An old college friend, 52, wants to take an early retirement (hates his job). Kids have left home, house paid off, no debts, and will have about $250,000 in total assets, excluding the home.

He's risk averse, some is in low interests bonds, some in gold coins in a safety deposit box, so not a lot of income there.

Lives modestly on around $20,000pa

Wife says no way, work through to 60. (she works part time for her own spending money) He's asked me for advice, but I'm just a worker with no real expertise in finance.

We hear much about all sorts of people getting super rich on the stock market and so on, but there must be lots of ordinary guys, who've worked hard for years, missed out on all this wealth, but have this type of money saved up.

Any financial wizards out there? Is $250K a lot of money these days? Enough to retire?

Thanks in advance

-- Wishful Thinking (Iwish@hotmail.com), February 14, 2000

Answers

That is a tough call. $20,000 a year is not a lot to live on. He would need to bring in 8% a year from the $250,000. From just the numbers, I'd say it would be tough to make it.

On the other hand, what kind of a life does the guy have if he hates his job? There are a bunch of jobs out there. Life is definitely too short to spend 40 or more hours a week in a place you don't want to be.

-- J (Y2J@home.comm), February 14, 2000.

Hey Wishful,

I'd like to retire at 52 also, and my wife has a similar response!

I ran the numbers and came up with the following, based on some hypothetical assumptions:

$250,000 investment A 5% rate of regurn (conservative - CDs, etc.) 12 withdrawls per year 20 years of withdrawls without touching the principle

Using the above assumptions, you can withdraw $1649.87 per month, or $19,798 per year.

Things to consider: Is he eligible for Social Security (at age 62.5)? What about health insurance? Is he willing to work part time, or self-employed at a job he likes?

Depending upon the above, it MAY work...but it seems kinda borderline to me.

-- No Polly (NOPOLLY@HOTMAIL.COM), February 14, 2000.

The truthful answer to that question (been there, done that) is that you never have enough. Once you're in retirement you have a lot of time on your hands. Usually this requires money to be spent, even if for nothing more than a good wood shop. He may think he can get by for 20K a year......good luck. All it takes is for a car to blow up, for either he or his wife to have an accident and have to shell out for medical expenses(over and above any insurance), or for a child to have a wedding or an emergency, or ..........you get the idea.

I retired in my 50s. I then worked for a few years as a consultant. All it will take will be one poor investment or a loss of some sort and I will be looking for work at the local wally's world.

My advice: don't do it. Put up with the BS for a few more years. Change jobs if necessary, but keep on keeping on. When the nest egg begins to reach $500,000 plus the home, and he has a lot of equity in the home, then think about it.

Beside, if we hit a market slide, he'll get an opportunity to test his retirement plans

-- rocky (rknolls@no.spam), February 14, 2000.

You need $1,000,000 in liquid assets at 60 years old with a low risk 8-10% return. Try to reinvest as much as possible to keep the principal growing.

-- fatanddumb (fatdumb@nd.happy), February 14, 2000.

Whether or not he can live on around $20k a year depends on his prior lifestyle. If he was a spendthrift, and lived like the "typical American", I doubt that he could do it.

If he has always been a tightwad, home is paid off, vehicles are paid off, and has no significant debt, sure, $20k is PLENTY. Example: My wife and I own a home (not yet paid off). We have no kids, own one vehicle outright, and are nearly finished paying off the other. No credit card debt, and no significant debts besides the 1 car payment and mortgage. We live pretty frugally, but decently, and all our debts rarely exceed $2000 a month. When something comes up, we pay for it with cash and carry on.

So, if we were in your friend's position, we'd have no problem making it on about $20k a year. $2000 a month now, minus the mortgage = about $1200 a month. $14400 a year covers the bills, and I bet that we could get it lower.

So YES, it's possible.

-- Bill (billclo@msgbox.com), February 14, 2000.

Tell him he needs to consider:

1. Return AFTER inflation. He needs to make 8%, PLUS inflation on his money. This is a historically high rate of return, despite these golden years of high (stock) returns and low inflation. Historically, a reasonable rate of return is 3 or 4% after inflation.

2. Healthcare costs till he gets Medicare (if he he is prone to buy health insurance). If he goes bare, one good illness and his assets are toast.

Pundits on this board to the contrary, he should put some in bond funds and some in stocks, depending on how far out he needs the moolah from point zero. If he's real conservative, get advice from Larry Burkett's site; (cfcministries.com, I think).

250K IS a lot of money. At age 52 he has, depending on his lifestyle so far, 25 years or so it needs to last; maybe longer. In that context, it isn't a big nest egg, IMHO.

OTOH, with doom RIGHT AROUND THE CORNER we should all be retiring, and spending these last precious moments doing what we love with those whom we love--oops; slipped into my old ways. Sorry.

-- ImSo (lame@prepped.com), February 14, 2000.

We plan on retiring at age 50 (3 years from now) with about the same amount of money.

The equity in our current (suburban) home will make a fine trade-in on a couple of acres of waterfront with a little house on it, so we won't have a mortgage.

I figure we can *just* exist on the interest from our investments, and if we want to live a little better, we can do odds and ends of work. I have e-work I can do for several thousand a year. Same thing with my husband. Neither of us would turn down a job picking apples for a couple of months. Hell, I'd even sling coffee part-time at the local donut shop.

We are both professionals, currently earning well in excess of $100,000/year between the two of us, but we are SICK TO DEATH of it. We would much rather be poor, happy, and able to sit on our porch and stare at the lake on a summer evening.

By the way, the "you need a million dollars to retire" statement is nothing more than a sales pitch from a life insurance company. In other words, a load of bullshit. Most of the retired people I know have *far* less money than that, and they are quite content.

Jo Anne

-- Jo Anne Slaven (joanneslaven@home.com), February 14, 2000.

Sorry -- more bad news. If you dont' work (pay in) right up to within a couple of years of collecting Social Security, you only can collect minimum, about $600/mo now. They figure it on a sliding scale over the last 10(?) quarters.

Re: living on $2k/mo. If the signs are right, and I think they are, major inflation is ahead. That $2k will be worth $1K (comparable) in a few years. So no, I don't think getting completely out of the job market on that amount of savings is a good idea unless he's willing to live at below poverty level, collect food stamps and probably live a life of dumpster diving. It can be done (BTDT) but it's not for everyone.

On the other hand, if the job currently held is driving him nuts, it's probably better to change jobs now than later. One possibility would be to take some of those savings and go back to school and get into something he likes to do. Something that can carry him thru the coming years. Something he may not want to retire from ever hopefully.

Just a thought.

-- mush (discovery@shields.up), February 14, 2000.

He's a young man. I'd encourage him to take a sebatical, rather than declare retirement. The semantics mean alot. Retirement sounds final, and burns professional bridges. Until he sticks his toes in the water, he won't know if it's a temperature he wants to swim in for the rest of his life. Odds are within a year he'll get borred enough to stumble onto some job he truly enjoys. If not, then at least he would have had to troubleshoot any miscalculations in his finances.

-- Hokie (Hokie_@hotmail.com), February 14, 2000.

PS--alot of college faculty get a sebatical (one year off) every 7 years to recharge the old batteries, and publish any articles they have been contemplating. He probably just needs a good long breather, time to regroup. Odds are once he gets recharged that at his age he'll have way to much energy stored up to sit at home. Once he is recharged, he'll need something to direct that energy at, and so possibly seek another position.

-- Hokie (Hokie_@hotmail.com), February 14, 2000.

I can't add a lot to the other answers, except to point out that the amount of money you need will be based on your choices of lifestyle. For almost all of us, it will be easier to cut expenditures than to increase income.

In preparing for the rollover we did a lot of thinking about what was really necessary, and ways to economize if we needed to. We concluded that we could live on considerably less than 2000/mo, but that would leave no buffer for unexpected needs.

Still, there is a lot to be said for simplicity. And if you have a debt-free home, and low utility bills, a garden and a few chickens, and a bit of fishing tackle, how much more does one need? I guess that is one question each of us will answer a bit differently. I don't have 250K, and it looks like a lot to me. If I had it, it would look like less.

In resonse to the comment about SS earnings, I believe that you used to be able to freeze your years of highest income for the basis of your benefits. Best to check with SSA to be sure. (Best not to depend upon them at all.)

good luck. Don't burn out trying to get more than you need.

regards,

gene

-- gene (ekbaker@essex1.com), February 14, 2000.

Not enough IMHO. I've thought about this and $4,000,000 is (for me) the right number. Put the whole thing in TAX-FREE munis at 5% and make $200,000 per year legally w/out paying Uncle Sam a dime (and without touching the principle).

Yeah, $200,000/yr is a butt-load of money now but in 20 years I doubt it will be (inflation dontchaknow). So the real question is, how long does he plan on living and does he want to eat dog food for the last 5-10 years of his life?

-TECH32-

-- TECH32 (TECH32@NOMAIL.COM), February 14, 2000.

I think that the inflation thing has been hyped up quite a bit by those-who-want-you-to-buy-their-retirement-investment-instruments.

Think about inflation for a minute. What things go up in price? Houses. New cars. Home appliances. Clothing. In other words, consumer "wants."

Now think of a lifestyle where it is not necessary to purchase these things. The house is paid for, and in good repair. The fridge and stove and car are fairly new. Your current ratty furniture is good enough to do you until you die. You don't need many new clothes (you don't have to be fashionable in the chicken coop) and you can do without the latest "toys." You have a tiny woodlot that provides enough wood to partially heat your house, and the garden gives you vegetables for the winter.

If you arrange your affairs correctly, inflation is only a minor concern. It will only have an impact on a small percentage of your expenditures. People who are working and trying to keep up in an urban area will be affected *much* more by inflation.

I've seen inflationary times in my life, and it seems to me that the people who were affected *least* by the cost of living were the ones who were retired, especially if they happened to be living in rural areas.

Jo Anne

-- Jo Anne Slaven (joanneslaven@home.com), February 14, 2000.

JoAnne will be the best test of all this. Making 100 G's now. (Only) has saved 250 G out of that salary on which to retire, so probably hasn't been living too cheap so far; willing to downsize soon to serving coffee. Not sure if you're cut to the bone expense-wise now, JoAnne, but when you are making a pile of money, being poor sounds more romantic than it really is. Best to you and I hope you succeed, but I'm a little skeptical. Sometimes even the TAX on that waterfront home starts to look like a lot of dough.

-- ImSo (lame@prepped.com), February 14, 2000.

Many thanks for your replies so far. As always, good advice freely given.

As Max (my buddy) is not on the Net, I'm going to print this out and give it to him. BTW, he always said to me, "InGot we trust" that is, he's always distrusted paper money, and governments. Maybe because of his German background, and I think his family suffered very badly years ago and lost everything. Quite a bit of his wealth is in gold coins, but they haven't done much for him so far. If he does retire, should he sell now, or wait. His idea is to sell, say 4 or 5 oz per month to give him income. Is that viable?

Thanks again.

-- Wishful Thinking (Iwish@hotmail.com), February 15, 2000.

THIS IS NO LONGER TRUE. ITS BASED ON LIFELONG ACCRUEL. I hadn't even worked the last 10 qtrs and am getting just over $800/month.

Sorry -- more bad news. If you dont' work (pay in) right up to within a couple of years of collecting Social Security, you only can collect minimum, about $600/mo now. They figure it on a sliding scale over the last 10(?) quarters.

-- Taz (Tassi123@aol.com), February 15, 2000.

Wishful thinking...you need to have your friend check on the cost of health insurance where they live or plan on living. Chubby Hubby had a heart attack at age of 48 from smoking. He is one of those fortunate ones who grows collateral circulation thus he had a new coronary vessel grown and bypassed in about 8 weeks. So he required no surgical intervention. But when we moved to Florida to retire, we had about $28K income. However, Blue Cross then wanted $1k per month for his health insurance. So...hubby didn't retire. We took a year to get this place fixed up some. Had to build a small barn, fence, etc. Then he went to work for the County just because of the benefits. Since he has gotten a 50% raise last year, the wages are now pretty good. But prior to that, it was benefits that were the important part. He likes his job and will put in his time until he is 62 or 65, I guess. So for us, health insurance was the clincher. We owe not a dime so can live on $20k without problems. But one auto wreck or major hospitalization and you lose it all if no insurance. We weren't willing to take the chance. By the way, a couple of weeks ago we figured up our auto ,insurance (3 vechicals and a 30 ft travel trailer) home owners and property taxes and it comes to $6k. So add that to 12k for health insurance for him, and there isn't much left of $20k. Soooooo....I think your friend needs to work awhile longer. Taz

-- Taz (Tassi123@aol.com), February 15, 2000.