Author Topic: Advice on 5-7 year FI strategy  (Read 699 times)

ackb91

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Advice on 5-7 year FI strategy
« on: May 21, 2018, 10:46:05 AM »
Looking for advice from the community:

Married couple, ages 37, 35
Currently 350k in 401k/rollover IRA's
~10k in roth/traditional ira
~15k index funds in taxable accounts

Bought Southern California home in late 2012, $519k.  Currently owe $415k at 3.6% and home currently valued at 700-750k.

Gross annual income is now about 190k, we are able to invest ~70k/year.

Biggest question is what to do with the house if we are targeting a potential FIRE in ~2025.  Try to sell now, invest the ~250k balance in stocks and rent?  Or bank on home values holding steady or increasing over the next 5-7 years and consider selling then?

Any advice would be greatly appreciated!

sokoloff

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Re: Advice on 5-7 year FI strategy
« Reply #1 on: May 21, 2018, 11:08:41 AM »
In most parts of SoCal, I'd expect property prices to continue to rise at least with inflation, which makes your leveraged bet (which you pay off in deflated dollars) a good one.

You need about $2MM to support an $80K/yr lifestyle (once you eliminate the mortgage and exclude savings). In 8 years, it's reasonable to expect your current accounts to double to $700K, and for future investments to (back of napkin math) be $560K saved for an average of 4 years, or another $750K.

So, you're likely to come up a little short in 2025 at the current pace.

Trimming $1K/mo in spending gets you there (double-whammy; it reduces the stash needed to $1.7MM and increases your savings by $12K/yr or $125K over the term).

Catbert

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Re: Advice on 5-7 year FI strategy
« Reply #2 on: May 21, 2018, 11:22:50 AM »
Even if you're planning on leaving So Cal when you retire, I'd hang on to the house.  Unless you are in an unlucky location (e.g., Lancaster or San Bernar prices are down when you reach your FI number you could hold on through the down turn.   

ackb91

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Re: Advice on 5-7 year FI strategy
« Reply #3 on: May 21, 2018, 11:33:42 AM »
Thanks, sokoloff, this is helpful.  Our only debt is the mortgage and the last few bits of student loans (gone by 2020), and our other large expense is daycare for our 2 year old.  Pretty dialed in otherwise to maximize investing funds.  We will be having another child in the near future, but should only have 1 year of day care crossover and both will be in public school by 2025. 

We will be looking to lower our housing costs as part of the 2025 FIRE plan by either selling the house or renting it out.  Lots of possibilities here with an international move to a lower cost of living destination like, say Costa Rica, for several years not being out of the question.  International private school costs becomes part of the equation here, though.  Perhaps just a move to lower housing cost place in the US that still allows us to have many of the things we enjoy about SoCal.

Other factor is the wife has a pension on top of our 401k, obviously that amount is dependent on how much longer she actually works.

ackb91

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Re: Advice on 5-7 year FI strategy
« Reply #4 on: May 21, 2018, 11:42:04 AM »
Even if you're planning on leaving So Cal when you retire, I'd hang on to the house.  Unless you are in an unlucky location (e.g., Lancaster or San Bernar prices are down when you reach your FI number you could hold on through the down turn.

Thanks, catbert.  I lean towards holding the house, renting it out, and finding a way to decrease housing costs in another location.  Paying the mortgage off by 2025 is not remotely in the cards.  It's a single family home, less than 4 miles from the ocean near good schools, large parks etc.  Barring a major housing crisis, our equity should increase over the next 5-7 years and beyond but who knows.