Financial and Lifestyle Planning For Aging Gen Xer

June 11, 2017 7:54 AM

I am 47 and recently, after an audit, found out that I am worth a little over a million dollars. I want serious ideas about what I can do to leverage that worth to get out of the rat race and enjoy the rest of my life as stress free as possible. I guess my question boils down to "What would you do in my shoes?" or, if you've actually been in this situation, what did you do?

I recently sold a condo that I bought in 2008. I doubled my investment. After sitting down with my financial advisor to analyze the spoils, I found out that between cash from the condo sale, 401k, IRA, individual investment accounts and cash on hand, I have about 1.1 million dollars. Obviously that is not all in cash but I am not averse to taking the hit and converting it all into cash given a good plan.

Now that I know what I'm worth, I feel that I may have some liberty to make drastic lifestyle changes that would lead me to a more fulfilling, less stressful and overall more satisfying existence. But I'd like some ideas from the community because I really don't know what my options are given this amount of money. Obviously I cannot live on it til death without working, but what can it do for me? I'd like ideas about what you would do given this amount of money and how you would execute the plan and manage the investments required.

To flesh out the kind of ideas I'm looking for, I'll give some more details about myself and my desires below. This should round out the context and type of lifestyle I might be looking for and help you narrow down your suggestions. Also, if you've been in this position in your life and made drastic changes, I'd like to hear your story.

So, here's me:

- single, never married, in a relationship that probably won't lead to marriage but is satisfying
- no children, no desire to have them
- no debt - I own outright everything I have and I am currently renting an apartment so no mortgage anymore
- live in NYC because that is where I can generally get work. I would like to be either more country oriented or find a more affordable but similarly rich (culturally, artistically) city
- more than 15 years as an interactive project manager but I'd rather not continue to be a project manager
- interested in music (I'm an audiophile and I play guitar), photography, woodworking, history, cars, playing sports
- I would like to eventually own a house with a backyard, but I don't want a mortgage
- I would like to live in a place where I felt like there is a community; where people and neighbors know each other and contribute to society in some way
- I would like to not have a high stress job. Ideally I'd like to have a simple 9 to 5er where at the end of the day you go home and forget about work (I know this is a fantasy)

Please feel free to ask me anything you might need to know to help me with ideas. I don't want this to be one of those frowned upon, deleted threads where it's just an open-ended fantasy question. I have a specific amount of money, I'm at a specific age, I'm in a specific situation, I'd like specific, reality based assessments of my situation and what it might enable me to do, if anything.

posted by spicynuts to Work & Money (29 answers total)

You might like to check out Mr. Money Mustache.
posted by actionstations at 8:23 AM on June 11, 2017 [12 favorites]

Depending on your expenses, you could potentially use that $1.1 million to support yourself indefinitely without needing paid employment. By putting the money into income-bearing investments and having the interest, dividends, or capital gains paid in cash rather than reinvested, you can assure yourself of a steady stream of money without dipping into the principal.
posted by DrGail at 8:27 AM on June 11, 2017 [3 favorites]

Honestly? A million dollars isn't enough for you to radically change your lifestyle. A million dollars doesn't make you independently wealthy these days if you still want to live in the coastal US.

Renting is throwing money away unnecessarily, so maybe think about buying that house sooner rather than later. Purchase some generous long-term care insurance. Otherwise, invest your money wisely and in ten years you could probably retire comfortably.
posted by jesourie at 8:30 AM on June 11, 2017 [33 favorites]

If you get out of NYC and otherwise have a frugal lifestyle, you could live on that without working. So you'll need to decide whether your larger priority is not working for pay or having a lifestyle similar to that of your peers.

If I were you, I would decide where I want to live long-term and move there sooner rather than later. Buy a house there in cash. (Buying a house soon can have significant tax benefits given your profit on the sale of the condo. Research that.)

I'd put 75% of my money in index funds and 25% in more stable investments (like bonds) and live off the interest. If that wasn't as much money as I wanted for my preferred lifestyle, I would continue to work but in a job that better met my needs (part-time, or less stressful, or from home).
posted by metasarah at 8:41 AM on June 11, 2017 [4 favorites]

I'd suggest reading Your Money or Your Life by Vicki Robin and Joe Dominguez. It is about doing exactly what you are talking about here. This is going to be a lot more complex than what you can get from a few paragraphs on the green. Also, check out Charles Long's How to Survive Without a Salary. Whether you can retire now depends entirely on what kind of lifestyle changes you're willing to make. It is possible though.
posted by FencingGal at 8:59 AM on June 11, 2017 [5 favorites]

Move out west, for starters. How much you spend on a house depends on what you want, obviously, but if you're content with a smaller home, you can get one, depending on where you want to live, from $80k to $200k. I'm in Tucson, AZ, and my property tax on a modest home runs about $1000 a year. The cost of living out west is drastically lower than in NYC. If you're debt free out here and own your home, you can easily get by on $30k a year.
posted by azpenguin at 8:59 AM on June 11, 2017

Check out the subreddit financial independence . It is specifically for people who want to retire early and find ways to make it possible.

I would also ignore the naysayers who say retiring on $1 MM is not feasible. That is totally a crab mentality. With $1 million, you can safely withdraw $30,000 to $40,000 a year, with a >98% chance of not running out of money in the course of your lifetime.

This particular concept is called the Safe Withdrawal Rate, or the SWR, and is used by financial planners to calculate your retirement income. It is approximately 3% to 4% per year depending on how comfortable you are with risk, etc.

The subreddit I linked to above has a host of information about retiring early and financial planning (including what SWR to use), with a lot of helpful tips from people who have been there and done that before, including valuable practical experience.
posted by moiraine at 9:02 AM on June 11, 2017 [18 favorites]

The problem here is liquidity.

I would not include your 401k or IRA in your calculation. Those are funds you should really NOT touch until you're 60. There's a big tax hit and when employers (or you) put those funds in for you they calculate deductibles with assumption you are 60 when you withdraw. Those extra ten years is a lot of money.

Also generally speaking you'll get more bang for buck by keeping stocks invested.

Long story short I wouldn't view this as a windfall but more an indication you're in a very financially stable place. If you can afford it buying a house in a lower market value area is a great option (you cannot afford a million dollar house in NYC).
posted by pando11 at 9:12 AM on June 11, 2017 [11 favorites]

Seconding the recommendation to check out the financial independence subreddit. Even if you don't wholly subscribe to the underlying philosophy, there is a lot of good discussion about how to live one's life if one isn't just working to meet financial obligations. (My primary criticism of the group is it seems like the majority of posters are severely underestimating health care costs in their financial models.)
posted by stowaway at 9:27 AM on June 11, 2017 [3 favorites]

Research fee-based financial planners. Ask two or three to draw up plans for you independently, and see how well they converge. Be suspicious of surprisingly good returns. Then pick one of the reasonable ones based on how well you like working with that person, and follow the plan you're provided.
posted by d. z. wang at 9:53 AM on June 11, 2017

Why don't you want a mortgage? Interest rates are historically low. With favorable terms you will pay less in interest on a mortgage than you could earn investing the same money in an index fund. Businesses with cash on hand often still take loans out to stabilize their cash flow. A mortgage also gives you tax credits you won't get if you're renting. Between tax credits and leverage, why would you refuse?

Also as mentioned above, look out for capital gains taxes on the condo sale. In your position I think the first thing I'd do would be to buy a home with a 20% down payment, and then I'd invest the remainder in an index fund with low fees while I figured out what else I wanted to do with the money. If you don't reinvest your capital gains in housing you'll owe a pretty hefty penalty. Basically you want to spend enough on a down payment to avoid capital gains taxes, but not so much you wipe out the tax benefits of having a mortgage or become completely illiquid.

Side note: if you were to relocate to a place where your capital gains on your condo could cover the entire cost of your new home (possible) then you should really talk to a fee-based financial planner to come up with the best plan for you and your money. It might still involve paying less than 100% on the house just so you take advantage of low mortgage interest rates, but it's not a financial vehicle to avoid without good reason.
posted by fedward at 10:18 AM on June 11, 2017 [3 favorites]

Response by poster: To answer the question about why I don't want a mortgage right now, it is because I'm unemployed and until I figure this out it makes me extremely anxious to have a debt that I cannot get out of if things go pear-shaped. As soon as I have a solid plan, the first thing I plan to do is to buy a house.

FYI - I already paid the capital gains on my condo sale. It was not that bad a hit....much less than I had been expecting.
posted by spicynuts at 10:28 AM on June 11, 2017 [1 favorite]

The subreddit /r/personal finance is also pretty good. I wouldn't necessarily go there and tell everyone you have a nice pile of money, but poking around and reading relevant old threads will find you some useful info.
posted by puddledork at 10:36 AM on June 11, 2017 [1 favorite]

Do you have enough experience in the things you currently list as hobbies to start a second, lower-stress career? It sounds like that's sort of the question you're asking around. For example, could you work in a recording studio? Could you own a recording studio? Could you teach guitar?
posted by fedward at 11:08 AM on June 11, 2017 [3 favorites]

Keep in mind that your IRA and 401(k) are tax deferred (unless they're Roths), so that reduces your effective savings. Retiring early would also (likely) reduce your social security benefits, because they're based on your highest 35 years of income.

If you have good health and are willing to have a modest lifestyle, you could probably retire with what you have now, especially if you're willing to do some part time work or a retirement career to bring in some income. Consider how much you make now and whether you'd rather keep working a few years to boost your nest egg at a job you don't like vs. having to work longer at a low stress job.

Is your partner onboard with leaving NYC? Would they resent you if you got to retire early but they had to keep working for another 20 years? Are you willing to leave them behind?
posted by Candleman at 12:16 PM on June 11, 2017

Document your expenses for a year or two. What you can do with $1 million depends a lot on what you spend. If you spend under $40k a year you could conceivably live on that $1 million forever. If you can find a lower-paying job you like you have more security and/or more ability to spend.

It's not as hard or expensive to access IRA/401k money as a lot of people think, though it does require planning.
posted by mskyle at 12:28 PM on June 11, 2017

Congratulations, you've made it! You absolutely can retire on $1MM, as long you're willing to keep your spending in check. Working even part-time would provide you with even more security, if you're worried about leaving the workforce entirely or have expenses over $40k a year. In addition to Mr. Money Mustache and r/financialindependence, I recommend you check you r/leanfire (for people who have or plan to retire on less than $1MM), early-retirement.org forum (which has more early retirees you age than Mr. Money Mustache), and do some generally reading up on FIRE (financial independence, early retirement). These will help you formulate a strategy about where to live, how much you can comfortably spend from your savings and investments, and how much you'd need to work to supplement that amount.
posted by scantee at 12:37 PM on June 11, 2017 [4 favorites]

What does your financial advisor advise?
posted by jesourie at 2:00 PM on June 11, 2017

Price houses with yards in places you might consider. You might spend anywhere from 250K to 1M on a house, so location will be critical.

Review every investment. Read a bunch of stuff on money. Don't trust 1 resource. Every web site and advisor wants your money and they want a big commission, or at least your page views. If you lose 1% a year to commissions or charges, it makes a really big difference. Come up with an investment and retirement plan. Stocks are generally a better return with more risk. Bonds are considered safer, and the returns are lower. My version of diversifying is that I mostly leave money in a company retirement plan when I change jobs. One plan was super-profitable when they closed the plan and distributed unvested funds proportionately. Worst plan is the one I bought myself. Fine-tuning your investment options will make a significant difference. Being a little bit frugal will, too.

Andrew Tobias is old school, but smart. I enjoy Get Rich Slowly. Read WSJ and other publications.

At 47, you are 18 years from official retirement age. If you are unemployed for a length of time, you can lose SSI disability eligibility. If you don't work, your Social Security draw will be less (I think, you should talk to an actual expert). You should consider the possibility of disability, market crashes, health insurance and health care costs. You might not need life insurance. You should have a will.

In addition to thinking about where you might want to live, think about *how* you want to live. Not being dependent on a job is awesome, but for many people, having no job at all is not so much fun. You've done really well, and could likely retire today. All you need is more planning to do it right and enjoy it.
posted by theora55 at 2:29 PM on June 11, 2017 [1 favorite]

You could buy a cheap house upstate in cash, work part time for spending money, and raise chickens and bees.

Or you could be a little bit choosy about your next job and not just take the first one that makes you an offer.

Or you could start a (tiny) nonprofit to teach music to low-income kids in your spare time.

Or you could go on a nice longer vacation while you're unemployed.

Or you could hang up a shingle and start a project management consulting shop.

You don't have enough money to retire, but you have enough to try a few different things that are maybe a little bit risky but might make your life a lot better.
posted by miyabo at 5:36 PM on June 11, 2017 [2 favorites]

hey, i am in a similar position as you re: net worth, lack of debt, also i just moved out of NYC a little while ago to the west in order to spend less money.

this is good advice from theora55:
"At 47, you are 18 years from official retirement age. If you are unemployed for a length of time, you can lose SSI disability eligibility. If you don't work, your Social Security draw will be less (I think, you should talk to an actual expert). You should consider the possibility of disability, market crashes, health insurance and health care costs. You might not need life insurance. You should have a will."

don't count actual retirement accounts in net worth, you don't want to be messing with that money until you're in the your 60s unless you can get a tax strategy that makes it worth messing with or withdrawing from.

do you have good health coverage separate that is separate from the job you want to get away from? if you did, for example though military service or something like that, i would say early retirement is more feasible for you. without health insurance, you could very easily see your lifetime savings destroyed by one bad accident or one serious illness/emergency surgery.

out west you don't need to be a millionaire to buy a home with a yard and live well. no matter how many raises i got while in living in NYC, i felt like i always needed more money. strongly consider moving.
posted by zdravo at 6:06 PM on June 11, 2017

Have you considered international options? I would love to hear about international options from folks here. I think in some ways it would be easier to get what you're looking for there (and in other ways harder).
posted by Borborygmus at 4:10 AM on June 12, 2017 [1 favorite]

Do you have any ideas about where you would like to live? Climate, geographic area, landscape? Is most of your family in one part of the country, and do you want to stay near them?

Given the current politics around health care you probably want a job that will include health insurance.

If you want a place that's a real community consider moving to a smaller city, but one where there are like-minded people.
posted by mareli at 6:36 AM on June 12, 2017

You could live in a fairly lovely (and large and cultured) Eastern European city for the rest of your life on that money. And I don't mean get by. I mean retire like a middle-to-upper middle class person who'd planned accordingly. I don't know how you'd feel about moving to somewhere like Cluj-Napoca (Romania), Sofia (Bulgaria), but the good news is, you wouldn't need to decide. You could test various places out for several months or more at a time to see where you might be comfortable.
posted by DirtyOldTown at 7:47 AM on June 12, 2017 [2 favorites]

Lots of good advice and resources here, but a lot of this depends on what you want to do. Put another way, what's the money for? It's also a little unclear how your relationship feeds into this; not leading to marriage but serious enough to play into life decisions? Since you asked for stories, I'm at a point where my net worth could allow for a frugal early retirement. If I were single, I would probably slash expenses and quit working. But I have a wife and kid, and given our collective preferences, living situation, etc., moving to a less expensive location and away from our community isn't that appealing. Put another way, more free time is one of my biggest priorities, but its not so important to justify, say, moving to rural Kansas. I'm also pretty extroverted, so the idea of freelancing or telecommuting full time (#vanlife or something) isn't that appealing. Instead, I've taken a government job. It provides benefits and a solid paycheck, and so long as I keep up on work I can leave the office at 4 and not think about work until the next morning. Meanwhile, we're not scrimping much - we still travel to see family and the occasional vacation with the ample paid leave my job provides. It doesn't make for a sexy lifestyle blog, but its a balance I'm happy with, especially since I know that if my priorities change, I can pivot to slash expenses and retire if I want.
posted by craven_morhead at 9:59 AM on June 12, 2017 [1 favorite]

I would probably disagree on acquiring a (long-term) mortgage, and stringently disagree with the idea that renting is "throwing money away." Whether renting makes sense depends entirely on where you live. Where I live, buying the house I'm renting today would increase my monthly costs by 70%, and that's before any expenses of maintaining a 70+ year old house. That's money I can't save or invest over the next 30 years, in favor of an illiquid asset. It's a similar story in many big cities - the Bay Area, DC, New York, Portland, Seattle, LA, San Diego, Vancouver and I'm sure a ton of others I'm not as familiar with.

A 30 year mortgage would put you at 77 when it's paid off. I think a buying a home that's far higher than equivalent rent actually pays for itself when you're not making payments. How much time will you have left a 77?

A 15 year mortgage might be a better plan, and it looks like you could get a rate around 3.5%. So you'd need to make more than that for the "investment" to make sense. Keep in mind that many cities around the country have exceeded their pre-bubble real estate pricing, so you're likely to buy very high unless you are well outside a metro area. There are some storm clouds on the horizon in regards to the economy, so I'm not sure how safe an assumption that 3.5% is. I also have some doubts about the current price of housing.

I'm no investment expert. At all. Where the mortgage might be a good idea is if it were 15 years or less, and you 100% knew where you'd be retiring, and you wouldn't have to take a pay cut to go there. You could basically use existing interest earned to pay off the mortgage.

What I would do in your shoes is put a mix of that money in index funds and bonds, depending on how stable you see the stock market. Because your beginning principal is so high, you're adding a lot of money every year. I'd focus on maximizing returns for the next five to seven years so I could have the option to quit working full time by my early to mid-50s. But again, I don't claim to know what I'm doing.
posted by cnc at 10:39 AM on June 12, 2017 [2 favorites]

Response by poster: I like the idea of retiring to a smaller Eastern European country, however I worry about my ability to find a community or friends without the ability to speak the language and coming in as a complete outsider to the culture, etc. I'm sure there are ex-pat communities in these places but I'd have to research. My family would be a little irked but I LOVE Eastern Europe (been to Croatia, Romania, Czech Republic, Hungary). This is an option I think I'll look into more. Anyone have any resources they know of for this kind of move - a place for me to start?

I'm perfectly fine having no real job - my dog and my hobbies will keep me occupied.

There's a mix of opinion here on how feasible this is. I think the one critical factor is health care. That could sap a good portion of my budget. But I'll look into the resources mentioned here. I think that it is probably doable given effort. Here's the thing... based on the way my job hunt is going, I might not have a choice. I might HAVE to figure out how to live on what I have and a part time job. Or I might have to go back to school. The question is, what's the better investment...going back to school or figuring out how to live on what I have? I haven't come to a conclusion on that one yet. The one thing I'm learning though is that believing in a fulfilling career that also gets you an upper middle class lifestyle is a TRAP.
posted by spicynuts at 12:48 PM on June 12, 2017

I am kind of almost in the same shoes as you. I read a great book this weekend called The Simple Path To Wealth by J.L. Collins. I highly recommend it. As others have stated, you can easily retire on $1MM if you let that money continue to work for you. The book will do a much better job of explaining how/why than I can. Good luck!
posted by AllTheQuestions at 1:10 PM on June 12, 2017

Renting is throwing money away unnecessarily

This is highly variable. If you're not 100% sure you want to put down roots, the best rental situation can save you a LOT of money in terms of home repairs, utility bills and peace of mind. If you're considering intangibles, it's quite possible that renting makes sense for you.

I'm in a not-entirely-different position and these were the things that mattered to me:

- living in a small community (I rent, it works, heat is paid for, it's incredibly cheap and helps my 90+ year old landlady stay in her house)
- continuing to work but being choosier (it took me a while to understand how my money worked, how much I felt I had to bring in and how much could go out; interest on investments is a weird thing, I had to get used to passive income and it was strange). I poorly adjusted at times and had a lot of little part time jobs which didn't all make me happy.
- getting financial guy to run some numbers. Obviously if I had been in this exact situation in 2008 things would have turned out differently, so having some backup plans and some idea of probabilities here
- not being a total skinflint. I tend towards the miserly and it took years (years!) for some of this to ebb away
- checking in with my partner - I have a similar long-term-not-getting-married partner and it's important that we be on the same page w/r/t his income and also with mine about our long term goals

And yeah to what everyone else said, that IRA/401K money basically doesn't count.

So what I did was tracked my expenses for six months to get a sense of cash flow. Started jettisoning expenses I didn't/couldn't justify. Figured out a way to get income covering my basic expenses (rent, health care, food, car stuff, some travel) through a combination of small jobs. Traveled more and without being as stingy. Decided to invest some more money in being healthy (exercise bike, better gym clothes, better food even if it was more expenses, going to doctor/dentist/shrink) did more free-or-cheap work (I do some public speaking which I love and I do more of it locally to me at lower cost) and just tried to sort of wait it out. With this plan, I continue to have basically the same amount in the bank and I'm more or less doing what I enjoy.
posted by jessamyn at 7:38 AM on June 13, 2017 [3 favorites]