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I think they would be hard pressed to live a frugal life for 10 years that will cover repairs and maintenance to both homes, travel, medical needs, commissions/advertising to find new tenants/sell house, inflation, etc.
why is it hard to believe they could live a frugal life?
Because the cost of travel, and possible repairs and maintenance, plus property taxes would probably make their lives more costly than the word "frugal" implies
As for income, this is what i told them, but fell short when it came to giving SS and healthcare advice....
i told them that spending the 400k in 10 years would mean an avg of 40k withdraw....in addition to about 2000 a month in rental income (after taxes/maintenance), for a total avg of about 64k a year after tax income....or about $5300 a month.
that's not too bad i guess.
- but when does SS kick in and for about how much?
- does a senior health care system exist that kicks in at a certain age? (sorry, forgive my ignorance here)
the above doesn't account for any of this.....so for a better picture, it would be good to have this info as well.
Great article in the new Money Magazine titled: Building the New Retirement. It covers topics like draw down rates, spending in retirement and the first decade of being retired. It attempts to address the new realities and has some great contributors including Wad Pfau on drawing down your nest egg etc etc. Good thoughts on what now is a safe withdrawal rate.
Here's a hypothetical situation based on the situation of family friends looking to retire:
ages 58 and 53 currently.
Assets:
Primary home: 1.1M worth
Rental 1: 600k worth
Rental 2: 300k worth
Cars: 2 (5 year old cars)
Savings: 400k bank
Debt:
200k mortgage on rental 1
150k mortgage on rental 2
Goals:
retire in 2 years.
travel 3 times a year (avg trip at about 6k?)
live as long as possible in the primary home
If this was you, how would you make it happen?
You don't have enough money to retire where and as you are.
Retiring too early can be deadly. I've seen it fail. And so many people retire early simply to say they have retired. I've seen that, too. Live "as long as possible in primary"....? You mean until bankruptcy is imminent?
You could retire. Just not as you are.
But the question is, "If this was you, how would you make it happen?":
I'd liquidate everything.Then relocate, if necessary, to anotherarea where taxes and real estate are more in my price range.
I need;
1 months expenses in my checking account
6 months expenses in a money market
And 10 years expenses tied up in long term investments like home, 401K and etc...
Retiring at age 65 is unbelievable easy. Your real estate taxes go down, McDonalds gives you a discount on coffee, health insurance is cheap, you drive fewer miles, your wardrobe becomes simpler, and on and on.
We're retired. And we travel. But we never, ever, spent $6,000 on a vacation. That's absurd, in our view.
If the hypothetical couple retires in two years, would they buy health insurance on the open market under the ACA? They are years and years short of Medicare.
If the hypothetical couple retires in two years, would they buy health insurance on the open market under the ACA? They are years and years short of Medicare.
They would continue purchasing insurance as they are now. That is of course one of the major monthly expenses.
Questions: when does Medicare kick in?
They would get 80% of their SS at 62 right? (80% of about 1800?) Or wait til 67 for the full 1800 each?
Might I suggest a visit to a fee only financial planner? You can give us bits and pieces but this forum is no way to plan a future. They need to get their info together and go see someone for some good solid advice. There's ways to make what they want work, but I see way more ways they could screw themselves royally. A good planner can lay out a roadmap for them to follow and agoal to shoot for.
Pure plain and simple. Unless they have significant assets that you did not mention they should not consider retiring, let along planning on taking trips for 6 grand three times per year.
Why? You list "worth" on each of the three properties. There is a huge difference between what it is worth and the selling price, should selling be an option. You have rentals worth 900k with debt on those of better than 1/3 your guesstimate of their value. Pulling in $48,000 in rental income per annum, less the taxes and maintenance, may not net an appreciable income stream to pay for the $18,000 of vacations let alone anything else like the taxes, upkeep, food, health insurance, homeowners and auto insurance, daily living expenses.
They are also far enough away from Medicare eligibility that no one knows what will be with that when they are age appropriate. Now, the above would change if both rentals properties were sold and the proceeds invested but it still would be a tough road given the aggressive spending on vacations and current market conditions.
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