Hi all,
The recent stock runup has been good to me, as I'm sure it has for many of you. Tallying everything up, I recently discovered that I've officially exceeded 25x my annual expenses (about $35K per year), just in time for my 35th birthday next week.
Here's the issue... I don't think I'm ready to hang up my professional hat just yet. For better or worse, I still find that work gives me purpose -- along with many other interests I enjoy. I even have been contemplating pursuing another degree to further my career (partially work-paid).
I know that not everyone here agrees on the whole 4% rule, but even if I wait it out for a while longer, I anticipate that I'll hit the equivalent of 3% within the next couple of years. This assumption is based on my current savings rate, some equity finally (potentially) getting cashed out from a previous employer, and so on.
I don't have kids and all indications are that I won't. With that in mind, I don't expect too many life changes that will drastically impact my spending over the next several years. So... what do I do in this case? Up my spending? While I won't claim to live a completely mustachian lifestyle, I think that I do relatively well keeping myself in check, yet I rarely want for much. It seems illogical to increase my spending when I don't crave more stuff, but it's equally silly to accumulate more and more wealth for no purpose... right?
What would/are you all doing as you approach this very-nice-to-have problem?
My spouse and I are getting real good at asking the questions in this area, but we don't have the answers.
Here's some ideas, in no particular priority order:
1. Take a weekend (or a couple of weeks) to complete Ernie Zelinski's Get-A-Life Tree thought-provoking chart. If you're feeling fulfilled by work, and you enjoy the complexity with some autonomy, then that's what you should keep doing as long as it's fun. However the other side of financial independence is a greatly reduced tolerance for the workplace's BS. No matter how fulfilled you may feel by work, it might not be enough to deal with what's overfulfilling your BS bucket. In case that happens to you too, then have an exit strategy and a list of interests to move into... not just running away from a bad office environment.
2. Consider a long-term care insurance policy. They may not be worth the price or the coverage, but you could also look at hybrid LTC-life policies or couple's LTC policies. This is more a sleep-at-night comfort factor than an actual financial need.
3. Think about funding 529s for neices, nephews, and other relatives. Work out the details with their parents so that there aren't any unpleasant surprises.
4. You can gift anyone $14K/year, and you can gift as many anyones per year as you want. Then your spouse can do the same with $14K/anyone as well.
5. Establish a college scholarship fund at a college. As little as $25K will fund a $1000/year award. You name the scholarship but let the college financial aid office figure out the eligibility and application requirements.
6. Endow a bigger version of #5 by pledging $25K/year for 10 years. The college will really be happy with you!
7. Serious home improvements: a 50-year metal roof, a whole-house water conditioner, photovoltaic panels, an electric vehicle charged from your PV panels, energy-efficient A/C & furnace, energy-efficient windows, extra insulation, maybe a pool/hot tub (if that's your lifestyle), landscaping, fruit trees, a veggie garden with power tools to boost the size/yield, a new septic system, a gray-water recycling/irrigation system... capital investments to permanently reduce your home's operating expenses. Of course you'd want to live there for at least another decade to reap the payback.
8. Put some amount in a charitable gift fund every year. The idea is to make the contributions every year for tax purposes, and then you can make the grants to the charities whenever it's appropriate-- fundraising challenges with matching donations, an exceptionally large donation (that you built up with several years of contributions), or pledges stretching out over several years of milestones. The biggest advantage of a CGF, besides uncoupling the timing of the tax deductions from the grants, is that you can make the grants completely anonymously. No more unsolicited fundraising mails or phone calls.
9. Now that you're FI, consider annuitizing a portion of your portfolio-- 25% or so in an inflation-adjusted SPIA, or 30%-40% in a fixed SPIA. This longevity insurance will assure you a minimum level of income (above Social Security) and allow you to feel more comfortable taking risks with the rest of your portfolio.
I'd also see if Nords chimes in on this thread, I think he actively does this as part of his "charitable" adventures
10. Angel
philanthropy investing. Read a few library books first: Rob Robinson's "Angel Investing" (Rob's a good friend, and a very smart business prof), plus Scott Shane's "Illusions of Entrepreneurship" and "Fool's Gold". If you're getting into it then start reading the Venture Hacks blog, the personal blog of Paul Graham (of Y Combinator) and the AngelList website. If that still doesn't scare you off then look up an angel group in your area via the Angel Capital Association, 500 Startups, or Tech Stars. This paragraph should ideally take you 6-12 months. One month is too fast.
"Accredited investor" means $1M of investable assets (home equity doesn't count), or $200K/year annual salary, or $300K/year income between you and your spouse. Nobody audits that, but you will have to sign affidavits for the lawyers of each startup in which you invest. Again nobody cares unless you get into litigation with the startup, but that's the SEC rule. Do not invest by yourself-- join an angel group and work alongside them. If you do this on your own you will be quickly fleeced.
I've been doing angel investing for seven years. I took it slowly and invested my money over a five-year period. 40% of my investments are already worthless, which is encouraging in a "fail fast" sort of way. Another 10%-20% are on the edge of the cliff. Another 30% are too close to call either way. 10%-20% are probably going to be acquired within the next five years. (Note that means a total of 12 years to the exit.) I might even make a profit. This is typical of the statistics-- one veteran angel has invested in over 100 companies during the last decade, and all of his returns to date have come from four of them.
I believe that the main reason one should do angel investing is because it's a philanthropic version of job creation. It might even turn out to be sustainable.
Another reason to do angel investing is to immunize yourself against the temptation when you're in your 60s (and older). You don't want to have an investment whose exit strategy is "probate".
Bonus #11: A couple years on your country's roads in an RV, or a couple years traveling Asia/Europe in whatever style suits your fancy.
Default #12: Let it all pile up. Use your will to establish a charitable foundation (after you're both gone) to give it all away over the span of 20 years. Put a trusted relative or a professional trustee in charge of the foundation.