Hi, I have been a surfing the MMM forums for quite some time and thought it’s time to put my case study out for review as my first post. I find reading other’s case studies quite useful and informative. So, here goes:
Life Situation: Married Filing Jointly; 3 kids, oldest is out and working, 1 finished her master’s and is job searching, and the youngest started her Master’s. Have paid for all 3 kid’s bachelor’s 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 it’s out, there’s 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: 8,158Expected ER expenses: 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.
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, I’m 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? It’s OK but it is high stress and I’m 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 don’t do this, I probably won’t 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.
What’s 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 master’s and is looking for a job and the younger one just started her master’s. I do help out some with expenses and would like to continue to keep company insurance until the younger daughter finishes her master’s, 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?
- I’m 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 it’s a risk.
- I know current spend is high (I still can’t 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 Master’s 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 master’s and is working to pay her living expenses, but she doesn’t 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 master’s in counseling Psych so it’s 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 I’d 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!