Early Retirement questions

[LivingAlmostLarge]

I was impressed with the Mr Moustache blog about retiring at 30. His story is he retired with only $800k but his rental house makes $2400/month and no mortgage allows them to cover their bills.

I haven't read more but I am curious about his health insurance. That seems to handcuff a lot of people to their jobs.

But I was pondering early retirement period for my husband. He feels he's missing too much of the kids lives. I wonder if we moved to a much cheaper cost of living place then perhaps he could retire? How much would we need to retire? Our biggest hurdle I think would be not having employer provided health insurance.

Since the people of saving advice are so prudent, would it be possible to retire on $800k? How do you generate say $40k/year? How much would people need? Do you need a rental property to do it?

I need to know if this is feasible or how to get there.

$200k home equity
$385k retirement
$10k college
$140k taxable account

What should I aim for? $500k in taxable account and hope that lasts like 10 years? Then start tapping retirement accounts? I mean honestly $40k is enough for us to live on if we don't have a mortgage. So what if we moved to a cheaper COLA?

I never considered early retirement until I read MMM about retiring at 30 with $800k. We are 34 and 35 with 2 kids 3 and 1. My DH grosses around $130k/year. With bonuses he probably makes around $160k/year. Our gross income last year was $196k - $25k Roth IRA conversion from 2010.

He brings home $2400/month every 2 weeks. We stash the rest or it goes to taxes. So we live on $5k/month. Yes there are two extra paychecks but those usually just get saved.

Sounds like a lot but realize that our mortgage is $2200/month PITI and we pay $210 HOA so about 50% of our net take home is in our mortgage expenses. Yes our condo is very expensive $600k. We live in a HCOLA like I said. We've always lived this way since we have never lived somewhere cheap. I don't feel we live a super expensive life, actually I don't feel we live much more luxuriously than when we were graduate students. Our living expenses are around $2500/month if that. I guess the thing is we always knew our bottom line has been paying our mortgage/rent and everything else had to fall into line.

I wonder if we moved somewhere that we could own a home outright could we retire early? When and how would we accomplish this? Also the health insurance is what really handcuffs us. I am not sure what to do if we don't have employer provided coverage.

How much should we have for my DH to stop working? Can we do this? I want him to be able to enjoy our kids. He says he's missing out and perhaps we can do it so that he doesn't.

[97guns]

i retired on 280K, bought 4 rental homes with it and am grossing over 40K. it looks like i may have timed the market pretty good buying in 2009, my properties have picked up over 30% in equity since 2009.

[LivingAlmostLarge]

97guns where do you live?

[97guns]

california, sf bay area but my rentals are 70 miles away, bought them for 75-95K

most of my tenants commute into the bay area for work

[Joan.of.the.Arch]

This is not a really solid reply, but cost of living can be SO much lower than where you are now. I was just looking at real esate in a small midwestern town. An old (1840) brick home is $68.5K. 1132 sq ft + basement + garage. Yard for the kids. Fairly recently remodelled, so nice wood floors and current colors on the walls. Oldish but cute and serviceable kitchen.

Today I saw a 5 BR, 2802 sq ft house for $69K! It has kitchen and bath facilities on both floors, so one floor could be rented out. Hasn't been remodelled in decades, but so what? Paint, pull up carpet, refinish floors, and I could live there. Again, with a yard and an old carriage house, I think.

Is it possible for either of you to work via internet?

[MonkeyMama]

LAL,

MMM is awesome and speaks very firsthand about what we have experienced doing the lower-cost move thing and the "spouse retired at 25" thing. & explains very well our own parents retirement experience. (Panicked about disability and unemployment throughout 50s, but feel like they WAY over-saved in the end). So I very much relate to what he talks about.

The high-cost thing has its pluses and minuses though. My parents retired very Mustachian like in the Bay Area. Once the house is paid off it's a place you can live exceptionally well on very little. I feel like the low-cost move was exceptionally beneficial when young and starting out (bought us a huge leg up and bought us the power of compounding on our assets in our 20s). BUT, the trade-off is lack of jobs and employment. Which can be a biggie. I don't think the cost of living means as much to us in our mid 30s as it did when we moved here 12 years ago. If we moved back to the Bay Area my salary would probably cover any increased costs. That just wasn't the case when we were first starting out, so our dollars stretched much further by moving in our early 20s.

Still living in a relatively "high cost" area (still in California) I have felt very much over the years we pay more for x but we save a ton on y&z, and a b c too. We don't feel as much need for vacation costs (so much to see and do here - Hawaii is an inexpensive vacation on the west coast, too), our cars last forever (no snow or salt), the education is superb and inexpensive. We may pay more than average for our home, but I doubt we will pay much of anything for college - we don't blink at buying a used car and driving it for 20 years. We get all sorts of inexpensive experiences. We did a $30 camping trip last summer that was comparable to my last trip to Hawaii - just the most amazing views imaginable. What an experience! This is my backyard...

MMM has also talked a little about this:

http://www.mrmoneymustache.com/2012/12/15/high-cost-of-living-its-a-state-of-mind/

Mostly I recommend reading as much MMM as you can. I am sure making a lower cost move could substantially lower your retirement income needs. But you need to do your homework.

[shaggy]

i retired on 280K, bought 4 rental homes with it and am grossing over 40K. it looks like i may have timed the market pretty good buying in 2009, my properties have picked up over 30% in equity since 2009.

Good for you.

I'm curious what the net income is on your properties. whenever I run the numbers, it doesn't look like there's much net to be made from renting, unless you own rentals in SF proper where rents are sky high.

[97guns]

my gross is 48K if im 100% rented, i net around 30K, i have mortgages on 2 of them for $700/month, i get $950-$1050/mo

[shaggy]

my gross is 48K if im 100% rented, i net around 30K, i have mortgages on 2 of them for $700/month, i get $950-$1050/mo

Thanks. I was curious because above you said you were grossing 40k.

[LivingAlmostLarge]

Me too. I don't get how you live on $300k net worth. How much of the $48k goes to the mortgages? And what happens if damage or repairs needs to be done?

Joan I am totally open to relocating. The problem is we can't work remotely. MM I agree I think we should have moved in our 20s but instead we lived in HCOLA and wasted our 20s in graduate school. I think jobs would have been a better way to go and save like MMM. Instead we have to save now, ugh.

[disneysteve]

my gross is 48K if im 100% rented, i net around 30K

I don't get how you live on $300k net worth.

Same here. I couldn't live on on 30K net. We'd definitely have to move as our property taxes alone are over 8K. Take out other big expenses like health insurance, auto insurance, etc. and we'd be in line at the soup kitchen on that income. I don't know how you do it.

[97guns]

very easy, my primary home is paid for, i drive a paid for car with liability insurance of $250 a year, do i have to give all my numbers to make yall realize it can be done, best job i ever had only paid $48K a year, im living in luxury right now. im not a dr and have never tried to live the life of one but i did just get back from an all expense paid alaskan cruise paid by the tenants and next week its payday again !!!!!

[disneysteve]

very easy, my primary home is paid for, i drive a paid for car with liability insurance of $250 a year, do i have to give all my numbers to make yall realize it can be done, best job i ever had only paid $48K a year

Well that makes more sense. 30K is 62.5% of your pre-retirement income of 48K. Between what you were paying in taxes and what you were previously saving for retirement, you're probably now earning about the same amount as when you were working. Good for you.

Since I earn more (about 125K last year), suddenly having to live on 30K would require major changes - moving for one. We couldn't afford to stay in our house or pay NJ living expenses. I mentioned the 8K property taxes. Then there's 3K for auto insurance, $700 for home insurance, $200 for life insurance - that's 12K right there. Add in utilties, food, clothing, medical care (what do you do for health insurance?) and we'd burn through 30K in no time.

Of course, there are 2 of us (well 3 currently with our daughter) and I'm assuming you are only supporting yourself on that income.

[scfr]

This gets back to what we've discussed before, how you define retirement, which is different for everyone. If you are a hands-on landlord (making repairs, doing the upkeep like painting, cleaning when someone moves out, finding new tenants) then you are still actively earning money. It's not what I'd consider 100% passive income. Sure, you are no longer working for someone else and getting a paycheck, but are you really retired?

To get back to LAL's original questions ...

Yes, moving to a lower cost area can make a big difference, especially if you have a lot of equity in your current home. We had a paid-for house in the Seattle area. When we moved to the Austin area we were able to pay cash for a comparable house for (if my memory is correct) about 56% of what we netted on our Seattle house after paying all expenses. Of course, we sold near the top of the real estate bubble and rented while waiting for the market to cool off, and that made a big difference. But other expenses here are lower, and we can live a comparable lifestyle for less.

We are not retired yet but hope to retire a bit on the early side.

Health insurance is indeed a big issue. During the time we were without employer-sponsored health care we paid for an individual policy. When HSAs became available with high-deductible plans, we took advantage of that to stash away money for future medical expenses. OP is still relatively young. The older you get, the harder it is to get an individual plan, even if you are healthy. (That may change under Obamacare, I suppose.) I see this with my colleagues at work. The folks in there 60's seem almost desperate about holding on to their health insurance.

[feh]

Here's what I would do:

1. determine your annual living expenses (which will vary by location)
2. get a handle on your various saving/investing accounts so you know what you have available to you
3. run simulations to see what the chances are of your money lasting: http://www.firecalc.com/

Health insurance costs are the big unknown. The prices of policies available on exchanges should be coming out in a few months, which should give you an idea.

My gut says you don't have enough to retire at your current age. Need to plan on living until 90; that's a very long time to live on less than $1M.