By Dr. Anthony Ellis, WCI Columnist
Whoever said “Time flies when you’re having fun” may have been newly retired. The past nine months as “semi-retired” (working two days a week and long weekends on a quarterly basis) have passed by as if we were fast-forwarding commercials on a DVR.
My wife says it is because we have been traveling frequently. I say it is because I turned 59 in April.
Selling Our Dream Home and What We Did with the Proceeds
We moved into the home we bought for our retirement on our mountain in North Carolina in August 2022. Our children had gone before us, having landed jobs downtown before they arrived. My wife and I were still disposing of 30 years of accumulated stuff with an “estate sale” at our Michigan McMansion that netted a whopping $1,200 after auction fees and resulted in a 16-foot flatbed trailer of residual junk being carted off to charity.
That was a GOOD thing, but it was also one of the hardest things we had ever done. We had been in our dream home that we planned and built in 2003 for about 20 years, and we raised our children there. The McMansion was full of memories. But it was also full of 20-plus years of accumulated things. It took months to go through these things and dispose of many items we liked but had no room for in the downsized space in North Carolina. At least my children will not have to do what we had to do over several years with my wife’s parents' estate and their 50-plus years of accumulated belongings. We learned a lot about the things we bought that became garage sale fodder. As they say, “One person’s junk is . . . well . . . another person’s junk.” I suggest getting rid of most junk every few years.
Selling the McMansion in Michigan within a week of putting it on the market and downsizing was GOOD, and the timing was, too. In some areas, real estate prices have dropped 10%-15% since mortgage interest rates ticked up from 3%-4% to 6%-7%. The sale provided a huge chunk of non-taxable equity that filled out the retirement nest egg. The process, however, was arduous and UGLY. Those few months from April to early August 2022 were stressful.
While we were throwing things away, donating others, and packing the rest in two PODS six weeks apart, I was shutting down my position as the CMO of the local community mental health center. Soon, I was going to be “a dude in the basement seeing patients on a screen” instead of being at the apex of my career and earnings. Saying goodbye to coworkers and some patients and moving away from lifelong friends was emotionally draining. My wife and children were leaving their childhood friends behind for the new dream, and there was no going back. My kids said, “It's weird to think of someone else living in our house.”
We sold the McMansion and placed 60% of the proceeds in high-yield savings, initially at about 2.5% and now at 4.25%. An additional 30% went into short-term notes, structured notes, and supply chain financing at an aggregate yield of 6.5%. About 10% went to a small private REIT allocation. These funds are either wholly or incrementally liquid and represent a two-year emergency fund, which is GOOD. The first two chunks also yielded an aggregate of 5.3%. The REIT (Fundrise) has been BAD in that with losses in 2022, despite paying quarterly dividends, the account was down overall ($397) from 2019 to the present. That small part of my portfolio made no money in those four years. I liquidated the account and reallocated those funds. That is BAD, but I have seen 2022 real estate losses mentioned by others on WCI. You cannot win all the time in every asset class. When I liquidated this position, I did not feel commercial real estate was the place to be in 2023-2024.
I wrote previously about the decision to NOT pay off the 2.5% mortgage on the downsized retirement home with the McMansion proceeds. The mortgage payment is only $921 a month. That is GOOD (in fact, it is spectacular). The property taxes were recalculated for 2023 with the appreciated assets (house on 10 acres and the vacant lots of five and 10 acres on either side), and this new assessment popped the taxes up about 10%.
The dream of living on the mountain was born in 2015. It took almost eight years of owning and paying for two houses to finally bring it to fruition.
More information here:
A New Way of Doing Business (and Saving Tons of Money) in My Retirement
Early Retirement and the Likelihood of Regret
Geographic Arbitrage and Traveling All Over the World in Retirement
It has been GOOD that our original 2016 North Carolina house and land purchases had grown in value by about 50% in the eight years since we bought the place. It was inevitable that the taxes would go up along with the property values. In our county, tax reassessments are done every three years. The North Carolina taxes are still about half the tax amount we paid on the McMansion on four acres in a posh “mostly doctors” subdivision in Michigan, which is GOOD. The North Carolina family anti-apocalypse compound also costs one-third as much to heat and cool. We have no water bill and no yard to mow, and we had no lasting snow to speak of this winter, which was also GOOD since it used to cost me about $1,250 a year to get the snow plowed in Michigan and $2,000 a year for yard care.
This geographic arbitrage has been GOOD and has many moving parts, but things are just less expensive in North Carolina. Auto insurance, property taxes, the general cost of living, and energy costs are just a few of the areas with cost savings. The state tax rate was higher by 1% in 2019 and prior, but it has been cut several years in a row from 5.25% to 4.75% in 2023, so it is now closer to Michigan (4.25%). North Carolina does not (currently) tax Social Security benefits, and there are no local taxes due as there were in Flint, Michigan (1% for Flint residents and 0.5% for non-residents), which is GOOD.
It is hard to put a price on the availability of beautiful hiking venues and excellent local vineyards in all directions. That was GOOD. We hike several days a week, up to five miles at a time. Two of the local vineyards were voted No. 1 and 2 in the “best new vineyards in the country.” The restaurant choices are also GOOD, and we have two dozen “favorites” that we enjoy, frequently after a nice hike. There are cute little towns in all directions, and Asheville is only a half-hour drive away. Of course, there are dozens of excellent restaurants and more hiking venues near Asheville and all along the Blue Ridge Parkway. The area has turned out to be GOOD for us and suits us perfectly other than the BAD attitude of a rare “local” toward “Yankee” transplants seeking to retire here. Luckily, they are mostly trolling social media and are avoidable.
Traveling every other month has also been GOOD. We are currently training for a 75-mile hike across Spain from northern Portugal on the Camino de Portugues. This wedding anniversary trip got canceled by the pandemic, but it's now planned for our 30th in May 2023. I am learning some Spanish and Portuguese, and we are getting in shape for the 12-mile-per-day walks in the Iberian countryside. So far in the past nine months, we have gone on three family vacations. My wife and I have gone to Costa Rica, returned back to Michigan three times, and taken a tour of the National Parks in Utah and Arizona (Zion, Bryce Canyon, Arches, Monument Valley, and the south rim of the Grand Canyon).
There were expenses not accounted for fully in the North Carolina budget, including Christmas and birthdays that I forgot to put in and a new heat pump. I budgeted 1% for maintenance. But the heat pump was 20 years old and went BAD, so it was due. We had replaced all the appliances, the roof, external paint, and the water heater in prior years (2018-2021) when we “visited” the house quarterly to make sure we genuinely liked the area. It turned out to have been a GOOD idea to do most of the work in the place while I was still practicing full-time. The heat pump cost an UGLY $12,500, installed after applicable rebates. It is supposed to last until I am 74. The salesperson told me it was half that amount pre-pandemic, which I did not need to know.
We opted to replace the worn-out and UGLY front door, build a new extended prow to protect it, and add a small porch. This turned out beautifully. These two large expenses represent the only drawdown in our funds as my two days a week of telepsychiatry and an occasional long weekend in Michigan have fully covered all our other expenses, as planned. That has been GOOD even though our vineyard and restaurant expenses are routinely over budget. The quarterly “work-a-long-weekend” visits to Michigan serve a second purpose in that we could spend time with our friends in Michigan. Since I work telehealth from our basement, I have no commute except when we travel to Michigan quarterly . . . and it is deductible pre-tax, as is the lodging.
More information here:
Functional Longevity: What Use Is Retirement If You Can’t Move and Think?
Our Health Insurance in Retirement
One UGLY budget item was family health insurance. Dr. Dahle has mentioned that family health insurance frequently costs as much as the monthly grocery budget. I budgeted $1,000 a month but it has been $1,150 a month, and the insurance is not very good, leaving a stack of unpaid bills after the paltry and spotty benefit amounts. I bought it through a health insurance broker, and I had to get three different policies. I couldn't get a reasonably priced Obamacare policy because I had stage 1A melanoma removed in 2021. So, my “limited benefit policy” costs about $6,400 a year.
My 22-year-old daughter couldn't go on the main policy with my wife and two other children, because she was working a gap year to earn money for PT graduate school and was “not a student.” She has her own Aetna policy (which I pay for). My spouse and other two children (ages 16 and 18) are on a decent Aetna family policy. To make sure that I had not made a mistake, I contacted a second health insurance broker, and he priced out multiple policies and could not give me a better deal. I do miss my free HMO policy from my prior employer that I lost when I dropped down to half-time. The potential OBRA coverage packet arrived after the date that option expired. No kidding.
One UGLY example: I had a four-millimeter polyp on a gallbladder ultrasound about 18 months ago, and it was recommended that it be followed since polyps that become bigger than a centimeter have a 10% risk of being cancerous. Luckily for me, the most recent follow-up ultrasound showed no polyps. The hospital would not let me pay as an uninsured person since I have insurance. My policy benefit of “$50 for any X-ray” left me the rest of the UGLY $850 insured price and the bulk of the radiologist’s fee. The uninsured price was $450, less the $50 “any X-ray” allotment from the insurance company, so I would have paid $400 instead of $800. I would have been better off on this deal uninsured, but one cannot “go bare” or risk actual financial ruin.
I am soon going to get a chance to see what other coverage holes I have in my “limited benefit policy” as I had a BAD mishap on the trail while hiking here in March. I stepped on an embedded rock, rolled, and injured my ankle in the same way I injured the same ankle about 15 years ago. With a torn ligament and a small avulsion fracture of the distal tibia, I was reminded of a lesson that I had forgotten which can be summed up as “never take your eyes off the trail.” I am guessing that my urgent care visit, ankle series, a pair of crutches, and the ankle boot will be about $1,000 and that my policy will cover half of this amount.
More information here:
Health Insurance in Early Retirement
The Good, the Bad, and the Ugly of Early Retirement
In summary, the last nine months have mostly been GOOD.
- More sun, almost no snow
- Minimal yard maintenance
- No water bill, no snow plowing costs
- Much lower property taxes
- More land and 33% less house to clean
- Lower energy costs by far at about 33% of the prior amount
- No local taxes
- Lower auto insurance costs
- Better local restaurant choices
- Wonderful local vineyards
- Abundant hiking venues
- Travel every other month
- Working two days a week from the basement
- No commute . . . again I say, no commute. This has been great.
- Smaller financial footprint = lower stress
- Time to swim, read, write, travel, cook, and hike (after ankle PT)
My Happiness Index has increased from 6/10 —> 9/10, although the ankle cost me two points for the time in the boot. One last GOOD item: The pension I am owed from the hospital system for which I worked the longest is offering a one-time lump sum payout. This was unexpected and is related to them “transferring the obligation to an insurance company.” Since I would not have started drawing this flat amount until age 60, I am eligible to receive about 80% of the benefits I would receive from age 60 to age 80 all at once as an IRA rollover. I think I will take the money and invest it myself. I do not trust insurance companies, inflation will likely continue to erode the benefit, and it's not guaranteed that I'll live from age 60 to 80. In addition, getting all of this money upfront and preserving the principle ensures that several hundred thousand doesn’t disappear if my wife and I meet an untimely demise on an international trip or in a motor vehicle accident. If we die, the pension amount disappears.
The ankle injury. My own fault. Lesson learned . . . again.
It's mostly the health insurance costs and the uncovered medical expenses. We also have no dental or vision coverage. Luckily, we all got glasses and dental exams and cleanings before we moved. We have decided to pay out of pocket for dental care, which could get UGLY. It is GOOD that three of our four children have already had braces and have had their wisdom teeth out (about $6,000 each).
Our drawdown of McMansion proceeds in nine months of semi-retirement was about $20,000, due to planned renovations, uncovered medical costs, and the new gold-plated heat pump. Which also happens to have a built-in light show and plays music via Bluetooth . . . just kidding. The 10-day locum vacation coverage at my side gig that I have lined up for July will put us back to scratch for year 1. Due to making less money while still stoking all the retirement accounts in 2022, our taxes dropped substantially, and we are getting a federal refund for the first time in many years. Not having to put funds in the kids' college accounts or my retirement accounts after 2022 (except for my side gig SEP IRA) has dropped our expenses further. Prior to 2022, educational expenses for private school, college account funding, and retirement contributions added up to about $120,000 per year. This is now reduced to 25% of after-expense profit, going into my SEP IRA in 2023.
As you might surmise from the extensive list of the GOOD and the brief list of the BAD and the UGLY, things are going very well. The most challenging event in nine months of pursuing our mountain dream was my ankle injury hiking one of the trails that we love. My part-time work is paying the downsized bills. My children have had no problem adjusting to our new environment. My wife has a volunteer job one day a week at the Council on Aging, which supports Meals on Wheels. My wife and I have been going back to Michigan quarterly to see our friends, and that has also made the transition less onerous.
This summer, all of us are going back up for a week so the kids can see their friends, too. We have hosted three sets of friends here for up to a week, showing them the local amenities. We are all going to the local YMCA and taking care of our health; eating better home-cooked foods; and still enjoying the outdoor, restaurant, vineyard, and entertainment venues. We have enjoyed spending more time with our family in the smaller space.
It has all gone mostly as planned, but then again, we practiced by coming here quarterly for years, installed the older children in college in North Carolina as they came of age, and helped our eldest buy her first home here in 2021. Once my ankle heals up and we find a cash-accepting dentist, I can save up for my next colonoscopy.
If you've recently retired, how are things going for you? Any unexpected costs or savings? How have you dealt with dropping out of the full-time workforce? Comment below!