Does the math make sense?

[southgal25]

I'm a 48-year-old married woman, no children, living in the rural South. I'm wondering how secure it would be to retire early — as in, now. I’ve been tracking FIRE goals and using calculators for about 15 years, but now that I’m here, I find myself questioning, “Did I do the math right?” I’m not especially confident with numbers and would appreciate any insights from others who might see things I’m missing.
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Current Financial Snapshot

•   Primary Residence: Paid off, valued at $325,000
•   Rental Properties: 4 total (3 condos, 1 house), all paid off; valued at $400,000
•   Cash (High-Yield Savings): $360,000
•   Investments: Traditional IRA ($215,000) + Brokerage Account ($453,000)
•   Debt: None — no loans, credit cards, or car payments
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Projected Annual Income (if I stop reinvesting dividends/interest):
Total: $58,500/year

•   Brokerage Dividends: $13,000
•   Savings Account Interest: $14,000
•   Net Rental Income: $31,500

Note: This figure is net of rent collected, but gross of expenses like HOA fees, insurance, and maintenance. Those are accounted for in the expense section below, which is where I sometimes lose confidence in my math. But I believe handling it this way is functionally accurate.
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Spouse (age 55): I’ve excluded their income and expenses since we keep finances partially separate. They receive two pension checks and rental income from a property they own, and they’ll eventually receive strong Social Security benefits.
We split shared household costs by each contributing to a monthly pool we call “box money,” which covers groceries, dining out, family gifts, garden supplies, etc. I contribute $435/month — this is included in my expenses.
Since I’ve historically been the primary earner, I’ve built this retirement model around my numbers alone to ensure I can sustain my needs and shared obligations. Their income covers their personal needs, including health insurance. Still, I sometimes wonder if separating it this way is the best approach — it’s one area where I second-guess myself.
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Expenses
I’ve tracked my total annual expenses across both personal and rental-related costs — everything that needs to be paid, all in.
•   Total Annual Expenses: $52,000
•   Monthly Average: ~$4,335

Included in that total:
•   Rental-related costs: HOA fees, taxes, insurance, maintenance
•   Personal expenses: Health, home, auto, and life insurance
•   Property taxes (all properties)
•   Utilities, phone, internet, subscriptions
•   Household and personal items
•   “Box money” contribution
•   Vet bills, AAA, clothing, occasional tickets, etc.
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Questions:

1.   Does the math make sense to go ahead and retire now?
2.   Am I thinking about rental income and expenses the right way — including income as part of the total and accounting for costs separately in expenses? Or am I missing something?
3.   There’s not a huge buffer, but I’m not drawing down principal from investments. Is it reasonable to think of investment principal as a backup for future needs or unexpected expenses?
4.   My own Social Security (estimated at $2,500/month) would eventually be available — this figure assumes claiming at 62.
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Thanks in advance for any insights. I’d truly appreciate your feedback on whether this framing and math hold up, and whether there are blind spots I might not be seeing.

[uniwelder]

It would be helpful to see rental income and expenses separated out.  Otherwise, its difficult to tell what expenses can be cut from your budget or how selling a property would affect you.

For net rental income, does that mean you've already included 5-10% vacancy or whatever long term average you'd expect? 

I'd be cautious about what you're considering income from the cash account and dividends.  The cash account is around 4%, so perhaps just keeping up with inflation.  This is more like capital preservation, rather than income, the way I would look at it.  Also it depends on what the dividend funds are--- how stable their payout has been, and how much of your account they make up.  If you described these a bit more, that would be helpful.

Overall, you're probably quite ok.  Just playing with numbers, let's say rental expenses are 12k.  This would mean you personally spend 40k, with 20k of net rental income and $1 million in cash/investments.  You'd be very much safe in that scenario, as you'd have a 2% withdrawal rate.

[southgal25]

Thank you for your reply and for pointing me in the right direction. As I mentioned, I sometimes get lost in the numbers when trying to combine rental income and expenses with personal finances—especially since everything ultimately comes from the same pot. That said, I really appreciate your guidance in breaking out the rental figures separately. Below are those numbers pulled from the overall income and expense totals:


Rental Income
- Unit 1: $875/month (property value: $115,000)
- Unit 2: $700/month (property value: $105,000)
- Unit 3: $920/month (property value: $125,000)
- Unit 4: $650/month (property value: $100,000)

Rental Expenses
- Units 1,2 and 3 have HOA fees that total: $848/month
- Annual Property Taxes on all rentals: $4,100
- Annual Insurance on all rentals: $1,733

[southgal25]

Also, more detail on the dividend income. I'm not certain what information would be helpful - the tickers? They are ETFs in the brokerage account including: TLT (4.33% yield), VUSXX (4.23% yield), DLS (4.18% yield), VXUS (3.25% yield), IEMG (3.24% yield), EFV (2.94% yield), GWX (22.67% yield), VONV (2.13% yield), IWM (1.34% yield), IWN (2.1% yield), VTI (1.43% yield).

[Laura33]

I think you are in great shape and in fact are being very conservative here.  Here is how I would do it personally:

Add together all rental income, minus a 10% vacancy factor.  Subtract from that taxes, fees, management, repairs, money for periodic carpet replacements/refreshes, etc. etc. etc.  That will give you a fairly reliable amount of income from those properties.  I get about $20K doing that.

Then look at your investments.  Forget how much comes in dividends and such.  You can safely take 4% from your total invested money every year.  With about $650-700K invested, that means you can take about $26-28K from your investments every year.  Add that together with your net rental income and you're at about $45-50K. 

Looks like your personal expenses are about $35-40K (once you subtract out the c.$16K in rental expenses -- remember, you've already accounted for those by focusing on the net rental income).  So your two income streams already put you at what you need, without even accounting for your big chunk of cash, or your SS. 

My one caveat is what happens if your partner dies or leaves?  It's great to split expenses, as long as your worst-case plan also covers you in the event that you no longer have someone to split expenses with.  Are you married, and do you have survivor's benefits on the pensions?  If you've been married 10 years, you'd get half their SS if you divorced and their full benefit if they died, and any pension survivor's benefit would further shore you up.  I suspect, given your overall numbers for your half of things, that you'd likely be ok in either scenario (note that splitting up is often worse financially than death).  But run those numbers for yourself to increase your confidence.

And congrats -- you've done a really good job getting to where you are!

[positiveogre00]

Be sure to factor in future years income tax expense.

With a net profit of $31K in rentals, plus your dividend income, I would expect an annual obligation of some sort. This may be small if you file joint taxes, have depreciation left to take on the rental property, and your partner has lower level of income. Nonetheless, something to calculate and plan for.

[southgal25]

Thank you, uniwelder, Laura33, and positiveogre00 for the thoughtful guidance and feedback! Breaking out the rental income and expenses into their own column was especially helpful — that was a key point of uncertainty for me, so I really appreciate the nudge.

On the (very good) question of “What if something happens to your spouse?” — I’m on the survivor’s benefit for both pensions, and my Social Security benefit is higher than theirs. So while it’s not something I take lightly, I believe the basics would be covered. That said, it’s definitely an important scenario to think through.

It sounds like my math isn’t too far off, which is reassuring! Even with the rental figures separated out, the numbers still hold.

Of course, I know there’s not a huge margin. It’s those imagined worst-case years — illness, fire, car trouble, all the renters gone — that can get the anxiety going. But I also know the same habits that help us plan can sometimes flip into “awfulizing”.

I’m looking forward to hearing more thoughts — this has already been really helpful for me. Thanks again!

[Laura33]

Breaking out the rental income and expenses into their own column was especially helpful — that was a key point of uncertainty for me, so I really appreciate the nudge.

. . . .

It’s those imagined worst-case years — illness, fire, car trouble, all the renters gone — that can get the anxiety going.

The nice thing about breaking the rental income and expenses out separately (not just from your personal expenses, but for each property) is that it helps make it easy to tell if that is the best place for your money.  If you have one property that needs a lot of repairs, or is chronically taking a long time to rent, then you likely want to sell that and use the equity for a better investment. 

FWIW, I awfulize, too.  But the best cure for that is getting as much knowledge as I can, so that I can plan for those awful scenarios that I fear.  When you have 4-5 lines of defense all ready to be deployed, and you know that you'll be ok even if that bad shit happens, the anxiety goes away on its own.

[ChpBstrd]

A couple of earlier Mustachians posted that they estimate your real estate business generates around $20k per year after all the expenses. When we account for it this way, we can compare it against alternative investments. Against a real estate value of $400k, that would be a 5% yield. Much lower if we've underestimated remod expenses or insurance cost escalations.

5% is less than you could get with a portfolio of A-rated 5-10 year corporate bonds right now, and much less than you could get with a preferred stock fund like PFF, which yields 6.4%. So basically, all the hard work that goes into managing 4 rental properties is buying you (a) a lower income, and (b) more inflation insurance, than a comparable bond or preferred stock portfolio. Maybe that tradeoff is worth it, but be aware you are making such a tradeoff.

Meanwhile, your $360k savings account yielding 3.9% is a bold bet that inflation won't be too bad, but also interest rates won't be cut. Those may be contradictory outcomes, because if inflation goes down, rates will be cut. If rates are cut, so is your income. I'd be inclined to deploy this cash in longer-duration, slightly riskier instruments since you need to live off the income for at least a few years.

Finally, your $325k house stands in contrast to your relatively cheap rental properties. Could you stand moving into one of these $100k-125k properties to free up hundreds of thousands of additional green soldiers who could be out there earning income for you? Even if this is just a fallback plan, you do have that option, and it makes your retirement a lot safer.

[zolotiyeruki]

I think ChpBstrd is really on to something, especially with regards to the rental properties.  It's a fairly low ROI, and you have to work in order to get it, and inflation is going to eat into it significantly.  The cash has a similar issue with inflation.

[Cannot Wait!]

I agree!
I went to a Camp Mustache and met so many brilliant people IRL that gave me great advice. Someone sat me down and went over my numbers and pointed out how much more I'd make investing my $$$ than I was getting in rent - and I'd be free of all the hassles landlording entailed. I sold my rentals 4 years ago and am richer and happier for it.
(Although I did, on paper, lose $130,000 in 5 days last week - more than the price of each of your houses! - so you have to be ready for that!)

[southgal25]

The points about inflation, the amount of cash on hand, and the rental ROI are all very fair — thank you for raising them. I wanted to offer a bit more context on those fronts, just to round out the picture:

•   Rental ROI: I realize the current income from the rentals isn’t eye-popping. That said, I do appreciate the diversification they offer alongside the market. Each property was purchased over the past 10 years for less than half of what it's worth now, so appreciation has played a big role in their total contribution — even if that’s not something I expect to continue at the same pace. Rents have gradually increased along with taxes, HOA fees, and insurance, and I’ll continue adjusting them as appropriate. And while I wouldn’t want to sell my primary residence, the rentals also represent a backup housing option if needed. One of them may even be sold in the next year or two to free up cash for reinvestment.

•   Cash vs. Inflation: This is the most cash I’ve held in high-yield savings, and it’s temporary. Earlier this year, I sold some long-held individual stocks (mainly tech) to take profits and moved the proceeds to savings with the plan to redeploy into core ETFs later. The bulk of my IRA and brokerage holdings are already in broad ETFs, so this was more of a cleanup move than a long-term strategy.

Zooming out a bit, I’m not necessarily trying to maximize every percentage point of return. I’m aiming for a setup that feels stable, diversified, and resilient — something that supports a sustainable retirement without being overly fragile. That peace of mind is worth something to me, even if it means slightly lower returns in the short term.

All that said, I do want to come back to the original purpose of my post: Does the math still make sense? From what I can tell so far, it seems workable — but I’m absolutely open to other perspectives. I’m really grateful for all the input so far; it’s helped me think more clearly and look at things from a few new angles.

[ChpBstrd]

I do want to come back to the original purpose of my post: Does the math still make sense? From what I can tell so far, it seems workable — but I’m absolutely open to other perspectives. I’m really grateful for all the input so far; it’s helped me think more clearly and look at things from a few new angles.

I add up a net worth around $1.4M, which by the 4% rule would support a $56,000 initial income. Compared to a $52,000 annual spending rate, you can retire! {confetti flies everywhere}

Risks:

> Cash-heavy asset allocations don't always yield a high safe withdraw rate. As I noted earlier, thousands of dollars of income could disappear if the Fed cut rates. If they and your savings account cut the overnight by 300 basis points (3%) you'd be out almost $10k per year. Build a bond tent instead, but keep your duration well under 7 years to keep the volatility down and mitigate inflation risk while simultaneously locking in some income.

> With your house paid off, almost all your remaining expenses are exposed to inflation. A few years of 7% to 9% inflation could raise your spending from $52k to $65k to $75k pretty quickly. In theory, you might do well to hold onto one or two of your rentals as a hedge, but keep in mind the HOA fees, insurance, and repairs/maintenance will likely scale up with the inflation. Some small exposures to commodities producers, precious metals, forex, iBonds, or VTIP could take the place of your rental properties as inflation hedges if you chose to go that route.

> If you do not maintain and constantly update your rental properties as you get older, they will eventually become low-end places that attract low-end renters for low-end prices. That is to say, the workload will increase substantially, and this is a classic pitfall of retiring with rentals, and it ends with the places being sold as rehab projects. Make sure you are budgeting for (setting aside dedicated funds each year for) full remods every 7-10 years and light remods every 2-3 years, and conservatively assuming you can do none of the work yourself.

None of these risks are unmanageable. You just manage them and then get on with retirement. So while I think you have some prep work to do before quitting work, you can quit work as soon as you do this small handful of tasks. Congratulations!