Reader Case: Is Our Age Gap OK?

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I recently got an email with the subject line “Is our age gap a blessing or a curse?” and I giggled a bit. Because that’s a question that if you have to ask it, the answer is almost always “Dude, I’m pretty sure that’s a felony.”

So on that note, let’s see what kind of felony our reader is committing, shall we?


Hello Firecracker and Wanderer,

It was really nice that I come across your book in a Facebook group for FIRE and since I have read your book twice and the simple path to wealth once and now I just got into your blog and I can’t believe how much information you put out there and the best part for free, which is greatly appreciated!

I’m writing to you hoping to get some feedback about my situation:

1- we are married couple with no kids, wife is 61 and I’m at 47 both working full time.

2- Gross income: USD 250,000 and net income is USD 170,000 and both maxing our 401K.

3- Monthly family spending is USD $8000 mostly going to mortgage ($2200), HOA $172, property tax ($1500), travel ($2000), food ($500), grocery ($800), car insurance ($200), house insurance ($50), internet and cell ($150),PGE ($250), water ($100), garbage ($100)

4-Debt: the house was bought on 2020 for USD 699,000 and now worth USD875,000 outstanding balance of USD454,000 @2.625 and $2200 monthly payment

5- Fixed assets:
A- Three houses in Tunisia ( all paid for and worth ~ $300,000)with 2 rented @ $300
B- Current house in CA with an equity of ~USD 400,000
C- Car: worth $35,000

6-Investment:
A- brokerage account: $360,000
B- 401K: $420,000
C- Wife 401K: $470,000
D- HSA: $14,000
E- Wife IRA: $7000
F- checking/Saving account: $30,000 ( saving with 0.01%)
G-CD: $20,000. @. 5.5%

I have done so many calculation and my thinking is that retiring in CA, keeping the house and the same spending is hard to achieve with the amount of investment we have.
My thinking ( hoping I get feedback about it from you :)), giving the age gap we have and that my wife is close to the age of collecting social security we can retire in 2026 under the following circumstances:
1- Sell the CA house and invest the proceeds and by doing that we heat 2 birds with one stone ( get rid of the house mortgage and its expenses) which will bring our monthly expenses down. Or rent the house and airbnb when in the State. Estimated rent is $3500
2- retire only on my wife sociale security and dividends from our 401K, brokerage account and IRA without touching the the principal in those accounts and let them grow a little more.
3- Spend 6 months in the US and 6 months either in Tunisia or travelling around the world

My thinking we have enough to fire soon but my wife is not comfortable and thinks we need to keep working, any thoughts.

Your input is very appreciated!

Thank you,

AgeGapCouple


OK PHEW. That went in a completely different direction than I was expecting, and I am happy to report that your age gap is totally fine. It might even work out in your favour, since a lot of the hoops we millennials have to jump through to, for example, access our retirement accounts penalty-free is because our age doesn’t match what the government considers worthy of retirement. Plus you can actually receive social security! I think many of the people our age are half expecting government pension systems to collapse into rubble by the time we’re old enough to collect it.

To figure out where we stand, let’s start by summarizing all the inputs into our reader’s financial picture.

SummaryAmount
Income$250k gross, $170k net
Expenses$8000 per month, $96k per year
Assets$1.321M liquid + $875k house + $300k real estate in Tunisia
Debts$454k mortgage

In order to finance this couple’s $8000 monthly expenses, we need $8000 x 12 x 25 = $2.4M in liquid assets. They’ve accumulated an impressive nest egg of $1.321M, but it’s not enough. However, their considerable earning power means they likely aren’t too far off. At net earnings of $170k, and spending of $96k per year, they should be able to sock away $170k – $96k = $74k in savings annually. At that rate, they’d be able to hit FI in…

YearBalanceSavingsROITotal
1$1,321,000.00$74,000.00$79,260.00$1,474,260.00
2$1,474,260.00$74,000.00$88,455.60$1,636,715.60
3$1,636,715.60$74,000.00$98,202.94$1,808,918.54
4$1,808,918.54$74,000.00$108,535.11$1,991,453.65
5$1,991,453.65$74,000.00$119,487.22$2,184,940.87
6$2,184,940.87$74,000.00$131,096.45$2,390,037.32

A little over 6 years. That’s not too bad at all, but remember that our reader’s wife is 61 years old. She would be 67 years old when that happens, and given the impressive size of their investments, I think we can do better.

California Dreamin Taxes

One thing jumped out at me as I was reading this reader case is the property taxes this couple is paying. $1500 a month? That’s $18k a year! In property taxes! That’s the equivalent of 2% their home’s assessed value that evaporates each and every year. That is nuts.

You know, call me old fashioned, but when I pay a lot of taxes to the government, I expect the government to, you know, do stuff for me. All in, this couple is paying $80k in income taxes, then $18k in property taxes for a total yearly tax burden of $98k! And for what?

Is it for California’s excellent public transportation system? Nope, you have to drive everywhere yourself. Is it for it’s generous state-run health care system? Nope, that costs extra, and boy is it not cheap. But at least their power grid is so well designed that…oh wait, PG & E’s infrastructure is so poorly maintained that it keeps sparking massive wildfires and wiping out entire towns.

So what are you getting for $100k a year? Friggin’ bupkis!

So if this couple sells, not only would they be able to give a big middle finger to the Californian tax authorities, it would free up $400k – 5% real estate commission = $380k. That bumps up their nest egg from $1.321M to $1.7M. That would be enough to finance $1.7M x 4% = $68k in spending per year, or $5667 per month. Of course, they’d have to add rent back into the equation but we’ll get to that in a minute, because of a little thing called…

Social Security

OK NOW the government’s actually starting to come in handy for something.

Now before I get into this topic, I want to emphasize that deciding when to take social security is definitely something you should consult a tax professional, rather than rely on some internet guy’s opinion. This is because if you take social security early, you get less money per month, and for that reason, traditional financial planners advocate that their clients wait as long as possible, even waiting until they turn 70, to get the maximum possible payout.

I think this couple should do the opposite, and here’s why.

According to the SSA, the average payout on social security is currently $1781.63, but that’s for someone that retires at a “normal” age of 67. If you take SS early, your payment gets cut by 30%, so if you start taking it at the earliest possible age of 62, your monthly payment would be $1781.63 – 30% = $1247.14.

If you add that to our couple’s monthly budget of $5667, that ups it to $5667 + $1247 = $6914. Their current non-real estate expenses are about $4000 a month, so this leaves $2914 for rent. Can they find a nice rental somewhere in the world that DOESN’T tax them to death for $3000? Probably.

But remember, they also own a paid-off property in Tunisia, and they intend to spend half the year there. That means that their rental budget for the time not spent in Tunisia doubles, since they can reallocate the money they didn’t spend. Can they find a nice rental somewhere in the world for $6000? Definitely.

Hell, that’s enough to go nomadic, or live in an expensive location in the US, or any combination of the two. The world is your oyster!

What About Health Insurance?

Something every early retiree has to consider is health care costs, especially if you’re from the US. When you’re working, your health insurance comes from your employer, but once you retire, you’re going to have to get insurance yourself via Obamacare.

Fortunately, once you retire, typically your income drops quite a lot, which qualifies you for Obamacare subsidies. If this couple’s only income was their Social Security, so $1247.14 x 12 = $14,965.68, they would qualify for free health care under Medi-Cal. Thanks Obama!

Now of course, Social Security is not the only income an early retiree will have. Dividends, capital gains, and 401(k) withdrawals all add to your Modified Adjusted Gross Income, or MAGI, which determine your eligibility for Obamacare subsidies. And in the past, this MAGI number had to be carefully managed in retirement or you run the risk of going over the 400% Federal Poverty Level amount that would trigger the dreaded Obamacare subsidy cliff that could cost you thousands of dollars.

But now, there were two laws passed in recent years that eliminated this: The American Rescue Plan in 2021 and the Inflation Reduction Act in 2023. Together, the new rule is that your health care premiums are capped at 8.5% of your MAGI. So you still have to keep an eye on the income you report in retirement because the more income you report, the higher your health care premiums will be. But now, if you mess up and accidentally go over the arbitrary 400% FPL number, you won’t get screwed over. Thanks Biden!

However, when they travel overseas, they’ll still have to purchase supplemental travel insurance to cover them when they’re outside the US. We use SafetyWing for travel insurance, and the cost of insuring a 62 year old and a 48 year old would be $157.36 and $73.92, respectively, for a total of $231.28 per month. So that has to be added to their budget.

Tunisian Real Estate

One last thing jumped out at me when reading their numbers, and that’s the fact they they own 3 paid off properties in Tunisia worth $300k and are renting out two of them for $300 a month. I don’t know exactly how much each property is worth, but if we assume that all 3 are worth $100k each, then the 2 investment properties are worth $200k together. That means that $200k of real estate equity is generating $600 a month, or $600 x 12 = $7200 a year. This equates to an ROI of $72k / $200k = 3.6%, which isn’t that great considering a money market fund is yielding 5% risk-free and completely passively. Land-lording is a lot of work, and professional real estate investors won’t even look at a property unless they can make 10% ROI on it.

I don’t have all the details of these properties, like how much each individual one costs, whether the tenants are easy to manage, what the maintenance costs are, etc. But from my 10,000 foot view, those Tunisian properties deserve a hard look at whether it makes sense to own, because if they’re not beating a savings account, why would you own it?

Conclusion

So is their age gap a problem? Not at all! In fact, I think this technically makes our reader his wife’s sugar baby. And there ain’t no sweeter life than that 🙂

And I’m sure that my suggestion to take SS early will generate a lot of howling in the comments, but I would argue that once you have enough money to start enjoying life, go do it! They could start their retirement as early as next year! There is such a thing as saving too much money, after all.

But at the risk of repeating myself, talk to a tax professional before making any decisions regarding your social security because I don’t have all of the wife’s financial details. At the very least, she should log into her SSA portal and see what her actual benefit payment would be, because my analysis was based on the average. If her social security contributions put her closer to the max possible payout, that would approximately double her monthly payment to $2334.

What do you think? Would you pull the trigger or keep working towards a full social security payout? Let’s hear it in the comments below!


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26 thoughts on “Reader Case: Is Our Age Gap OK?”

  1. Not many know that when you take social security, it can be taxed as income depending on wages. There’s a low threshold, like $23k/yr, that you can earn without impacting your social security, but after that, for every $2 over the threshold they take $1 of your monthly pay. (W-2, not passive income) It’s also not based on the person drawing social security, but the joint income of the couple. I’m older than my spouse, who is a high earner, so I probably won’t be taking social security until he stops working. It’s not worth it to have your ‘retirement’ taxed a second time.

  2. I can relate how hard it can be to pull the trigger on retirement. We get so caught up in saving for retirement we become unsure that we can. Maybe its a fear of running short along the way or not trusting the numbers. After all, things might happen… what if xx happened!

    No matter what, we only get one life and learning you can live it fully has been a step I am still learning how to make.

    Bottom line, I would pull the trigger and sell off what is needed. This takes time so nothing happens over night. IMO

    Best wishes!

  3. I’ve been using SafetyWing too, but I recently traveled with someone over 70, and SafetyWing only covers those under 70. Just something to consider.

  4. This case has a lot of similarities to ours but age gap is 8 years and we FIREd ourselves in 2023. We had similar income numbers, but higher savings and ~$25k lower annual expenses. No rental places but a house in Ca with similar mortgage rate and $125k less balance remaining. I’m shocked at their property taxes. Ours are about 1/3 of what’s listed here. Also in our expenses we have a few easily reducible items that we’re going to evaluate as we get further into retirement.

    One thing I did was plan things totally without SS income in case it falls apart or is reduced, but I did consider how to handle taxes on it, such as starting 401k to Roth IRA conversion to get 401k down before RMD age. Check out the book The Power of Zero for some good info on taxes to help when talking to a tax pro.

  5. There’s a lot to unwrap with social security options and I wouldn’t take it at 62 with this portfolio.

    I’d burn down some of the portfolio first or work a bit longer in order to have higher guaranteed payments.

    The other part is making certain you have something to retire to. I haven’t found that piece yet, which is why I’m still working after reaching my FI number.

  6. My husband and I consulted an actual fudiciary before deciding whether to take SS early. He noted that we needed to consider that many folks die before reaching the median life expectancy and don’t collect SS for very long. Our other finances were such that if we lived more simply we were well able to retire. My husband, an incredibly fit mountain biking athlete collected 13 months of social security before dying of a heart attack on a trail.
    Remember to understand what the median life expectancy (which is declining) means: half of us won’t live past that number.
    Plan for joy always plan for joy.

    1. re: Plan for joy always plan for joy

      Yes, yes, YES, a thousand times YES!

      If they want to travel, I would not wait until full retirement age to take Social Security. Based upon my own experience, in general I would say a 60 year old is more willing to handle the indignities and frustrations of “interesting” travel experiences – those things that make for very funny travel stories when you tell them about five years later when you can laugh about it – than a 70 year old would be. My own hubby isn’t even 70 yet (he turns 69 this year) and he is already a more grumpy traveler than his was just a few years ago (our last international trip was November 2019, pre-COVID-19).

      re: California property tax

      It depends upon when they purchased their property and how long they have been under Proposition 13. We purchased our primary residence in 1987; its most recent property tax bill was $3985. We purchased our rental property (less than 1 mile away and only about 100 square feet larger) in 2012; its most recent property tax bill was $6807. *sigh*

      1. Travel early and often. Good recommendation. But the travel window doesn’t have to close when you hit 70. My wife and I are in our mid 70s and we haven’t stopped traveling. I get that good health and good attitude is important, but if you like travel, traveling doesn’t have to stop at any particular age.

    2. Good point plus some who are in poor health also die early. So looking at it based on what you might expect is important. Also, what I never see mentioned here is for couples, what if you split up? Can you both continue to make it on your own, without the income that the other person brings in from their pension, SS or retirement accounts??

  7. You mentioned health insurance.

    How about dental and vision?

    How about that airfare from Tunisia when they need to fly back to Cal for medical care?

  8. $1,300/month on food for TWO PEOPLE is EXORBITANT —that is obscenely higher than it needs to be no matter where you live in the world. The families of 4 I know spend about that per month on food—$1,300 on food per month for 2 people . . . Some people have reached such disgusting levels of privilege that it blows my mind. And those property taxes they signed up to pay!!!!! About time they asked for advice—they’ve been pissing money away and not even attempting to staunch the unnecessary bleeding—morons

  9. In many ways FIRE removes many of the issues affecting couples with a major age difference (we’re 15 years) because retirement is far less driven by age.

  10. I would suggest that they move their state domicile to a state with no state income tax, after they sell their California house. No matter where they live in the world, those taxes from California will follow them unless they change their domicile.

    1. From the article you referenced:

      “Keep in mind

      FICA and SECA taxes also generate a revenue stream for Medicare, which flows into the trust fund that finances Medicare Part A (hospitalization coverage). The 2023 Medicare trustees report projects that fund will run out of reserves in 2031, after which Medicare will be able to pay 89 percent of scheduled benefits.”

      So a 11% decrease in payouts per the latest report. Good to know.

  11. Thank you for calling out California for all the taxes. You’re right. It’s a major reason why I left. You pay a lot of taxes without getting anything for it. This is the problem with the more progressive states in the U.S. Taxes get raised but you don’t get anything for it. We should have a much better welfare state for all the taxes we pay. Instead, we just get more corruption.

  12. Thank you for these case studies! My husband and I also have a big gap in our ages. He’s 61 and I’m 40. Our liquid assets equal 450k. He plans to work until he’s 70, at which point he’ll collect his full social security and like $500 in pension a month. I plan to leave my teaching job when he retires. We also live in CA and spend about 60k a year. No property, thankfully. We make about 200k gross. When can I realistically retire? I appreciate any input… Also, does anyone know if I can be on my husband’s health insurance after he retires? Thank you

  13. Jeremy over at GoCurryCracker recently did a couple of posts on SS and why he (and other FIRE folks) should take it early instead of waiting:

    https://www.gocurrycracker.com/why-i-plan-to-collect-social-security-as-early-as-possible/

    https://www.gocurrycracker.com/why-early-social-security-provides-the-greatest-spousal-benefit/

    I shared these with my dad (who’s not FIRE and is now eligible for early SS) and he pointed out some things to consider that didn’t really concern Jeremy and other FIRE folks (such as the effect continuing to earn regular income has on your SS benefit, and, as Wanderer pointed out in this post, the tax implications). Overall, though, I thought this was a great analysis by Jeremy and certainly food for thought for anyone wrestling with when to start drawing SS.

    1. I plan to draw SS as soon as I am eligible for the same reasons that Jeremy outlined. You can always rely on him to do the opposite of everyone else lol.

      I can make better returns investing the amount that will exceed to make the “difference”. If I don’t have enough surplus to invest it then it just means I needed it anyway.

  14. RE age gap: half your age plus 7 is the safe buffer, and rounding down is permitted. So at 61 years old >> 37 is the min age.

  15. What is with the $2,000 a month in travel on their budget? Why no advice to put the $30,000 in a checking into a high-yield savings account (at least a good bit of it)?

  16. I have conducted analysis of my social security benefits (using net present value) and found that there is virtually no difference in benefit if you choose to take social security early or wait…if you know you’re going to live to 100, that is. This is using a 7.5% discount rate. If your discount rate is higher or you don’t think you’ll make it to 100, the analysis says to take social security early. I quite frankly think it is better to take it early anyway because I will get MORE ENJOYMENT from the money when I am younger, healthier, and more active. As people age, they tend to slow down. When I am in my 90’s (if I make it to that age), I may be too old to really get the benefit from the higher payment. A bird in the hand…

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