Author Topic: FIRE by 48?  (Read 3367 times)

patsfan

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FIRE by 48?
« on: September 05, 2018, 12:17:39 PM »
I’m 45 and would like to reach FIRE status at 48. My wife and I are savers and through blood, sweat and tears I feel we are in a good place, very fortunate.

That being said, a few financial calculators out there are not too positive with us reaching FIRE status by 48. Whether I retire or not, I would love to feel confident that I could walk away at 48.

Any feedback is appreciated......

Here's the rundown:

Salary

$655,000 / year
$90,000/ year (will receive state pension of ~25,000 per year)

Investments / Cash

$435,000 – IRA
$1,730,000 – Investments (after-tax)
$75,000 – MMA

Sales of business related

$780,000 – After-tax cash distribution (will receive 2021)
$2,350,000 – (starting 2021, paid over 7 yrs, 168 payments)

529 plans

$135,000 – 12 yr old
$130,000 – 9 yr old

Assets / Liabilities

$550,000 – Primary home (no mortgage)
$1,500,000 – Second home ($830,000 mortgage, 3.375%, $5,625 / month)
2015 and 2017 cars – both paid for

Expenses

$15,000 / month (mortgage, taxes, insurance, groceries, kid's activities, charity, house related, utilities, meals out, etc.)





RWD

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Re: FIRE by 48?
« Reply #1 on: September 05, 2018, 12:36:38 PM »
$15,000 / month (mortgage, taxes, insurance, groceries, kid's activities, charity, house related, utilities, meals out, etc.)

You'll need $4.5 million invested to sustain that level of spending. Including the sale of your business you're there already. If you can cut back on the spending (it is quite ridiculous) then you gain an even greater margin of error.

If you aren't interested in cutting back on spending then you've probably found the wrong forum. Bogleheads is going to be more aligned with your values:
https://www.bogleheads.org/forum/index.php

Watchmaker

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Re: FIRE by 48?
« Reply #2 on: September 05, 2018, 12:42:36 PM »
Your current expenses are 15k. Total investments right now of 2.24 MM.

That would be an 8% withdrawal rate, which is too high.

Add in the business sale income and it drops to 3.3%, which is much more reasonable. Assuming that sale income is guaranteed, and if you plan to keep working for the next few years at that income, you should have no problems at all.

But you could also probably drop you expenses to 10k pretty painlessly if you wanted to post a budget.

Goldielocks

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Re: FIRE by 48?
« Reply #3 on: September 05, 2018, 12:52:39 PM »
$15,000 / month (mortgage, taxes, insurance, groceries, kid's activities, charity, house related, utilities, meals out, etc.)

You'll need $4.5 million invested to sustain that level of spending. Including the sale of your business you're there already. If you can cut back on the spending (it is quite ridiculous) then you gain an even greater margin of error.

If you aren't interested in cutting back on spending then you've probably found the wrong forum. Bogleheads is going to be more aligned with your values:
https://www.bogleheads.org/forum/index.php
The $4.5 Million assumes that you need $15k /month pretty close to forever.

Instead, calculate
A) the $15k/month until your kids are in college, then add in college expenses for those years.@.
Example:  $15k x 12 x 10 years + 2 kids x $100k = $2 Million  oh, wait you already have pre saved college.  $1.8 million, then to get you through 10 years.
B)Without the kids, what is your new spend rate after tax?   In my experience, no kids is a LOT cheaper.
 and Net out the pension 25 k / yr. to get net expenses.
example:  ($8k /mo x12)- $25k/yr ; at 4% return for long term pull money = $1.775 Million (after tax)

TOTAL:  $3.575 Million -- and this does not even include that B) above could be invested more years to grow before you start to pull money.

Use any excess to pay down the mortgage.  Pay down the mortgage with excess income, too, and you will be fine.  (hmm unless you can't cut your expenses to $100k per year after kids are gone?).
« Last Edit: September 05, 2018, 12:57:32 PM by Goldielocks »

Goldielocks

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Re: FIRE by 48?
« Reply #4 on: September 05, 2018, 12:58:38 PM »
To be clear, you will also need to keep excellent tax advisors as your retirement income will remain high and there are many ways to invest and pull living expenses at a lower than typical tax rate to make this work.

patsfan

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Re: FIRE by 48?
« Reply #5 on: September 05, 2018, 01:27:52 PM »
Thanks everyone, your feedback has been helpful. And yes, my plan is to get to a $10,000 budget. My kids sports and activity expenses are ridiculous. When they are in college our budget will be much lower, closer to $8,500.

Our income will remain steady and my plan is to save and invest $7,000 / month (current savings rate) for the next 3 yrs. That will add some additional cushion.

reeshau

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Re: FIRE by 48?
« Reply #6 on: September 05, 2018, 02:16:03 PM »
And yes, my plan is to get to a $10,000 budget.

You could also be there *right now* if you got rid of the second house.  And that's just counting the mortgage.  But I am sure it is driving a lot of other costs, too.  While you seem to be doing fine for the plan you have laid out, if you ever get itchy to leave or run into trouble, that's the big rock; not just because it's the biggest asset, but because it is your biggest liability.

patsfan

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Re: FIRE by 48?
« Reply #7 on: September 05, 2018, 03:13:55 PM »
Thanks, and agreed on the second home. I think about that a lot. Right now it's a sanctuary and a place to build memories while the kids are young. I am paying down the principal as aggressively as I can with the hope of paying it off way ahead of schedule. But yes, it's a nut that comes with ongoing operating expenses.

Nick_Miller

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Re: FIRE by 48?
« Reply #8 on: September 06, 2018, 10:55:21 AM »
Thanks, and agreed on the second home. I think about that a lot. Right now it's a sanctuary and a place to build memories while the kids are young. I am paying down the principal as aggressively as I can with the hope of paying it off way ahead of schedule. But yes, it's a nut that comes with ongoing operating expenses.

I'll admit that I have hard time comprehending your income and spending levels. But basically as I see it, you are working for the next few years so that you can have a second home, something that 99% of the population doesn't have, and yet somehow they are able to "build memories" without. I am not trying to slam you, you've obviously worked very hard for many years, but I'm just saying, if your goal is to really "build memories while the kids are young," wouldn't another way of doing that be to sell the home, and use the $700K in equity to launch your retirement now? With a paid off primary house, piles of investments, and more money coming from a business sale down the road, why are you waiting until 48?

Goldielocks

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Re: FIRE by 48?
« Reply #9 on: September 06, 2018, 11:32:57 AM »
Thanks, and agreed on the second home. I think about that a lot. Right now it's a sanctuary and a place to build memories while the kids are young. I am paying down the principal as aggressively as I can with the hope of paying it off way ahead of schedule. But yes, it's a nut that comes with ongoing operating expenses.

I'll admit that I have hard time comprehending your income and spending levels. But basically as I see it, you are working for the next few years so that you can have a second home, something that 99% of the population doesn't have, and yet somehow they are able to "build memories" without. I am not trying to slam you, you've obviously worked very hard for many years, but I'm just saying, if your goal is to really "build memories while the kids are young," wouldn't another way of doing that be to sell the home, and use the $700K in equity to launch your retirement now? With a paid off primary house, piles of investments, and more money coming from a business sale down the road, why are you waiting until 48?
Nick_Miller

With their annual income currently, "OMY" to afford all the things  and activities you could want now, especially when kids are still likely in elementary/middle school is a huge incentive for most families, even those with 1/3 this income. 

Obviously OP could retire today if lifestyle was cut back...  but that is not what OP is saying that they need now.

OP -- I highly recommend reading "millionaire next door" a couple of times, the chapters on "Economic Outpatient Care" regarding one's kids is an especially important idea... [one that you may already be on top of].     It is only as I and my kids have gotten older, and I compare  our situation to siblings and my nieces, that I realize how entirely true the author was on this point....it is like a roadmap "If you do A, then the result is B"...  the foundations for strong, happy,  independent adults is laid in these early years.

patsfan

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Re: FIRE by 48?
« Reply #10 on: September 06, 2018, 12:33:17 PM »
Thanks Nick_Miller and Goldilocks. Your feedback is appreciated. I look at the second home as both a long-term asset and a place to spend family time. If there comes a time where my kids "outgrow" the house then I would sell it or rent it out. Renting would cover 85% of mortgage, insurance and operating costs. Selling and renting would be easy to do. So I figure it's a safety net that I could deploy when it makes sense.

@Goldilocks - I'll pick up the 'Millionaire Next Door" and read the chapter you mention.

One thing, I analyzed my budget last night in greater detail. I used the BoA budget tool and it was double counting a few categories. I'm going to post the details once I feel comfortable that everything is correct.

 

   
 

patsfan

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Re: FIRE by 48?
« Reply #11 on: September 07, 2018, 11:42:47 AM »
I'm the OP but it's my first and I'm new to this forum and I LOVE IT! Someone mentioned I consider bogleheads given my "values" and I say my 'values' are the same as everyone on this board. I want to tighten my expenses to the absolute minimum so I can reach FU status. I recast my budget and I'm at $9,778/month. I was off by $5,000 based on how BoA calculates budget allocation. When my kids are out of the house (8 yrs from now) my budget will be close to $7,000/ month.

In the meantime, I think I'm at FU status in 2.5 yrs. Am I crazy?

RWD

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Re: FIRE by 48?
« Reply #12 on: September 07, 2018, 12:01:06 PM »
I'm the OP but it's my first and I'm new to this forum and I LOVE IT! Someone mentioned I consider bogleheads given my "values" and I say my 'values' are the same as everyone on this board. I want to tighten my expenses to the absolute minimum so I can reach FU status.
My statement about values was an "if" conditional. "If you aren't interested in cutting back on spending" then "Bogleheads is going to be more aligned with your values."

I recast my budget and I'm at $9,778/month. I was off by $5,000 based on how BoA calculates budget allocation. When my kids are out of the house (8 yrs from now) my budget will be close to $7,000/ month.

In the meantime, I think I'm at FU status in 2.5 yrs. Am I crazy?
Yes, you're crazy. You are at FU and FI status right now even without cutting back.

DoNorth

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Re: FIRE by 48?
« Reply #13 on: September 07, 2018, 12:02:31 PM »
are you including your second home mortgage in that monthly budget number?  What's the rationale behind paying it down so quickly?  The interest on that has to exceed the standard deduction even with the change to the tax law.  With a 3ish% interest rate on a second home, no less, it might make more sense to keep the note and keep those funds invested.  I understand wanting to retire debts before you FIRE, but I still think cash offers a lot more flexibility while you're FIREd.  If you're looking at 8-10K monthly budget in FIRE, laddering between $240K-$360K in CDs or bonds/muni bonds etc. covers all your living expenses during any market downturns and prevents you from having to sell off your portfolio at an inopportune time.

Goldielocks

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Re: FIRE by 48?
« Reply #14 on: September 07, 2018, 01:50:36 PM »
I'm the OP but it's my first and I'm new to this forum and I LOVE IT! Someone mentioned I consider bogleheads given my "values" and I say my 'values' are the same as everyone on this board. I want to tighten my expenses to the absolute minimum so I can reach FU status. I recast my budget and I'm at $9,778/month. I was off by $5,000 based on how BoA calculates budget allocation. When my kids are out of the house (8 yrs from now) my budget will be close to $7,000/ month.

In the meantime, I think I'm at FU status in 2.5 yrs. Am I crazy?

You are so far beyond FU it is crazy.   FU means that you have the money to quit for a year or two (or less), and go find another job after.

You are FI now, and only your wanting to continue to fund the kids and current family lifestyle -- without any concerns, or cutbacks, many of which would not be painful at all -- is the reason to keep working.

AccidentalMiser

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Re: FIRE by 48?
« Reply #15 on: September 08, 2018, 12:33:31 PM »
I'm the OP but it's my first and I'm new to this forum and I LOVE IT! Someone mentioned I consider bogleheads given my "values" and I say my 'values' are the same as everyone on this board. I want to tighten my expenses to the absolute minimum so I can reach FU status. I recast my budget and I'm at $9,778/month. I was off by $5,000 based on how BoA calculates budget allocation. When my kids are out of the house (8 yrs from now) my budget will be close to $7,000/ month.

In the meantime, I think I'm at FU status in 2.5 yrs. Am I crazy?

You are so far beyond FU it is crazy.   FU means that you have the money to quit for a year or two (or less), and go find another job after.

You are FI now, and only your wanting to continue to fund the kids and current family lifestyle -- without any concerns, or cutbacks, many of which would not be painful at all -- is the reason to keep working.

This.

You ARE at FI and FU.  Read this blog from cover to cover.  Adjust your spending and expectations.  Sell your second home and rent a home where ever it is for two weeks per year.  Bail out of the life you're tired of and live anew.  That's all I have for you except to say if I had your resources, I would have happily retired some years ago.

Watchmaker

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Re: FIRE by 48?
« Reply #16 on: September 10, 2018, 01:54:26 PM »
In the meantime, I think I'm at FU status in 2.5 yrs. Am I crazy?

Unless there is a significant amount of risk that the business sale income won't materialize, you are FI right now. Easily.