Author Topic: Case Study - FIRE ready?  (Read 1952 times)

Path2FIRE

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Case Study - FIRE ready?
« on: September 23, 2018, 04:20:44 PM »
Hi, I have been a surfing the MMM forums for quite some time and thought itís time to put my case study out for review as my first post.  I find reading otherís case studies quite useful and informative.  So, here goes:

Life Situation: Married Filing Jointly; 3 kids, oldest is out and working, 1 finished her masterís and is job searching, and the youngest started her Masterís.  Have paid for all 3 kidís bachelorís degrees and other than some limited assistance as they get established, college funding can be checked off the list ☺

Age: 52 and wife is 52.

Living in a very high cost of living area

Gross Salary / Wages:  250K base, 62,500 Bonus (at target) annually

Deductions:  Max out my 401k (including catch-up), withhold taxes at single rate with no deductions (as I usually get hit with AMT every year, may adjust after seeing my 2018 taxes), and I max out my ESPP annually (guaranteed 15% return based on purchase discount).  Health Insurance and HCRA is 800 per month. 

Other Income: 75K in RSUs annually

Total Income: 387.5K (excludes investment income, which is reinvested)

Taxes:  My effective Federal rate on my 2017 taxes was 23%, State was 7.4%

Current Monthly Expenses:

Rent:  4,320
Phones, Internet, TV:  400 (high but I get reimbursed 160 per month from my company and still pay for my 2 daughters phones)
Clothing:  400
Utilities:  250
Food:  500
Dining out:  400 (wife loves to eat out, we get this out in cash at the beginning of the month and when itís out, thereís no eating out)
DVC Timeshare maintenance:  288 (timeshare is paid for, we do use this for regular vacations)
Gas:  100 (basically 1 fill-up per month on average per car)
Vacations:  1,000 (2-3 per, amoritized monthly)
Misc:  500
Total Base Expenses Monthly:  8,158

Expected ER expenses: 

Iíve worked 3 different tiers for ER expenses, assuming relocating to a LCOA area:

Basic Retirement:  50K (a comfortable minimum, with a bronze health care plan, 1,350 rent, insurance, out to eat, etc.)
Normal Retirement: 78K (+decent vacation budget, silver health care plan, more allowed for misc spending)
High-end Retirement:  95.5K (+higher rent, higher vacation budget, more for health care)

Note on health care, I estimated 500/1000/1500 monthly for basic, normal and high-end for retirement. 

Total Assets: 2,878,840 as of today (I use personal capital)

Approximate investment amounts:
Capital One 360:  44K (emergency fund)
Wells Fargo:  45K (Some emergency funds, bonus money, and checking)
Company Stock:  96K (ESPP and vested RSUs)
Fidelity 401k:  112K (Index 500)
Fidelity Rollover IRA:  1,216K (managed account)
Fidelity Investment account:  1,364K (Tax-managed account)

Overall asset allocation across Fidelity investments:
52% US Stocks
23% Intl Stocks
16.5% US Bonds
2.4% Intl Bonds
2.2% Cash
3.9% Alternatives

2 cars (2013 Lexus 450RX, 2015 BMW X3), both paid off.  Historically we buy new and hold ~10 years or until maintenance becomes an issue.  We bought our very first cars on loans, paid them off early, then put the payments in savings and paid for subsequent cars with cash).  Both are relatively new and we might go down to 1 car with an early retirement.  I do not include our cars in assets.

We do NOT own a home and rent currently.  When we moved from a lower cost of living area to our current area, we sold our large home and did a huge downsizing, from 4700 sq ft to 1100 sq ft.  The kids were leaving the nest so this made sense for us.  We added the equity to our after-tax investment account.  We rent a 2 BR so we have a room for kid(s) when the visit.  Older daughter is currently here as she job searches.

Liabilities:  None, no debt!

General Comments:

Using cfiresim and other calculators, it looks like I am already set for early retirement.  Cfiresim says I can spend ~110K per year with a zero percent failure chance, Iím thinking that I should go no higher than a 3.5% withdrawal rate, applying that to my current balance that would be a ceiling of about 100K.  This is higher than my high-end retirement budget.

My job?  Itís OK but it is high stress and Iím getting burned out of the rat race and would love to take some time off, travel and spend time with family.  My wife and I have talked about buying an RV and touring around the US for several years as an option.  If we donít do this, I probably wonít buy a house for a while as I prefer to be more mobile for early retirement.  We would move to a low cost area in a no income tax state (considering TX).

My wife does not work, she left the workforce when my youngest was 6 months old to be a stay-at-home mom and never went back.

Wife does not qualify for SS on her own and would draw from mine.  Given our assets unless our health changes I would target to start SS when we turn 70. 

Another note on SS - If I work to ~54-55, I will essentially max out my benefit as I would have hit the maximum deduction each year for the calculation window.  Working beyond 55 won't increase my payout.

Whatís holding me back from pulling the trigger today?
  • RSUs vest annually early in the year so would time any exit to be just after a vesting
  • My daughters are not quite off the payroll, the older daughter completed her masterís and is looking for a job and the younger one just started her masterís.  I do help out some with expenses and would like to continue to keep company insurance until the younger daughter finishes her masterís, unless she can find a job with insurance.
  • If I need to wait until my daughter graduates with her masters I would retire in mid-2020.  Would like to retire sooner, of course.

We have been working to reduce a few expenses, getting the kids off the payroll, reducing stuff in storage and reducing the amount of storage space we rent, and I eliminated my life insurance; given my current assets I think we can self-insure.  We don't watch expenses very closely but we do pay attention.  Probably our biggest expense other than rent is what we pay to help our younger kids (finishing up paying for school earlier in 2018, helping with rent, paying car insurance and phones, etc). 

Specific questions:

  • How do we look overall?  Do we appear to be FIRE ready?
  • Iím estimating health coverage would range from 500-1500 (basic to high-end retirement).  Assume that I would start coverage when my daughters are off my insurance so this would just be coverage for me and the wife.  Does this seem reasonable?  If we went the RV route health insurance would be more challenging and from what I read on forums we might need to go with a health share like Liberty as we would need national coverage.  If there are better options please let me know.  As others have stated, this is probably the biggest budget wildcard given the tenuous state of ACA and the potential elimination of the pre-existing conditions coverage.  We are healthy today but itís a risk.
  • I know current spend is high (I still canít believe the rent), but do the different expected retirement spends seem reasonable?  I think they do, based on other postings.  I didn't put in a detailed breakout to keep the post size down a bit.  Our main indulgences are out-to-eat and nicer vacations.
  • Is the approach of waiting until my youngest is out of her Masterís program reasonable, or should I pull the trigger early and help her pay for health insurance until she graduates?  She is taking out loans for her masterís and is working to pay her living expenses, but she doesnít have a F/T job with health benefits.  If she can find one that would be perfect and would remove the need for me to provide health coverage.  Her undergraduate is in Psychology and she is getting a masterís in counseling Psych so itís more difficult for her to find a F/T job in her field with benefits, she really needs her master's for that.  She currently lives in a different state that has lower cost of living.
  • For early retirement, I think I probably need about 3 years of cash to cushion any market downturn and reduce the sequence of return risk.  Selling the company stock, putting that in a money market or CD and assuming a more minimal spend of closer to 50K during a downturn should be sufficient as Iíd have ~200K in cash.
  • I would pull from after-tax accounts until I reach 59 1/2 and I think I have sufficient funds for this, especially with a cash cushion established for a downturn.
  • Has anyone on the forum done full-time RVing during an early retirement?  I am estimating about 40K per year plus the cost of the RV amortized which should run around 60K but if anyone has practical experience I would love to hear from you.

Thanks for reading!
« Last Edit: September 23, 2018, 04:28:58 PM by Path2FIRE »

nippycrisp

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Re: Case Study - FIRE ready?
« Reply #1 on: September 24, 2018, 12:58:07 AM »
The financial stuff will work. Your FIRE level is fat enough where taxes will need to be paid, if I read you correctly. There are better budget hawks than me, but I wanted to weigh in on two things: the time share and the idea of RV'ing.

- I'd dump the time share while working. Your life is changing and this may go away. It's also generally a terrible investment (see how much your time share goes for on Ebay), and it could suck to have it around your neck as an expense if the economy tanks and the market dries up.

- Regarding RVing, I'd like to share a story about the joys of owning and operating a rig: my mother and her partner bought an RV without ever spending the night in one. They owned this $250,000 gas-guzzling beast for four long years before giving up. My mother didn't like the lifestyle too much, but they were committed. They also bought it while owning a house they couldn't sell. Most of their lives as RV owners they spent parked at a family member's house, not driving around. When they did make an occasional trip, they got 8 miles a gallon and paid $30 a night for a campsite. Many of the features on their fancy vehicle frequently broke and required expensive repairs. When they finally gave up and sold it (to a dealer, after trying unsuccessfully to dell privately), they had a loss of more than $100K.

Also, the entire RV stank of shit whenever anyone dropped a deuce. And I hope you enjoy wearing sandals in public campsite showers. 

reeshau

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Re: Case Study - FIRE ready?
« Reply #2 on: September 24, 2018, 03:53:47 AM »
I also just have a couple of minor points.

Regarding health insurance for your daughter still in school, have you looked at any option the college has available itself?  students are pretty cheap to insure, and if the university has a medical campus, then delivery is leveraged, too.  It may not be as comprehensive as you want for yourself, but may be nominally cheaper than your situation now, and free you to move earlier.

As a response to @nippycrisp 's point:  my in-laws absolutely loved their RV's, and did the lifestyle heavily for more than a decade, as part of the "first chapter" in their retirement.  They were gone some years 6-9 months.  They covered North America multiple times, and would have done more except for Mexico's security problems.  That said, they did make annual visits to Indiana part of their schedule, for various maintenance--not just routine maintenance, but also system failures.  They also, as is common, went through 4 stages of upgrade as they were more serious.  their final machine, a huge diesel beast that required them to get a commercial license, was almost as big as your apartment (with slideouts) and had it's own shower and laundry if the camping facilities were sketchy, or at a place with no facilities.  There is no doubt it is expensive--don't forget you need a tow vehicle, too, since you won't want to take your monster to the neighborhood bar or grocery shopping.  But they loved it and had no regrets.
« Last Edit: September 24, 2018, 08:02:02 AM by reeshau »

Linda_Norway

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Re: Case Study - FIRE ready?
« Reply #3 on: September 24, 2018, 08:00:16 AM »
Your dining budget is quite high. You say that your wife loves eating out, but she currently doesn't contribute to the budget (as you have no young children anymore). I think you are entitled to lower that budget into something more reasonable if you feel it is too high. Same goes for the nice holiday budget.
« Last Edit: September 26, 2018, 11:24:34 PM by Linda_Norway »

Path2FIRE

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Re: Case Study - FIRE ready?
« Reply #4 on: September 24, 2018, 01:59:53 PM »
Thanks for the comments so far.  We are thinking that we would definitely ďtry before you buyĒ for an RV and rent one first and try it out for 1-2 trips and see how we like it before committing to it.  If we did decide to RV we would do it full time and not have the carrying cost for an apartment.

Asked my daughter to check into health insurance at her college, and will have a chat with the wife about the dining out budget. Dining out is fairly expensive in our area but I expect this budget to decline after we early retire.

ohmylookatthat

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Re: Case Study - FIRE ready?
« Reply #5 on: September 26, 2018, 08:27:18 AM »
no renter's insurance?

Path2FIRE

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Re: Case Study - FIRE ready?
« Reply #6 on: September 28, 2018, 10:04:10 PM »
The renters insurance is around 150 a year so I just count it under misc expenses.

FiveSigmas

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Re: Case Study - FIRE ready?
« Reply #7 on: September 28, 2018, 11:03:12 PM »
I’ve worked 3 different tiers for ER expenses, assuming relocating to a LCOA area:

Basic Retirement:  50K (a comfortable minimum, with a bronze health care plan, 1,350 rent, insurance, out to eat, etc.)
Normal Retirement: 78K (+decent vacation budget, silver health care plan, more allowed for misc spending)
High-end Retirement:  95.5K (+higher rent, higher vacation budget, more for health care)

Note on health care, I estimated 500/1000/1500 monthly for basic, normal and high-end for retirement.

I don't think it makes sense to budget different amounts for health-care based on your "level" of retirement. In particular, the quality of care you get for a silver plan isn't any "better" than a bronze plan -- you don't get access to better doctors or better treatment -- it just means you'll (in general) pay less if you have greater health-care expenditures. If you know you'll have higher health-care needs (e.g. you have a pre-existing condition or a family history of illness), you need to budget more (which may suggest a more expensive health-care plan is appropriate), but I would bake it all in to your "basic" number. You'll just need to pay what you need to pay.

That said, I can't really suggest a "good" way to budget for health-care in the future. Lots of people have different theories regarding what will happen to the ACA, and this could radically affect future costs (or even availability) of health-insurance.

Allie

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Re: Case Study - FIRE ready?
« Reply #8 on: October 12, 2018, 12:00:59 PM »
I think you are looking good even with dining out, the support of your kids, and such included.  Cutting the activities your wife enjoys is not recommended, especially right before you leave the work force to spend 24/7 together, possibly in confined space (I love RV living, btw).  If you do decide to follow the advice above and reduce those expense because she doesnít contribute any longer, please video record that conversation so you can post it on YouTube.  :-)

Regarding your daughters health care, have you investigated university sponsored heath plans?  Some colleges have plans available for full time students at a reasonable cost, or at least they used to.  Also, if she is living independently and only working part time, she may qualify for a reasonable aca plan or Medicaid if you no longer provide insurance.  She will probably qualify for either a well subsidized aca plan or Medicaid once she gets her first job, too as newbie counselors donít make much, so you may be off the insurance hook sooner than expected!

Rocketman

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Re: Case Study - FIRE ready?
« Reply #9 on: October 12, 2018, 02:24:10 PM »
Regarding your health insurance while full-time RVing. If you have a place where you plan on spending time every year, get your health insurance there.
For example, if you plan on spending winters in Florida you do all your annual checkups there - in the health network.
If something goes wrong and you need health care elsewhere you will have to pay out of network rates.
If something goes really wrong - you travel back to where your health network is to get all the expensive health care - you will be mobile - in less than a week you could be anywhere in the country you need to be.
Good luck and maybe I will meet ya on the road someday.

pbkmaine

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Re: Case Study - FIRE ready?
« Reply #10 on: October 12, 2018, 05:18:22 PM »
I have known a lot of people with RVs. 90% of the time it does not make sense financially. When it does, it’s usually with a kitted-out van or an insert that fits into a truck bed. If you keep it simple and add solar panels you can camp out in the wild.

Why not try a long trip by car instead? You can stay in a LOT of hotel rooms or BNBs for the cost of renting an RV.