Need philosophical advice on how much to save for FIRE

[NeonPegasus]

Hi there,

I haven't posted much at all but I've run into a philosophical issue and could use the input of folks here.

First off, I want to acknowledge that my husband and I are extraordinarily lucky. His father was the OM (original mustachian), super frugal and hardworking and built quite a lot of wealth that he shares with the family via partnerships.

We have invested everything we received from him plus more. We now have investments worth around $500k. We have two rental duplexes that yield around $900/mo after saving for maintenance and vacancies. When husband's mom died, her assets were placed in a trust that disperses $10k/yr. Husband's father (OM) created a family partnership that distributes around $25k/yr. We have also worked hard on our own. We've owned our own business for 10 years and I quit my full time job 3 years ago to work for us. The business provides around $80k/yr after taxes. Our AGI last year was just over $150k.

OM has asked us to move in with him. He's 80 and lonely and lives in a lovely 5 bedroom house that would comfortably fit our 5 person family along with him. We will do so in 2 years when oldest daughter is entering 6th grade. When we do that, we will no longer have a mortgage or home insurance payment, utilities, taxes or other home related expenses. We will move our daughters out of their current private school to the best public school system in GA, saving another $30k/yr. The amount of money we will need for a very comfortable lifestyle will be around $4k/mo. If we had to pay for home expenses again, that monthly budget would jump to around $5k/mo (no mortgage cost as we would inherit OM's house but ~1k in taxes, insurance, utilities and maintenance).

I am 38. Hubby is 44. Our business is welding and metal fabrication and it is very, very rough on Hubby's body. Our livelihood is wrapped up in his ability to work so I have been aggressively pursuing FIRE. I want him retired from required physical labor ASAP. Based the value of our savings in 2 years ($2k/mo in investments, $830/mo trust, $2.1k/mo partnership, $900/mo rentals), we will have enough to retire once we move in with OM because we'll be able to drop our expenses so much.

Here are my concerns. The family trust and partnership are both out of my control. The family trust amount will never increase as the government requires it to disburse all earnings every year. Profits cannot be reinvested. The family partnership will be controlled by my brother in law when OM passes. He's a nice and reasonably smart guy but he is paralyzed by decision making. He has had a house sitting vacant for 2+ years, no tenants and not for sale, because he can't decide what to do. So I am concerned about how well the partnership will fare in the future.

If I exclude those two sources of income, I would need to grow my income by another $3k/mo, either through more rental properties or investing or working longer. The downside of that is forgoing an earlier retirement and incurring more physical destruction for Hubby. Additionally, having to work more to earn more will increase our earnings and thereby increase our health insurance expenses significantly as we would not qualify for subsidies.

Basically, I feel scared to trust the family trust/partnership income and also like ignoring it is stupidly unnecessary.

Any thoughts?

[mozar]

What about you getting a different job and just your husband retering, or both of you getting different part time jobs?

[NeonPegasus]

What about you getting a different job and just your husband retering, or both of you getting different part time jobs?

That is always a possibility; however, our first preference would be to continue our existing business and have our employees handle the most physically challenging parts and just work less.

My question is more about whether we should trust/rely on the two sources of income that come from his family or if we should disregard it and retire only once we can support ourselves with money that is under our control, thereby treating the family money as just extra fun money.

[Emg03063]

I think the thing to do in such a situation is to make a conservative, possibly pessimistic assumption about the partnership income, and plan accordingly (e.g. Income could drop by 30, 50, 70%).  Pick whatever number makes you comfortable and run your numbers.  Planning for it to drop to zero is probably overly conservative, like you say.

[worms]

I think the thing to do in such a situation is to make a conservative, possibly pessimistic assumption about the partnership income, and plan accordingly (e.g. Income could drop by 30, 50, 70%).  Pick whatever number makes you comfortable and run your numbers.  Planning for it to drop to zero is probably overly conservative, like you say.

I'd agree with the above, but what is the OM's financial position if he needs care in his final years (beyond the level of care that you guys can give, while living with him)?  Has all his money gone in to the trusts or is there a further pot available for on-going care home costs? If not, is that a cost that the two sons will need to meet out of the trust income? If he has got these costs covered from another pot, is there further inheritance that might change your longer-term picture?

Also when you inherit the property does that come free of any charges - does the brother get a share? Do you have to pay any taxes on inheritance or property transfer?

Bottom line is that it sounds as if you are in a good position to move forward in the way that you envisage, but just need to make certain of a couple of details.  You are also young enough to adapt the plan slightly as you progress, if it turns out that you need to.

[NeonPegasus]

I think the thing to do in such a situation is to make a conservative, possibly pessimistic assumption about the partnership income, and plan accordingly (e.g. Income could drop by 30, 50, 70%).  Pick whatever number makes you comfortable and run your numbers.  Planning for it to drop to zero is probably overly conservative, like you say.

I'd agree with the above, but what is the OM's financial position if he needs care in his final years (beyond the level of care that you guys can give, while living with him)?  Has all his money gone in to the trusts or is there a further pot available for on-going care home costs? If not, is that a cost that the two sons will need to meet out of the trust income? If he has got these costs covered from another pot, is there further inheritance that might change your longer-term picture?

Also when you inherit the property does that come free of any charges - does the brother get a share? Do you have to pay any taxes on inheritance or property transfer?

Bottom line is that it sounds as if you are in a good position to move forward in the way that you envisage, but just need to make certain of a couple of details.  You are also young enough to adapt the plan slightly as you progress, if it turns out that you need to.

I like the idea of counting on a percentage of the money somewhere in the middle. You're absolutely right that it doesn't have to be all or nothing.

To answer your questions, OM has another pot of money for himself. He has slowly transferred his shares of the family partnership to the 3 siblings so it is all theirs. I truly cannot fathom how he would use up all his cash given how large the pot is right now (based on what I understand, it's at least $4mm and he spends well under the 4%). If it dwindles to the point that it constitutes less than 2/3 of the value of his estate (with his house constituting the other 1/3) it is conceivable that we would need to sell the house upon his death so that the assets are split fairly between the 3 siblings. We're okay with that. There is also the possibility that his estate will exceed the exempted amount (it's now close and will be way over if Clinton wins and reduces the limit). I've asked him to speak to his tax/estate planner because if we inherit our portion as real estate but don't have enough cash to pay inheritance tax, that will force us to sell the house (again, not the worst thing but best if it's on our terms and timeline).

He has been amazingly up front with the financial details of his estate planning. I have been so grateful for all of his knowledge and have been trying to learn everything I can.

Anyway, thanks all for your perspectives.

[worms]

It all sounds good to me!  The best bit is the open-ness on financial matters, it makes such a difference in families and allows everyone to plan accordingly.