Author Topic: High earners, good savers/bad investors, getting serious on FIRE  (Read 2075 times)

Redhotdog

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I have lurked here for some time and would like to use this excellent forum to draw some good advice and undoubtedly some severe face punching. We are mid/late 40s couple, married, one child in high school. No health issues. Looong educations, both started working at 30. Last year we blew up our live situation completely, in part because what I have read here. We were in a HCOL area, owned a 1.5M house that sucked up a huge part of our income between mortgage, aggressively paying down the principal (so missed much of bull market), endless high-end house renovations and crazy taxes (10k+). Talking about the hamster wheel! We now sold it, not making a dime on it but no loss either. Lesson learned, face punches merited and deserved. Last summer we moved to even more expensive COL area BUT also doubled our net salaries along the way, as we both took bigger positions with all the travel and stress that comes with it. My spouse took some convincing as we were admittedly living a very comfortable life in a beautiful house. The prospect of a smallish rented apartment and more intense work hours did not immediately spark a lot of excitement but after outlining how these changes could turbo-charge our FIRE plans she converted completely. We are now working as a team to finance a great future.

Liabilities: none what-so-ever

Assets: total of 2.05M
Tax-deferred pension accounts: 270k
Low cost ETFs: 1.6M
RSUs: 150k
Cash: 30k

Income: Our new situation looks as follows:
Salary, me: 318k.
Bonus, me: I expect 110k paid out, max is 180k
RSUs, me: 75k
Salary, spouse: 210k
Bonus, spouse: expect 50k paid out, max is 65k

Total annual gross is 763k, max attainable 848k. Net salary: 27.5k per month plus 7.5k from bonus on average after medical insurance and pension plans. So 35k net pay per month plus an additional 75k in RSUs (stable large company). In comparison before our relocation we netted just around 18K per month. I think we are close to maxing out our potential, I may get to 350k base salary within next 3-4 years. Very uncertain if I can make it to last management layer and sometimes I wonder if I even want it, given the politics.

Expenses: 8000 per month (3800 in non-rent expenses)
Rent & utilities: 4200 (1500 sqft apartment, in short distance from school and work)
Food & household: 800
Lunch at work: 200 (combined for both of us)
Restaurants: 150 (lots of business dinners so we dont do this much at own expense)
Travel: 1500. (this is what we live for, read on..)
Clothes, shoes: 200
Car insurance: 100 (one car only)
Gas, car maintenance: 150 (7 year old luxury sedan with 35k miles bought in cash for 30k)
Public transport: 50
Internet, cell phone, cable, Spotify, Netflix: 100 in total
Kids allowance (50% goes directly to savings): 300
Personal care (hair cuts, etc): 100
Sports: 150 (skiing, club memberships)

I realize this is a far cry from mustachian spending pattern, and we arguably have not done any real trimming but simply carried over our old life style while now earning more cash. Rent is insane here, but we will stay put at least until our kid moves out in 2 years for college, we could then downsize needed be. Still we aim at plowing in 320k each year into our taxable investment accounts for a saving rate of 77% (excludes RSUs/ tax deferred accounts and medical insurance).
Our aim: We actually enjoy our jobs and getting paid so well sparks the one-more-year syndrome. However, we are very conscious about the passing of time and especially as we are into travel in a major way. What we want in retirement is to travel, plain and simple. First a couple of years slow-travel with backpacks exploring the best hiking trails in the world. After that wed like to get a (used) VW California and cruise North America, Europe, Australia thin. Camping when and where we can. We have not really mapped out such a lifestyle expense-wise yet, but imagine 100k pr year should large do it. So the target is 3.5M invested and a paid-for house. We are done with expensive homes, but as we wish a waterfront property as a last residence we think we need 500k for this - even in a more remote place for a 1000-1200 sqft place. So total is 4M, which I hope we can achieve in 4.5 years

Some questions we struggle with:
   Does 100k pr year for such a life style sound reasonable?
   Are we crazy for staying in the circus for another 4.5 years? It took us 20+ years education to get there and tons of sacrifice. We are harvesting now and a small push gets us to a very comfortable place while we actually enjoy what we do. The shadow is the passing of time!
   Risk exposure. We happen to cash out the house at top of a bull market. My reasoning is that we can plow so much into the market that even if things tanked now, we could catch up. The ETFs are a mix of US (most), World, Europe and a few individual stocks (very limited). No CDs, no bonds, no REITS, no real estate
   One option is my spouse retires in 3-4 years and I (highest earner & 5 years younger) continue a bit longer. Spouse could then plan out trips and manage things better on the home front. Anybody has done this to ease into retirements?


ysette9

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Re: High earners, good savers/bad investors, getting serious on FIRE
« Reply #1 on: May 22, 2018, 02:57:43 PM »
Where are you going to live in retirement and how much would that cost? Are you fairly firm on needing $500k for that? Next, you need to spend some serious time daydreaming about what you really want to do with your time and attaching some numbers to how much that might cost. I love the idea of camping around the country. I don’t see how you could spend $100k a year doing that if you aren’t paying for a mortgage. Everything hinges on you having a good grasp of how much you will spend once you no longer work. Frankly, at first blush I think you could be done in a year or two provided you don’t have some ridiculously expensive hobby you will be taking up in the future. I can understand the draw of wanting more savings, especially with those salaries, but seriously, how would you spend all of that money, and would it ring you any more happiness?

tyort1

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Re: High earners, good savers/bad investors, getting serious on FIRE
« Reply #2 on: May 22, 2018, 03:09:43 PM »
You have a firehose of money going into your stash - nice work getting to the high income!  Our family doesn't make nearly as much as yours does, but we make a lot more than we used to.  IMO one of the biggest mistakes we made was thinking "Oh, we make so much $$ now, we don't really have to be careful with our spending".  And that mindset is what I would most urge you to guard against. 

Keep your lifestyle as efficient as possible.  Don't throw money at problems to make them go away instead of working through them yourself.  This type of carelessness leads to lifestyle creep, which can eat up even the biggest stash. 

Otherwise, a savings rate of 77% is pretty damn awesome.  Nice work.  And being able to FIRE in less than 5 years - that's also PDG.

fell-like-rain

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Re: High earners, good savers/bad investors, getting serious on FIRE
« Reply #3 on: May 22, 2018, 03:54:32 PM »
First a couple of years slow-travel with backpacks exploring the best hiking trails in the world. After that wed like to get a (used) VW California and cruise North America, Europe, Australia thin. Camping when and where we can. We have not really mapped out such a lifestyle expense-wise yet, but imagine 100k pr year should large do it.

   Does 100k pr year for such a life style sound reasonable?

The only answer to that is, "it depends". The fact that you think a backpacking/road tripping lifestyle might cost $100k a year says that your idea of backpacking and road tripping may differ quite a bit from mine. For perspective, I've gone on multi-month road trips with friends where we spent under $100/week/person. So $10k/year for a pair of people, plus auto and health insurance costs. Of course, we would camp nine nights out of ten (occasionally we'd crash at friends/family homes along the way), rarely stay in official (i.e. paid) campsites, and prepare all our own food. Also, whenever we hit a national park, we'd hit the trail for a week or so, which saved on gas costs.

In contrast, if you're mainly staying in paid accommodation, glamping occasionally, and eating every meal out, your costs could pretty easily go from $200/week to $200/day or more. Which starts to put you in the ballpark of your $100k number. So, like I said, it really depends on how you envision your life on the road, and how dirtbaggy you're willing to get.

pecunia

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Re: High earners, good savers/bad investors, getting serious on FIRE
« Reply #4 on: May 22, 2018, 04:14:47 PM »
Wow! 

You are already there at the 100K per year with the 4 percent rule.  At least you are gnat hair away from it.  Two and a half million invested will net you that.

Whatever you guys took for schooling looks like a path I should have considered.

Redhotdog

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Re: High earners, good savers/bad investors, getting serious on FIRE
« Reply #5 on: May 22, 2018, 11:54:37 PM »
Thanks for all the comments so far.

Ysette9, we actually dont know where we will settle, even what country. We have travelled extensively and seen a lot of cool places. But for retirement we havent found the place yet! Not US due to high medical insurance costs. We like the idea of Portugal, although we dont speak Portugese. But relatively low COL, great food and plenty of sealine. OUr retirement home will be a base to travel from on multi-week/month trips. We may simply delayu the purchase of a home until later in retirements. So not sure if 500k is required.

Tyort1. Very fair, we have a bit the wrong attitude. We have improved, especially my spouse on material stuff like clothing and (designer) furniture. Benn there, done that. But we may have a WTH attitude on food, given we are so much into that. So we are at least working in the right direction we feel.

Fell-like-rain. Well, we like a mix of camping, glamping and occasionnaly a hotel. So it will not be bare bone roughing it out, at least not all the time. What costs is guides (think expedition-type adventures). We love that but can go up very very fast.

Peccunia - thanks! Well, a simple forumla, certainly low risk: Life Science education all the way (PhD + post-doc). Get job at 30. Move into business side and link the two worlds = surprisingly rare skill always in demand. You cash in from there. But the best part - you get to work in area you really love, at least we did.

Hirondelle

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Re: High earners, good savers/bad investors, getting serious on FIRE
« Reply #6 on: May 23, 2018, 11:17:17 PM »
Awesome job in the high income and saving such incredible amounts of money. I think there's room to optimize some of your expenses like the work lunches and the clothes.

Also one thing I'd like to touch upon is whether your kid really needs a $300/month allowance? That's $75 a week! Holy crap! Your kid is 2 years from college, so I guess around 16 yo. What does he/she all pay with this? Can't he/she get a job? I can imagine in such a HCOL area it might be normal for kids that age to get such an allowance but to me it sounds like plain spoiling at that age and I've seen kids from rich families having a hard time once they get to college and have to work for their own money at $10/hour and/or keep expecting that their parents pay for everything.

Regarding travel $100k/year sounds like A LOT to me, especially as you mention slow travel/camping. I get that guides can make things pricier, but remember that if you slow travel you most likely will spend less per day than in "normal" travel. Slow(er) travel won't let you run from one expediciton to the other, you'll probably be happy just exploring places slowly on your own and only paying for guides ones in a while for special/difficult/dangerous areas. Also you only mention North America, Europe and Australia - have you considered lower COL travel areas like S(E)-Asia, Latin America and Eastern Europe as well? Spending part of your travel days in those places should easily enable you to lower average cost. There are some slow-travel threads on this forum that lay out people's budgets and none of them goes this high up as far as I've seen.

I think with a little tweaking of your current budget and a slightly more frugal approach for post-FIRE life you could be easily FIRE in 2 years once the kid goes to college and start traveling the world.

Redhotdog

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Re: High earners, good savers/bad investors, getting serious on FIRE
« Reply #7 on: May 24, 2018, 12:42:43 AM »
75 usd/week is a bunch of money, but it is in exchange for a service AND an educational tool. She gets the 75 usd but must clean the house (2 hr/week). But most importantly, 50% goes to a non-accessible investment account - to make a point. From very early on she has been imprinted that you MUST save 50% of every dollar that comes in and that this is normal behavior. We hope that she will carry this with her into her work life as well by establishing this habit. She also works summer breaks and every dollar goes to her investment account.

The accessible 150 pr month is for her to administrer. If she goes for a lunch with friends as sometimes happens, she pays out of own pocket. No extra cash is provided. We do provide basic clothing but if she wants some fancy sneakers she must top it up from her own account - and it becomes a coaching moment about making concious choices about spending on what matters. She finds us very tedious as parents :-)

She has no idea what kind of money we make. Yes, we eat and travel well but dont really show our cash. She one day went with me to work and asked why I parked my car in the lot reserved for the people who run the company.. Also, I remember we splurged once on a vacation trip and she kept on askingf quite worried if we really could afford this to a point where we had to assure her that we did not risk being put on the street because we had saved up for a great vacation together for a long time.

Why all this effort? Well my spouse and I came from low class families, always broke and we never learned about money. We try to do better for her, but of course I am curious to hear if the MMM forum believes we are now completely off track on how we do it.

Hirondelle

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Re: High earners, good savers/bad investors, getting serious on FIRE
« Reply #8 on: May 24, 2018, 01:07:40 AM »
That sounds very reasonable! Thanks for you additional explanation. I still think it's a lot of money, but I come from a lower class family too so that's probably why ;)

Good job on the stealth wealth attitude though. Sounds like you're trying your very best to teach her how to handle money and that it's working well considering she's saving a lot and gets worried when her parents seem to spend much :)

Redhotdog

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Re: High earners, good savers/bad investors, getting serious on FIRE
« Reply #9 on: May 24, 2018, 01:24:06 AM »
Yeah, she may be a future mustachian actually :-)

I take your point (as well as several people before that) on the 100k as overshooting. It is also a life timing situation about the 4.5 years.. our daugther will then be in college and well on her way. We are certainly locked here for the next two-three years until then as I cant see us backpacking with a girl back in high school on her own, although she might love the idea! And as pointed out also a couple of times, we have not really thought through exactly how our lives will be and at what price tag. Like the suggestion of spending some timie day dreaming, sounds pleasant and useful. We can perhaps cut off one year as suggested and declare victory once she enters college rather than after the first year or so.

Hirondelle, yes, the backpacking will indeed be in SE Asia, Latin/South America, sub-Sahara Africa - once we have travelled this thin the VW bus slow-travel will be in the more westernized world such as Europe, Australia and of course North America. Also doing it in this order should allow our stache to grow while  backbacking as I doubt we will spend that much in those regions. If we also delay the purchase of a home and rent a small one bedroom apartment in a LCOL just to have an address while backpacking, this should help grow the nest egg too.

Laura33

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Re: High earners, good savers/bad investors, getting serious on FIRE
« Reply #10 on: May 24, 2018, 09:36:57 AM »
FYI, our post-FIRE plans are similar:  wait until youngest kid goes to college, and then basically don't come home for a year or so.  :-)  The analysis that I have found very helpful is the "bucket" method.  The problem with the 4% rule is that it assumes that I need to sustain the income from my first few years -- when I am paying for college and traveling a LOT and before any pensions/SS kick in -- for the next 30-40 years.  I think Goldielocks laid this out first, but the idea is to divide your post-FIRE life into different time periods based on when your income/expenses change, and then calculate how much money you need to fill each bucket.  So for ex. maybe from 50-62, you need $100K/yr; that's $1.2M to fill that bucket.  But then at 62 you claim SS, which combined brings in $50K/yr, so you really only need $50K/yr to fill the gap.  So assume $50K/yr for 15 years, until the statistics say that one of you may die -- that's $750K.  Then from 77-on, your travel expenses go way down, but your medical expenses go up, so maybe now you need $80K/yr and have $25K in SS, so now your delta is $55K/yr -- etc. etc. etc.  Once you figure out how much you need in each bucket, you present-value that to tell you how much you need to have today to fill that bucket -- starting from the furthest-out time period.  So maybe you have a bucket from 77-95, and you calculate you need $900K to fill that bucket.  But that's many years away -- so the reality is that as of today, if you have say $150K, you already have enough to grow into $900K in 25-30 years.  So that bucket is filled -- check.  Then move to the next one.  And when you get to the point where your current savings is sufficient to fill all of your buckets, you are FI and can RE whenever you want.

I found this very helpful, because it told me that I needed quite a bit less than the 4% rule did (we have 2 SS + a pension that will be more than adequate to cover any normal-person's lifestyle needs, so the "real" issue is just covering the time between now and 67-70, with a little extra on the side in case of LTC issues).  And it was most effective for my DH, who had previously believed we needed some ridiculous 8-figure pot to retire in the style to which he'd like to become accustomed.  ;-)

ysette9

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Re: High earners, good savers/bad investors, getting serious on FIRE
« Reply #11 on: May 24, 2018, 10:49:21 AM »
I’ve done something similar but instead of thinking of it as buckets like Laura33, I just model my different income and expense streams in cFIREsim. I include the extra expense of the mortgage that will end at some point, SS and pension that will kick in way off in the future. I, too, find that I end up needing less money than the 4% rule of thumb would suggest, though it does depend on what you decide is a sufficiently safe succès rate.

Redhotdog

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Re: High earners, good savers/bad investors, getting serious on FIRE
« Reply #12 on: May 24, 2018, 01:13:45 PM »
Thanks Laura33 and ysette9, the bucket method is new to me but intuitively makes sense, as well as cfiresim. But dont both rely on stable income streams/ intact nest egg, especially as if you are optimizing to get as close to the 4pct as possible? Maybe I am overly conservative but I mentally go for 3 pct and in that factor in less withdrawal at higher age.. all because the market could tank and shave 30 pct off tomorrow. If the starting point is 4 pct, you are all the sudden at 6 pct and heading for disaster.

ysette9

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High earners, good savers/bad investors, getting serious on FIRE
« Reply #13 on: May 24, 2018, 01:19:07 PM »
I encourage you to run your own simulations in cFIREsim as well as really read into the research behind the 4% rule of thumb. A 30% dip is completely baked into that number. For cFIREsim you will get simulations of every year of actual market performance in the US going back over 100 years, which includes dips greater than 30%.    There is a great thread on this forum on the safety of the 4% rule. https://forum.mrmoneymustache.com/investor-alley/stop-worrying-about-the-4-rule/

There are intelligent minds who will argue with reason that it might be too optimistic to count on 4% in this environment. However, remember that you aren’t retiring in your early 30s with no social security, and those things matter, whereas someone retiring at 35, planning for a 60-year retirement who thinks that SS won’t be around is going to have a different risk tolerance.
« Last Edit: May 24, 2018, 01:20:57 PM by ysette9 »

Laura33

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Re: High earners, good savers/bad investors, getting serious on FIRE
« Reply #14 on: May 24, 2018, 03:20:08 PM »
@Redhotdog:  You are confusing two things.  The bucket method/cFiresim are methods of projecting how much money you will need to have saved at given points in time to make it through your plan.  What you are talking about is, once you get to Day 1 of Bucket A, how do you make sure that your Bucket A money will last until Day 1 of Bucket B.  And that is all about investment allocation and withdrawal strategies, which is another issue entirely. 

For one thing, my very rough bucket estimates do not assume any growth over the term of the bucket.  Go back to my original math, where Bucket A was $100K/yr for 12 years, or $1.2M.  The reality is, you would not actually need $1.2M on Day 1, as my very simplistic math assumes -- with a 12-year withdrawal period, you could probably start out with $1M (or less), because even if you take out $100K on Day 1, that still leaves $900K to grow (and even if you buy bonds that mature every year, you could still get, what, 2-4% interest, which means that by the end of Year 1, your remaining $900K would grow to $918-936K -- meaning the growth alone will cover 20-30% of your next year's needs).  So if you actually have $1.2M on Day 1 as the plan says, you could literally put the money for your entire bucket in the bank on Day 1 of Bucket A and still make it to Day 1 of Bucket B with no problems at all.*  Meanwhile, the money for Bucket B would still be in the market while you're living off Bucket A, because you'd have plenty of time to ride out the ups and downs.

IOW, my estimates are extremely conservative. In reality, I plan to do a phased approach, where I keep 3-5 years of investments in bonds or CDs, and the rest in VTSAX, and then buy more bonds/CDs every year to keep the ladder going -- that way, I have my living expenses covered for long enough that if the market hits a big wall, I can just live on the CDs/bonds and wait for the market to come around.

*You could, but you wouldn't want to, because you'd want to put it somewhere that at least keeps up with inflation to preserve your buying power over the next 12 years.