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Old 03-12-2016, 09:03 AM
 
Location: Sherman Oaks, CA
6,588 posts, read 17,511,932 times
Reputation: 9462

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I'm sure this isn't a new dilemma for anyone who rents. Here is a general description of what's going on:

My base salary is almost $57,000. Bonuses push my yearly income to between $77,000 and $80,000. I have 10% taken out for my 401(k). Between that, insurance and taxes, my take home pay with monthly bonus is $3,393. Without the bonus, it's only $2,647. (If the math seems a little off, it's because I get one big bonus every year that's between $3,500 and $5,000.)

If I' follow the rule of thumb that your rent is supposed to be no more than 1/3 of your income, I'm over the limit with my regular salary. I'm paying $1,590 in rent now, and should be paying only $1,580.

My rent goes up 5% every year; my salary increases at only 1-2%. Obviously this situation can't continue forever. The good news is that I have $30,000 saved as a "rainy day fund", so I have some cushion. I'm extrapolating, though, and it doesn't look good. I'm not planning to retire until I'm 70, so I still have another 17 1/2 years to work.

Options are:

1. Downsize (I live in a two-bedroom apartment now). The only problem is that I'm paying well under market rate, which for this area is ~$2,000 for a two-bedroom, and ~$1,700 for a one-bedroom. Also, as a woman living alone, I'm not going to move to an area that's less safe. My commute to work is only ten miles, too.

2. Move to a rent-controlled apartment. I lived in one for twelve years out of necessity, and the landlord was one step up from a slumlord. The washing machines were constantly breaking, the pool was green, and maintenance was done by unlicensed workers. My rent went up $400 when I moved in 2009, but I couldn't stand it anymore. Landlords do this on purpose so people will leave, and then they demand market level rents.

3. Move further away. If I move far enough away to lower my rent enough to make a difference, I'll have a very long commute, and the wear and tear on my car will mean that I'm not saving much. (I'll also be spending any savings on Valium and Xanax, as my nerves will be frazzled! )

4. Get a roommate. I'm 52 years old; I don't want a roommate. I don't play well with others, especially since the bedrooms are right next to each other in this apartment. (This may be the only palatable option, but I like living alone!)

5. Get a new job in a cheaper part of the country. Considering how much I make, and that I only have a high school education (okay, some college, but I don't even have an AA) and that I'm over 50, getting a new job that pays as well as the one I have now isn't likely. Besides, my two adult kids are here and I don't want to leave them.

6. Reduce other expenses. My quality of life will suffer, but I suppose I don't have to go out to eat on the weekends anymore. (This is how high rents really hurt the local economy, by the way.) Luckily my favorite hobby is reading, and I find lots of books on sale for my Kindle. I've already cut my cable bill as much as I can, because I never watch TV. The next step will be getting rid of cable altogether, and I'm tempted.

7. Reduce my 401(k) contributions. This is a last resort, and I'd do everything I can before taking this step. I need to have something to retire on, and my family has a history of longevity. I have an uncle who is turning 93 in July. My grandmother and my father both died in their 80s, and they smoked for over fifty years! The balance in my 401(k) is now $240,000. No way is that enough to live on, even with Social Security (and I'm afraid to count on that, considering the dire predictions for SS funding!).

I'm lucky that my kids are grown and living elsewhere. I only have to worry about myself and my two cats. And maybe I shouldn't be worrying so much. The problem is that my bonuses are never guaranteed, so I don't like to rely on them for my basic living expenses.

I also worry about health insurance. Again, I'm lucky that I'm just covering myself, but the premium goes up every year, and the coverage goes down (increased deductible, co-pays, etc.). God forbid that I actually get sick; that would wipe out everything I've worked so hard for. (I know that I can't think like that; I'm fortunate to be relatively healthy!)

Am I worrying too much? Should I just relax and not worry about this? I've always managed to make things work before, even when I was raising two kids by myself and without any child support. I'm sorry this post is so long, but this has been on my mind for a while. I've never been a person who doesn't think about the future. And if you're still reading, thank you!!!
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Old 03-12-2016, 09:09 AM
 
Location: SoCal
20,160 posts, read 12,689,885 times
Reputation: 16993
It's supposed to be a ballpark percentage and not an exact amount. I don't know why you should move. In fact if you do move its going to cost more which something my daughter also found out and decided to stay put.
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Old 03-12-2016, 09:11 AM
 
Location: North Idaho
32,539 posts, read 47,631,897 times
Reputation: 77954
What would your mortgage payment be if you buy a small house with a fixed rate mortgage?
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Old 03-12-2016, 09:20 AM
 
24,526 posts, read 18,069,797 times
Reputation: 40211
Quote:
Originally Posted by SandyCo View Post
7. Reduce my 401(k) contributions. This is a last resort, and I'd do everything I can before taking this step. I need to have something to retire on, and my family has a history of longevity. I have an uncle who is turning 93 in July. My grandmother and my father both died in their 80s, and they smoked for over fifty years! The balance in my 401(k) is now $240,000. No way is that enough to live on, even with Social Security (and I'm afraid to count on that, considering the dire predictions for SS funding!).

Am I worrying too much?
No, you're not worrying too much.

You absolutely don't ever want to cut your 401(k) contribution at age 52.

At age 52, the 99% outcome is you'll age into the 55+ grandfathered bracket before anything is "reformed" with Social Security. It's something to be concerned about but you're probably OK there. You'd have to move out of metro-LA but you wouldn't starve as long as you can continue to work to at least full retirement age. If something bad happens and you can't work at age 62, it would be challenging.

If I had that math, I'd be looking at my options in a much lower cost area. It's really hard to say whether the lower pay combined with much lower housing cost and taxes works out in your favor. Until you start exploring job opportunities and looking at your living costs, you won't know.
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Old 03-12-2016, 09:27 AM
 
10,075 posts, read 7,493,167 times
Reputation: 15498
kind of sounds like the rent is increased as much as the law allows to force you out, so they can get someone new in at higher rate
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Old 03-12-2016, 10:00 AM
 
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
44,251 posts, read 80,480,482 times
Reputation: 57160
The way rent is going up in areas like yours, San Francisco and Seattle, buying is a much better way to keep up. Your fixed mortgage payment remains the same, only property tax and insurance go up, but not nearly like the rent, which can double at renewal time. The mortgage interest deduction will make a huge difference in your tax bite, for us it's close to $20,000/year. The problem for most people is coming up with a down payment, and of course, finding an affordable house to buy. Here that means extending commutes to an hour or more, but now those home prices are starting to climb faster as more and more people do it. The only real solution available is a big job promotion, new job that pays better, marry someone with a good job, or get roomate(s).
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Old 03-12-2016, 10:04 AM
 
18,495 posts, read 15,479,782 times
Reputation: 16163
Quote:
Originally Posted by SandyCo View Post
I'm sure this isn't a new dilemma for anyone who rents. Here is a general description of what's going on:

My base salary is almost $57,000. Bonuses push my yearly income to between $77,000 and $80,000. I have 10% taken out for my 401(k). Between that, insurance and taxes, my take home pay with monthly bonus is $3,393. Without the bonus, it's only $2,647. (If the math seems a little off, it's because I get one big bonus every year that's between $3,500 and $5,000.)

If I' follow the rule of thumb that your rent is supposed to be no more than 1/3 of your income, I'm over the limit with my regular salary. I'm paying $1,590 in rent now, and should be paying only $1,580.

My rent goes up 5% every year; my salary increases at only 1-2%. Obviously this situation can't continue forever. The good news is that I have $30,000 saved as a "rainy day fund", so I have some cushion. I'm extrapolating, though, and it doesn't look good. I'm not planning to retire until I'm 70, so I still have another 17 1/2 years to work.

Options are:

1. Downsize (I live in a two-bedroom apartment now). The only problem is that I'm paying well under market rate, which for this area is ~$2,000 for a two-bedroom, and ~$1,700 for a one-bedroom. Also, as a woman living alone, I'm not going to move to an area that's less safe. My commute to work is only ten miles, too.

2. Move to a rent-controlled apartment. I lived in one for twelve years out of necessity, and the landlord was one step up from a slumlord. The washing machines were constantly breaking, the pool was green, and maintenance was done by unlicensed workers. My rent went up $400 when I moved in 2009, but I couldn't stand it anymore. Landlords do this on purpose so people will leave, and then they demand market level rents.

3. Move further away. If I move far enough away to lower my rent enough to make a difference, I'll have a very long commute, and the wear and tear on my car will mean that I'm not saving much. (I'll also be spending any savings on Valium and Xanax, as my nerves will be frazzled! )

4. Get a roommate. I'm 52 years old; I don't want a roommate. I don't play well with others, especially since the bedrooms are right next to each other in this apartment. (This may be the only palatable option, but I like living alone!)

5. Get a new job in a cheaper part of the country. Considering how much I make, and that I only have a high school education (okay, some college, but I don't even have an AA) and that I'm over 50, getting a new job that pays as well as the one I have now isn't likely. Besides, my two adult kids are here and I don't want to leave them.

6. Reduce other expenses. My quality of life will suffer, but I suppose I don't have to go out to eat on the weekends anymore. (This is how high rents really hurt the local economy, by the way.) Luckily my favorite hobby is reading, and I find lots of books on sale for my Kindle. I've already cut my cable bill as much as I can, because I never watch TV. The next step will be getting rid of cable altogether, and I'm tempted.

7. Reduce my 401(k) contributions. This is a last resort, and I'd do everything I can before taking this step. I need to have something to retire on, and my family has a history of longevity. I have an uncle who is turning 93 in July. My grandmother and my father both died in their 80s, and they smoked for over fifty years! The balance in my 401(k) is now $240,000. No way is that enough to live on, even with Social Security (and I'm afraid to count on that, considering the dire predictions for SS funding!).

I'm lucky that my kids are grown and living elsewhere. I only have to worry about myself and my two cats. And maybe I shouldn't be worrying so much. The problem is that my bonuses are never guaranteed, so I don't like to rely on them for my basic living expenses.

I also worry about health insurance. Again, I'm lucky that I'm just covering myself, but the premium goes up every year, and the coverage goes down (increased deductible, co-pays, etc.). God forbid that I actually get sick; that would wipe out everything I've worked so hard for. (I know that I can't think like that; I'm fortunate to be relatively healthy!)

Am I worrying too much? Should I just relax and not worry about this? I've always managed to make things work before, even when I was raising two kids by myself and without any child support. I'm sorry this post is so long, but this has been on my mind for a while. I've never been a person who doesn't think about the future. And if you're still reading, thank you!!!
You're 52 years old and have only $240,000 in retirement and no home?


Not good.


I suggest option 5, with option 4 as a backup.


Possible option 8 - reduce 401k contributions and max out a ROTH IRA. At retirement, move to a place where the Roth balance is sufficient to buy a home with all cash (Rust belt?).
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Old 03-12-2016, 10:04 AM
 
Location: SoCal
20,160 posts, read 12,689,885 times
Reputation: 16993
401k is your largest deduction. Don't decrease it. What about increase the number of withholding. Do you get tax back every year. I wouldn't buy a house now, not on that income. I wouldn't do Roth IRA, you are not in the highest tax bracket, so it's not worth it.
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Old 03-12-2016, 10:11 AM
 
Location: Oregon, formerly Texas
10,022 posts, read 7,169,858 times
Reputation: 17121
Quote:
Originally Posted by oregonwoodsmoke View Post
What would your mortgage payment be if you buy a small house with a fixed rate mortgage?
900-1200sf houses start above 350K for her area. She would need about $75-100K for a down-payment. Unless she has that, it's not an option, unless she wanted to zero out her emergency fund and reduce her retirement savings.

OP, I'm sorry. This is a problem all over the country, especially on the west coast and in other in-demand metros. About half the major metros across the country are suffering from this. The other half of the country has cheap housing but the jobs pay less.

You could lock in lower payments by purchasing a small house. You could also look into purchasing in a cheaper metro. There are a lot of exurban and rural areas across the country where decent houses can be had for 100K. The issue would be jobs.
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Old 03-12-2016, 10:11 AM
 
18,495 posts, read 15,479,782 times
Reputation: 16163
Quote:
Originally Posted by NewbieHere View Post
401k is your largest deduction. Don't decrease it. What about increase the number of withholding. Do you get tax back every year. I wouldn't buy a house now, not on that income. I wouldn't do Roth IRA, you are not in the highest tax bracket, so it's not worth it.
Pretax accounts are disadvantaged due to means tested programs for seniors. Taxable income renders SS taxable, and can disqualify you from otherwise more generous health care. Money pulled from a ROTH IRA after age 59.5 (including earnings on the money) is not considered income, so you can still qualify for help if you need it.
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