Author Topic: FIRE No Man's Land, or Done?  (Read 3962 times)

Cycling Stache

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FIRE No Man's Land, or Done?
« on: April 24, 2016, 07:12:21 AM »
I realize how ridiculous these posts sound to the vast majority of people working their way through debt, but I’d appreciate any input on how to analyze/handicap my situation.

I’m 40.  My wife is 41.  I would like to retire (I think—that’s the question after this one).  My wife says she’s a worker bee who intends to work for a long time.

Current net worth is $1.39 million.  No debts.  Of that, $540k is retirement invested in VTSAX or equivalent, $100k is non-retirement invested the same.  The house is paid off and (conservatively) worth $750k.  Kids are 10 and 7, and wife and I will likely relocate to a smaller house once they’re off to college, etc., unlocking another $400k-$500k (conservative) in 10 years.

Our annual spending is $57k, which includes up to $10k in kids’ expenses (daycare, aftercare) that could go in retirement, so possibly $47k.  Also, we pay $13k in property tax/condo fees, which should drop significantly when we move/downsize.  My wife views our current spending as a lower limit and, if pressed, would probably like it to go up a little.  There's also needs to be a little cushion in the number for things like a new roof, etc.  That doesn't really show up in the annual spending.  I also haven't included anything for kids' college, based in part on the MMM post on the topic, which I agree with.  We might contribute, but I'm not funding them at $250k a pop.

We have earned enough for social security and an annuity worth a total of $40k annually beginning at 67 (in 27 years).  That’s conservative, because the $10k (and growing as long as I work) annuity begins at 62, and social security would increase for additional years worked.  I understand that social security is not guaranteed, but I doubt it changes by more than 20% by the time we get there.

We currently clear about $140k per year after taxes and all expenses (not counting portfolio growth).  More importantly, my wife earns after tax a little more than our annual spending in a job that she tolerates but fits our lifestyle well (location, hours, etc.).

Finally, we will probably get $300k-$400k in inheritance when our parents pass away.  Sad to think about, and they’re nowhere close (fortunately!), but it is a likely source of money somewhere in the distant future.

Under the 25x rule, we’re not to FIRE yet.  At $47k, we would need $1,175,000 liquid, and we’re at $650k liquid.  There’s another $400k-$500k to be unlocked by a house sale, but not for another 10 years. 

But the 25x rule assumes no more income, and I’m not going to be one of those 2% or 3% safe withdrawal people.  Math should be math, and that includes probabilities of outcomes.

The issue seems to be forecasting my wife’s current willingness to work.  Obviously, if she continues to work until 65, there is no issue.  I can retire now.

But even if she works just 10 more years, the $650k doubles to $1.3 million (10 years at 7% growth), and that’s enough.  So long as her salary exceeds our spending, the pot just grows.  And once you factor in that the money only has to last (more or less) until 67, when social security/annuity benefits kicks in and matches annual spending, it’s a blowout.

As I write this, I realize that it seems like just guessing how long my wife will definitely work, or picking an arbitrary number between our current one and the 25x amount.  Can that be right?

Any thoughts are helpful.  I don't want to work extra years just to “be safe.”  But I’m finding it tough to assign probabilities to the different outcomes.

A final note: my job is virtually guaranteed, and almost impossible to replicate or get back.  If I leave, I’m not going back to something that pays comparably for the work I put in.  So if I need the extra money, I want to earn it now doing this job (which is as rewarding as I'm going to find regular work to be).

Thoughts?

Thanks for the help.

ender

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Re: FIRE No Man's Land, or Done?
« Reply #1 on: April 24, 2016, 07:30:17 AM »
It sounds like your situation is:

  • $640k invested
  • $400-500k home equity you will probably reclaim
  • $47k annual spend
  • Unknown college spend in 8-12 years
  • Cannot get job back if FIRE fails
  • Probably $300-400k in future inheritance

The biggest problem you have is that your income planning for the next 10 years is nearly exclusively around your $640k invested (if your wife retires).

Assuming the market stays flat, your $60k burn rate (which you don't sound confident in at all, but $57k - $10k + $13k) will leave you with only $40k invested after 10 years - this is not a lot of margin and ignores any other spending like new roof, etc. If there is any noticeable market drop, even relatively small, you won't be funding your kids college and will need to downsize much earlier.

Which means - this conversation is one you need to have with her. If she wants to work for the next 10 years? Problem solved, you are fine. But if you retire this year and she decides next year not working seems fun... you are going to be in a really crappy situation. Or if you decide that RE'ing without her is not fun.

I would spend some time talking with her about your combined goals for retiring early. What sorts of things you want to do (without her in many cases). Etc. Make sure you guys are 100% on board with you RE and her working. Your estimates are reasonable if she continues to work until you downsize your home, but your decision to have you RE now seems to heavily depend on her continuing working.

I would not be comfortable retiring in that scenario, even for only a 10 year bridge, given your current assets and spending. Considering that a few years more working pads the stash significantly and your job is  ($140k a year) I would think that OMY or TwoMY in this scenario would be well worth it.

But again, if your wife wants to keep working it doesn't matter so you guys really need to have a life planning/goals discussion. Her viewing your current spending as a "lower limit" suggests you guys need more mutual agreement on all those things prior to you quitting. But really it's up to that variable. I'm a contingency planner and would not like that, it seems totally reasonable to me that someone's perspective on "how long would I want to work?" would change should their spouse retire. But talk to her, not me :-)

Metric Mouse

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Re: FIRE No Man's Land, or Done?
« Reply #2 on: April 24, 2016, 08:00:36 AM »
I'd cut the cord. If your wife still wants to work, you're fine. If next year she decides to retire with you, you'll have 700K+ to draw on. Sounds like a no-brainer to me. Good luck with whatever you decide!

Retire-Canada

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Re: FIRE No Man's Land, or Done?
« Reply #3 on: April 24, 2016, 08:18:48 AM »
I'd cut the cord. If your wife still wants to work, you're fine. If next year she decides to retire with you, you'll have 700K+ to draw on. Sounds like a no-brainer to me. Good luck with whatever you decide!

If your wife wants to FIRE next year you just have to tell her that's cool, but we need to sell the house to unlock the equity and move to a LCOL area.

I'd do it.

Honestly I'd say people wanting to work more vs. wanting to FIRE sooner is the normal state of affairs. Without specific knowledge of your wife I'd wager she keeps working. Even in the FIRE-centric crows OMY syndrome is pretty common and these are the folks that have been "theoretically" wanting to FIRE for years.
« Last Edit: April 24, 2016, 08:26:52 AM by Retire-Canada »

frugal_c

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Re: FIRE No Man's Land, or Done?
« Reply #4 on: April 24, 2016, 08:41:41 AM »
Based on what you described, I would retire.   You need to make sure that your wife is okay with pushing through for the next decade, that would be the only requirement.

I think your estimate of assets doubling in the next 10 years is quite aggressive, I mean the market only returns 7% over very long periods.  Over the next 10 years the chance of that happening is about 50/50 (you can find a calculator for this online).  Just be aware that the number could be quite a bit lower and make sure you have a plan in place.  It sounds like with the home equity you aren't really needing to get this kind of return and your wife could probably work an extra year or two so maybe it's a mute point but I would plan for more conservative outcomes.

Finally, are you sure that social security would cover you at 67?  You are only 40 so haven't been contributing very long.   Maybe you have already done your homework here, but if not I would get a statement from SS as to what your expected payout would be.

Cycling Stache

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Re: FIRE No Man's Land, or Done?
« Reply #5 on: April 24, 2016, 11:46:27 AM »
Thanks for the replies so far.  Ender, thanks for the clear summary of the numbers.  To clarify, the $13k property tax/condo fees is part of our current $57k spend.  So if that dropped to $4k-6k in a LCOL area (Austin--does that count as LCOL anymore?!?), and kids' care expenses fall out, we're down to maybe $38k-40k per year annual spending.

I guess I don't imagine my wife stopping work (for good) in the next 3-5 years.  She is adamant about being a worker bee.  So maybe I need to run the numbers as 90% likelihood or her working 5 years at current salary, which is probably a very safe estimate.  The greater tension I feel is whether if I FIRE, it will aggravate her that I'm "just sitting around."  She says no, and probably not if I take care of chores around the house, but it's something I'm attuned to.

Social security and annuity benefits are calculated correctly at $40k per year based on our work histories.  I'm already almost up to the 15% social security bracket in the formula, so I don't get that much additional benefits from working more.  I've been maxed out for most of the last 15 years.  If my wife keeps working, that will increase her benefits.

I'm not factoring significant college expenses into the equation.  While I might help, it's not going to be at the level that I'm going to keep working to do it.  If college is worth it for them, it's worth it, and should be factored into the analysis of where they go and at what costs.

I have my own questions about whether I'm truly ready to pull the plug, but I'm trying to keep this limited to the financial analysis so I don't cloud that decision.  I also wonder about a long-term FIRE/non-FIRE relationship that would seem to just devolve to being a stay-at-home parent.  Fine, but not exactly the travel the world scenario.  It's easier to make FIRE the clear goal working toward it, and it's amazingly inspirational, but for me there's some doubt as to whether I "should" be working more.  Let's face it--I graduated summa from college and promptly became a substitute teacher--and was fine with it.  Then went to Harvard for law school, and am now considering pulling the plug after less than 15 years.  There are certain things that I do at work that are important and I'm particularly good at, but most days I'd be just as happy to ride the bike, take a nap, and chill--or at least have that choice.

In any event, financial question first.  Then decision.  Thank you for the input.

mxt0133

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Re: FIRE No Man's Land, or Done?
« Reply #6 on: April 24, 2016, 01:19:00 PM »
Social security and annuity benefits are calculated correctly at $40k per year based on our work histories. 

Take into account that when SS estimates your benefits they assume that your last years earning will be what you earn every year until your retirement age.  If you stop working before retirement age then zeros will be entered into the calculation.  From there your highest 35 years of earnings will be used and if you have zeros there then it will reduce the benefits you will receive.* 

*https://www.ssa.gov/planners/retire/stopwork.html

Cycling Stache

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Re: FIRE No Man's Land, or Done?
« Reply #7 on: April 24, 2016, 04:48:46 PM »
Social security and annuity benefits are calculated correctly at $40k per year based on our work histories. 

Take into account that when SS estimates your benefits they assume that your last years earning will be what you earn every year until your retirement age.  If you stop working before retirement age then zeros will be entered into the calculation.  From there your highest 35 years of earnings will be used and if you have zeros there then it will reduce the benefits you will receive.* 

*https://www.ssa.gov/planners/retire/stopwork.html

Exactly right.  I did it the old school way and added up all my contributions and used the formula.  My numbers are a little conservative because I didn't index the amounts.  I think that number should be fine.  It's actually surprising to look at the actual formula and see how quickly (relatively speaking) you hit the 15% multiplier, which means that the additional years don't make a tremendous difference in payments.  My wife is still several years from that level.  And to be clear, $10,500 of my number (to date) is based on a federal employee annuity, which gets bigger based on both years worked and high-3 average salary.

okits

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Re: FIRE No Man's Land, or Done?
« Reply #8 on: April 24, 2016, 07:20:07 PM »
So you can't get your current job (and income) back should you leave then need to return to the workforce.  How big a step down are we talking?  Half the pay, difficulty getting hired at all in your field, part-time/contract at best?

There are lots of possible things that can throw a monkey wrench into the works (I'm perhaps a bit more apprehensive in your case because you and your wife don't seem to be on the same page for everything.) What if she wants to quit work sooner than expected?  What if she can't work (disability) or something hinders her earning ability (industry downturn, layoff and age discrimination, etc.)?  One of you refuses to downsize the home once the kids fly the nest?  Your parents spend all their cash on expensive end-of-life care and ask for money from you?  Divorce where you end up with less than half the assets (pessimistic scenario: lots and lots of lawyers to pay)?  One or more of these could mean you'll need to return to work.  How lucrative that will be vs. how much you'd dislike unretiring vs. willingness to assume the risk (every decision involves risk) are important factors in whether OMY/2MY is worth succumbing to. 

Since you are not FI outright it's worth being aware that you will have a degree of financial dependence on your spouse.  Sometimes that's no problem at all.  Sometimes it has a negative effect on the relationship (possibly including but not limited to "I'm the one who earns money so I get more say in things.") Sometimes it works out badly (divorce and you must now support yourself with stale or unmarketable skills.)

The decision comes down to your assessment of the level or risk and your personal comfort level with that, but these are my immediate thoughts when reading about your situation.

Metric Mouse

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Re: FIRE No Man's Land, or Done?
« Reply #9 on: April 26, 2016, 03:31:22 AM »
So you can't get your current job (and income) back should you leave then need to return to the workforce.  How big a step down are we talking?  Half the pay, difficulty getting hired at all in your field, part-time/contract at best?

There are lots of possible things that can throw a monkey wrench into the works (I'm perhaps a bit more apprehensive in your case because you and your wife don't seem to be on the same page for everything.) What if she wants to quit work sooner than expected?  What if she can't work (disability) or something hinders her earning ability (industry downturn, layoff and age discrimination, etc.)?  One of you refuses to downsize the home once the kids fly the nest?  Your parents spend all their cash on expensive end-of-life care and ask for money from you?  Divorce where you end up with less than half the assets (pessimistic scenario: lots and lots of lawyers to pay)?  One or more of these could mean you'll need to return to work.  How lucrative that will be vs. how much you'd dislike unretiring vs. willingness to assume the risk (every decision involves risk) are important factors in whether OMY/2MY is worth succumbing to. 

Since you are not FI outright it's worth being aware that you will have a degree of financial dependence on your spouse.  Sometimes that's no problem at all.  Sometimes it has a negative effect on the relationship (possibly including but not limited to "I'm the one who earns money so I get more say in things.") Sometimes it works out badly (divorce and you must now support yourself with stale or unmarketable skills.)

The decision comes down to your assessment of the level or risk and your personal comfort level with that, but these are my immediate thoughts when reading about your situation.

Wow... that was quite the downer...

BlueHouse

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Re: FIRE No Man's Land, or Done?
« Reply #10 on: April 26, 2016, 05:40:53 AM »
Curious to know how your parents feel about FIRE. if they see you leaving the workforce early, are they likely to congratulate you for your planning skills, or denigrate you for your "lazy" ways?  Could their opinion affect whether that inheritance comes through? 
Would they understand if you stopped working but wife kept working?  I've heard it can be difficult to explain this to older generations.

Metric Mouse

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Re: FIRE No Man's Land, or Done?
« Reply #11 on: April 26, 2016, 05:50:56 AM »
Curious to know how your parents feel about FIRE. if they see you leaving the workforce early, are they likely to congratulate you for your planning skills, or denigrate you for your "lazy" ways?  Could their opinion affect whether that inheritance comes through? 
Would they understand if you stopped working but wife kept working?  I've heard it can be difficult to explain this to older generations.

From my experience, my parents were super stoked when I retired. They are in their early fifties, and will be retiring at 55, mostly waiting for the pension. They are just beginning to feel the drag of having to work everyday and are excited to experience the freedom of retirement. I would imagine it's a scary thing to see one's children jet off into an unknown and unfamiliar way of living, but I would hope most parents would support their children's alternative lifestyle. It's really hard to argue the math, afterall.