Advice for relatively Low Net Worth Retirement

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Engaging in sloth
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Advice for relatively Low Net Worth Retirement

Post by Engaging in sloth »

Hi. Within the Boglehead community we have a low net worth for a retiree. I have a few questions if you would be so kind to answer.

We are considering moving to a more expensive home for retirement. We would pay 100% cash for the home.

DH & DW age 60 both retired
Pension income: $2620/month joint survivor.... surviving spouse keeps the pension.
Liquidity nearing $1.1M AA 30/70 (cash)
SS DW 62 $1240/month...DH 67 $2030/ month
Current house $325k paid for

Question: if we bought a house for say $550k which would lower our liquidity to $800k, is this still a safe retirement scenario?

Our basic expenses are $40k including HI and taxes....if we include vacation and emergency $ budget expenses projected to be $60k/yr.

What do you folks think how the financial viability of this plan?
Carefreeap
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Re: Advice for relatively Low Net Worth Retirement

Post by Carefreeap »

What are you doing for healthcare?
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Nate79
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Re: Advice for relatively Low Net Worth Retirement

Post by Nate79 »

Relatively low net worth? Compared to who, the Vanderbilt's?
mrmass
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Re: Advice for relatively Low Net Worth Retirement

Post by mrmass »

Engaging in sloth wrote: Tue Dec 29, 2020 3:42 pm Hi. Within the Boglehead community we have a low net worth for a retiree. I have a few questions if you would be so kind to answer.

We are considering moving to a more expensive home for retirement. We would pay 100% cash for the home.

DH & DW age 60 both retired
Pension income: $2620/month joint survivor.... surviving spouse keeps the pension.
Liquidity nearing $1.1M AA 30/70 (cash)
SS DW 62 $1240/month...DH 67 $2030/ month
Current house $325k paid for

Question: if we bought a house for say $550k which would lower our liquidity to $800k, is this still a safe retirement scenario?

Our basic expenses are $40k including HI and taxes....if we include vacation and emergency $ budget expenses projected to be $60k/yr.

What do you folks think how the financial viability of this plan?
It looks like you're selling the house that is worth $325K-are you walking away with $325K? or minus RE agent and such? If not then walking away with about $305K ish. Leaving you with $855Kish
In 7yrs you will have a monthly income of 1240+2030+2620=5890*12=70,680. You need to fund 7yrs at about $30K per year. Seems like you're fine.
Last edited by mrmass on Tue Dec 29, 2020 4:01 pm, edited 1 time in total.
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MikeWillRetire
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Re: Advice for relatively Low Net Worth Retirement

Post by MikeWillRetire »

Let's assume your expenses are the high number...60k.
From age 60 to 62, you will need to withdraw 58k from your portfolio.
From 62 to 67, you will need to withdraw 70k.
At age 67, it looks like your income will be 70k, so you won't need to withdraw anything.
So you will still have close to 1 million in your portfolio at age 67. Even if your pension does not have a cola, you won't need much of your remaining portfolio for expenses.
SavinMaven
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Re: Advice for relatively Low Net Worth Retirement

Post by SavinMaven »

So your expenses are currently 5k/month, and your present income is 2620/month. You are short 28,560/year, a withdrawal rate of 3.6% of your projected new kitty of 800k. Technically safe, but your SS+pension doesn't cover your expenses for five years, and by then your expenses will have increased.

What is the point of buying the home? Why upgrade to a 60% more expensive home than the one you currently own? Can't be to shorten your commute! :D
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Re: Advice for relatively Low Net Worth Retirement

Post by LittleMaggieMae »

Are you considering the expenses of selling your house (you may sell it for 325K but once the dust settles you may have around 300K). How much above what you need for the new house will you have to take from investments to cover the tax on the withdrawal?

How do the expenses of the more expensive house fit into your "budget"?
Will the upkeep of the new house be more expensive? Will the new house have more stuff to maintain (like a pool? or large yard that needs to be mowed? or something else I haven't thought of?)
What other costs or higher expenses do you expect with the new house? (just because some place is "low cost" for housing doesn't mean it's low cost for other daily expenses - in case you are moving for lower property taxes and stuff).

How does all of that play with your estimated yearly expenses (how much you will need on a yearly basis)?

Do you have a retirement budget/spending plan? you should be able to "plug" the numbers for the new house (and life style) into it and see how your overall numbers look.
59Gibson
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Re: Advice for relatively Low Net Worth Retirement

Post by 59Gibson »

I wouldn't say your low net worth- with your portfolio, pension, SS coming soon.. equivalent to $2.5mill + paid for house and expenses of 40-60k/yr. I think you're fine to move up to around 550k
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dziuniek
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Re: Advice for relatively Low Net Worth Retirement

Post by dziuniek »

Seems like you're good to go.

My one question is what happens to your budget if one of you passes away and that SS goes away? What will the withdrawal rate look like then? If it's still reasonable then you're still ok, if not... I'd think about it hard.
SnowBog
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Re: Advice for relatively Low Net Worth Retirement

Post by SnowBog »

If I figured this right, assuming your pension is already paying out that covers over 75% of your basic expenses. If you need $60k/year - figure $30k/year gap until first SS at 62, so $60k gap thus far (estimates).

From 62+, pension plus first SS covers > 100% of basic expenses, leaving about $15k/year gap if you need $60k, for the next 5 years, so another $75k gap.

But if your estimates are correct, after 2nd SS at 67 it looks like > 100% of your $60k expenses are covered. If your pension has a COLA, looks like an excess of $10k/year in income... And having $665k ($800k - $60k - $75k) left seems safe to my eyes as I'm not seeing you even using the remainder (and in fact adding more annually plus growth).

If no COLA, then you just need your portfolio to make up the difference at some point. 4% of $635k is $25k/year, which even without growth lasts 25 years putting you into your early 90s. You could even do a SPIA annuity at some point to minimize risk of out living your money.

So my first glance, seems OK. But you'd want to have confidence in your expenses, as moving to a bigger house likely increases those expenses (more furniture, more utilities, more insurance, etc.). And depending on how Healthcare is addressed, that could drastically change things.
Last edited by SnowBog on Tue Dec 29, 2020 5:13 pm, edited 1 time in total.
deltaneutral83
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Re: Advice for relatively Low Net Worth Retirement

Post by deltaneutral83 »

I'd probably hang tight for a year or two and re adjust my AA to 50/50, OP+Spouse could easily live for another 35 years. Is there a COLA to the pension?
bck63
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Re: Advice for relatively Low Net Worth Retirement

Post by bck63 »

Engaging in sloth wrote: Tue Dec 29, 2020 3:42 pm Liquidity nearing $1.1M AA 30/70 (cash)
I'm not sure liquidity nearing $1.1 million is considered low net worth.
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Engaging in sloth
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Re: Advice for relatively Low Net Worth Retirement

Post by Engaging in sloth »

Very much enjoying your responses and advice.
I forgot to mention the pension is Non-Cola.
On January 1 we start ACA HI which we figured into our expenses.
Concerning our annual expenses we could easily reduce our traveling to reduce finances if need be.
A more expensive home would increase expenses perhaps a few thousand/yr....but we would still be at $60k/yr or less.
But yes we could stay put....I do feel safer with a higher liquidit amount :)
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9-5 Suited
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Re: Advice for relatively Low Net Worth Retirement

Post by 9-5 Suited »

Nate79 wrote: Tue Dec 29, 2020 3:50 pm Relatively low net worth? Compared to who, the Vanderbilt's?
To be fair, OP is posting on a forum where members with $2M-$4M net worths regularly post “Can I retire?” and “How am I doing?” threads. So $1.4M can easily seem like a low relative net worth in these parts.
tim1999
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Re: Advice for relatively Low Net Worth Retirement

Post by tim1999 »

Nate79 wrote: Tue Dec 29, 2020 3:50 pm Relatively low net worth? Compared to who, the Vanderbilt's?
I guess compare to the average Bogleheads poster these days, who seems to have a household income of $500k and has socked away $5 million by 45. I've severely curtailed my time spent on this site as I just can't relate anymore to what passes nowadays as "average income" or "low net worth" on here compared to the America I know in real life.
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Engaging in sloth
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Re: Advice for relatively Low Net Worth Retirement

Post by Engaging in sloth »

9-5 Suited wrote: Tue Dec 29, 2020 4:29 pm
Nate79 wrote: Tue Dec 29, 2020 3:50 pm Relatively low net worth? Compared to who, the Vanderbilt's?
To be fair, OP is posting on a forum where members with $2M-$4M net worths regularly post “Can I retire?” and “How am I doing?” threads. So $1.4M can easily seem like a low relative net worth in these parts.
Thank you. I actually thought many members of this forum could relate to our financial situation and perhaps they too were considering a more expensive home and how that would affect their finances. :happy
howard71
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Re: Advice for relatively Low Net Worth Retirement

Post by howard71 »

Engaging in sloth wrote: Tue Dec 29, 2020 3:42 pm Liquidity nearing $1.1M AA 30/70 (cash)
Not sure what that means. 70% cash?
SnowBog
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Re: Advice for relatively Low Net Worth Retirement

Post by SnowBog »

Engaging in sloth wrote: Tue Dec 29, 2020 4:41 pm
9-5 Suited wrote: Tue Dec 29, 2020 4:29 pm
Nate79 wrote: Tue Dec 29, 2020 3:50 pm Relatively low net worth? Compared to who, the Vanderbilt's?
To be fair, OP is posting on a forum where members with $2M-$4M net worths regularly post “Can I retire?” and “How am I doing?” threads. So $1.4M can easily seem like a low relative net worth in these parts.
Thank you. I actually thought many members of this forum could relate to our financial situation and perhaps they too were considering a more expensive home and how that would affect their finances. :happy
Personally, that's one of the things I like here is the diversity, and that it arguably does not matter if a family has an income or $50k or $500k - it's still about "living below your means" and having "enough" saved.

If you accept that people are basically looking to sustain their current lifestyle into retirement, then it's just simple math that can apply to basically everyone. Things like 4%/25x don't care about the size of your portfolio or how large your expenses. The math works, or it doesn't... If it doesn't, then you need to lower expenses or increase savings/returns. Same for everyone.
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Nate79
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Re: Advice for relatively Low Net Worth Retirement

Post by Nate79 »

tim1999 wrote: Tue Dec 29, 2020 4:40 pm
Nate79 wrote: Tue Dec 29, 2020 3:50 pm Relatively low net worth? Compared to who, the Vanderbilt's?
I guess compare to the average Bogleheads poster these days, who seems to have a household income of $500k and has socked away $5 million by 45. I've severely curtailed my time spent on this site as I just can't relate anymore to what passes nowadays as "average income" or "low net worth" on here compared to the America I know in real life.
Well, as long as people understand reality is that this is neither a Boglehead average networth, nor average networth in society it's ok. This networth represents the upper echelons of wealth in the US, essentially rich. Kot low. Not relatively low. But rich.
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Engaging in sloth
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Re: Advice for relatively Low Net Worth Retirement

Post by Engaging in sloth »

howard71 wrote: Tue Dec 29, 2020 4:59 pm
Engaging in sloth wrote: Tue Dec 29, 2020 3:42 pm Liquidity nearing $1.1M AA 30/70 (cash)
Not sure what that means. 70% cash?
AA: equity/fixed income

my situation: 30% equity/ 70% fixed income which is cash
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willthrill81
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Re: Advice for relatively Low Net Worth Retirement

Post by willthrill81 »

Engaging in sloth wrote: Tue Dec 29, 2020 3:42 pm We are considering moving to a more expensive home for retirement. We would pay 100% cash for the home.

DH & DW age 60 both retired
Pension income: $2620/month joint survivor.... surviving spouse keeps the pension.
Liquidity nearing $1.1M AA 30/70 (cash)
SS DW 62 $1240/month...DH 67 $2030/ month
Current house $325k paid for

Question: if we bought a house for say $550k which would lower our liquidity to $800k, is this still a safe retirement scenario?

Our basic expenses are $40k including HI and taxes....if we include vacation and emergency $ budget expenses projected to be $60k/yr.

What do you folks think how the financial viability of this plan?
So you'll still have about $875k in your portfolio after buying the new home, have a pension that currently covers more than 75% of your expenses, including taxes and health insurance, your health insurance premiums will likely fall when you get on Medicare at age 65, and you'll have more income coming in when Social Security benefits kick in (I would recommend deferring for as long as you can).

You're golden! Congratulations! :sharebeer
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
student
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Re: Advice for relatively Low Net Worth Retirement

Post by student »

Nate79 wrote: Tue Dec 29, 2020 3:50 pm Relatively low net worth? Compared to who, the Vanderbilt's?
lol.
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JoeRetire
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Re: Advice for relatively Low Net Worth Retirement

Post by JoeRetire »

Engaging in sloth wrote: Tue Dec 29, 2020 3:42 pm DH & DW age 60 both retired
Pension income: $2620/month joint survivor.... surviving spouse keeps the pension.
Liquidity nearing $1.1M AA 30/70 (cash)
SS DW 62 $1240/month...DH 67 $2030/ month

Question: if we bought a house for say $550k which would lower our liquidity to $800k, is this still a safe retirement scenario?

Our basic expenses are $40k including HI and taxes....if we include vacation and emergency $ budget expenses projected to be $60k/yr.

What do you folks think how the financial viability of this plan?
If your estimates regarding pension and social security income, and expenses are correct, you are golden. Even your "vacation + emergency" expenses are covered by your income.

Have you checked out https://opensocialsecurity.com/ ?
Are your pensions COLAed?
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
Quaestner
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Re: Advice for relatively Low Net Worth Retirement

Post by Quaestner »

OP - According to the 2019 Credit Suisse Global Wealth Report, it takes $1,000,000 to be in the global 1%. Factor in the value of your pension and home, and each of you is a member of this exclusive club. You belong! (Don't let other Bogleheads' success bring you down.) Also don't forget that you aren't giving away most of the money that goes towards the house, you're building equity. Some of this can be tapped in a reverse mortgage later if one of you needs it. You're plan is sound. Enjoy!
Last edited by Quaestner on Tue Dec 29, 2020 5:57 pm, edited 1 time in total.
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willthrill81
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Re: Advice for relatively Low Net Worth Retirement

Post by willthrill81 »

Nate79 wrote: Tue Dec 29, 2020 3:50 pm Relatively low net worth? Compared to who, the Vanderbilt's?
Seemingly, it isn't clear that Gloria Vanderbilt has even $1 million left, and it also seems that she may leave none of it to her adult children.

So the OP may have more than at least some of the Vanderbilts! 8-)
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
cashheavy18
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Re: Advice for relatively Low Net Worth Retirement

Post by cashheavy18 »

willthrill81 wrote: Tue Dec 29, 2020 5:43 pm
Nate79 wrote: Tue Dec 29, 2020 3:50 pm Relatively low net worth? Compared to who, the Vanderbilt's?
Seemingly, it isn't clear that Gloria Vanderbilt has even $1 million left, and it also seems that she may leave none of it to her adult children.

So the OP may have more than at least some of the Vanderbilts! 8-)
Sadly, Gloria has passed.
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willthrill81
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Re: Advice for relatively Low Net Worth Retirement

Post by willthrill81 »

cashheavy18 wrote: Tue Dec 29, 2020 5:47 pm
willthrill81 wrote: Tue Dec 29, 2020 5:43 pm
Nate79 wrote: Tue Dec 29, 2020 3:50 pm Relatively low net worth? Compared to who, the Vanderbilt's?
Seemingly, it isn't clear that Gloria Vanderbilt has even $1 million left, and it also seems that she may leave none of it to her adult children.

So the OP may have more than at least some of the Vanderbilts! 8-)
Sadly, Gloria has passed.
Yes, I see that now. She left Anderson Cooper less than $1.5 million. So the OP is about on par.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: Advice for relatively Low Net Worth Retirement

Post by Normchad »

cashheavy18 wrote: Tue Dec 29, 2020 5:47 pm
willthrill81 wrote: Tue Dec 29, 2020 5:43 pm
Nate79 wrote: Tue Dec 29, 2020 3:50 pm Relatively low net worth? Compared to who, the Vanderbilt's?
Seemingly, it isn't clear that Gloria Vanderbilt has even $1 million left, and it also seems that she may leave none of it to her adult children.

So the OP may have more than at least some of the Vanderbilts! 8-)
Sadly, Gloria has passed.
That’s the new boglehead way to reduce living expenses. :)
retire57
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Re: Advice for relatively Low Net Worth Retirement

Post by retire57 »

OP,

I am particularly interested in the responses you receive as we have (almost eerily!) very similar numbers and are also looking at upgrading our housing from our paid-for home.

Because of the low-interest rates, we are considering a mortgage. I'm sure you have thought about this option as well and would appreciate hearing your thoughts.

This is a thread I started recently: viewtopic.php?f=2&t=333424

P.S. I know what you mean about "relative" wealth. Sometimes I come here and feel like the "poor relative". Which, at the same time, I know is illogical. But there it is ...
flyingaway
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Re: Advice for relatively Low Net Worth Retirement

Post by flyingaway »

With a bigger house, you need to include bigger property tax and insurance cost in your annual expenses.
wolf359
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Re: Advice for relatively Low Net Worth Retirement

Post by wolf359 »

OP, that pension is worth about $715K as per immediateannuities.com. Combined with an investible net worth of $1.1M, and home equity of $300K, your overall net worth equivalent is a little over $2M. That puts you in in top 5% of households in the US. Even $1M puts you in the top 10%.

You did an excellent job of saving for retirement.

It's always nice to have more, but you have enough. I'd second the advice on taking on more market risk. If you can cut back during market downturns, you can use stocks to try to offset inflation. 30/70 is too conservative given that your pension isn't inflation adjusted.

Your numbers indicate that upgrading the house is affordable, but it takes away some of your buffer. It's more of a choice of how much you want in assets to feel comfortable.
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Re: Advice for relatively Low Net Worth Retirement

Post by Ed 2 »

Engaging in sloth wrote: Tue Dec 29, 2020 3:42 pm Hi. Within the Boglehead community we have a low net worth for a retiree. I have a few questions if you would be so kind to answer.

We are considering moving to a more expensive home for retirement. We would pay 100% cash for the home.

DH & DW age 60 both retired
Pension income: $2620/month joint survivor.... surviving spouse keeps the pension.
Liquidity nearing $1.1M AA 30/70 (cash)
SS DW 62 $1240/month...DH 67 $2030/ month
Current house $325k paid for

Question: if we bought a house for say $550k which would lower our liquidity to $800k, is this still a safe retirement scenario?

Our basic expenses are $40k including HI and taxes....if we include vacation and emergency $ budget expenses projected to be $60k/yr.

What do you folks think how the financial viability of this plan?
You’ve got pension and SS combined over 3K? Are you kidding? Many wouldn’t even ask at this situation plus almost 1 million. You will be fine!
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howard71
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Re: Advice for relatively Low Net Worth Retirement

Post by howard71 »

I retired almost one year ago today at the age of 67 and our investment portfolio (not net worth) was worth almost exactly $1M at the time. With my wife still working (she's 17 years younger) but me delaying SS to age 70 to get the max I resolved to budget my spending to the point where we always had no less than $1M in inflation adjusted dollars before we would start doing more extravagant spending.

So if I was you I wouldn't do what you are talking about. But I'm not you, of course.

Four years later we've gotten a good sequence of returns while staying on budget and we're up to almost $1.5M. Sill not sure I would buy a $535k house but we've been buying new furniture and doing some remodeling.

Sorry to folks who think we sound like the Vanderbilts but my wife and I had decent paying jobs and scrimped and saved to get where we are and don't consider ourselves rich. More fortunate than most maybe but not rich.
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Re: Advice for relatively Low Net Worth Retirement

Post by surfstar »

Nate79 wrote: Tue Dec 29, 2020 3:50 pm Relatively low net worth? Compared to who, the Vanderbilt's?
I just came in here to see if "low" was over $1mm. Yep.
Check.
Bias confirmed.
:oops:

Not to mention $2620 monthly pension and SS income.
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Watty
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Re: Advice for relatively Low Net Worth Retirement

Post by Watty »

Engaging in sloth wrote: Tue Dec 29, 2020 3:42 pm What do you folks think how the financial viability of this plan?
One thing that has not been mentioned is that in the unlikely event that money gets tight in 20 years then you can sell the house and downsize to free up some of the home equity. In fact when you are in your 80s you might be ready to downsize even if money is not an issue.

There would be transaction costs but if you put another $200K into home equity your net worth stays just about the same. It would be a lot different question if you were asking about doing something like spending $200K on a deluxe around the worlds cruise.
howard71
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Re: Advice for relatively Low Net Worth Retirement

Post by howard71 »

surfstar wrote: Wed Dec 30, 2020 3:13 pm
Nate79 wrote: Tue Dec 29, 2020 3:50 pm Relatively low net worth? Compared to who, the Vanderbilt's?
I just came in here to see if "low" was over $1mm. Yep.
Check.
Bias confirmed.
:oops:

Not to mention $2620 monthly pension and SS income.
The book "The Millionaire Next Door" was published 24 years ago so if you count for inflation those of us who have retired recently with a measly $1M should probably be ashamed of ourselves for not being as successful.

Shame for not earning enough nor earning too much isn't a feeling I care to dwell on for very long however so I don't think too much about it.

I promise this is my last post on the subject so no need for the admins to intervene.
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Re: Advice for relatively Low Net Worth Retirement

Post by gips »

we went through the same thought process last year in thinking about a second home. my wife pointed out that the money spent on a second home is not lost...we can always sell the second home if needed. likewise, you can always downsize in the future if need be (which is unlikely based on your finances).

go for it, you’ve worked hard and saved for this moment in your lives, enjoy your retirement!
Last edited by gips on Wed Dec 30, 2020 3:45 pm, edited 1 time in total.
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Ramjet
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Re: Advice for relatively Low Net Worth Retirement

Post by Ramjet »

800,000 in investments divided by 20,000 in annual expenses not covered by SS and pensions gives you 40 years of retirement assuming 0% portfolio growth
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Christine_NM
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Re: Advice for relatively Low Net Worth Retirement

Post by Christine_NM »

Your numbers (pension, SS, portfolio) are very similar to mine at age 61 when I retired in 2005. I sold my house in 2009 and bought a new one for cash. It was not as expensive as your new house, but it cost twice what the old home sold for, so it set the portfolio back a bit.

Now portfolio is over 3m and I still have the pension, SS, but income from an annuity bought from the portfolio in about 2014.

My basic expenses are 40K; extras are 15K-30K. I think you are OK to buy but are you thinking the new house is more house than you need? I bought less new house than I wanted, but it turned out all right because now at age 77 this is as much as I can manage. Good luck.
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Barkingsparrow
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Re: Advice for relatively Low Net Worth Retirement

Post by Barkingsparrow »

tim1999 wrote: Tue Dec 29, 2020 4:40 pm I guess compare to the average Bogleheads poster these days, who seems to have a household income of $500k and has socked away $5 million by 45. I've severely curtailed my time spent on this site as I just can't relate anymore to what passes nowadays as "average income" or "low net worth" on here compared to the America I know in real life.
At times I feel like you, and when I see someone with a "Panic Mode - only $10 million net worth! What to do?" thread I just ignore it; there's always going to be some people seemingly oblivious to the reality out there. My own net worth - although on the lower end of the scale here - is still in the top 10% for my age group, and it's easy to lose sight of this fact.

That said, there's a lot of very successful people here who are more than willing to share their expertise and wisdom and I truly appreciate it. I don't begrudge their success - it takes confidence, talent, and hard work to get to where they are now.
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Re: Advice for relatively Low Net Worth Retirement

Post by Ramjet »

tim1999 wrote: Tue Dec 29, 2020 4:40 pm
Nate79 wrote: Tue Dec 29, 2020 3:50 pm Relatively low net worth? Compared to who, the Vanderbilt's?
I guess compare to the average Bogleheads poster these days, who seems to have a household income of $500k and has socked away $5 million by 45. I've severely curtailed my time spent on this site as I just can't relate anymore to what passes nowadays as "average income" or "low net worth" on here compared to the America I know in real life.
I feel you. Living in Northeast Ohio myself, it's hard to relate to people living in NY or CA working in say tech or the medical field. Don't get caught up in the numbers, even though someones situation is different they may still be able to offer valuable advice
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