Author Topic: Can I retire?  (Read 7273 times)

KristiW

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Can I retire?
« on: September 25, 2013, 07:35:38 PM »
Hello Everyone,

I would love advice about retiring early from some Mustachians.  I am a public school teacher and make $63,000 year.  At the end of this school year I will be 56 and that is when I would like to finish my teaching career. My house is worth around $350,000 and is paid off, yearly taxes and insurance of $4,000. A smaller house would be better, but for now this one suits me because I garden, raise chickens, and wool sheep. My family lives nearby and my house is one of the least expensive in the area, so difficult to downsize and keep the same lifestyle.  Also, I have no debt. Drive a 2009 Mini and a beach cruiser (bike). Also, own a couple of assets worth around $50,000 that I can sell when needed.

I am a widow and have one child left at home, who is in high school. Social Security pays $18,000 a year for her care until she graduates. That will be when I am 59.  At 60, I may take 71% of my husbandís Social Security and my teaching pension, which adds up to $20,000. The man who is buying my late husbandís guitar shop pays me $6,000 a year and owes $58,000, but this is tenuous due to the economy and new competition.

I have $200,000 in Vanguardís Balanced Index Funds, recent acquisition. Iíve been listening MMM! By the end of this school year there will be $200,000 in my credit union earning 2% interest.

I believe that I will need between $30-35,000 a year because I have a weakness for travel, good wine, and farm animals. ;)

I shudder as I write this, because I love my parents so much, but at some point I will inherit quite a bit from them.

OK, there are so many Iís in this piece that it makes me blush!!

Thanks for your help,

Confused Cowgirl

RootofGood

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Re: Can I retire?
« Reply #1 on: September 25, 2013, 07:52:51 PM »
Sounds like you are in a good position.  $20,000 per year guaranteed income starting in a few years and expenses of $30-35k.  You have around $450,000 in assets, mostly liquid, so you can withdraw around 4%, say $16,000 per year.  You can take the $16k/yr from your investments plus the $18k for your daughter until you start drawing your husband's SS and your pension.  Treat the guitar shop money as fun money and satiate your travel bug.

You have a house that could be collateral on a reverse mortgage if worse came to worst. 

One suggestion - track expenses to see what you are actually spending to make sure it is close to $30-35k. 

KristiW

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Re: Can I retire?
« Reply #2 on: September 25, 2013, 08:01:08 PM »
Thank you for your suggestions and yes, I have started tracking daily expenses on a calendar. Also, pay most everything with a debit card, so easy to track that way too.


RootofGood

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Re: Can I retire?
« Reply #3 on: September 25, 2013, 08:02:44 PM »
Thank you for your suggestions and yes, I have started tracking daily expenses on a calendar. Also, pay most everything with a debit card, so easy to track that way too.

That's what I do - charge everything or autodraft from checking.  Copy/paste all my transactions into a spreadsheet 1x month and done.  Plus enter the handful of cash transactions I do each week as they occur. 

StarryC

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Re: Can I retire?
« Reply #4 on: September 25, 2013, 08:33:43 PM »
I don't think you want to count your house, since you don't want to liquidate it. But, you can do it if you are willing to take on a little more risk!

Current assets: $400,000.  But only $200,000 of that is going to earn anywhere near enough to provide you with income. Maybe make that $300,000 by moving more to the Vanguard from the checking account?  $100,000 is 3 years of living expenses, and after the SS, it is more like 6 years.  I don't think you'd need more than that in "cash" that is not earning a return.

So, I'm assuming that you, and your child, when you retire at the end of this year will need $35,000 a year to survive until you are 60, at which point you'll get additional income.  That's 4 years and $140,000. 

SS income in that time: $18,000 x3 years= $54,000
4% SWR on the $300,000 in Vanguard= $12,000 x 4 years=$48,000
Guitar shop sales: $6,000 x 4=  $24,000
2% interest on deposits $2,000 x 4= $8,000

Total: $134,00  So, you would probably need to cut $1,500 in annual expenses, invest $37,500 more in the Vanguard, sell an asset, or work enough to bring in $1,500 a year.   If the assets aren't appreciating and you view them as financial rather than sentimental, I would sell one and add that to the Vanguard.  That would bring the number up to $14,000 from the market, which when added to the $18,000 SS would be $32,000 a year and it sounds like you could make that work if necessary.  Or, as a public school teacher with a kid still in school, I would think you could easily substitute teach or tutor enough to bring in that much annually? 

Then from 60 on you have $35,000 a year needs- $20,000 a year fixed income.  So, you need assets paying out $15,000 a year. I'm thinking we shouldn't count on the guitar shop at that point, to be safe.  That would be $375,000 invested.  Add an additional $25,000 from the sale of an asset or additional income over the past 4 years in the Vanguard (or maybe more?). 
Now let's try:
4% SWR on $325,000 in Vanguard: $13,000
2% interest on $100,000 in checking: $2,000

Your backup/ safety nets: The guitar shop may keep paying for a long time, you could substitute teach, you could probably reduce your expenses to $30,000 a year and need only $250,000 in the Vanguard to kick off $10,000, presumably at 65 or 67 you can take your own social security (right?), liquidate the $50,000 in assets, or sell the house/ reverse mortgage.

KristiW

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Re: Can I retire?
« Reply #5 on: September 25, 2013, 09:04:29 PM »
Thanks for the breakdown of my finances. Yes, I've thought about putting more money in Vanguard. It's just new for me and slightly frightening. Have you experience with this? Is it a reliable yearly income?

Your backup/safety net ideas are particularly valuable.

Another Reader

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Re: Can I retire?
« Reply #6 on: September 25, 2013, 09:08:16 PM »
In your shoes, I'm working two to three more years to bulk up my investments.  I just would not be comfortable today with the assets you list, even with a free and clear house.  4 percent on $300,000 is not what I would call safe in your situation.  What if the market crashes and the value of those assets is cut in half?   

What's especially concerning is you do not have a good handle on your current and future expenses.  What about medical insurance if you leave now?  You have not mentioned college for the last kiddo.  How will that be financed?  Eventually the car will have to be replaced as well.

I would probably look at getting out about the same time the youngest graduates.  I would build up my assets in the meantime and look for part time work in something I liked once I did retire.  Before I did anything, I would track all my expenses for at least a year to make sure I was comfortable with the numbers you estimated.

gooki

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Re: Can I retire?
« Reply #7 on: September 25, 2013, 10:36:25 PM »
You already have a reliable income via social security/pensions. So the vanguard investments should be seen as long term investments the can be sold down as required, not necessarily a constant source of income

happy

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Re: Can I retire?
« Reply #8 on: September 26, 2013, 01:37:46 AM »
Sounds like you are close, but maybe not quite there yet. The common advice on this forum is not to count inheritances in retirement planning. Try using Todd Tresidder's Ultimate Retirement Calculator.... its a beauty and should be able to handle all your different stages of income I think.http://financialmentor.com/calculator/retirement-calculator. Run some numbers using different return rates etc.

I think I agree with AR, I'd work until my last child cleared school / had a plan for college. (in fact I'm 54 and my last child finishes high school end of 2015, and that's what I will be doing).   One potential downside of retiring not so early is that it could be harder to pick up more work in 10 years or so if it becomes apparent you need to.

nz

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Re: Can I retire?
« Reply #9 on: September 26, 2013, 01:42:23 AM »
How much do you like your job? I think this is perhaps the most important question.

If you really hate your job then you could probably quit straight away......but if you gain some pleasure/satisfation from teaching then you might want to carry on......remembering that your financial position improves with every pay check.

I 'retired' from teaching about 6 months ago......for me it was the right time...disillusioned with my job and financially ready.

StarryC

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Re: Can I retire?
« Reply #10 on: September 26, 2013, 10:11:15 AM »
I don't have experience trying to withdraw from Vanguard funds for support. 

The 4% withdrawal rate is a safe average over a long time, but I think the conventional wisdom around here is that if you don't see growth at 4% or above you would try to avoid withdrawing by reducing your expenses.  The more conventional wisdom in retirement planning is that you would want the assets you need for the near future (3 years? 5? 10? I don't know) in a safer but lower return asset class, like a bond.  Your checking account at 2% is making more than a lot of bonds, so that might be it for you. 

Your situation might be specific enough, tangible enough, and near enough in the future that you should probably talk to someone who actually does this.  Does your school/ union/ pension fund have someone who could help you? 

KristiW

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Re: Can I retire?
« Reply #11 on: September 26, 2013, 05:42:16 PM »
Yes, New Zealand, you have identified the underlying problem. I am disillusioned with teaching. As a veteran teacher, it is difficult to watch the negative changes affecting education and I've just had it!

I do have a handle on my expenditures but didn't want to spell it all out for brevity's sake. The most that I seem to spend is around $25,000 a year. I've decided to budget $30-35,000 for other things that come up like daughter's college tuition, an extra big trip, or anything unexpected. She has $16,000 saved for college and will be going to the community and then state college in our area.


nz

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Re: Can I retire?
« Reply #12 on: September 26, 2013, 06:31:17 PM »
Sounds like you're ready.........  You've done your sums.....

In my case I 've never been happier, do a bit of substitute teaching ( on my terms!) more family time and lots of hobby time.

Enjoy!
« Last Edit: September 26, 2013, 06:34:03 PM by nz »

desrever

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Re: Can I retire?
« Reply #13 on: September 27, 2013, 09:34:41 AM »
Where on earth does one find a checking account that yields 2%?

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Re: Can I retire?
« Reply #14 on: September 27, 2013, 09:58:17 AM »
If you want realistic opinions on whether other people would choose to retire in your shoes, you need to give them all the income and expense information.  You may have over or underestimated components of both.  What are the assets you could sell?  Art work?  Gold coins?  How stable the value of these assets is becomes a factor without the job income.  What about your taxes?  With a paid off house, once the last child is off the payroll, your taxes will increase, at least a little.  Have you factored that in?

I'm not in favor of working forever to get that last one percent certainty of retirement success.  However, from what I have seen here, I'm not confident enough to say I would retire with this financial scenario.  It appears from your question about the stability of the income from the mutual fund investment that you do not have a thorough knowledge of investing.  Stock mutual funds will drop in price (correct) quite often.  It's likely that at least once during your retirement they will drop 40 or 50 percent.  What will you do if that happens, especially if you are unable to go back to work?

In your shoes, I would do a lot more investing homework.  In the meantime, I would practice living on the proposed budget and track the expenses very carefully.  I would maximize my savings and investments while doing this.  Do you have a 403(b) plan in addition to your pension?  This might be something to look at if it is available.

I would not sign the retirement papers without being absolutely sure of my assumptions, no matter how much I disliked the changes in the education system.  I'm pretty sure I would grit my teeth and work a couple more years, but YMMV.

KristiW

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Re: Can I retire?
« Reply #15 on: September 27, 2013, 05:48:03 PM »
You are correct, I don't have a thorough knowledge of investing, as I said, it is new to me. Also, it is not a checking account but a 17 month certificate that is earning 2%.

The two assets that are worth at least $50,000 or more are a 1940 Ford truck and a '59 Stratocaster guitar. The strat was worth $50,000 before the recession, but now is more around $25,000, yes I have had it appraised by three people. I'm waiting for better times to sell. The truck is sentimental because my dad rebuilt it and it is gorgeous. Will hang on to it as long as possible.

Here are my expenses per year:

*House taxes and insurance: $4,000- taxes will go down if I have a lower income because I am a widow, don't know how much because I have to apply for it.

*Food, Dining out, Wine:  $7,000

*Health Ins. under ACA, RX, copays: $1,800

*Gas, car ins., maintenance: $3,000

*Utilities, trash, Comcast: $3,250

*Animals: $1,000

*Clothes, haircuts: $1,200

*Yard & house stuff: $800

*Gifts: $1,000

*Travel $2,000

That adds up to about $25,050.

Every 3 years I like to go on a bigger trip, around $5,000.

That's what I've come up with for now.






chasesfish

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Re: Can I retire?
« Reply #16 on: September 28, 2013, 08:30:34 AM »
Cut the cable and go enjoy retirement

Another Reader

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Re: Can I retire?
« Reply #17 on: September 28, 2013, 08:58:34 AM »
Are the truck and the guitar insured for their full value against theft and destruction or damage?  It's risky to have these things at home, especially if they are not fully insured.

Does this include the expenses for your child?

How have you estimated your healthcare costs under ACA?  Have you looked at the rising costs of premiums as you go from your current age until you are eligible for Medicare?  In California, it's a fairly steep slope.  The unsubsidized premium for a 60 year old for the lowest cost silver plan is $740 a month.  It's less if you are in your mid-50's, more as you approach 65.  You will get a subsidy at your proposed income, but you may have trouble getting it "pay as you go" the first year.

Instead of tracking daily expenses on a calendar, try Mint or if your bank or credit union offers something similar, try that.  Among the big banks here, Wells Fargo offers My Spending Report and B of A offers My Portfolio, which is more comprehensive.  If you look at your finances like you are a business, it's easier to see where the money goes.

In your shoes, I would take a close look at your investments at Vanguard.  A balanced fund means a mix of stocks and bonds.  Understanding the risks and rewards of what's in these funds may change your perception of how much they can be counted on for your income.

You can plan more accurately and less emotionally when you understand and control your money.  You have made a good start, but a better understanding of how your assets and pension fit together will increase your confidence. 

KristiW

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Re: Can I retire?
« Reply #18 on: September 28, 2013, 10:17:34 AM »
Yes, the truck and guitar are insured. Unfortunately, the guitar can only be insured up to 20K. I would love to sell it now but that seems foolish because of the current value. It frightens me to have it at home but what else can I do? It is hidden in the back of a closet behind my daughter-in-law's wedding gown! My house was broken into last year and the little turds took my iMac and a drawer from an antique sewing machine full of bobbins, strange... Glad they didn't find the guitar stash.

I have included the costs for my daughter. My expenses are at 25K, but I am padding that number up to 30-35K for extras that she or I might need.

Under our Washington state health calculator, the costs of health care are very similar at 56 and 65. So that doesn't seem to be a problem.

I will talk to my credit union, about tracking my expenses. I'm sure it can be done and I will educate myself more on Vanguard. I just purchased the index fund in August and learned quite a bit then. But I am definitely green and will read more.

And yes, I am planning on dumping cable in the spring when my 2 year contract is up with evil Comcast, but I need to find a reliable high-speed internet. They seem to get you coming and going. If you don't bundle, they raise the individual costs higher.
All that I really watch on tv are movies and PBS. I figure that I'll get Netflix and find out how to get PBS without much cost.

Another Reader

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Re: Can I retire?
« Reply #19 on: September 28, 2013, 10:50:01 AM »
All steps in the right direction!  Have a look at Mint.com to see if you like the way it categorizes and tracks expenses.  Check your credit union's website - they may have a Yodlee-based program already there for you to use.  In the Bay Area, Provident's version is "financeworks."  There are some good basic investing threads over at the bogleheads site and check out JL Collins' series on investing.

Comcast is difficult.  I'm on a two year plan for a landline and high speed internet access with a bump for the second year.  I did not sign a contract, so once the price goes up, I'm going to see if I can talk them down.  It's still $40 a month cheaper with the two service bundle than the intro rate triple play bundle in the second year.  Do you have a PBS station in your area?  An antenna might solve your TV problem.

In your shoes, I would probably sell the guitar and be done with it.  It's too easy to damage and there's no guarantee the price will go up.  You are not getting any use out of it, and the cash will bulk up your savings.  You will be in a better position to weather a storm with the extra money and it's one less thing to worry about.

Keep reading and asking questions.  Learning from others is the best thing you can do to understand and take control of your financial life.

ender

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Re: Can I retire?
« Reply #20 on: September 28, 2013, 10:55:09 AM »
Quote
Social Security pays $18,000 a year for her care until she graduates. That will be when I am 59.  At 60, I may take 71% of my husbandís Social Security and my teaching pension, which adds up to $20,000

Maybe I'm missing something - are you not eligible for your own social security at some point?

KristiW

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Re: Can I retire?
« Reply #21 on: September 28, 2013, 11:19:51 AM »
About Social Security, if I take my husband's SS at 60, it is at 71% of the total amount. At 62, I can switch to the higher amount, his or mine. But, because I have 20 years of teaching in, I stayed home when my kids were little and then got my teaching degree, my SS amount is less than his.

I have PBS in my area, so the antennae idea may work. My house is in a river valley and so the signal is a bit harder to receive, I checked online.  Might have to get a bigger antennae, ugly, but maybe worth it. My farmhouse is so cute that I hate to adulterate it with something so overbearing, but worth checking in to.

Maybe selling the guitar now is a good idea, it is a burden to me, keeping it here. Always a worry...

mm1970

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Re: Can I retire?
« Reply #22 on: September 28, 2013, 11:21:52 AM »
Quote
Social Security pays $18,000 a year for her care until she graduates. That will be when I am 59.  At 60, I may take 71% of my husbandís Social Security and my teaching pension, which adds up to $20,000

Maybe I'm missing something - are you not eligible for your own social security at some point?
I'm guessing her husband's SS might be worth more than hers.  I believe you can choose.

jawisco

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Re: Can I retire?
« Reply #23 on: September 28, 2013, 12:20:36 PM »
Is you teacher's pension indexed for inflation?  I will assume yes, but that is pretty important going forward.

I think you are close and if I was in your shoes and had the itch, I would go for it IF you are willing to work on lowering your expenses a smidge (10%) with your free time AND if you are willing to spend substantially less (around 25K) if worse comes to worse (big, permanent stock decline or other depression-like event).

If you could be happy on 25K/year, go for it (hopefully you won't have to do that).

Something to keep in mind is folks typically spend less as they get older - you may need 30-35K/year from now till age 70, but most folks after 70 start to lower their spending.  You may be different.

Track your spending for at least a while longer, so that you are sure of your expenses.

Catbert

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Re: Can I retire?
« Reply #24 on: September 28, 2013, 01:42:14 PM »
Did you pay into social security while you were a teacher?  If not, then check to see if that will affect the amount you will get from SS.  There is a provision that applies to spouses/survivors (as well as workers) so that if you are collecting a pension earned while not covered from SS, then the SS payment is partly offset (2:1 I think).

I don't know all the ends and outs - just enough to know that my Federal pension will prevent me from ever collecting on DH's SS.  If you have paid into SS as a teacher, no problem.  If not, make sure you understand the interaction of the two.