Author Topic: Should I Semi-retire and Freelance Part-time?  (Read 1235 times)

blingwrx

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Should I Semi-retire and Freelance Part-time?
« on: October 13, 2018, 10:38:02 PM »
Hey folks, this is my first post but I've been following for a few months now and discovering FIRE really got me rethinking a lot of things. I was pretty good at saving and budgeting even before discovering MMM, though i know I made mistakes along the way with the investment order, but moving forward i'll be looking to correct this.

My FIRE number is $1.2mil and I'm probably 2/3's of the way there if you include my home equity but I also have put some thought into Semi-FIRE now and scaling back to part time freelance work as my expenses seem to be low enough for me to still be net positive even if i only work part time, do it's more of a question if i should cruise to FIRE over a longer period of time or run there asap.

I was recently laid off from mega corp, so thus I'm forced to make some decisions now. I'm torn between going back to a full time mega corp gig or freelancing part time at half the pay and no benefits. I've been in the same industry for 11 years, 7 yrs at the last job and I've been feeling stressed out and not a fan of the corporate politics. However working for myself I would still be in the same industry and the stress doesn't totally go away but i think being my own boss and having the flexibility to cut down on my hours helps.

Some background:
We live in a HCOL area(NYC). I'm 35 yrs old, Wife is 32 yrs old.

I have a 1.5 yr old and expecting another in a few months. The wife is a SAHM and has no plans to work until at least the kids are in school.

My previous Megacorp salary was 110k, no 401k matching, full health benefits, 4 weeks paid vacations, 10 paid holidays.
Any other full time job i find in the future would likely be around 90-110k and starting at 3 weeks vacation. I also need to factor in 2 hour round trip commute by subway and the added cost of commuting and other expense like buying lunch or coffee.

My remaining current income:
Part time Freelance income 40k/yr(will increase to about 60k-72k if I decide to make this my main source of income)
Rental income 20k/yr

My freelance income is stable. I have a steady client base where i generate about 40k annual from working 14 hrs a week, i've been doing it the past 2 years. I could definitely take on more clients and increase my income but I was hesitant in taking on more work in the past as i was already working a full time job and managing these clients during nights and weekends.

Since freelancing doesn't come with health coverage, I have to rely on ACA. I found the sweat spot for this would be working Freelance part time 20-25hrs a week making 60-72k which would allow me to qualify for up to $750 a month ACA subsidy if game my MAGI right with the correct deductions and maxing out a individual 401k. Working anymore than this would cost me up to 9k in subsidies and defeats the purpose of shifting to part time.

Assets:
325k Post-tax investment(Mixed Stocks)
75k in 401k(all in VTSMX)
35k cash

I own a duplex. 450k equity. 350k mortgage(4.3% - 22yrs left)  I collect $1700/month rent from one unit and i live in the other. We have no plans to sell the house in the next decade, living here is actually cheaper than renting by a lot, it's also a good school district and family close by.

1 Car 2017 Honda CRV - paid in cash, current approx. value 25k(I will probably drive it at least 10 more years)

Expenses:
Housing costs-mortgage/property taxes/insurance:  $2400
Electric Utilities  $92
Gas Utilities  $103
Water Utilities  $72
Gym    $13.00
Gas   $35.00
Food/toiletries/paper products ect  $450
Eating out  $150
Internet  $50.00
Cell Phones x2 $70
Car insurance  $117
Amazon prime $10
Car Maintenance  $30.00(it's low because i just bought a new car last year, i'm also very mechanically inclined)
House Maintenance    $50.00(It's pretty low because I recently gut renovated the whole place, so there shouldn't be any big surprises for a long time. I also do a lot of the work myself so only have to pay for materials)
Vacation/Travel  $200
Gifts/weddings/kids bdays $100
Expenses for 2 kids(Diapers, formula, clothes ect) $400
ACA plan premium $300(estimated premium based on estimated MAGI)
Health deductibles/copays/rx $100
Misc   $200.00
Money set aside for taxes since none of my income is withheld during the year: $818
Rental Vacancies fund: $142
Total Expenses: $5900 a month

Projected average income for self employment:
$5000 a month + $1700 from rent
Total: $6700

Surplus of $800 would be added to an individual 401k

I'd need to make a minimum of 4.2k a month freelancing to break even on expenses or i can make up to 6k a month and still qualify for a big ACA subsidy as i can dump up to 24k of my income into my individual 401k($18.5k + 25% for profit sharing) keeping my Magi in check.

In the worst case I priced out insurance to be $1400 a month for silver tier family plan if we don't qualify for any subsidies or ACA gets repealed.

Other FIRE considerations,
- Mortgage will be done in 22 years saving me about 1.5k a month, At the same time i'd probably be able to shed kids expenses too as they should be done with college around then.
- SS estimates at least 2k at 62 assuming i continue part time for another 10 years.
- 65 medicare kicks in saving money on premiums.
So all in all our expenses will drop significantly in 22-30 years. My home value would also be well over 2 mil by then assuming average appreciation. I could certainly sell and downsize by the time the kids are in college which can also use some of the money to help pay their way if needed. So I don't think i'd have any problems after 57, i just have to fill the gap between now then. if i continue working another 10 years part time the gap really falls to 12 years of mostly relying on my investments.

While i know i don't have all my ducks in a row and circumstances and expenses may rise in the future as we do have two kids. I also figure I could always return to full time work whenever i need to as my skills are still highly sought after and by working freelance I'll still keep my skills relevant and it wont be as  bad as a big gap in employment history. I also have a good amount of cash and post tax assets i can draw on in an emergency.

If you were in my situation would you cut back to part time self employment and delay FIRE, but have SEMI-FIRE now or go find another full time gig at megacorp and push the petal to the metal and save as quickly as possible to achieve FIRE in as little as 5 yrs(or does that even sound possible i'd be able to sock away around 50-60k annual with a full time job). Semi-FIRE now I'd make just about enough to cover my expenses and maybe a bit more depending on how hard i work(might be able to sock away 0k-24k annually). Worst case I'd have to leave my investments on auto pilot for the next 10 years then i think maybe I'd be close to FIRE depending on the market.

Also do my numbers look decent for an eventual FIRE in the next 5-10 yrs in either case?

Thanks

sojanyajones

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Re: Should I Semi-retire and Freelance Part-time?
« Reply #1 on: October 15, 2018, 12:12:00 PM »
I'm torn between going back to a full time mega corp gig or freelancing part time at half the pay and no benefits. I've been in the same industry for 11 years, 7 yrs at the last job and I've been feeling stressed out and not a fan of the corporate politics. However working for myself I would still be in the same industry and the stress doesn't totally go away but i think being my own boss and having the flexibility to cut down on my hours helps.

I'm somewhat new to the community as well so take my advice with a grain of salt. I think you should freelance. If you do have the clients already set up and the potential to expand and rent coming in, it seems stable enough to at least give it a shot. I'm usually hesitant about people claiming they can just go back and get a job again, but in this case you would still have relevant experience and your skills would be kept up so you could go back to mega corp if you needed to.

I think for your sanity and the sake of your family it's worth it to go to part time and extend the FIRE date. If you try out freelancing and it's not what you imagined you can get a Mega Corp job and then work on fast tracking it to FIRE. Good luck and I hope you get some other advice as well!

civil4life

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Re: Should I Semi-retire and Freelance Part-time?
« Reply #2 on: October 15, 2018, 12:44:56 PM »
It sounds like you have a very solid side income and it would be easy to increase.  If you double the amount of time you are still under 30 hours a week and at $80k.  It sounds like you are in a good place to give it a try.  Especially if you have another new one around the corner.  I am sure it would be great to be home with your kids at this age.    I would definitely look into what additional tax deductions you can get for your own business.  Do you have an LLC or other incorporation set up?  I know I have heard things like paying your spouse so you both could contribute to individual retirement accounts.

If it doesn't work out you can always go back. 

FIRE is more than just about retirement.  It is becoming FI so that the choices you make in your life do not have to depend on an income source. 

Overall, you are asking a lifestyle choice question.  Yes you have a budget and income that will keep you cash flow positive.  It is more of a matter of how you want to use your time.

Plus there are still some areas of fat you could remove from your budget.  Working from home will change some of your expenses too.  Start tracking your expenses so you can really see where you are spending money.

blingwrx

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Re: Should I Semi-retire and Freelance Part-time?
« Reply #3 on: October 15, 2018, 01:42:39 PM »
It sounds like you have a very solid side income and it would be easy to increase.  If you double the amount of time you are still under 30 hours a week and at $80k.  It sounds like you are in a good place to give it a try.  Especially if you have another new one around the corner.  I am sure it would be great to be home with your kids at this age.   I would definitely look into what additional tax deductions you can get for your own business.  Do you have an LLC or other incorporation set up?  I know I have heard things like paying your spouse so you both could contribute to individual retirement accounts.

It's currently just a sole-proprietorship but that can certainly change if I find it to be more beneficial tax wise, my accountant has been good at finding a lot of deductions for me in recent years as i've been doing this part time on a smaller scale already on top of a full time job. We'll see this coming year how the tax reform will change things i'm excited about the 20% pass-through deduction. Thanks for the reminder on the the spouse contributions, it's definitely nice to have more ways to keep my MAGI in line to ensure I get the maximum ACA subsidy. It's tricky to estimate income when it fluctuates from month to month.

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Re: Should I Semi-retire and Freelance Part-time?
« Reply #4 on: October 18, 2018, 08:22:59 PM »
My vote is also for freelancing, since you're already established with clients.  Though I'd suggest that you might try increasing your income, even past the ACA subsidy, if it makes sense, in order to have greater flexibility, esp. once kid #2 arrives. Or alternatively, your spouse can explore a part-time side gig, since you'll be at home. I just hesitate to stay too lean with little ones who, you know, sometime create surprise costs. (Not to jinx your family or anything - just my experience.)

blingwrx

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Re: Should I Semi-retire and Freelance Part-time?
« Reply #5 on: October 18, 2018, 10:09:30 PM »
My vote is also for freelancing, since you're already established with clients. Though I'd suggest that you might try increasing your income, even past the ACA subsidy, if it makes sense, in order to have greater flexibility, esp. once kid #2 arrives. Or alternatively, your spouse can explore a part-time side gig, since you'll be at home. I just hesitate to stay too lean with little ones who, you know, sometime create surprise costs. (Not to jinx your family or anything - just my experience.)

It was a thought that crossed my mind to work harder and make my freelance business even more profitable than full time, but at the same time that may require a lot more work than a full time job to start and one of the goals was to make this a part time gig so I'd have more free time with the family and less stress. I'm hoping in the future I'll be able to increase my hourly rates after I've secured a few more stable clients and also increase my efficiency and turn around the work twice as fast while still charging the same amount of hours. The only bad part about making more is losing the 9k ACA subsidy so I'd need to make significantly more to overcome that.

I do understand the cost of 2 kids can rise as they get older and there could be unforeseen expenses. I think my budget is still fairly flexibile as $200 misc, $200 vacations, $100 gifts are quite optional and gives me another $500 in wiggle room each month if I fall short on my income projects. Also as I mentioned i only need to make $4200 a month from freelancing at minimum to break even on expenses. I anticipate to average at least 5k a month and can make up to 6k a month and still qualify for subsidies. So it looks like i'll still have a decent surplus and if expenses do rise I have a lot of room to cover. The biggest negative of increased expenses or shortfall of income would be delaying FIRE as my savings rate reduced or even negative in the worst case. It's certainly not the end of the world if FIRE is delayed. I guess if I only had to work 10-15 hours a week I might even be ok with doing this for 20 more yrs.


civil4life

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Re: Should I Semi-retire and Freelance Part-time?
« Reply #6 on: October 19, 2018, 12:26:01 PM »
The biggest negative of increased expenses or shortfall of income would be delaying FIRE as my savings rate reduced or even negative in the worst case. It's certainly not the end of the world if FIRE is delayed. I guess if I only had to work 10-15 hours a week I might even be ok with doing this for 20 more yrs.

The larger part of FIRE that most people forget is the ability to do things on their own terms and not have to have decisions driven by money.  In that sense you are already there.  You are choosing to live life on your own terms.  Congrats!

Finances_With_Purpose

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Re: Should I Semi-retire and Freelance Part-time?
« Reply #7 on: October 22, 2018, 07:54:43 PM »
Sounds like you have a lot of options in front of you now: you could try freelance for a year or two or three and see how it goes - you may love it.  Or jump back in full-time.  Or part time plus freelance, maybe? 

At any rate, I'll recommend this book as I found it the best resource out there for thinking through which way to go.  Sounds like you can't go wrong any way you go, though.

As for healthcare, you might consider cheaper alternatives like this or the like...   

You'll want to price out the ACA deductibles, as I believe they're higher than many private insurance plans.