Author Topic: I think I am ready  (Read 2455 times)

TheOldestYoungMan

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I think I am ready
« on: July 21, 2017, 08:06:34 AM »
I have about $200k saved in pre-tax accounts, $30k in a pension fund (Texas Teacher Retirement) earning 2% that I could keep as my "cash" reserve.  $100k equity in rental property earning ~$600/mo positive cashflow (and that covers all of my own housing expenses as well).  I do have $200k in mortgage debt on the rental property.  I also have $30k saved in a roth IRA and an additional $15k in cash.

My total personal expenses for the year are around $8,000.  Plugging it into cfiresim I have 100% success rate.

I *think* I am ready to say that I'm at least done with full time work.  The plan is on Monday to talk to my boss about a different arrangement, because I do like the work that I'm doing here, and I like most of my coworkers.  I'd like 15-20 hours of work a week, after a bit of a break.  But if that's a no-go I'm also fine pursuing something else.

My original goal back when I first found this blog (well, after I got over the "that would never work" reaction) was September 2017.  If I give notice Monday my boss has time to decide if he wants to mess with me or how many weeks notice he needs.

I'm there right?  Is there a particular reason to wait until December?  Am I going to screw myself on ACA costs in any way by starting ACA in a year where I had high income?

Giro

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Re: I think I am ready
« Reply #1 on: July 21, 2017, 08:52:11 AM »
How old are you?
Do you have health insurance taken care of?  Your expenses are small but your debt is scary as a percentage of your net worth.  What happens if the rental is empty for a period of time?  Is it a single unit?

I think this is tight just because of how small the numbers are.  On the other hand, your expenses are so low that a small part time job would  more than cover them.

this is a tough one for me.

TheOldestYoungMan

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Re: I think I am ready
« Reply #2 on: July 21, 2017, 09:06:49 AM »
Age 35.  The rental business is two single family homes, I live in the master bedroom of one, and rent out the other two bedrooms.  The other property is 3 bedroom.  When the other property is vacant, the income from my house just covers the mortgage on both properties.  And vice versa.

Essentially, I'm on the hook for utilities to the extent either property is empty.  If vacancy becomes a problem (and it hasn't been for ~5 years or so) then I could sell the other property, and pay off mine with the equity (my house is almost paid off, the other is about 30% paid off).

For health insurance, my plan is to not utilize healthcare at all.  If anything major happens, like an accident, my experience has been that health insurance doesn't cover it anyway, it usually falls on auto or homeowner.  Literally every time I've tried to go the doctor since I was 17 was a huge waste of time.  There's a doc in the box near my house that will give me a shot for infections for about $95.00 per visit, I've been there twice in ten years.  If I develop some sort of chronic expensive condition, I plan to self insure with either smith or wesson (this is true independent of retirement status).  My only concern with ACA is spending at or near the penalty cost on premiums since I have to spend there either way.

WildJager

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Re: I think I am ready
« Reply #3 on: July 21, 2017, 09:16:14 AM »
When will you start getting payouts from your pension, and how much will that be yearly?

How are your expenses broken down?  I assume since they're so low that you can't really tighten down during a market recession.  Does that $8000 account for the additional cost you'll be paying for health insurance?  Would you be able to cover your insurance premiums if subsidies are reduced/removed?

I assume the $200k you meant post tax, or is that in a 401k or something?  If so, is the only post tax investments you have the equity in your rental? 


SimpleCycle

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Re: I think I am ready
« Reply #4 on: July 21, 2017, 09:18:42 AM »
Age 35.  The rental business is two single family homes, I live in the master bedroom of one, and rent out the other two bedrooms.  The other property is 3 bedroom.  When the other property is vacant, the income from my house just covers the mortgage on both properties.  And vice versa.

Essentially, I'm on the hook for utilities to the extent either property is empty.  If vacancy becomes a problem (and it hasn't been for ~5 years or so) then I could sell the other property, and pay off mine with the equity (my house is almost paid off, the other is about 30% paid off).

For health insurance, my plan is to not utilize healthcare at all.  If anything major happens, like an accident, my experience has been that health insurance doesn't cover it anyway, it usually falls on auto or homeowner.  Literally every time I've tried to go the doctor since I was 17 was a huge waste of time.  There's a doc in the box near my house that will give me a shot for infections for about $95.00 per visit, I've been there twice in ten years.  If I develop some sort of chronic expensive condition, I plan to self insure with either smith or wesson (this is true independent of retirement status).  My only concern with ACA is spending at or near the penalty cost on premiums since I have to spend there either way.

This is a truly terrible plan.  You're only thinking about small things (able to forgo healthcare) or huge things (auto accident, heart attack).  But most health problems that bankrupt people are medium sized problems.  For example, last summer I tripped on a curb and fell and broke my pinky finger.  It was a very displaced fracture (meaning my finger was pointing entirely in the wrong direction, leaving it that way would make my hand non functional), which required surgery to set.  I needed a bunch of follow up from surgery, and OT to get my finger working properly again.  It was a $50k injury, and it was not covered by any insurance policy other than my health insurance policy since there was no negligence on anyone else's part.

Anyway, at your level of income, you are probably eligible for very reduced cost insurance.

Rosy

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Re: I think I am ready
« Reply #5 on: July 21, 2017, 11:40:18 AM »

REAL ESTATE
$100k equity in rental property earning ~$600/mo positive cashflow (and that covers all of my own housing expenses as well).
 I do have $200k in mortgage debt on the rental property.
I'm confused - So you have one rental property, single family with three bedrooms? - what is the value of this property? It is rented out at present and brings in $600 after deducting expenses?
The second property you own, you live in, but rent out two bedrooms - what is the value of that property and how much does it bring in each month after deducting expenses?


Equity in rental (both???) $100K versus $200K mortgage (total???)

SAVINGS - PENSION - INVESTMENTS - TOTAL $245k
I have about $200k saved in pre-tax accounts, - is that a 401K?
I also have $30k saved in a roth IRA and an additional $15k in cash.

My total personal expenses for the year are around $8,000.
Plugging it into cfiresim I have 100% success rate.

I *think* I am ready to say that I'm at least done with full time work.  The plan is on Monday to talk to my boss about a different arrangement, because I do like the work that I'm doing here, and I like most of my coworkers.  I'd like 15-20 hours of work a week, after a bit of a break.  But if that's a no-go I'm also fine pursuing something else.

My original goal back when I first found this blog (well, after I got over the "that would never work" reaction) was September 2017.  If I give notice Monday my boss has time to decide if he wants to mess with me or how many weeks notice he needs.

I'm there right?  Is there a particular reason to wait until December?  Am I going to screw myself on ACA costs in any way by starting ACA in a year where I had high income?

If all you spend annually is $8000 and you now have a full time job that pays????, plus you have $600. monthly positive cash flow from the rentals which also presumably pay off the mortgage on both properties via the rental - that is a rather fine situation to be in.

Maybe I am missing something here, but wouldn't the smartest route be to have both properties paid off, before considering your next step? Sure, you might get by with a part time job, if that is important to you, because there are other things you'd rather pursue.

To me this looks like a rather extreme choice at present. If you were 45-50 of age and simply wanted/needed to step away from the rat race for whatever reasons then I'd say it is doable as long as you can come up with a part time job or the occasional contract/side gig.

Until those properties are paid for - my answer is no, you are not ready, I don't care what the calculator says, there is too much risk in this scenario. Too tight - at least for my blood.

Your assumptions on health insurance are too narrowly based only on your own experiences thus far. You are still a young man, of course, based on the lousy system in the US in general, you will often find that nothing is covered - so why bother? The answer is simple and profound, you pay for health insurance, because it is just another brick in the foundation of a financially successful life.
I am not willing to bet on never having a financially devastating and therefore also mentally exhausting, depressing, major medical event at some point in my life.
The proverbial what-if? scenario.

pigpen

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Re: I think I am ready
« Reply #6 on: July 22, 2017, 07:11:26 AM »
Quote

For health insurance, my plan is to not utilize healthcare at all.  If anything major happens, like an accident, my experience has been that health insurance doesn't cover it anyway, it usually falls on auto or homeowner.  Literally every time I've tried to go the doctor since I was 17 was a huge waste of time.  There's a doc in the box near my house that will give me a shot for infections for about $95.00 per visit, I've been there twice in ten years.  If I develop some sort of chronic expensive condition, I plan to self insure with either smith or wesson (this is true independent of retirement status).  My only concern with ACA is spending at or near the penalty cost on premiums since I have to spend there either way.

It's really only accidents that fall under auto or homeowner insurance. So, unless your plan is to somehow transcend human biology, which includes sickness, injuries, and the gradual degeneration of the body, you'll need to either have health insurance or be prepared to pay cash. Your "Smith or Wesson" self insurance plan is your choice, but do you want to implement that plan for something like the $50,000 pinky injury that SimpleCycle had to deal with? Or leave your finger turned the wrong way? Or for a situation like my father, who was diagnosed with cancer 30 years ago, got treated, and then went back to his normal life with no lingering effects whatsoever?

In other words, your plan for your inevitable sickness or injury involves leaving yourself with three choices: 1. pay cash and maybe go bankrupt, 2. live with it, or 3. shoot yourself. Doesn't sound like you're very well-diversified there, to use investing terminology.

Elle 8

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Re: I think I am ready
« Reply #7 on: July 22, 2017, 09:59:56 AM »
I don't think you are ready until you can factor in health insurance.

Like Pigpen's father, I was diagnosed with cancer, got treated and am back to my normal life, hopefully for a long time.  It was a type of cancer where I wasn't feeling sickly.  To decide to shoot myself while still feeling good would have been hard.  To wait until I was feeling miserable enough to shoot myself would have sucked.  To go ahead with the surgery and treatment and pay for it myself would have set me way back (but I would have done this if I wasn't insured).

TheOldestYoungMan

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Re: I think I am ready
« Reply #8 on: July 22, 2017, 11:39:12 AM »
I guess I wasn't clear, the joke was taken seriously, my bad.

Refer to the original post, I will have health insurance, planning to sign up under ACA.  My original question was about the ACA subsidies for next year being affected by a lack of subsidies this year.  The 8k annual spend includes ACA premiums I expect once (if) I have negligible income.

If I wait to pay off the rental property, which would take me ~5 years, I'll have oversaved to the tune of having a half million in savings plus two paid off properties generating approximately five times my annual spend.  That seems excessive.

Property 1:
Value: 150k
Owe: 118k
Current Rent: 1700/mo (all bills included)
Total Cost: 599mort+250utility+170propmgmt+300taxes/ins=1320
Cashflow=580 (when rented) = 300 (practically speaking, accounting for vacancies/maintenance)

Property 2:
Value: 150k
Owe: 82k
Current Rent: 1300/mo (all bills included)
Total Cost: 750mort+250utility+300taxes/ins=1300
Cashflow=0 = slightly negative (but this is where I actually live)

Making up the difference+food+health insurance+accounting for historic car expenses/year including replacement+what I do for fun=8000, which has held steady for three years.

I also don't view the prospect of failure that badly, precisely because I am young, and highly employable, I expect no issue going back to work, and find it likely my version of travelling abroad will involve professional work overseas.

My post was more of a gut-check, to make sure I wasn't forgetting about [widgets] or [attackpandas] that guaranteed failure.  It's a surreal feeling that I might have achieved the goal, I truly didn't expect to.  Thanks for the input so far.

waltworks

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Re: I think I am ready
« Reply #9 on: July 22, 2017, 11:51:13 AM »
You're not accounting for any maintenance/capex at *all* on the house you live in?

I would be nervous about basically having all my eggs in one (properties) basket. RE can be great but if your town goes south, it could ruin your plan.

-W
« Last Edit: July 22, 2017, 11:57:41 AM by waltworks »

Elle 8

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Re: I think I am ready
« Reply #10 on: July 22, 2017, 01:03:46 PM »
I guess I wasn't clear, the joke was taken seriously, my bad.
...

Ooops, ha, sorry.  I do tend to take things too literally.

YoungInvestor

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Re: I think I am ready
« Reply #11 on: July 22, 2017, 01:32:20 PM »
It's a tight scenario. I think a few more years of work at least are in order. 50-75k more would give you some padding for an emergency. As it stands, a rather minor inconvenience such as a roof repair wood set you back a fair bit.

I don't get how 8000$ a year is possible, though. Great job if that's sustainable.

waltworks

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Re: I think I am ready
« Reply #12 on: July 22, 2017, 02:09:55 PM »
$8k is well in the ERE range, but it's doable since he's sort of not counting his mortgage (just calling his housing expense zero since his roommates pay rent, which isn't how you'd properly do the accounting, but whatever).

With housing expenses at zero, and as a single adult with no dependents, here's the rough outline (I'm guessing based on other ERE folks and my own time as a grad student when I did all of this):
-No car/car expenses. Bike everywhere, and know how to repair your own bike/scrounge parts.
-Eat rice/beans/other staples spiced to your taste and never eat out. Take free food at events whenever it's offered. Pick fruit (all over the freaking place) and can extras for later.
-Never buy new clothes with the exception (maybe) of underwear and socks. Thrift store half-price day clothing or freebies only.
-Recreate/exercise for free in the great outdoors. No gym/spa/etc memberships.
-Use 2nd/3rd generation electronics/phones at negligible cost (either freebies from friends or used via Ebay).
-Minimal internet/telecom plan or just use the library/cafe internet.
-Medicaid or no insurance (but really, Medicaid unless you're just silly - the general public will be picking up your hospital bills either way).
-Limit or eliminate air travel. Bike tour, baby!

Really, you can actually get well below $8k/year (without housing) if you want to and still live a pretty great life, with the caveat that you will stand a decent chance of ending up destitute/in medicaid nursing home when you're very elderly after medical costs eat your limited savings.

That said, we spend 5/8 of the OP's annual budget per month! :) It's always good to remind yourself what you actually *need* in life...

-W
« Last Edit: July 22, 2017, 02:14:29 PM by waltworks »