What to plan for the future?

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Submitted by exsdgal on March 30, 2012 - 3:47pm

Not sure how to phrase the topic... here is the scenario and want to learn what others do in a similar situation.

For a couple in mid-40s with 'semi' stable jobs, reasonable health and most family commitments taken care off. What or how should one plan the future if the intention is to leave fulltime employment in about 5 years? Neither of us will receive any pensions/retirement packages and have to rely on personal savings, 401k's and such.

One of our friends suggested life insurance. Not entirely convinced if that is a necessary product for us.

What should a 40 something anticipate and plan for? Your suggestions and insights greatly appreciated.

Thanks.

Submitted by earlyretirement on March 30, 2012 - 4:17pm.

Do you have a large nest egg (7 figures +) to plan on taking this early retirement?

Or do you have any assets that will generate cash flow each month/year like rental properties?

The plain fact of the matter is the vast majority of people in their mid 40's wouldn't be planning to retire in the next 5 years.

I say all the power to you and wonderful if you can safely accomplish it but to definitely have a fairly large nest egg to even think about this.

My goal was always to be able to retire by the time I was 40 if I wanted to. It wasn't easy but I probably could fully retire if I wanted to. However, I'm not sure I will want to retire so early.

I guess it would be hard to give you specific advice without knowing how large of a nest egg you have.

I have friends that retired early (in their 40's) and they had major events like sudden illnesses that really threw them for a loop. I guess that is my biggest fear retiring early.

Back a few years ago when I was in your position thinking about retiring so early, my strategy was to buy several rental properties that generate cash flow each month.

I know my case isn't the typical situation but I went in and bought several rental properties and completely paid them off. I know most people will leverage but I didn't want ANY debt at all heading into an early retirement.

My goal was to go into early retirement having my principle residence completely paid off, having my cars paid off and having absolutely no debt at all.

Also, I'd set aside a fairly large emergency medical fund just in case something happens.

Also, much of early retirement just depends what kind of lifestyle you lead. That probably is the biggest factor in how early you can retire.

Some people are content with just staying home or close to home and not doing much while others strive to travel non-stop around the world to exotic places.

I know our single biggest expense is traveling around to different countries in the world. That will most likely be our biggest expense each year while we are retired.

I know for me I'd feel very nervous retiring early with no cash flow generating income each month. Sure we have stocks but the stock market can be a volatile place and you really have to stay very diversified and stick with it for the long term.

My friends that retired early and had almost all of their assets in the stock market nearly had a nervous breakdown during the stock market meltdown a few years ago. Some of them panic sold some of their stocks only to see the stock market come roaring back.

Submitted by Coronita on March 30, 2012 - 4:26pm.

without a balance sheet (even in vague terms), hard to tell if you're ready for retirement.

I guess what are your liabilities, what are your assets?

Also, realistically how good is your investment returns? <5% or >5%...

Regarding life insurance. It depends. Imho, life insurance is primarily a tool for leaving money for people to pay for stuff. If your asset pool is large enough, might not need it. Then again, if it's very large, it might be more relevant from an estate planning purposes. Then gain, life insurance (if it's cheap), just do it.

Submitted by scaredyclassic on March 30, 2012 - 4:28pm.

Purchase the tightwad gazette.

Eat wild mustard greens.

Submitted by sdrealtor on March 30, 2012 - 4:39pm.

Two thoughts that immediately came to mind. A lifetime of uneccessary frugal living or a lifetime of poverty.

Submitted by The-Shoveler on March 30, 2012 - 4:52pm.

Maybe only one of you retire then the other start either some passive or mostly passive Business ?
That way you don’t go cold turkey.
It’s amazing what you can do when you work as a team, even when ones in the office most of the day.

But I really like the wild mustard greens Idea, got to get rid of those things before summer anyway.

Submitted by The-Shoveler on March 30, 2012 - 4:57pm.

Also IMO
Depending on Stock market returns to fund your retirement is scary. Just saying, those NY bankers never stop thinking of ways to separate you from your money.
JMHO.

Submitted by briansd1 on March 30, 2012 - 5:11pm.

walterwhite wrote:
Purchase the tightwad gazette.

Eat wild mustard greens.

Good idea. It's possible to be frugal and still live a life of luxury.

Everyone has different ideas about retirement.

But I'd say first move to the lowest cost house you're willing to accept. Pay off that house and go from there.

When I retire in Thailand, I plan to have my condo paid for. Count $500 per month for utilities and HOA. Beyond housing, $1,500 per month would allow me to live an upper middle-class life there, including eating in luxury hotels several times per month hanging out at cafes, etc.. So $2,000 total per month for local living.

On top of that add travel expenses to wherever I might want to go.

I have a deal with my brother and a friend to trade places in USA for when I come back. Plus it's always nice to visit relatives. I have other friends in Europe who might like to do vacation trades. My young cousin's wife is building a triplex in Berlin. I could trade with them.

Medicare only covers medical services in America so I'd have to come back for that. But I'm pretty certain that I won't suffer chronic diseases and need blood pressure or cholesterol medicine in my old age. There could be accidents or cancer but there's no history in my family.

The way I figure it, is that if, at minimum, I own 3 debt-free 1-bedroom condos in America that generate cash flow, I can sustain my lifestyle.

Everything else such as 401k/pension Social Security, investments, etc.. is gravy. I could use that to splurge.

Of course, I won't stop working and generating income, because I enjoy doing it. That will be gravy also.

Anyway, look at the baseline and decide what your minimum is. You don't want to end up in debt and have nothing but social security in your old age.

Submitted by scaredyclassic on March 30, 2012 - 5:23pm.

It all just seems so ridiculous all this mucrobudgeting as I sit here atop my 640 million

Submitted by CA renter on March 31, 2012 - 2:49am.

sdrealtor wrote:
Two thoughts that immediately came to mind. A lifetime of uneccessary frugal living or a lifetime of poverty.

Bingo.

Submitted by exsdgal on March 31, 2012 - 9:34am.

earlyretirement wrote:
Do you have a large nest egg (7 figures +) to plan on taking this early retirement?

Or do you have any assets that will generate cash flow each month/year like rental properties?

flu wrote:
without a balance sheet (even in vague terms), hard to tell if you're ready for retirement.
I guess what are your liabilities, what are your assets?
Also, realistically how good is your investment returns? <5% or >5%...

Fair questions. We have a ballpark figure of the expenses and are working to generate 3-5x as near-passive income to provide some buffer in case of emergencies. As for liabilities it is mostly the mortgage and should be paid off in about seven years.

The stocks and retirement accounts have decent returns. With kid and family obligations taking up time, lately we have reduced our non-retirement stock portfolio significantly. Will venture back to actively managing the stocks in a year or two, but have to see what happens then.

I am aware this is not the typical situation. Was not 'lucky' to land a job in established companies to just settle in and ride the wave into management. It will be difficult to change jobs in 50's and will have to forget about finding one at 60's. Paranoid perhaps… but probably not too far from reality.

Our idea of retirement is to buy time. In the sense do what you want to do and not because you have to do it. Like one of the suggestions, we plan to start a business that will keep us engaged and hopefully contribute towards the 3-5x cash flow.

Couple of things I would like feedback on are - 50s is too early to traditionally retire. What should one do in terms of health insurance? Are there products/insurance to consider? In our assumptions 401k/roth/ss/medicare/etc are mostly supplemental… I guess my question becomes what are the available tools to replace the traditional retirement funds?

ty

Submitted by bearishgurl on March 31, 2012 - 1:06pm.

exsdgal wrote:
... What should one do in terms of health insurance? Are there products/insurance to consider?...

exsdgal, a High Deductible Health Plan (HDHP) can be had on the open market for between $250 and $300 mo (for age 50) if you are healthy. The premium DOES go up a little once or twice per year.

I have Aetna Open Access Managed Choice (HDHP PPO).

The one I have is $5000 deductible/$8,000 co-insurance (max out-of-pocket) annually. A network PCP costs $40 per visit and a network specialist is $50 per visit. All lab work, x-rays, scans, special procedures and tests comes out of deductible (out-of-pocket until ded is met). Preventative care is 100% covered, incl one annual well-woman/man exam and one mammography. One colonoscopy (every 10 yrs) is 100% covered. Last year, I rec'd a $400 bone scan which was covered 100% as "preventative care." I'm sure there are tests for men that could be considered "preventative." also.

Generic prescriptions are $9, $12, or $15. Brand name prescriptions are $50 - $100. Of course, chemotherapy and other brand-name prescriptions I haven't used could be MUCH pricier.

You don't have to choose a PCP. Most of the best physicians in SD are in the Aexcel network. You can see a specialist any time you want. You can also choose a plan which will coordinate with an HSA.

http://healthinsurance.aetna.com/health-...

I've been on this plan for almost 8 years. I think these are the best plans for persons who don't go to the doctor for every little problem and possibly use OTC and homeopathic remedies instead. OTOH, if you become truly sick, you have access to the best doctors in the state!

In March of 2014, a new provision of the HCRA will become law. The way I understand the change is that individual plans will no longer be able to price a plan premium for an individual applicant based upon their underwriting results. They will likely price them by age and sex. I think this will cause the healthy to pick up the slack for the unhealthy (whether by bad luck or their own actions) in the form of raised premiums. No one yet knows how our premiums will be affected because it likely depends on the amount of people that actually sign up for each plan.

Submitted by bearishgurl on March 31, 2012 - 1:10pm.

When I become eligible for Medicare (if it is still around, lol), I will sign up for the Aetna Medicare Supplement to cover parts B & D.

Submitted by UCGal on April 1, 2012 - 4:13pm.

Healthcare is definitely the toughest budget item to predict.
That and college expenses.

I've been lurking a lot on http://www.early-retirement.org/forums/ - lots of good advice over there... but it seems like many of the regulars are retired military, so they have pension and medical insurance covered.

They also have a calculator that let's you "what-if" different scenarios, and runs Monte Carlo simulations to see if you'll run out of money.

For my dreams of retirement I know it works better for me to have the mortgage paid off. We're also putting money into the house now so we won't have to later... in anticipation.

Submitted by Coronita on April 2, 2012 - 9:15am.

exsdgal wrote:
earlyretirement wrote:
Do you have a large nest egg (7 figures +) to plan on taking this early retirement?

Or do you have any assets that will generate cash flow each month/year like rental properties?

flu wrote:
without a balance sheet (even in vague terms), hard to tell if you're ready for retirement.
I guess what are your liabilities, what are your assets?
Also, realistically how good is your investment returns? <5% or >5%...

Fair questions. We have a ballpark figure of the expenses and are working to generate 3-5x as near-passive income to provide some buffer in case of emergencies. As for liabilities it is mostly the mortgage and should be paid off in about seven years.

The stocks and retirement accounts have decent returns. With kid and family obligations taking up time, lately we have reduced our non-retirement stock portfolio significantly. Will venture back to actively managing the stocks in a year or two, but have to see what happens then.

I am aware this is not the typical situation. Was not 'lucky' to land a job in established companies to just settle in and ride the wave into management. It will be difficult to change jobs in 50's and will have to forget about finding one at 60's. Paranoid perhaps… but probably not too far from reality.

Our idea of retirement is to buy time. In the sense do what you want to do and not because you have to do it. Like one of the suggestions, we plan to start a business that will keep us engaged and hopefully contribute towards the 3-5x cash flow.

Couple of things I would like feedback on are - 50s is too early to traditionally retire. What should one do in terms of health insurance? Are there products/insurance to consider? In our assumptions 401k/roth/ss/medicare/etc are mostly supplemental… I guess my question becomes what are the available tools to replace the traditional retirement funds?

ty

I frankly don't think you're ready to retire. It's not because I think there's issues with your current financial shape...It's because based on your post, you seem to have not have quite yet your self-conditions for retirement yet...And until you do, i think it poses a significant risk to your future until there is more clarity.

1. "Working to achieve 3-5x" in passive income. Ok, to me that sounds like you're in the process of doing there, not there yet.

2. "Mortage paid of in 7 years". Great...How big is your mortgage? Also, does your goal of 3-5x in passive income include covering your mortgage.

3. "Stock and retirement account have decent returns"... What would you consider decent? Let's just say for discussion you have been doing 10-15% consistently annually....Consider this...In order to achieve this, you most likely need to take on a higher risk/aggressive portfolio. And right now, that makes sense, because worse comes to worse, you and your spouse are still working, so even it your portfolio tanks being in the higher risk category, it doesn't matter as much, because you're still earning income elsewhere...Now, fast forward and consider you and spouse are retired and have no W2 income. It would be extremely risky to be in the more aggressive portfolio...In a bad year, you're portfolio tanks bigtime, and all the sudden you have a major income/cash crunch...So, really when folks are in retirement and counting on passive income, their portfolio should really be more closer to a safe "liquid" asset that won't fluctuate as much... But that almost entirely means, lower returns...Have you factored in your 401k/retirement account's if you move it into lower yield/less risk portfolio say 3-5% (and even that might still be too high risk)?

4. "Starting a business and contribute to passive income"

Ok... I think it's a great idea to do this. Ideally ,that's what I want to do. BUT, if you're counting on this as part of your retirement, I'd say do it why you still have your w2 income versus retiring first and trying it. As the saying goes, it takes money to make more money (usually). A new biz is gonna cost money, and it might fail, and you might have to start over and do something else...Personally, I'd do this while I still have a w2 income backup versus trying this when I don't.

5. Kids expenses. Sounds like you have kids. Do you already have your kid's expenses factored in. Also, these days, have you factored the case of emergency, in which your kids have to move back with you after college? I know, sounds impossible...But seriously, just in case...

6. Health insurance...
What are you plans for you and your spouses health insurance? Also, if your kids are still dependents, what are your plans for your kids' insurance... Medical expenses, especially unexpected ones are one of the major factors that can wreck havoc one's financials...And if you're on your own, and you have your own health insurance, consider the risk that if you our one of your family conditions suddenly develop a major issue, your expenses are going to go up....significantly...
Medical insurance is one of the major reasons why I still work at my w2 despite everything else I do off to the side. And that's even that I have my own supplemental, paid health insurance.

With that said, if you can address 1-6, I'd say you're ready for early retirement....

Submitted by Coronita on April 2, 2012 - 9:26am.

Just curious though... Why do you feel you need to retire early? I mean, reality is that once you leave a w2 workforce, you're going to have a tougher time getting back in. Is you and your spouse's "job" that dreadful and that high pressure or that time consuming to consider quitting? Rather that quiting, have you simply considered either reducing your hours/efforts ("unofficially") or transferring to a position of lesser pressure/work? It seems like that would be a better option... Because it seems like you'd get to keep most of benefits of being a salaried W2 wager (and there are benefits despite the sucky parts too). while at the same time freeing up some free time for what reasons...

I ask, because just this weekend I had a interesting conversation with a friend. I have a friend that's been at a big company for some time. Not in major management position/etc..... Friend said over the weekend he wants to retire because he's tired of the grind...When I asked, he was complaining about how much he works, how crappy his raise is, on and on and on... My response..

"Well, you work at a big company, and you're not a director/senior manager..So let's face it, whether your a steller employee or not, you're looking at probably a 0.5% pay difference between being a "top employee" in your group/dept versus being a "mediocre employee"...
You chose to work your ass of on the most cutting edge/high profile/sexy projects because that's how you are...You didn't want to be like your coworkers that chose to be in the those lower profile/"boring"/maintenance projects.... So as a result, you get to stay working 70+hrs each week, arguably working on some of the sexist projects, to be paid 0.5% more than your coworkers who get to come in at 9am, leave at 5:45pm, and take 1.5 hr lunch breaks, call in sick or "work from home" when their personal life requires them to.....with probably very minute amount of decreased job security versus you
...I'm sure Dr. Jacobs thanks you for your efforts, because I'm sure you helped him collect a few tens to hundreds of millions more of stock options......

If you want to have a life, why don't you just switch your role and do that less stellar project, cut your hours, and spend more time doing something else...It just costs you 0.5% pay difference, and it's really closer to 0.25% difference after taxes...And hell, if you're thinking about quiting and retiring, why must you do the company a favor and leave yourself. Why don't you just drag it out, work less, collect your vacation accumulation, your benefits, your health insurance, and meanwhile just wait to be laidoff when/if it comes to that? On top of that, you'd get a severance package, being RIF'ed"

......Dead silence...

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