Author Topic: late 20s, ~818k networth, 150k/yr salary, 0 debt, do i have enough to retire?  (Read 28775 times)

somethingsomething

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Hi -

First: for privacy reasons I'm going to keep specific details of this a little bit vague.

Second: Thanks for taking the time to read and respond, I do truly appreciate it.

Me:
- Late 20s.
- Single, no kids.
- I rent a 1bd apartment for 1895 a month in San Francisco.
- 0 debt; cosigned a 20k student loan for my brother. he's still in school.
- 150k/year salary from job. i also get health insurance which covers dental and vision, too.
- My take home pay is roughly 7400/month after taxes.
- I save 30-50%+ of my take home pay per month.
- I do not own a car or any sort of real estate.

Stash:
- ~$818k in a vanguard portfolio, roughly allocated to 60% stock, 40% bonds. Because of a variety of complicated  (but completely legal) reasons, approximately $425k of my stash is in my ROTH IRA. tl;dr i made an extremely speculative investment partly using a self directed roth IRA and partly using cash and it paid off quite a bit.
- Yes, I know my AA a bit conservative for my age, but I don't really see a reason to take on a lot of risk with my stash.
- My AA has my bonds, REITs, and some TIPs inside of my ROTH. My taxable account is split (approx 72.7% US and 27.2% international) between VTSAX and VTIAX. I have a little bit of VTSAX and VTIAX in my ROTH just to even out the AA.
- I get bond payments and REIT dividends and stuff in my ROTH, so those are tax free. I get quarterly dividends from VTSAX in my taxable account.

QUESTIONS/THOUGHTS:

I've considered purchasing and renting property in SF but the listing prices for even 1 bedroom apartments would run me around $100k as a down payment! I feel like buying property in another city would be a stretch for my first run as a landlord and I don't own a car, so driving out to a different city to do repairs seems like more of a headache than it would be worth.

Any thoughts or suggestions on the real estate thing?

I'm a little scared to actually flip the switch and quit my job and try to enter partial retirement without more income from my investments. Any suggestions for other things I should consider or look at?

I like the idea of retiring in my late 20s and traveling and living in various countries (I have several passports, so I could live and work legally in a lot of places), but I'm a little sacred to flip the switch without much income from my investments.

I feel like I have two choices here:

1.) change my investing game plan to generate income instead of long term growth.

2.) leave my investment plan the same and keep working for a few more years and save more money, since i feel like I don't quite have enough stacked away to pull off partial retirement. so i'd be flipping the switch in my mid 30s, probably ?

I think in either case I would need to move out of SF, though.

Thanks for any thoughts or comments.

JohnGalt

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Using your 30-50% of take home pay as expenses - it sounds like you need your investments to cover $3700-$5100/mo.  A 3% (conservative) safe withdrawal rate on $818,000 would give you $2045 gross monthly income. 

That could certainly be enough to retire on - but not at your current level of expenses.  I think you need to decide what your priorities are.  If those priorities fit into a $2,000 / mo budget, then you can retire.  If you can work part time and make up the difference then you can partially retire.  It's really as simple as that, once you know your priorities and have a solid idea about what those priorities will cost. 

tannybrown

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They key metric to determine is what your monthly expenses currently are in SF, and what they would reasonably be in another place you want to retire. 

Then, you can work backwards as JohnGalt did and determine if a 3% (or 4%) SWR will provide enough to cover your monthly expenses.

That said, if I were in your shoes I'd be tempted to keep socking away money with that awesome salary, while at the same time learning to live on less than $2k by ratcheting down expenses.  Kind of a win-win there, by addressing the 'stache and flexing those frugality muscles.


somethingsomething

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Thanks to both of you for reading and considering my situation; I appreciate your time.

I guess I just feel a bit unsafe or something because from most of the personal finance and financial independence blogs I see floating around, it appears _many_ of those folks have rental properties (not to mention many of them actually own a home) which supply a good percentage of their income. I guess I'm just worried that my portfolio lacks something like that (REITs kind of make up for it, but I still have to pay rent) and SF makes it difficult to enter the landlord game unless you are willing to sink a sizable amount of cash and sacrifice some opportunity cost. I've been pondering the real estate question for several weeks, but maybe it is less important than I'm making it out to be.

It's extremely, extremely difficult to live in SF on less than $2k per month -- I am the only person I know who pays less than $2k per month in rent to live alone. I've lived with roommates before and could get some roommates now (my rent would be reduced to something like 700-1200 a month assuming I live near public transportation and not in a dangerous area), but doing so would greatly reduce my productivity at work and probably reduce the amount of salary I'd make as a result. Having my own place to retreat to and think really helps me focus and be productive (I have a really weird way of working and sort of operate on my own schedule).

I need to do some more thinking. I don't mind my job, but I really do like the idea of traveling around a bunch. I could put it off for a couple more years, sock away some more money, and then potentially be able to retire with a larger yearly budget.

Thanks for the feedback.

AJ

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It's extremely, extremely difficult to live in SF on less than $2k per month...but doing so would greatly reduce my productivity at work and probably reduce the amount of salary I'd make as a result.

But, if you were retired you could 1) live somewhere else where real estate was more affordable and/or 2) wouldn't be concerned about being productive at work.

It sounds like you need to decide what kind of life you want to live. If living in SF and not having roommates is important to you, FIRE is a bit further down the road. If your lifestyle is more flexible, you have some more options.

arebelspy

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Most folks on the early-retirement.org forum do not have rental property.

A balanced portfolio can easily be achieved without real estate (or just REITs), and indeed, some would say you aren't fully retired if you DO have rentals.

I wouldn't worry about that.

JohnGault does point out the big problem: no, your portfolio is not nearly big enough to provide for your current expenses (calculated based on your savings rate).

You need to immediately track your spending, find out where the money is going and then either trim it, or be happy with it and build a bigger 'stache.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

somethingsomething

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JohnGault does point out the big problem: no, your portfolio is not nearly big enough to provide for your current expenses (calculated based on your savings rate).

You need to immediately track your spending, find out where the money is going and then either trim it, or be happy with it and build a bigger 'stache.

Cool, thanks. Yeah, I mean if I decided to retire I would change my lifestyle and move out of SF, potentially to another country in South America for a while (cost of living would go through the floor).

Until I figure out my plan, I'm going to just keep saving money and maybe poke my head out in a few months and consider my options again.

JohnGalt

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JohnGault does point out the big problem: no, your portfolio is not nearly big enough to provide for your current expenses (calculated based on your savings rate).

You need to immediately track your spending, find out where the money is going and then either trim it, or be happy with it and build a bigger 'stache.

Cool, thanks. Yeah, I mean if I decided to retire I would change my lifestyle and move out of SF, potentially to another country in South America for a while (cost of living would go through the floor).

Until I figure out my plan, I'm going to just keep saving money and maybe poke my head out in a few months and consider my options again.

That sounds like a great plan.  Just remember, you're already in a very enviable position with all sorts of options. Figure out what will make you happy and go for it.

arebelspy

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maybe poke my head out in a few months and consider my options again.

Yeah... that works... or you could sit down now and figure out what you need and what you'd like out of life.

Don't let it pass you by accumulating unnecessarily.

Good luck!
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

galaxie

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SF makes it difficult to enter the landlord game unless you are willing to sink a sizable amount of cash and sacrifice some opportunity cost.

This is basically true everywhere -- in fact it's the definition of being a landlord.  You invest a lot of cash in something and then other people pay you a little bit of cash periodically so they can use it.  But I think arebelspy is right -- you don't have to own rental property to succeed at ER.  It might be especially popular around here because a lot of these folks are handy and can cheaply maintain a rental property without stressing themselves out.

jpo

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I would say you do... if you're willing to move to a lower cost of living area.

spider1204

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I don't know much about San Francisco real estate or anything, but keep in mind that there are some markets where you simply won't make money as a landlord, so if it seems like it's not worth it to get involved in real estate there, then run some numbers you may just be right.

$_gone_amok

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SF is not a landlord friendly market. I won't buy a a real estate solely for the purpose of renting it out.  Another option is buying a duplex or 4-plex somewhere in San Mateo or Burlingame where there is no rent control.

That being said, I think you are in a great position to think about retiring. However, if you plan to get married or have kids some day then you might want to think twice about retiring.

somethingsomething

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maybe poke my head out in a few months and consider my options again.

Yeah... that works... or you could sit down now and figure out what you need and what you'd like out of life.

Much easier said than done :)

That being said, I think you are in a great position to think about retiring. However, if you plan to get married or have kids some day then you might want to think twice about retiring.

Yeah, that was kind of what I was thinking, as well. If I met the right person, marriage and kids could be in the picture, which is partly the reason why I'm not in a rush to flip the switch.

I usually enjoy my job and I could see myself accumulating a bit more to feel more safe. One of the things that worries me with flipping the switch is that I could lose my foothold/positioning in the industry and it would be difficult to come back and make as much as I am making now if unforseen events occur which drain my stash. So right now I'm getting the feeling I'd rather "over-accumulate" even if it means working a few years more than necessary.

Thinking through this whole thing has been pretty bizarre for me personally. Thanks to everyone who read and responded; I appreciate your time.

Jamesqf

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I usually enjoy my job and I could see myself accumulating a bit more to feel more safe. One of the things that worries me with flipping the switch is that I could lose my foothold/positioning in the industry and it would be difficult to come back...

Seems like your best course would be to use your leverage (you're not one of the two paychecks away from disaster folks) to make your work even more enjoyable.  For me, that entailed a process of moving through flex time & telecommuting to being completely self-employed.

arebelspy

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Thinking through this whole thing has been pretty bizarre for me personally.

That's awesome.  Embrace that.

Also check out "Work Less, Live More" by Bob Clyatt from your local library.  It may help you think through some of these issues.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Fuzz

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What an awesome and enviable puzzle. Just a few thoughts:

-Could you negotiate a year's leave at your job? If you could take a sabbatical and do a little scuba in Indonesia (or whatever the dream is) for 12 months, would that satisfy the itch? Think of it as a lower risk way of trying out early retirement and traveling. In my experience, solo travel can be tough and after a few months you might want to put down roots.

-San Francisco is deeply awesome and going through a really fun moment. There is such a great mixture of energy and ambition there right now. It may be hard to find another spot you like as much.

-It sounds like you could retire if you want to, but you're not sure if you want to. Why not think about maximizing happiness for the time being? You say that you're considering marriage at some point. Married people are generally happier than single people, according to social science research. If you're single, why not ramp dating? Join OkCupid and go on a bunch of dates. Or if you're dating someone, why not figure out an unexpected surprise?

Part of the MMM secret to me is using ERE to get control over your time to live well.

Best of luck

PS: I second the idea that you shouldn't be messing around with real estate in SF. Seems like the worst market in the country for a new landlord/investor. Stick with your strengths.

Tyler

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It sounds like you've certainly got your finances under control, and others here have already given good advice.  So I'll just provide my own experiences in case they help.

- I personally wouldn't touch San Francisco real estate.  The Facebook Effect (all of the new millionaires after the IPO) is quickly driving up home prices on the Peninsula beyond already ridiculous prices, and rents are so far below mortgages right now I can't see how it would make sense to be a landlord unless you bought in 20 years ago.  The small 3/1 house I'm renting right now on the Peninsula would cost me $1500 more a month to buy than I'm paying in rent.

- My wife and I are also looking to leave the Bay Area soon for an early semi-retirement.  I see moving as an absolute given -- not simply for reducing cost of living, but also for reducing taxes and having a lifestyle more conducive to frugality.  Silicon Valley has been good to us in the accumulation stage, but is way too consumerist and pretentious for our taste in the long term.

- As part of our planning, we've been paying closer attention to the financial differences between pre-60 retirement and post-60 retirement.  For a very young potential retiree like yourself, you might pay a little extra attention to your taxable (accessible) vs tax-deferred money.  You have a lot stashed away in a Roth, which is awesome.  But think about the money you'll have easy access to before 60 and how stable that chunk needs to be, and plan accordingly.  And learn about any rules surrounding early withdrawals from the Roth account so that you can be flexible and prepared if you need that down the line.





somethingsomething

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What an awesome and enviable puzzle. Just a few thoughts:

-Could you negotiate a year's leave at your job? If you could take a sabbatical and do a little scuba in Indonesia (or whatever the dream is) for 12 months, would that satisfy the itch? Think of it as a lower risk way of trying out early retirement and traveling. In my experience, solo travel can be tough and after a few months you might want to put down roots.

Good suggestion. I'd be able to negotiate something like that, for sure. I'd also be able to just work remote from where ever I wanted for any time period, I'm pretty sure. I've been considering working remote somewhere warm and sunny when winter rolls around, assuming I haven't quit yet.

-San Francisco is deeply awesome and going through a really fun moment. There is such a great mixture of energy and ambition there right now. It may be hard to find another spot you like as much.

Agreed.

-It sounds like you could retire if you want to, but you're not sure if you want to. Why not think about maximizing happiness for the time being? You say that you're considering marriage at some point. Married people are generally happier than single people, according to social science research. If you're single, why not ramp dating? Join OkCupid and go on a bunch of dates. Or if you're dating someone, why not figure out an unexpected surprise?

I've been thinking about what exactly would make me happier. I haven't really figured it out yet, but I have a feeling that retiring might actually make me more unhappy. No idea. Still trying to think through all of this.

Part of the MMM secret to me is using ERE to get control over your time to live well.

Best of luck

PS: I second the idea that you shouldn't be messing around with real estate in SF. Seems like the worst market in the country for a new landlord/investor. Stick with your strengths.

Thanks! I agree on the SF real estate front.

It sounds like you've certainly got your finances under control, and others here have already given good advice.  So I'll just provide my own experiences in case they help.

Thanks! I am definitely interested in hearing other people's experiences.

- I personally wouldn't touch San Francisco real estate.  The Facebook Effect (all of the new millionaires after the IPO) is quickly driving up home prices on the Peninsula beyond already ridiculous prices, and rents are so far below mortgages right now I can't see how it would make sense to be a landlord unless you bought in 20 years ago.  The small 3/1 house I'm renting right now on the Peninsula would cost me $1500 more a month to buy than I'm paying in rent.

Yeah, makes sense to me.

- My wife and I are also looking to leave the Bay Area soon for an early semi-retirement.  I see moving as an absolute given -- not simply for reducing cost of living, but also for reducing taxes and having a lifestyle more conducive to frugality.  Silicon Valley has been good to us in the accumulation stage, but is way too consumerist and pretentious for our taste in the long term.

I agree on the taxes and cost of living front. SF/SV/Bay Area can definitely get really pretentious at times, but I usually just try to ignore it. Can ridiculously annoying, though.

- As part of our planning, we've been paying closer attention to the financial differences between pre-60 retirement and post-60 retirement.  For a very young potential retiree like yourself, you might pay a little extra attention to your taxable (accessible) vs tax-deferred money.  You have a lot stashed away in a Roth, which is awesome.  But think about the money you'll have easy access to before 60 and how stable that chunk needs to be, and plan accordingly.  And learn about any rules surrounding early withdrawals from the Roth account so that you can be flexible and prepared if you need that down the line.

Yeah, thats one of my many worries about early retirement. I know I can take SEPPs to pull cash out of my Roth, but I'm not sure if I really wanna go down that road.

Truth be told, I think I want to have a bunch more money stashed away before I would feel safe transitioning to early retirement, but in the meantime I have a strong enough negotiating position that I can go work remote from a bunch of random countries and that's probably enough for me right now while I think through my other options.

Thanks for responding and sharing your thoughts/experiences. Definitely great to hear about other people's perspectives on this.

Praxis

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Your rent is higher than my entire cost of living, and I feel I'm struggling at being mustachian.
0_o

kisserofsinners

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- I personally wouldn't touch San Francisco real estate.  The Facebook Effect (all of the new millionaires after the IPO) is quickly driving up home prices on the Peninsula beyond already ridiculous prices, and rents are so far below mortgages right now I can't see how it would make sense to be a landlord unless you bought in 20 years ago.  The small 3/1 house I'm renting right now on the Peninsula would cost me $1500 more a month to buy than I'm paying in rent.

I live in SF, too. I've been looking at prices and it's not necessarily true that it's cheaper to rent than buy, right now. However, this a pretty irrelevant point. You can't get a house to buy without big bucks right now. The kids that are buying houses are throwing money at sellers. The fallout in the rental markets in SF and the east bay are driving up prices beyond reason, even in shitty neighborhoods. I don't know that the peninsula will see it as much due to it being generally considered "less cool". That's the FB effect i'm seeing. Stay in your house if you wanna stay here.

I like that idea of you waiting a little. A couple years maybe? Facebook is gonna have a bad day, it's simply a matter of time. Those companies come and go, and the market will correct. This will give you the time to build the 'stache and monitor your options as they change.

And BTW, Holy shit dude, GREAT JOB!!!

icefr

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First off, congratulations!

I agree with you on having a conservative asset allocation on a large stash. My IPS on my AA increases the fixed income portion by 1% for every year I age as well as 1% for every $100,000 in my investment portfolio.

If you want to travel quite a bit, I would keep your stash liquid, rather than tying it up in real estate. Do you want to move out of SF when you retire? You could prepare for buying a house once you're done working.

I like the idea about taking a sabbatical and then going back to work.

I'm not convinced that not working would make me happier because for me, work is incredibly social. Perhaps if I had a family, not working would make me happier, but being single, working makes me happier overall.

Good luck! I'm curious to hear more about what you end up doing.

somethingsomething

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First off, congratulations!

Thanks!

I agree with you on having a conservative asset allocation on a large stash. My IPS on my AA increases the fixed income portion by 1% for every year I age as well as 1% for every $100,000 in my investment portfolio.

Yeah, I'm using VTBLX vanguard's total bond market mutual fund. Right now all my bonds fit inside my roth, but i'll most likely end up having some bonds outside of my roth at some point relatively soon. Investing in CA muni bonds is too risky for my stash, so once I start adding bonds to my taxable account, it'll just be more VTBLX. Having bonds in your taxable gives the people at bogleheads.org an aneurysm because of the tax consequences, but I am looking at it as the cost of doing business and keeping my stash conservatively invested.

Maybe there's a better way to do that? Maybe CA muni bonds aren't as scary as I'm making them out to be?

If you want to travel quite a bit, I would keep your stash liquid, rather than tying it up in real estate. Do you want to move out of SF when you retire? You could prepare for buying a house once you're done working.

I like the idea about taking a sabbatical and then going back to work.

I'm not convinced that not working would make me happier because for me, work is incredibly social. Perhaps if I had a family, not working would make me happier, but being single, working makes me happier overall.

Not sure. I'll probably travel some soonish, but yeah I agree. I don't think not working will actually make me happier.

Good luck! I'm curious to hear more about what you end up doing.

Thanks!

somethingsomething

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tl;dr: started tracking my expenses, i am (probably) already FI, but i'm not gonna stop working fulltime and will continue accumulating for at least a few more years.

longer story:

expenses:
i started using mint to track my expenses to get a better idea of how much exactly i save or spend per month. since i last posted, i've been fluctuating between 50%-65% savings rate. just kinda depends on the month and what expenses i have. some months i get a haircut, buy a lot more food, and go out more with my friends than other months. i don't keep a budget, and i don't really want to. i just spend what i need on the things i need and don't spend on the things i don't.

FI
my total "stache" has grown a bunch over the last few months (i'm at around 875k as of yesterday) and my total return for the year (dividends + appreciation in stock price) will most likely (we could still sell off pretty hard before dec 31, i suppose) exceed my estimated spending (since i've only been tracking it since i started this thread).

so, in theory, i am already FI, even assuming my expenses will increase in retirement (they will, since work feeds me for free everyday and pays for health eye and dental).

not stopping fulltime work
i decided over the last couple months that mustachianism isn't really for me. i have nothing against other people doing whatever they want with their lives, their money, and their time, but for me personally calling it quits in my late 20s even though i've already achieved FI seems kinda stupid. i'd rather continue accumulating and increasing my stache for the foreseeable future.

i MIGHT quit my current job in a couple months and then travel for a couple months, but once i've done my traveling i'll end up going back to work in a high stress high pressure job, for sure. that's just the type of person i am and i dont see myself not doing that for a while.

anyways, thanks to everyone who chimed in on my original thread months ago. you all gave me some useful advice and lots of things to think about. definitely appreciate your thoughts and the time you spent replying.

JohnGalt

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not stopping fulltime work
i decided over the last couple months that mustachianism isn't really for me. i have nothing against other people doing whatever they want with their lives, their money, and their time, but for me personally calling it quits in my late 20s even though i've already achieved FI seems kinda stupid. i'd rather continue accumulating and increasing my stache for the foreseeable future.

i MIGHT quit my current job in a couple months and then travel for a couple months, but once i've done my traveling i'll end up going back to work in a high stress high pressure job, for sure. that's just the type of person i am and i dont see myself not doing that for a while.


I would disagree and say that mustachianism is for you.  I don't think mustachianism means you must retire... Making sure you have the freedom to choose when and how much to work is the key.  If that means you still choose to work full time because you enjoy it - no problem - so long as its you making the conscious choice. 

mushroom

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i decided over the last couple months that mustachianism isn't really for me.

Thanks for the update, and it sounds like you're in a great position.

I would like to point out that nothing you've said IMO is antimustachian. Mustachianism is about spending mindfully and avoiding the typical mindless consumer mindset. It's about making choices that best align with your values and long-term happiness. You have a great savings rate and lots of assets, but if you're enjoying working, nobody's saying that you have to quit. It's just great that down the road, if you wake up one morning and want to quit, you can. If being mustachian meant that you had to retire at the exact moment that you became FI, then we should call MMM out for earning money from carpentry or writing the blog and complaining that he's not really retired. Or say that Jacob from ERE is wrong for going back to work because he wanted to. The point of Mustachianism is to become FI so that you can choose to do exactly what you want to do, whether that's continuing to work full-time, work part-time, volunteer, learn a foreign language, travel, cook and knit all day, etc. and that will depend a lot on an individual's preferences.

I think it's great that since you last posted you seem to have a better sense of what you want.

arebelspy

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I agree.  Mustachianism has nothing to do with retiring.

It's simply one option you have when you live a purposeful life and are FI.

It just tends to get focused on, because it's such a rare option to have.  Doesn't mean one has to exercise it, and Mustachianism says nothing about whether or not you should FIRE.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Catbert

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Don't buy rental real estate in San Francisco.  Based on the stories my uncle tells (long time SF landlord) the rent control in the city is definitely in the tenants favor.  If you happen to get long term tenants (a plus in most places) it's a nightmare from a financial perspective.

$_gone_amok

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Don't buy rental real estate in San Francisco.  Based on the stories my uncle tells (long time SF landlord) the rent control in the city is definitely in the tenants favor.  If you happen to get long term tenants (a plus in most places) it's a nightmare from a financial perspective.

multi-unit properties are under rent control, not single family homes.

You are probably right in the sense that you've reached FI. However, as someone who has lived in the SF Bay Area for the most part of my life I would argue that 875K doesn't go very far here given the real estate prices...