Does moving break my FIRE plans?

[stacheonfire]

I'm after some guidance and\or ideas for our current FIRE\work\housing plans. Apologies for the lengthy post, but I thought that including enough detail would be useful to get the picture.

We are in a good financial position, however we're at a decision point about how to approach the upcoming years. My wife and I are in our early 40's, with two kids <5. We have no debt, own our own house (350k $AUD), plus investments totaling 1.5 million ($AUD).

With an annual spend of ~60k, and a SWR rate of 3.5%, our FIRE# is just over 1.7 million. I'd also like to have a ~120K buffer on top of the FIRE number, so we need just over 1.8 million. I know there are potential options along the lines of reducing expenses and upping the SWR, reducing the buffer etc, however I'd just like to leave that side of it as is for now. That puts us ~320k short. Not an insignificant amount, but hopefully attainable in ~5 years with a combination of savings from salary (saving around 24k p.a.) and a 3.5% ROI on our existing investments.

The main issue\question we have relates to where we live. We live about 35-55 minutes to the Melbourne CBD by train (express vs slow trains). However my wife currently works out the other side of the city, adding another ~30 minutes to the journey). She works 4 days\week for a consultancy, so theoretically they could place her onsite with a client anywhere (CBD would be good!).

This is clearly not ideal, so we can either move or she could look for a CBD based job (there are no such jobs where we currently live). I'm currently not working, as I'm staying at home looking after the kids. My wife and I have a similar earning capacity. We swapped roles a while back as she wanted to go back to work.

It seems straight forward enough to say that my wife should get a CBD based job, however the reality is we're not really crazy about where we live now. If we move somewhere closer to the CBD, the housing cost gets ugly very quickly. In theory, we can afford to buy, but it would wipe out the vast majority (if not all) of our investments (goodbye FIRE). I'm not really willing to enter the housing market in Melbourne anyway.

So we can rent in Melbourne at somewhere around 600-700pw. The cost of this could be partially met by selling our house and investing the proceeds. The rest would come from my wife's salary, which means we would save nothing. My wife could go from 4>5 days p\w at work, which would put our savings rate on par with what they are now.

In simple terms, moving and renting would mean working an extra day per week to meet our housing costs, while also saving towards FIRE at the same rate as we are now. If you then factor in the rent payments to our annual expenses (+30k minimum, which is +50% on top of current expenses), then the FIRE# and FIRE timelines get ridiculous, to the point where RE is not possible.

We're not complaining at all, we are just unsure what to do. FIRE seems very close at times, then I think we're massively underweight on housing and we're not close to FIRE after all.

Work in our respective professions is really tied to Melbourne (or Sydney etc), unless we are willing to take a ~50% pay cut to work in some other regional area. The work would also be of a very different nature and perhaps not too appealing. Our friends\family are also located in and around Melbourne, so we're not to keen on moving away, and we do like Melbourne as well.

Our thoughts are all a bit muddled as to what to do. I think we really need an outside perspective on this, so we'd really appreciate your insight!

[Frs1661]

I think your mistake is adding the cost of renting to your FIRE expenses number. If you only plan to rent while your wife works, just budget enough extra in your FIRE investable assets to purchase a home in the area you hope to retire to. Perhaps even just set aside the proceeds from your house sale in an investment account and use them to purchase another home when the time comes.

If you hope to retire in the higher cost location, closer to the city, then your FIRE number will of course go up significantly.

Would your current place make sense to keep as a rental property?

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[stacheonfire]

Frs1661, yes, that certainly is an option to just rent up until we stop working and then buy elsewhere come FIRE. I think most potential\desirable areas we move to (close to the city or not) would require a higher spend on housing, so we'd need to factor that in. A bit more research there on potential locations and cost would be needed.

I don't think I would keep our place as a rental. I shouldn't even try and guess the property market re capital growth (best guess that outside the city it's flat), and rental yields aren't real high. I think I would choose the "simpler" option of selling and investing the funds.

The other option I considered was moving closer to the city and continuing to rent post FIRE. Instead of adding the cost of rent to our FIRE expense number, we'd continue working in some capacity to meet the rent payments. Obviously this is not really FIRE if we have to work, but the financial commitment would not be too high (and the work potentially more agreeable).

On this basis, we would have (only just) hit our "FIRE" number now, based on selling the house and investing the proceeds. At a glance, our expenses would potentially come down a few % (property rates are 2k p.a, plus maintenance, improvements, etc), so that helps the buffer.

I see some appeal to this option - living some place we want to be and potentially winding back work commitments. The clear downside is that at some point we'd want to stop working altogether and we'd be back to raiding our investments to purchase a house, potentially leaving us short.

[Frs1661]

Your assumption of 3.5% interest is also very conservative; if you assume 5% (still conservative for a stock heavy portfolio IMO) you only have 3 years of work remaining to hit your number! Even if you stop your $24k/yr additional savings you're only taking about a 4 year timeline. You are very close to FI, your portfolio saves much harder than you can. Consider that your wife can work fewer days or take a lower paying job more locally for the next 4-5 years and you'll still reach your goals, and perhaps retain her sanity.

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[hlca]

Your assumption of 3.5% interest is also very conservative; if you assume 5% (still conservative for a stock heavy portfolio IMO) you only have 3 years of work remaining to hit your number! Even if you stop your $24k/yr additional savings you're only taking about a 4 year timeline. You are very close to FI, your portfolio saves much harder than you can. Consider that your wife can work fewer days or take a lower paying job more locally for the next 4-5 years and you'll still reach your goals, and perhaps retain her sanity.

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A withdrawal rate of 3.5% is not that conservative for someone in their early-40s.  5%, even with a "stock heavy portfolio" is outrageous.  Trinity study was 4% for retirement age folks. 

[Frs1661]

Your assumption of 3.5% interest is also very conservative; if you assume 5% (still conservative for a stock heavy portfolio IMO) you only have 3 years of work remaining to hit your number! Even if you stop your $24k/yr additional savings you're only taking about a 4 year timeline. You are very close to FI, your portfolio saves much harder than you can. Consider that your wife can work fewer days or take a lower paying job more locally for the next 4-5 years and you'll still reach your goals, and perhaps retain her sanity.

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A withdrawal rate of 3.5% is not that conservative for someone in their early-40s.  5%, even with a "stock heavy portfolio" is outrageous.  Trinity study was 4% for retirement age folks.

I am not speaking of a 5% withdrawal rate; which I agree is overly optimistic. I was speaking only of the average return of a stock heavy portfolio. Since 1972 the US total stock market has an inflation adjusted CAGR of 6.9%. I was trying to point out that his assumption of only 3.5% returns between now and FI to be quite conservative.


Although my assumption that an Australian is heavily invested in us stocks may be a poor one :)

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[stacheonfire]

Frs1661 and hlca, thanks for your comments and insight.

I have not differentiated between returns up to FI and our SWR one we hit FI. Although the trinity study was based on 4%, I settled on 3.5%, as I understand the returns in the Australian market are lower than the US market (for my growth portfolio, I currently have 60% / 20% / 20% in the ASX300, US total market and World EX US markets respectively).  Growth\Defensive split still TBC, though leaning towards being heavy on stocks. Outside of my FIRE#, I'm planning to have ~2 years living expenses accessible too.

I still have quite a bit of planning to do to make sure I'm on the right track, but it's getting there. First and foremost is the work and living arrangements. That is proving to be the most difficult.

[potm]

Why don't you buy/rent on the other side of the city near where your wife works? Would it be much higher than where you currently live.
Your current house is worth 350k yet you have estimated 600-700 for renting. That must be a much more expensive house you would be renting.

If you add in the rental costs to your Fire expenses, you also have to take into account the extra money you have from selling the house to invest.
Depending on how much the proceeds and rent will be, I don't think it would extend your time to FIRE considering the rental yields Melbourne houses are on at the moment.
Americans on here talk about the 1% rule. It's probably more like the 0.25% rule in Australia.

Either way, you guys are in an awesome position and very close to FIRE. Just don't go upping your housing costs significantly and you will be set.

[stacheonfire]

potm, thanks, yes we're looking at some renting options closer to work. I'm not keen to buy in Melbourne, too expensive for my liking. I estimated rental of 600-700pw, based on a 3br place within close proximity to work and the cbd (the goal is to reduce our commute, and access to the cbd means a change of job means we don't have to move again). I agree that 600-700pw is a lot compared to our current house, because where we live now is comparatively (very) cheap.

I've done some calculations, based on adding the sale proceeds of the house (350k) to our investments, and then adding the rental cost (e.g. 31k pa based on 600pw) to our annual expenses. The annual expenses go from 60k > 91k, which we could then trim at least 3k from (no more rates and building insurance etc). So our annual expenses are 88k, which puts the FIRE# at 2.5m, up from 1.7m. Even finding a rental at 500pw puts the FIRE# at 2.37m.

I'm still pondering how to "fix" our current situation - as you have said, "Just don't go upping your housing costs significantly and you will be set".

Instead of trying to hit a FIRE# of 2.3m - 2.5m (seems a crazy number), I'm back to thinking we need to work in some fashion to meet the shortfall between the return our investments make and our expenses including rent (once we hit our FIRE# that covers all our other expenses). It's not FIRE then though is it....