41 yo renter with $1,000,000 saved looking at forced early retirement

[CactusSurfer]

It looks like my job is going to end soon and I haven't had any luck with my job search, so I'm probably going to need to retire earlier than planned.  I'm 41, single, have no pets or children, and have just over a million dollars and a paid off car to my name.  I don't own any real estate.  My expenses have been around $40,000 per year the past few years, so I'm right at a 4% withdrawal rate.   Expenses include $1400 per month in rent, transportation costs to support a 35-45 minute car commute, and a nontrivial amount of fast food, so I expect to decrease that number in retirement.  I feel like I should be able to make retirement work if housing expenses don't keep going through the roof.

Right now my big question is whether to try to stay in my apartment complex and hope for the best, buy a condo where I live now (Tucson area), or move to a lower cost of living area after I lose my job.  I can find a few condos in decent areas listed for $200,000 or so on Zillow, but I'm not sure how above asking they'd end up selling for.  I'm not sure what I can do about moving to a lower cost area without a job.  Any advice on where to go or what to do about housing would be very much appreciated.

[the lorax]

Hi
Sorry to hear about the forced early retirement. Will you get unemployment benefit? I would suggest giving yourself some time to decompress and figure out your new expenses once you finish your job and not rush into any real estate decisions. Do you really want to stay in the area you are currently in? Could you spend some time exploring other areas you might be keen on moving to? There have been some threads helping people to dinetify the kinds of locations that offer the things/lifestyle/climate they like so you could start with something like that?
It sounds like you are in a great position to be flexible but still worth letting yourself adjust to your new situation. All the best

[Fru-Gal]

I think you are set! You have saved enough money, and at quite a young age, for the 4% rule to take care of you till the end.

Decompression is good, and then some exploration of the possibilities when you feel up to it. Do you like where you live or have community or family there? If not you could explore a bit and not worry about finding new housing just yet.

Also depending on your area rent control may make owning a home not the optimal choice, financially.

Depends on what you want from where you sleep. If you love gardening and home improvement or having pets or other “freedoms”, owning a home is great. If you don’t want all that hassle, maintaining a home is a lot of mental and financial overhead.

Also as time passes you may find new career or professional or hobby interests. You could go to community college or find a new activity partners or volunteer group… the possibilities are endless! Enjoy!

[Freedomin5]

There are a few schools of thought when it comes to housing in FIRE.

Some of us want the flexibility of not being tied to one place. These folks are in the rent-for-life camp. If housing becomes too expensive in one area, they use geographic arbitrage to move to a lower cost area.

Others of us want the comfort of knowing that our housing costs are fixed. These folks usually have identified a location that they know they want to remain long term. These folks will buy a place so that their housing costs are fixed (i.e., fixed mortgage cost each month). They may also recommend paying off the mortgage prior to FIRE, to reduce the amount you have to withdraw each month from your stash, which then lowers taxes.

There is no right answer here -- it's about what works for you given your personality.

That being said, you have A LOT of FU money -- you can take your time to figure out what you want. Apply for unemployment benefits if you qualify -- you paid into it for several years, you should take advantage of the benefit.

One thing to note, if you need a mortgage, it's a lot easier to get a mortgage when you have a job. So if you're hoping to purchase using a mortgage, it's better to buy now while you are still employed, and make sure you are employed all the way until the closing date.

[Lady Stash]

I agree with the other responses, I'd give yourself 6 months post job before deciding where to live. 

Once you've had time to settle into a new lifestyle, personally I'd buy something to stabilize your housing costs and reduce risk.

Another option is at 40, you may enjoy a higher cost of living area with more job possibilities. 

[Laura33]

Sorry for the bad news.  OTOH, you have the means and mindset to turn this into the best thing that ever happened to you.

First, file for unemployment.  That will give you some significant income replacement.  Yes, it does require you to keep looking for a job, but since you won't be working 8-10 hrs/day, you'll still have plenty of downtime to figure things out.

Second, understand that you don't actually need to have your whole future planned out right now.  In fact, I'd push you not to make other major life changes right now, while you're still figuring out what you want to do and where you want to be.  Who cares if rents rise in a couple of years?  You can afford your apartment right now, and if they raise rents, you can make a decision about a move then.

Whatever you do, don't jump into buying a house now.  Right now you need free cash to cover your expenses.  The last thing you want to do is to lock some of your capital in illiquid real estate and/or lock yourself into 30 years of mortgage, taxes, insurance, maintenance, etc.  You have no idea what the rest of your life is going to look like.  Maybe you'll love where you are, maybe you'll want to move somewhere else, maybe you'll want to go back to work in a few years or get involved with some passion project that is inconvenient to your current location, maybe you'll meet someone you want to move in with, etc. etc. etc.  The absolutely lovely thing about renting is that it gives you the flexibility to pull up stakes and move whenever and wherever you want to.  Don't even think about buying unless and until you have a clear vision of what you want your life to be for at least the next decade. 

[curious_george]

There are actually a lot of cheap run down houses in some low income cities in the Midwest still available today, around 50k or so.

I am always surprised so many single childless early retired people pass up these cheap housing opportunities, especially in today's world of super expensive houses everywhere else it seems.

People are scared of crime in these areas but it's often grossly exaggerated and most of it is property crime.

ETA: Good luck and congrats on the savings! What a strange coincidence you are getting let go right at a million dollars, right at the 4% withdrawal rate. You should probably give yourself time to decompress and relax for a while also, you can certainly afford to.

[ChpBstrd]

The real estate question is a tricky one. With prices and interest rates (i.e. affordability) where they are today I cannot recommend anyone buy a home except in the lowest-cost areas where it still - barely - makes economic sense.

However, if you don't buy a home, you are not hedging against the risk of further inflation in one of your biggest expense categories. I personally would rather take that risk than pay $300k+ for a 1BR condo with a $500/mo fee and hope for the best, but others may differ in their opinions. The original 4% rule study assumed ALL expenses increased with inflation, and that's your situation as a renter, so you're within guidelines.

Here's an idea for what you absolutely CAN do right now, without committing to a 40 year financial plan:

• Decide to take the next 12 months off and see how your chosen lifestyle evolves during that time,
• File for unemployment insurance and milk it to the end. Do a bad job applying for jobs to keep the benefit.
• Invest your $1M conservatively in short-duration bonds (e.g. SGOV or BIL). They will pay you over $50k per year, which is more than you need for your sabbatical.
• Over the course of the next 12 months, invest your $10k surplus into long-duration call options on the stock market. This is to hedge yourself against the risk that stocks go up very quickly while you're parked in safer assets.
• Reinvest your commuting expenses into things you enjoy doing - light travel, a bike, a hobby, whatever you like.
• Reinvest some of the time and energy saved from not working into finding the love of your life, learning new skills, getting physically fit, or pursuing a lifelong dream.
• If you don't have deep roots where you are, consider moving somewhere interesting for that year. If you can find a LCOL area you like, it would offset the inflation concerns more than owning a house in a HCOL area.
• If the stock market has a correction during your sabattical, sell your short-duration bonds and go all-in on the Nasdaq. You would then be FIRE'd for life regardless of housing.
• With very safe investments paying your bills, you'll almost certainly be in about the same financial position a year from now, so there's always the option of repeating the stunt for a 2nd year. The longer you play this game, the more likely you find either (1) happen upon a great job/location opportunity combination, or (2) find a great opportunity to invest in stocks or RE to lock in your FIRE status.
• The downside risk is the risk that a stock / RE dip never comes, or that high inflation erodes your principal faster than short-term bonds can repay it.
  In either of these downside scenarios, we're talking limited damage though. If you have to work OMY starting 12 months from now, that's not any worse than starting a new job today. In fact it's better because you got to take a year off.

[Rockies]

Even though you think your career is ended, it may not be over, especially if you don't want it to be. Or you could start a new one at a low wage or learn a new skill to continue your current career. Thats always an option if you want to bring in some extra money or work more years.

I know me personally I'd love to job hop between many low wage jobs without the worry that I need to keep working indefinitely to retire. It could be a good experience.