One shoe size does not fit all!

[hendi_alex]

Our situation is very different from many, so here are a few comments about the context of our portfolio. First of all it is pretty modest at under $300K.

We each are retired from the state and get decent pensions that take care of all monthly expenses and installment payments. We both are now getting social security, started at age 62 for me and just under 63 for the wife whose SS starts hitting the account next month. The SS checks are gravy, as is the income from the portfolio. We own about 2x-3x the portfolio amount in real property.

In this context our portfolio earnings are totally discretionary and risk tolerance is high. Planned use for portfolio earnings is purely for recreational uses.

Since we are both retired, the income stream is somewhat more important to us than growth of NAV.

Our plan is to place nearly 100% of SS checks into a cash investment account, to only spend the cash flow that the account generates. At this time, both that cash flow plus the IRA generated cash flow will be for big ticket discretionary spending. When one of us dies, the SS accumulations will provide an income stream that will help offset the lost state retirement and SS from the spouse.

Another note that may be of interest. Here in South Carolina, we over 62 crowd get many perks. You should look at your state as the tax perks may significantly improve your income situation.

State Income Tax:
Retirement Income Taxes: Retirement income is taxed. Social Security is exempt. Under age 65, $3,000 in pension income is exempt. If you are 65 or older you may exempt $15,000 of retirement income. You can take this deduction for income received from any qualified retirement plan. If both spouses receive retirement income, each spouse is entitled to an individual deduction. The $15,000 deduction must be offset by any other retirement deduction that is claimed. A surviving spouse may continue to tacke a retirement deduction on behalf of the deceased spouse.

Property tax:
For homeowners 65 and older, the state’s homestead exemption allows the first $50,000 of their property’s fair market value to be exempt from local property taxes.

[Kerim]

Thanks Alex -- really appreciate you sharing some of the details of your situation. It sounds like you have a good handle on things, and it even makes me a little jealous. I am 43 and a long way from retirement, and it is hard to imagine ever considering any income "gravy"!

I haven't thought much (yet) about the different retirement benefits that different states have to offer, but it sure sounds like South Carolina is a fine place to be in that regard. Did you move / plan on that, or a happy coincidence?

[hendi_alex]

We have lived in S.C. all of our lives, so is a coincidence that S.C. has retirement friendly tax policies. If not married to an area, tax considerations may be worth a move for some, especially with high property taxes in the north. We just received the property tax bill for our house which is very nice 1979 construction with about 3000 sq feet heated, also with much remodeling since originally built. It sits on 130 rural acres, but only about ten miles from Camden which has lots of choices for grocery and other shopping. The bill for the year is $970.

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Speaking of home remodel. Our kitchen was one of our first major remodel projects. The wife and I did all work other than subcontracting the cabinets and granite. The space originally was a very small kitchen and a small dining room. We pulled the partition between and ended up with what you see in the photos. The inset at the end of the room in the double oven area was a particular challenge. I had to build a brick foundation on the outside and frame out the space for the slide in cabinet unit. Also had a good bit of electrical work to accommodate various appliances.

From original kitchen area toward old dining area.


New island with cook top and into the original kitchen space. Everything was gutted but the cabinets were mostly salvaged and added to. Before we tiled the backsplash area.


Nearing completion of tile. This was my first time tiling on a wall. It worked out pretty well!


We have really enjoyed the kitchen area. This was a gathering to honor and remember a dear friend who died way too early. Hmmm, never noticed my wife's hand on Ray's leg before!

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You will see a few of my orchids in the photos. That has been a hobby for many years, so the blooming plants are usually placed throughout the house. Am cutting down on the number of plants however, probably will drop it down to about 100-125 plants versus the 300+ plants of a couple years ago.

[fiveoh]

Wow that kitchen looks fantastic! Congrats on your retirement. What do you feel was the biggest factor in retiring comfortably(financially speaking)?

[hendi_alex]

When in college I was split between electrical engineering or science education. My first two years in school I took many of the same courses that the electrical and chemical engineers took, but made much better grades than most of those students. So could have gone either route, I'm sure. Being in education I complained about the low salary for much of my career, though at the end, a little over $50K was much better than the early years. Now after retirement for about 9 years, retired at age 54, I don't think that choosing the education route was such a poor financial choice. Much of the higher salary of an engineer would have to go to aggressive funding of 401K to end up with a portfolio that would kick out a reliable $2400 per month. Plus, we have a very good health plan that only costs a hundred bucks per month, with the state picking up the rest of the tab.

So choosing to go the state route with its really good benefits was the biggest factor. Though, I worked at DuPont for about 7 years right after high school, and had already been aggressively saving that whole time. So I would say, saving until it hurt was a primary trait. No matter what a person's career, saving at least 15% in the early years and saving at least 25% during the mid to later years is critical, if one wants to live comfortably after retirement. Though the wife and I had very good state benefits, we still went for a twenty to twenty five year period when we saved 15%-30% of our gross, even when it caused us to really struggle during the child raising years.

I learned the last element from my brother. He lost his job at about 50 years old. But he had no house payment, no car payment, few if any bills. It took almost nothing for him to live a very good life style on the limited income that he had after losing his job and deciding to avoid the rat race from that point forward. So paying down debt or carrying very low debt is also an extremely important factor.

[fiveoh]

Thanks for the great post. I'm 32, so I try to pick the brain of every successful retired person I can, to see what factors helped them get to where they are.

What's your take on paying down your home mortgage early vs investing? Currently I have a lot of money sitting in cash and was considering paying down mine some. However, it's only a 3% interest rate but I'm only getting half a percent with it sitting in cash. I realize statistically speaking I should be able to get a better return in the market, I just can't find any great value(IMO) out there to buy right now. The emotional side of the equation comes into factor too, less stress owning my house debt free.

[Kerim]

Agree that the kitchen is beautiful. You could certainly use those skills to generate extra income if you even wanted or needed!

(10-18-2013, 04:58 PM)hendi_alex Wrote: So I would say, saving until it hurt was a primary trait.

This seems to be the common denominator for folks who have successfully saved and invested their way to a comfortable retirement.

[EricL]

(10-18-2013, 05:25 PM)fiveoh Wrote: Thanks for the great post. I'm 32, so I try to pick the brain of every successful retired person I can, to see what factors helped them get to where they are.

What's your take on paying down your home mortgage early vs investing? Currently I have a lot of money sitting in cash and was considering paying down mine some. However, it's only a 3% interest rate but I'm only getting half a percent with it sitting in cash. I realize statistically speaking I should be able to get a better return in the market, I just can't find any great value(IMO) out there to buy right now. The emotional side of the equation comes into factor too, less stress owning my house debt free.

I'm 35 and am a new homeowner myself as of July of this year. I am not currently in the position to choose between sitting on a pile of cash or paying down the mortgage, but I don't think you could go wrong doing it.

The way I see it there is no better security than having a paid for home. The math doesn't make it seem that way but if another bear market happens, which God forbid could lead to a job loss, that paid for house would be pretty comforting.

As Dave Ramsey would say, 100% of foreclosures are on houses with a mortgage. I hope to get mine paid off as quickly as possible, I can't imagine the feeling of not having that big payment every month.

Risk is hard to think about now that we are 4 years into a bull market, but it can't last forever.

[hendi_alex]

Our current mortgage is at 4.75% and is within about 5 years of being paid off, but earlier in the middle years our mortgage was as high as 10.5%. I always opted for saving in the 401K. figuring that the debt would always be paid off eventually, and understanding that savings were very hard to accumulate. So my inclination is that savings should come before early debt repayment, especially when interest rates are historically low. You will always eventually pay off your debt, but the only way to accumulate savings is through a long systematic approach. Lots of rationalizations exist to put off or to use ones potential savings dollars. IMO a wise person pushes the rationalizations aside and saves to the max, letting everything else take care of itself over time.

[Kerim]

Agree that there would be considerable peace of mind having the house fully paid off, but my mortgage is currently at a flat 3 percent. So as much as I hate paying the mortgage interest, I know I can do better than 3 percent in the market, so I am better off carrying the mortgage. My dividend growth stocks average well above 3 percent. Now granted, mine is an adjustable rate mortgage (locked for three and a half more years), and if rates jump considerably, the math could change.

[ronn38]

I currently make double payments on my mortgage and have since I bought it 8 years ago. Since I can comfortably make double payments, I prefer to use spare/excess income to invest (andy I think the low interest rates we currently have make that an economically viable choice).

I don't need to have cash on hand to take advantage of a market correction or strong value opportunity, but if I plan my finances as if I did. Hence I feel I'm getting the best of both financial concepts by doubling down on my mortgage AND keeping cash liquid for investment opportunity's.

Just my 2cents worth :-)

Ronn