Author Topic: Couple with single ER calculations  (Read 3884 times)

uppy

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Couple with single ER calculations
« on: February 10, 2014, 04:08:05 PM »
Short version: How does the “Expenses x 25 = amount needed for FI” equation work? Or, does this take age into account, given the “safe” 4% withdrawal rule?

Long version:
I had a long talk with my partner yesterday and we realized we have some different views about FIRE. She has little to no interest in ER since she loves her job and hopes to keep doing it forever, but is supportive of a frugal lifestyle and my own ER.

I started thinking--if I’m the only one who wants ER, couldn’t our Stash be even smaller than I previously thought?
For example I had been thinking we would need at least $30K/year to live on, so $30,000 x 25 = $750,000 before FI. However, if she plans to keep working until 59.5 . . .?

How would I go about calculating how much we would need to put away/invest each year to reach FI JUST for me, then to support both of us @ $30K/year after she retires, assuming the 4% rule? Her income after graduation might be as low as $40K/year (and this won’t take into account the years it will take us to pay off our SL).

My half would be $15K per year until she retires. She’s 26 and I’m 30, so 33.5 years @ $15K. This would all be invested, let’s say a conservative 5% to adjust for inflation. In the meantime we would need to put away the amt. we would need to withdraw at 4% for the rest of our lives after she retires. So basically, for me, would I calculate only MY expenses ($15K) x 25 for my own ER? (That’s $375,000.) Unfortunately that wouldn’t shorten my time to FI at all…

But if I’m contributing $15K/year from my Stash, we could then invest something like $15K per year (from her income). If she continues working until 59.5, that’s about 33 years of $15K invested per year. Even at 5% rate of return, that’s over $1M we would have in the Stash when she retires — much more than we would need.

So could I calculate somehow to shorten my time to ER by subtracting some of that $1M to boost my own Stash? Or, doesn't me contributing $15K per year and then re-investing a "different" $15K seem redundant?

The numbers are all so complicated it’s difficult to wrap my brain around it…

The_Dude

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Re: Couple with single ER calculations
« Reply #1 on: February 10, 2014, 04:39:34 PM »
The 4% rule and 25 x expenses rule are two ways of saying the same thing and are general guidelines.  So yes if you are looking for general guidelines I would say you would need to contribute to the stash sufficient until "your portion" is at least $375k. 

MMM views the 4% rule as sufficient assets to provide financial independence regardless of age.  The 4% rule actually originates in a study by William Bengen and that was the maximum fixed withdrawal rate, adjusting for inflation, in which a portfolio would survive 30 years.  This was looking at historical 30 year periods in the US stock market only.  So in reality you might be able to get a lot more than 4% a year or possibly less given your own investment performance and years your portfolio might need to last. 

If you and your wife think it is ok for her to subsidize some of your retirement then sure you could take some of her future contributions into account in regards to your own requirements.


FWIW My wife and I also have separate goals for FIRE and is part of the decision for us to keep separate finances.  So absent a catastrophic event to her my own retirement decisions will be based solely on my own portfolio and her own retirement date based on her own portfolio.
« Last Edit: February 10, 2014, 04:41:25 PM by The_Dude »

Shor

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Re: Couple with single ER calculations
« Reply #2 on: February 10, 2014, 04:48:09 PM »
You could say "we are splitting our finances and being two totally separate people"... if you were a heartless money-grubbing Scroogey McDuckling!

Or, you could stick it out even past your own retirement and continue working so that both you and your wife can enjoy early retirement together, you know, like as a married couple!

I know, I know, it's sappy and romantic and oh so burdensome! But maybe, just maybe, this one is worth the extra effort, aye? :D

Shor

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Re: Couple with single ER calculations
« Reply #3 on: February 10, 2014, 05:02:37 PM »
You could say "we are splitting our finances and being two totally separate people"... if you were a heartless money-grubbing Scroogey McDuckling!

Or, you could stick it out even past your own retirement and continue working so that both you and your wife can enjoy early retirement together, you know, like as a married couple!

I know, I know, it's sappy and romantic and oh so burdensome! But maybe, just maybe, this one is worth the extra effort, aye? :D

Okay okay, that was harsh. How about this, first, is her money really going to be going toward your FI and RE status? In that case you won't be retired early, you would be the stay-at-home-supportive-partner. This has been discussed in other threads where the partner is trying to retire and live off the spouse's income while the spouse carries them both to the finish line... 30 years later(!)

Yeah, no dice. First, it's your partner's money not yours, so it has to go toward what they want it to be. Their support probably does not include your retirement based on their income supporting you. (That's usually not what they mean by "support" you, but by all means ask her!).

Secondly, you should redefine what FI and early retirement mean to you. It could mean that once you get FI you can leave that soul-crushing job you work at (I can only assume it's soul crushing since you're looking to depend on your partner to sustain you both down the road :P ) and you can go search for a way you can make money enjoying what you do and not wanting to leave every second of the day.

This is definitely the more ideal situation since you will be doing what you love, she will be doing what she loves, and you both will be working toward full retirement in tandem, as a team, as a partnership. <3
« Last Edit: February 12, 2014, 02:42:48 PM by Shorlan »

uppy

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Re: Couple with single ER calculations
« Reply #4 on: February 10, 2014, 06:39:49 PM »
Look, Shorlan, believe me the last thing I want to do is take advantage of my wife!   

How would I go about calculating how much we would need to put away/invest each year to reach FI JUST for me, then to support both of us @ $30K/year after she retires, assuming the 4% rule?

Maybe I was unclear about what I meant...although perhaps what I said inadvertently "meant" that she would support me more than I had thought...? Keep in mind I would be the SAHD assuming I retired before the kids were grown, so I guess you could call that "employed" although it doesn't earn a paycheck. (It would save us $ though).

The bottom line is that she does not want to retire early. I couldn't make her if I wanted to (in fact I DID want to but she won't have it). So assuming we continue to live the same lifestyle @ $30K per year, we will both be saving/investing something like $15K per year towards retirement (whether it's "her", "my", or "our" retirement).

What I meant/pictured was this: We both work now as normal and invest maximum amt. possible until I can contribute 50% of our expenses until she retires. At which point I retire, contribute said 50% until she reaches 59.5. By that point "her" Stash will be over $1M. So it's either a) she supports herself only and leaves the leftovers to the kids as a trust fund b) we live happily ever after on "her" Stash for our remaining years (in which case we will never use it all, unless we buy a yaht), or c) she "subsidizes" (thanks The_Dude) my retirement and I retire earlier than it would take me to save $375K. Theoretically we could both live on just the returns and STILL leave it to the kids.

Really my question was about calculating whether my rationale made any sense. For example, would it be any different for me to leave "my" $375K in "our" Stash while we live solely on her income instead of investing "her" extra $15K each year? And: if she did subsidize my retirement, how would we calculate an amount that was safe?

pom

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Re: Couple with single ER calculations
« Reply #5 on: February 11, 2014, 11:21:18 AM »
You could say "we are splitting our finances and being two totally separate people"... if you were a heartless money-grubbing Scroogey McDuckling!

Count me in as one heartless money-grubbing Scroogey McDuckling.

Somehow my wife and I are still a happy couple (actually two happy individuals who love each other).

marz1982

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Re: Couple with single ER calculations
« Reply #6 on: February 11, 2014, 05:51:16 PM »
Her income after graduation might be as low as $40K/year (and this won’t take into account the years it will take us to pay off our SL).

Huh?  She's working while she's studying I guess?  How does she know she'll continue to love her work after graduation?  I "loved" my job at 26, would never have thought I'd want to RE, never had a second thought on it.  8 years later, I'm keen to get out now!  I'd recommend she save heavily anyway, to give herself choices when she does hit 40 or 50 :)

The way we've organised it, I'm happy to continue working for another 10 years, the hubby wants to stop asap.  I've worked out that if we save 50% of both our salaries for 5 years, he can then retire.  At that point I only need to work another 5 years, depending on the stock market.  I don't mind working an extra year or so in addition to that if needed. 

After 5 years we've basically worked enough in total, that the dividends/interest being paid out by our assets will be returning enough to cover his half of the expenses.  But we don't literally cut our expenses in half and share them, we just have a pool of money.  I'm more interested in that 10 year deadline - if we can make it, then I'm happy. 

Note that we already have around $150k saved up, so that's why our scenario works out.


Quote from: jrez
For example, would it be any different for me to leave "my" $375K in "our" Stash while we live solely on her income instead of investing "her" extra $15K each year?

I don't see any difference to that :)  We will be living on my income, while "his" stash works to add to the stash for when we retire.  However I'm earning a bit more than him, and I'll be able to save as well.  I'd say the riskiest part of the plan, is relying on a single income - what is your contingency plan if she loses her job, or becomes disabled?  Would you be able to get back into the job market at that point, or if it's IT - will you become obsolete?

Our 5 year plan leaves us with $600k when he retires, which means it can pay out just enough for us to scrape by without cutting into savings, should I lose my job after that.  alternatively we could buy a small house with it, and then we don't need to worry about rent.  I will have life insurance and disability insurance/trauma in case something happens to me.  We have public health in our country, so not too much to worry about there.  I've also applied for another job that comes with a 20% raise - would she have any opportunity to increase beyond the $40k?  If she's just starting out, I'm sure she could?

Note: My figures are in NZ$.  And rent/housing prices where I live are ridiculous - we could move after 5 years to a cheaper area and then I wouldn't even need to work much longer.
« Last Edit: February 11, 2014, 05:58:38 PM by marz1982 »

uppy

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Re: Couple with single ER calculations
« Reply #7 on: February 12, 2014, 07:10:04 AM »
marz1982 -- thanks for the helpful comments.

Yes she is working while in school but she was doing the same type of work (social work) before she went back to get her Master's.  Though I agree that she might get burned out at some point and wish to retire, she loves it for the time being and I really think she was born for the job. I would not be surprised if she never wanted to retire.

Her income is so low because SW just doesn't pay well unfortunately. (A travesty in my opinion since SWers are so important...kind of like teachers.) It could go up, we just want to be conservative when doing calculations.

We are starting from negative net worth and very little savings, so it will take us much more time. However we COULD survive on one income pretty easily as we only spend about $30K per year max. while living in NYC, and plan to move to a cheaper area.

I envy your + your husband's position, I would love to only work another 5-10 years! It could change if I found a better income (she doesn't have much control over hers), but I am having trouble breaking into anything new, and my current job has a low ceiling.


Cromacster

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Re: Couple with single ER calculations
« Reply #8 on: February 12, 2014, 07:20:10 AM »
You could say "we are splitting our finances and being two totally separate people"... if you were a heartless money-grubbing Scroogey McDuckling!

Or, you could stick it out even past your own retirement and continue working so that both you and your wife can enjoy early retirement together, you know, like as a married couple!

I know, I know, it's sappy and romantic and oh so burdensome! But maybe, just maybe, this one is worth the extra effort, aye? :D

I think you missed the part where the OP said him and his wife discussed RE, and his wife WANTS to work because she enjoys her job and she would be on board for his goals to RE....

reading hard.....

Shor

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Re: Couple with single ER calculations
« Reply #9 on: February 12, 2014, 02:54:48 PM »
You could say "we are splitting our finances and being two totally separate people"... if you were a heartless money-grubbing Scroogey McDuckling!

Or, you could stick it out even past your own retirement and continue working so that both you and your wife can enjoy early retirement together, you know, like as a married couple!

I know, I know, it's sappy and romantic and oh so burdensome! But maybe, just maybe, this one is worth the extra effort, aye? :D

I think you missed the part where the OP said him and his wife discussed RE, and his wife WANTS to work because she enjoys her job and she would be on board for his goals to RE....

reading hard.....
Very hard. I wanted to clarify whether the wife understood the meaning and extent of Early Retirement for the spouse.
A lot of people start off loving their job and then run in to other reasons why they don't enjoy working. And when the thought of the wife's retirement comes up, suddenly the husband's fun-expenses can seem like a setback from her final retirement date. Some people have a very rosy idea of retirement vs. FI vs. stay-at-home. Not saying any one of these is good or bad, just that it's good to be clear on the differences.

I've been thinking a lot in my head about what exactly FI and Early Retirement actually means, how other people might define it,and  when one goes from being an FI household to actually retired and back.
Oh, and I apologize for the jabby comments. My posts could have been better without them.

On that note, for the OP, what is it that makes you want to retire early? I am in a similar situation with my GF except switched around in that she wants to retire ASAP, but I can imagine myself working all the way until I kick it. I'd like to know what is it about your career which is so awful? Or perhaps there is some other activity you would prefer to be doing for income instead of your current work?

marz1982

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Re: Couple with single ER calculations
« Reply #10 on: February 12, 2014, 04:57:28 PM »
I envy your + your husband's position, I would love to only work another 5-10 years! It could change if I found a better income (she doesn't have much control over hers), but I am having trouble breaking into anything new, and my current job has a low ceiling.

We both lucked out in getting into computers when we were kids, and both went into IT as our careers - plenty of career growth, options, and lots of opportunities to increase salary in IT.  What sort of skills do you have?  Would you be interested in going back to a distance/correspondence course or trade school?  Or even take a break from work to study for a year to get something that would have a higher ceiling?

Refer to http://www.mrmoneymustache.com/2013/07/25/50-jobs-over-50000-without-a-degree-part-1/ for ideas ;)

Not sure if you would be interested in changing career though?  Also changing career could set you back income-wise for a while... so depends if you're actually interested in doing something different?

MissPeach

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Re: Couple with single ER calculations
« Reply #11 on: February 13, 2014, 11:30:37 AM »
I think this blog may be a good read for you.

http://retireby40.org/

This is a guy who wanted to be FI by 40 and be a stay at home dad. He still works (primarily on his blog) but he's retired from the corporate life and was burned out from it. He has a wife who is still working and doesn't want to stop. He discusses a lot of things he's gone through, his budgets, etc. I would give you a good peak into a similar life.