Heh, kind of on a roll today I guess.
The Fear
Some of you regulars may remember me talking about my parent's nest egg and wondering whether they are going to pull off retirement or not. Well, I think I finally have some solid numbers.
Earlier tonight, my mother asked me to take a look at their latest mutual fund statement. There's nothing extraordinary about the statement itself, but I finally know what the balance is (since my mom didn't know). In short, it's only $60k.
I mean, don't get me wrong. That's certainly a nice chunk of change, but... they're thinking about retiring like maybe next year or the year after that! $60k is NOT going to cut it!
I double checked about the $30k to $40k my dad has set aside to buy stocks. Mom said that the money is still there. Together, that's about $100k. Better, but I was still worried.
I asked if there was any other savings, and she said there is still a joint account that she has with her brother, but she's not sure how much is in there, or for that matter, how much of it belongs to her (long story). And... that's basically it.
Enter: The Fear.
I calmly asked my mom if they have any other assets she can think of. Anything at all. To my surprise, she said that their house is completely paid off! Wow, I didn't realize this as this had to be fairly recent. The house is worth roughly $250k (in a medium cost of living area), giving them a basic total of $350k net worth.
I think she sensed my distress and quickly asked, "Can we retire?" I took a deep breath, smiled, and said, "Yes."
But I also explained that there will be a couple of caveats. For one thing, it can't be too extravagant. She confidently stated that it's no problem. That's true. My mom is very frugal. My dad might have to adjust a little bit, but I think he'll do just fine since he won't be a slave to the clock anymore.
The other caveat is that she will have to sell the house some day. $100k is simply not enough to retire in the US, so she will need to downsize eventually (or reverse mortgage or something else). To my surprise, she said that it's fine. You see, she loves the house, but I think she was already aware that they would have to do this some day.
For some reason, I thought they had more than this though. They've always worked hard to save, and truth be told, I thought they might inherit a small chunk of money when my grandmother passes away.... But you know, I think a net worth of $350k should be enough for a simple couple. At least I hope so. What do you think?
The Loathing
Since I took so much space talking about tonight's fear, I'll just keep my loathing short. Basically, my W-2s have arrived. I'm still waiting for a couple of 1099s, but I'm basically ready to file my taxes. This year should be interesting, since I've shifted my rollover IRA assets around.
Fear and Loathing
January 21st, 2010 at 12:40 am
January 21st, 2010 at 01:16 am 1264036618
January 21st, 2010 at 03:31 am 1264044696
January 21st, 2010 at 03:56 am 1264046160
Then, the next question: will the $100,000 investments they have generate sufficient income to augment social security to cover their expenses without immediately selling the house?
If there is a significant gap between the projected income and expenses, then your dad may need to consider continuing to work part-time as an alternative, if that is a possibility.
January 21st, 2010 at 04:07 am 1264046847
First, if the house could sell for $250K, they would not net that much after paying RE commission and possibly sales tax (depending on where they live). Maybe $230K is more realistic.
Second, the $30-40K your dad has set aside for stock investments is not confirmed (you haven't seen the statement). Assume best case it's $30K.
So, you may be talking about a grand total of of $320K of investable assets (if they sold the house).
If you applied the "4% rule" that would give them $12,800 to live on each year plus whatever they get from SS (and possibly a pension tho it sounds like there probably isn't one). That's just really, really low, even for a frugal couple. Sorry.
BUT ... On the positive side, there are options:
- Would they consider continuing to work part-time?
- A reverse mortgage would at least be worth looking in to
- Are they senior citizens? If so, you might want to check and see if their state would allow them to defer their property taxes (be sure to read up on that; it would have to be repaid eventually such as when the house is sold but it would give them more available cash in their retirement years)
Sorry to be such a downer.
January 21st, 2010 at 01:32 pm 1264080760
Although my dad wanted to retire already, he's still working and he is aware that he may need to work for at least a few more years. He's currently 62 I think.
In our native country, their nest egg would be considered, well, not massive but it would be very cushy indeed. Here in the US though, it the balance certainly leaves no margin for error.
I'll definitely be keeping an eye on it.
January 21st, 2010 at 01:59 pm 1264082359
January 21st, 2010 at 03:10 pm 1264086637
January 21st, 2010 at 03:24 pm 1264087446