CASE STUDY: Am I dreaming or is FIRE possible?

[Trin]

Reader Case Study: Am I dreaming or is FIRE possible?

Summary: I’ve been working and saving and ignoring the numbers for 10 years. I now want to take a step back and see if quitting my job is possible.

Life Situation: I’m a 39F living in New Hampshire, USA with my boyfriend (39M). We’re in a long-term committed relationship but we have no desire to get married. No kids but we do have two awesome dogs. We split all household bills (except food) and dog bills 50/50 but we otherwise keep our finances separate.

Pertinent Details: I work for the federal government and I make 120k-ish a year. I don’t mind working in general but my job is pretty miserable for a variety of reasons. My boyfriend would have me quit tomorrow but: (1) I want all my ducks in a row and (2) I do have a very good boss and when I leave, things will get a lot harder for him. As of right now, I’m making this plan as if I’ll never work again. My hope is that in the future I will find a small job to generate a little extra income.

Big Picture: In many ways, I am living the life I want except it only happens in the margins around work. I’m so (so) tired all the time and it’s getting harder to do anything except work. But I know what I want life to look like so I don’t believe that I am “running away from work.”

Assets: $1.2 million
- Trad TSP: $635,000
- Brokerage: $470,000
- Roth IRA: $140,000
- Trad IRA: $31,000

Liabilities: None

Other “Assets”
- 2019 VW Tiguan
- a really nice bicycle
- $25,000 in regular savings
- $10,000 FERS contribution payout (approx)
- $13,200 annual leave payout (approx)

Estimated FIRE Budget: $36,000/year (see post below for breakdown)

Withdrawal Rate: 3%

Tentative next steps:
(1) Stop contributing to any accounts and instead just stockpile cash into a high-yield savings account.
(2) Study up on the Roth conversion ladder.
(3) Learn how my income - Roth conversions and withdrawals from the brokerage account - will be taxed.

Questions:
1. Could you please review my budget and check it for holes? I’m up for questions, face-punches, whatever! I don’t want to get tunnel vision when it comes to numbers.
2. What “next steps” am I missing? What else should I be planning for? I hope that is not too vague of a question. It’s more like … holy shit, is this real? And I need a good pinch.

[Trin]

Estimated Budget - $36,000/year

Budget Notes: I split anything house-related and dog-related with my boyfriend equally. However, I put the full amount of the expense below so you don’t have to multiply everything by 2 to get the actual number. I’ve been tracking expenses for three years so these are “real” numbers except where noted. I do over-estimate ever so slightly each year to build in a very small buffer.

HOUSEHOLD/DOGS (split 50/50)
- Taxes: $6,000/year
- Insurance: $600/year
- Electric: $115/month
- Internet: $105/month
- Heat: $1,200/year
- Water/sewer: $120/quarter
- Dog Food: $155/month
- Dog Vet: $2,000/year

YEARLY (Fixed)
- Car Insurance: $750
- Umbrella: $210
- Registration: $300
- Inspection: $60
- Amazon: $140
- Library card: $100
- Dental: $630
- Turbo Tax: $100
- Google One: $20
- Online community: $200

MONTHLY
- Cell phone: $70
- Gym #1: $75
- Gym #2: $75
- Tolls: $15
- Flights: $75
- Dog fun: $75
- Spending: $250
- ACA Premium: $200 (estimate)
- Groceries: $285 ($65/week)
- Gasoline: $215 ($50/week)

YEARLY (All estimated)
- Vehicle: $2,000
- Medical: $1,500
- Gifts: $1,500
- Buffer: $5,000 (taxes, safety net)

[reeshau]

What is your housing like?  I don't see rent or otherwise typical homeownership costs.

It's not a happy part of planning, but what would you do if you broke up with your boyfriend?  You say you are committed, but without the legal standing, he could walk away with his.  What would you do in that contingency?

Is your job something you could come back to, either part time or after a time? Or are there professional certification or other knowledge that will fade?

Would your boyfriend be joining you in FIRE, or continue to work?  Do you have an idea how you would spend your time, either way?  Maybe you just need a break / career switch.  You can certainly take some time off to figure that out.  Is there any sabbatical offered at work?

[Trin]

Hey! Thank you for the questions. Keep them coming.

What is your housing like?  I don't see rent or otherwise typical homeownership costs

My boyfriend owns the home outright. We split household bills but he is solely responsible for maintenance costs.

It's not a happy part of planning, but what would you do if you broke up with your boyfriend?  You say you are committed, but without the legal standing, he could walk away with his.  What would you do in that contingency?

I was (am?) divorced so this question is a great one for everyone. Our finances are entirely split so if we separated tomorrow, that would be fine. My contingency plan has always been to move home to RI where my parents live. I would crash with them (they would love it) until I found my own apartment. I would obviously need to adjust my spending but it would even out, ultimately.

Is your job something you could come back to, either part time or after a time? Or are there professional certification or other knowledge that will fade?

Once I'm out, I think that is out. Hiring has been at historic lows at the agency where I work so the odds would be slim. I don't have professional certifications or any real useful skills, to be honest. I don't think what I do now would transfer well to another career. (Other than soft skills, work ethic, etc.)

Would your boyfriend be joining you in FIRE, or continue to work?  Do you have an idea how you would spend your time, either way?  Maybe you just need a break / career switch.  You can certainly take some time off to figure that out.  Is there any sabbatical offered at work?

He would join me but not for a few more years. And yes to having ideas as to how I would spend my time! Dog walks 2x a day. Gym (Olympic lifting and swimming). I volunteer with a dog rescue and I would ramp that up considerably (fostering, social media, events, etc.). I also want to see my family more so frequent road trips (and a few flights).

[edited for clarity and some bad grammar]

[reeshau]

Okay, good answers!

How about the question of a sabbatical vs. FIRE?  There is no need to burn bridges, if your good boss is flexible.  You could certainly take some time off, and learn from experience if that's really what you want.  Thinking of this as an all-or-nothing, permanent decision just adds to the pressure on you.  But, in reality it is not.  If anything, financial independence gives you the opportunity to change your mind.

Looking at healthcare; I see you have $200 a month penciled in for ACA.  Good, in that it's more than zero!  It might be a lot more than you will really need, though.  Taxes, too, for that matter.  I assume you are going to live on your taxable account, at least for a while, since it is a good amount of your stache.  First bit of good news: welcome to the 0% bracket!  As a single person, up to $47k of long-term capital gains is taxed at 0%.  I have been here for 4 years, and it's quite an interesting spot to be.

Looking at the ACA, though: do you have an idea what the appreciation is on your taxable account?  It can have a big impact on your taxes and ACA status--even mess it up!

For example:  Say your investments have appreciated 100%.  If they are in an index fund, that would take, on overage, 7 years--so, they are long term!  (I.e. over 1 year)  You take out your $36k for your budget.  What's your income?  $18k!  This actually puts you close to poverty level income for a single.  Many people do that purposefully, for a variety of reasons.  But you do have to watch what's going on, because if you unintentially go too low, you end up force to Medicaid.  (Or, you could intentionally go lower--cash out the same amount, with assets with more percentage appreciation) and go to Medicaid intentionally.

This is a lot different math than IRA withdrawals, where every dollar withdrawn is an ordinary income dollar.

It can be fun, but it's also a kind of bizarro world.  I end up doing Roth conversions each year, to make sure I don't let any non-refundable credits slide.  (We are a family of 3)  You could play a similar game with the standard deduction, to at least do some conversion with no taxes owed.

[JJ-]

Just a couple of quick thoughts since you are a fed:

- You can take up to 12 months LWOP and still keep health insurance. You can use your sick leave to cover premiums since you can't get that cashed out. Don't let the break be an excuse to go back unless shit hits the absolute fan. You can get doctors note if your boss really pushes back on this, but remember they are the one who approves timesheets not anybody else so using SL should be a non issue. You can also schedule timesheets in advance, and put those hours around paid holidays (1 hour the workday before or after) to get the full pay for the holidays in those PPs. You don't have to do anything while on break. This was DOI.

- Depending on years of service, don't cash out FERS. If you have at at least 10 years of "service" you are eligible for a deferred pension.

For what it's worth, I did the sabbatical before quitting, and I tried to go back after making massive strides in my mental health. When I went back, everything rubbed me the wrong way because it was an unhealthy AF environment (despite having a "good" boss whose life definitely got a lot harder when I left), and I gave my notice within weeks. It's probably why your partner is pushing you to quit tomorrow.

You have more than enough money to do whatever you want for the rest of your life, even including figuring out new paid work if needed, even if you withdraw 6%+ for years.

[Trin]

Sorry I was not able to reply to you last night @reeshau ! I got sucked into the US Olympic track and field trials and stayed up way too late.

How about the question of a sabbatical vs. FIRE?  There is no need to burn bridges, if your good boss is flexible.  You could certainly take some time off, and learn from experience if that's really what you want.  Thinking of this as an all-or-nothing, permanent decision just adds to the pressure on you.  But, in reality it is not.  If anything, financial independence gives you the opportunity to change your mind.

I definitely want out of my current job. I have zero doubts here! I enjoy being good at what I do but I don't enjoy what I do, if that makes sense.

Looking at healthcare; I see you have $200 a month penciled in for ACA.  Good, in that it's more than zero!  It might be a lot more than you will really need, though.  Taxes, too, for that matter.  I assume you are going to live on your taxable account, at least for a while, since it is a good amount of your stache.  First bit of good news: welcome to the 0% bracket!  As a single person, up to $47k of long-term capital gains is taxed at 0%.  I have been here for 4 years, and it's quite an interesting spot to be.

Looking at the ACA, though: do you have an idea what the appreciation is on your taxable account?  It can have a big impact on your taxes and ACA status--even mess it up!

You have highlighted a big weakness of mine which is that I really have no idea how taxes and the ACA work. And to your answer your specific question, I am not sure how much my taxable account has appreciated. My tentative plan was to (1) do a Roth conversion each year to make sure I had taxable income that put me over the Medicaid threshold while (2) living off cash and my taxable account. But after reading your comment, I was like "oh shit, I have a lot to learn here" so thank you!!

[Trin]

@JJ- Thank you for the reply and Fed-specific advice!

- Depending on years of service, don't cash out FERS. If you have at at least 10 years of "service" you are eligible for a deferred pension.

I hit 15 years this past March. It was always my informal understanding that the deferred pension would be worth so little at the time of eligibility since there is no COLA until you start to receive it. But you've prompted me to look into this further and run some numbers.

For what it's worth, I did the sabbatical before quitting, and I tried to go back after making massive strides in my mental health. When I went back, everything rubbed me the wrong way because it was an unhealthy AF environment (despite having a "good" boss whose life definitely got a lot harder when I left), and I gave my notice within weeks. It's probably why your partner is pushing you to quit tomorrow.

I feel like the same thing would happen to me. The wheels are already coming off the bus where I work and no amount of time off will fix that.

You have more than enough money to do whatever you want for the rest of your life, even including figuring out new paid work if needed, even if you withdraw 6%+ for years.

Hell yes haha! I know I need to do more learning before I pull the plug but this is wildly encouraging!

[reeshau]

You have highlighted a big weakness of mine which is that I really have no idea how taxes and the ACA work. And to your answer your specific question, I am not sure how much my taxable account has appreciated. My tentative plan was to (1) do a Roth conversion each year to make sure I had taxable income that put me over the Medicaid threshold while (2) living off cash and my taxable account. But after reading your comment, I was like "oh shit, I have a lot to learn here" so thank you!!

Yes, while long-term capital gains start at a 0% bracket, they do count toward your MAGI, for determining ACA subsidies.  Also, any ordinary income you have counts first--it excludes the same amount for capital gains.  So you do want to carefully coordinate them.  I switched from buying tax software late in the season to buying it immediately when available in November, so that I can do a pro forma return and tune in my Roth conversion, which I use to "top off" my income to balance out tax credits vs. income tax + ACA subsidy loss.  (which the tax software computes simultaneously, since they are reconciled when you file)

It can be daunting.  But it can also be a really productive phase of life, to move money into Roths.  It's also good practice for living with Medicare, or so I'm told.  (there is always something more to learn)

[JJ-]

I hit 15 years this past March. It was always my informal understanding that the deferred pension would be worth so little at the time of eligibility since there is no COLA until you start to receive it. But you've prompted me to look into this further and run some numbers.

From what I remember from my own years ago, if I pulled it and invested it would generate max a grand, maybe two per year in future dollars at 4% ( assuming tripling over ~25 years).

If I deferred, I would get >$10k in today's dollars guaranteed, so I cut in half to account for inflation over 25 years, so let's say $5k year in future dollars. No risk other than government default.

Run your own numbers!

[tj]

If you have 15 years of service that means you are only contributing 0.8% to fers rather than the 4.4% that everyone hired after 2013 is paying. It would be foolish to take the contributions refund even if you have to wait a couple decades for the income stream to start. Let's say you earned 80k for 15 years. You would have contributed $9600 to fers over those 15 years and you'll receive a 12,000 per year pension, which has annual COLAs, starting at age 62. Suckers like me who started too late would be paying over $50k for the same pension. It would cost you so much more than that 9.6k to buy a similar income stream from an insurance company.

[JJ-]

If you have 15 years of service that means you are only contributing 0.8% to fers rather than the 4.4% that everyone hired after 2013 is paying. It would be foolish to take the contributions refund even if you have to wait a couple decades for the income stream to start. Let's say you earned 80k for 15 years. You would have contributed $9600 to fers over those 15 years and you'll receive a 12,000 per year pension, which has annual COLAs, starting at age 62. Suckers like me who started too late would be paying over $50k for the same pension. It would cost you so much more than that 9.6k to buy a similar income stream from an insurance company.

You could technically start it at 57 IIRC for 5% reduction per year until 62, so depending on cash flow needs you could start early or if inflation is bizarre then. Meaning you can start at 57 with a 25% reduction, 61 with a 5% reduction, or 60 with a 10% reduction. Etc.

 The actuarial value I believe is the same as waiting until 62. It's been a few years since I've looked at this through.

In case it's not clear I am firmly in the camp of don't pull it out

[tj]

If you have 15 years of service that means you are only contributing 0.8% to fers rather than the 4.4% that everyone hired after 2013 is paying. It would be foolish to take the contributions refund even if you have to wait a couple decades for the income stream to start. Let's say you earned 80k for 15 years. You would have contributed $9600 to fers over those 15 years and you'll receive a 12,000 per year pension, which has annual COLAs, starting at age 62. Suckers like me who started too late would be paying over $50k for the same pension. It would cost you so much more than that 9.6k to buy a similar income stream from an insurance company.

You could technically start it at 57 IIRC for 5% reduction per year until 62, so depending on cash flow needs you could start early or if inflation is bizarre then. Meaning you can start at 57 with a 25% reduction, 61 with a 5% reduction, or 60 with a 10% reduction. Etc.

 The actuarial value I believe is the same as waiting until 62. It's been a few years since I've looked at this through.

In case it's not clear I am firmly in the camp of don't pull it out

Yes you could start it at any month between 57 and 62 for the relevant reduction.

[Trin]

@JJ- and @tj  -- Thank you both for continuing the conversation about the FERS pension. I'm sorry that this thank you is a month late, though. :( Things at work went off the rails shortly after my post (nothing FIRE-related, just multiple people getting ill at the same time, etc.) and then I took scheduled leave to see my family. I really appreciate the input and the math! Thank you both and thank you @reeshau for your earlier comments, too.

I don't want to be a candle in the wind with my plans so I did have my first conversation with my boss about leaving/quitting! On the one hand, he gets it. The job is becoming unsustainable and he said he would never blame me for leaving. On the other hand, he did ask if I could hold out for a few more years and then transfer to a different, less intensive, component. He feels like I would be walking away from a lot of money and a lot of time off if I left in the near future, which is true. He also played his trump card which is my family. I'm very devoted to my parents, my siblings, and their families. If I continued to work, I could save some serious cash to help out my parents as they age, to help with college for my nieces, and so on. That does weigh on me.

For now, though, I am still planning to leave work. The idea of staying is too painful. I told my boyfriend and my therapist that my goal is to be out by May 31, 2025. (I have not given that date to my boss yet.) This time frame gives me ten months to stockpile cash (specifically two years of expenses), to learn about the ACA and Roth conversions, to research other potential part-time jobs, and it doesn't leave my boss in the lurch, either. I'm also continuing to monitor my spending closely and make sure that my numbers aren't the by-product of magical thinking.

I definitely still open to more thoughts/comments/suggestions/critiques. I promise I won't take a month off to reply, either!

[reeshau]

He feels like I would be walking away from a lot of money and a lot of time off if I left in the near future, which is true.

LOL at "walking away...from a lot of time off."  No, you're going to get ALL the time off.  That's the point!

At least your boss isn't being a dick about it, but trying to pull on your heartstrings is like those late-night commercials showing starving children.  Those are your feelings, he doesn't get to lead you there.  It's delivered with flowers, but it' still a selfish move.  Stick to your guns, and next time he brings it up, tell him you could always work part time, anywhere else, if that became a priority to you.  Jobs aren't scarce to someone with total flexibility.  No need to anchor on the current one.

[nouseforausername]

As for the FERs decision, you can log into GRB or your agency's GRB equivalent for an exact severance cashout amount. The amount provided in OP seems off --- 15 years of service, FERS-K --- more like ~34k in cashout severance assuming no buy out diminishment / VSIP awarded.

Butttt, assuming you don't cashout your FERS at severance, you keep your FERS-K status if ever you want to return to fed service.

It's sort of a hard call to make, especially at age 39.

Aside from that, great job on your TSP contributions.

Lastly, take a look at your Agency's Employee Assistance Program or equivalent. You have resources available as a fed employee --- transfer, leave, etc. --- to help.

Goodluck!

[JJ-]

@JJ- and @tj  -- Thank you both for continuing the conversation about the FERS pension. I'm sorry that this thank you is a month late, though. :( Things at work went off the rails shortly after my post (nothing FIRE-related, just multiple people getting ill at the same time, etc.) and then I took scheduled leave to see my family. I really appreciate the input and the math! Thank you both and thank you @reeshau for your earlier comments, too.

I don't want to be a candle in the wind with my plans so I did have my first conversation with my boss about leaving/quitting! On the one hand, he gets it. The job is becoming unsustainable and he said he would never blame me for leaving. On the other hand, he did ask if I could hold out for a few more years and then transfer to a different, less intensive, component. He feels like I would be walking away from a lot of money and a lot of time off if I left in the near future, which is true. He also played his trump card which is my family. I'm very devoted to my parents, my siblings, and their families. If I continued to work, I could save some serious cash to help out my parents as they age, to help with college for my nieces, and so on. That does weigh on me.

For now, though, I am still planning to leave work. The idea of staying is too painful. I told my boyfriend and my therapist that my goal is to be out by May 31, 2025. (I have not given that date to my boss yet.) This time frame gives me ten months to stockpile cash (specifically two years of expenses), to learn about the ACA and Roth conversions, to research other potential part-time jobs, and it doesn't leave my boss in the lurch, either. I'm also continuing to monitor my spending closely and make sure that my numbers aren't the by-product of magical thinking.

I definitely still open to more thoughts/comments/suggestions/critiques. I promise I won't take a month off to reply, either!

Just make sure that that timeline matches your needs, without consideration of the employer.

If you feel like you're ready before then, fuck them. What worry is stopping you from giving notice? Are you worried about them? Or are you worried about you?

Standard notice expextstions with our office was 4 weeks notice. Some people did 2. It ruffled feathers, but whatever. It took 6-9 months to hire new feds anyway. Any more notice than a month is your worry for them.

If your departure causes the organization to fail, that's on them, not you. It was a shitty model anyway.

If you have clients or customers or colleague, it's professional. They'll get pissy or lose money if your org  cant cover or they end up with a bit more work for a bit.

f they're truly your friends, they'll love the fact that you did you. If not, they didn't really care about you in the first place.

[Trin]

LOL at "walking away...from a lot of time off."  No, you're going to get ALL the time off.  That's the point!

Okay, I definitely laughed out loud when I read your reply. I was like, "oh yeah...duh!"

At least your boss isn't being a dick about it, but trying to pull on your heartstrings is like those late-night commercials showing starving children.  Those are your feelings, he doesn't get to lead you there.  It's delivered with flowers, but it' still a selfish move.  Stick to your guns, and next time he brings it up, tell him you could always work part time, anywhere else, if that became a priority to you.  Jobs aren't scarce to someone with total flexibility.  No need to anchor on the current one.

In his defense, he does know me well and he knows my family is a priority for me. I don't think he was being manipulative. More like: "are you sure you want to do this and have you considered this" line of questioning.

As for the FERs decision, you can log into GRB or your agency's GRB equivalent for an exact severance cashout amount. The amount provided in OP seems off --- 15 years of service, FERS-K --- more like ~34k in cashout severance assuming no buy out diminishment / VSIP awarded.

I will double check with the GRB! I was going by the figure on my earnings and leave statement.

Aside from that, great job on your TSP contributions.

Thank you!! I started maxing it out in 2014.

Just make sure that that timeline matches your needs, without consideration of the employer.

Thank you for holding me accountable! Yes, I think the timeline matches my needs. Honestly, just commiting to an actual date - as opposed to just talking about it endlessly - was a big first step!

[tj]

Your E&L statement only includes the contributions from your latest agency and it does not include the interest.