Are we there yet?

[Dr. Doom]

Hey all

I'm a relative newcomer to the MMM site but felt at home immediately, as I've been living by many MMM principles for the last 12-13 years -- actually, since I read Your Money or Your Life which is correctly noted as required Mustachian material within these pages.

Here's the deal.  The missus and I are sitting on a significant amount of assets right now and we're either close to the end or -- just maybe -- already there.  But probably just close.  Let me break down the numbers first.  Keep in mind these are totalled between the two of us.

Age: 35
310K of cash
480K of 401(k)
300K of net worth tied up in a rental property condo which generates 1200/mo
About 150K of equity in our primary residence

So this comes out to 1.25 mil or thereabouts.  This feels like a ridiculous sum of money to me, frankly, and when I consider it, my followup question to myself is "Why the hell am I still working?  What's wrong?"  And that's the basic question I want to ask.

On the debt side:
350K of mortgage debt on the primary at 2.75
50K on the rental property at 3
(no other debt)

I feel as though we have enough, but we obviously need to downsize our house, or start renting.  Also I feel we've way oversaved on the 401(K).  In other words, we have enough but our assets are tied up in the wrong stuff and we can't touch the dough.

Our monthly expenses are about 4K/mo which -- yes, I know -- is too high. 

We have tended slightly toward the 'comfort' side of mustachianism, saving about 50-60% of our take home pay instead of the incredible 75% reported by many other members.   Downsizing the house or renting would likely bring this down to probably 3300 after all considerations.  I don't drive much, we don't take expensive vacations, we don't have any weird vices or spending patterns which produce unexpected bumps in spending

So I'd love feedback on 
1) whether or not we should consider re-jigging our assets to make them more liquidy and less stubbornly untappable
2) whether or not we have 'enough' (for the record, I think we do, and she thinks we don't... also for the record, she tends to want more 'comfort' than I do in general.  I could personally drop our monthlies another $500/mo but there are certain things that she gets p@ssed about, like the idea of letting cable go, or not using AC extensively in the summer, etc.  You get the idea.)
3)  Why the hell am I still working?  What's wrong?

PS.  I neither love nor hate my job.  Sometimes good, sometimes bad.  I do, on the other hand, dislike having to do it for at least 45 hours a week (with commute factored in) plus some on-call duty.  In other words, like everyone else, I hate spending 5/7 days a week locked into the same BS, over and over again. 

[Zaga]

Could you compromise and get a part time job for awhile instead of quitting entirely?

[velocistar237]

Yes, you have enough to retire. If you like your job enough, go in on Monday and ask to go to 32 hours/week (and don't work an hour over that, ever!). The income will help your transition.

In terms of liquidity, you get $1200 from your rental, you can get $1000 from your cash (it is invested, right?), and another $1000/month out of your 401k if you do a 72t. If you do a Roth rollover pipeline, or wait for the MAFR to go up so you could get more out with a 72t, you could pretty safely get $790K/300 = $2600/month out of your non-rental assets, for a total of $3800/month, at a 4% withdrawal rate. I'm not sure you can tap your 401k while you're still working, though.

What does your wife do? If she really wants comfort, she wouldn't have to work very many hours per month to buy cable and electricity for A/C.

[arebelspy]

www.firecalc.com

Run your scenario through FIRECalc.

Make sure you read their documentation to understand what it means, but that's one of my favorite retirement calculators.

Fidelity's RIP is good as well.

[Wendyimhome]

I'm with the wife on this one.  You have $400K in mortgage debt and $310K in liquid assets.  That's not how you want to head into retirement at age 35.  Yes, you can move some things around, tap into this and that, and if everything - everything - breaks just right you might make it to the finish line.  But there is no margin for error.

Also, if you are in the USA (and many other places), you have a cash-starved government that is just aching to find more ways to get dough.  Did you know, for example, that you will pay a 3.8%  tax when you sell a home to help cover Obamacare costs?  That the government is trying to pass a federal fee/tax on ANY bank transaction you make (e.g., a simple deposit)? And keep in mind too that a lot of your expenses will go up (e.g., need for medical care, medications, etc.) as you age.

[frugal rph]

I don't think you are quite there yet, but you are close.  I would not feel comfortable retiring with any mortgage debt, especially $400,000.  If you are willing to sell your main home and buy a smaller, cheaper house for cash, that would help a lot.  A few other things to consider:

1.  Are any kids planned?
2.  Does your wife work, and if so, does she get health insurance?
3.  If you will need to get your own health insurance, have you priced it?
4.  Can you work part-time or seasonally in your field to give you some income?

[arebelspy]

I disagree with the other posters on the mortgage debt.

But that's a personal choice.

I'd sleep better at night having 400k in mortgage debt at sub-3% and have that 400k liquid versus paying off the mortgage and having 400k more trapped equity and 400k less liquid funds in case of a problem.

But to each his own.

[Dr. Doom]

Thanks for the replies, everyone.  We've been on the work-save autopilot for the last 10 years or so and have therefore been ignoring the process of actually creating a real plan to execute, in order to realize the endgame.  So it's interesting to finally start getting into it.


Boiling it down, this is what we're going to do:

- Health care is an issue, and one that we need to get up to speed on, pronto.  It's unclear what the monthly costs are.  Wife does have employment, but, much like me, she also wants to put an end to it.
- Set a date out 4 years -- spring 2017 -- and use the time to build a little more buffer and reduce uncertainty.  (FireCalc shows that the 4 years are going to make a huge difference in % chance of success.  What an awesome site.... monte-carlo sim retirement calculator.)
- Start the process of downsizing the house now rather than later.  This will help us save money in both the short and long term and will also make it easier to project what our expenses in retirement will be.
- Ask my employer if I can work 4 days a week @80% pay to take the edge off the treadmill feeling.  I doubt I'll be able to but it's worth asking and good advice.  We have a good relationship so anything's possible. 


In the meantime, we'll continue to build on our liquid reserves.  Yes, velocistar, it is invested in low-cost Vanguard funds, in a roughly coffeehouse-portfolio allocation (35% bonds, 10% REIT, and the rest are indexed equities).  This strategy has been fairly good to us over the past decade.


The 401(k) pipeline concept is new to me, and fascinating. This is clearly the way to go to solve the liquidity issues.  Use non-401(k) cash for 5 years while rolling over 30 a year, and then start tapping.  Nice.


>>Did you know, for example, that you will pay a 3.8%  tax when you sell a home to help cover Obamacare costs?

I'm not affected by this, and if I was, I'd consider myself fortunate, as you have to earn over 500K (NOT the sale price, just the gain over what you paid) on the house in order to be be taxed on this.

From Forbes:
http://www.forbes.com/sites/beltway/2012/04/02/there-is-no-obamacare-tax-on-most-home-sales-really/


4 years sounds simultaneously liberating and depressing.
I'm looking forward to unplugging from the Matrix but I don't want to jump the gun and put us in a vulnerable position. 

BTW, we don't have children.  We're not planning on it (in fact, we're planning against it, using science-approved methods that humans use) but it's not 100% under your control.   If that happens it'll blow a lot of assumptions up. and we'll have to re-evaluate.

[arebelspy]

- Set a date out 4 years -- spring 2017 -- and use the time to build a little more buffer and reduce uncertainty.  (FireCalc shows that the 4 years are going to make a huge difference in % chance of success.  What an awesome site.... monte-carlo sim retirement calculator.)

The beauty of FIRECalc is that it's not a monte carlo simulation like so many of the other ones, it's based on actual historical returns and inflation.

The idea being if your portfolio could survive the worst scenarios that have ever happened (great depression, double digit inflation, etc.), you'll most likely be okay going forward.

In any case, I think your four year plan sounds good, and you can probably beat that by starting to look at decreasing expenses, downsizing home, etc.

You're almost there!

[Wendyimhome]

One other consideration to keep in mind: you said the wife is more inclined toward comfort items.  Believe you me, that will only increase with age.   If you are seeing any shortcomings at all in your wife's willingness to live frugally, you should count on that becoming more of a factor as you age.  As someone who is 10 years further down the road, that has certainly been my experience.

[Dr. Doom]

Wendy, you're right about the comfort items.  She's on-board with most of our frugal choices (sharing a new/used sub-compact car, for example) but it's smart to look ahead.  I'll keep it in mind.  I try to balance her preferences with my intense desire to be done with the standard workweek lifestyle and I'm not unsympathetic.  For the most part, I just remind myself that at least we're both 'savers,' and we're doing very well overall.  This kind of perspective usually settles me down.

Still, every so often I'll get into a mood where the itch to quit becomes something more and I feel very impatient to put an end to this phase of my life.  And I've been fairly itchy lately.  The feedback I've gotten on this thread has been great and I think it'll reduce the amount of irritation that I feel -- have to stay the course for a little longer! 

[Wendyimhome]

I think that's the hot tip, Q.  Regarding the Mrs., mine used to be more "with me" on the frugal living too.  Then, around 40, she took up the attitude of, "I didn't mind scrimping and saving when we were young and starting out, but now I want to enjoy it some."  Admittedly, it's an understandable view.  I also have to admit that she still doesn't spend large amounts on clothes, jewelry, or any major frills.  But she 10's and 20's me to death.

As far as the job goes, if you don't yet hate it, stay with it at least until you do.  I've hated mine (lawyer) for years, but I'm still toughing it out. 

One last suggestion: before you do pack it in, consider a 2-3 month sabbatical first.  You might be surprised at how bored you get and maybe even miss the job.  Better to try before you buy that permanent resignation.

[Jamesqf]

The question I don't see asked here is the one that seems to me to be the most important: what will you do if you don't work?

From there there's a follow-up question: if you don't really like your current job, why not try something else?  You're obviously not one of the one or two paychecks from disaster set, so you can afford to switch careers, even to one that's not as remunerative.  From my own experience, it's a lot easier to do something you enjoy, and to enjoy what it is you're doing, if you know you don't have to depend on the job for your next meal.

[ShanghaiStashing]

Looks like you're in great shape, but I'd venture to say you aren't there yet. I can highly relate to the 'itchy' feeling, I'm about 7 years away from my number and it's burning a hole in me some days. My fiance is also more 'lifestyle' oriented than I am (e.g., I believe in being frugal for the sake of being frugal), whereas she believes once we save 60% plus of our combined salaries, small purchases like the occasional dinner out or latte aren't a big deal. There are times when this is a source of tension as it feels like we're working against each other (particularly since the vast majority of that 60% savings is from my income).

The plan you've laid out makes sense to me, but I might propose a couple of mods.

First, the 4K / month feels fairly high in terms of spending, in fact most folks on here outside of housing spend ~2K per month. I'd continue to look into ways that you can build additional frugality into your monthly spending to get the number down (you've already noted a couple).

Second, I might think about building a business case for your employer to aid with the part-time request. You working 4 days a week will likely result in roughly the same productivity (ironic ain't it..?) and save the employer roughly 100-150K in recruitment and training costs.

Third, the return on the rental feels low unless that number is after maintenance and paying yourself. Right now it is 4.8% of the value of your assets, and those assets do require your time and effort to maintain. You may also consider in the longrun if you want to be tied to the rental property as a source of income.

Finally, I agree with Jamessqf. Most folks don't "stop working" when they FIRE, they actually just transition into different careers where money is less of a driver. Effectively they've covered the need to make money and simply decide to do something they enjoy instead of focusing on money. This takes different forms for different people, but it seems as though most people who FIRE continue to generate moderate amounts of income every month from their newfound careers. You probably want to consider how you're going to spend your time to give yourself a sense of purpose when you leave the 'real workforce.'

[JR]

 That the government is trying to pass a federal fee/tax on ANY bank transaction you make (e.g., a simple deposit)?

Nope.
http://www.snopes.com/politics/taxes/debtfree.asp
And the 3.8% is only on capital gains which you don't pay on a personal residence.

[Wendyimhome]

 That the government is trying to pass a federal fee/tax on ANY bank transaction you make (e.g., a simple deposit)?

Nope.
http://www.snopes.com/politics/taxes/debtfree.asp
And the 3.8% is only on capital gains which you don't pay on a personal residence.

Not sure what we're missing here.  The Snopes cite you give acknowledges that the bank fee is a congressional proposal, which is exactly what I was referring to.  The 3.8 percent applies to sale of homes, although there is a minimum income level and minimum profit of sale level that applies. 

But the larger point to all of this is that we have a cash-starved government that is looking for money any way it can get it.  And I would think we can all agree that a government that campaigns on the notion that the rich don't pay their fair share, even as the rich pay 90+ percent of all income taxes, is probably going to expect anyone rich enough to retire at an early age to pay more.  That needs to be factored into any decision about early retirement.

[CptMrPants]

 That the government is trying to pass a federal fee/tax on ANY bank transaction you make (e.g., a simple deposit)?

Nope.
http://www.snopes.com/politics/taxes/debtfree.asp
And the 3.8% is only on capital gains which you don't pay on a personal residence.

Not sure what we're missing here.  The Snopes cite you give acknowledges that the bank fee is a congressional proposal, which is exactly what I was referring to.  The 3.8 percent applies to sale of homes, although there is a minimum income level and minimum profit of sale level that applies. 

But the larger point to all of this is that we have a cash-starved government that is looking for money any way it can get it.  And I would think we can all agree that a government that campaigns on the notion that the rich don't pay their fair share, even as the rich pay 90+ percent of all income taxes, is probably going to expect anyone rich enough to retire at an early age to pay more.  That needs to be factored into any decision about early retirement.

The facts say 1 guy in congress has been proposing this for almost 10 years with no co-sponsors or support. 
The law equivalent of a frivolous lawsuit.
This is not a concern for ANYONE and I hope you don't spend any time thinking about it or forwarding emails about this nonsense.

The rich pay most of the highest percentage of INCOME taxes because they have the highest percentage of INCOME. 
Effective tax rates are at a half century low.

If you want to argue against our progressive tax system- this is an odd place to do it.

[$_gone_amok]

3)  Why the hell am I still working?  What's wrong?

Our monthly expenses are about 4K/mo which -- yes, I know -- is too high. 


I think you already know the answer to your question.

Could you pay off the mortgage on the rental property to reduce your monthly expenses? After that your scenario will be a lot like MMM a few years ago.

[salmp01]

300K of net worth tied up in a rental property condo which generates 1200/mo

Not sure where you live but I’ve been getting over a 10% return (assuming 100% cash investment) on condos/townhomes that I rent.  So if you could find another investment property (or a few properties) you may be able to generate more income off this.  I would think that with a 300k investment that you should be able to net around 2,400/month (depending on where your live).

[tooqk4u22]

I wish I could get 10% leveraged return let alone cash return - I would be buying properties left and right if I could get 10%.  I am looking at 4-5% - so yeah no rentals for me.

[arebelspy]

I wish I could get 10% leveraged return let alone cash return - I would be buying properties left and right if I could get 10%.  I am looking at 4-5% - so yeah no rentals for me.

Heh, and that's funny, as 10% is the minimum I would accept, and often shoot for much higher.

[tooqk4u22]

I wish I could get 10% leveraged return let alone cash return - I would be buying properties left and right if I could get 10%.  I am looking at 4-5% - so yeah no rentals for me.

Heh, and that's funny, as 10% is the minimum I would accept, and often shoot for much higher.

Trust me, it aggrevates the heck out of me.  The numbers just don't work here unless I do the slumlord thing in the bad parts of the city - not going there though.  I am not comfortable being an out of town landlord (maybe one day I will be) so until I move it will be difficult. Hmmmm....vegas sounds interesting all of a sudden.

[Dr. Doom]

There are times when this is a source of tension as it feels like we're working against each other

Yeah, I do feel that way about certain purchases as well.  It sounds like you and I have a similar dynamic with our respective significant others.  It's OK overall - I think that the dynamic helps each of us to to keep an open mind, and I'm not bitter about it.  Most days, anyways ;)

most folks outside of housing spend ~2K per month.

Actually, we're really close to 2K month outside of housing.  We live in one of the most expensive areas of the country (Boston suburbs) and although you could argue that we own somewhat more home than we need -- it's a 3BR/2.5 bath, 1800 sq feet or so -- it's definitely not a McMansion or anything outrageous.   Still, the point remains that this is an area for potential cost cutting.

On the other hand, rental costs in the area have been soaring since 2008 when everyone became afraid to buy.  This means that we'd have a lot of trouble getting a 2 or 3BR for within 10% of what we currently pay on our mortgage.  I think we'd have to move away from Boston to realize a significant reduction in rent/mortgage monthlies.

What will you do if you don't work?

So let's start with what I do:
I'm an IT professional who focuses on application development and infrastructure planning/buildouts, high availability, automation, etc.  The technical tasks are somewhat interesting.  And coworkers/management are fine.  However, the pace is fast, and it's been very fast my entire career, regardless of where I've worked (although some places have been worse than others.)  "Changes" are always scheduled during off hours (early morning, late night, weekends) and there's unavoidable on-call duty.  So you work 40 hours a week, plus the extra stuff, to accommodate business demands for new application deployments, troubleshooting existing problems, disaster recovery tests, etc.  I'm sure I've put most readers to sleep by now.  I know every job has it's own set of challenges and I've always been grateful to be employed, and enjoy producing high quality work, but at the same time I want to make the point that it's not the easiest thing to do.  When there are production outages and serious problems it also eats into your sleep because your brain will just keep plugging away at the issue -- whether you want it to or not, honestly -- until you arrive at a solution.

Sometimes I think that what I really need is a year off, but let me tell you, the industry is not kind to people who have employment gaps.  If I can't speak intelligently about new load balancing units, or the sudden ubiquity of ipV6 network implementations, or <insert 15 other new industry trends here>, I'm practically unhireable.  Lots of studies back this up; this is not an unfounded fear.  Considering this, I'd rather continue to straight-shot to FIRE than mess around with large blocks of time off which may produce a considerable negative impact.

What would I like to do?  Exercise 2+ hours a day.  Cook _all_ of my own meals instead of half of them.  Read everything in sight.  Play guitar 2+ hours a day -- I'm a reasonably competent player who is continually unable to practice as much as I'd like due to work and an insistence on doing other higher priority activities with the time that I'm not working (i.e. exercise, home maintenance, etc)  Perhaps even join a low-key band. Spend a lot more time with my aging parents and my significant other. Look into consistently volunteering.  I've also considered teaching comp. science to HS kids which would be an interesting career shift for me.  (They're apparently in demand, mostly because people with degrees would rather make 90-120K /yr in business than 50K teaching.  Not surprising. Note that it would cost some amount of money to get the required certificates to teach.)  I am not in the "sit on the beach and drink all day once I'm retired" camp.  I want my life to be productive and useful, but also more well-rounded.

I realize I need better plans than this -- something more structured and less dreamy -- or it'll get old.  Some people have mentioned trying to live a lifestyle closer to what I'd like to do when I'm retired -- and to live that lifestyle *now*.  But I seem to be unable to do that because of work; I'm puzzled as to how people make that happen while maintaining professionally high standards of quality with their current employers. 

>>rental income is low unless that number is after maintenance and paying yourself

Yep, you nailed it:  This number is after maintenance other costs; the 1200 is the cream only, after all expenses. And going up to 1300 in Jan.

>>but it seems as though most people who FIRE continue to generate moderate amounts of income every month from their newfound careers

This is really the key.  It looks like I need to figure out how to make some money without a full-time 40+hour a week job if I want to FIRE without putting in another 4-5 years. 

I'll continue the investigation.

[arebelspy]

Hmmmm....vegas sounds interesting all of a sudden.

The awesome part of Vegas for an out of town landlord is that you can write off trips to Vegas as investment expenses.  ;)

[Wendyimhome]

 That the government is trying to pass a federal fee/tax on ANY bank transaction you make (e.g., a simple deposit)?

Nope.
http://www.snopes.com/politics/taxes/debtfree.asp
And the 3.8% is only on capital gains which you don't pay on a personal residence.

Not sure what we're missing here.  The Snopes cite you give acknowledges that the bank fee is a congressional proposal, which is exactly what I was referring to.  The 3.8 percent applies to sale of homes, although there is a minimum income level and minimum profit of sale level that applies. 

But the larger point to all of this is that we have a cash-starved government that is looking for money any way it can get it.  And I would think we can all agree that a government that campaigns on the notion that the rich don't pay their fair share, even as the rich pay 90+ percent of all income taxes, is probably going to expect anyone rich enough to retire at an early age to pay more.  That needs to be factored into any decision about early retirement.

The facts say 1 guy in congress has been proposing this for almost 10 years with no co-sponsors or support. 
The law equivalent of a frivolous lawsuit.
This is not a concern for ANYONE and I hope you don't spend any time thinking about it or forwarding emails about this nonsense.

The rich pay most of the highest percentage of INCOME taxes because they have the highest percentage of INCOME. 
Effective tax rates are at a half century low.

If you want to argue against our progressive tax system- this is an odd place to do it.

Where exactly did you read that I want to "argue against our progressive tax system?"  Geeshhh.  My point, again, is that the US government is well over its head on spending.  I don't think there's any way to deny the whole 16 trillion debt problem.  As a result of that problem, which is only compounded by things like Obamacare and free cell phones for the poor, it is looking for ways to raise more revenue.  And if people don't consider that before retiring 20+ years from what is the current age for social security eligibility, they're not making a very informed decision.

I have no problem with a progressive tax system.  I do, however, have a problem with an administration that uses this tired line of the rich not paying their fair share when, in fact, the "rich" pay 90 percent of the total share.  Meanwhile, 47% of the US population pays no income taxes.  I don't see how that is paying their fair share, but I suppose this is beside the point.

[JamesAt15]

As a result of that problem, which is only compounded by things like Obamacare and free cell phones for the poor, it is looking for ways to raise more revenue.  And if people don't consider that before retiring 20+ years from what is the current age for social security eligibility, they're not making a very informed decision.

As an aside, I hadn't heard about this "free cell phones for the poor" thing (probably because I live overseas). I looked it up (snopes and google) and was surprised to find it's actually a real thing.

Checking the wikipedia page on the Universal Service Fund, it sounds like that fund is paid for by taxes on the telecommunications companies. It also appears to be used to fund a lot of other things as well, such as phone and data services to hospitals, libraries, schools, etc, and to subsidize telecom costs in high-cost areas. (I assume that would be used to keep users in extremely rural areas from paying more for their phone service than urban areas.)

My question is, do you see any additional charges on your bill for your mobile or landline phone that are marked as for "Universal Service" or the "Universal Service Fund"? I assume telecom companies either roll the cost of their tax burden into their fees to their customers, or else list it as a separate item/fee on the customer bills. If it's listed separately, how much is it normally?

I'm just curious, since my mobile phone bill here in Japan includes a "Universal Service" fee which I imagine has a similar purpose. It's about 3 yen per month, so that's about 3-4 cents US. How much is it in the States?

[CptMrPants]

 That the government is trying to pass a federal fee/tax on ANY bank transaction you make (e.g., a simple deposit)?

Nope.
http://www.snopes.com/politics/taxes/debtfree.asp
And the 3.8% is only on capital gains which you don't pay on a personal residence.

Not sure what we're missing here.  The Snopes cite you give acknowledges that the bank fee is a congressional proposal, which is exactly what I was referring to.  The 3.8 percent applies to sale of homes, although there is a minimum income level and minimum profit of sale level that applies. 

But the larger point to all of this is that we have a cash-starved government that is looking for money any way it can get it.  And I would think we can all agree that a government that campaigns on the notion that the rich don't pay their fair share, even as the rich pay 90+ percent of all income taxes, is probably going to expect anyone rich enough to retire at an early age to pay more.  That needs to be factored into any decision about early retirement.

The facts say 1 guy in congress has been proposing this for almost 10 years with no co-sponsors or support. 
The law equivalent of a frivolous lawsuit.
This is not a concern for ANYONE and I hope you don't spend any time thinking about it or forwarding emails about this nonsense.

The rich pay most of the highest percentage of INCOME taxes because they have the highest percentage of INCOME. 
Effective tax rates are at a half century low.

If you want to argue against our progressive tax system- this is an odd place to do it.

Where exactly did you read that I want to "argue against our progressive tax system?"  Geeshhh.  My point, again, is that the US government is well over its head on spending.  I don't think there's any way to deny the whole 16 trillion debt problem.  As a result of that problem, which is only compounded by things like Obamacare and free cell phones for the poor, it is looking for ways to raise more revenue.  And if people don't consider that before retiring 20+ years from what is the current age for social security eligibility, they're not making a very informed decision.

I have no problem with a progressive tax system.  I do, however, have a problem with an administration that uses this tired line of the rich not paying their fair share when, in fact, the "rich" pay 90 percent of the total share.  Meanwhile, 47% of the US population pays no income taxes.  I don't see how that is paying their fair share, but I suppose this is beside the point.

Rich pay 90% of the taxes because they claim 90% of the income (percentages simplified).  That's just math. I already stated this.

Obamacare reduces the deficit. 

moving on...