Case study-planning for retirement

[Essie37]

New here! I am a healthy, active 62 year old woman planning for retirement- any suggestions, advice, thoughts welcome!

Annual income $42,500 conservative average depending on bonus income in any given month + over-time

Current monthly expenses/liabilities:
$325- Mazda5 will be paid off 1/2017, then will put toward 401k/IRA
$250- Property taxes
$150- home/auto insurance
$150- home improvement installment loan- paying more than minimum to pay off more quickly
$200- water/electric/natural gas- on budget billing
$250- food/toiletries/household sundries/laundry/brown bag lunches for work
$50-  internet- would really like to keep this
$10-  Hulu
$75- dog food/meds/sundry care items for 2 medium-sized dogs- won't cut this back; good food/care = less vet costs
$25-  drugstore sundries- normally nowhere near this much, use FSA
$110-  gas for auto
$25-  miscellaneous for occasional lunch out or ?
$5-    cell phone- plain old dumb flip phone on pay per minutes plan
$1650- Total expenses/liabilities

Assets:
Home- no mortgage, worth about $140k
401K with employer match 6%- $29,000 (I know, not nearly enough)
IRA- $8000
Total assets: $177k

Miscellaneous-
I am late to the party in retirement savings; it is only in the past 3 years that I have been able to begin saving for retirement.
There really aren't any "hidden" expenses- no health club or Starbucks etc.
Minimal credit card use- only for emergencies or if I know I will be getting a big bonus and can pay it off the same month, so no running balances.
The only expense not listed is for minor home care and renovation over next 5 years- approximately $10k. My plan is to chip away paying cash for these items when I get large bonuses or over-time income.

Health care and FSA are taken out pre-tax.
My 401K and IRA are invested aggressively in Nasdaq and S&P indexes; I will adjust allocations once I get closer to retirement age.

Retiring from FT job at 70; will wait to take SS until 70 (=$1700). Post-retirement income is multi-faceted:
Working on putting in place contacts/"seeds" for small home-based business- conservatively will bring in about $500/month
Will rent out the 2nd floor of my bungalow which will conservatively bring in about $550/month
Draw on 401k/IRA as little as possible, and ideally letting it sit and grow.

Concerns and questions:
I should be able to easily contribute 25% to my 401k, but I would really like to get my expenses down even more so that I can bump that up to 35% or higher.
I don't have an emergency fund; have always dealt with emergencies on an as needed basis. If needed could take 401k loan or use credit card.

Alright, be merciless; what would you cut? All suggestions, questions, and advice welcome. I appreciate your input. Thank you!
Updated some items based on your suggestions- "found" $50 by cutting back on thermostat and closer actual pet expense estimate

[marblejane]

It would be helpful if you could list out your monthly gross & take home pay, as well as the total amount of all liabilities (for example, you have a car payment, how much do you owe? same for the home equity line.)

First of all, if you are getting $1,700/mo from social security and have $1,700/mo in expenses, you will be okay in retirement. Your goal now is to save what you can in your 401(k) to give yourself a margin of error for emergencies (home improvement, health care, etc). So please take my comments as suggestions for how to further optimize.

My overall impression is that you have too much car and too much house. You should consider downsizing both. If you are unwilling to sell the house (understandable if so, but please consider the option), then I would suggest immediately taking in a renter, so that you can use the rental income to boost the 401k now while you are still working.

I would strongly urge you to consider selling the car and getting a used model, or considering whether you can do without a car at all. Getting rid of that car payment alone would boost that 401k tremendously.

Beyond that, you have $300 in food/household+$25 sundries +$25 misc=$350 for food & household. I'm able to easily live on $125 for groceries and $75 for household, so consider cutting this down. You may need to more closely analyze your grocery bills to do so.

In your situation, I would shoot to set aside $5k for emergencies before hitting the $10k of home improvements, and then boost that emergency fund to $10k once the current round of home improvements are paid for.

[Zoot Allures]

Never too late to join the party, Essie37!

I second the opinion that your car loan seems to be a big problem. If your estimated expenses are accurate, it's the single biggest monthly expense you have. Tell us how much you owe on that car. Do you have an idea of what you could get for it?

Great idea to rent out part of your house.

[MDM]

New here! I am a healthy, active 62 year old woman planning for retirement- any suggestions, advice, thoughts welcome!

Concerns and questions:
I should be able to easily contribute 25% to my 401k, but I would really like to get my expenses down even more so that I can bump that up to 35% or higher.
I don't have an emergency fund; have always dealt with emergencies on an as needed basis. If needed could take 401k loan.

Alright, be merciless; what would you cut? All suggestions, questions, and advice welcome. I appreciate your input. Thank you!

Essie37, welcome to the forums.

As it seems you already realize, you don't have enough investment assets nor enough time to get enough investment assets to support your 4-5 year time to retirement goal.  That's the bad news.

The (potentially) very good news is that you don't need any investment assets if your cash flow is enough to meet your expenses.  Thus any combination of Soc. Sec., pension, PT work, rental, etc. that meets your $15K (plus taxes and increasing with inflation) annual expenses is sufficient.

You can calculate your SS payment exactly.  As you note you plan to wait until 70 one might guess you have already done this - correct?
Your rental and PT incomes are more speculative.  It might be worth your time to visit www.cfiresim.com and run some what-if? cases.  You can also use the spreadsheet in the How To Write a Case Study thread for a less accurate but faster estimate.

Good luck!

[Essie37]

It would be helpful if you could list out your monthly gross & take home pay, as well as the total amount of all liabilities (for example, you have a car payment, how much do you owe? same for the home equity line.)

I did list out my expenses and gross- they are as stated in my original post

First of all, if you are getting $1,700/mo from social security and have $1,700/mo in expenses, you will be okay in retirement. Your goal now is to save what you can in your 401(k) to give yourself a margin of error for emergencies (home improvement, health care, etc). So please take my comments as suggestions for how to further optimize.

My overall impression is that you have too much car and too much house. You should consider downsizing both. If you are unwilling to sell the house (understandable if so, but please consider the option), then I would suggest immediately taking in a renter, so that you can use the rental income to boost the 401k now while you are still working.

I would strongly urge you to consider selling the car and getting a used model, or considering whether you can do without a car at all. Getting rid of that car payment alone would boost that 401k tremendously.

I own my house outright- I wouldn't be able to afford rent in a comparably good neighborhood- as it is my property taxes are only $250/month which is about 1/4 of what it would cost to rent. About the car- I only have 2 years left on payments. For what I owe on it I wouldn't be able to buy a comparable used car with low mileage.

Beyond that, you have $300 in food/household+$25 sundries +$25 misc=$350 for food & household. I'm able to easily live on $125 for groceries and $75 for household, so consider cutting this down. You may need to more closely analyze your grocery bills to do so.

$300 month includes all food, laundry, work lunches, miscellaneous household. Probably only about $200 is actually for food which again includes lunches for work. I should be able to cut $50 on the $100 used for laundry and misc household.

In your situation, I would shoot to set aside $5k for emergencies before hitting the $10k of home improvements, and then boost that emergency fund to $10k once the current round of home improvements are paid for.

My responses in bold. Thank you for your suggestions.

[Essie37]

Never too late to join the party, Essie37!

I second the opinion that your car loan seems to be a big problem. If your estimated expenses are accurate, it's the single biggest monthly expense you have. Tell us how much you owe on that car. Do you have an idea of what you could get for it?

Great idea to rent out part of your house.

I do understand what you are saying about the car and have gone around and around about this very thing, but I only have 2 years of payments left on it. If I sold it I would be hard-pressed to find a good used car in excellent condition with low mileage. While I would love to be rid of this payment, I don't think it would be cost effective in the big picture since any other used car would need possibly costly repairs, have reliability issues, and used car loans have higher interest rates. Essentially, I would be trading one good used car for another possibly not-so-good car with not that much less of a payment.
One other note- as I say, I have looked into selling this car for an older model used, but another reason it was impractical is because good used cars sell here for a premium- in some cases almost as much as used. I was told this was due to the economy of the past 5-6 years.
I am still open to being persuaded otherwise.
Thank you for your suggestions.

[Essie37]

Essie37, welcome to the forums.

As it seems you already realize, you don't have enough investment assets nor enough time to get enough investment assets to support your 4-5 year time to retirement goal.  That's the bad news.

Yes- the "benefit" of working at my current job until 70 is that I can continue socking $ away, and if I don't draw it down after retirement, it should grow nicely to be used for emergencies.

The (potentially) very good news is that you don't need any investment assets if your cash flow is enough to meet your expenses.  Thus any combination of Soc. Sec., pension, PT work, rental, etc. that meets your $15K (plus taxes and increasing with inflation) annual expenses is sufficient.

You can calculate your SS payment exactly.  As you note you plan to wait until 70 one might guess you have already done this - correct?

I am using the estimate provided by the SS admin which I would think would be the most accurate calculation?

Your rental and PT incomes are more speculative.  It might be worth your time to visit www.cfiresim.com and run some what-if? cases.  You can also use the spreadsheet in the How To Write a Case Study thread for a less accurate but faster estimate.

Thank you, I will look into these 2 calculators.

Good luck!

Replies in bold. Thank you, I appreciate the suggestions!

[MDM]

I am using the estimate provided by the SS admin which I would think would be the most accurate calculation?

SS admin provides various estimates based on differing assumptions.  What you have is probably ok.  Because SS appears to be a particularly important part of your retirement it might be worth verifying all the details. 
If you haven't already, you could get online access to your SS information at https://secure.ssa.gov/RIL/SiView.do. 
You can also go to http://www.socialsecurity.gov/planners/benefitcalculators.htm and choose among the options there.

[mxt0133]

I would not rely on your 401k as an emergency fund.  First of all it's not liquid enough, you won't be able to access the funds in a matter of days more like 5-10 business days.  Second, the loan normally has to be paid back in full within 60 days if you leave/get fired from your job or you will be hit with penalties.

I would keep the emergency fund in cash or a combination of cash and credit cards as an alternative.

[Essie37]

Can you start renting out your second floor now?  That would help free up extra cash that you can be socking into your retirement funds.

Yes, this is a possibility. I have been delaying for a variety of reasons, but I may have to just bite the bullet

You need to put as much as possible into retirement funds.  The contribution limits for someone over 50 will be $24k in 2015 (18k regular contributions + 6k catchup option).  You can't put that much in now on your current budget, but could probably do much more than you currently are.  That will bring your tax bill down, too. 

Oh yes, absolutely will save more this year- my 2015 goal is to put $1,00/month into 401k but it still doesn't seem like enough

Are there ways you can minimize your use of the car?  If you can walk, bike or carpool to work you might be able to get a reduction on your insurance rate, as well as bringing down the gas cost and helping to ensure your car lasts longer (due to less mileage)

I wish I could walk or bike to work- our public transportation system stinks with limited hours and routes. I might be able to get on a list for a ride-share though

Can you find a way to get the food you normally get for your dogs at reduced cost?  Purchasing online, for example? Or switch to another healthy brand that costs less.  $100/month seems REALLY high to me....

That number is wrong- the average month is closer to $65-75 with heart worm meds and food. I order online when there is a special on a good quality food, but generally the price for delivery brings the cost to about what our local pet store charges.

Utilities also seem quite high for a single person.  Depending on where you live, consider experimenting with adjusting your body to either a lower or higher level of heat -- cutting back on heat or A/C use even by a few degrees can make a big difference in your bills.  See if your local utility offers an energy audit program -- improving efficiency can be a good investment over the long term.

I have the thermostat on a timer and turn heat off at night unless severely cold, but yes, I will start lowering the thermostat and use a throw when I am cold on the couch.

A HELOC might be a better option as a backup emergency fund than a 401k loan.
Agree, but I am extremely adverse to HELOCs.

Responses in bold. Good suggestions, appreciate it!

[feelingroovy]

First, congratulations on having a paid off house (I love bungalows!) and reasonably low spending.

I think at this point you just need to optimize.

1. The car.  Why such a large car?  A smaller car even in the same condition and age would have lower payments and use less gas.  Possibly cheaper to insure.

2. I agree that you should consider renting your second floor now.  This would be a huge help in socking away $ to your 401k and/or getting the loans paid off earlier.

3. Can you list out the terms and interest rates for your two loans?  I think your only debts are the car and the home improvement loan, yes?  The really good news is once those are paid off, your monthly spending will be under $1200, which gives you a nice cushion based on your SS income alone.

[bugbaby]

Could you also break down your pre-tax deductions? It seems with expenses of 20k/yr,  you could easily save about $12-15k to 401k ,  and have $7.5-10.5k  for taxes & health coverage.