Author Topic: Dad’s slightly early retirement and entrepreneurial son revisiting FIRE:  (Read 1477 times)

Nycginger

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I want to lay out my parents and I’s situation, with the question of if 1) there’s anything I should do for my parents 2) is there anything I should do in my personal life?


My parents:

My dad’s company asked him to retire when he turns 64 in a few months.

My parents net worth is probably about $250k, 150k equity in an oversized house and 100k in cash/retirement.

My dad’s company is going to pay him through age 65, and so my parents need to bridge about 1 year of living expenses.

My mom makes probably 25k working part time. My dad probably made 65k.

Initially when I found out my dad’s company wanted him to retire at 64 I was pretty worried. Now that it’s happening I feel a bit of peace about it. He had some health issues in 2016, and I’m glad he’s getting time to enjoy life.

He will start to draw social security of just under 2k but he doesn’t want to start drawing until he’s 66. I’m sure my mom will continue to work part time. My dad isn’t the kind of guy to sit around. My parents plan to put their 2 extra rooms on Airbnb (in a very popular tourist town) and my dad will do something, drive Uber, work part time in his existing profession or Lowes or something.

While my parents have always wanted too nice of a house (in my view), I think that assuming they can bridge this one year (I think they will figure something out), they will probably be fine. They could easily sell their oversized house, buy a small condo in a different part of town for 100-150k, and then live off of my dad’s social security of 2k a month. Without housing cost I feel like that’s more than doable. My mom is in her early 60’s and needs health insurance for a few years, but I feel like they can figure that out somehow (there are also cheap alternative plans out there like Medicare she could go on for a few years). When she turns 65 her social security won’t add much, but it will add something. She’s also likely to work as long as they will let her.

Fortunately, I also don’t think either of them have unrealistic views of retirement and spending. My mom has never had to pay a bill in her life, but she really doesn’t overspend too much. They eat at Subway and keep it pretty cheap.




Me:

I’m 31 and an entrepreneur. I live about 1,500 miles from my parents. My income has ranged from 20k to 300k, w/ an average of 70k. I’ve basically always lived on 20k regardless of how much I make. My net worth is a little under 550k w/ the following breakdown.

175k cash (mostly sitting in a high yield savings account around 1.5%)

175k investments between a taxable account and retirement accounts

134k business equity

30k of my cash sitting in the business which I draw $1,800 a month from

Note: I left business in 2016. I still own 70% and my business partner has the option to buy 40% from me at a 190k evaluation. It was break even for 2016-17 and has just started to become profitable again. Who knows if that will continue?

8k in crypto currencies

20k in tax credits that I can redeem in the future

I took this past year to write a book. Haven’t made any money yet (may never), but I’m really glad I did it and it’s been worthwhile.

10k (other random property, paid off car, etc.)

I’m slowly average dollar investing the cash. When I take the total 550k at 4% I’m roughly covering my annual living expenses (maybe a few thousand dollars short), though I’ve got some wild cards in there w/ the future of the business, average dollar investing, that I get cash from the business every month, and even things like the 20k in tax credits were earned in this past year from the business and could continue (though I’d lose a % of those if/when my business partner buys part of the business from me)

While I’ve got some skills and I’m sure I could make money doing something, I’m considering starting another business. That would probably mean in a best case scenario having no income from direct work for 2 years (I have signed up to walk dogs part time but haven’t gotten any customers yet), and the results could range from failing and not making any money to selling it for millions etc.

I’m likely to continue to be entrepreneurial for the rest of my life. I don’t have a problem with taking a regular job, but I set a high value on my work being directed towards projects I feel like have a high ethical value, and I haven’t found many jobs that fit that criteria (other than goof off ones from time to time).


With the change in my parents circumstances I wanted to share some info to see if anybody sees things I should be thinking about. Thanks for the help!

Ben Kurtz

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My one piece of advice for your parents is to look into delaying social security until your father is 70. With your mother continuing to work part time and your father collecting a year of severance and likely to earn some income after leaving his company (by running the AirBnB venture, taking retail shifts, whatever), I'd guess their combined household income will still be in excess of $100,000 for the first year, and then $50,000 per year for several years thereafter, which frankly most people can live off of. They also have the $100,000 in liquid savings they can tap if they need to.

The key benefit to delaying social security is that the size of the monthly check grows quite nicely if you delay starting your benefits to the latest possible age -- I recall reading that the growth is around 8% annualized. In theory, this is meant to be value neutral and fair in an actuarial sense: since you start later, you draw fewer monthly payments before you die, so the increase in size of monthly payment is just made up for by having, on average, fewer monthly payments. But the reason this is good for your parents is that it is a very cheap and easy form of "longevity insurance" -- and given that your parents have a fairly small nest egg, there is a very real risk that they will outlive it if they draw meaningful amounts of money from it regularly. Better to spend some of it up front on living expenses when they are 66-69 and receive a boost to their life-long government-guaranteed monthly income stream, than to chance it on the markets with minimal safety buffer.

Implicit in your post is some question about whether you can or should provide money to support your parents, or change your employment or lifestyle habits to position yourself to do so. I would say the answer is a qualified "no," at least for the time being. Your parents are still capable of working and pulling in a living wage, and will hopefully continue to do so for several more years. They also have built up some net worth which can help cushion them and supplement their retirement. It sounds like you have a track record of success in building your own businesses and that's how you want to continue to earn a living -- don't make yourself preemptively unhappy by trading it all in for a position as a corporate drone.

The time may come, in 5 or 10 more years, where your parents may need more help -- either direct financial aid, or, even more likely, help managing their affairs and living situation as they get older and more frail. If they can work the social security system they may be able to swing a $3,000+ per month income (between delay credits for your father and what your mother will add), which is more than adequate for a healthy young or middle aged couple to live on if they are willing to be a bit spartan, but can be uncomfortably tight if they are too old or frail to do all their own housekeeping and cooking, have lots of health expenses not covered by Medicare, or similar things come up. At that point you will have to re-assess. But at that point you will also probably be a millionaire (given you savings and earning habits). You can work things out at the time -- they might move in near or at your home (depending on your setup), they might have to move to a nursing home, when they move they can probably unlock some of their home equity for more spending money, you might start paying for some of their expenses (fair is fair -- after all, they probably spent 18-21 years paying yours). Given that you will live a productive life and build your own nest egg in the way that suits you best, I don't see any reasons to change your plans for the foreseeable future.

You also did not mention any siblings. If you have any brothers or sisters it would be good to sit down with them (and, at some point, with your parents as well), to discuss their financial planning for retirement.
« Last Edit: March 27, 2018, 01:40:56 PM by Ben Kurtz »