[USER]

Hi. I’ve tried to research a lot on retirement, but it’s so difficult to get clear answers. I’d like to hear the opinion.

I’d like to know if I’m on the right track and if not, what do I need to do to retire in 7 years.

Married with two kids, 5 and 1. Our household income is $275k. We live in Virginia, expensive area. Would love to retire near Tampa FL.

We currently have 3 rental properties, but only producing about $300 each per month. I’m more in it for the long term, not sure if it’s the right move.

If I were to sell all 3 rentals, I can have about $400-$500k cash.

I have $350k in my 401k, my wife has $75k (she’s younger). We also have $350k in an investment account and about $100k cash.

I put $1200 per month to my 401k and $1500 per month to our investment account.

I’d like to retire at 50, currently 43.

What should we be doing? Hold the rentals until retirement and then sell them and buy a property cash? Sell them now and invest? Buy another rental?

Do I have a chance to retire early? How much do we really need to retire comfortably? What should we be worried about?

Any feedback is appreciate it.

[Gonzalo]

The answer to “how much do I need to retire?” always starts with you needing to estimate what your expenses might look like in retirement and then working backwards on how to get there.

We don’t know what your expected lifestyle looks like or how you want to help/not help your children. No one knows this better than you.

Start by developing what that looks (like with your wife), before estimating their costs.

[Hana]

What do you project your expenses to be like between 50-59.5? You’ll need enough in your bridge account to carry you over til you’re of age to access your tax-deferred retirement accounts.

There are ways to access them beforehand, but I personally prefer to allow time for IRA/401k/403b blossom and wouldn’t want to touch them unless to perform Roth conversions (separate discussion).

Have a min and max spend planned for so you’ll feel more ready to embrace possible yet inevitable market down year(s) ahead.

Project what selling rentals now and reinvesting profit into market vs keeping rentals til you reach 59.5 (or another age you’re considering) in favor of immediate cashflow and building equity to compare performance and/or peace of mind.

Do what’s right for you and your family and risk tolerance.

From what you’ve shared, you have 875k in liquid assets (plus $900 cashflow from rental properties), which can grow to be 1.685m at 7% real returns (though market performance in the next 7 years will likely vary widely since it is more near term).

Simply going by generalized top level view, we can go by Bill Bengen’s new SWR rec of 4.2% for early retirement (with diversified portfolio) and at 50, you’ll be able to minimally draw ~70.8k plus $900/mo from rental properties should you decide to keep rentals for now (you’ll of course have larger drawdown from the pot once you sell the properties and reinvest into the market at that time).

If you sell rentals now with 400k profit, it looks like you’ll have around 2.33m and hence $90.8k/yr you can withdraw using the same 4.2% at 7% real return by 50.

Look at this as a starting gauge and steam for you to do your own due diligence since you’ll find there are lots of nuances to consider along the way.

One last bit: I can’t stress the importance of learning your current and projected retirement expenses intimately.

What you need and want will look vastly different from another person/family. Retirement is personal as it is dynamic.

Also, you don’t want to overlook inflation on medical expenses as it rises faster/higher than consumables. Inflation is the trickier piece since it has a compounding effect on our buying power.

Prices rarely ever go down.

[David]

More information is needed to make an informed comment. Apologies if you covered this in the comments, but knowing the mortgage rates and balances might help on the sell vs keep decision.

When I add your numbers up in my head, you have a net worth of $1.3M – not bad at all for someone your age with your family expenses.

But based on what you are actually able to save and assuming you can support your family on $150k / year (I pulled this number out of the air), it seems like you have about 12 years to go before you can FI/RE.

The 401ks should be higher for your age bracket.

Get your expenses down, max-out the 401ks, and keep investing in your bridge/investment fund.

[Bennett]

I’d ask if the rentals are on 30 or 15 year am schedules and how long you’ve owned them for and in what areas.

My rentals have averaged 30-40% return on investment per year when factoring in depreciation, appreciation, cash flow, and loan pay down, so my rentals have doubled my brokerage and retirement index funds.

On the other hand, if you want something more passive with fairly volatile growth then sell the rentals, take the big tax hit and stick the equity in index funds.

I would calculate your IRR with your rentals vs your return vs index funds. Personally if it were me, I would keep the rentals, refinance them and take 200-300k equity out of them, and invest that in either more rentals or stick the capital in an index fund.

[Irina]

I find a mix of stocks and property the best mix – and would go on like you do.

You never know when stocks go down – if everything depends on this – you’d be happy to at least have the rentals. That’s how I go on here in Germany.

I always wonder how people here calculate a withdrawal rate – and not considering some big market crash’s.

People on the other hand will always need housing – so this market is much more stable and depending on other factors.

For me diversification is safety. So even if you‘d had maybe a better outcome with selling them now and invest it – you pay that with safety.

[Maribeth]

1. In my opinion you need at least 2 million to retire comfortably; 4% of 2 million is $80,000 before taxes.

2. You need a healthcare solution to carry you to Medicare.

3. You need a college-for-kids solution.

4. You don’t have enough money in savings right now to retire at 50. I would try to up your savings rate dramatically, and make sure you are maxing your roths, 401ks, and IRAs.

I would sell the rentals now, and invest that money which should make you a lot more over the next 7 years than the rentals would.

5. I would never never buy anything in Florida; but if you must, look for something on what passes for high ground. Homeowners insurance is going to be a huge problem there, just like in California.

6. It sounds like you guys are doing great with the high income, you have a lot of potential for getting where you want to be.

Best wishes!

[Bennett]

Also, make sure you calculate your annual expenses to forecast how much you’ll need for retirement!

[Logan]

I would add that kids get more expensive as they get older and healthcare for a family of four will be expensive.

[Jule]

I’d sell the rentals now and invest the money. You would optimize your capital given the low return.

Hard to know if you have enough to retire in seven years when we don’t know how much you’d like to have for expenses at retirement.

I would aim for 30x your expenses a year. So, if you want to spend $100,000 then you’d need $3M.

At the rate you are going you’d be at $1,085,000 (assuming a 9% return) with $425k and $2700 a month in investments. Not enough for $100,000 income.

If sold the rentals you’d be at $1.9M, still short. But it all depends on how much you’d need on expenses.

$2M would yield you around $60-65k a year in retirement (assuming 3-3.5% withdrawal given your younger retirement age so that it lasts you into your 90s).

[Author]

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