Can I (finally!) Retire in July 2017??

[NinetyFour]

Can I Retire in July 2017?

I posted this question in my journal and got some great feedback there, but I thought I would post it here to reach a wider audience.

About me:

* Single, 55 years young, no dependents.
* College professor in southwest Colorado.
* My house (main house + “Granny flat”) is worth approximately $340,000.  I rent out the main house and live in the "Granny flat".
* My understanding from TIAA is that if I retire after age 55, I can begin withdrawing my retirement funds.  I plan to roll everything over to Vanguard, because their expense fees are quite a bit lower than those of TIAA.


Where I am Right Now:

TIAA 401a:  $328,000 ($267,000 equity index fund; $61,000 bond index fund)
TIAA 403b:  $60,000
TIAA other:  $12,000 is in a “holding” account, which is collateral for a TIAA loan I am presently paying off
Vanguard Roth IRA:  $24,000
Vanguard Inherited IRA:  $25,000 (must take an RMD each year (and pay tax on that, but the RMD is small)
All Vanguard dollars are in VTSAX
Cash:  $6,000
Total of Cash + Investments:  $455,000

Mortgage balance is $190,450 at 4.375%
TIAA loan balance is $10,950 at 4.59%
No other debt

Gross annual income from college $80,000 (plus college contributes 11% to my 401a)
Rental income $1200 per month
Other miscellaneous income $500 per month

Expenses besides mortgage, since rental income basically covers that: $1000 per month.

Where I Think I Will Be in July 2017:

TIAA 401a:  $370,000 ($310,000 equity index fund, $60k bond index fund)
TIAA 403b:  $90,000
Vanguard Roth IRA:  $25,000
Vanguard Inherited IRA:  $26,000 (must take an RMD each year (and pay tax on that, but the RMD is small)
Cash:  $6,000
Total of Cash + Investments:  $517,000

Mortgage balance is $184,992 at 4.375%
TIAA loan balance is $10,950 at 4.59% this will have been killed
No other debt

Gross annual income from college $80,000 (plus college contributes 11% to my 401a)
Rental income $1200 per month
Other miscellaneous income $500 per month

Expenses besides mortgage, since rental income basically covers that: $1300 per month (assuming $500 per month for health care), which means $15,600 per year.  Let’s just round up and say $16,000 per year.

From the on-line calculators I have used, I think my health care will cost much less than this, but I’d like to be conservative at this point.

Other considerations:

After retiring, I might decide to rent out my smaller house for 6 – 9 months at a time, while I slow travel in the US.  (I would continue to rent out the main house as well.)  My expenses would be low, because I would mostly camp in my truck/camper combo.  I could rent my smaller home for about $800 per month.  I am guessing that my annual expenses, aside from mortgage would be about $11,000.  But let’s be cautious and keep the expenses (aside from mortgage) at $16,000.

Five years or so down the road, I might decide to sell my house altogether and travel full time (mostly in Canada, the US, and Mexico).  The mortgage balance will be down to around $150,000 at that point, so conservatively, after the sale, I should be able to add $100,000 to my stash. Hopefully, my lodging while on the road will mostly be in my truck/camper, but I might decide to settle down in one spot for 2 or 3 months at a time and rent a small apartment.  I am guessing that my annual expenses would be <= $18,000.

What About Social Security?

My SS benefits will be small.  According to their website, I could receive $488, $701, or $869 per month at ages 62, 67, and 70, respectively.  These numbers are small compared to most people’s, but for me, they represent a significant chunk of my typical non-mortgage monthly expenses.


Your feedback is most welcome.

Thanks!

94

[MDM]

Can I Retire in July 2017?
...let’s be cautious and keep the expenses (aside from mortgage) at $16,000.

Assuming the rent cancels the mortgage, and that you have no side income, the rough estimate of your invested assets needed = $16K * 25 = $400K.

Assuming the Trinity study results are predictive, you should be ok.  Enjoy!

[NinetyFour]

Many thanks, MDM!  (That was the answer I wanted to hear!)

Anyone else have any thoughts/feedback?  I'm still nervous about making this decision.  I will probably have to make it official in 2 months or so, as my department will have to do some planning ahead.

[pbkmaine]

Do NOT roll over your money to Vanguard until you are 59.5. The magic age for withdrawal without penalty from a defined contribution plan is 55, IF you separate from service in or after the year you turn 55. However, that is NOT the case with an IRA. It's always 59.5 there.

[mathjak107]

many are confused by the age 55 deal .

the ability to get your money out of a 401k or defined contribution plan  without penalty at 55  only holds true if your company has provisions for periodic withdrawals in it's plan . most do not . very few allow periodic payments from the plan .

if that is the case you can only rollover the lump sum to an ira  and 72t the money . but assuming you left the company , you can do a 72t election at any age earlier than 59-1/2

[NinetyFour]

Do NOT roll over your money to Vanguard until you are 59.5. The magic age for withdrawal without penalty from a defined contribution plan is 55, IF you separate from service in or after the year you turn 55. However, that is NOT the case with an IRA. It's always 59.5 there.

Oooooh--I had not realized that before!  Thank you!!

I guess I could rollover a good chunk of it to Vanguard, but keep in TIAA what I will need to get me to 59.5, right?

Also, I see that when I do a rollover to Vanguard, I would have the option of a traditional IRA or a Roth IRA.  However, since my future income will be very low, and I will probably not be paying taxes, I don't think a Roth conversion would be helpful to me.  Am I right about that?

[NinetyFour]

many are confused by the age 55 deal .

the ability to get your money out of a 401k or defined contribution plan  without penalty at 55  only holds true if your company has provisions for periodic withdrawals in it's plan . most do not . very few allow periodic payments from the plan .

if that is the case you can only rollover the lump sum to an ira  and 72t the money . but assuming you left the company , you can do a 72t election at any age earlier than 59-1/2

Thanks for your comments, mathjak!

TIAA has told me a couple of times that I will be able to access my funds (penalty-free) if I retire at age 55, but I will double check with them tomorrow.

You and I are at about the same total net worth, same house value, same yearly non-mortgage spending, both work at universities, and are looking to FIRE around the same time.  So yes, your numbers look great to me!

Hi Knaak--thanks for your comments!  Glad to hear that my numbers are looking to good to you!

Last year we got a new HR director and I asked him about adding Vanguard options to our TIAA accounts.  As of last month, we now have some!  As far as I'm aware there was no cost to the university, just some paperwork for the HR director to fill out.  Might be worth asking your HR director if s/he can do the same for your university.

Our college is part of a consortium as far as benefits are concerned, so our college cannot unilaterally make a change like that.  But I can mention it to our HR department, who can relay it to the whole consortium.

Also, is your mortgage rate based on being a primary residence or a rental?  That rate seems high if it's still considered your primary residence.  A 30 year right now averages 3.4% and a 15 year averages 2.7%.  Have you thought about refinancing before you retire?

I refinanced in September 2013, and I was told that because my property was viewed as an "investment property", the mortgage rate would be higher than it would otherwise.  I am meeting with a real estate friend in a few days, and I will ask her whether I should revisit this.  Thanks for the encouragement to think about that.  I wish my crystal ball could tell me how much longer I will own this property.  If I end up selling in 5 years or so, a refi might not be worth it.  Hmmm.....more to think about!

[Cassie]

Do you get a pension?  When we worked for the state we had deferred compensation program ( I think it was a 457B) besides our pensions. WE could take this $ at age 55 only if we were no longer working for the state.  Then my DH went to work for the county and his rules were different then mine because each employer can pick their own rules. For instance he could borrow against it while still working and I could not.  So I would just clarify with the plan but it sounds right to me.

[NinetyFour]

Nope--no pension.  :(  Just my stache.

[NinetyFour]

Just got off the phone with TIAA.  They assured me once again that yes, I can access my retirement funds, penalty free, if I retire at age 55.  Yay.

Still hoping that more MMM folks will look at my details and weigh in on the question:

Can I (finally!) Retire in July 2017??

So far, no one has said I am crazy stupid to even consider it, so that's promising...

Thanks in advance!!

[terran]

Just got off the phone with TIAA.  They assured me once again that yes, I can access my retirement funds, penalty free, if I retire at age 55.  Yay.

Here is confirmation of both what TIAA is telling you and pbkmaine's point about not rolling over to an IRA: https://www.irs.gov/taxtopics/tc558.html

The following additional exceptions apply only to distributions from a qualified retirement plan other than an IRA:

1. Distributions made to you after you separated from service with your employer if the separation occurred in or after the year you reached age 55...

[NinetyFour]

Just got off the phone with TIAA.  They assured me once again that yes, I can access my retirement funds, penalty free, if I retire at age 55.  Yay.

Here is confirmation of both what TIAA is telling you and pbkmaine's point about not rolling over to an IRA: https://www.irs.gov/taxtopics/tc558.html

The following additional exceptions apply only to distributions from a qualified retirement plan other than an IRA:

1. Distributions made to you after you separated from service with your employer if the separation occurred in or after the year you reached age 55...

Thanks, terran!

[arebelspy]

You're close.. perhaps on the risky side of close, for me, given the mortgage payment (and stache of ~340k if the mortgage was paid off), especially given you're keeping the mortgage, and relying on the rental income to cover it (e.g. a vacancy is rough).  What's the monthly PITI?

[NinetyFour]

You're close.. perhaps on the risky side of close, for me, given the mortgage payment (and stache of ~340k if the mortgage was paid off), especially given you're keeping the mortgage, and relying on the rental income to cover it (e.g. a vacancy is rough).  What's the monthly PITI?

Monthly PITI is $1272.

This is a college town, and the location of my house is very desirable, so I usually have no trouble renting.

That said, right now, I am guessing that I will sell the house in less than 10 years, because it stresses me out.  Yes, the rental income is nice, but the main house feels like a time bomb, in that something major could go wrong with it at any time.

Thanks for your comments/questions, ARS!

[arebelspy]

Monthly PITI is $1272.

This is a college town, and the location of my house is very desirable, so I usually have no trouble renting.

That said, right now, I am guessing that I will sell the house in less than 10 years, because it stresses me out.  Yes, the rental income is nice, but the main house feels like a time bomb, in that something major could go wrong with it at any time.

Yeah, that would worry me, PITI of 1272 with gross rents of 1200.  A vacancy for a bit is painful, and any repairs comes straight out of your stache, since there's no buffer to set aside from rents.  I'm not sure why you call it a time bomb, is the house old?

When you sell you'll unlock some trapped equity, but then you'll have to start paying to rent.  Do you anticipate living in the same town?  If so, how much are rents for the area for the size you're looking to rent?

It'd be a problem if you couldn't sell, because your stache didn't cover the higher budget needed for renting, so you were forced to keep it for the cheaper living expenses, but then big repairs hit and that caused ER failure.

Like I said, you may be on the risky side of close to me.

Running the numbers on it, if you sold in July 2017, house value 340k, 10% selling costs, paying off 185k mortgage, leaves you with 121k from the house sale, plus the 517k anticipated stache at that time = 638,000 stache.

At 4%, that leaves an annual budget of 25,520.

Your non-housing anticipated budget is 15,600/yr.  That leaves ~10k for housing.  Can you rent for ~800/mo.?  I'm guessing that's a "maybe" if the whole house you're renting out is 1200, and you need a smaller place.  But it's probably right on the edge, like I said.

So tough call.  It really depends on how reliable that "other miscellaneous income" is (which you have at 6k/yr), how much you'll be willing/want to pick up other side gigs (maybe teach a class or two, rather than a full slate), and/or how flexible the budget is.

You're close though, very close.  :)

[NinetyFour]

Thanks for that detailed analysis, ARS!  Just what I needed.

I am in the process of asking my bosses if I can transition to half-time for the 17 - 18 academic year.  If that were to happen, I could probably add another $35 - 50K to my stash.

You may not be aware, ARS, that I recently bought a truck/camper combo.  So living in my truck/camper is a very real option for me--thus avoiding rent.

Lots for me to think about!

Thanks again!

[NinetyFour]

Monthly PITI is $1272.

This is a college town, and the location of my house is very desirable, so I usually have no trouble renting.

That said, right now, I am guessing that I will sell the house in less than 10 years, because it stresses me out.  Yes, the rental income is nice, but the main house feels like a time bomb, in that something major could go wrong with it at any time.

Yeah, that would worry me, PITI of 1272 with gross rents of 1200.  A vacancy for a bit is painful, and any repairs comes straight out of your stache, since there's no buffer to set aside from rents.  I'm not sure why you call it a time bomb, is the house old?

A couple more thoughts.

A friend of mine who has several rentals (here in my town) told me that my rental price is probably too low.  So I will be hiking that in the future.  (Have a brand new tenant right now, so can't jack the price up immediately.)  The friend told me that I could probably get $1500!

Also, you asked if the house is old.  Yes, it was built in 1898!!  Actually, it's probably in pretty good shape.  Every now and then, I get kind of paranoid about it, though.

[hoping2retire35]

I agree with what ars said. Figure our your mortgage/housing situation before you pull the trigger. That is a big mortgage to have in retirement, relatively.

maybe another year or two of working and paying down the principle then refinance or just sell and take the principle (or chunk of it) to a new smaller paid off residence; then retire.

[FrugalFan]

I agree with ARS that you are very close, but I would feel more confident not relying on the rental income (i.e. if the 4% rule could cover all your expenses including living expenses, especially because you don't seem to include any buffer for vacancies, regular maintenance and large repairs, etc).

Scaling back to part time might be a great way to transition.

[Life in Balance]

If you sold the house over the next year, could you buy outright a different smaller place to live?  Then, your future expenses would be more predictable as the question of vacancies, large repairs becomes less of an issue. 

[NinetyFour]

You could try renting the smaller house out on a short term basis (air bnb etc) and living in the van for a few days/weeks at a time.

Thanks for this suggestion, lhamo!

I e-mailed a staff person in our City's Planning Department.  He said that if I rent the smaller house out for less than 30 days, the City will consider it a Vacation Rental, for which I need a special permit, etc.  So if I want to rent it, it would have to be for longer than 1 month at a time.  I probably would not be able to do that during this coming academic year or even next summer (because of work-related commitments).  But I am decluttering my house, with the intent of having most of it cleared out for potential future tenants.  I live in a very desirable touristy town and probably wouldn't have much difficulty attracting people who wanted to spend 6 weeks to 6 months here--who knows, I might even offer a discount to MMMers!!

I personally think the pt option is wise as a transition strategy. But I have this doppelganger I call my Inner Bag Lady who sometimes takes over like a zombie queen, so take that comment with a large train of salt!

Yep--I sometimes listen to my IBL and I sometimes tune her out!

I should get some feedback from the Provost tomorrow or Friday about the half-time possibility.

Now that I have gotten more feedback from you and other posters, I am at peace with the idea of working 2 more academic years, even if the second one has to be full time (if the half-time request is not approved).  If I work 2 more full years, I will have an absolute shitload of money and will be able to retire in relative luxury!!  :)

[Exhale]

I e-mailed a staff person in our City's Planning Department.  He said that if I rent the smaller house out for less than 30 days, the City will consider it a Vacation Rental, for which I need a special permit, etc.  So if I want to rent it, it would have to be for longer than 1 month at a time.  I probably would not be able to do that during this coming academic year or even next summer (because of work-related commitments).  But I am decluttering my house, with the intent of having most of it cleared out for potential future tenants.  I live in a very desirable touristy town and probably wouldn't have much difficulty attracting people who wanted to spend 6 weeks to 6 months here--who knows, I might even offer a discount to MMMers!!

Depending on the size of where you live, you may wish to consider having a housemate for the remaining time that you're working. Although it's not always fun to share a space (especially if it's small), but it'd be short-term and allow you save more. Just a thought...

[NinetyFour]

I agree with what ars said. Figure our your mortgage/housing situation before you pull the trigger. That is a big mortgage to have in retirement, relatively.

maybe another year or two of working and paying down the principle then refinance or just sell and take the principle (or chunk of it) to a new smaller paid off residence; then retire.

Thanks for these comments!

I'm pretty sure that I will not be a homeowner again, once I sell this house.  I'm pretty sure that I would want the flexibility of renting/traveling.  Also, as I mentioned, I would like to do quite a bit of traveling with the truck/camper and pay no rent at all!

I agree with ARS that you are very close, but I would feel more confident not relying on the rental income (i.e. if the 4% rule could cover all your expenses including living expenses, especially because you don't seem to include any buffer for vacancies, regular maintenance and large repairs, etc).

Scaling back to part time might be a great way to transition.

Thanks for your comments!

I do think I have some buffer in my retirement budget, but you're right--it might not be enough.  If I were to have a major house repair and/or a major truck repair, I could be facing lean times!  So, yes, I am now convinced that working the 17 - 18 academic year is probably wise--to build up more of that buffer.

If you sold the house over the next year, could you buy outright a different smaller place to live?  Then, your future expenses would be more predictable as the question of vacancies, large repairs becomes less of an issue. 

Good question--I'm not sure, but I think the answer is no.  This town's housing is pricey--it is the one thing that makes it tough for us to hire faculty at my college, in fact.  Our low-ish salaries make it tough for people to afford to buy homes here.

The other thing is, as I mentioned in my response to TB, I think that once I sell this house, I will want the flexibility of renting/traveling/camping--and no longer being a homeowner.

Thanks for your comments!

Depending on the size of where you live, you may wish to consider having a housemate for the remaining time that you're working. Although it's not always fun to share a space (especially if it's small), but it'd be short-term and allow you save more. Just a thought...

I had to chuckle when I read this, Exhale!  Sorry--I know you are trying to be helpful, but my house is really small.  It consists of one living room that is less than 20 by 20, a full bathroom, a kitchen that is about 10 by 6, and a sleeping loft that is accessed by a ladder.  One can stand upright in the "middle lane" of the loft, but then the ceiling slopes down on either side.  That's it!  Small.

BUT.  As I alluded to above, I am gradually getting rid of my belongings, and thinking that once I retire, I could go be a campground host for 3 months and rent out this little house...or go live in Romania for 2 months and rent out the little house...or other similar crazy things like that!  :)

Thanks for chiming in!

==================

I met with my real estate friend this morning.  I wanted to quiz her about my house.  I reminded her that the house next to mine just sold for $340K.  She said that because of my "granny flat" (that is legal, according to the city), she would immediately add $40K.  She said if she were to try to sell it today, she would start by listing it at $400 - 425K.  Jeepers!  She said $375 - 425K would be her range--in today's market.  She said that houses downtown with legal "granny flats" are hard to find.

I told her that I might want to sell it in 5 - 10 years.  She said that I should be in good shape in 5 years, but keeping it for 10 years might be risky, as her crystal ball tells her that there might be a recession in 10 years.

She also thinks that I could rent out the little house for $1200 per month.  Wow.  Not sure if she remembers how small it is.  It's really the location that is its best feature.  Walking/biking distance to shops, theaters, the college.

I trust this real estate friend.  She doesn't need my business.  That said, I'm not going to count on being able to sell at $400K--but it was nice to hear that number!

==============

So, because of your insightful comments, right now, I am thinking that yes, I will work two more academic years.  The second one might be part-time--we'll see.

If I work 2 more years, both full-time, my crystal ball tells me that my stash will be $605K and my mortgage will be $179K.  If I sell a few years later and am able to add another $120K to my stash, that would bring it to about $725K.  That would provide me with a fairly comfortable retirement, I think.

Thanks again, everybody!

[gldms]

Would your health care costs really be as high as $500 a month? Your adjusted gross income (line 37, 1040) should be small enough to make you eligible for a full subsidy.  Even assuming you have no cost-basis in your 401 funds (1040 line 16a vs 16b) and no deductable expenses associated with your gross rental income (schedule E), you'd only have a gross income of $29400.  That puts you well inside the subsidy zone, but that's an upper limit; your actual (line 37, 1040) adjusted gross income should be much smaller still.

[NinetyFour]

Would your health care costs really be as high as $500 a month? Your adjusted gross income (line 37, 1040) should be small enough to make you eligible for a full subsidy.  Even assuming you have no cost-basis in your 401 funds (1040 line 16a vs 16b) and no deductable expenses associated with your gross rental income (schedule E), you'd only have a gross income of $29400.  That puts you well inside the subsidy zone, but that's an upper limit; your actual (line 37, 1040) adjusted gross income should be much smaller still.

Hi gldms--thanks for commenting.

Yes, I believe you are correct.  I used the Kaiser ACA Calculator and when I entered a projected MAGI of $20,000, it predicts that my premium for a Silver plan will be $83 per month.  At this point, I want to be a bit conservative, though, and have a buffer for out of pocket expenses.

I talked to a local insurance broker yesterday, and she confirmed that if my MAGI is that low, my premium will indeed be quite cheap.

For those who are curious, here is what my retirement budget looks like, as long as I stay in this house:

Groceries: $200
Truck Insurance/Registration/Misc.:  $100
Gasoline:  $60
Electricity:  $40
Gas:  $60
Phone: $25
Water/Trash:  $75
Internet:  $40
Hockey: $80
Bike Stuff:  $20
Health:  $400
Misc:  $200
Truck/Camper fund:  $100
House Fund:  $100
Total:  $1500 monthly or $18,000 annually^*

* this assumes that rental income covers the mortgage payment

This is a bit different from what I wrote about expenses earlier;  at someone's suggestion in my journal, I added a fund for my truck/camper and a fund for my house.  I think there is flexibility here:  I probably won't always spend $200 for groceries each month, and the $200 for miscellaneous is also high.

***************

It has really helped to go through this process, and again, I thank those who took the time to comment (both here and in my journal).  I am pretty excited that, most likely, I will only be working 2 more years.  Woo hoo!!

[arebelspy]

You may be able to be done in one, depending on the house thing, but OMY seems like a good idea.  :)

I'm not clear on why you're waiting 5-10 years to sell?

[NinetyFour]

You may be able to be done in one, depending on the house thing, but OMY seems like a good idea.  :)

I'm not clear on why you're waiting 5-10 years to sell?

Yeah, I guess I am conflicted about the house.

* For starters, I don't have a clear plan for what I want to do after retirement--and I don't know if I want to keep my "home base". 

* As long as the rental income covers the mortgage, it's like I get to like in this awesome town for free. 

* The rental prices here are steep.  If I do want to maintain a home base here, it makes sense to hold on to the house.

* On the other hand, home ownership can be stressful.  Do I really want that stress for another 5 to 10 years?

* Just recently, I have started to think about how nice it would be to not have the stress, worry, and expense of a house.  I will definitely not be selling before I retire, but I can't picture holding on to the house for 10 years.  Hence the time frame of 5 - 10 years.

If that seemed rambly and scattered, it is because I am conflicted and uncertain.  But I have some time to try to get more clarity.

[arebelspy]

OMY is good for uncertainty--it gives you extra money, which gives extra flexibility.   Reevaluate in 6-8 months with where you're at.  :)

[happy]

When I read your plans 94, I worry that 5k a year might not be enough buffer for the uncertainties of the years to come.  Will it cover housing maintenance - not relevant once/if you sell.  I can see a low cost semi-nomadic life for 10 -20 years  or so will be fine for you, but what about when you are 80 or 90?  So I would vote for another year or 2.

It took me a while to decide to post this, because this worry might be my issue not yours. My numbers are a little more generous than yours, but not a whole lot. Whilst I am sure I can live within my basic expenses budget, things like bigtime repairs to the house, or some other major unforeseen expense does worry me.

[arebelspy]

I can see a low cost semi-nomadic life for 10 -20 years  or so will be fine for you, but what about when you are 80 or 90? 

If one can live well under a 4% WR for awhile, it can give the stache time to grow.

[mathjak107]

we are finally breaking even on what we spent down the last 2 years . i am fully retired 1 year and was part time the year before . returns were pretty poor right up until recently for us so we were burning principal day 1 .

we are just about back to the pre-retirement high .