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Am I FIRE ready? What am I missing? (new and nervous)

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TimeForFIRE:
Hey everyone, first time poster. This seems like an amazing and supportive community! Thanks in advance.

Life Situation: First, let me say, I feel pretty blessed and grateful for where I'm at. I’m single, 47, no dependents. Recently moved to a state without state taxes so I’m saving significantly more. I work from home and live in a beautiful part of the country which is very active with outdoor activities all year (mountains – skiing, boarding, hiking, camping, bikes, lake/water activities). I could see retiring here but also long to get out of the country and see/experience the world more.

Two years ago I was diagnosed with stage II melanoma. A surgery took care of it and thankfully it didn’t spread. Yay for being cancer free. But…it changed a lot within me internally. I was depressed for about a year after my successful surgery - ironically. And while I have a great job, great salary, great benefits, and work with a great team…I’m often finding myself unmotivated and not working as hard as I used to. Perhaps not having a partner anymore to care for took away some of my ‘purpose’ (we split ~4 years ago)…Or, I’ve just started to question the meaninglessness of the work itself and long for more living and less working. Either way, on any given day, I dream about quitting and starting a new life. I think cancer ultimately drove me to this blog and re-evaluating what I’ll be doing for the rest of my life.

I’ve been in the corporate world for my whole career except for a year I intentionally took off after the dot-com crash. It was an amazing year of backpacking through Central America.

My financial life is very healthy. I lived and worked with a simple premise…never spend more than I earn. Never be in debt (except for mortgages). Ever since my first year of work, I’ve lived that and have successfully stashed away money each year. I’m allergic to real estate. I’ve bought twice at the wrong times and lost both times. Hard to do apparently but I managed to do that twice! My dad taught me about stocks and I bought my first one at 14 and doubled my money. I got hooked. Through investing, I've become a millionaire twice. After the last crash, I learned how to protect my assets a bit more and make less emotional investment decisions. And I continued and invested to grow back what was once lost. 

Regarding work, I’m still on very good terms with my team and company (and the other departments). I believe I can contract some work when I leave my FT role. I’m cultivating relationships now to make that a more realistic option when I do leave.

Gross Salary/Wages: My salary is ~$185,000 with a $10,000 bonus. My net pay is ~$9600/month after taxes and 401k deductions. (My expenses below are ~$3700/month so I’m saving a lot at the moment).

Individual amounts of each Pre-tax deductions: I typically max out my 401k at $18,000/year.

Rental Income, Actual Expenses, and Depreciation: N/A

Taxes: Sold my home after my breakup. No real significant deductions other than my taking out for 401k, IRA.

Current expenses:
I’m not sure how relevant this is as I’m thinking about moving abroad when I stop work. Maybe start in SE Asia but head out to Spain or South America (Ecuador / Colombia). I’ve lived and worked a bit in Central America and have started to visit potential locations in S. America. 

I’ve been slowly downsizing my life… sold my home. My belongings fit into my SUV (packed full) and a 5x5 storage. All said and done, I’m spending about $3700 / month. Here are some of the expenses. I have a large travel budget because I do tend to take an exotic trip or two each year. I’ll likely lower than significantly when my life becomes one big trip (vs. work).

I currently work from home so I don’t have commuting expenses and can expense work travel when that happens, my phone and internet.

Rent: $1200
Car/renters Insurance: $150 – got into a couple of minor fender benders which raised rates
Entertainment: $200
Food: $650
Gas: $100
Car Maint.: $125
Utilities: $250
Health: $100
Storage: $50
Travel: $500
Phone: $100

Last year, I donated $12,000 to build a schoolroom in a new school in Africa. This year’s travel budget will likely be to visit the school and community…(and go on a safari). I’d like to continue with philanthropic work or volunteer work during my retirement. I’ll see how much I can afford when that time comes but definitely can use some of my new time to contribute to the world!

All these expenses will change when I retire unless I fall in love with my current home and lifestyle (or someone with roots here) and decide to stay here vs. travel/live abroad (moved to a mountain town in December).

Assets:
Bank Accounts: $32,773
Bonds: $2,893
Stocks:  $789,160
IRAs: $595,067
401K: $31,829
Life Insurance Cash In Value: $174,347
SUV: $7,000

Total Assets: $1,633,069

My mother is generally healthy but when she ultimately passes I’ll also inherit a guaranteed $440k (life insurance) and most likely up to $1M. She’s in her early 80s now.

Liabilities: None.

Specific Question(s):

I’m pretty new to seriously thinking about retiring early. I’m curious about quite a few things…

I’ve started modeling the 4% rule in a very conservative way...I think. I take my investments and more liquid accounts which totals ~825k and multiply out 4% and 3%. In this case, it’s ~$33k and $25k. I'd like to be very conservative and live on 3% so my assets grow over time.

I’m looking at living in some foreign locations where the quality of life is very high for this kind of income (e.g. Chiang Mai in Thailand, Sevilla in Spain, Cuenca in Ecuador, Medellin in Colombia). My ideal would be to spend 8-10 months abroad in a home somewhere that I love and 2-4 months / year traveling the world. I’d love to spend a month or two in the states visiting friends and family. And another month or two exploring the world more. Solo if I have to but ideally partnering along the way.

I’d allow my 401k/IRA retirement funds to simply grow until I’m legally forced to start withdrawing them.

Is this a good way to look at things? Too conservative?

Or should I be looking at 3% withdrawals (playing it safe) off of both my investments and my IRAs (even though I can only withdraw from the investments currently)?

My living/lifestyle options would dramatically expand if I include the full amount (e.g. 3% of the $1.6M would be ~$49k/year). My current living expenses are approx. $45k so this might make me FI. I’d likely have to decrease my spending as I’ll have new expenses - my company contributes to my healthcare costs, internet, phone, 401k, etc…). I’d likely have to get more frugal (e.g. save more on food, travel less extravagantly, etc…).

If I decided to quit today and live where I’m at, am I ready? 

If I decided to quit today and move outside the country to someplace where I’d have to work to spend $30k/year, am I ready?

What am I not considering?

Also, any expats here? ? I’m curious about maintaining assets in your home country from abroad and how to navigate the taxes most effectively. Any recommendations on resources or an advisor who specializes in planning for early retirement abroad? Or is all this here in MMM site too? :)

Phoenix_Fire:
I think you would do just fine if you FIREd now.  Figure out what your expenses would be with you paying for phone, internet, and anything else work covers right now.  You should really factor in all of your accounts into the withdrawal rate.

If you are serious about living overseas, start researching COL in different areas.  You will eliminate your US rent, your food costs will probably go down, car & gas costs probably go away and become cheaper public transportation. Utilities will be less, and you might not need that $500 per month that you have allocated to travel.

You can get a phone that works with Project Fi so you are covered internationally. 

If you do a few years overseas your expenses will probably be lower than here and your money will continue to grow as you might not need the full 3-4% you’re looking at. 

And if for some reason you want to go back to work in a few years it sounds like you’ve kept your relationships in good shape and could go back. 

Congratulations! Good luck and adventures traveling the world!

TimeForFIRE:
Thanks for your feedback!

Laura33:
First, the 4% rule applies to all invested assets; the type of account they are in doesn't matter.  So I would count the IRA, but not the cash you intend to hold to cover current expenses.  The 4% rule itself is pretty conservative, so 3% is really conservative.  I don't know that that is out of line in your situation, because you are still young and have so many unknowns, and because this is a new concept to you and you might feel better with a bigger buffer -- but using 3% AND excluding $600K of your 'stache from that calculation is pretty ridiculously conservative.

So, yes, I think you are FI now, even if you stay put, and likely would be even moreso if you follow your plan and move somewhere that is even cheaper.  Here's what I would do in your situation:

1.  Cash in the life insurance.  You have no dependents, so you don't need it.  Even if you want to make sure to your mom has enough if something happens to you, you already have a giant 'stache to leave to her.  You will do much better investing that $175K-ish on your own.

2.  Begin tracking your expenses with YNAB or some other.  My biggest caveat about your plan is that you think you are spending @$3700/mo.  But I'm not sure that includes everything -- for example, I'm sure that doesn't include your $12K in charity last year, right?  Do you want to be able to continue to make good-sized charitable contributions?  If so, then you need to plan for it in your budget.  IME the best way to figure out what your real lifestyle is is to look at everything you are actually spending money on -- and don't kid yourself that XYZ is just a "one-time" expense, because life has a way of throwing other XYZs at us on a pretty frequent basis.  So since you are not actively miserable in your job, I would take a few months to really dig into the numbers and do some planning so you feel more prepared and confident when you leave.

3.  Once you leave, I would strongly suggest starting a Roth ladder, beginning the year after you FIRE -- if you are unfamiliar with it, it means converting a portion of your IRA to a Roth every year.  The big caveat here is that the amount you convert each year is considered taxable income, so you do pay taxes on it -- but the magic here is that once you FIRE and your salary goes away, the amount you convert is probably your only taxable income.*  And that allows you to decide how much you want to convert in a way that minimizes your tax liability -- for example, with the new $12K standard deduction, if the conversion is your only taxable income, you can convert $12K each year and pay no taxes on that money, ever.  This is basically free permanent tax avoidance on the amounts you convert, so it would be stupid not to take advantage of that to the maximum extent possible.  Whether you want to convert more to take advantage of the 10% tax bracket is up to you.

The Roth ladder is a longer-term plan:  you need to have it established for 5 years before you can begin drawing from it.  So for your first 5 years, you'd be relying on your cash and sales of your stocks/bonds to pay your way; after that, you could choose to draw from the Roth or continue to use the stocks/bonds to allow the maximum tax-free growth from the Roth (personally, I would avoid drawing from the Roth for as long as possible, but that is something you should figure out with an expert given the various tax consequences involved, as per the * below -- there may be years you need to take a little from the Roth to meet your living expenses while still staying in the 0% bracket, for ex.).

In any event, you seem to be in a great position to do whatever it is you decide you want to do -- congrats and good luck!

*Note that any interest from your bonds or bank accounts/MMs would also count as income (unless they are federal tax-free bonds) -- I am just doing basic math here as an illustration.  Note also that your CGs from selling your stocks do not count toward this $12K, because those are taxed under the separate CG rates.  AND the new CG rate is also 0% as long as your reported income + CGs is below $38,600K (2018 numbers).  So assuming you had no other income/CGs, you could roll over $12K from the IRA to a Roth and then sell enough stock to generate $26,600 in CGs and absolutely no federal tax on any of it!  Of course, the reality is going to be more complex, so definitely talk to a CPA or tax specialist to make sure you are considering all of the income sources that will count on your tax return, and to help you develop a strategy of how much to convert/sell/withdraw and from what source to meet your income needs while taking maximum advantage of those 0% brackets.

TimeForFIRE:
Thanks so much Laura... you're right, I'm ridiculously conservative for the reasons you shared...it's a big move, I'm young and it'll need to last a lifetime. That said, I'm super appreciative of the Roth Ladder explanation. I had just heard recently that it's possible to convert to a Roth. It was something that I needed to look into and your explanation definitely helped shape my understanding. :)

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