help each other out.  We lend/borrow stuff.  We potluck and have bonfires.
(11)  My town is beautiful.  Lots of nice parks and greenspaces.  Free bike trails/cross-country ski trails.

Drawbacks:
(1)  Lack of job opportunities.  I worked for a small family-owned company and it sucked.  I didn’t like being caught up in family drama and the work sucked.
(2)  Boredom at times.  I enjoy small urban environments.  I enjoy public transportation.
(3)  Where are the young people?
(4)  This is NOT where we want to retire.  Plus, a lot of my friends are older.

Options:
(1)  Quit and do no paid work (live solely on husband’s salary).  Can we live on his 76,000 per year and still save reasonably for retirement?
(2)  Negotiate part-time/work from home or closer to home scenario with employer.
(3)  Quit and fashion semi-retirement career.  Teaching?  Another career entirely (horticulture)?  Part time career plus continuing education to enhance skills -- sort of like a sabbatical.
(4)  Quit and find an accounting position closer to home… take the pay cut but essentially do the same thing.  It could take awhile to land another job.


Emg03063

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Re: Case Study - Can I Retire? I think I can, I think I can...
« Reply #1 on: June 05, 2014, 11:14:42 AM »
1.  Your "everything else" category is too large to answer this question.  Assuming your income tax liability drops to $9k if you quit, you're looking at $45k of itemized expenses outside this category, so it really depends how much is discretionary and how much you're willing to cut back there.  We would need more of a breakdown to advise.
2.  Would be my first recommendation.
3.  Could you just work for yourself as an accountant?
4.  Look for the other position while you're still working.  Quit if you find something else that's a better situation.

DoubleDown

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Re: Case Study - Can I Retire? I think I can, I think I can...
« Reply #2 on: June 06, 2014, 10:52:06 AM »
I also don't quite understand your expenses. What is your total annual spending, or what do you think it would be in retirement? What is that $53,000 "everything else" expense??? That is a huge amount of discretionary spending -- over $4000/month!! You mentioned wanting to go to an urban area, so I'd expect your housing and other expenses may be quite different than in your current small town.

If you read through some of the MMM posts or other suggestions on this forum, you'll probably find lots of great advice on reducing some of your expenses. For example, $500/month for food for two people is low hanging fruit, as is cable TV and others. But we really need to know what "everything else" is, or what your goal for annual spending is.

mxt0133

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Re: Case Study - Can I Retire? I think I can, I think I can...
« Reply #3 on: June 06, 2014, 02:26:21 PM »
Have you considered doing freelance/contract accounting gigs that you can do remotely?  Basically get a bunch of small accounts around your town and some remote but mostly working from home and occasionally face to face with clients.

JoyBlogette

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Re: Case Study - Can I Retire? I think I can, I think I can...
« Reply #4 on: June 06, 2014, 03:19:33 PM »
Umm... reduce "Everything else" to from $53,000 to $20,000 ($2800/month expense reduction) and this covers your take home pay.  Quit job.  Done.

MDM

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Re: Case Study - Can I Retire? I think I can, I think I can...
« Reply #5 on: June 06, 2014, 05:01:43 PM »
Short version:  Great work maximizing pre-tax contributions.  Figure out where that $53K/yr is going and reduce waste.  For the job, option #2 looks best - good luck!

Longer version:
1.  Good that your post started with gross income and included taxes.  Makes it easier to evaluate pre-tax (e.g. 401k & IRA) effects.
2.  Your expenses total $152,980, ~$9K/yr more than income.  Typos, or have you been drawing on after-tax funds to allow high pre-tax contributions (excellent work!) in recent years?
3.  Even assuming $0 in state taxes (probably wrong because you mention state in OP), it seems income+payroll taxes should be ~$2500 higher.  Much guesswork here so your numbers are likely correct - just checking....
4.  Figure out where that $53K/yr is going and reduce waste.  For the job, option #2 looks best - good luck!