Reader case study - Deciding the next steps before FI

[mookane]

Hi,

I have saved and invested and even track my monthly spending categories ('your money or your life').  Still I find I am in a spending trap(s) due to family/friends/me.

Financials:
Single
House, paid off, $425k (thinking of selling or renting)
3 plex, ($350k equity), nets $15k annually
Job, $48k, low pay but with pension and very good benefits.  Still I want to leave this job in early 2017 if I can force myself to just quit.
IRAs, $175k
Cash, $25k

Anchors:
50% ownership (my side is paid off) in a family cabin, $70k equity (little expense except for some time for maintenance here and there)
2005 Toyo 4 runner.  I actually use it to pull a utility trailer about 1x a week.   Not sure I really need it but is paid off I do use in the mountains
2005 bigfoot 24ft rv.  paid off and plan on rv trips (have done many) in US/Canada/Mexico) after FI
Boat.  Purchased with brother and now don't really use but due to being family I just keep my 50% share going.  Costs about $2500 a year to do this.

Does anyone have any advice on pushing myself over the edge to FI? It feels like I should be there but I feel like I'm making excuses (spending/lifestyle/afraid) to take the next step?

Thank you,

Alan

[MDM]

Assuming you stay in the house, and the 3 plex remains as specified, your income would be
1) $15K/yr from the 3 plex
2) ? - nothing apparent.  You could withdraw 4% * $175K = $7K/yr from the IRA

With the income above, you might pay $1700/yr income tax (this includes the 10% fee for eatly tIRA withdrawal).

Can you live on ~$20K/yr?

[mookane]

Thanks for the reply.

I think I could do 24k given my current commitments.  Think the boat needs to go as that is about 200 a month.   Someone suggested when my taxes are lowest to do Roth conversion (130k is already a roth and has passed the 5 year mark) with the IRA money. 

Appreciate the ideas!  I think I have to seriously go at my spending points and eliminate them.  Just reading my anchor list makes me realize I am working for my past/current spending decisions.

Alan

[marty998]

What are you intending to do with the $25k cash?

[mookane]

I was think of a 12 month emergency fund.  Given I still own rental and house it seems to take some $ in reserve.  Ideas?

[former player]

I think the house you live in is the big question: you mention you are thinking of selling or renting.  Is that for the money, or is this a place that doesn't fit the way you want to live?

You say you need income of $24k.  You have net rental income of $15k, you have investments of $175k which at 4% could provide income of $7k.  Your house equity invested at 4% could bring you in $16k, which is way over your requirements even given the need to put some of that back into rental or a cheaper home purchase.  Does the pension you have already earned at work have any value/potential payout at retirement age once you have left?  Have you earned any social security pension?  Those amounts can tentatively be added to your net worth for added financial security once you reach traditional retirement age.

So if you sell your house now, you are FIRE.  Congratulations: all you need to do now is work out what you want to do with the rest of your life and find an answer that gives you the courage to quit your job if that is what you want.

[financialfreedomsloth]

Boat: yeah, get rid of that. It is 2000 USd for something you do not use. Family cabin ties up a lot of equity for probably not that much use but yeah, family stuff so let’s keep that. Good to keep in mind for post-fire: use it more or, since you have more time, perhaps go the airBnB route with it and create a –small- additional cash flow from that.

The issue I have is that most of your money is actually tied up. The 125K is in an IRA, so it will take some effort to be able to make a 4% withdrawl from that (roth conversion probably as somebody mentioned, takes some time to set up). There is a lot of money in the house but as long as you live in it also is tied up….

So big decisions to take. Retire or not yet, sell, rent out the house …

Your plans for post-retire do not seem very defined at the moment either. So perhaps in 2017 take some time off (a 3 month sabbatical or something like that) as a trial run and to get some clarity on the big decisions you need to take … After the three months you either go back to work or pull the plug then and FIRE

[boarder42]

if you're " going to do a lot of RVing AND own a 50% stake in a cabin, AND you dont plan to get married or have a family. 

in this situation i sell the house and go full time RVing for at least a year or 2.  Hire someone to manage your triplex.   

so now youre bringing in 12k for your triplex but you invest your 425k-10%(selling cost) in VTSAX with vanguard.  you live on so little that the gains on this wont be taxed as income.  just let your IRA grow - MAYBE do some roth conversions if it makes sense tax wise.

I assume taxes and insurance on your house are part of the 24k you need on a 400k house this is like 5-6k minimum.  so now your cost of living is down to 18k barebones.  but wait you have 12k of income PLUS lets assume the conservative SWR of 3.5% on your new found 383k.   thats another 13k a year.  so now you have 25k you can spend indefinitely ... enjoying time in your cabin and roaming in an RV. 

you're FI now you just ahve too much money tied up in a house

[mookane]

Hi Everyone.

Really appreciate the comments!  It helps to lay it out and get this feedback. 

former player:
You are right the house is a big 'what to do'.  I can sell or rent.  Renting will bring something over $1200 after property management, etc but I will need to check on that to confirm.  Selling would be nice to the asset off my mind as I have been working on it since 2005 and I'm just burned out on it at this point. 

boarder42

I like this thinking.  Have been leaning this direction as the house was for a family, serious 9 year relationship that ended and at 48 I would love a partner but a family is not really in the cards.


financialfreedomsloth

Thank you for the ideas. 

I am work on the post retire plan and have been paying off and fixing everything I have to be ready for Fire.  That said I really need to do some hard work on what to do with myself after FIRE.   Appreciate the suggestions!

The boat has been tough as my brother and I do use it together so (when we do use it) it has been hard to let go.  Anyone who knows about boat knows they cost a lot no matter what.  Still need to figure out how to pull out on my brother without being a bad partner. 

The cabin has rental value also so may keep that for some extra income.  Due to family, it's hard to and will be used more by me post FIRE.

Q on the renting the house?

Does it make sense to just keep as a rental to hold the asset and get the long term appreciation or just sell and diversify (since I have the triplex, which is in a good area and much more bike/walk friendly than the house) to VTSAX or stocks?

Again, thank you everyone!

 

[boarder42]

Go to be bigger pockets and evaluate the house based on the rules they provide for good rentals based on what you could make selling it. Not what you paid for it or your current equity. My gut tells me it won't be even close to a good rentàl and selling is a much better plan but it's a simple math equation if you can take emotion out.

[mookane]

Thank you everyone!  I now have some good things to work on.