Wednesday, July 29, 2015

Retirement down the road?


Scenario: 51 y. o. single woman w/ 3 older kids at home (one flew the nest, one should in a few years, 2 most likely will remain (sped kid might be forever-that's unknown) looking to get into home ownership. Frantically saving to buy next Spring/Summer in a very expensive area. I hope to have a modest mortgage, and pay it off early, thru my continued, frugal lifestyle.

I have delt w/ several medical issues these past few years, which make me question how much longer I can work.

A)Disability:I am vested in my retirement, could retire under disability if medically deemed so but would only get 50% of salary as a disability benefit until I hit the age of 60, so figure 8 more years. At that point, I would get $3000 more annually. I could swing this, would have to be careful, but then again, I am hoping to greatly reduce my housing/living costs.

B)Eary retirement: I am eligible for early retirement, but there are penalties that are factored in. If I were to do this today, based on my years of service, I'd only get 58% of my normal retirement, and that equals about 1/2 of what disability would pay out. Not a plan at this point, I would not be able to live off of this.

C)Normal retirement: In 2022, my normal retirement benefit would kick in If I can stick it out, physically and mentally, I will be eligible for early retirement and would receive 100% of the normal rate which is VERY do-able, based on my life style.

D)Advanced/max retirement (not sure how else to phrase this)would mean sticking it out yet another 2 1/2 years more/further for an extra $5000/annually over what "normal" retirement would provide.

Overarching issue in all of the above is medical ins coverage until age 65 (2028). I am one of the first teachers to pay into Medicare, which would kick in once I am 65 Not sure how that would be impacted if I retire as disabled. Will have to reasearch that.

Ideal: 3 bed/2 bath Ranch, covered garage/carport asI don't clear cars, basement (storage/den/laundry), fireplace/woodstove (outages) on no more than 1 acre (thing 1/2 would be ideal)so /i can have a small kitchen garden, clothesline, patio/porch.
What I can easily find/afford (forget how much the bank says that I can qualify for! I want a smaller mortgage, thank you very much)is a 3 bed, 2 bath townhouse (I am concerned about stairs w/ my orthopedic issues/arthritis, also HATE the idea of a HOA which also translates to additional $ expense; I am also concerned that a condo is nothing more than a glorified appartment w/ thin walls.)




Gill - That British Woman said...

you could maybe buy the worst house on the best street and renovate over the years? Get the kids on board with all of this.

slugmama said...

I question if you are considering retirement in between 8 and 10 years then why buy now and stay in this expensive area during retirement?
If you aren't wedded to this area of CT why not continue to rent until you do retire and then move to a lower cost area, rent for awhile to get to know the area/housing market there and then buy(possibly a year after moving)?

And with your medical issues and getting older it's wiser to consider one level of living arrangement and something easy to maintain/smaller with lower overhead costs.

I'd never buy into a condo(HOA fes and restrictions to start with and the stairs for another reason)but would opt instead for a trailer on my own land if it came down to a choice between these 2.


CTMOM said...

I can handle cosmetic issues, appliance upgrades, refinishing floors, paint. Not interested in extensive work, due to physical limitations, finances.

CTMOM said...

Sluggy, if my post wasn't clear, while I can easily afford a condo in the city north of here, instantly cutting my rent costs in half, I don't want a condo for reasons expressed. I want a one floor ranch w/ basement. 4 kids live here (CT) and my work, at least for now, is 45 minutes away, down county where costs are prohibative. I will move further North next year to rent/own, but no more than 1 hour 15 min away from work, even if that commute is only* for a relatively few more years.

NAN said...

Carol, I work with people who have special needs and we have lots of services that would assist your son in living independently. I am sure Connecticut has the same. That way you would not have to worry about him when you are not able to care for him or hope one of your kids takes that task on. I'd move- of course, that is precisely what I did after my husband passed away and I have never regretted it. I live in a one level ranch with 2 car garage and 2 baths- too big for me now, but almost paid for! I'll be getting an apartment one of these days- I wasnt 2 bedrooms though.

Anonymous said...

I understand your concern about a townhouse. I'd want a one-level home, too, for the reasons you've expressed. Perhaps that one-level home won't be your "forever" home, but an "almost forever" home. You might consider moving to a condo later on, depending on how many kids are with you at home, etc.

ct legal eagle said...

Hi Carol
Where would you optimally want to live in CT?
With interest rates low, I would suggest living as close to your work as possible.
Here is my logic. If you work in a place like Darien or New Canaan, totally prohibitive to live in.
But if you can live in a place like Fairfield, which is where I live, you can live here, pay off part of the house and get a huge amount in rental income when you retire (or you can sell and hopefully by then the market will recover). We had to live here when we were 1st married - I worked in NY and my husband was in New Haven. My friends told me to live somewhere more affordable. My housing gains have far exceeded any investment (even without the tax advantages of home ownership and even in a relatively depressed housing market).
Plus there is a huge advantage in having a short commute and less wear and tear on your car and body. Also, if you can land somewhere on the gold coast and want to supplement your income by tutoring, college prep tutors get at least $100 per hour in cash....
I appreciate that you have accomplished so many goals by being frugal, but maybe making life more lucrative would make your life easier. I have teacher friends that make $20K - $30K additional income per year tutoring for an average of 5 hours per week...

SAK said...

On the retirement front - if at all possible avoid the early retirement option - the penalty is too steep. Check out the health insurance - there is often bridge insurance available for public employees who are eligible for Medicare - but can be very expensive. Don't forget the insurance exchanges. But the costs are unpredictable and I would expect 5 to 10% price inflation each year (minimum - many asked for a 24% increase in rates this year. What is the difference between disability and normal retirement? Normal is ideal obviously but look at the trade offs. I'd pass on the advanced - I expect the "cost" of earning the benefit will far outweigh the benefit - especially if your lifestyle is comfortably doable on the normal.

Housing - totally right on one level. But remember some neighborhoods have HOA - not just condos. And that commute might be tougher than you think. For me it depends on whether I am sitting in traffic for an hour to go 10 miles or driving 50 miles in an hour. I prefer the 2nd!

And I get what ct legal eagle is saying about tutoring - but that 20-25K is before taxes and the net number (because I'm sure they pay taxes on it even if it is paid in cash) may not be as attractive depending on what you have stop doing in order to make the time to tutor. It is never *just* the hour of tutoring.

Best of luck - you are an awesome planner and can I say I always want to come eat at your house! I wish my mom had been such an inventive cook - or that I was!

Lee Ann said...

that is a lot to think about. Not sure which way is best. BTW I listed on Compass podcasts. It is a Christian financial ministry. I've heard 2 callers with retirement questions. both wondered if it were best to take lump sum payment or what the could get each month. Both times Howard recommended they NOT take the lump sum payments. I don't know if that is helpful or not.

Insurance is such an important piece of the puzzle. Hopefully the surgeries you have had this summer will be the last? Are you expecting to have more? I sure hope not.

RPS4boys said...

In your area, which sounds like it is very affluent, tutoring might be a great way to make additional income. I live in Virginia, just outside Washington, DC, and I do A LOT of tutoring! It is a great second income and I am thinking that I might continue with it even after retirement. You do have to pay taxes on your income (as well as social security). I work through a tutoring company so my income is all "on the books." OR tutoring could be a good source of income if you decide to retire early. So many things to think about!!

Marcia in rural WNY said...

I guess one thing to consider is the total of your retirement income--my husband has no pension, which we knew well in advance, so we were diligent about saving the max to his 401k, especially because his company matched a portion of it. A much smaller amount was saved in my 401K, which had no matching. So I have a pension, we have our retirement "nest egg" both get social Security, and through my employer I get MY portion of the Medicare B premium rebated, although his is not, I also have 100% paid by my employer medical care, prescription care, and low deductible, with a 20% co-pay after medicare and private insurance---no coverage for dental, eyeglasses, or my husbands (two) hearing aids. I sat down with the actual figures of projected income and projected expenses before retirement, and determined we could make our budget without dipping into the nest egg. Good deal. I retired, he followed about 4 years later.
Surprises after retirement: very high dental bills, replacing household appliances, cars, the furnace, and so on has had to come from the nest egg, but we're still doing fine on spending vs. investment earnings. Helping our granddaughter with college expenses, which was partially anticipated but aggravated by her step father becoming disabled (her mother already was disabled). Also, unless you plan on doing a LOT of traveling, your expenses will probably not be any higher in retirement than when you were working, and the longer you are retired the less they are (physical impairments easily lessen the desire to travel. Just being older is a physical impairment after a bit!!)
My main advice would be to pay off your mortgage and avoid all other debt before you retire, and save as much as you possibly can. With any luck, you won't have a huge recession to cut into your projected earnings from investments--we lost some money on that but it's slowly come back.
You can't foresee everything, but you are such a good planner, I think your experience will allow you to continue living comfortably no matter what.

CTMOM said...

CT legal, yes, I do teach on the gold coast where I can not afford to live, which is why I live far north. I am in one of the top paying systems nationally. That said, getting back into real estate is a challenge. Another perk to living north, is being further away from affluenza,; I grew up lower middle class and continue to live as such, even though numbers on paper say otherwise. It's all relative.
Tutoring does get $100/hr but can be a real time suck in the afternoon/evening and what little I have done in the past, I have not enjoyed. Additionally, new school policies require that I declare any tutoring with the school system I am employed in. Just more red tape; no thanks.
Once I retire from teaching, I anticipate having some job that would afford me reasonable health ins in what I'll call the gap years before age 65 when medicare goes into effect for me.

CTMOM said...

Marcia, I have run the numbers on all scenarios, getting a figure for my anticipated, monthly income so I can make an informed choice. First step: reduce my living expenses.

Marcia in rural WNY said...

That's not going to be that easy, although if your older two kids become totally self-sufficient, it would be a step in the right direction. Still working on my granddaughter in that regard also. What she thinks are "reasonable" expenditures seem anything but to me. I know the impatience of wanting to retire, and I was under a lot of pressure with my job, too. Plus hypertension was a consideration--stress doesn't help that at all. Difficult decisions and then the unexpected expenses which come up---yes, we budget for them, but they are still responsible for the disappearance of large chunks of money at one time! I guess we just can't
foresee the unforeseeable. I know I can further reduce expenses if I had to. Guess that's my fall back position. I stick by "save all you possibly can" -- we never spent our whole income, which did make it easier to adjust to retirement. Our expenses are already dropping somewhat (at 73 and 72)--less energy means fewer expenditures because staying home sounds better than going out!! Good luck with your planning.

Theresa F said...

Crazy that teaching isn't paid well in the U.S. Here in Ontario, teachers are among the highest paid professions with teacher making in the high 80k range after 10 years. Their pensions and benefits are second to none. Having said that, there are no teaching jobs to be had because everyone and their dog want to be teachers just for the money.