Author Topic: Case study: Short risky FIRE or Secure 'long' FIRE ?  (Read 6501 times)

tomcat

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Case study: Short risky FIRE or Secure 'long' FIRE ?
« on: September 17, 2013, 10:15:23 PM »
Dear MMM Forum,
 
I am quite new to the MMM family, but I have been following the blog for awhile and I would like to expose my case so that you help me with a decision on my career path. Basically, it boils down to continue being a very well paid IT consultant with a certain job insecurity, or accept a very stable job with more responsibility and better long term prospects but lower salary. All that, keeping in mind that my target is achieving FI as soon as possible, mustachianism and badassity certainly help a lot there!. Since itís difficult to find people in the same situation that I am in, I thought it would be a good idea to ask you for some advice. I am not an English native speaker, so I apologise for my English mistakes.
 
I am an early 30ís IT consultant working in Holland. I have been consulting for the same company for the last 6 years, but the budget for the project I am in ends in around 4 years. At that point, I will have to job hunt for a new project. Currently, there is an opening in my company for a long term position that matches my expertise. However, I am considering if I should accept or not this position if they offer it to me. I feel I have a very good chance of being offered the position.
 
In summary, these are the differences I can think of for the new position:

Advantages:
  • Long term job security, since it would be a long term position in a government related industry.
  • More responsibilities leading a small team.
  • An almost guaranteed pension scheme upon Ďregularí retirement.
  • Better job opportunities to climb the corporate ladder, better long term prospects.

Disadvantages
  • Less salary. Basically, I anticipate I would take me 10 years before I start making what I make at the moment.
  • More managerial tasks: leading the team, meetings, etc. I actually like doing technical tasks, which is what I do at the moment. Therefore more management tasks wouldnít be something I would actually be looking for in the near future.

On the personal front, I am married with no kids, but we have plans to have our first child in 2 years time. My wife is not working at the moment.

We have been doing our financial homework for the last 6 years and I feel like this decision could deviate us from our current plan by several years. However, options like this one do not happen often, so if I donít jump into it, I might not get a similar one.
 
Letís put some numbers into our financial situation:
  • Current Salary Income: ~110K euros/year net
  • Current Expenses: ~30K euros/year
  • Stash:  ~380K euros invested mostly in standard low cost ETFs (~50%) and CDs (~50%)
  • Debt: No debt.

Please note that although 1 euro ~ $1.33. The living costs in some areas in Europe are also higher. Iíve also lived in the USA and I would guess $1 buying power in USA is similar to 1 euro buying power in Europe.

So we have a very high savings rate of about 72%, which I know is very uncommon. Although we are quite frugal, I know our big savings rate comes mainly from my high salary. Therefore, I am a bit reluctant on giving it up even if I have a better job security.

The salary for the new position would be ~72 K euros/year net + benefits. All the rest would remain the same, which would obviously erode our current savings rate. By the way, I certainly know now that it will be difficult for me to get such an advantageous IT position like the one I have in four years time. So I might have to settle for less when that moment comesÖ Lots of uncertainty here. Worst case, Iíll have to settle for around 35% less in 4 years time.

My calculations for FIRE are as follows:
  • We would like to have a SWR of 2.5% in investable assets (mainly ETFs). Yes I know itís very conservative, but I am looking into a loooong retirement :-)
  • I would probably relocate next to my parents in southern europe, where our living expenses would be considerably lower, Mainly because my parents already leave there and have multiple rental properties. So we could leave on one of them without paying any rent and be close to family at the same time. Therefore, I anticipate living expenses of around 25K euros / year.

Considering the previous points, we need to stash 1M euros in investable assets and have no debt in order to achieve FIRE. But the good news is, we are about to reach 40% of that target!

I have done some projections based in all the previous numbers and I think we could achieve FIRE in about 4.5 years at the current rate (assuming all goes according to plan). On the other hand, if I were to get the new position, it would take me about 7 years to get to the same point (which is not bad either!).

I also want to note that I kind of like/enjoy my current job (most of the time). So even if I were to achieve FI, I think I wouldnít actually stop working. I would just stop worrying about money and have a more relaxed life.

So what do you think and why?
  • Risky short FIRE (4.5 yrs) or
  • Secure 'slow' FIRE (7.5 yrs)

Thanks in advance for your opinion!

arebelspy

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Re: Case study: Short risky FIRE or Secure 'long' FIRE ?
« Reply #1 on: September 17, 2013, 10:20:10 PM »
You can get to FIRE in about 4.5 years and have a contract to (likely) have the job for 4?  I'm not seeing that as risky at all.

I'd keep the current one. Save as much as possible, and then very likely to have as much freedom as you wish in 4 years to decide what you want to do then.

IMO that keeps as many options open as possible and gives you a greater ability to capitalize on whatever possibilities open up in the future.

Welcome to the forum!
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tomcat

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Re: Case study: Short risky FIRE or Secure 'long' FIRE ?
« Reply #2 on: September 17, 2013, 10:38:06 PM »
Thanks for your comment arebelspy,

The risk is that in my current contract I get paid as per days worked. No work, no pay.
If for whatever reason I have to stop working for an extended period of time I'll have no income at all. With the other contract, I would get ~75% of the monthly salary even for extended periods of time.
I am fine with this situation at the moment because I have no real dependents, but this might change in 2 years time.

arebelspy

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Re: Case study: Short risky FIRE or Secure 'long' FIRE ?
« Reply #3 on: September 17, 2013, 10:55:02 PM »
I am fine with this situation at the moment because I have no real dependents, but this might change in 2 years time.

So why not utilize the current situation for now, earning and savings as much as possible, and then reevaluate when necessary, feeling more confident with the extra "F You" money backing you?

What exactly is prompting you to think you need to make the change now, just because the job is available now and you think a similar job (at any company) won't be in two years?
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

tomcat

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Re: Case study: Short risky FIRE or Secure 'long' FIRE ?
« Reply #4 on: September 17, 2013, 11:16:20 PM »
To be honest, my preference is to just keep my current position, save as much as I can and reevaluate when the time comes. I've done so in the past, giving priority to short term high income rather than better job prospects and it has worked quite well so far. However, I feel like I would reject a very good opportunity to settle for the long term. Meaning, I would still settle for a good position, good salary and low stress probably until 'regular' retirement. I think it would be difficult to get an opportunity like this in the future. I know many people would do anything to be offered this position. Maybe that is what makes me insecure, that so many people are fighting to get this and I am considering rejecting it. That's probably the reason I am so confused.

arebelspy

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Re: Case study: Short risky FIRE or Secure 'long' FIRE ?
« Reply #5 on: September 17, 2013, 11:37:35 PM »
To be honest, my preference is to just keep my current position, save as much as I can and reevaluate when the time comes. I've done so in the past, giving priority to short term high income rather than better job prospects and it has worked quite well so far. However, I feel like I would reject a very good opportunity to settle for the long term. Meaning, I would still settle for a good position, good salary and low stress probably until 'regular' retirement. I think it would be difficult to get an opportunity like this in the future. I know many people would do anything to be offered this position. Maybe that is what makes me insecure, that so many people are fighting to get this and I am considering rejecting it. That's probably the reason I am so confused.

Ah.  Those other people are probably fighting over it for the long term security (if there is such a thing, while depending on a company for it).  They plan to work for 30+ years.

You don't need that, you're creating security of your own through saving/investing.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

travelbug

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Re: Case study: Short risky FIRE or Secure 'long' FIRE ?
« Reply #6 on: September 17, 2013, 11:50:32 PM »
I would definately stay where you are, try to focus intensely on saving even more than 72% and retire ASAP.

If you have a safety net with your parents and a cheaper lifestyle and could have all that in 4 years to see your children grow up from infants, that would be my incentive.

Just one Q: is there a reason to why your wife does not work? Is she as keen as you for FI in 4 years? If she could get a job and save all of her salary too you could get there even quicker, or have even more stash. (until you have children, or course, then she would stay home.)

The job security would be great if you still had 10 years til FI, but for four: Go for it!!


Doubleh

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Re: Case study: Short risky FIRE or Secure 'long' FIRE ?
« Reply #7 on: September 18, 2013, 12:17:59 AM »
Agree with ARebelSpy - sounds like the reason you're confused is because the secure job is worth way more to other people than it is for you - for them it's worth 30x annual salary but for you only 7x

In 4 years when your contract is up if you cant find a similar opportunity you may decide you are comfortable with a marginally less conservative SWR - alternatively even a much lower income wouldn't take long to save up the small amount you need by then for your target.

For what it's worth I gave up a relatively secure permanent job to take contract work at a daily rate, in order to get to FI quicker. 6 month contracts are the norm in my industry so 4 years sounds like unbelievable luxury, but we offset my instability as my wife has a fairly secure permanent job.

tomcat

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Re: Case study: Short risky FIRE or Secure 'long' FIRE ?
« Reply #8 on: September 18, 2013, 12:48:27 AM »
Just one Q: is there a reason to why your wife does not work?

She stopped working 3 years ago after a car accident. She got a muscular injury on her neck that gets worse with stress and office clerical work, so she quit. Then started doing some side gigs on the gym but had to stop because of the same injury. Obviously, having a 2nd salary would boost our income and we would reach FI sooner, but I don't think its worth the sacrifice at the moment until she gets in better shape. Specially since she didn't like her previous office job.

I try to encourage her to start her own business, since she has now the time and we don't have money issues. Let's see if we can work something out!

tomcat

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Re: Case study: Short risky FIRE or Secure 'long' FIRE ?
« Reply #9 on: September 18, 2013, 12:58:00 AM »
In 4 years when your contract is up if you cant find a similar opportunity you may decide you are comfortable with a marginally less conservative SWR - alternatively even a much lower income wouldn't take long to save up the small amount you need by then for your target.

Yes, you are right. I thought about this. In my simulations, this translates in ~6 years, which is still less than taking the permanent job.
All comments are in the direction of taking the quicker path to FI. Maybe if I would ask on a different forum I would get much different comments :-)

tomcat

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Re: Case study: Short risky FIRE or Secure 'long' FIRE ?
« Reply #10 on: September 18, 2013, 01:00:37 AM »
For what it's worth I gave up a relatively secure permanent job to take contract work at a daily rate, in order to get to FI quicker. 6 month contracts are the norm in my industry so 4 years sounds like unbelievable luxury, but we offset my instability as my wife has a fairly secure permanent job.

I would probably not think that much about this decision and go for the 'short risky FIRE' if my wife had a stable job. Can I ask you what industry and what country that is?

RootofGood

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Re: Case study: Short risky FIRE or Secure 'long' FIRE ?
« Reply #11 on: September 18, 2013, 07:06:53 AM »
I would go for the four years of big earnings.  Then figure out what you want to do.  If you are really close to FIRE at the end of four years, you could always do a little freelancing or contract work to top off the portfolio.  Nice position to be in!

arebelspy

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Re: Case study: Short risky FIRE or Secure 'long' FIRE ?
« Reply #12 on: September 18, 2013, 07:51:07 AM »
In 4 years when your contract is up if you cant find a similar opportunity you may decide you are comfortable with a marginally less conservative SWR - alternatively even a much lower income wouldn't take long to save up the small amount you need by then for your target.

Yes, you are right. I thought about this. In my simulations, this translates in ~6 years, which is still less than taking the permanent job.
All comments are in the direction of taking the quicker path to FI. Maybe if I would ask on a different forum I would get much different comments :-)

For me it has nothing to do with the quicker path to FI, but the extra money meaning more flexibility and options in your future.

Having a stache that is 75% larger after 4 years (being able to retire in 4 years instead of 7, assuming the same amount is needed to FIRE, means that at year 4 you'd be at 100% versus only 57% of what you need, thus it's 57% higher in scenario 1) is huge.

Like I said, it has nothing to do with getting to FI earlier, for me.  Even if you're planning on continuing working, having the extra stache frees you up to decide in 4 years that you do want to FIRE, or not, or donate more to charity, or put your kid in private school, or whatever.

But yes, many people in the world would take the "security."  There isn't such a thing, so I'd work on setting yourself up into as good of a situation as possible, given that.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

lackofstache

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Re: Case study: Short risky FIRE or Secure 'long' FIRE ?
« Reply #13 on: September 18, 2013, 08:01:36 AM »
But yes, many people in the world would take the "security."  There isn't such a thing, so I'd work on setting yourself up into as good of a situation as possible, given that.

This! There isn't any security in a job. Make the money while you can. Save as much as you can (which you're doing a great job of) and when the time comes, you'll have the freedom to figure something else out.

CommonCents

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Re: Case study: Short risky FIRE or Secure 'long' FIRE ?
« Reply #14 on: September 18, 2013, 08:59:14 AM »
Consider also whether you'd be able to negotiate a higher salary in the long-term position.  Seems to me that while a paycut for security (and not having to pay health care and other expenses yourself) makes sense, that they might recognize that a dramatic cut is not that appealing, nor does it reflect your true worth.

tomcat

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Re: Case study: Short risky FIRE or Secure 'long' FIRE ?
« Reply #15 on: September 18, 2013, 09:28:02 AM »
Consider also whether you'd be able to negotiate a higher salary in the long-term position.

Yes. But the company has a well defined ladder, with planned promotions based on seniority and so on, so the only thing I would be able to negotiate is the entry position in that ladder. After that, it's all carved in stone.
The figures I presented already assume that I am able to negotiate a good entry position :-S

brewer12345

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Re: Case study: Short risky FIRE or Secure 'long' FIRE ?
« Reply #16 on: September 18, 2013, 09:28:13 AM »
Just curious: can you not buy long term disability insurance in Europe from a private insurer?

tomcat

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Re: Case study: Short risky FIRE or Secure 'long' FIRE ?
« Reply #17 on: November 01, 2013, 06:17:26 AM »
Just a short follow up. I finally applied for the position, got interviewed but didn't get the position. So in the end I didn't have the option to choose. So it's all good in the end.