Johanna’s Take:
Summary:
When we started this series, we had envisioned other applications similar to our kickoff column, “Can I afford a Tesla?”
But I’ve discovered that XRAYVSN’s readers are definitely smarter than the average bear (channeling Yogi Bear).
Once again, we have an interesting – but challenging – request this week!
Our dual doctor couple want to live in Puerto Rico.
This would be a significant pay sacrifice but allow them to fulfill their dreams of charity work and living near family.
Can they afford it?
The positives:
* Low COL [Cost of Living] in Puerto Rico
* Frugal lifestyle
* Planning only 1 child
* No student loans or other debt
* Planning to pay cash for home
The negatives:
* Permanently lower income
Assumptions (I use conservative estimates whenever there is an uncertainty.)
* $75k/yr in today’s dollars = ~$135k/yr at retirement. I did not decrease annual living costs in retirement, even though most retirees plan to spend less.
* 6% average long-term returns on savings (Assuming no emotional mistakes in upcoming bear markets and corrections)
o By my calculations, you will have ~ $3.7M at retirement + a 529 ~$360k
* Average inflation 3%
* Applicants move in 3 years and retire after 20 yrs of work in PR
* College for 1 child $360k future dollars (assume less expensive school and/or some loans)
* No divorces
* No significant aid for extended family members
* Savings rate of 15% after moving to PR, not including college,
* No private school tuition
* No disabilities or premature deaths; reasonably good health
* Begin SS at age 62 (default), but I recommend waiting until age 70
Additional commentary:
The submitter rates this dream with a high happiness factor both now and in the future and appears to focus on the significant pay cut.
I took the viewpoint of counseling a couple with maximum earning potential of $125k/yr living on $75k/yr and with significant savings. This is definitely possible.
My biggest concern would be multiple children requiring private school and/or college.
However, I believe this couple, both physicians, will have the flexibility to increase income to meet future costs.
According to my calculations, savings will grow somewhat during retirement, providing a comfortable nest egg in your later years.
Recommendations:
* Take advantage of Roth savings during your low earning years (seek out employer with a Roth-401k option
* Allocate part of savings to a taxable account for years between retirement and age 59.5
Verdict:
Thumbs Up
Xrayvsn’s Thoughts:
This was honestly pretty challenging for me to crunch all the numbers that Johanna has so elegantly done above as there was a significant time frame involved and multiple moving parts (with potential for throwing kid(s) in the mix).
My gut feeling when I first went over the case was that the move to Puerto Rico should be feasible given that this was a dual physician family with a move to a lower cost of living area.
With a dual physician income there is much more flexibility in terms of income generation in case something unexpected does pop up.
I am happy to see that Johanna’s detailed analysis with the above numbers did align with my gut feeling.
With a short term and long term happiness scale of 10 for this venture it is nice to see that they have indeed been approved to follow their dreams.
Well done!
Agree or disagree? Please go back to the original post and voice your opinion in the comment section.
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