Author Topic: Case Study: Did I quit too soon?  (Read 6554 times)

anydaynow12

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Case Study: Did I quit too soon?
« on: June 20, 2017, 08:12:49 PM »
Hi everybody!  So, after 15 years in my soul-crushing legal job, I submitted my notice of withdraw from the partnership last week.  Had planned to work through December 2017 so that I could pay off my mortgage but just couldn't do it.  Expect my last day to be end of July - just after my 40th birthday (mid life crisis anyone?)  Feeling the regret of not sticking it out the few additional months so looking for some feedback on the strength of my numbers, where to optimize, or face punches for not simply working a few months.  Here's my situation:

Single 39.9 year old lady-mustachian / no plans for kids
Yearly expenses ~ $40,000 

Assets as of FIRE date:
$225,000 House ($104,000 left on mortgage through 2027)
$756,058 Taxable Investment Account (about 80/20 stocks/bonds)
$410,000 401K (Vanguard Target Retirement Fund 80/20 allocation)
$100,000 IRA (low cost American funds.  Mostly stocks)
$  82,500 Partnership Capital (i.e. cash) to be returned within 6 months of quitting
$  40,000 Checking account
Total (not counting house value): ~$1,388,500
No debt other than mortgage. 

With expenses of $40,000, I should be well within the 4% rule and even 3%.  Main concerns/thoughts:

1. Healthcare costs.  I'm (knock on wood) very healthy at this stage.  My $40,000 per year budget assumes $450/mo. in health insurance costs.  Based on my limited research, I think I should be able to find a plan for that without subsidies if necessary.  Should have additional wiggle room in the budget to increase that amount as I age, and I can sell the house to help defray long term care/nursing home costs at very late stage of life.

2. Sequence of returns risk.  Should I consider an equity glide path?  Or some allocation other than my current ~80/20 to protect against this? 

3. What to do with my cash.  Will have about $40K in my checking account when I quit, and another $82,500 to be returned to me by the partnership within 6 months.  All told, that's 3 years of living expenses.  Was considering just living off of this money for 3 years so I do not need to sell any stocks.  Not sure it that is smart.  Alternatively, maybe invest about $40,000 and keep two years of expenses liquid.  I do not generally like having that much cash on the sidelines but feel like it could help reduce sequence of return risks if we hit a bear market soon.

4. I have a number of actively managed funds in my taxable account that have expense ratios higher than I'd like.  I'm working on moving those to low-cost index funds. 

Would love any feedback.  Things to consider in the last month of work?  Ways to optimize?  Suggestions on things I may not have considered?

MDM

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Re: Case Study: Did I quit too soon?
« Reply #1 on: June 20, 2017, 09:01:11 PM »
2. Sequence of returns risk.  Should I consider an equity glide path?  Or some allocation other than my current ~80/20 to protect against this?
The future will have to be worse than the worst of the past ~100 years for your situation to end in failure.  While possible, I think unlikely, but it matters more what you think, and of course matters most what happens in reality.  At some point SS will kick in for you - correct?  If you made 100% of the SS wage maximum from 2003-2017, that means ~$22,700 in today's dollars at age 67 (based on the SocialSecurity tab in the case study spreadsheet.  That will reduce your withdrawal ratio (WR) significantly.

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3. What to do with my cash.  Will have about $40K in my checking account when I quit, and another $82,500 to be returned to me by the partnership within 6 months.  All told, that's 3 years of living expenses.  Was considering just living off of this money for 3 years so I do not need to sell any stocks.  Not sure it that is smart.  Alternatively, maybe invest about $40,000 and keep two years of expenses liquid.  I do not generally like having that much cash on the sidelines but feel like it could help reduce sequence of return risks if we hit a bear market soon.
You have enough in excess of 25X expenses that keeping a large chunk in cash doesn't take you above a 4% WR.  If it helps you sleep better, do it.  Two years does seem better than three, but it's up to you.

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Would love any feedback.  Things to consider in the last month of work?  Ways to optimize?  Suggestions on things I may not have considered?
Possible to arrange part time work for your old firm, starting in a few months, with hours at your convenience?

With This Herring

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Re: Case Study: Did I quit too soon?
« Reply #2 on: June 20, 2017, 10:06:23 PM »
*snip*
$756,058 Taxable Investment Account (about 80/20 stocks/bonds)
$410,000 401K (Vanguard Target Retirement Fund 80/20 allocation)
$100,000 IRA (low cost American funds.  Mostly stocks)
*snip*
4. I have a number of actively managed funds in my taxable account that have expense ratios higher than I'd like.  I'm working on moving those to low-cost index funds. 

Would love any feedback.  Things to consider in the last month of work?  Ways to optimize?  Suggestions on things I may not have considered?

Things to consider in your last month of work:
Pre-FIRE Checklist (not all will apply to you, but the list is worth a read)

Your invested assets to expenses looks great!  While you're getting into low-cost funds, please consider tax-efficient fund placement, as it may not be best to just mirror 80-20 in each account.
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Tuskalusa

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Re: Case Study: Did I quit too soon?
« Reply #3 on: June 20, 2017, 10:17:31 PM »
Moral support here...I quit my corporate job a year ago, and I had the same concerns as you. It was a great decision. You're going to love it on the other side!

If you decide you need to address healthcare in a few years, you can get a low stress gig with benefits. Maybe nonprofit legal work or something. It will be great. 😀

LDoon

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Re: Case Study: Did I quit too soon?
« Reply #4 on: June 20, 2017, 10:34:59 PM »
Congrats on decision.  The money situation looks good and should be sufficient. 

Consider keeping your professional network in good shape.  I'm in the legal field as well and it's not uncommon for an attorney to take 6 - 24 months off, and then enter the fray again (currently work with 2 such ppl).  I know the profession makes it seem like not striving for more clients / billable hours will result in you being cast aside and forgotten forever, but it's not quite that bad. 

Good legal skills and experience are hard to come by.  Having the right connections with other attorneys and clients is even harder to come by.  Plus you have the track record of making partner and being profitable.  Relax for 6 months, keep in touch with the colleagues and contacts you like. Maybe you'll be interested in trying something different in a year, someone offers you an interesting position, or refers you to a whole new field. 

You're FI right now.  Decompress and avoid the billable hour for awhile.  Then decide if you want to be RE.
« Last Edit: June 20, 2017, 10:38:12 PM by LDoon »

Dicey

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Re: Case Study: Did I quit too soon?
« Reply #5 on: June 20, 2017, 10:39:21 PM »
I agree with all of the above advice, especially considering keeping just two year's expenses in cash. You could wait to do that until the market dumps, but that's considered market timing ;-))

Congratulations.  Go and don't look back!
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anydaynow12

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Re: Case Study: Did I quit too soon?
« Reply #6 on: June 21, 2017, 04:06:44 PM »
Thanks everyone for the kind words and moral support.  It is tough going this alone without anyone to bounce the ideas off of that doesn't think I'm just crazy.  Love the mustachian community.

Yes, I should have social security which should substantially reduce my withdrawal rate and provide an additional cushion.  I've been pretending that it doesn't exist as many early retirees seem to do in case it is substantially modified by the time I am eligible.  As far as part time work with my current firm, that has been put on the table as an option.  But, right now I think I need the "nuclear option" of a clean break to explore whether I can be happy in another career.  I've had such tunnel vision that I've always unrealistically viewed my options as either partner in a law firm or homelessness.  I couldn't see all of the options in between and it has been exciting over the past week as this has begun to sink in of other potential careers or side gigs to earn money, if I so choose.  But, definitely intend to keep in close contact with colleagues and keep that door open if I find that I need to or want to re enter the field.  Also agree that 3 years expenses is likely too conservative.  Will likely go with two.  Thanks for the logic check on that.  I had looked at the FIRE checklist awhile ago, but now that I'm close, I should definitely re-visit.  Great suggestion.

Thanks again to everyone for your comments and support.  Now I just have to remember to breathe :)


SwordGuy

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Re: Case Study: Did I quit too soon?
« Reply #7 on: June 21, 2017, 05:48:50 PM »
Thanks everyone for the kind words and moral support.  It is tough going this alone without anyone to bounce the ideas off of that doesn't think I'm just crazy.  Love the mustachian community.

If your projection of expenses is accurate you should be just fine.  Congrats on a job well done!

I have to tell you, if I could have paid off the mortgage by lasting until December of this year, I would have done it.  But then I'm (absolutely positively) overly conservative on this topic.  :)

As it is, we're aiming for May of 2018, so about 10 1/2 months to go for us.


« Last Edit: July 14, 2017, 08:40:24 AM by SwordGuy »

CloserToFree

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Re: Case Study: Did I quit too soon?
« Reply #8 on: June 21, 2017, 06:38:34 PM »
Fellow lawyer here with very similar numbers to you.  Posting to follow and to say good for you for walking away!  I suspect that you won't regret a damn thing and you'll probably look back and wish you had quit earlier, but I understand the risk aversion.  With any luck, I'll be you in about a year :)

marty998

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Re: Case Study: Did I quit too soon?
« Reply #9 on: June 22, 2017, 07:00:45 AM »
Congratulations. Well done for working hard and now you can enjoy the benefits of it all.

shawndoggy

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Re: Case Study: Did I quit too soon?
« Reply #10 on: June 22, 2017, 08:27:21 AM »
In to follow too.  Our numbers are just a smidge better than yours but I also have 5+ years on you.  Two kids in college starting this fall, tho, so I feel like I'm going to want to stick it out till my youngest graduates. 

I know the profession makes it seem like not striving for more clients / billable hours will result in you being cast aside and forgotten forever, but it's not quite that bad. 

haha totally!  At the moment I feel pretty strongly that aside from a similarly soul-crushing (but lucrative) legal job, I'm qualified to work at 7-11 or maybe at a bicycle shop.  Good to know that it may be possible to do some side-gigging down the road if I want.

ZiziPB

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Re: Case Study: Did I quit too soon?
« Reply #11 on: June 22, 2017, 12:23:52 PM »
Fellow lawyer here, with numbers very much like yours except I'm about 10 years older.  Planning to pull the trigger in about 9 months, so I am following this thread with interest. 

Healthcare costs are the biggest issue for any early retiree at this point.  Other than that, your plan seems solid.  Best of luck!



bognish

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Re: Case Study: Did I quit too soon?
« Reply #12 on: June 22, 2017, 02:22:44 PM »
For the cash you could look at putting year 2 & 3 into CDs. better return than zero and no market risk.

madgeylou

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Re: Case Study: Did I quit too soon?
« Reply #13 on: June 22, 2017, 02:28:00 PM »
Just posting to follow because I am excited for you!

Strick

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Re: Case Study: Did I quit too soon?
« Reply #14 on: June 23, 2017, 08:50:58 AM »
Looks like the right decision to me!  I think you have a couple of things working for you to help with any rising healthcare costs over the years.  LIke most, SS/Medicare is there to help way down the road whether in a reduced form or not.  Also, I assume that $40k expenses includes your mortgage payment...which will be gone  in 10 years or less and provide more room in the medium term before SS/Medicare.  Other things will change I'm sure, but anyone who can pull this off by 40 can easily adapt to whatever that maybe....

Lobo

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Re: Case Study: Did I quit too soon?
« Reply #15 on: June 23, 2017, 11:52:35 PM »
5 months of work eliminates 10 YEARS of mortgage payments......I would seriously have to evaluate that choice.  Other than that your numbers look pretty good - Healthcare being the big unknown.  Good luck.

anydaynow12

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Re: Case Study: Did I quit too soon?
« Reply #16 on: June 24, 2017, 06:31:54 AM »
Lobo - Yeah, not paying off the mortgage still eats at me.  At the end of the day, I guess I just considered my numbers "were good enough" and realistically, I will probably have an income stream through some other work at some point in my life to add extra cushion.  And, I have a trial that starts this week, the stress of which really just ended up forcing the issue sooner than I would have made the decision without it. But, I've also given some thought to paying off the mortgage with my cash.  With the $82K coming back from the partnership and 1/2 of what I should have in checking, I could take care of the mortgage.  That would take the stashe down to about $1,285,000.  If my math is right (and as a lawyer it rarely is), at a 4% withdraw rate, that gives me $51,400/year with yearly expenses of $30,000 (with mortgage expenses are $42,000, I was a bit off in my initial post).  At 3%, that gives me $38,550 and at 2.5% $32,125.    Maybe that's a better approach.  Still mulling. 

Bognish - Thanks for the CD suggestion.  The rates are just so darn low it almost feels like it's not worth tying up the money.  But, with no risk, certainly better than getting essentially zero in the checking account. 

brooklynmoney

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Re: Case Study: Did I quit too soon?
« Reply #17 on: June 24, 2017, 12:44:37 PM »
Nice to see another single lady amassing significant assets on her own. Congrats and enjoy!!

Sapphire

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Re: Case Study: Did I quit too soon?
« Reply #18 on: June 29, 2017, 10:56:30 PM »
Congratulations!  You've done a terrific job.

Davids

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Re: Case Study: Did I quit too soon?
« Reply #19 on: June 30, 2017, 07:17:31 AM »
I think you will be fine assuming $40K/yr expenses. Now just because you are quitting does not mean you never have to work again. Perhaps part time consulting work whenever you want could be in order too if you are concerned about finances.

ChpBstrd

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Re: Case Study: Did I quit too soon?
« Reply #20 on: July 05, 2017, 01:30:09 PM »
Don't pay off the mortgage unless the rate is near 6%. You can deploy the cash more efficiently while maintaining more flexibility in the first few critical years.

E.g. PFF is a preferred stock fund that yields 5.6% and is usually much less volatile than the stock market (e.g. when banks are not going bankrupt, as in 2008). In the event of a downturn, you could sell these shares at a small loss to pay for living expenses instead of your more-beaten-down stocks.

aetheldrea

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Re: Case Study: Did I quit too soon?
« Reply #21 on: July 13, 2017, 06:06:30 PM »
You don't have to pay off your mortgage completely, you could put $40,000 or whatever you wanted towards it and keep making your normal payments. That would be a guaranteed return equal to your mortgage interest rate. (Assuming no prepayment penalty.) Investing that lump of cash somewhere else could possibly produce better returns, but not guaranteed. If the choice was between leaving it in checking/cds and putting it toward the mortgage, I'd put it toward the mortgage. If you need some of that cash later, you could take it back out with a home equity line of credit and be back where you started, pretty much.

Dicey

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Re: Case Study: Did I quit too soon?
« Reply #22 on: July 14, 2017, 06:02:06 AM »
You don't have to pay off your mortgage completely, you could put $40,000 or whatever you wanted towards it and keep making your normal payments. That would be a guaranteed return equal to your mortgage interest rate. (Assuming no prepayment penalty.) Investing that lump of cash somewhere else could possibly produce better returns, but not guaranteed. If the choice was between leaving it in checking/cds and putting it toward the mortgage, I'd put it toward the mortgage. If you need some of that cash later, you could take it back out with a home equity line of credit and be back where you started, pretty much.
I'll take the contrarian position and suggest you not do ^this^
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Nick_Miller

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Re: Case Study: Did I quit too soon?
« Reply #23 on: July 14, 2017, 01:24:43 PM »
Not much specific to add other than some support.

Geez if I had $1.4M in assets at age 40, with no dependents and a half paid off house, I'd never freakin' consider working in the legal field again. You have done incredibly well for yourself! Enjoy life and don't sweat it! You're in better shape than almost anyone I've seen on these forums.


aetheldrea

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Re: Case Study: Did I quit too soon?
« Reply #24 on: July 20, 2017, 11:46:40 AM »
You don't have to pay off your mortgage completely, you could put $40,000 or whatever you wanted towards it and keep making your normal payments. That would be a guaranteed return equal to your mortgage interest rate. (Assuming no prepayment penalty.) Investing that lump of cash somewhere else could possibly produce better returns, but not guaranteed. If the choice was between leaving it in checking/cds and putting it toward the mortgage, I'd put it toward the mortgage. If you need some of that cash later, you could take it back out with a home equity line of credit and be back where you started, pretty much.
I'll take the contrarian position and suggest you not do ^this^
It seems to me that someone who is seriously considering keeping $120,000 in checking probably has a different level of comfort for risk than someone whose avatar shows gambling implements.
Investing your money rather than using it to pay off your mortgage will probably produce better financial results. But also, it might not.
Rationally, we should play the odds and pay as little as possible to a mortgage and invest the rest. Emotionally, the bad feeling of definitely giving large chunks of cash to a mortgage lender every month feels worse than the good feeling of an even greater increasing balance in a brokerage account that we won't get to use until years later. :-( Frowny face for our emotions working against our best interests.

anydaynow12

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Re: Case Study: Did I quit too soon?
« Reply #25 on: July 20, 2017, 03:14:19 PM »
Thanks everyone for the continued input.  As a bit of an update, my firm has convinced me to stay on through the end of the year.  So, I likely will have to confront the pay off the mortgage/don't pay off the mortgage decision with the extra money I make from staying an additional ~5 months.  I recognize this is one of the most hotly debated topics on the forum and I've read the pros and cons of each approach.  Sadly - because I recognize that it is likely not the best financial decision - I lean toward the the "pay it off" camp.  I just prefer to keep my yearly expenses lower and like the security of having no debt.  But, I'm still mulling.  Anyway, I don't want to turn this post into that debate - the arguments on both sides have been well presented on the forum elsewhere.  Just wanted to say thanks again for all of your feedback! 

Bicycle_B

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Re: Case Study: Did I quit too soon?
« Reply #26 on: July 20, 2017, 03:37:04 PM »
Anydaynow, it looks like you've accomplished the necessary career (work, earning) and investing.  Now you're finishing the details.  My only advice to you is to decide.

Mortgage payoff?  You're clear on what makes you feel better.  You will be ok if you act on that feeling.  Decide.

Last 5 months of work?  You just decided.  Done.

Contacts with other attorneys re possible future work?  Decide on a 6 moratorium, then decide on whether to reconnect or ignore.

The point is that what you now face is more feelings than anything else.  Of course don't neglect the practical concerns, and do act wisely.  But you're in the Zone Where You're Going to Be Fine.  Decisiveness and not looking back are big parts of moving ahead.  Enter the Zone of Confident Retirees by deciding!