FIRE outlook validation - we're close I think?

[Porkins]

edit: clarified child schooling; added account annual contributions

Hello everyone! I discovered the FIRE communities about four years ago and have been lurking MMM for those four years making financial adjustments along the way. This community has been incredible and invaluable and I wish, wish, wish I'd stumbled across it or paid any real mind to finances earlier. Now it’s time for a FIRE reality check. How far away are we?

I’m in IT and she’s in Medicine. We have continued earning potential, but I’ve been looking for an out for years. She may or may not want to continue in a post-COVID hospital world.

I’ve been tracking every single dollar earned and spent since 2016 using YNAB (old, retired desktop install version) and have identified a crap-ton of fat to trim. We’ve cut back little-by-little over the past few years though we’re admittedly still very much spendypants and facepunchworthy particularly with Food and Travel. I can give a detailed breakdown of monthly expenses if it’ll help, but for brevity we’re looking at a FatFIRE spend of about $100,000 per year. I’m actually calculating somewhat less, but rounding up for ease of math and buffering.

45yo/44yo spouse, MFJ
1 child (14yo) who is High Functioning Autistic
MCOL city in SE USA

Household Income (Gross)
•   Him: $140,000
•   Her: $200,000

Investments
AA: 72% stocks / 22% bonds / 6% cash
•   Roth IRAs: $314,000 ($12,000 annual contributions via backdoor)
•   401k/403b: $1,468,000 ($39,000+company match $29,000= $68,000 annual contributions)
•   Taxable: $267,000 ($117,000 in contributions annually at present)
•   Cash: $100,000

Other Holdings
•   529: $78,000 ($4,000 annual contributions)
•   HSA: $55,000  ($7,100 annual contributions)
•   Taxable: $32,100 (earmarked for child if we’re otherwise good to go)
•   Home Valuation: $475,000 (Paid in full/no mortgage)

Liabilities
•   Auto Loan: -$6,893 @ 0% interest (min. monthly payments will have this zeroed 10/21)
•   HVAC Loan: -$5,615 @ 0% interest (min. monthly payments will have this zeroed 4/22)
•   Tuition: -$25,000 Each Year (HFA child’s private school; three more years until he graduates HS)


FatFIRE of $100,000 assumptions:
•   $1,000 monthly health insurance premiums (wild guess)
•   $7,000 annual income tax (wild guess solely based on $100k MFJ & standard deduction and not on optimized withdrawal strategies or capital gains rates)
•   $7,500 annual property tax + HOA dues (current home; could relocate I suppose)
•   $12,000 home/auto sinking fund for repairs, replacement (wild guess)
•   No private grade school tuition
•   No Work Expenses (licensing, etc)
•   Slight reduction in grocery bill and restaurants (assuming child is independent)
•   The rest of the monies go to 2020 levels of spending for any given category

Biggest Concerns/Unknowns
1)   HFA child post-grade school – College? Trade school? Either can be at least partially covered with the 529. It seems there is a good chance he will be able to work and live on his own, but I have NO idea of his earning potential or ability to manage on his own without financial supervision.. I mean he’s still only 14 and there is a lot of growing up to do. Still, our “empty nest” concerns probably differ wildly from those with neurotypical children. This is a hugely impactful unknown.
2)   Healthcare – Duh. Just like everyone else looking at RE. Option on the table, as unsavory as it is: work until 55 (either of us) at which point we become eligible for medical bridge coverage on the employer plan until Medicare becomes available. Addendum: she is perfectly healthy (currently) whereas I have UC and an auto-immune issue requiring monthly medication retailing at $1,200 for 120 days (insurance has cut that way, way down, but don’t know what to expect with ACA.
3)   Withdrawal Strategies – Buffer up Taxable to allow for a decade+ of living expense withdrawals prior to tapping the traditional retirement funds? Mess around with SEPPs or dip into Roth contributions (not the gains) prior to 59 ½? Work until 55 ½ *shudder* to make 401k/403b withdrawals uncomplicated?

So what kind of time frame are we looking at for realistically being able to call it quits? I reckon we’re both working at least until he’s 18 yo so four years if for no other reason than so we can strike private primary school tuition from the expense list. I’ve messed around a lot with FireCalc and about five other calculators and according to those four years left is doable. I’d like some “real people” perspective though. I know calculators are garbage-in/garbage-out and only deal in historical periods to project the future.

Thank you all!

[ixtap]

It seems more likely you are actually referring to your child's secondary schooling? Referring to a 14yo in primary school made me wonder about your definition of HFA, but it sounds like it is due to a misuse of the term? You are correct, though in that it is hard to make a straight forward plan without knowing his expected outcomes.

Is your 2020 budget actually realistic to determine long term spending? We haven't bought any clothes, because we aren't going anywhere. We haven't gone anywhere, so travel spending is down. But I know some people spent more for various reasons. It just seems like an odd choice to set your budget at.

Moreover, what does "retirement" look like for you? Sure, you could move to a lower COL, but is that what you both want to do? What do you want to spend your time and money on?

Are you aware of the Roth Conversion ladder as an alternative for withdrawing funds prior to 59 1/2?

[Porkins]

Hi ixtap, thank you for responding.

Child clarification may be in order. He is currently 14 years old and attending a private school specializing in the education of autism spectrum kids as well as learning disabilities. Our child will continue going to this private school through the end of high school to the tune of $25,000 per year. It's expensive, but our three years in public school were a complete waste of time. You are correct in that I was not using the correct term. By "primary school" I meant to say "elementary, middle, and high school" basically school before college or trade. I will edit the original post.

2020 expenses were down compared to prior years, but not dramatically so. For example, we both continue physically to go into the workplace nearly as often as pre-COVID. Our mileage and fuel consumption has actually increased due to continued commute and increased outdoor activities. Travel (Vacation) expenses are down about 20% as I managed to sneak in an expensive ski trip in February '20 prior to lockdowns.. that ski trip is the single most expensive Travel expense annually.

I could set spending expectations based on 2019 expenses, but that wouldn't be entirely accurate either considering the year-over-year trimming of the fat. Again, detailed spending could be provided, but I'm confident the 2020 numbers better reflect long-term expectations than 2019 or prior. You would also likely be appalled at even our 2020 expenditures (I'm showing $700/mo groceries, $315/mo restaurants).

Retirement for me looks like volunteer work and a lot more outdoors adventuring: kayaking, paddle boarding, hiking, lying on a beach. There's also a volunteer aspect which I'm already doing while employed that I would like to increase my time doing. I'm not sold on moving to a lower COL, but perhaps downsizing from the 5-bedroom home to something smaller in the same area. It's not off the table as an option, however.

I have heard of the Roth Conversion ladder, yes. I'm only now really starting to research the funding strategies though and absolutely do NOT have a firm grasp of what I need to do yet.

[swashbucklinstache]

Can you add your total contributions to investment accounts per year? Want to make sure I'm not missing anything.

I count about 2 million in not earmarked invested assets today with around 160k contributed each year, against 100k planned spend. 

If we got no growth and those numbers are right, in 4 years that's 2.64 million. For me, this is a clear case of "if all goes average, and junior isn't best served by us retiring*, then it's time to FIRE."

Healthcare concerns are real. In your shoes I'd look at actual policy quotes today for each age of your pre-medicare years. Then I'd consider above average healthcare inflation between now and then, and Medicare costs. Include out of pocket maxes. Then consider long term care, but not too hard since you didn't mention social security and 30-40 years of that banked + home equity would solve that well.
* I'll expect you'll find this fine, unless your child's situation is one where you feel a need to definitely set aside funding for their adult life. OMY might provide your child 16k a year at 4%, so something to think about.

I think taxable alone has a good chance to tide you to 59 honestly.

My overall take is you've put yourself in a great position with a 4 year target and it's up to fate + the markets that'll tell us if it's 4 or 6 or 8 years.

[Porkins]

Thank you swashbucklinstache.

Per your request regarding savings contributions each year:
2xIRA: $12,000
2x401k/403b: $39,000
Taxable: $117,000 (at current rate; has fluctuated in past years as we worked on budgeting properly)

We're also blessed with company matches to the 401k/403b which I have neglected to mention. Average for the past four years for the two accounts combined is another $29,000. We're closer to $197,000 savings contributions per year. And no, I am purposefully leaving SS out of the mix; I've been suspicious of ever receiving a dime of it since I was about 15 years old. It would be gravy as far as I'm concerned, but I don't want my FIRE numbers to be reliant on it.

Having too much is going to 401k/403b/IRA vs Taxable is another thing I've read some people warn against in other Case Studies. Not sure I understand that argument, but have definitely been escalating the Taxable contributions these past few years.

I'm hopeful our Taxable will have grown enough in the next four years to cover through age 59. Only time will tell I suppose. It would simplify my withdrawal strategy immensely if it does.

Lastly, thank you for the suggestion to begin looking at policy quotes. LTC was a bad investment last I checked; too many exemptions and coverage denials, but maybe it's getting better. I haven't checked those for over two years. My $100,000 FIRE number for what it's worth does NOT include the Term or LTD policies we currently pay for. That FIRE number does include 2020 expenditure rates for dental, hospital/clinic, labs, pharmacy, vision and therapy. No idea how that would shake out cost-wise in retirement.

Also, as you rightly state "and junior isn't best served by us retiring." That is also an "only time will tell."

[jeroly]

I think that, should things go well with your son's academic and socialization progress, you are probably a bit shy of your mark at the moment, but factoring in your plan to work another four years, you're going to be well set in all likelihood.  Figure you need $110K not $100, as I think your budget for healthcare is on the low side when you add in deductibles and your pricey medications.  However you need 2.75M to bankroll that with a 4% WR, and you're at something like 2.2M not counting your home equity.  So with four years of $150k+ savings, even if the market just breaks even over the next four years, you're going to be good to go.

As far as your questions relating to supporting your son go... You  need to prepare for multiple scenarios. 
- In one, he succeeds academically to the point of being able to attend college.  I'm assuming that you are planning to pay for his college education, and if you continue to fund at $4k/yr for the next eight years, plus some appreciation over that time, you probably will have around $150k in there eventually, which should pay for his tuition, room and board, and incidentals, at an in-state public university for four years, or perhaps two years of community college and two at a fancy-schmancy private school.
- In another, he is not able to succeed on his own and needs supplemental assistance from you his parents.  It will be a very different price tag depending on whether he lives with you or not, and whether he is able to maintain employment or not.  It could be a range from a cost of $0 to $50,000/yr depending on what you opt for and what level of functioning he winds up being capable of.  This is clearly a huge impact on the timing and quality of your retirement living.

Regarding your question around tax implications... also look into rolling Roth conversions as they allow you to then withdraw the contributions after 5 years instead of having to pay penalties on pre-age-59 1/2 withdrawals.

[Porkins]

I think that, should things go well with your son's academic and socialization progress, you are probably a bit shy of your mark at the moment, but factoring in your plan to work another four years, you're going to be well set in all likelihood.  Figure you need $110K not $100, as I think your budget for healthcare is on the low side when you add in deductibles and your pricey medications.  However you need 2.75M to bankroll that with a 4% WR, and you're at something like 2.2M not counting your home equity.  So with four years of $150k+ savings, even if the market just breaks even over the next four years, you're going to be good to go.

As far as your questions relating to supporting your son go... You  need to prepare for multiple scenarios. 
- In one, he succeeds academically to the point of being able to attend college.  I'm assuming that you are planning to pay for his college education, and if you continue to fund at $4k/yr for the next eight years, plus some appreciation over that time, you probably will have around $150k in there eventually, which should pay for his tuition, room and board, and incidentals, at an in-state public university for four years, or perhaps two years of community college and two at a fancy-schmancy private school.
- In another, he is not able to succeed on his own and needs supplemental assistance from you his parents.  It will be a very different price tag depending on whether he lives with you or not, and whether he is able to maintain employment or not.  It could be a range from a cost of $0 to $50,000/yr depending on what you opt for and what level of functioning he winds up being capable of.  This is clearly a huge impact on the timing and quality of your retirement living.

Regarding your question around tax implications... also look into rolling Roth conversions as they allow you to then withdraw the contributions after 5 years instead of having to pay penalties on pre-age-59 1/2 withdrawals.

jeroly,
Thanks for your thoughts, especially in laying out the two possible scenarios with our son. That's been in the back of my mind a lot, but it's really helpful to see someone else putting it into words. Really appreciate you commenting.

[swashbucklinstache]

Thank you swashbucklinstache.

Per your request regarding savings contributions each year:
2xIRA: $12,000
2x401k/403b: $39,000
Taxable: $117,000 (at current rate; has fluctuated in past years as we worked on budgeting properly)

We're also blessed with company matches to the 401k/403b which I have neglected to mention. Average for the past four years for the two accounts combined is another $29,000. We're closer to $197,000 savings contributions per year. And no, I am purposefully leaving SS out of the mix; I've been suspicious of ever receiving a dime of it since I was about 15 years old. It would be gravy as far as I'm concerned, but I don't want my FIRE numbers to be reliant on it.

Having too much is going to 401k/403b/IRA vs Taxable is another thing I've read some people warn against in other Case Studies. Not sure I understand that argument, but have definitely been escalating the Taxable contributions these past few years.

I'm hopeful our Taxable will have grown enough in the next four years to cover through age 59. Only time will tell I suppose. It would simplify my withdrawal strategy immensely if it does.

Lastly, thank you for the suggestion to begin looking at policy quotes. LTC was a bad investment last I checked; too many exemptions and coverage denials, but maybe it's getting better. I haven't checked those for over two years. My $100,000 FIRE number for what it's worth does NOT include the Term or LTD policies we currently pay for. That FIRE number does include 2020 expenditure rates for dental, hospital/clinic, labs, pharmacy, vision and therapy. No idea how that would shake out cost-wise in retirement.

Also, as you rightly state "and junior isn't best served by us retiring." That is also an "only time will tell."

Wow, even better! I'm confident that you'll be in good shape when the time comes unless it coincides with a crash.

On LTC, I actually meant the cost of care itself and/or insurance. That is, your expenditures might be X on average but X + 100k for a few years at the end. Potentially problematic if that happens when one of you has 10+ years left. I'm confident if you earmarked all social security payments for that you'll be in good shape, but it's a thing to think through at least once. LTC insurance might help, but honestly I feel you can self ensure or are at least close enough that I wouldn't decide to get it now, and reevaluate at retirement.

Similarly, with "quotes" I did mean get quotes for medical insurance from the ACA. Since they change with age, maybe check out what they are right now for your family if you were ages 50, 55, and 60 to give an idea of what they'll potentially look like. Might inflate them a couple % more than overall inflation as well, and include more than you currently spend of the deductible to cover utilizing more care as you age.