We are trying to determine if we can FIRE in five years, and if we can, what are the best things to do now to get ready. There are a few scenarios we’re running to try to determine this, but a lot of it comes down to the cost of housing. We live in a very high COL area on the East Coast. We’re open to moving once we FIRE (in fact we most likely have to in order to retire), but we’re not sure where.
I am 40, husband is 36. We have two kids, ages 5 (in Kindergarten) and 3 (in daycare). We both work and together we earn about $180K (gross).
We have no debt. We have two paid off cars, both older (2002 and 2009) and fuel-efficient. Gas is relatively inexpensive (~$120 month total for both cars). Car insurance is about $1K a year.
Housing is our big burden. We spend $2100 on our mortgage, plus $625 on insurance and taxes each month. Total is $2725. We live in small house (just over 1K sq ft) in a “not so good” area. This is just what houses cost here. Given the small size of the house we can’t rent a room, get a roommate, or do anything to reduce our housing cost. We have a low rate, so refinancing isn’t a useful option. The upside is that our house is in an extremely walkable and bikeable place, so we do lots of local things in our neighborhood without getting in a car, aside from the fact that we love living here.
We have also optimized our electric and gas bills, doing several studies on what appliances use the most power, and have been working to make our home more energy efficient. We have life insurance, which is relatively reasonable for both of us (~$500/year each for $1,000,000 policies).
Food is expensive, but we are working on bringing that down. We both have cell phones through lost cost providers, no cable/TV bills, we use Ooma for our home phone, we have cheap internet, and we spend maybe $40 a month on eating out once and some cheap entertainment with the kids. We have great healthcare through my job so those bills are low. No HSA available, unless my husband goes off my insurance and uses his, but his insurance is absolutely horrible.
We both max out our Roth IRAs. We also both max out our 401K (husband, and he gets an employer match of 3%) and my 457 (no match). I also have a pension I pay into that kicks in after traditional retirement age, but I have not investigated too much on that.
Daycare is expensive, but we have it figured out to get the best care for the best price in the best location. Switching wouldn’t generate savings.
We put $400 a month per kid into their 529 plan, with the goal of front-loading while they are young. We may not always contribute this much, especially if we FIRE, so we are hoping compounding and a low HH income in the future when/if they go to college will help.
Our home is worth about $650K, we have $235K equity in it. The kids’ 529s have about $100K in them total.
Our IRAs (both Roth) have about $225K total, in Vanguard Index Funds. My husband’s 401Ks have about $475K in them, in mostly Vanguard and Fidelity funds (no choice on Fidelity). My 403B and 401K together have about $200K, and my 457 for my current job has about $225K in it. So, our total investments, all in retirement accounts total roughly $1,125,000. That isn’t counting our house equity, the pension I pay into, or the kids’ 529s.
Here’s the kicker though, we have no savings. We are living paycheck to paycheck. We have about $7K in cash on hand (trying to build up savings and our normal cash on hand for our bills each month). We had a ton of savings, but daycare, especially paying two daycares at once drained everything. I am working to save 1K a month each month for the next five years as part of our FIRE plan, but it’s tough. We generally spend exactly what we make a month as we always seem to have some expense come due (car needing extensive repairs, summer camps, etc.) just as we’re about to start saving. We’re hoping that getting an even tighter rein on the spending will help. My husband is FINALLY on board, so I think this year will be our best yet.
So here’s the main question. We’d like to retire, but where we live we spend a little over $70K a year, just under half on housing. Obviously, we’ll need to move to FIRE, because we would need over $2,000,000 to retire otherwise.
So, how do we best position ourselves given that we have five years to get ready? We’re trying to use these next five years to put as much money away as possible, but one of our major questions is where is the best place for the money to go. What should we do/think about/prepare for? Should we change where we are investing? I can’t get out of the mindset that I need to max my tax-advantaged accounts; I’ve been doing this all my working life. I need a kick in the pants to figure out what to do.
We also need some help evaluating the smartest way to set up our post-FIRE income stream in the next five years so we can retire successfully. How do we best set up our cash flow from the investments we have and the savings we’re trying to accumulate in these next five years?
One thing we’re hoping/planning to do is a year+ long round-the-world trip as soon as we FIRE while renting our house (we can definitely rent for more than our mortgage). That gives our investments another year to appreciate (hopefully) and we can use the savings we’re building in these five years to travel, which should be cheaper than a year in our current location. When we return, we can sell the house and move somewhere cheaper and be permanently FIREd. Or not?
It’s all a bit overwhelming to figure out. So, clever Mustachians with much more financial sense than I – what would you do to optimize a five year FIRE plan in our situation?
Thanks for your thoughts!!