Author Topic: Long term prospects of FIRE  (Read 10498 times)

Jags4186

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Long term prospects of FIRE
« on: June 16, 2014, 01:31:27 PM »
So I've been thinking more and more lately about people who achieve their FU money and FIRE.

A lot of people on this board target $1 million towards 40k/yr living expenses.  Some people target 24k/yr like MMM.

Have any of you reached the age where your expenses have gone up and how have you coped with them?

Examples:
College tuition
Wedding Costs for children
Gifts
New (to you) vehicles
Property maintenance

Yes, my true "essential" monthly expenses are probably in the area of $1600/mo + whatever healthcare would cost if I FIRE'd.  But that doesn't take into account big bills that would potentially come down the road.

How have you all dealt-or are going to deal with these things.  Do you plan on telling your kids to pay for school themselves?  Do you not plan on chipping in for a child's wedding?  Do you always plan to just be "scraping by" for the sake of "scraping by".  I know for some of you who have built real estate empires this may not be an issue, but for the rest of us who simply plan on investing in index funds and building our wealth the low maintenance way, whats your plan?

Cassie

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Re: Long term prospects of FIRE
« Reply #1 on: June 16, 2014, 01:58:41 PM »
Just scraping by does not sound fun to me. Both of us work for ourselves p.t.  Luckily we are in professions that make it possible.  WE love the extra $ but we also love the intellectual stimulation that it provides.  Our health care costs have sky rocketed with our premiums now at 10,000/year.  WE are 55 & 60.  The thing is that no matter how much you take care of yourself things will happen.  YOu may inherit a chronic condition that is in your family, get cancer, etc. Life is uncertain so you need to plan for things to go wrong.  You will need to replace vehicles, etc.  Even with a paid-off house it still needs maintenance.  All of these things need to be accounted for. 

Timmmy

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Re: Long term prospects of FIRE
« Reply #2 on: June 16, 2014, 02:13:09 PM »
Couldn't you work part time for a while to help pay for a wedding, college or vehicle? 

So if you had all you living expenses covered how long/hard would you need to work in order to save up for a wedding?

I think the important thing is that you plan for those eventualities.  And you don't consider yourself FIRE until you can cover them. 

Can't a kid pay for there own college?  I know I did. 

gimp

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Re: Long term prospects of FIRE
« Reply #3 on: June 16, 2014, 02:17:14 PM »
I paid for the last three years of my college. And everything else. I did it but I recognize it's nearly impossible - only managed due to three pretty high-paying coops. Might be possible by going to an in-state college and landing high-paying internships in the summer, and getting merit and needs-based scholarships and loans, but still very unlikely to happen and very difficult to do. Considering how fast costs are rising everywhere, I would say people planning for kids today should assume there's no way the kids would be able to pay for it.

Cassie

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Re: Long term prospects of FIRE
« Reply #4 on: June 16, 2014, 02:23:05 PM »
You also could have your college kids live at home which greatly reduces costs instead of dorm living.  I think kids should pay for some of college otherwise they will not value it as much as if they had a financial stake in it.

Cassie

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Re: Long term prospects of FIRE
« Reply #5 on: June 16, 2014, 02:25:44 PM »
Also I think I read before that Mr MM does not include his travel, etc in his yearly income since that is business related.  Even with a paid-off house it is difficult to live on $40,000/year after taxes, heath insurance, etc.  Especially if you plan to travel it would be very difficult unless you live in a low COL area.

shotgunwilly

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Re: Long term prospects of FIRE
« Reply #6 on: June 16, 2014, 02:31:41 PM »
Also I think I read before that Mr MM does not include his travel, etc in his yearly income since that is business related.  Even with a paid-off house it is difficult to live on $40,000/year after taxes, heath insurance, etc.  Especially if you plan to travel it would be very difficult unless you live in a low COL area.

Say what? That would be a dream.

Timmmy

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Re: Long term prospects of FIRE
« Reply #7 on: June 16, 2014, 02:32:50 PM »
Also I think I read before that Mr MM does not include his travel, etc in his yearly income since that is business related.  Even with a paid-off house it is difficult to live on $40,000/year after taxes, heath insurance, etc.  Especially if you plan to travel it would be very difficult unless you live in a low COL area.

I'm paying off two houses and live off just over 50k per year. 

Also, two years at community college while working full time and scholarships to a reasonable in state school where you can live at home means that anyone can pay for their own college. 

The complainypantsness in here is strong.

CarDude

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Re: Long term prospects of FIRE
« Reply #8 on: June 16, 2014, 02:35:14 PM »
Also I think I read before that Mr MM does not include his travel, etc in his yearly income since that is business related.  Even with a paid-off house it is difficult to live on $40,000/year after taxes, heath insurance, etc.  Especially if you plan to travel it would be very difficult unless you live in a low COL area.

It depends on where you live and what your expectations are. We're in the Midwest, and could easily live off 40k/yr. It would be harder in a large city like Chicago.

Cassie

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Re: Long term prospects of FIRE
« Reply #9 on: June 16, 2014, 02:42:35 PM »
Where you live makes a huge difference. At one point we lived in the Midwest and the COL was low.  Also it depends on what you have to pay for health insurance.  Right now that is our biggest bill at $10,000/year for the two of us.

geekette

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Re: Long term prospects of FIRE
« Reply #10 on: June 16, 2014, 02:55:57 PM »
I guess our area must be considered low COL because last year (pre-MMM) we spent $43K, and that included $8k for a new roof and $7k for medical (covered by job part of the year). 

This year we're on track to spend less than $40k, including about $15k for medical (NOT including any subsidy that may be available).
« Last Edit: June 16, 2014, 03:00:00 PM by geekette »

nawhite

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Re: Long term prospects of FIRE
« Reply #11 on: June 16, 2014, 02:57:57 PM »
Where you live makes a huge difference. At one point we lived in the Midwest and the COL was low.  Also it depends on what you have to pay for health insurance.  Right now that is our biggest bill at $10,000/year for the two of us.

That may be true right now, but if you retired and had a yearly income of $40k/year, then the subsidy for the 2 of you would be sizable and thus your health insurance would go down significantly.

Cassie

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Re: Long term prospects of FIRE
« Reply #12 on: June 16, 2014, 03:01:05 PM »
We are retired and this is how much the state charges it's retirees.  I spent months researching cheaper options but with us being older & having chronic conditions it made no sense to take a high deductible plan.  Also if you get off it you are warned that there is no guarantee they will let you back on.

Mister Fancypants

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Re: Long term prospects of FIRE
« Reply #13 on: June 16, 2014, 03:02:45 PM »
So I've been thinking more and more lately about people who achieve their FU money and FIRE.

A lot of people on this board target $1 million towards 40k/yr living expenses.  Some people target 24k/yr like MMM.

Have any of you reached the age where your expenses have gone up and how have you coped with them?

Examples:
College tuition
Wedding Costs for children
Gifts
New (to you) vehicles
Property maintenance

Yes, my true "essential" monthly expenses are probably in the area of $1600/mo + whatever healthcare would cost if I FIRE'd.  But that doesn't take into account big bills that would potentially come down the road.

How have you all dealt-or are going to deal with these things.  Do you plan on telling your kids to pay for school themselves?  Do you not plan on chipping in for a child's wedding?  Do you always plan to just be "scraping by" for the sake of "scraping by".  I know for some of you who have built real estate empires this may not be an issue, but for the rest of us who simply plan on investing in index funds and building our wealth the low maintenance way, whats your plan?

I don't plan in FIREing until I have my children's college education fully funded, I also plan on having a substantially larger portfolio so my draw is substantially less because I know my expenses will be a lot higher, they are now they will be in the future, I mean look at my handle :)

I think a lot of people on this forum FIRE prematurely thinking they have enough and are fine for a few years maybe even a decade, but for the long haul they really don’t have the funds to survive, particularly a lot of the younger crowd that is pushing hard to FIRE very early they pull the trigger as soon as possible but are not going to make it.

Personally I am working longer than I probably need to make sure I will never have any issues.

-Mister FancyPants

nawhite

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Re: Long term prospects of FIRE
« Reply #14 on: June 16, 2014, 03:42:20 PM »
We are retired and this is how much the state charges it's retirees.  I spent months researching cheaper options but with us being older & having chronic conditions it made no sense to take a high deductible plan.  Also if you get off it you are warned that there is no guarantee they will let you back on.

Have you looked at options since the Affordable Care Act (obamacare) came into effect? Also what state do you live in? Granted the subsidies are based on income and you may have a high income in retirement but if you were a couple living off of 40k per year, the subsidies would keep your premium costs down. They can't not allow you back onto the plan if something changes. And, even if your chronic condition made you hit the out of pocket max every year, you'd still be not much more than 10k per year.

For example I used http://kff.org/interactive/subsidy-calculator/

US Average for a Family of 2 adults (both 60 years old) making $40k per year. Annual premium cost: $3,312. Annual out of pocket max: $12,800 (you'd only pay this if you had expenses of $42,600k per year). If your annual expenses for your chronic conditions are less than $22,300, you'll pay less than $10k per year total.

(Assuming your income is 40k/year)

No Name Guy

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Re: Long term prospects of FIRE
« Reply #15 on: June 16, 2014, 03:57:28 PM »
Quote
Examples:
College tuition
Wedding Costs for children
Gifts
New (to you) vehicles
Property maintenance

Property maintenance can be distilled down to a monthly average.  Be sure to be setting this aside in FIRE into a maintenance fund.  An example might be that a roof lasts an average of XX years and mine has been on for some fraction of that, so it has ZZ years left in it.  Rate of inflation is X%.  Cost to replace roof today would be $X,000, therefore in YY years the cost would be about $Y,000 (apply inflation factor to X to get Y).  Lay out a 10, 20 and 30 year maintenance plan with big items that you can reasonably foresee needing major maintenance.  Set aside enough in your monthly budget for this, and other typical maintenance costs (pumping septic tanks, painting exterior, replacing worn out major appliances like fridge, washer, dryer, etc and don't forget an "oh shit" factor for things that just break - like my stupid kitchen faucet just did that was only 13 years old). 

Ditto wedding costs - you know when the little ones will hit 18, decide NOW what you want to pay / chip in, then set aside enough on a monthly basis to be there by the time they hit 18.  After that, let it ride until the joyful date arrives.

Gifts?  To whom?  Never mind, that doesn't matter - again, a monthly budget number.  Pick your poison.  Say $100 / month?  Multiply by 300 or 400 and that's the money you'll need to add to your FI / ER savings to cover the monthly gift budget forever.  Just stack up another 30 or 40k in your index fund and you have it covered, see?

Vehicles - same as anything else.  How many years does your current vehicle have left in it given it's mileage, maintenance history, typical life for that vehicle type, how hard you drive it, etc?  Make sure you're running a monthly surplus high enough to allow you to save to cover a new to you vehicle when the time comes to replace your current one.

College tuition:  Set a budget and tell the little one this is what you have to offer them, if they want a more expensive choice, it's up to them to pay the difference.  Save up that amount such that when you spend it, you still have enough to cover your other needs, including the above.

There's nothing magical about it - My ER / FI / IW target income takes these things into account.  Initially I'll be spending a few grand a year less than my target income, so I have a surplus in ER / FI for just such "lump sum" type items.  It's the difference between looking at things on a strictly cash in / cash out basis and going to a more accrual way of looking at things and planning for those known future expenses.  I plan for the unknown future by having further margin.

A cash way of looking at a roof:  There is a big lump expense one year in every 20 to 30 years and all other years, my roof is "free".

An accrual way of looking at a roof:  I use up about 3 to 5% of the future cost of a roof each and every year, so need to be setting that amount aside each and every year such that when I get to the point where the roof is fully worn out and in need of replacement, the money is at hand to accomplish the job. (OK, not THIS simple, but it gets the idea across in a short forum post).

ohyonghao

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Re: Long term prospects of FIRE
« Reply #16 on: June 16, 2014, 04:12:46 PM »
I guess the difference is whether you are planning on not doing any work at all in retirement.  I'm sure that I'll make money while retired, doing either fun labor, or computer consulting, or teaching English in a foreign country.  If we had kids and had to spend $10k for college (Is that how much it costs, I don't know because I never went and don't follow these things) then I may pay the difference and pick up some extra work here or there to fill in the lost amount.

My goal when I FIRE is to maybe do consulting to cover my yearly expenses without having to touch my investments, thus allowing them to continue to accrue interest.  We aren't scraping by by any means, we live a very luxurious life which happens to cost about $25k a year.

Perhaps age changes things, but for most people I've talked to here the plan isn't to FIRE then sit on the beach drinking mixed drinks from coconuts, but to be completely free from putting up with shit just to get a paycheck and doing what we want, whether it be carpentry, computer consulting, land lording, or doctor's without borders.

I figure we'll do a lot of travel so we'll live off our $25k a year and anything on top of that can go towards travelling, without an office job and limited vacation as we have now we'll be able to go for two weeks, or for a month, and not have any of the pressure that comes with having to get back to work.

Once we hit Social Security then we'll be even better off because we'll have our normal 4% draw and SS on top of that.  Maybe by then we'll have other lines of passive or mostly passive income.

I also like No Name Guy's post, a lot of these things can be planned for in advance and taken into account, and for the things that crop up then just roll with the punches.  Suddenly have to spend $10k on a roof?  Okay, get the roof then put out some ads for your choice of work to repair your FI fund.  Unless your retirement plan really is sitting on a beach drinking your favorite drink from a coconut this shouldn't be a problem.

Tyler

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Re: Long term prospects of FIRE
« Reply #17 on: June 16, 2014, 04:42:27 PM »
I'm personally planning for a 3% SWR for conservative longevity and using the extra space up to 4% as a non-recurring spending buffer. So using the $1mm example, that would be $30k comfortable planned spending with an extra $10k buffer to use on emergencies, home repair, big health expenses, and the occasional big trip without really worrying about it.  Note that when I don't need to spend the buffer any given year, I'll happily keep that money for the future.

BTW, I don't have kids, but if I did and intended to pay for their college, I'd budget into my known spending plan up-front.

Jags4186

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Re: Long term prospects of FIRE
« Reply #18 on: June 16, 2014, 05:12:36 PM »
Also I think I read before that Mr MM does not include his travel, etc in his yearly income since that is business related.  Even with a paid-off house it is difficult to live on $40,000/year after taxes, heath insurance, etc.  Especially if you plan to travel it would be very difficult unless you live in a low COL area.

I'm paying off two houses and live off just over 50k per year. 

Also, two years at community college while working full time and scholarships to a reasonable in state school where you can live at home means that anyone can pay for their own college. 

The complainypantsness in here is strong.

I certainly am not saying it isn't possible. And I'm aware you can work part time.

My parents paid for my college. My parents paid for my sisters wedding. I'm not saying either was expected or required or whatever, but I am very much the person who thinks "the following generation should have it better than the previous". I had it better than my parents. I would want my kids to have it better than me.  Something doesn't sound right about me making my kids pay for their college and live at home at go to CC when I didn't have to do that.

Not complainypants just thinking long down the line.

Thegoblinchief

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Re: Long term prospects of FIRE
« Reply #19 on: June 16, 2014, 09:12:46 PM »
My FIRE budget has a lot of estimated annual costs built in, such as car and home replacement. Kids will likely pay for college and wedding, if either of that happens. Cheap weddings are far, far more enjoyable anyways.

Finally, we have a large travel budget built in, which acts as a big cushion - very easy to cut that back or out altogether if needed.

Cassie

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Re: Long term prospects of FIRE
« Reply #20 on: June 17, 2014, 09:47:59 AM »
It really depends on what you want to do & provide for your kids in life. Are you a big homebody or do you want to travel? Do you want to partake of the festivals, events in your area?  College is huge of course & the costs can really vary depending on how it is handled.  Weddings I think are a big waste of $ if they are extravagant. WE gave each of our kids $1000 towards the wedding but that was it. We did help with college.  I think people really need to examine what they want their lives to look like & not just focus on they want to escape their job. I know someone who has went in & out of retirement 3x's due to financial need & is still working at 65.  The other big factor is do you want to work p.t. or for yourself in retirement?  We do & that makes a huge difference on our quality of life.  We find it boring not to-some people won't.  We semi-retired at 53 & 58.  I think the younger folks really need to plan to have a big cushion because they have so many decades to provide for the unknown.  I am happier then I have ever been because I found what works for me.  There is no one formula for everyone. 

jsloan

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Re: Long term prospects of FIRE
« Reply #21 on: June 18, 2014, 07:04:00 AM »
The MMM demographic trends younger so there isn't much thought about long term healthcare costs. If you are in the US things like cancer, heart disease, etc cost a ton of money per year because of mostly ongoing treatment and medication which is handled by co-pays.  A year into retirement my father needed major heart surgery due to a genetic condition that cost my parents around $12,000 (surgery, hospital stay, medication, follow-up, etc).  We thought it was deal since the surgery alone was over $150,000!  Although $12,000 was a big hit initially the majority of the costs came from follow-up treatments and medication over the next 6 years.  Luckily his insurance was a public plan through the his teacher's retirement plan.  If my mother, who is on private insurance, had the same condition it would have been about double the cost.     

I think things like college, weddings and house maintenance are costs you can avoid completely depending upon the choices you make in life.  For example, you can just choose not to pay for college or weddings and you can always move to reduce costs to a manageable amount.  This study: http://www.healthcostinstitute.org/SOA-1-2013 found that retiring at age 55 will cost you $226,000 more than those who retire at age 65 due to a lack in utilizing medicare.  Also, if you have a chronic condition (Cancer, heart disease, etc) you could double that amount.

I'm hopeful for the future though, I think things like medical tourism, medical automation, outsourcing and changes to the patent system can help reduce costs in the US.  I expect these costs to come down, but in the US we still are in need of major policy reforms.

nawhite

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Re: Long term prospects of FIRE
« Reply #22 on: June 18, 2014, 09:58:20 AM »
I'm hopeful for the future though, I think things like medical tourism, medical automation, outsourcing and changes to the patent system can help reduce costs in the US.  I expect these costs to come down, but in the US we still are in need of major policy reforms.

Also ACA has brought maximum yearly costs down significantly. Max Out of Pocket for most plans is about $6500/year plus your premiums which at mustacian levels of income should be around $3-5k/year. So for a single person (a couple should most likely just buy two individual plans currently) the most you should need to budget for medical care (different than end of life care) is about $11k/year Max (inflation adjusted of course).

geekette

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Re: Long term prospects of FIRE
« Reply #23 on: June 18, 2014, 11:32:03 AM »
a couple should most likely just buy two individual plans currently
Wait, what? 

nawhite

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Re: Long term prospects of FIRE
« Reply #24 on: June 18, 2014, 12:25:36 PM »
a couple should most likely just buy two individual plans currently
Wait, what?

I may have a misunderstanding here but the way I read the plan descriptions was: If one person has an ACA plan, the out of pocket max is ~$6500. If a couple has the same ACA plan, then the out of pocket max is ~$12,800. I don't think (but I'm not sure) that the single person out of pocket maxes apply if you have a plan as a couple.

So if a couple has a plan, and one of them needs a crazy expensive surgery, they would have to pay the full $12,800 as that is the out of pocket max for their family plan. If the couple had instead each individually purchased plans separately, the out of pocket max would only have been $6500. Thus, if you are expecting to hit the out of pocket max one year, you should have your own plan separate from your spouse.

Is my understanding correct based on other people's research?

ohyonghao

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Re: Long term prospects of FIRE
« Reply #25 on: June 18, 2014, 02:14:11 PM »
a couple should most likely just buy two individual plans currently
Wait, what?

I may have a misunderstanding here but the way I read the plan descriptions was: If one person has an ACA plan, the out of pocket max is ~$6500. If a couple has the same ACA plan, then the out of pocket max is ~$12,800. I don't think (but I'm not sure) that the single person out of pocket maxes apply if you have a plan as a couple.

So if a couple has a plan, and one of them needs a crazy expensive surgery, they would have to pay the full $12,800 as that is the out of pocket max for their family plan. If the couple had instead each individually purchased plans separately, the out of pocket max would only have been $6500. Thus, if you are expecting to hit the out of pocket max one year, you should have your own plan separate from your spouse.

Is my understanding correct based on other people's research?

My research shows that there are generally two out of pocket numbers associated with a plan: Individual, and Family.  The individual number may be $6500 and the Family is generally double that, so in this example about $13,000.  Essentially for a couple it works out to being $6500 each.  For a family with a couple teenagers this would mean that a single person could acquire $6500 of out of pocket expenses, but once any combination hits $13,000 then they've hit the max for the plan.

If someone with more knowledge comes along please feel free to correct me if I'm wrong in my understanding.

nawhite

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Re: Long term prospects of FIRE
« Reply #26 on: June 18, 2014, 02:51:27 PM »
ohyonghau, that makes sense. I don't have kids so wasn't taking them into account like that but it makes perfect sense. Sorry if I confused people.

geekette

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Re: Long term prospects of FIRE
« Reply #27 on: June 18, 2014, 05:22:39 PM »
Well, we don't have kids, but I didn't research the cost of separate policies.  Didn't even cross my mind.  I'm not sure how that would work with subsidies, either, and since it's no longer open enrollment, I don't know of any way to check.  Next year, I'll be looking.

deborah

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Re: Long term prospects of FIRE
« Reply #28 on: June 18, 2014, 06:55:18 PM »
Yes, life does throw you curved balls from time to time. However,
College tuition
Wedding Costs for children
Gifts
New (to you) vehicles
Property maintenance
all these things are predictable - and should be in your FIRE plan. The things that aren't are the real killers - and I think you should budget for at least one really unpredictable thing every 15 years  - one that claims $50,000 - $100,000.

As examples I can say that fifteen years ago I had a road accident. Last year a relation had medical problems that almost put her into a nursing home for the rest of her life, and I was the only one who could have taken in her two young teen aged daughters. These are the sorts of things that come out of the blue and really test your plans.

 

Wow, a phone plan for fifteen bucks!