How to calculate FIRE goals if You already own a house?

[jhonny9546]

Hello everyone :) !

I am 28, living/working in a European country. Luckly, I already own a house.
The job is 25h a week, and the net take home pay it's 12k a year.
The cost of living is 6k a year.
Savings are 6k a year. (50%).

You may ask: "Why the hell do you work only for 25h a week at such young age?"
Answer, check the spoiler↓

Spoiler: show

For various reasons:
The first, but most important one: mental health.
The second: I like my colleagues, but I dont' like my job, but It gives me opportunity to take the free hours to study, and get a degree in something I like, to get a better job in the future. I just enjoy to study, learn, experiment, pratice!
The third: the job pay is bad, so I prefer to negotiate free/study time, instead of €100 more that month. (also because there is 22% income tax).

EXPENSES (year) ↓

Housing	€100
Bills	€900
Food	€1800
Taxes	€100
Transportation	€1100
Leisure/Travel	€2000
TOTAL	€6000

GOAL ↓
The goal would be to become a good person, father, friend, but also writer, to never stop study, and to travel the world keeping my fixed points, which are family & friends!!


QUESTIONS ↓
Given this, How would you:
- Estimate a FIRE goal, knowing that the cost of living will raise according to CPI, and inflation?
- Should We also consider future inherithance, and 401k (here is called pension)?? If yes, check the spoiler ↓

Spoiler: show

401k/Pension: We may be allowed to retire at 70+ y.o...
If you worked since that date:, the avg pension amount, is 70% of your avg salary.
If you worked at least the minimum, 20 years: The amount is usually 10k a year.
Future Inheritance: I will inherit a house from my parents.

ps: Do you have any spreadsheet advices?  (not only for FIRE, but also for anything else)

[yachi]

The concepts are quite simple.  Spend less than you earn and save the difference.  To help keep expenses low pay attention to the big things: live close to work, or work close to home to keep communing expenses low.  Use the money to buy productive things: rental properties, or stocks.  That gets you more than 90% of the way, the rest is where best to put your money considering tax advantages, and drawbacks of different accounts.

I think your time is better spent figuring out what savings and retirement vehicles are available in your own country than trying to equate them to options available to a person living in USA.  You might find someone from your mysterious European country here who could help with that, if you tell us where it is.

A 401K account provides a way to save on income taxes while you work, and allows investments to grow without capital gains taxes.  It's an optional account, and the money in it is yours to keep.  It's subject to extra taxes if not withdrawn according to some rules.  What you're comparing it to sounds very different, so the benefits and drawbacks would be different.

Also, from what I can see, no European country has a retirement age of 70: https://en.wikipedia.org/wiki/Retirement_in_Europe , so I'm not sure if you're being pessimistic about the pension being there when you need it, or what.

I would not factor your parent's house into any FIRE calculation because:
1) By the time you inherit the house, it may need lots of work
2) They may need to sell the house and move in with you if their finances don't work out
3) If you're really looking to FIRE, you'll want to be job-independent before your parents pass away

[terran]

Assuming this is a fully paid off house, there are really two options.

1) You can count the value of the house at any given time (after subtracting transaction costs to sell) as part of your overall portfolio (probably treat it like a bond) and include the cost of housing after you sell as an expense that your portfolio needs to be able to support. I would go this route if you plan to sell your house before/when you FIRE.

2) Or you can ignore the value of your house and not count the cost of housing (other than taxes, insurance, and setting aside money for repairs) as part of the expenses your portfolio needs to be able to support. I would go this route if you plan to keep the house after you FIRE.

Just make sure you don't both count the value of the house as part of your portfolio and assume your current expenses will continue as that would mean you're double counting the value of the house.

[jhonny9546]

You might find someone from your mysterious European country here who could help with that, if you tell us where it is.

Italy :)

Assuming this is a fully paid off house

Yes :)
In this case, would it be a better choiche to keep the house, so you could have more assets diversification, instead of selling the house, and having all, in on one basket?

[NorthernIkigai]

The concepts are quite simple.  Spend less than you earn and save the difference.  To help keep expenses low pay attention to the big things: live close to work, or work close to home to keep communing expenses low.  Use the money to buy productive things: rental properties, or stocks.  That gets you more than 90% of the way, the rest is where best to put your money considering tax advantages, and drawbacks of different accounts.

I think your time is better spent figuring out what savings and retirement vehicles are available in your own country than trying to equate them to options available to a person living in USA.  You might find someone from your mysterious European country here who could help with that, if you tell us where it is.

A 401K account provides a way to save on income taxes while you work, and allows investments to grow without capital gains taxes.  It's an optional account, and the money in it is yours to keep.  It's subject to extra taxes if not withdrawn according to some rules.  What you're comparing it to sounds very different, so the benefits and drawbacks would be different.

Also, from what I can see, no European country has a retirement age of 70: https://en.wikipedia.org/wiki/Retirement_in_Europe , so I'm not sure if you're being pessimistic about the pension being there when you need it, or what.

I would not factor your parent's house into any FIRE calculation because:
1) By the time you inherit the house, it may need lots of work
2) They may need to sell the house and move in with you if their finances don't work out
3) If you're really looking to FIRE, you'll want to be job-independent before your parents pass away

That Wikipedia article is quite simplistic and misleading, by the way. It includes some of the adjustments being made due to increasing life spans and worsening dependency ratios in different countries, but not all.

My own calculated retirement age is 68 years and 9 months (ha!), and that of someone born in 1987 is exactly 70 years. For some reason, the calculations for people born later than that are not available yet… they’re probably too awful!

[FIRE 20/20]

Here's your answer:
https://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need-for-retirement/

If you plan to stay in the house long-term, then you simply calculate your planned annual expenses in retirement and multiply by 25.  If your listed expenses are what you think you'll be able to stick to for the rest of your retirement (adjusted for inflation, of course), then €6000 * 25 = €150.000.  However, there are a lot of assumptions in there and I think it would be unwise to simply hit that number and think you're done.  For one, that's a small enough amount that there probably isn't enough of a buffer for you to count on it.  For instance, it doesn't appear that you have anything budgeted for home maintenance.  If you were hit with a few €10.000 home repair bills you'd suddenly find yourself without enough.  The 25x (or 4%) rule also is based on historic returns and inflation for the U.S., and there is some question about whether or not it applies in other parts of the world.  Finally, the 4% rule is an excellent rule of thumb, but it's not a very good plan. 

I would suggest setting a target of about €150.000 in addition to the paid off house and then re-evaluate where things stand.  You may find that you've actually been spending more than you think, so you'll need to increase the number.  Or you may find you don't like the house for some reason and will decide to move.  But if your expenses remain at €6000 and you find yourself with the paid off house in addition to €150.000 invested, then that you'll be close.  Just add to that a plan for unexpected expenses, how you're going to invest your savings, and a plan for withdrawing and you should be in good shape. 

Writing a case study could help:
https://forum.mrmoneymustache.com/case-studies/