Author Topic: Question for the retirees: I'm on the cusp, do I retire now?  (Read 2987 times)

redrocker

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Question for the retirees: I'm on the cusp, do I retire now?
« on: August 07, 2015, 08:44:52 AM »
I guess you could call it the pre-FI jitters.

I'm getting laid off at the end of the month and I'm burned out. Like pondered-quitting-on-a-weekly-basis-for-last-3-years burned out. Don't get me wrong, I see the layoff and the accompanying severance as an absolute blessing. Why'd I stick with something like that? Well, the pay had me on an accelerated track to FI and I estimated if I stuck it out another ~2 years from now I'd be free and clear. Now I've spent the last few weeks really crunching numbers trying to convince myself my previous strategy* would have overshot what I truly need to live and that my assumptions were too conservative and I was just too hesitant to leave such a strong safety net. Now that the job decision was made for me, I'd like to take an extended break and focus on home improvement and volunteering, possibly never holding a conventional job again. But I have a lot of anxiety about that.

For starters, I'm not sure my financial assumptions are conservative enough, it'll be my first foray out into healthcare that's not provided/subsidized by an employer, and I have an unshakable concern that spending time unemployed will make future jobs/job interviews less feasible. Add to that, my plan is to live on rental income, which while steady at the moment is not something I have unshakeable confidence in.

I'm sure others here have gone through this and I'd love to hear any insight or recommendations. Whether it's an encouragement just to jump in to retirement or a caution to work a little longer somewhere else, I'd like to hear it. A little bit more detail about my circumstances:

Assets:
Primary residence has rental income that more than pays the note (Multi-family)
2 rental properties that are fully rented
2 very moustachian cars that are fully paid off
$360k in tax-advantaged accounts**
$187k in taxable accounts (includes expected severance)**

Liabilities:
Primary has a mortgage, about $245k principle remaining, 4.2% interest
Both rentals were purchased in last year with 25% down, and 4.6% interest, combined principle is about $240k
No other debt

Income:
Wife is part time at ~$10k/yr
Net rental after all P&I, insurance, city tax, utilities: $22k/yr (includes my primary note, assumes full occupancy w/o repairs)

Expenses:
non-house expenses estimated at $25k/yr, including an estimate of what ACA will cost at the income above

Living expenses are based on tracking in Mint since earl 2014 and are probably my greatest uncertainty. I don't know whether to expect them to go down because I'll have more time to fix things/cook food/etc while not working, or whether our expenses go up (or were underestimated).

To me, this picture looks like I'm on a rather thin margin. At least, to not touch any of my investments at all. But what thinks the community here?


*previous strategy was to stop 401k contributions and funnel every last dollar possible to paying off the two rental property notes. I have since decided to invest the money that was going to target those mortgages, and keep claiming the interest deductions.
**we're both 32, so my hope is to let these accounts grow untouched for decades

« Last Edit: August 07, 2015, 08:48:41 AM by redrocker »

lhamo

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Re: Question for the retirees: I'm on the cusp, do I retire now?
« Reply #1 on: August 07, 2015, 11:34:14 AM »
I think you're overthinking this.

You have 32k in income and roughly 25k in expenses.  You are in your early 30s.  If need be, you can mow lawns, work in a coffee shop, do catering jobs, walk dogs, etc. and increase your income by another 5-10k pretty easily.

I would plan to take a good 3-6 months off to decompress from your previous unpleasant position, and see how the cash flow develops.  Focus on bringing your day to day spending down as much as possible during that period. 

If you find it isn't working for you financially or otherwise, you can look for another job.  If anyone brings up the period without a job, just say you were taking some time to work on your rental properties or something.  I don't think anyone will find it unusual.

Wherever you go, there you are

beltim

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Re: Question for the retirees: I'm on the cusp, do I retire now?
« Reply #2 on: August 07, 2015, 11:43:17 AM »
Does your rental income include allowances for maintenance and vacancy?  If so, then you're set - in addition to 32k per year income vs 25k expenses, you've got over $500k in liquid assets that you can rely on for 20k with a high success rate. If not, then run the numbers again once you factor in maintenance and vacancy, then reevaluate.

Joggernot

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Re: Question for the retirees: I'm on the cusp, do I retire now?
« Reply #3 on: August 07, 2015, 11:49:03 AM »
When I got laid off, I also "retired".  I had to draw out of savings to pay the medical, but even so, my net worth has climbed steadily to almost double from when I retired.  Don't be afraid of retiring; the money is there.  Go for it and enjoy your life.

Scandium

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Re: Question for the retirees: I'm on the cusp, do I retire now?
« Reply #4 on: August 07, 2015, 01:02:38 PM »
Sorry to derail, but how common is severance? I believe our handbook says I'll get squat if I'm laid off. Is it more common in certain industries/sectors or certain employers?

BTW; your plan looks good on paper. Perhaps you can find a part time job after a while too?

redrocker

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Re: Question for the retirees: I'm on the cusp, do I retire now?
« Reply #5 on: August 07, 2015, 01:18:25 PM »
I would plan to take a good 3-6 months off to decompress from your previous unpleasant position, and see how the cash flow develops. 

Thanks for the input, I was thinking 2 months but I like the sound of more even better.

Does your rental income include allowances for maintenance and vacancy?  If so, then you're set - in addition to 32k per year income vs 25k expenses, you've got over $500k in liquid assets that you can rely on for 20k with a high success rate. If not, then run the numbers again once you factor in maintenance and vacancy, then reevaluate.

I did not include vacancy and maintenance for 2 reasons. One is that I'm under market rent on each unit. An assumption I built in is that I would just raise rent while making small improvements if anyone moves out. I think all my tenants know they can't do much better in terms of rent. Second, the two rental properties were recently purchased and I did a lot of catchup maintenance in the first 6 months. If you have a recommendation on an approximation for vacancy and maintenance please let me know.

Also, correct me if I'm wrong, but the money in my tax-advantaged accounts can't be relied on for that $20k a year, correct? So I'd only be able to rely on the $187k in a taxable account, which at 4% would be $7.5k/yr (which is still probably enough).

Sorry to derail, but how common is severance? I believe our handbook says I'll get squat if I'm laid off. Is it more common in certain industries/sectors or certain employers?

BTW; your plan looks good on paper. Perhaps you can find a part time job after a while too?

I think severance is going/has gone the way of the steam engine and dodo bird. My company (major oil company) has prided itself on taking care of its employees (despite the daily shenanigans we deal with) and I realize I'm in the small minority with that, unfortunately. As for looking good on paper, yes. I think one key to my apprehension is in my daily work I'm used to frequently seeing things look good on paper and go all to hell once applied in reality. Probably one of the reasons they're cutting a significant percentage of "overhead" (ie staff). The encouragement here helps, folks.

beltim

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Re: Question for the retirees: I'm on the cusp, do I retire now?
« Reply #6 on: August 07, 2015, 01:27:01 PM »
Does your rental income include allowances for maintenance and vacancy?  If so, then you're set - in addition to 32k per year income vs 25k expenses, you've got over $500k in liquid assets that you can rely on for 20k with a high success rate. If not, then run the numbers again once you factor in maintenance and vacancy, then reevaluate.

I did not include vacancy and maintenance for 2 reasons. One is that I'm under market rent on each unit. An assumption I built in is that I would just raise rent while making small improvements if anyone moves out. I think all my tenants know they can't do much better in terms of rent. Second, the two rental properties were recently purchased and I did a lot of catchup maintenance in the first 6 months. If you have a recommendation on an approximation for vacancy and maintenance please let me know.

Also, correct me if I'm wrong, but the money in my tax-advantaged accounts can't be relied on for that $20k a year, correct? So I'd only be able to rely on the $187k in a taxable account, which at 4% would be $7.5k/yr (which is still probably enough).

There are others better qualified than I to approximate vacancy and maintenance, and there have also been a number of threads on those topics as well.

As for the money in tax-advantaged accounts, there are many ways to access that money, including ways to avoid any penalty: http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

Potterquilter

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Re: Question for the retirees: I'm on the cusp, do I retire now?
« Reply #7 on: August 07, 2015, 01:29:21 PM »
If you are nervous what about part time work?  A bike racer friend of ours went part time in a bike shop post er and loves it.  what are your hobbies?

How long will you get unemployment.

redrocker

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Re: Question for the retirees: I'm on the cusp, do I retire now?
« Reply #8 on: August 07, 2015, 01:31:48 PM »
How long will you get unemployment.

I didn't even think that would be an option.

beltim

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Re: Question for the retirees: I'm on the cusp, do I retire now?
« Reply #9 on: August 07, 2015, 01:32:44 PM »
It looks like some standard advice is budget 10% of rent for vacancy, 10% of rent for property management, and 1% of the property value per year in maintenance:
http://forum.mrmoneymustache.com/real-estate-and-landlording/evaluating-a-rental-property/

Potterquilter

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Re: Question for the retirees: I'm on the cusp, do I retire now?
« Reply #10 on: August 07, 2015, 01:34:20 PM »
How long will you get unemployment.

I didn't even think that would be an option.

Look into it. It may not be but does not hurt to look.

Fuman

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Re: Question for the retirees: I'm on the cusp, do I retire now?
« Reply #11 on: August 07, 2015, 03:34:51 PM »
ABSOLUTELY look into getting unemployment!  I've been laid-off (RIFed) a couple of times during my career and always qualified for the unemployment.  You paid into it - take it.
I'm in a similar situation to yours; close to retired, house is paid off, got some rental income coming in, tax advantages accounts fully funded (if they make 6% for a few more years)... My job/contract ended last March and while I could have signed on again I was burnt.  So I took the lay-off and the unemployment and decided to "kick the tires" on early retirement.  Best thing I ever did!  One thing that I probably should have seen coming is that all my friends still work full-time and they're busy with their lives and jobs, so I had a lot more alone time than I had anticipated.  It was good - read some books, took lots of naps, did some slow traveling.
However, I'm a bit antsy and decided it's best to "make hay while the sun is shining", so now that my unemployment is coming to an end and I did a few adventures, I just signed-up for another 6 month contract gig.  It'll keep me busy and recharge my unemployment!  Thinking of doing it all again next year!  Six months on and six months off is a fantastic way to live!
One bit of advice: two months will fly by and is NOT enough time to decompress.  Plan on taking six months and then see how you feel.  My new employer didn't even ask me what I'd been doing the last six months.

mozar

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Re: Question for the retirees: I'm on the cusp, do I retire now?
« Reply #12 on: August 07, 2015, 07:59:16 PM »
My understanding is that if you have the full 500k in investments, you can take 4% of that. So 20k. But practically speaking you just take 20k out of the $187k a year until you have your 5 year Roth ladder set up. But you have 32k in income without touching your investments, that's amazing! You can retire yesterday.
Embracing the absurd condition of human existence while also defiantly continuing to explore and search for meaning

Daisy

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Re: Question for the retirees: I'm on the cusp, do I retire now?
« Reply #13 on: August 07, 2015, 08:15:28 PM »
I am somewhat in your position, except I have not been laid off. I am still employed, but if I am laid off in the next year, I will look at it as a sign from above that it's time to FIRE. I'm only a year or two away, depending on the markets. I could probably do it now if need be, but I want some buffer for the health insurance and travel budgets.

But if forced into it by a layoff, I say take full advantage of it. I'd probably be doing flips on my way out the door if I was given a severance. From my calculations, I can live a year off of a severance I would get. That would give me time to see how my post-FIRE expenses and time off are coming along and I can adjust as needed, or pick up some minor part-time work. The wonderful thing about the 4% rule, as I see it, is I can take a part-time job making $10,000 a year and that's equivalent to having $250,000 more in the stash. So I think I could totally pull it off.

But, I'm still chugging along at work until something like this hits me on the head and forces me out of my OMY-ness. It's not too bad at work, I enjoy the people I work with and some aspects of the job. There are days where it looks like the company is doing fine, but then there are rumors of changes so one never knows. I'm hoping if the rumors are true, the timing will be just perfectly aligned with when I'm truly ready to FIRE.

I had a 5 month mini-FIRE about 5 years ago when I got laid off from another job. It was a great time to decompress and take up some hobbies I had neglected. Now back working, I'm neglecting some of the hobbies again. I'm itching to get to a fully FIRE'd life.

RetireAbroadAt35

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Re: Question for the retirees: I'm on the cusp, do I retire now?
« Reply #14 on: August 07, 2015, 08:40:39 PM »
My understanding is that if you have the full 500k in investments, you can take 4% of that. So 20k. But practically speaking you just take 20k out of the $187k a year until you have your 5 year Roth ladder set up. But you have 32k in income without touching your investments, that's amazing! You can retire yesterday.

You absolutely should consider the tax-advantaged investments.  If they are in a 401k/IRA, you should be doing either a 72t or more likely a Roth ladder to get early access to them.

redrocker

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Re: Question for the retirees: I'm on the cusp, do I retire now?
« Reply #15 on: August 08, 2015, 09:54:23 AM »
Thanks everyone for the advice and encouragement. I didn't expect it to be unanimous but that seems to conclude I'm overthinking things.

ABSOLUTELY look into getting unemployment!  I've been laid-off (RIFed) a couple of times during my career and always qualified for the unemployment.  You paid into it - take it.
However, I'm a bit antsy and decided it's best to "make hay while the sun is shining",

I'll look into it. I think I'll feel the same after a few months off.

I had a 5 month mini-FIRE about 5 years ago when I got laid off from another job. It was a great time to decompress and take up some hobbies I had neglected. Now back working, I'm neglecting some of the hobbies again. I'm itching to get to a fully FIRE'd life.

Thanks for sharing your experience.

Spork

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Re: Question for the retirees: I'm on the cusp, do I retire now?
« Reply #16 on: August 08, 2015, 10:39:49 AM »
Should you retire now?  My short answer is "I don't know."

My longer answer is: I am both more financially conservative (or paranoid, as the case may be) and have higher (less badass) expenses than most people here.  The result is, I probably over saved -- which makes it hard for me to compare things in my mind without a lot of mental gymnastics.  And lets face it: I'm lazy.

But: I was in a soul suck of a job back in 2006 and just quit (with no severance) and move.  I was sort of in your shoes.  I was roughly FI... but really on the edge.  We cut back to pretty minimal expenses ... but we really didn't want to live that way long term.  However: Following the soul suck, I DID want to take down time.  I could afford it -- and you can too.  My intent was to take 6 months.  But the job market where I landed was awful... and then the market pretty much slid into hell in 2008.  In real time it was 3 years before I got back to work.

But here's the good news: I cannot imagine you couldn't weather 3 years.... or 10... or probably more.  If the layoff is inevitable, then sit back and enjoy it. 

My 3 years off were a very real lesson:  I wanted to be retired.  I damn well liked being out of work for 3 years.
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Cassie

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Re: Question for the retirees: I'm on the cusp, do I retire now?
« Reply #17 on: August 08, 2015, 01:04:40 PM »
Why not consult p.t. in your field? It may be the perfect solution for now.