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Author: petrus36 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76418  
Subject: How much is enough? Date: 1/5/2011 12:49 PM
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We are two women who between us have about $1 mil invested with virtually no debt. We are both 55 and would like to retire by 65 the latest. I find all the retirement calculators so cumbersome and difficult to use. I just want to know if we have enough invested to be able to retire? Do we sound like we are on track? Any help is appreciated.
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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68080 of 76418
Subject: Re: How much is enough? Date: 1/5/2011 1:44 PM
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We are two women who between us have about $1 mil invested with virtually no debt. We are both 55 and would like to retire by 65 the latest. I find all the retirement calculators so cumbersome and difficult to use. I just want to know if we have enough invested to be able to retire? Do we sound like we are on track? Any help is appreciated.

No way to tell if you're on track from the information you've given, since you neglected to indicate what your expenses are, and if they will change when you retire.

If your expenses will be no more than $40k a year (including any income taxes you will need to pay), adjusted for inflation, you are probably in the ballpark. If you will have expenses significantly in excess of that, and don't have income sources other than your investments, you probably aren't in the ballpark. If you would have fewer expenses and/or pension/other income to meet those expenses, you could potentially retire now.

But the key is understanding how much income you will need to meet your expenses and where it's going to come from.

AJ

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Author: reallyalldone Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68081 of 76418
Subject: Re: How much is enough? Date: 1/5/2011 3:05 PM
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We are two women who between us have about $1 mil invested with virtually no debt. We are both 55


Unless you are related in some way, I would make my first stop an attorney to make sure you each will always have access to the money.

Then I would do a full balance sheet for total net worth.

Then decide where you will be living in retirement.

Then project expenses as much as possible(don't forget gap insurance to cover what medicare won't)

Then compare that to the 40K as the safe withdrawal rate from the million along with any other possible income. Social security ? pension ? savings ?

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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68082 of 76418
Subject: Re: How much is enough? Date: 1/5/2011 3:06 PM
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No way to tell if you're on track from the information you've given, since you neglected to indicate what your expenses are, and if they will change when you retire.


and no mention of expected SS or pension.

i agree that Expenses are The Key ..but the other two legs of the income stool have to be considered.

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Author: temsike Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68083 of 76418
Subject: Re: How much is enough? Date: 1/5/2011 3:20 PM
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I used this retirement calculator and made some assumptions. Age 55. $1M invested. No further contributions. No pensions or Social Security. Adjust asset allocation as per TrowPrice.

When you turn 65, you as a couple can safely spend $4,230 per month. I you decide to retire now, you may spend $2,915 per month.

Try it. I think it's the best retirement calculator out there.

https://www3.troweprice.com/ric/ricweb/public/ric.do

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Author: petrus36 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68084 of 76418
Subject: Re: How much is enough? Date: 1/5/2011 3:33 PM
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We both expect about $3k/month SS, for as long as they can pay it. No other income sources except the investments mentioned. There will be an inheritance at some point down the line of maybe another $500,000 but that could be 15-20 years away (hopefully). We probably need about $100K annually to live on, and would like to end up in Palm Desert, Calif if possible.
We have a trust, so that is all taken care of.

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Author: StockGoddess Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68085 of 76418
Subject: Re: How much is enough? Date: 1/5/2011 3:34 PM
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The "safe" amount to withdraw from a retirement account, 3-4%, is based on a study known as the "Trinity Study" which back-tests the stock market from today through the great Depression, and posits various chances of success based on various percentages of stocks vs. bonds invested, and various withdrawl rates. A chart at the bottom of this page lays it out in very simple terms:

http://wpfau.blogspot.com/2010/10/trinity-study-retirement-w...

If you have no heirs to leave money to, you could also get a higher guaranteed return through (and I know this is a dirty word) a guaranteed annunity, more like 6% guaranteed for your lifetime. They get to keep the balance when you kick the bucket, though. A good deal if you plan to live a long, long time, bad if you don't.

So right now you're looking at can you two live on $40K a year..plus social security....based on how you've invested your million, ten years hence that may go up a bit or just keep pace with inflation. Also - based on how you've invested - is that tax-free income or taxed?? (i.e. Roth IRAs or 401K's or tax-free munis?). It might not hurt to take a meeting with a financial planner - or two or three - and see what they suggest for someone on your time horizon. Avoid those selling their own products, get one who's independant (I think Raymond James are independant) I'd recommend going to a few, though, and making NO decisions until you find one you like. See if they're all heading in the same direction, as well. And check back here before you sign any paperwork.

Best of luck and happy days ahead!

SG

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Author: JCMcCarter Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68086 of 76418
Subject: Re: How much is enough? Date: 1/5/2011 4:35 PM
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We both expect about $3k/month SS

I think, from my real life experience under current law, that retiring at 65 you can expect around $2,000/month maximum. That is unless the CPI skyrockets and the Fed starts paying cost of living increases once again.

James

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Author: ResNullius Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68087 of 76418
Subject: Re: How much is enough? Date: 1/5/2011 4:42 PM
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If you're at the top income level for SS, then you would get in today's dollars around $2446 per month, double that if both of you worked full-time at decent paying jobs. That's almost $5K per month. Plus, and it's a big plus, you'll get some version of Medicare. My wife and I currently pay (age 60)about $15K per year in premuims for both of us, with $2.5K deductibles for each, plus another $2K in co-insurance, plus various co-pays. We expect the total cost to both of us to drop by around 50% when we both hit Medicare. For you, based on what you've written, SS and Medicare will be large parts of your retirement. Then you have your $1M, which will be much more in 10 years, but it's still $1M in today's dollars. As others have said, you should be able to safely take about $40K per year out, with yearly upward adjustments for inflation. This would take you to a minimum of around $100K, plus the value of Medicare. That's ain't chicken feed. As others have said, your expenses in retirement are very important, but you'll simply need to keep them below the $100K mark in today's dollars. Put some cushion in and drop it to $80K, then you should be safe for just about anything, with the ability to spend a little more when the need arises. Good luck.

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Author: hockeypop Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68088 of 76418
Subject: Re: How much is enough? Date: 1/5/2011 5:13 PM
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Plan for what happens when one partner dies. At least his/her social security will disappear (in your case about 30% less per year) and you will want to make arrangements for the investments and a will. That's a LOT to drop especially with end-of-life care that is sometimes needed.

Hockeypop

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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68089 of 76418
Subject: Re: How much is enough? Date: 1/5/2011 5:47 PM
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. We both expect about $3k/month SS

=============
I think, from my real life experience under current law, that retiring at 65 you can expect around $2,000/month maximum.



at 55,they -should- be getting reasonable estimates from SS ..


but yeah, $3k sounds high ..and then subtract Medicare.

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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68090 of 76418
Subject: Re: How much is enough? Date: 1/5/2011 8:47 PM
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If you have no heirs to leave money to, you could also get a higher guaranteed return through (and I know this is a dirty word) a guaranteed annunity, more like 6% guaranteed for your lifetime.

There are inflation protected annuities, but they payout less. OTOH, if inflation kicks up to anything like the 70's, your 6% shrinks terribly and you are left with a monthly check that's good for a loaf of bread and not much else.

We bought one for my FIL at his insistence, the inflation adjusted paid out so much less that he went for the one without. (And it was paying about 4%, IIRC.) If he died within the first 6 years, the heirs got a pro-rated amount back. After 6 years he continues to get a paycheck for life, but when he dies there is nothing for the heirs. He put about 50% of his assets into it, and gets a check which nicely supplements his SS. That was about 3 years ago, and he's doing fine.
 


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Author: Watty56 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68091 of 76418
Subject: Re: How much is enough? Date: 1/5/2011 10:44 PM
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....We probably need about $100K annually to live on,......Do we sound like we are on track?.....

In addition to looking how much is needed for a 4% safe withdrawal rate to support that much, you should also Google "immediate annuity quote" and plug some of your numbers using different ages into in one of the web sites that gives you instant quote. Buying an immediate annuity is basically like buying a pension.

With an immediate annuity you can get much more that 4% of your next egg because your estate will usually not get any money from the annuity if you die early. (inflation can be a big problem) Ask if you don't know why any other type of annuity is usably a poor to terrible choice.

Even if the numbers for an immediate annuity look good, there are still lots of questions about what options to get, if you should buy multiple annuities, and when you should buy it. It might be best to wait until you are in your late 70's instead of buying one the day you retire.

Even if an immediate annuity isn't right for you, seeing how much one would cost is still a good reality check to see if your assets are even in the same ballpark.

You should also try to calculate how much you will need at different ages, when you are in your mid 60's and active you might spend a lot but once you are in your mid seventies or so you will naturally slow down and may need relatively little money each year while your health remains OK. This is especially true if you will have a paid off house.

Greg

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Author: petrus36 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68093 of 76418
Subject: Re: How much is enough? Date: 1/6/2011 8:31 AM
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Sorry I meant $3000 ss for us combined based on our current statements.

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Author: reallyalldone Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68094 of 76418
Subject: Re: How much is enough? Date: 1/6/2011 9:11 AM
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Sorry I meant $3000 ss for us combined based on our current statements.

Just in case either of you was married for 10 or more years and for the rest of the viewing audience, you would also have the option of claiming SS as a spouse and can take whichever benefit is higher(with some other caveats that should be checked at ssa.gov)

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Author: StockGoddess Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68095 of 76418
Subject: Re: How much is enough? Date: 1/6/2011 9:24 AM
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Plan for what happens when one partner dies. At least his/her social security will disappear

i.e. "Life Insurance"

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Author: ziggy29 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68096 of 76418
Subject: Re: How much is enough? Date: 1/6/2011 12:13 PM
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>> Plan for what happens when one partner dies. At least his/her social security will disappear (in your case about 30% less per year) <<

There's a triple whammy when this happens. I do my mom's taxes since my dad died in 2005, and here's what happened to her financial situation:

1) She lost her SS benefit (she assumed my dad's benefit as the larger of the two, but lost her own to the tune of about $10K per year);

2) She had to start filing single in 2006, which doubled her income tax liability compared to MFJ in 2005 (on less income);

3) The change in filing status (despite lower total income) moved her from the 15% to the 25% bracket AND made 85% of her SS taxable instead of 50%.

Needless to say, Uncle Sam has a rather odd way to say "sorry for your loss" to the widowed. It's not just the loss of SS benefits -- it's also the likelihood that your taxes will increase sharply because of the change in filing status.

#29

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Author: petrus36 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68097 of 76418
Subject: Re: How much is enough? Date: 1/6/2011 12:23 PM
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Life Insurance is a good option, but at some point you have to figure which is the lesser, losing the partners ss income or the cost of the insurance. There is only a 4 year age difference between us and we are both in good health, so we would most likely need insurance on both of us, since we don't have a crystal ball.

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Author: akck Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68098 of 76418
Subject: Re: How much is enough? Date: 1/6/2011 12:33 PM
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How closely have you looked at your expenses? Are you certain about the $100,000? Knowing you needed expenses (not wanted expenditures), is key to determining whether you have enough for retirement.

When I started my retirement planning, I assumed I'd need 100% of my gross pay. As I got closer to retirement, that number seemed high so I dropped it down to around 75%, which of course means I didn't need as much as my first estimates. When I was 5 years away from retirement, I started using current expenses, less any that would disappear or be reduced once work was out of the picture, plus adding new retirement expenses (mainly health related). As a result, the percentage went down further, but I use 75% for planning purposes.

Also, you may have to consider other options when you retire. You may need to move to a place with a lower cost of living. You may need to downsize your living accommodations. If you travel a lot, you might need to take one less trip or go to a cheaper destination. Do whatever it takes to let your minimum of $76,000/yr work for your retirement.

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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68099 of 76418
Subject: Re: How much is enough? Date: 1/6/2011 12:43 PM
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When I started my retirement planning, I assumed I'd need 100% of my gross pay. As I got closer to retirement, that number seemed high so I dropped it down to around 75%, which of course means I didn't need as much as my first estimates. When I was 5 years away from retirement, I started using current expenses, less any that would disappear or be reduced once work was out of the picture, plus adding new retirement expenses (mainly health related). As a result, the percentage went down further, but I use 75% for planning purposes.

Since we have become retired we find our expenses have gone up, slightly. We now both have more leisure time. We travel more. We go to more movies (matinees, mostly). We entertain a bit more, and go to friends' houses for the same (bringing along a not-cheap-but-not-expensive bottle of wine). Health insurance has gone up, dramatically, obviously, since there is no employer.

And none of our other expenses have come down. We don't heat the house less, or feed the pets less, and Mrs. Goofy's volunteer activities mean she's driving more and contributing more to those causes than when she was just a "remote" supporter of them.

May be different for others, but for us expenses are up, not down. Income, obviously, is down, but what'cha gonna do?
 


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Author: akck Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68103 of 76418
Subject: Re: How much is enough? Date: 1/6/2011 2:44 PM
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Since we have become retired we find our expenses have gone up, slightly. We now both have more leisure time. We travel more. We go to more movies (matinees, mostly). We entertain a bit more, and go to friends' houses for the same (bringing along a not-cheap-but-not-expensive bottle of wine). Health insurance has gone up, dramatically, obviously, since there is no employer.

And none of our other expenses have come down. We don't heat the house less, or feed the pets less, and Mrs. Goofy's volunteer activities mean she's driving more and contributing more to those causes than when she was just a "remote" supporter of them.


For me, health insurance is part of my retirement benefits, so we won't see increases there (we'll actually see a decrease). If that wasn't the case, we'd need a lot more for retirement. The clothes budget will go down as work clothes won't need to be replaced (granted, I don't replace that much each year). For us, commuting would be shorter for any activities and wouldn't be a daily thing. Lunches out would still happen, but should be less than while working. RetiredVermonter is one person I've followed that has shown you can retire on less if you need to do so.

We have a higher travel budget planned and hopefully we'll be able to live within it. If we end up moving, hopefully any increase in expenses (i.e., commute likely longer), will be offset by decreases in other expenses in our current location (i.e., less for food, travel). Housing will be the same or less (wife informed we won't be up-sizing in cost).

What it all comes down to is choices. You can choose to spend more or choose to spend less. If you have the income to spend more, great! If not, you either need to take steps to increase income or reduce expenses. Granted, sometimes you have little choice in some expenses (i.e., health insurance), but for most, there are ways to reduce costs in other areas.

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Author: madbrain Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68111 of 76418
Subject: Re: How much is enough? Date: 1/6/2011 6:37 PM
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ziggy29,

Since these 2 women still cannot legally get married as far as the federal government is concerned, they are already paying the higher federal tax rates today for single while they are living. Death will not change that.

However, because they cannot be married, neither will be able to collect any social security survivor benefits if one person dies while retired. Thus, the social security income will drop in half when one partner dies.

These are some of the most egregious examples of government discrimination that occurs for gay and lesbian couples - we end up paying more income tax than straight couples, and getting less in social security benefits.

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Author: madbrain Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68112 of 76418
Subject: Re: How much is enough? Date: 1/6/2011 7:05 PM
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petrus36,

The longer you wait, the more expensive life insurance will be. If you are already 55 and don't have a policy, it may cost a lot. Assuming you can both qualify. My partner is 32 and I'm 34, and neither of us can qualify for any private policy at all due to health conditions. The only policies we have are through my employer with each other as beneficiaries. If I leave the company, I could continue these policies, but they would cost a lot more and the rates would go up over time. I already know that it would not be cost effective to keep these policies until age 55.

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Author: madbrain Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68113 of 76418
Subject: Re: How much is enough? Date: 1/6/2011 7:10 PM
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Goofyhoofy,

How long before retirement did you pay off your house ? Housing debt is hopefully one expense that should disappear in retirement.

I agree with you that most other expenses are only likely to go up, especially considering higher healthcare costs.

If there are no heirs, a reverse mortgage against the house might be considered as a source of income especially after one partner dies and half the social security income disappears.

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Author: BruceCM Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68114 of 76418
Subject: Re: How much is enough? Date: 1/6/2011 7:15 PM
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Here are the steps for quantifying (calculating) your savings requirement to support your retirement. Note, this is how an actuary would calculate your capital requirement (accumulated savings for retirement) as of the start of your first year of retirement in 10 years...but like all actuarial calculations, it is static...that is, its based on values and assumptions as of today. This WILL change over the year ahead, thus this calculation would need to be done prior to the beginning of each successive year so that adjustments can be made.

You've provided some required information. I will make other reasonable assumptions. If you'd like to change any of these, let me know and I'll redo the calculation.

Current ages of couple: 55
Anticipated retirement age: 65
Life expectancy for both: 90
Wish each years withdrawal to increase by inflation (CPI)?: Yes
Expected annual average inflation rate: 2.5%
Expected Social Security combined benefit at retirement: $36,000
First retirement years household income requirement: $100,000
Expected average annual investment return on a 30/70 portfolio in retirement: 6.25%
Expected average annual investment return on a 40/60 pre-retirement portfolio: 7%
Current retirement savings: $1,000,000
Legacy (remainder of savings at end of life): 0

The calculation for capital need requirement:
N = Number of withdrawal years = 90 - 65 = 25
I = expected average annual return adjusted for inflation = [(1.0625/1.025)-1] X 100 = 3.66%
Payment = first years withdrawal amount = 100,000 - 36,000 = 64,000
Future value at the end of life = 0

Present Value (capital requirement) at beginning of first retirement year) = $1,074,680

Present value of current savings: $1,000,000
Expected average annual preretirement investment return: 7%
Number of years to retirement: 10
With no added savings made, the future value of the present value will be about $1,145,000.

Thus, based on the above assumptions, you have an adequate savings to support your retirement.

Let me know if you have any adjustments you'd like to make to the above values and assumptions.

BruceM

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68115 of 76418
Subject: Re: How much is enough? Date: 1/6/2011 9:02 PM
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madbrain: "because they cannot be married, neither will be able to collect any social security survivor benefits if one person dies while retired. Thus, the social security income will drop in half when one partner dies."

Even married spouses, when the first spouse dies, are forced to choose between receiving "their own" benefits or benefits as a "surviving spouse".

"A surviving spouse is entitled to the greater of 100% of the deceased spouse’s social security benefits or his/her own working benefit."

http://www.retirement-income.net/blog/social-security-benefi...

I am unsure from whence you derived half. IIRC, none of the posts on the thread have discussed relative income of the partners.

If, in fact, the partners' incomes were more or less equivalent throughout their careers, then they are actually closer to same treatment as people who can marry and much closer than if one of the partners had a substantially larger income than the other.

Regards, JAFO

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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68120 of 76418
Subject: Re: How much is enough? Date: 1/6/2011 10:27 PM
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Goofyhoofy,
How long before retirement did you pay off your house ?


Well, we paid off the house something like 15 years ago, maybe more. That's about the same time we moved into our current home. Mrs. Goofy worked until last year, and I had a 3 year stint of "work" (from home) during this 15 year period, but overall we sold the home in Chicago, bought this house with cash and never looked back.

For many years I was stupid and thought "the mortgage deduction" was a wonderful thing. It was only after finally understanding that we were paying $1.00 (in interest) to save 30¢ (in taxes) did we get smart and pay it off. Not so amazingly, our savings began to accelerate immediately; we were saving an additional $15,000 a year.

I agree with you that most other expenses are only likely to go up, especially considering higher healthcare costs.

Our healthcare costs have mushroomed, and we have a very high deductible policy to try to keep the premiums down. Cest la vie.

If there are no heirs, a reverse mortgage against the house might be considered as a source of income especially after one partner dies and half the social security income disappears.

Good mention. Not always appropriate but good to have as an idea in the mix.
 


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Author: RHinCT Big gold star, 5000 posts Ticker Guide SC1 Red Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68121 of 76418
Subject: Re: How much is enough? Date: 1/6/2011 10:55 PM
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For many years I was stupid and thought "the mortgage deduction" was a wonderful thing. It was only after finally understanding that we were paying $1.00 (in interest) to save 30¢ (in taxes) did we get smart and pay it off. Not so amazingly, our savings began to accelerate immediately; we were saving an additional $15,000 a year.

I always like it when the standard deduction is a better deal than itemizing. It means I get to deduct more than my expenses would allow. Lower expenses, good. Bigger deduction, also good. What's not to like?

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Author: madbrain Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68122 of 76418
Subject: Re: How much is enough? Date: 1/7/2011 12:03 AM
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JAFO31,

Even married spouses, when the first spouse dies, are forced to choose between receiving "their own" benefits or benefits as a "surviving spouse".

First time I ever heard about this. I guess I didn't know much about the benefits since my partner and I are not eligible. Still, I checked the SSA web site about survivor benefits at
http://www.ssa.gov/pubs/10084.html . I did not find any mention of this important limitation (and neither are the OP).

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Author: madbrain Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68123 of 76418
Subject: Re: How much is enough? Date: 1/7/2011 12:28 AM
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RhInCT,

I always like it when the standard deduction is a better deal than itemizing. It means I get to deduct more than my expenses would allow. Lower expenses, good. Bigger deduction, also good. What's not to like?

It's hard for me to imagine ever being below the threshold for the $5800.

Maybe if I was not a homeowner and thus didn't pay property taxes, and didn't have a mortgage and thus had no deductible interest, if I lived in a state without income tax, and was not working and thus didn't pay payroll disability taxes. A whole lot of if ! Each of those items except the last one is over $5800 for me, you don't want to know what the total is.

Renters don't necessarily really have lower expenses, merely lower tax-deductible expenses. Usually they still end up paying enough in rent to cover at least their landlord's property taxes and mortgage interest. And most states do have property taxes and income taxes.

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68126 of 76418
Subject: Re: How much is enough? Date: 1/7/2011 2:04 AM
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madbrain:

JAFO31 - <<<Even married spouses, when the first spouse dies, are forced to choose between receiving "their own" benefits or benefits as a "surviving spouse".>>>

"First time I ever heard about this. I guess I didn't know much about the benefits since my partner and I are not eligible. Still, I checked the SSA web site about survivor benefits at
http://www.ssa.gov/pubs/10084.html . I did not find any mention of this important limitation (and neither are the OP)."


From your link:


"If you are already getting Social Security benefits.

If you are getting benefits as a wife or husband based on your spouse’s work, when you report the death to us, we will change your payments to survivors benefits. If we need more information, we will contact you.

If you are getting benefits based on your own work, call or visit us, and we will check to see if you can get more money as a widow or widower. If so, you will receive a combination of benefits that equals the higher amount. You will need to complete an application to switch to survivors benefits, and we will need to see your spouse’s death certificate."

Regards, JAFO

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Author: PSUEngineer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68130 of 76418
Subject: Re: How much is enough? Date: 1/7/2011 8:42 AM
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For many years I was stupid and thought "the mortgage deduction" was a wonderful thing. It was only after finally understanding that we were paying $1.00 (in interest) to save 30¢ (in taxes) did we get smart and pay it off. Not so amazingly, our savings began to accelerate immediately; we were saving an additional $15,000 a year.

I'm not avoiding paying off my mortgage for the mortgage deduction. I'm not paying it off because I have better places to put my excess cash.

PSU

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Author: RHinCT Big gold star, 5000 posts Ticker Guide SC1 Red Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68131 of 76418
Subject: Re: How much is enough? Date: 1/7/2011 9:21 AM
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It's hard for me to imagine ever being below the threshold for the $5800.

Neither can I imagine falling below $5800, but the married deduction is quite a bit larger. The property taxes on our home are our only large deduction and we don't have a mortgage.

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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68132 of 76418
Subject: Re: How much is enough? Date: 1/7/2011 10:33 AM
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Maybe if I was not a homeowner and thus didn't pay property taxes, and didn't have a mortgage and thus had no deductible interest, if I lived in a state without income tax, and was not working and thus didn't pay payroll disability taxes. A whole lot of if ! Each of those items except the last one is over $5800 for me, you don't want to know what the total is.

We moved from Chicago to Tennessee, and in a "county" rather than "city." Our property taxes on a 4,000 sq.ft. home are $1,800 a year. We have no mortgage. Tennessee does not have an income tax. Not working, etc. etc.

I'm not avoiding paying off my mortgage for the mortgage deduction. I'm not paying it off because I have better places to put my excess cash.

OK. Not paying the mortgage interest is a guaranteed 6% return (or whatever the rate is), and it's safer than any corporate or muni bond these days. But for some the leverage is good, so everybody makes their own decision.

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Author: PSUEngineer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68133 of 76418
Subject: Re: How much is enough? Date: 1/7/2011 10:37 AM
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OK. Not paying the mortgage interest is a guaranteed 6% return (or whatever the rate is), and it's safer than any corporate or muni bond these days. But for some the leverage is good, so everybody makes their own decision.

6% mortgage? Whoa! Who's paying that much after the recent low rates?

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Author: madbrain Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68140 of 76418
Subject: Re: How much is enough? Date: 1/7/2011 3:11 PM
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We moved from Chicago to Tennessee, and in a "county" rather than "city." Our property taxes on a 4,000 sq.ft. home are $1,800 a year. We have no mortgage. Tennessee does not have an income tax. Not working, etc. etc.

Those property taxes are amazingly cheap indeed. Mine will be over $10,500 for my 4700 sq ft home in California purchased last year. The taxes is based mostly on purchase value, not size. I'm also still paying about $3,400 in property taxes on my 1150 sq ft townhome until it's sold.

OK. Not paying the mortgage interest is a guaranteed 6% return (or whatever the rate is), and it's safer than any corporate or muni bond these days. But for some the leverage is good, so everybody makes their own decision.


It would be 4.375%. Marginal tax rate about 35% combined, so really only 2.84% guaranteed after-tax return since I would be itemizing regardless of having a mortgage.

There is also the fact that I don't like to have all my eggs in one basket. We already put $165k for the downpayment, and I made over $100k of improvements, the majority of them for energy efficiency which will return money like zoned HVAC and solar.

Property values do fluctuate widely though, as we know, so putting a lot of cash into equity is not always a smart thing. You would have to bet that the equity goes up more in value than other investments you could put your cash into. Also, in the case of California, the home can be in a big earthquake which is a risk we can't afford to insure, and most Californians can't either. In that situation, depending on the cost to repair/rebuild, having too much equity in the home is not necessarily a good thing, as walking away from the mortgage might actually make more sense. If the home was a total loss in an earthquake today, the cost to rebuild would be $1.3M. Even with $270k into it already, I would walk away from the $660k mortgage.

I choose to put all the extra cash into IRAs/401k . Cash in these accounts is also conveniently shielded from creditors, so if there is a mortgage default, medical bankruptcy, or other adverse event, I would still get to keep that money. And the return in those accounts is likely to be above 2.84%.

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Author: petrus36 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68142 of 76418
Subject: Re: How much is enough? Date: 1/7/2011 4:23 PM
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Thanks Bruce. I would think since we are both healthy women, to be prudent, we should plan to live until age 95 just in case. The last thing I would want to do is run out of money.

I also think we should have some kind of insurance policy on each other, as I am concerned when one of us dies and the other will lose out on the partners ss income, unless we won't need it. Also, what is not factored in there is if the ss system changes in any way, or gets reduced for us. We will also have some inheritance at some point in our lives, but really don't want to count that, and hopefully it will be enough to pay off our mortgage completely wherever we decide to retire. The Healthcare costs are the most uncertain componant, and we will likely need some long term care policies as well.

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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68143 of 76418
Subject: Re: How much is enough? Date: 1/7/2011 4:46 PM
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Those property taxes are amazingly cheap indeed. Mine will be over $10,500 for my 4700 sq ft home in California purchased last year.

We paid $12,000 in a Chicago suburb 15 years ago. Of course they picked up the garbage twice a week, so it was worth it.

It would be 4.375%. Marginal tax rate about 35% combined, so really only 2.84% guaranteed after-tax return since I would be itemizing regardless of having a mortgage.

OK. It's still twice what you can get in a savings account, which is what the OP advised I should do.

Property values do fluctuate widely though, as we know, so putting a lot of cash into equity is not always a smart thing.

It depends what you mean by "a lot of cash." First, we didn't put "a lot of cash" into it. The property value grew, over time, because we selected well. (Back Bay Boston, riverview. They're not making any more of that.) Second, it's still a small fraction of our net worth, and it provides a diversity of revenue stream - as well as a significant payout. Condo fees: $400/mo. That leaves $600/mo for taxes and maintenance, which is more than sufficient. That that leaves 1800/mo profit. I really don't know where I'm going to put $400,000 (the net after sales commissions, fees, and taxes) and get $24,000 a year, virtually guaranteed, with the prospect of asset appreciation to boot. It's difficult for me to envision a scenario in which this investment goes to zero, unlike any stock or bond you could name.

PS. I don't advocate putting "a lot of cash" into rental property. I do advocate examining the thesis that renting is cheaper than owning. That is absurd on its face, or there would be no landlords, anywhere.

And the return in those accounts is likely to be above 2.84%.

Entirely possible. Indeed, historically over long stretches of time incontestable. But there are also fairly long periods where the market goes backwards or remains flat, and you have no progress at all. The market is trading about where it was a decade ago, for instance. And we all know the old saw about how long it took the market to get back to even after 1929, right? (Something like 25 years, I believe.)

As I am recently retired (well, I retired a while ago; Mrs. Goofy stopped work last year), we can ill afford a long stretch where equities don't produce income.

Also, in the case of California, the home can be in a big earthquake which is a risk we can't afford to insure, and most Californians can't either.

My cheery advice: don't build in California. ;)
 


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Author: ResNullius Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68144 of 76418
Subject: Re: How much is enough? Date: 1/7/2011 4:57 PM
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We pay about $4K total, split about evenly between town and county. Our house was last appraised at $650K, and it probably would see in a reasonable time at around $750K. The town and county skipped the last evaluation process two years ago, because they feared having to lower everyone's appraised value, which in turn would have required them to raise the tax rate. Games, games, and more games. On the other hand, the taxes aren't totally out of this world, at least not yet. This is NC, where the Dems have imposed every tax known to man or woman in an effort to fund their spending sprees.

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Author: ResNullius Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68145 of 76418
Subject: Re: How much is enough? Date: 1/7/2011 5:01 PM
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I also think we should have some kind of insurance policy on each other, as I am concerned when one of us dies and the other will lose out on the partners ss income, unless we won't need it.

If you need it, then you should buy a term policy that meets your needs. Calculate well, as you might find that you won't need insurance. I'm usually against all types of life insurance, unless of course you have a real need for it. If the survivor would suffer an unacceptable reduction in lifestyle due to the death of the other, then that's exactly when you consider a good term policy. Good luck.

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Author: PSUEngineer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68146 of 76418
Subject: Re: How much is enough? Date: 1/7/2011 5:33 PM
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OK. It's still twice what you can get in a savings account, which is what the OP advised I should do.

Who advised that?

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Author: madbrain Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68147 of 76418
Subject: Re: How much is enough? Date: 1/7/2011 6:01 PM
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We paid $12,000 in a Chicago suburb 15 years ago. Of course they picked up the garbage twice a week, so it was worth it.

LOL ! My $10,500 doesn't include garbage fee, the city only comes once a week, and I get to pay $27.5 per month for the privilege.

OK. It's still twice what you can get in a savings account, which is what the OP advised I should do.

Yes, at this time it is. However interest rates will not remain this low forever, but my fixed mortgage rate will. Indeed mortgage rates are up over the last 6 months. Savings accounts rates will probably go up too over time. At that point, it might make sense to lock in a CD. I still wouldn't do it on a taxable basis, but I might lock in a CD within an IRA when the rates go up.

Once you have paid off your mortgage you are limited in the ability to get the equity out if you want to make different investments. HELOCs can be had, but the rate is variable and deductible up to $100k only. Reverse mortgage is possible, but only if you are old enough.

It depends what you mean by "a lot of cash." First, we didn't put "a lot of cash" into it.

Well, for last year I put $22,000 of non-deductible contributions toward 401k/IRA, and this year it will be about $30,000. Those amounts could have gone directly towards the mortgage principal instead. If I kept this up as a $2500 monthly prepayment, the mortgage would be paid off in about 12.5 years instead of 30.

This isn't a rental property, it is my primary residence.

The property value grew, over time, because we selected well. (Back Bay Boston, riverview. They're not making any more of that.) Second, it's still a small fraction of our net worth, and it provides a diversity of revenue stream - as well as a significant payout. Condo fees: $400/mo. That leaves $600/mo for taxes and maintenance, which is more than sufficient. That that leaves 1800/mo profit. I really don't know where I'm going to put $400,000 (the net after sales commissions, fees, and taxes) and get $24,000 a year, virtually guaranteed, with the prospect of asset appreciation to boot. It's difficult for me to envision a scenario in which this investment goes to zero, unlike any stock or bond you could name.

Yes, it doesn't sound like your property is in an area at high risk for natural disaster. $1800/month profit is very nice.
If I kept my old townhome as a rental, the numbers would look like this :
$1600-2000/month rent. Let's say $1800.
$285 property taxes
$220 HOA dues which includes insurance
$625 loan. This is HELOC for $250,000, making minimum payment interest-only at 3% currently.
Maintenance on a $450,000 house at 1% is about $400/month.
This would leave $270 for profit, if I never paid another cent of principal, and the interest rate on the HELOC never went up. If had intended to keep it as a rental I would have gotten a fixed rate last year around 4.375%, not a HELOC. But then the monthly payment would be higher by about $200.
Ie. there would be about $70/month left for profit.
That's $840/year out of $200,000 equity or 0.4% net yield, plus all the headaches of being a landlord and managing it myself. Negative yield if not 100% occupied or not paid on time.
Needless to say I'm not keeping the old home :)

Entirely possible. Indeed, historically over long stretches of time incontestable. But there are also fairly long periods where the market goes backwards or remains flat, and you have no progress at all. The market is trading about where it was a decade ago, for instance.

Yes, the US stock market hasn't done very much in terms of index prices. With dividends the picture is slightly better. Some other countries have done better, though.

My cheery advice: don't build in California. ;)

Yes, I wouldn't do it as an investment, especially right now when you can still buy resale homes for about 1/2 of what the costs are to build a new one.

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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68150 of 76418
Subject: Re: How much is enough? Date: 1/7/2011 10:21 PM
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Once you have paid off your mortgage you are limited in the ability to get the equity out if you want to make different investments.

I would disagree here. It's trivial to refinance; we've done it several times, including once when we extracted $200k to improve the downpayment on the Chicago home. It might be difficult to sell (although the sales in our building in Boston have taken under 60 days, most under 30 days, even in 2009 and 2010. But I acknowledge that's an unusual market.)

Well, for last year I put $22,000 of non-deductible contributions toward 401k/IRA, and this year it will be about $30,000.

There is much to be said for putting money into IRA's or 401(k)s timely, because it's one of those "you can't go back and do it later" type things. f you miss the contributions for a year, you don't get a do-over. But if the monies are over-and-above and going into a taxable account, then it might make sense. It did for us, and once the payments went away the cash buildup elsewhere seemingly gushed at us.

Ie. there would be about $70/month left for profit.
That's $840/year out of $200,000 equity or 0.4% net yield, plus all the headaches of being a landlord and managing it myself. Negative yield if not 100% occupied or not paid on time.
Needless to say I'm not keeping the old home :)


I didn't "keep the old home" because I'm smart. I got a call from Westinghouse on Friday telling me to be in Pittsburgh on Monday morning. Corporate emergency sort of thing. I went, lived in a corporate apartment, and after a few months I got a call from a guy who said "I understand you have a furnished apartment that's not in use. Would you rent it to me for a few months?" I said "Yes", and about 8 months later I was still in Pittsburgh, he was still in the apartment, and it was time to do something because he was leaving and it was clear I was staying in Pittsburgh.

So I cleared out the furniture (moved permanently to Pittsburgh) and found a tenant for another year, which turned into... well, you get the idea.

We've had very little trouble with tenants; none to speak of. No evictions, no problems, scant damage. Along the way we've upgraded, which gets to be deductible (while improving the value and allowing depreciation against the rental) and as a bonus, we get a tax-deductible trip to Boston (where my brother and sister still live) every year "to inspect the property."

So all in all it's been terrific on almost every level. Small initial invesment, very large appreciation, good cash flow, tax benefits, etc. Not right for everyone, I agree, but so infinitely better than "a bank account" it's hard to say anything but "fabulous deal. Do it again, a dozen times."
 


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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68152 of 76418
Subject: Re: How much is enough? Date: 1/8/2011 9:16 AM
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It's trivial to refinance; we've done it several times, including once when we extracted $200k to improve the downpayment on the Chicago home.

It's no longer as 'trivial' to refinance as it once was. Requirements are tighter, especially on non-owner-occupied housing. So while it may have been trivial to pull out $200k from your rental property at the time you did it, you may not have been able to do so in the current environment.

At least one state (Texas) has restrictions on how much equity can be pulled out of a property. And it's costly - 'cash-out' refis have a higher interest rate than 'rate & term' refis, in addition to the typical closing costs.

AJ

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Author: madbrain Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68168 of 76418
Subject: Re: How much is enough? Date: 1/8/2011 9:57 PM
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AJ,

It's no longer as 'trivial' to refinance as it once was.

Indeed. Also, if your equity falls below 80%, you need to get PMI, which as I have found is becoming harder to get. I would think also that there would be issues with documenting income for someone who is no longer working, especially if one retired early but is not drawing SS income yet.

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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68174 of 76418
Subject: Re: How much is enough? Date: 1/9/2011 10:34 AM
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Two things:

A correction. My initial investment in our Boston condo was $5,000, not $10,000. I was chatting with my father about it (because it was top of mind thanks to this thread) and he reminded me that the downpayment was $5,000. He should know, because he loaned me the money for it ;) So my $5,000 "investment" mushroomed to $550,000 in 30 years. Not shabby. Better than a 15% annual CAGR across three tumultuous decades, even discounting terminal value for fees and taxes.

Indeed. Also, if your equity falls below 80%, you need to get PMI, which as I have found is becoming harder to get. I would think also that there would be issues with documenting income for someone who is no longer working, especially if one retired early but is not drawing SS income yet.

I have little doubt that I could get a $300,000 mortgage on a property valued at $550,000, which has been in continuous rental for two decades and which is cash flow positive. The only reason to do that would be to make the property "break even" to avoid taxes and perhaps to leverage up into a second property, which people building wealth in the real estate sector do all the time. A friend of ours is a "realtor", which is to say she sells houses to people, but what she really does is find dogs which are easily fix-up-able, buys them outright, and then turns them, and yes, she did it before, during, and after the crunch, so there is still money out there and loans to be had.
 


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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68175 of 76418
Subject: Re: How much is enough? Date: 1/9/2011 11:37 AM
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I'm not avoiding paying off my mortgage for the mortgage deduction. I'm not paying it off because I have better places to put my excess cash.

Me too.

I'm paying 4.00% on my mortgage and receiving about 8% from my "preferred & dividend" stock portfolio.

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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68177 of 76418
Subject: Re: How much is enough? Date: 1/9/2011 12:25 PM
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It's no longer as 'trivial' to refinance as it once was.

Indeed. Also, if your equity falls below 80%, you need to get PMI, which as I have found is becoming harder to get. I would think also that there would be issues with documenting income for someone who is no longer working, especially if one retired early but is not drawing SS income yet.


Indeed.

I've been retired for 5 years, just started receiving SS last year.
We've just finished a 4% no-cashout refi. Currently, lenders *really* don't want to do a cashback refi, and they jack up the rate & fees to inform you of that. ;-)

We've had no real difficulty refi'ing, but we are an unusual case (I think).

They need to see documented income, and care little about your assets.

For most people, pension & SS is not going to be enough income to qualify. And they don't consider withdrawals from your investments as "income". The only thing they would consider as documented income was a regular monthly distribution from my IRA account, and they wanted to see 2-3 months of bank statements showing the deposit and a copy of the "confirmation of instruction" letter from my IRA custodian.
They wouldn't consider the stock dividends we receive as "income", even though we get $20,000 a year in dividends.

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Author: madbrain Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68180 of 76418
Subject: Re: How much is enough? Date: 1/9/2011 5:44 PM
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Goofyhoofy,

A correction. My initial investment in our Boston condo was $5,000, not $10,000. I was chatting with my father about it (because it was top of mind thanks to this thread) and he reminded me that the downpayment was $5,000. He should know, because he loaned me the money for it ;) So my $5,000 "investment" mushroomed to $550,000 in 30 years. Not shabby. Better than a 15% annual CAGR across three tumultuous decades, even discounting terminal value for fees and taxes.

Pretty good, but surely you had a loan and other expenses since you only put a downpayment and didn't buy the property outright.
I bought my townhome for $228,500 in 1997 with 7% down, did about $80,000 of remodeling/improvements. I don't think it will sell above $425,000 in today's market. I just lowered my listing price from $445,000 to $435,000 on friday. My realtor is doing an open house this weekend as I write. Yesterday only one person showed up. Accounting for about $3000/year in taxes over that period, $2000/year in HOA, and perhaps $8000/year in interest (rates used to be much higher, and I had a second loan with higher rate), and the 6% realtor commission I will have to pay when it finally sells, this will be way less than break-even. Of course, it was not an investment property. I lived in the house for 13 years, and that counts for something. The cost of renting a comparable house for the last 13 years would have been about $280,000. I don't think I could have collected that much if I rented it because vacancy rates have fluctuated and have been at times fairly high.

I have little doubt that I could get a $300,000 mortgage on a property valued at $550,000, which has been in continuous rental for two decades and which is cash flow positive.

Again, I wonder how you would document your income to obtain the loan. Regardless of the value of the property and your equity, if you can't prove that you have income to pay back the loan, you will not a loan. The qualifications for loans have become much more difficult since 2008.
It used to be way too easy. Now I think lenders have gone mad in the other direction. Hard to blame them given what happened with all the subprime mess, but I hope that they will find some middle ground soon.

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Author: madbrain Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68181 of 76418
Subject: Re: How much is enough? Date: 1/9/2011 6:09 PM
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Rayvt,

Thanks for that post, very informative !


They need to see documented income, and care little about your assets.

For most people, pension & SS is not going to be enough income to qualify. And they don't consider withdrawals from your investments as "income". The only thing they would consider as documented income was a regular monthly distribution from my IRA account, and they wanted to see 2-3 months of bank statements showing the deposit and a copy of the "confirmation of instruction" letter from my IRA custodian.
They wouldn't consider the stock dividends we receive as "income", even though we get $20,000 a year in dividends.


That's the sort of thing I would expect the lenders to ask for in this environment. At least you were able to get the loan. I have to wonder what would happen if you were living completely from your taxable investment accounts and savings prior to collecting SS, rather than IRA distributions. It sounds like you could not get the loan in that case, and could not tap your home equity.
That seems like another good reason to sock as much money as possible into IRA first rather than into taxable accounts or home equity. One can always take SEPP distributions for income when retiring at any age, and it seems that these distributions would satisfy the bank income documentation requirements, provided that it is enough income, of course. Thus if you had $20,000 year of dividends in your IRA and made $20,000 year of SEPP IRA withdrawals, the bank would count it as income. But not if those dividends were in taxable accounts. This is more proof that the lenders have gone mad.

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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68182 of 76418
Subject: Re: How much is enough? Date: 1/9/2011 7:20 PM
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Pretty good, but surely you had a loan and other expenses since you only put a downpayment and didn't buy the property outright.

Yes, well, but that's the point. I put down $5,000 and bought a $65,000 property. That $65,000 property is now worth $550,000 on the open market. (You are correct that I haven't included any capital improvements: $8,000 for a kitchen about 8 years ago, and maybe another $3,000 over the past two years for re-epoxying the tub and for refinishing the hardwood floors. Otherwise it's been "maintenance", paid for out of the rent.)

I don't think it will sell above $425,000 in today's market. I just lowered my listing price from $445,000 to $435,000 on friday.

OK. I'm basing my $550k conservatively, as the two most recent comparable sales in the building have gone for $568k and $587k, and mine comes with a parking space which those don't.

I lived in the house for 13 years, and that counts for something.

Yes, that's why I didn't include my "rent" (for the first 4 years when I lived there) as part of "the investment." Had I bought it strictly as an investment/rental property, I would have had to live somewhere anyway, so I would have had that expense regardless.

My realtor is doing an open house this weekend as I write. Yesterday only one person showed up.

Open houses are mostly for realtors, not the real estate, according to our friend the realtor. She rarely, rarely, rarely sells a property through an open house, but she meets a lot of prospective clients that way ;) I don't know your market, but a broker's open might be a better idea (in some markets not) or other things... Having just sold my father's house, I will tell you that that realtor wnet out of his way, calling other realtors who had had showings and updating them on the, uh, updating that had been going on (in response to client comments), sending out flyers, advertising in local papers (with a picture) and so on. He also held two open houses, back to back, but nothing came of that. Eventually one of the early walk-throughs who complained about everything (the wall paper! the rug! the door handles! came back through after I had changed most everything, because in truth, it all needed to be changed. Mom's taste was of an 89 year old woman, and there aren't many buyers in that group!)

Regardless of the value of the property and your equity, if you can't prove that you have income to pay back the loan, you will not a loan.

OK. You might know more about this that me, since it's been a long time since I did it, but I honestly find it very hard to believe I couldn't find someone to loan me $300,000 on a $550,000 property. Heck, the Loan And Title place would probably do that!
 


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