Just had offer on a house accepted. Can I still FIRE next year?

[Dulcimina]

Life Situation: Single, 49, USA.

I have had FIRE as a very clear goal for the last 20 years, but was only able to get intense about it in the last 13. Additional responsibilities in the last few years have left me feeling even moretired and overwhelmed most of the time. I really want to move from my 500sf studio where I’ve lived since 2007, to a house where I’ll be able to garden, have room for a dog, have friends over etc. I decided to get the house now while still working, so I’ll qualify for a mortgage. I have a contract a house for $440,000.

Gross Salary/Wages: $133,000
Pre-tax deductions:
Employer TSP:   $19,000
Employer Pension Plan :  1,027
HSA:  $2,800
Limited Expense FSA: $275
Medical Insurance: $1,526

Taxes (Federal, State/Local, and FICA): $37,106
Net Income/Take Home Pay: $71,266

Other Savings/Investments:
Roth IRA: $5,000
Employer match (TSP)  :  $5304
Employer HSA contribution: $750
Savings account:   $28,740

Current Expenses (annual):
Housing:
Condo : Mortgage: $6648 (includes overpayment of $1092- kept old payment after 5/5 ARM adjusted down)
Condo fees (includes utilities, cable, internet): $6492
Condo Taxes: $1140
Condo Insurance: $480
Total Housing: $14,760/year ($1230/month)

Other bills:
Cell phone (includes Netflix): $336
Gym: $300

The numbers below are rough estimates that I set aside in a savings account to be used as needed. I don’t track spending closely any more, but most spending is by credit card, and I can casually check that I spend much less in most categories. With COVID, spending has been even less this year.

Groceries: $3360
Entertainment/Dining/Hobbies: $2160
Medical/Dental (dental not covered by LEX-FSA, medical deductibles, etc.): $1800
Medical (cosmetic): $3745
Transportation (public transit, uber/lyft, Zipcar): $1920
Clothing: $900
Gifts/Donations: 2100
Personal Care/Toiletries: 300
Subscriptions (amazon, cc annual fee): 205
Vacation: $1440
Apartment reno fund: $3000

Total (without housing): 22,766
Total (including housing): 37,526/year


Projected Post FIRE expenses if I buy the house:

Some expenses (e.g. cosmetic) will go away, but likely replaced by health insurance premiums in retirement. Housing would increase.  Transportation could also increase if I purchase a car as the new house is in the suburbs. Gym expense might go away if  I can equip a home gym in the garage.  A pet would be an added expense. But those are discretionary, so not including them at the moment

Mortgage: estimate $1606/ month (assuming 10% down and 2.7% interest)
PMI (could possibly avoid PMI with a HELOC, and pay off after sale of condo. Lender will send estimates of various scenarios once he gets the contract): est $250
HOA fees est $125/month
Taxes: est $350/month
Condo Insurance: $100/month
Utilities: est $300/month
Total housing: ~$2730/month or $32,760 per year
Total new housing + current expenses: $55,526 per year

Assets:
TSP: $555,000
Roth IRA: $176,000
Brokerage: $419,000
HSA: $43,000
Savings/CDs: $99,000 (down payment and closing costs will come from this)
Condo: ~$165,000
Savings Bonds: $3000
Total (Invested, Savings): $1,292,000

Pension: expect $14k (at 57)-19k (at 62) annually if I leave this year. Increases if I work longer

Liabilities: mortgage $87,000

Specific Questions
1) Is this house a terrible idea? I can still get out of the contract.
2)Thoughts on PMI vs. HELOC? I technically have enough for 20% down, but I’d rather keep some cash in reserve until my condo sells.
3) Should I consider renting my condo instead of selling? I don’t think I’d get much more than $1300/month in rent. It’s quite small, but is well located near the metro, my employer and includes utilities
4) If I buy this house, can I safely retire next year with the new expenses and if so, could I do it at the beginning of 2021?

Other Comments:
If I resign at the end of the 2020, I’ll be able to cash out another $15-20k of unused leave.
If I work longer, I won’t be able to save much in taxable accounts, but I’d still be able to max my TSP, HSA and Roth. If I retired, I’ll be over 4% withdrawal rate unless I barista fire.

[rockeTree]

Over 4% without including the car and pet you want to have in retirement seems a little too touch and go, though if you had priced out health insurance and had a better idea of what expenses will actually decline in retirement the risk might drop a little. If you were inclined it's possible that digging into your actual expenses in more detail than you have for a while will reveal more places you could make fairly painless cuts.

That doesn't mean it's a bad idea to buy now if you want to live somewhere other than a condo by metro for the rest of your days, but only you know that.

You're a fed and the benefits are such a boost that I would be tempted to explore part time opportunities, where you are or elsewhere in federal service. I know several people who have said they need to cut back in their fifties and have been able to go to 20 or 30 hours because their management valued them.

So end of this year you stop full time, and you tell yourself it's a year to have the car fund, a year to have pet expenses for the rest of your days covered, a year for other things you may want. With the tie to concrete life improvements and the reduced hours that might be much more cheerful for you than your current gig. And you might pick up a buyout along the way and keep health coverage!

Does the new house give you a hideous commute?

[Dulcimina]

Hi RockeTree,

I priced out ACA health insurance last year at about $300 for a silver plan with subsidies, but that was assuming lower income.  I can do that again.

I can also dig into my expenses a little more.  I rarely use cash, so I should be able to track credit card and bank bill bay to see exactly where my money has gone. I've just gotten lazy because the savings account I set aside my budgeted expenses in keeps growing.

I asked about reduced hours last year. I didn't get a no. More of a you should explore FMLA or similar options to justify it. We have been understaffed for years, so it will be a hard sell to go part time. I've looked unsuccessfully for part time jobs on USAJobs. I think I'll be more successfull networking.

A pretty bad commute! Current commute by metro is 30 mins door to door. 50 min leisurely walk. Tne new place would probably be 45-60 minutes.  I'm not too worried about the commute. We probably won't be allowed back to the office until next year, and it will likely be a hybrid telework-in person scenario. Once things are back to normal, we'll probably be able to negotiate increased telework. 

[swashbucklinstache]

Hi RockeTree,

I priced out ACA health insurance last year at about $300 for a silver plan with subsidies, but that was assuming lower income.  I can do that again.

Do keep in mind that insurance costs can and do rise at a pace greater than inflation.

Along those lines, with a new mortgage + a federal pension as few as 8 years away I might in your shoes dig all the way down into the details on this. That is, make a spreadsheet with every year's known inflow and outflows over the next 30-50 years, as a starting point. The 4% rule is just napkin math to get you to where you are now. Once you're there, you can model different rates of return, different tax rates, different "oops I need new knees this year" and etc.

I don't think the house is a terrible idea, I don't think a low % down is terrible but you might look at CAPE first or at least get a loan where you can pay it down without penalty / no 'PMI for the life of the loan'. With those numbers I'd only consider keeping/renting out the condo if you think you might move back within a year.

I asked about reduced hours last year. I didn't get a no. More of a you should explore FMLA or similar options to justify it. We have been understaffed for years, so it will be a hard sell to go part time.

The feds are the feds of course, but that last sentence without context has a different conclusion than the first half of it suggests it would. Particularly if it's something you can present as a choice between "no-time or part-time" rather than "part-time or full-time".

[Dulcimina]

Hi RockeTree,

I priced out ACA health insurance last year at about $300 for a silver plan with subsidies, but that was assuming lower income.  I can do that again.

Do keep in mind that insurance costs can and do rise at a pace greater than inflation.

Along those lines, with a new mortgage + a federal pension as few as 8 years away I might in your shoes dig all the way down into the details on this. That is, make a spreadsheet with every year's known inflow and outflows over the next 30-50 years, as a starting point. The 4% rule is just napkin math to get you to where you are now. Once you're there, you can model different rates of return, different tax rates, different "oops I need new knees this year" and etc.

I don't think the house is a terrible idea, I don't think a low % down is terrible but you might look at CAPE first or at least get a loan where you can pay it down without penalty / no 'PMI for the life of the loan'. With those numbers I'd only consider keeping/renting out the condo if you think you might move back within a year.

I'm not sure  what look at CAPE means.  I was hoping the HELOC option would let me pay down some of the mortgage without penalty.
One option with health insurance is to go back to work for a year or so when I am approaching retirement age. The rule is you must have been enrolled in FEHB for the five years preceding retirement. If there is a break in service, they count the years prior to the break.

I asked about reduced hours last year. I didn't get a no. More of a you should explore FMLA or similar options to justify it. We have been understaffed for years, so it will be a hard sell to go part time.

The feds are the feds of course, but that last sentence without context has a different conclusion than the first half of it suggests it would. Particularly if it's something you can present as a choice between "no-time or part-time" rather than "part-time or full-time".

First part means I have to provide justification, such as mental health issue or taking care of my parents. The second half is from experience.  We had metrics to prove that we were shortstaffed for years. In 2018, three people retired. The rest of us took on their work temporarily until we got two new hires at the end of 2019, and then two more this spring.  If I leave, everyone else will just pick up my slack and grind through it with no consequences to management.

[swashbucklinstache]

Hi RockeTree,

I priced out ACA health insurance last year at about $300 for a silver plan with subsidies, but that was assuming lower income.  I can do that again.

Do keep in mind that insurance costs can and do rise at a pace greater than inflation.

Along those lines, with a new mortgage + a federal pension as few as 8 years away I might in your shoes dig all the way down into the details on this. That is, make a spreadsheet with every year's known inflow and outflows over the next 30-50 years, as a starting point. The 4% rule is just napkin math to get you to where you are now. Once you're there, you can model different rates of return, different tax rates, different "oops I need new knees this year" and etc.

I don't think the house is a terrible idea, I don't think a low % down is terrible but you might look at CAPE first or at least get a loan where you can pay it down without penalty / no 'PMI for the life of the loan'. With those numbers I'd only consider keeping/renting out the condo if you think you might move back within a year.

I'm not sure  what look at CAPE means.  I was hoping the HELOC option would let me pay down some of the mortgage without penalty.
One option with health insurance is to go back to work for a year or so when I am approaching retirement age. The rule is you must have been enrolled in FEHB for the five years preceding retirement. If there is a break in service, they count the years prior to the break.

CAPE is cyclically adjusted price to earnings ratio. A shorter version of this is: in the long term we expect a higher % return on stocks than the mortgage, but in the case of how much of a down payment to put in, with cash vs. HELOC, we may not care so much about the long term as opposed to the short term, and some people believe CAPE can help 'predict' the returns.

More or less you can ignore this but...

Always true: A down payment has lower expected returns than the stock market in the long run, but is not a bad risk-adjusted return and less volatile results. I.e. you might have higher longer term returns on average in the market but I bet that won't be much consolation if you put 0% down and the market drops 30% next year =). 

Maybe true: CAPE can predict this, or at least say "it's more likely than usual that we see lower returns than usual in the stock market over the next 5 years" and right now CAPE is higher than typical.

Only you can know how much risk and what type of risk is best in your situation. Either of these are good choices, really.

On the HELOC side I'm not an expert but I think the terms of your loan can dictate whether there's a 'penalty', regardless of where the cash comes from (HELOC or after closing payment). I know very little about this though, it might not even be a thing in the home mortgage world. I imagine if you tell your lender your plans they can provide you options and you can decide what you want to do from there.

I asked about reduced hours last year. I didn't get a no. More of a you should explore FMLA or similar options to justify it. We have been understaffed for years, so it will be a hard sell to go part time.

The feds are the feds of course, but that last sentence without context has a different conclusion than the first half of it suggests it would. Particularly if it's something you can present as a choice between "no-time or part-time" rather than "part-time or full-time".

First part means I have to provide justification, such as mental health issue or taking care of my parents. The second half is from experience.  We had metrics to prove that we were shortstaffed for years. In 2018, three people retired. The rest of us took on their work temporarily until we got two new hires at the end of 2019, and then two more this spring.  If I leave, everyone else will just pick up my slack and grind through it with no consequences to management.

=(. I was hoping you weren't in that situation, that's not fun.