Author Topic: Doing okay, second set of eyes to review our financial situation  (Read 6198 times)

MrsPete

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I think we’re in pretty good shape financially, but it never hurts to have another set of eyes look over things: 

-   Husband and wife, age 46 and 48
-   Both working in professional jobs, which we like 90% of the time.  We are looking forward to retiring, but aren’t quite ready at this moment.   
-   Earn roughly $110,000/year between the two of us.  Low cost of living area = low salary area. 
-   Own a large-but-old-enough-to-give-trouble-constantly house in an ideal location for our current working lives – house is inefficient and over-sized, but we can’t see leaving ‘til the youngest child graduates from high school in only two years.  We can’t live anywhere as cheaply as this place – no mortgage 
-   Own a nice piece of country land (in a less expensive area) upon which we plan to build a retirement home – no mortgage
-   Own three cars (2 good cars, 1 old clunker for the two teen drivers) – no debt
-   No credit card debt, no student loans, no debt of any type 
-   Savings and investments:  A little over $800,000
-   Pension that’ll pay me not-quite $2000/month . . . but I have to work another 9 years to “max it out” and to get paid medical

-   We’ve lived frugally all our married lives, but at this point we’re pretty much spending everything we earn.  Why?  College and a new family member.  We’ve managed our first child’s first year of college without dipping into savings, and we’re satisfied with living this way for the next six years as we see the children through college.  Helping them graduate from a 4-year university without debt is a huge priority for us.  Also, we've taken in an elderly family member who can no longer live alone; this is about family, not finances.  Having saved aggressively in our earlier years, we’re not upset about slowing our savings now. 

Goals:
-   Retire 9 years from now.
-   Why 9 years?  I’ll be able to collect a full pension with medical at that point. 
-   We’re both working on part-time employment plans that’ll see us through a few years between leaving full-time employment and 100% retirement. 
-   Build a small-but-designed-just-for-us-house.  We already own the land, and we anticipate that this’ll cost our current house’s sale price +/- $50,000. 

Concerns:  -   Health care costs in retirement.  My husband has a chronic disease that requires daily medication.  I’ll have no-cost basic health insurance for myself and can cover him for a reasonable cost; however, we’re concerned about co-pays and the rising cost of health care – especially for him.  I don’t think anyone has any good advice on this topic. 
-   I have live-forever genes, so I will need my retirement money to stretch – this is one of my reasons for wanting to finish out my years for my pension.  The realistic picture is that I’ll be available to take care of him in his old age, but I need to be sure I’m prepared financially in my last years.  I expect my children will be around to help me with physical needs, but I don’t want to have to rely upon them financially, and I want to be prepared – if necessary – to pay a caregiver.  I am currently a caregiver to an elderly relative, and I’d rather not put my children through the task of helping me bathe on a daily basis.   
-   How much should we spend on our retirement house?  We’re looking at something in the neighborhood of 1800 sf, designed for elderly years – easy-access shower, hallways wide enough for a walker, low maintenance, lots of storage.  Realistically, this is going to be far less than we can afford to spend, but how do we draw the lines?  That is, how do we decide how much we can afford to spend?  I read another board about house-building, and it’s all about “you’ve gotta have at least a three-car garage”, “granite countertops are so out – it’s marble these days”.  We’re not looking to hang in those circles, but I also don’t want to recreate the starter house we lived in years ago with its fake butcher block countertops.   
-   When to take social security?  Of course, it’s anyone’s guess whether it’ll be available or not.  From what we’ve read thusfar, we’re thinking that he should take his around 65 and I should wait ‘til the maximum age.   
-   We have term life insurance, but we’re wondering if it’s time to drop it.  At this point, if either of us died, the other would be able to raise the kids and see them through college without financial help. 
-   Our investments are mostly in moderate-risk options at this point.  At what point do we need to move to super-safe-but-lower-performing options?  We’re very confused about this.
-   Once the kids are out of college, we anticipate working 2-4 more years and building our retirement house during this time.  In those years taxes are going to eat us alive.  Suggestions for avoiding this problem? 
-   Our house’ll be an all-cash build.  Any hints on how to manage this effectively?  Do we sell our current house before we build?  We’ve kicked around the idea of building a detached garage first and living in that temporarily (we could live happily with a grill and a dorm fridge for six months, but not much more), but we wouldn’t want to build a bathroom in the garage . . . so that’d be a sticking point.  Similarly, we’ve talked about buying a teardrop camper for our retirement years, but – again – the sticking point is having a bathroom.  I could see joining a gym temporarily for showering privledges; we also both have showers at work.   
-   Similarly, at what point do we sell our current house?  It’s a good neighborhood right now, but – looking at the age of the average homeowner – I anticipate that in 10-15 years a good number of the residents are going to go to nursing homes or to live with their children, and at that point this neighborhood will probably turn into a rental neighborhood.  The houses are large but are not “in style”, whereas we are surrounded by numerous younger, less expensive neighborhoods.  I think we should sell before everything “goes rental”, but how do we know when? 

So, with a fresh set of eyes, do we appear to be on the right path?  Do you see any glaring mistakes? 

daverobev

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Re: Doing okay, second set of eyes to review our financial situation
« Reply #1 on: May 28, 2013, 10:46:27 AM »
$110k is NOT low income - it's really painful to read that! Yes, there are a couple of percent of families IN THE WORLD that earn more than that. Smiles!

Ok, so the usual advice for equities vs bonds is "your age as fixed" - so gradually sell "risky" equities and buy bond funds. Not sure what your current allocation is, but maybe do it in 4-5 sales-and-purchases.

Most people seem to say "take any govt stuff as soon as you can" - the crossover I last read was that you have to reach 88 or something, to be worth waiting.

You can get an older motorhome quite cheaply and live in that for an extended period of time, or just a full-sized travel trailer (as opposed to a teardrop). If you aren't driving it, it doesn't cost more due to the weight! Say a Class C from the '80s or '90s. Then sell it when you're done (or go for a nice long trip first).

$800k... is $32k at 4% SWR. Plus your $2k (is that now or in 9 years?)... I'd say you're pretty loaded ;)

simonsez

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Re: Doing okay, second set of eyes to review our financial situation
« Reply #2 on: May 28, 2013, 11:50:33 AM »
$110k is NOT low income - it's really painful to read that! Yes, there are a couple of percent of families IN THE WORLD that earn more than that. Smiles!

OP mentioned her and her husband both work in professional jobs.  Given that information, 110k may or may not be low income.  I'm not sure why that is cringe-worthy when they give you a delineating piece of info like that which can make more precise comparisons rather than using broad averages/medians.  e.g. A heart surgeon making 60k a year may very well be above the national average or in whatever percentile in the world with regard to all income but so what?  This person is a heart surgeon!  If you knew that person without knowing his or her job, sure they're above average with the best info you have.  But when you know they are a heart surgeon, why wouldn't that be controlled for? 

the crossover I last read was that you have to reach 88 or something

??  There is no one-size fits all life expectancy at which if you "know" you are living that long that it will be beneficial for everyone to wait to maximize benefit(s).  I've created a work calculator to estimate that magical crossover age (with regard to Social Security) and it varies with the different inputs (note: I'm in the public sector with very pre-defined "salaries"). 

To the OP, I'd say you are in pretty good shape.  If paying for your kids college is such a big deal to you and serves a great use of your money to you and your husband's eyes, then so be it!  From the sound of it, you're able to live how you want while acknowledging where you money is going.  Nothing wrong with that.  To each their own.
« Last Edit: May 28, 2013, 11:54:07 AM by simonsez »

daverobev

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Re: Doing okay, second set of eyes to review our financial situation
« Reply #3 on: May 28, 2013, 12:03:03 PM »
$110k is not low income. It doesn't matter what job you do - what you do is what you do, how much you earn for it is something else. You could be the CEO of Apple earning $110k and it would still not be low income.

I'm not in the US so it might've been a Canadian number. But the point is still - if you're already financially independet, what on Earth is the point of waiting to take more money that you don't need. Might as well take it, factor it in, and forget about 'what if I only live 14 years, not 15!'. OP already has - IMHO - plenty of money and guaranteed income from pension.

I'm not trying to be nasty, or flippant. Basically the OP is correct - they are doing (much better than) ok. They could retire now, most likely, but choose to work for another few years to aid their children.

In terms of life insurance - the game has to be in the insurance company's favour as they have to pay office overheads, staffing costs, etc. If you don't need the security any more then yes, drop it. You are paying a premium for something you don't need. It's no different than playing the lottery.

simonsez

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Re: Doing okay, second set of eyes to review our financial situation
« Reply #4 on: May 28, 2013, 12:36:50 PM »
It is all about the context which you seem to be ignoring.  110k is not low in and of itself.  It may or may not be low when you parse it out.  Again, I don't know why you would choose to ignore the extra information and just use a broad comparison when you already have more information.  Maybe using the words low and income together in a sentence with an above average figure is throwing you off in which case this is pure semantics.  Would you have a problem calling the CEO of Apple underpaid if he or she earned an income of 110k?

1. 110k by itself - above average household income
2. 110k for 2 member household that both flip burgers at McDonald's - incredibly high for burger flippers
3. 110k for 2 member household that are both professionals - could be below average out of thosethat are both professionals

Or in Stats 101 speak E(x|y), 1. Expected value of (hh income given total population) = lower than 110k.  2. Expected value of (hh income given burger flippers) = extremely lower than 110k.  Expected value of (hh income given professional employment) = possibly higher than 110k.

If I say I have 300k in my 401k, is that high or low or have I done a good job or a bad one in accumulating that?  It depends on the context!  Am I 20? 60?  Have I been contributing 5% of my income or 20%?  Do I have a significant other?  Do they work?  How much house do I consume/will I consume in retirement?  Bull or bear for most of the time?  Allocation?  Do I have kids?  What do I want to do with my money?

If the CEO of Apple truly earned 110k per year, I don't think they would care about whether or not they earned more than the average person/household in the state/country/world.  The much more relevant figure for the CEO would be how his or her compensation stacked up with those at a similar level/experience.  So here in the forum I would guess the OP would care more about her and her husband's compensation as professionals in a low cost of living area and if that affects financial outlook rather than focusing on the national average household income when posing financial questions that pertain to the OP's life.

Jamesqf

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Re: Doing okay, second set of eyes to review our financial situation
« Reply #5 on: May 28, 2013, 12:38:11 PM »
Couple of comments (though this is really posted in the wrong place).

On taking SS &c: If you took the money now and invested it (I'm assuming you don't need it for living expenses), what is the chance that it would return more than the increased payments from waiting?  I think that's about 7.5%/year...

On building: If you're building in a rural area where you won't run foul of city ordinances, buy a used travel trailer/RV, get your septic/sewer & well in right away, and hook up to them while doing the rest of the construction.  Then you can sell the trailer for about what you paid.  I've several acquaintances who've done this.

aj_yooper

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Re: Doing okay, second set of eyes to review our financial situation
« Reply #6 on: May 28, 2013, 12:39:32 PM »
I would say you are doing very well regarding your finances and thinking through how you want to do retirement.  If you did a 4% calculation on your investments and add in your pension, you are around $56k without Social Security, plus you have no debts, a paid for home, and a lower general cost of living area.  I also like the part-time employment ideas for your glide into full retirement.  The health insurance is valuable so I personally would do what you plan; my wife and I are retired and we have a similar health insurance arrangement.  Given the health issues noted, are there things you both can do now to maintain or improve your physical well being?  We use pedometers (10,000 steps daily goal) and a local fitness center to keep active and do strength training.  We also use a relatively close university medical center for our health care.  Also, do you have health savings accounts, or variants at your work?  They could be useful to you. 

You have many more good questions, that will take time to answer, regarding selling your home and building a new one, construction loans, asset allocations, etc; I don't think you are missing things.  Have you done the FIRE calculations on your stash?

SnackDog

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Re: Doing okay, second set of eyes to review our financial situation
« Reply #7 on: May 28, 2013, 01:31:30 PM »
You may wish to consider taking out a home equity loan and investing it for the next ten years.  If you cash out, say, $250,000 and invest it for an 7.0% return (minus 3.0 interest rate; net 4% return) it could net you another $100,000 by 2023.  Comes with a refi cost and a bit of risk, depending on how you choose to pursue that 7% return.

Joet

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Re: Doing okay, second set of eyes to review our financial situation
« Reply #8 on: May 28, 2013, 02:03:43 PM »
OP your plan sounds marvelous, I share your concerns re: health care costs and I think working till you get your full pension makes perfect sense [assuming you still like the work].

Congrats and good job!

daverobev

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Re: Doing okay, second set of eyes to review our financial situation
« Reply #9 on: May 28, 2013, 02:40:05 PM »
It is all about the context which you seem to be ignoring.  110k is not low in and of itself.  It may or may not be low when you parse it out.  Again, I don't know why you would choose to ignore the extra information and just use a broad comparison when you already have more information.  Maybe using the words low and income together in a sentence with an above average figure is throwing you off in which case this is pure semantics.  Would you have a problem calling the CEO of Apple underpaid if he or she earned an income of 110k?

1. 110k by itself - above average household income
2. 110k for 2 member household that both flip burgers at McDonald's - incredibly high for burger flippers
3. 110k for 2 member household that are both professionals - could be below average out of thosethat are both professionals

Or in Stats 101 speak E(x|y), 1. Expected value of (hh income given total population) = lower than 110k.  2. Expected value of (hh income given burger flippers) = extremely lower than 110k.  Expected value of (hh income given professional employment) = possibly higher than 110k.

If I say I have 300k in my 401k, is that high or low or have I done a good job or a bad one in accumulating that?  It depends on the context!  Am I 20? 60?  Have I been contributing 5% of my income or 20%?  Do I have a significant other?  Do they work?  How much house do I consume/will I consume in retirement?  Bull or bear for most of the time?  Allocation?  Do I have kids?  What do I want to do with my money?

If the CEO of Apple truly earned 110k per year, I don't think they would care about whether or not they earned more than the average person/household in the state/country/world.  The much more relevant figure for the CEO would be how his or her compensation stacked up with those at a similar level/experience.  So here in the forum I would guess the OP would care more about her and her husband's compensation as professionals in a low cost of living area and if that affects financial outlook rather than focusing on the national average household income when posing financial questions that pertain to the OP's life.

You're missing the point. It's not all about comparing yourself to your peers; your peers are irrelevant, IF you are clearheaded about what you have.

The whole point of this site is to demonstrate to people that you do not need $1, 2, 5 million (!!!) to retire.

Anyway, I don't wish to argue the point, so I'll leave it there.

MrsPete

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Re: Doing okay, second set of eyes to review our financial situation
« Reply #10 on: May 28, 2013, 07:54:23 PM »
First, I posted this in the wrong section.  I intended to post in Journals, but I was poking around and put it in the wrong spot.  Oops. 

Second, I'm sorry I made the comment on $110,000 being a low salary.  That was a poor word choice on my part.  What I meant was that we live in a low cost of living area /low salary area, and as a result we earn less for our respective jobs than we would if we lived in another part of the country -- not that our earnings are low compared to the world as a whole.  Certainly we earn much more than fast food workers, much less than heart surgeons, but that's really a tangent that isn't relative to the discussion.  What IS a solid fact is that we earn roughly $110,000 together. 

Please explain "your age as fixed".  It may be common advice, but I don't know it.  We've always been crystal clear on the concept of save, save, save . . . but we're less clear on the exit strategy from saving to management of retirement funds.

I'm clear on what you say about taking government benefits as soon as possible.  I also wonder if it's a good idea to begin ASAP (ASAP being essentially two decades away) because it's harder to cut off a person who's already "in the system".  I suspect we're right on the bubble:  We may or may not be screwed over by Social Security.  I have no doubt about my kids though.  They're definitely going to get the short end of the stick.  Their generation is going to have it harder; that's one reason I feel strongly about helping them begin their professional lives debt-free.  They aren't going to have some of the benefits that we had when we finished college.

As for retiring now; yes, we could.  But it just doesn't feel right.  Although we have plenty of things we'd like to do and expect to have no trouble filling our days in retirement, they all feel "in the future".  As I said, we're both happy at work 90% of the time now.  And someone else put it nicely:  We are absolutely willing to work a few more years to see our children through college without debt.

Clarification on my pension:  If I put in another 9 years I'll retire with a full pension, which will at that point give me roughly $2,000/month, no-cost basic medical for myself, and the option to buy affordable medical for my husband.  Since we intend to stay in the work world 'til our youngest finishes college, it'll only be three more years 'til for the full pension.  If I retire earlier, it'd be with a lower benefit and my medical would cost.  If you asked me to stay in the work world an additional three years JUST for the paycheck, I'd refuse; however, the total benefit for those three years is rather large.  My family tends to live well into their 90s, so having the full benefit is really a strong motive:  It's a good hedge against inflation, which I fear will soar as Social Security crashes and burns. 

I love the idea of buying an RV to live in while we build our retirement house!  It never occured to me -- probably because I have absolutely no interest in owning a large RV -- but it would allow us to sell our current house and live "on site" to see what's happening every day.  Yeah, I'm sure the builders would love that.  I see these RVs for sale fairly often these days, and we joke about how no one can afford to fill them with gas anymore . . . but we're not talking about driving it around.  Since we're talking about a relatively short period of time, it'd be a good, low-cost option (assuming we sell it later for the same price we buy it, which seems reasonable).  We'd need a storage building for our furniture, but that's certainly not a deal-breaker. 

FIRE calculations?  I don't know what that means; so, no, I haven't done that.

Home equity loan /investment.  I know that in theory this can be a good idea, but it's not for me.  I was raised with no financial security, and I place a tremendous value on owing NOTHING to anyone.  My husband feels the same way: One of our major goals is to avoid borrowing even a single dollar for the rest of our lives.  This type of investment would be stressful to me, and it wouldn't be worthwhile. 

Thanks for the advice.  I'd gladly read more! 



daverobev

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Re: Doing okay, second set of eyes to review our financial situation
« Reply #11 on: May 28, 2013, 08:24:19 PM »
Good stuff :)

By your age as fixed, I mean:

If you take the *most* basic couch potato portfolio, of which there will always be 100%;

your age should be the percentage of that portfolio that is fixed/guaranteed income, vs the rest which will be "risky" (it doesn't actually work out like that as there is risk to the fixed portion - risk of inflation decreasing the value in real terms, even though it is slowly increasing in the actual number).

In short , if you are 25, you buy 25% fixed, 75% equities (plus REITs, precious metals, whatever). As you age gracefully, you gracefully increase the percentage of your portfolio that is fixed income (bonds/gilts/treasuries), at the same time decreasing the percentage of the "it can drop by 50%" category - as there is less and less time for the inevitable portfolio recovery.

There are lots of reasons to take that as a very loose rule of thumb, but it is a great rule of thumb nonetheless. It's a starting point, to be worked on when figuring your asset allocation.

Rural

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Re: Doing okay, second set of eyes to review our financial situation
« Reply #12 on: May 29, 2013, 06:56:42 AM »
On the subject of where to live while you build, you might also look at a Casita. They're small travel trailers, but they do have bathrooms. My parents bought a used one and have really loved it for several years, and my father lived in it for six months during the build on our house. Here's a link to the company website, but you might look at used.

http://www.casitatraveltrailers.com/showroom.html

aj_yooper

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Re: Doing okay, second set of eyes to review our financial situation
« Reply #13 on: May 29, 2013, 06:58:50 AM »



FIRE calculations?  I don't know what that means; so, no, I haven't done that.


You may have already ready these MMM posts, but here are some on safe withdrawal rate and retirement calculators.  He mentions firecalc.
Safe Withdrawal Rate:

http://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need-for-retirement/

Retirement Calculator for Canadians:

http://www.mrmoneymustache.com/2011/06/14/a-retirement-calculator-for-canadians-and-you-too/

The Shockingly Simple Math Behind Early Retirement:

http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

I found these retirement calculators and thought they might be helpful.  I like the Vanguard calculator.

Can I Retire Yet Comments on 3 Best Free Retirement Calculators:

http://www.caniretireyet.com/the-3-best-free-retirement-calculators/

http://www.caniretireyet.com/the-best-free-retirement-calculators-round-2/

Here is the link for a firecalc simulation.  You need to go through all of the tabs just to the right of start here for a full detailed run of the simulation.  Many MMM bloggers use this calculator.
http://www.firecalc.com