Author Topic: Retire with $0 Savings?  (Read 4000 times)

a.g

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Retire with $0 Savings?
« on: January 20, 2014, 07:06:20 PM »
I wanted all of your expert opinions. In doing some planning, I realize I will have the cash flow to quit my day job in around 4 years. The caveat is I will have no savings built up whatsoever.  I can be debt free (except mortgages) with rental income of around $30k (from multiple properties, and after taxes, routine maintenance and other fees are considered). My current living expenses are under $10k, but I plan to ramp that up to around $25k when retired. I'd like to retire as soon as possible, so it'd be nice to stop working even without much in the bank. What do you all think?

Jags4186

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Re: Retire with $0 Savings?
« Reply #1 on: January 20, 2014, 07:09:28 PM »
What happens when one of your rental properties is vacant? What happens if you need a new roof?

You're 1 catastrophe away from being bankrupt/homeless.

daverobev

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Re: Retire with $0 Savings?
« Reply #2 on: January 20, 2014, 07:13:14 PM »
Here's what I'd do:

Retire in 4.5 years, so you have *some* liquid cash.

Then live on $10k for 2-3 years, putting the rest into a high interest account or whatever (bike, netflix, library, etc).

Then ramp up your spending to where you want it, based on your cashflow.

Emergency? Go back to work. Over time, your mortgages will presumably be paid off, increasing your cashflow and safety net.

AccidentalMiser

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Re: Retire with $0 Savings?
« Reply #3 on: January 20, 2014, 07:19:21 PM »
What Jags said with the following questions:

What do you do for a living?  How easy would it be for you to get another job if things go south?  What will happen if you get hurt and can't take care of your properties?  Are you single and do you plan to remain that way indefinitely?

The essence of retirement planning is contingency planning.  If you're young and have marketable skills with no one relying on your income but you, you can afford to take risks that others cannot.

Do you own these properties now or are you planning to purchase them?  If you are handy and responsible, you could start a property management company and help others with their rentals for some extra income.  There are lots of ways to pick up some extra cash without working for "the MAN."

Best of luck to you!

a.g

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Re: Retire with $0 Savings?
« Reply #4 on: January 20, 2014, 07:20:18 PM »
Yeah, my emergency plan was just what daverobev said- go back to work. Kinda depressing thought, but it's better than being there everyday. Vacancies are another issue. I would have a $5k or so buffer between my annual spending (which I could easily trim if need be) and what my rentals are bringing in, and I would have 4 or 5 of them- the odds of multiple vacancies is something I'm hoping doesn't happen often. It might be worthwhile to just push the retirement back a year or so, but there's a lot of sacrifices I'm going to be making to reach my goal in 4 years, so I guess we'll see.

@ Accidental Miser: My current occupation is a Paper Pusher, so I'm not worried about finding a similarly depressing job in a different cubicle. I'm not single, but my partner's whiskers are as manly as my 'stache. I do not own the properties yet, I'm working on my debt first, and I plan on using a property manager to take care of the day to day work with the units when I get them. I calculated losing 10% of my profits to the property managers, which seems worth it to me as I plan to spend most my time on the road and don't want to deal with any burdens. I'd like them to be solely investments.
« Last Edit: January 20, 2014, 07:35:16 PM by a.g »

G-dog

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Re: Retire with $0 Savings?
« Reply #5 on: January 20, 2014, 07:28:20 PM »
I agree with the question on how easily you can get income if needed.  If you can build some cash/ liquid asset reserve that would be great.
Do you live in any of the rental properties? Or in a separate home? Option to get a roommate to reduce your costs (now or in the future).


I like daverobev's idea of frugality until you get some buffer.

G-dog

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Re: Retire with $0 Savings?
« Reply #6 on: January 20, 2014, 07:30:44 PM »
Well, it is not that any of these decisions are necessarily permanent.  Monitor the progress to the goal, adapt, improve, repeat....
Good luck!

Jags4186

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Re: Retire with $0 Savings?
« Reply #7 on: January 20, 2014, 07:35:29 PM »
Owning multiple properties is a huge cash drain and many times there are no problems and many times there will be multiple problems at once...that's just how luck is.

I don't know what type of units these are nor their age but I would seriously consider looking at worst case scenario situations and building up enough cash reserves to cover them.

If you are only a paper pusher, getting that job won't solve a major financial set back in any sort of speed.

Nords

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Re: Retire with $0 Savings?
« Reply #8 on: January 20, 2014, 07:55:28 PM »
Yeah, my emergency plan was just what daverobev said- go back to work. Kinda depressing thought, but it's better than being there everyday. Vacancies are another issue. I would have a $5k or so buffer between my annual spending (which I could easily trim if need be) and what my rentals are bringing in, and I would have 4 or 5 of them- the odds of multiple vacancies is something I'm hoping doesn't happen often. It might be worthwhile to just push the retirement back a year or so, but there's a lot of sacrifices I'm going to be making to reach my goal in 4 years, so I guess we'll see.
I have several military readers who have retired on their military pensions with very little savings-- one has saved less than $50K. 

The key is having a source of income that you can depend on despite catastrophes.  For some that might be a govt pension, for others an annuity, for still others it would be rental properties that still throw off cash even if you have a 25% vacancy rate. 

"Multiple vacancies" may seem unthinkable now, but what happens if your properties are within 20 miles of each other and something happens like a military base closure or a poisoned water table... or even "Detroit"?

The trap is that you might be able to live on $10K/year (or insert number here) but during the good years you'd adapt to the hedonic thrill of a $25K/year budget.  Going back to $10K/year might be absolutely unthinkable.  If it happens when you're 72 years old then you're not going to be very happy about getting a job, either.

In some cases, the "retire with zero savings" plan is a proxy for "I need to change my career, or at least my employer".  If you have enough to retire with zero savings now (yet some risk of implosion) then why not change your career/employer now?  You have a great safety net in place and the financial freedom to discover something that you really enjoy doing. 

If you feel it's a case of Your Money or Your Life, though, then start living on your retirement budget now and see how you feel about the situation in 2015.

arebelspy

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Re: Retire with $0 Savings?
« Reply #9 on: January 20, 2014, 07:58:25 PM »
All landlords need cash reserves for repairs, vacancies, etc.

ER aside, you need to have that built up now, and not let it dip below a certain amount.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
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a.g

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Re: Retire with $0 Savings?
« Reply #10 on: January 20, 2014, 09:09:20 PM »
@ Nords & arebelspy: all very good stuff, thanks for the insight!!