Author Topic: safe enough for early retirement?  (Read 5147 times)

dcsaver

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safe enough for early retirement?
« on: July 14, 2013, 12:22:43 PM »
I want to quit my job in January 2014.I have $500,000 in savings/investments/401K. I expect to save another $30 by the end of the year.  My condo is paid off but I have a $400 a month condo fee. I am 58 years old, no chlldren. Currently, I earn $75K a year, and live on 60% of my salary and save 40%. I own a property in a run down part of town and have had a hard time with tenants. I can't sell it because I'd take a big loss. I'm willing to work part time but I'm not willing  to work hard. I'm tired. I don't mind living modestly and am tired of the rat race. But I'm scared that I'll run out of money in retirement.  And health insurance is a concern - I do have a pre-existing condition. Am I'm truly safe enough for early retirement? Suggestions for the health insurance?

worms

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Re: safe enough for early retirement?
« Reply #1 on: July 14, 2013, 12:49:42 PM »
Unless it is a lucrative earner, I'd take the loss on the rental apartment, it sounds like a hassle you don't need and will just become more of a hassle as you get older.  Better to cut your losses now and put it down to experience.

meadow lark

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Re: safe enough for early retirement?
« Reply #2 on: July 14, 2013, 01:00:14 PM »
Can you go part-time?  Is the $75k net or gross?  If it is net what is your actual annual living expenses?  I would have trouble pulling the trigger with just $530k.

footenote

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Re: safe enough for early retirement?
« Reply #3 on: July 14, 2013, 01:07:07 PM »
Is selling the condo and moving to a cheaper cost-of-living area an option? If your condo equity is sufficient and you can move somewhere cheaper, you might be able to swing it.

cdub

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Re: safe enough for early retirement?
« Reply #4 on: July 14, 2013, 01:09:47 PM »
And health insurance is a concern - I do have a pre-existing condition. Am I'm truly safe enough for early retirement? Suggestions for the health insurance?

I don't know what state you're in but on October 1st, 2013 the state run exchanges start up and you can compare plans in plain English and buy affordable good insurance. With Obamacare a pre-existing condition is no longer a concern. The plans on the exchange go live Jan 1st, 2014.

The exchanges are actually a great idea and have actually driven DOWN premiums in California as health insurers fight to provide the cheapest care.

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/05/24/wonkbook-some-very-good-news-for-obamacare/

Quote
As always, Sarah Kliff has the details. The California exchange will have 13 insurance options, and the heavy competition appears to be driving down prices. The most affordable silver-level plan is charging $276-a-month. The second-most affordable plan is charging $294. And all this is before subsidies. Someone making twice the poverty line, say, will only pay $104-a-month.
Sparer plans are even cheaper. A young person buying the cheapest “bronze”-level plan will pay $172 — and that, again, is before any subsidies.

Also, thanks to the Affordable Care Act (Obamacare) there will be generous tax subsidies to help pay for insurance as well depending on your income level (which as a retired person should be low)

dcsaver

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Re: safe enough for early retirement?
« Reply #5 on: July 14, 2013, 06:39:11 PM »
Is selling the condo and moving to a cheaper cost-of-living area an option? If your condo equity is sufficient and you can move somewhere cheaper, you might be able to swing it.
Can you go part-time?  Is the $75k net or gross?  If it is net what is your actual annual living expenses?  I would have trouble pulling the trigger with just $530k.

It's $75 gross and I am planning to work part time. But I love where I live so moving is not an option.

yolfer

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Re: safe enough for early retirement?
« Reply #6 on: July 15, 2013, 03:50:47 PM »
Here's the back-of-napkin math (someone please correct me if this is wrong):

Stache at the end of the year: $530,000
Yearly income from stache: $21,200 ($530,000 * 4% SWR)

Spending: $45,000 (60% of $75K)

So right now, the quick answer is "Not yet."

However, here are a few things you could do:

1. If you can sell the property for $600k, that would bring your stache up to $1,130,000. That would give you enough for a SWR of $45k a year
2. Work part time for $24k/yr, which is the current shortfall between your SWR and your spending
3. Keep working until your stache is $1.13MM
4. Find some ways to decrease your spending so you can retire on your current stache

I'm a fan of a combination approach. Sell the rental property, even at a loss. Put that into your stache. Reduce your spending. Turn a side-hustle or hobby into a part-time gig to make up the difference.

Hope this helps!

dcsaver

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Re: safe enough for early retirement?
« Reply #7 on: July 16, 2013, 03:52:25 AM »
Thanks!

bUU

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Re: safe enough for early retirement?
« Reply #8 on: July 16, 2013, 04:32:23 AM »
I own a property in a run down part of town and have had a hard time with tenants. I can't sell it because I'd take a big loss
Several decades ago, I wrote my Master's thesis on this phenomenon: The Sunk Cost fallacy - an example of decision-making based on a non-rational basis. Taking a big loss on an investment, from a strictly rational perspective, does not affect decisions in either a positive or negative direction. What would affect decisions are things like costs going forward, revenues going forward, and therefore profitability going forward. Also, cash flow considerations would factor into rational decisions, such as if you've lost more money than you owe and therefore selling the property would require pouring cash in to the transaction. Financial losses sometimes can be balanced against gains in other transactions, and therefore could actually serve a positive purpose in tax planning.

dcsaver

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Re: safe enough for early retirement?
« Reply #9 on: July 16, 2013, 04:35:30 AM »
Thanks for adding these thoughts to consider. The property is a nuisance but if I can get the right tenant, it would be worthwhile.

yolfer

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Re: safe enough for early retirement?
« Reply #10 on: July 16, 2013, 12:10:31 PM »
Thanks for adding these thoughts to consider. The property is a nuisance but if I can get the right tenant, it would be worthwhile.

Knowing that's a possibility opens up yet another option for you to add to the mix:

5. Add some amount of rental income to the $21,200 investment income you'll get from your stache, in order to get up to $45k. As long as you can make $24k a year from a combination of rental income and part-time work, the ratio of the 3 income streams can be balanced however you want.

Ishmael

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Re: safe enough for early retirement?
« Reply #11 on: July 17, 2013, 10:55:12 AM »
Sell the rental.

You said you're tired - it's stealing your life energy, and you're not adequately factoring that worth into the equation. Once you get rid of that, see how your job affects you. If you're still tired after a few months, take the longest vacation you can and see if that helps.

Also, if you're tired, that might be because of health issues as well, so make sure that is ruled out. If you snore, look into getting tested for sleep apnea, for example.

At that point, you'll have a clear head and know where you stand.

I expect you'll want to try reducing your hours as much as your employer will let you at that point, which hopefully will be enough to make you feel better too.

yolfer did the math you should need, although I'd offer this tweak: you're nearing 60. Average life expectancy is early 80's, so maybe you can use a higher SWR. Your income there might be $25,000 there then. Play around with FIRECalc. Don't forget to add in the capital you'll have from your rental.

Sorry, I can't help on the health insurance - I live in Canada.

dcsaver

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Re: safe enough for early retirement?
« Reply #12 on: July 18, 2013, 07:38:47 AM »
Good thoughts. Thanks.