Author Topic: Find the holes in my early "semi-retirement" plan  (Read 3842 times)

jubilantjill

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Find the holes in my early "semi-retirement" plan
« on: April 21, 2014, 05:42:02 PM »
Hello, wise mustachian community.
I'd like some advice about a semi-retirement idea I've been toying with lately. I'm considering saving like crazy for 2-4 years now, then putting that money aside to grow untouched til I hit 60ish (or whenever it reaches the amount necessary to provide a 4% SWR). In the meantime I can work minimally-making just enough to meet my financial needs without sacrificing my need to spend quality time with my family, travel extensively, and rock climb as much as possible while my body can still handle it. If it wasn't for my love of climbing and my daughter I'd be fully on board with the work like mad now strategy, but that would take 9-10 years and I just don't think I could handle that level of work intensity.
My specifics-
Married, both 35, and with a 3 year old. Live in rural remote sunny eastern California where the wages are great and the land prices are abysmal.
Current income- we both make around $40/hour as RNs and can pretty much work as much or as little as we want. We both lean toward the "little" side as we greatly enjoy our glorious mountains and eternal sunshine. We're presently shooting for 1200 hours apiece this year- did I mention we're lazy? Plus I did the math and once we gross over 100K we'll end up losing almost 50% to taxes and loss of ACA subsidy. 

Expenses $3200/month of which $1500 is mortgage/property taxes/homeowners insurance. I can provide more details if desired, but having grown up on a farm with a family income of $15K, I consider myself pretty dang frugal.

Assets - $52K cash, $35K Vanguard (IRAs and taxable), $18K in IRAs at my old credit union which I think is treasury bonds or maybe just a money market- It's earning 1.5% (used to be 3-4%) and never loses value. We have so much cash right now cause my husband is fixing to go from a regular budgeted position to a per diem position like me and our income will potentially become much more irregular or maybe he won't be able to get enough hours. Per diem basically means he gets no benefits and no guaranteed hours, but we can take off time whenever we want. We give our bosses availability instead of requesting days off. We also have a lot of cash because we're anticipating buying another vehicle soon. We have a 98 Civic and a 98 tacoma presently. Civic for fuel economy and Tacoma to get into the mountains in the winter and to pull our 10ft camping trailer. Let the facepunching commence, but we have a long history of vehicle dwelling. We'll probably eventually sell both vehicles and the camper and drop $20K on a Sprinter van. When we live in the van it instantly goes from "extravagant luxury" to the ultimate in mustachianism. Or maybe just weird.
House is appraised at $270K (owe $173)- would expect to profit $75K if I sold now after paying a realtor.
House #2 is a tiny little cabin in the NC mountains that we built ourselves in 2006 for under $25K. It's on 6 acres I got from my parents, and is absolutely gorgeous. We might be able to sell the whole thing for $75K, but I have absolutely no desire to do so. I'd feel obligated to give my parents most of that since they gifted me the land. We don't rent it out because it sits in the middle of the woods and relies on wood heat so tenants would probably burn the place down. Or abuse the composting toilet and make a nasty mess. 2500 miles is too far to landlord and tops it would bring in would be $500/month- not worth it. Right now, we'd like to make it our "homebase."

Liabilities 15 year fixed mortgage at 2.5%-14 years to go. We presently owe $173K and appraisal is around $270K. This is for a well-maintained 820sqft 1948 house on a tiny well-groomed lot. Property values are insane here! And we got a "steal" buying at the bottom (I hope) a couple years ago.

The Plan Here's my tentative plan that would satisfy my need to travel and plan for retirement. Save like mad til we get to 200K (3 years I'm estimating- and not counting cash we have now), sell this house for a 100K profit. Put that $300K into a VTSAX IRA and let it sit til we're 60. By then, hopefully, compounding interest will bring it up to over 800K which should provide enough money for true retirement. In the meantime we would do travel nursing and each work 3 months a year and spend the other 6 months hanging out in our NC cabin in the perfect Appalachian summer or traveling the country/world rock climbing on the cheap.

Specific Questions How does this plan seem? Tear it apart please. I'm a bit worried about this bull market we're having, but my greatest asset is being a nurse (and my husband too) in an aging population- it's the ultimate job security - so I could always work a bit more. This plan assumes we'll save nothing from 38-60 and I find that highly unlikely. The plan also assumes no SS which I also find unlikely. The part I don't like is that I'd save by maxing out our 457B plan at work which has a fee of 1.16% on an S&P500 index (variable annuity), but at least I'd only pay that til we quit in 3 years. One last thing, we love spending time with our brilliant daughter and don't want to put her in preschool so we're limited in how much we can work and still trade off for childcare.

I'd love to hear what others think. Right now, it seems like a great idea.
Jill

Gin1984

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Re: Find the holes in my early "semi-retirement" plan
« Reply #1 on: April 21, 2014, 06:39:48 PM »
Is there a reason you are doing per diem instead of part time (where health insurance is included)?  Are you in Northern Ca or Southern Ca?

jubilantjill

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Re: Find the holes in my early "semi-retirement" plan
« Reply #2 on: April 21, 2014, 06:54:31 PM »
My husband is presently permanent part-time at 60 hours every 2 weeks, but the PTO accrual is only giving us 5-6 weeks of vacation a year. And we highly value our vacations. We're in  eastern California- Bishop- just east of Yosemite.

MDM

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Re: Find the holes in my early "semi-retirement" plan
« Reply #3 on: April 21, 2014, 07:34:42 PM »
On a monthly basis:

Gross Income: $8,000 (per OP)
IRA deduction: $   917 (max. $11K/yr)
457b deduction: $2,917 (max. $35K/yr)
Taxes (Fed/State/Soc.Sec./Med.): $1,025 (guess)
Other Expenses: $3,200 (per OP)
After-tax Investable: -$59 (close enough to cash flow neutral)   

The $46K/yr is still "only" $138K in 3 years, so not completely consistent with "Save like mad til we get to 200K (3 years I'm estimating- and not counting cash we have now)."  Maybe more of a nitpick than a tear apart (especially if I misread or miscalculated), but just checking...?

Great job planning, and you appear to have enough contingencies that things will be manageable.  Good luck!

ShortInSeattle

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Re: Find the holes in my early "semi-retirement" plan
« Reply #4 on: April 21, 2014, 08:38:07 PM »
Will 800k cover your inflation-adjusted expenses at full retirement age? That 800k is gonna be worth less down the road.

Have you factored in healthcare (dental, vision) expenses?

Just a few more things to think about.

jubilantjill

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Re: Find the holes in my early "semi-retirement" plan
« Reply #5 on: April 21, 2014, 09:32:36 PM »
Thanks Shoheeattle and MDM for your replies.
ShortinSeattle- I used a simple compound interest calculator plugging in 3% inflation and 8% interest for 21 years and 300k grows to 1.5 mil which is $811k in today's dollars. That's a good point though about vision and dental. I've factored in Obamacare, but who knows how that will change.  And I suspect my dental costs are going to go up as I age. I don't even want to think about braces for my daughter! Something to plan for, that's for sure.

MDM- your math is spot on! But I'm counting my investments up to this point as part of that 200k. So that's $51k. And I rounded when I said we both make $40/hour. 4 of my husband's 12 hours each shift get a 25% night shift differential. We'll both be getting a 4% raise this summer. And I do some call shifts that pay time and a half or double time depending on when they are so I figure all those things should be good for saving around $4000 after tax or $50,000 total each year for three years. It's all ballpark, plus I'm kind of thinking the market will crash (I'm hoping sooner rather than later) and I'll have to save a bit longer than three years. I just need some kind of plan to get me saving that doesn't have a 10 year timeline. I can wrap my mind around 3 years much better.

JohnGalt

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Re: Find the holes in my early "semi-retirement" plan
« Reply #6 on: April 21, 2014, 09:59:05 PM »
This is very similar to what I'm hoping to do... Working full time until I have enough that would cover very basic expenses if I were to need to live off it long term if I needed and then switch to working part time or intermittently full time to at least cover expenses (likely enough to keep saving too) and just let the savings grow. 

The RN status probably gives you easier work options than I'll have.  Have you worked on what a budget would look like when you get to that that next phase?  I'm single with no kids and plan on staying as flexible as possible - I'm not sure how different things would be if kids were involved in my planning. 

Emilyngh

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Re: Find the holes in my early "semi-retirement" plan
« Reply #7 on: April 21, 2014, 10:20:12 PM »
We basically did this.   

DH and I worked FT in an extremely high COL area (leaving in cheap shit housing), making high incomes and socking it all away for 4 years.

We then moved to our dream location (also low COL), we had our daughter, DH quit his job completely to SAH with her, and I took a job where I work PT flexible hours.   B/c we took this route, we won't be fully FIRE for another 10 years or so (I'll be in my early 40s), but I'm happier with this path than continuing to work at jobs we hated in an area we hated for a few more years and either having delayed having DD longer (and we had fertility issues) or not being able to spend so much time with her while she's a baby/toddler.

Also, when DD is in school FT in 2 years, DH may consider also working PT to decrease our time to FIRE below my current projection of 10 years from now.   Or, I might pick up a side gig instead (if I find something better or higher paying) and he'll just carry all of the house-related things, or we may decide to keep the work arrangement as-is.   That's what's so great about this semi-retirement setup combined with low living expenses, IMO.   It's extremely flexible and can easily be worked around life changes, preferences that may change in time, etc.  It may not be quite as flexible as full FIRE, but it's pretty flexible.
« Last Edit: April 21, 2014, 10:31:43 PM by Emilyngh »