Author Topic: Case study - FI(I think?) at 26, concerned about estimating future expenses  (Read 1007 times)

WanttoFIRE

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Life Situation: Married,Husband and Wife both Age 26, No kids yet

Income:
W-2: $230,000 (roughly 50/50 between both of us)
Rental Properties Cash flow: (After mortgages, reserves, and after income tax):$75,000
Side Hustles/Misc: $15,000

Individual amounts of each Pre-tax deductions: $37,000 (Max out 401k)


Current expenses:
Rent 29,900.00
Restaurants 7,798.00
Travel 5,950.00
Clothing/Shoes 3,732.00
Household/Personal Care 2,324.00
Groceries 3,079.00
Utilities 1,474.00
Internet/Cable 1,862.00
Gym/Fitness 268.00
Taxes: ?   
Insurance 1,293.00
Car 2,160.00
Healthcare    $0 
Gifts 1,536.00
Pets 384.00
Cash 1,626.00
Miscellaneous 3,393.00
Total    66,779.00

Assets:
Cash $104,406
Investment Accounts $0
Investment Accounts: Retirement Accounts $160,100
Real Estate: Investment Property $2,706,540
Car ($15k)/Other Assets: $63,300
Total $3,034,346


Liabilities   
Mortgages: Investment Property $1,198,774
Car Loan (3%): $14,000

Net Worth: $1,822,172


Specific Questions:
1) How do early retirees estimate changes in expenses due to life changes? This is my biggest "fear" when it comes to quitting my W-2 and focusing on other things full time. For example, we are in a HCOL and still rent in a city, once we have kids we will most likely buy a house. How should I factor in these increases? My three largest concerns are healthcare, child expenses, and housing (we rent a studio as is-wouldn't be a long term fit!)I don't want to be over conservative and budget double, but not sure where to start with expected increases. I don't think I can wait the 10 years to find out!

2) Real Estate: I almost have nothing in the markets that are accessible before 59.5 unless I use 72t. Is it too risky to rely on real estate to get me through the first 30 years? I'm hoping the $160k of retirement savings can grow tax deferred to provide diversification later in life. It's hard for me to believe we are FI because I can't feel like I can't use the 4% rule or something similar.

3) I would love to quit my job and remove half of our W-2 income, but questions 1 and 2 are causing hesitation. I've been able to accumulate rentals as a side hustle and love it, and think I may actually be better off focusing on it full time, although a lot of the savings for down payments would diminish.

Are we actually FI at this point?

Thanks in advance!






Evasion

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Hello and first of all congrats, you are in an incredible position at your age in case you didn't realise lol.
26 as well and a long way to go.
I can't help much apart from saying that you are well and truly FI IMO.
I was just wondering which industry you work in if you don't mind? This level of salary at 26 seems astonishing to me.

Best of luck with enjoying the next 60 years!

WanttoFIRE

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Hello and first of all congrats, you are in an incredible position at your age in case you didn't realise lol.
26 as well and a long way to go.
I can't help much apart from saying that you are well and truly FI IMO.
I was just wondering which industry you work in if you don't mind? This level of salary at 26 seems astonishing to me.

Best of luck with enjoying the next 60 years!

Thanks, much appreciated! It's tough to grasp and I'm still quite shocked.

We both work in finance in a HCOL area, but most of our NW came from various side hustles/real estate.

former player

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Hello and welcome.

One thing on the finance side I would suggest is looking at your social security contributions - there are minimum lengths for making payments which would entitle you to future social security and medicare, and you won't have met them yet at age 26.  Now, you may be saying that this is irrelevant to someone who is a millionaire at 26 and you may be right.  But you don't know what if any future of your future rights might depend on your being seen as having been a contributing member of society, and ensuring a basic access to income and health care in old age probably isn't a bad thing.  I don't know whether voluntary payments into social security are possible, and even if they are you may calculate that they are not worth it for you.  But it's better to think about that now than later.

Other than that, if you are proposing to leave your finance job and work on your real estate portfolio then I'm not sure I'd call that FIRE, more a change of career - for which you are admirably placed, financially speaking.  As long as your other half is on board with the idea of that career change, why not?

Linda_Norway

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You mention child expenses. In your country it is expensive to give birth, from what I have heard.
All the stuff that the child needs the first years, can be obtained very cheaply second-hand. If you don't work, you can do without child care. You can put your child in public schools. You have no obligation to pay for your child's higher education, or only pay what you can afford for it. Although your child will appreciate it if the parents will pay for it. MMM has a blogpost about this, how to create an independent child.

Does your country have a sort of reference budget, where you can see what a cheap way of living would cost at a minimum? Then you could use that, and add 50% or so for more comfort.

reeshau

  • Bristles
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  • Location: Dublin, Ireland
Current expenses:
Rent 29,900.00

...

Total    66,779.00

...

Specific Questions:

...

2) Real Estate: I almost have nothing in the markets that are accessible before 59.5 unless I use 72t. Is it too risky to rely on real estate to get me through the first 30 years? I'm hoping the $160k of retirement savings can grow tax deferred to provide diversification later in life. It's hard for me to believe we are FI because I can't feel like I can't use the 4% rule or something similar.

3) I would love to quit my job and remove half of our W-2 income, but questions 1 and 2 are causing hesitation. I've been able to accumulate rentals as a side hustle and love it, and think I may actually be better off focusing on it full time, although a lot of the savings for down payments would diminish.

A little different take on your real estate:

Are any of your rentals suitable for you to move into?  How many do you have?  It occurs to me that your rent is almost 1/2 of your expenses today.  Eliminating that reduces your annual expenses to $37k.  Your side hustles would cover 1/2 of that (would you be keeping your side hustles?) Would the remaining real estate cover the other half?  Or, for that matter, could you harvest some rentals and buy your primary residence, in effect getting the same thing.  (assuming no rental is configured as you would like)

So in this case, you have 3 years of cash to figure it out, and you may be cash flow positive, even if you both quit.  If you are the only one who is antsy, you are golden--it's just a matter of committing to a particular choice.  Bank the wages into your health / child fund, and pull the trigger when you feel comfortable about it.

Also take note of @former player 's caution on Social Security.  The general direction is you need 40 "credits" (worked quarters) to qualify.  Given your plans and opportunity, you shouldn't make your decision centered around it.  But it is a consequence; if you would be close to qualifying given the other considerations above, it might be worthwhile to get to it, as insurance.

https://www.ssa.gov/planners/credits.html


WanttoFIRE

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Great point on SS and Medicare, I haven't even thought about that. I have some learning to do on these topics!I guess the obvious question: would any future benefit be worth 6 years of working? I'd guess no, but I have no idea on the actual math until I dig in a bit deeper.

Reeshau- thank you for your thoughtful post. None of the rentals are suitable to move into, I'd consider them to be lower-middle income areas (not bad, but not ideal). If we moved the MCOL area that they are in, I could definitely find a Class A multifamily in a different part of town and cut that expense big time. With that being said, if kids are coming soon we might opt to buy a house in a cheaper area anyway. The rent expense is painful, but it's still one of the cheapest. 1 and 2 bedrooms generally go for 3-4.5k.

Luckily, my wife still wants to work so if I do pull the trigger I would have a bit of cushion. Thanks again!