Case Study - Is my family of 4 ready for FIRE, NOW?

[mumstash]

Life Situation:
I work. Partner is stay at home. Both 47.
2 Kids – 9 and 11
We live in a very high COL area but we love it and don’t see ourselves moving in intermediate future.
I have a great job. Although demanding it is a very good situation. But partner and I have wanted family FIRE for a long time. We have a lot of stuff we want to do outside regular work.
Because of equity vesting timing, I’d like to walk away in April - for good. Otherwise, the opportunity cost becomes way too big again to let go.

Current Income:
$350K gross cash comp + $350K equity gross comp annual
But this will all to zero post FIRE. I am not interested in part time.

Expenses:
I’ve been tracking expenses for years. These are our best guesses for monthly averages post FIRE. No matter how much we try to be better, the puts and takes always get us back to this range so I think these will be pretty accurate.
Home and Auto Insurance   $500
Home Property Tax   $1,200
Electric and Garbage Bill   $300 (as low as it gets around here)
Groceries   $1,300 (we have tried over the years, but fluctuate $1000-1500 per month always. we are frugal, cook plenty of beans and buy bulk coffee, but we also buy Dave’s bread, salmon, organic raspberries)
Restaurants   $500 (in our area this is only 1 restaurant + 1 fast food/week)
Household Items and Repairs   $500 (this is average for all kinds of unexpected expense for the house…appliance, furniture, repairs, roof, broken sink, paint…)
House Internet, Cell Phones, Media Subscriptions   $150
Clothes and Personal Care   $100
Travel   $800 (2 international trips/year plus domestic camping trips, FIRE will give us time to spend this)
Gas   $500 (general driving kids back and forth + gas pulling a trailer for camping trips)
Kids Activities   $600 (mainly sports camps and lessons)
Hobbies and Entertainment   $600 (we have a lot of hobbies so this is for fun toys and gear, occasional family outing that cost money like movies or ice skating…)
Health Insurance and Out of Pocket Medical and Dental   $1,500 (estimated, plan to engineer for ACA but just in case, and there will always be out of pocket stuff)
TOTAL ANNUAL SPEND   $100,000

Assets:
Here is the fun part.
IRA/401K/Roth    $700,000
Taxable Investment Account   $1,200,000
Cash   $400,000 (I like to have at least 3 years of expenses in cash. I psychologically need that safety net that my kids are ok even if market crashes big time)
Primary House   $1,500,000 (no mortgage. We did not cash out refi and it seems it’s too late now. Although I don’t care, partner and kids are emotionally vested in this house and we cannot bundle decision to FIRE with moving at the same time. After a few years, maybe they will be more open to it.)
Rental House   $900,000 (no mortgage)
Kids College  $140,000 (529 plan current balance and do not plan to contribute more. Whatever is in this plan will be what they will have for college.)

Liabilities:
None

Income Post FIRE:
Rental income $32,000 annual, net of expense and reserve for repairs and vacancies
Dividend income $12,000 annual
Income needed from investment portfolio  $56,000 (by my calc, a 3% withdrawal rate)
TOTAL INCOME $100,000

Questions:
We are thinking about FIRE NOW. Walking away from a lucrative job for good, and trading the money for our time. What do you think….are we good?
Based on the numbers, it seems a withdrawal rate of 3% would sustain us. With our expenses projected based on our real behavior and not aspirations, on paper it looks to be ok and we are not heading towards financial disaster! But I can’t help but feel unsure, undecided, nervous.
So I am looking to the community for your insights. Please share your opinions, ideas, comments, good and bad. A big thank you in advance for your help! 

[Omy]

Looks good to me...and I'm pretty conservative.

Be prepared for face punches in the food and restaurant categories. The good news is the food category can be reeled in significantly if needed.

[zolotiyeruki]

I have a few thoughts:
1) I'll be the first to administer a facepunch.  Your spending is outrageous.  Sure, you can afford it. But IMO your spending is nuts.  For example, you spend more on groceries for your family of four than we do on our family of eight, and we have three teenagers. 
2) Your rental isn't a good investment.  It's returning you ~3.5%/year, before taxes and inflation.  You'd be better off selling it (or cash-out refinancing) and putting the proceeds into an index fund.
3) Yes, you have enough to retire, if you want.

You mention being nervous and unsure.  That's normal.  Switching from accumulating to drawing down is a common mental hurdle.

What are your options for the equity once you separate?  Depending on how much is there, that could be an awful lot of eggs in one basket...

[mumstash]

You are both super right about our food spend being high. It's bothered me too and that's why we have tried multiple times over the years to pare it down.But honest to god we cook most of our meals. So it is definitely not something obvious. Living in the Bay Area, it's also hard to isolate food choices vs. just local prices. We do eat well - lots of organic and lots of fresh fruits and veggies and expensive stuff like avocados. But we buy very little processed and eat meat only 2-3x a week. Any family of 4 around the San Fran area who keeps a budget? I have asked friends and no one keeps track! We will try again and have to do some soul searching about what we should cut. 

As for the investments - I think  will keep it at 80/20 equity/bonds, given I have such a high allocation in real estate already. I also agree that real estate side needs some work.  Ideally on paper, the right thing to do is to cash-out refi on the rental and use the money for down payment for another investment property.  But again I am freaking out over retirement enough so being super conservative all around.

I very much appreciate the comment that feeling unsure and nervous is NORMAL during this transition. I give myself a lot of pressure being the sole money maker for the family, especially with 2 young kids. I feel 100% responsible and there is a lot of self doubt back and forth about what is right for me, for my kids, and what if sh*t happens.  So much about money is psychology.

[zolotiyeruki]

It would be very interesting to me to see how much you're paying for each thing in your grocery bill, just for comparison's sake.

[firestarter2018]

I think you can do it. Some things to consider:

- Missing budget items - water/sewer bill? gas heat? (or is your heat electric?) Home and auto insurance seem a bit on the high side -- might be worth shopping those around to see if there's anything cheaper out there with comparable coverage. Also, I know gas is expensive in CA but $500 a month is a lot of driving. Would that go down after FIRE?
- Health care cost estimates might be a bit on the high side -- I glanced at Covered CA and even if your income is $100K (yours would undoubtedly be lower based on how you drawdown funds), you still get mad subsidies. A zero-deductible Gold plan for <$1000 a month in premiums seems too good to be true! Of course, better to over-estimate than under.
- Whoever is renting your rental property is getting a screaming deal. I know personal finance is personal and all that, but keeping $400K in cash and an under-performing rental both seem...slightly less than rational.  Just be sure you have clear reasons in your head for why both of those are so important to you. Interrogate your blind spots. And just for fun calculate the opportunity cost of holding that much cash vs. investing it. Maybe "losing" that amount of money every year is worth it for you to sleep at night, but be clear on the trade-off's.

With a total comp of $700K I know I would have a really hard time avoiding One More Year Syndrome, but you seem to have a pretty good plan.  Stay flexible and I think you should be good.

[Dicey]

Since you're a newb and newbs need time to understand that facepunches aren't really personal, may I very gently call bullshit on your spending?

I buy Dave's KB and bulk coffee beans and organic berries at freaking Costco. You have a Costco in The City, start shopping there! Set up a Costco shopping list on your phone and stick to it. Boom! Grocery budget slashed and nobody suffers. Sure it's crazy busy,  but much less so on weekday mornings, when FIRE people have plenty of time to shop.

Where is your rental? How big? You can't rent a converted garage in The City for $2500/month. More details, please!

Oh, and hell yes, you can FIRE, but not until you get a Costco membership.

[former player]

It looks to me as though you are misunderstanding the 4% rule.  The 4% rule relates to your total take from your investments each year, both dividends and capital.  Your investments are at $1.9m.  So 3% of that comes out at $57k but that $57k needs to include your dividends.  You cannot treat your dividends as a separate income stream, they are part of the 4% rule.  So your proposed combined take of $68k from your investments is actually over 3.5%.  Which is still within the 4% rule, of course, so you are OK but not quite at the margin you think.

Cash is expensive to hold in an inflationary environment.  You want 3 years expenses in cash, so you can invest at least $100k of what you have on hand and still have your 3 years expenses in cash.  $100k in the stock market will on average, at the 4% rule, give you another $4k a year to spend and bring you that much further back down to 3% withdrawals.

I see that your rental income is given as a net not a gross so your tenants are paying more than that.  But it is important to keep rents at market rates otherwise you are leaving a lot of money in someone else's pocket, and I'm guessing your tenants are probably not going to be your favourite charity if you put some thought into what is.  If they are excellent tenants then rents can be slightly below market as an acknowledgement that good long-term tenants are a saving on both expense and effort, but you need to know exactly how much below market and not let it drop too much below.

On expenses -

1.  Why are you paying $6k a year for car and house insurance?  Too many DUIs?
2.  You are obviously a foodie family.  As a foodie family you should be buying local and seasonal and cooking accordingly, not buying year round flown in or hothouse berries.  Some organic is worth it, some isn't, you need to work out which.  Sustainability and cruelty free is always worth it in my book but you don't mention either of these  (hint: organic is not sustainable if it's hothouse and flown in).
3.  Media subscriptions?  Have you read the MMM blog at all?  Cancel the effing lot.

[pbkmaine]

What we are all saying here is that you need to lift the curtain on your budget, especially your food budget, if you want the full and complete answer to your question.

[Watchmaker]

You've gotten a lot of very good advice so far. If you'd like someone to make you feel a bit better about your food spending-- we spend nearly as much as you on restaurants and groceries (~$1500 a month last year), and there's only two of us and we live in a much lower cost of living area.

I spent a lot of last year trying to understand why our grocery costs we so high. It came down mostly to the fact that we shop for locally produced food as much as possible, buying directly from the producers whenever possible, and not looking for deals (a good deal just means my friend the veggie farmer gets less money--that defeats the purpose of choosing to shop with them). We also have the issue that we cook a lot of different styles of food (in the last week we have made Thai curry, linguine with black garlic and lions mane mushrooms, diakon miso soup, dinuguan (filipino pork blood stew), and green chili enchiladas. These means we always have a ton of different ingredients in the house, it also means we are not as good at using everything up as we should me.

[mumstash]

Former Player
- Thanks for the 4% rule clarification. I had mistaken that the 4% excluded dividends so I'll recalibrate. Makes the math look worse but ultimately cutting my spend will help in my scenarios.
- Rent is net of reserve for repairs which is 10% of gross rent and another 4.5% vacancy rate. So including those, cash return would be 25% higher. But reserves are real.
- As for insurance, yup, that's high fire zone California insurance rates no kidding, not DUI. People don't understand why California 6 figure earners are all self ascribed middle class but there is some truth to that.
- The only media subscription is $10 disney+, home internet is $90 for one step up from lowest speed. $60 for 2 cell phone lines which is cheap. Not a lot of fat in this budget category.

Watchmaker
- You did make me feel better :) I'm like you. I just bought some maitake mushrooms to fry in small batch olive oil from the farm/mill an hour from me. I just ate a japanese mochi cake with red bean filling for snack. That's 10 bucks right there! But truth is I reread MMM posts on food after you all's comments. And he says to not raise the baseline of eating. Make the maitake to be a luxury not a habit. I'm working on that. :)

Firestarter 2018
- Thank you for the comment about interrogating my blindspots. It's a great reminder.
- Gas is $5.25 gallon here can you believe that? We camp in the mountains a lot pulling a trailer and that's $180 round trip.
- Rent is net of reserve for repairs which is 10% of gross rent and another 4.5% vacancy rate. So including those, cash return would be 25% higher. But reserves are real.
- To not do one more year is hard. I mean I love money too. I will update the group when I have finally really pulled the trigger.

Dicey
- Rent is net of reserve for repairs which is 10% of gross rent and another 4.5% vacancy rate. So including those, cash return would be 25% higher. But reserves are real.
- Nothing personal taken! I love it.
- Funny enough the months when my food spend were $1,600 were all high costco months. No excuses there, but I end up buying way too many premium items. One time I came back with $100 of nuts and beef jerky! No you are absolutely right. There is a way to do it. 

Generally, the common theme on my food expense is well noted and thank you. It's good news to me if there is just one or two glaring things in my budget and not everything! I did take it to heart and reread some of MMM posts on food. And mentally I will start resetting my "baseline" of what is "normal food". Does it need to Yummy every single meal? Or is it ok to have decent healthy food most of the time with occasional treats. Plus I will revisit the conservatism in cash and real estate and put more money to work for me.

Thank you all again. Fingers cross I will pull that trigger. It's scary.




 

[MaybeBabyMustache]

You've gotten good advice from others. I'm in the Bay Area, so I'll chime in on your food spending question. We are feeding a family of four, two of whom are very active teenage boys (multiple sports). We spend about $650-800/month on food, and eat very well with minimal effort. We buy a ton of produce, buy expensive coffee, my husband eats salmon almost weekly, etc. Costco is our primary grocery store, as we find it to be cheapest for the items we need. We fill in with a close by produce stand, where the quality of the veggies require more scrutiny, but what they have is cheap & they have an enormous selection.

We have a house with a pool & I'm still surprised by your home/auto insurance. Have you called around? We're not paying close to that, and we have three cars & also had a significant rate increase due to increased fire risk.

[readytocoast]

Bay area here. I say go for it. Your solo income is higher than my household with 2 working adults income combined and you have plenty to meet your family needs. I don't see you need control your expenses. Yes, you should look around for better deals on insurance but other than that, I don't see needs to cut your grocery bills if your family enjoy it. I can tell you, my grocery bill + eating out cost are higher than yours and we are family of 3.

[waltworks]

Sell rental, invest proceeds, retire.

FWIW, the rental is not a "conservative" investment. It's like having a million bucks worth of stock in one company. One small company, located in an earthquake zone.

Low returns isn't the same as low risk.

-W

[affordablehousing]

Another central Bay Area here and I think your food budget is fine. There's always someone on the forum who runs over their own animals, wears the skins as slippers, makes beads out of the bones to sell at craft fairs, and smokes the meat...... and here we are buying overpriced food in our city where everything is expensive and we're all overpaid. You also clearly get into food as an interest, and in my mind that's what retirement is about, indulging your interests.

Your budget sounds actually pretty light to me and I would just make sure you give yourself enough room to have fun in your new free time with extra travel and hobby expenses. You are right at my goal for retirement age, with similar aged kids and this gives me hope. Out of curiosity when did your spouse retire?

[JGS1980]

PTF -you have a great attitude and will be fine!

I agree with multiple posters -> sell the rental and invest instead. Also, 400K in cash reserves is crazy in the current environment. So your rental equity is left unused AND you are hoarding cash just in case due somewhat to potential rental property liabilities.

Also, remember that if shit hits the fan, you could always sell your ridiculously overpriced home and move to, say, North Carolina where you can enjoy an outdoorsy lifestyle for 20% of the housing costs.

Keep us in the loop!

JGS

[tamuaggie2011]

I'll reserve the facepunches to those who better understand Bay Area pricing as for someone living in Texas all of those numbers make me want to cry.

Instead I'll focus on the emotional side and "feeling ready" but conservative comment. As others have said you should have enough to support your current lifestyle and be good to go. I'd add though it may seem FAR AWAY now your kids will be out of the house in 7 and 9 years respectively and in theory your expenses to a degree should fall off a cliff. Not having to feed two teenagers weekly, trips being less expensive etc etc

So really it is more of a question of can we afford to live on 100k/year for approximately 10 years and then much less thereafter on our current savings? I believe the answer there to be a "very much yes"

[SouthAmericanHusky]

3.  Media subscriptions?  Have you read the MMM blog at all?  Cancel the effing lot.

Saving on subscriptions under $150 that covers the basics like the internet and cell phones seems crazy to me. This person is able to get around $100k and FIRE and you are talking about saving a few bucks because it's anti-mustachian? That's fucking crazy! OP, don't think of drinking $3 lattes and save as much as you can until you die

[pipfan33]

I read your post and thought - this person is me/my family (Less the rental property).  I just had some equity vest and decided it was time to make a change.  The first conversation with the boss and HR were definitely strange and awkward as you can imagine.  I have a process to go through with megacorp before officially joining the 2022 club, but it felt good to start the process.  I'm cagey with the cash right now - probably over allocated there with the recent equity vest but will figure that out post FIRE and decide after some comfort building without the paycheck flow where I really want to put those assets.

The replies to this post have been helpful to me as well in this process, grateful to this community!

[Dicey]

Oh shit. I just bought Dave's KB at Costco and noticed the price has gone up almost a buck. Oh, no, you can't afford to retire!

Just kidding about the last part. Heck, maybe in your new free time you can take up bread making and slash the cost in half.

Come on in, the [FIRE] water is fine.

Since this thread is becoming a Bay Area love fest, what do you guys think of having an outdoor meet-up? With water as a theme, the Lafayette Reservoir might be a great place. Plenty of picnic areas, an easy trail around the reservoir, a tougher rim trail, plenty of cheap parking, playground for the little kids, kayaking (byo), paddle boats for rent, fishing, room to fly kites, etc. Access is easy by car, BART or bike, depending where you're coming from.

DH and I went to the Moab Meetup last year and had a great time meeting fellow mustachians. There was no formal "program", just plenty of activity, food, and great conversation. We can't wait to go again, but October's a long way away...

Hosting (or co-hosting) groups is totally in my wheelhouse. I'm happy to do the logistics if there's enough interest in a Bay Area Meetup. I'm thinking May-ish, but not on Memorial Day weekend.

What say you?

[We be free if we try]

Just want to jump on the wagon of foodie folks who say not to worry about the food budget. My partner and I spend almost what you do, for the 2 of us - almost all our food is organic, pastured, local regenerative farming, etc. which is related to partner’s line of work and important to us. Maybe 40% of our food comes from Costco but many specialty items cannot. It might be a question of what you highly value.

Also, I’d be leery of holding onto 2 expensive Bay Area properties owned outright for too much longer - a couple more bad fire seasons and folks may decide this isn’t one of the most beautiful places in the world to live after all. I love it here but am not so hopeful for our ecological future.

Congrats on your good fortune!

[change_seeker]

It's April, are you FIREd?

[FIRE Pun]

Late to the party, but I can add a different perspective on the food budget.  It seems from your posts you're a family that both enjoys good food and cooking it.  Try a switch in cooking philosophy from "I want to make this, I need these ingredients" to "I have these ingredients, how do I make it delicious?"  Food will cost much less, since instead of trying to fill out complicated recipes with out-of-season ingredients you should be buying whatever looks good and is inexpensive that week, and you quickly become much more adept at a variety of cooking techniques.  Your overall food quality will probably also improve (it has for us...)  Many well-respected cuisines developed from the need to make whatever was available, even second rate ingredients like creepy crawlies and last season's greens, into something people wanted to eat, after all.  If you're interested in the best food, Dave's bread tastes like cardboard compared to fresh-from-the-oven homemade.

For your posted question, you're financially ready to quit if you want.  You've got the passive income and enough fat that could be trimmed in your budget if needed that you would be fine even in a downturn.  Others have posted good further optimizations.

[ginjaninja]

Even if you save $500/month on your food budget that is only $6k/year.  Yes, that is alot of money but I think you have other areas to improve that will be less impactful to your life and result the same benefit.  Better/different management of your $400k in cash and $2.1M of paid off property could result in way more than $6k/year and not impact your day to day or family life as much. 

I know this isn't the most popular opinion on here but if you don't want to change this category you don't have to.  Make sure that your budget aligns with your values.  You have an excellent income and financial position.  Spend freely on things that make you happy and relentlessly cut on things that don't. 

When you retire can you optimize your car fleet and help improve gas costs?  Can you go camping at less expensive locations or at more affordable times?  Can you give your kids lessons in their hobbies instead of paying someone to do it?  Will you be able to do more DIY things on your house for repairs now that you have more time? 

It is easy to pick on the food budget because you're spending $1800/month on this category but I would also be realistic on the impact it has on your overall financial picture to change it.

[Weisass]

Another central Bay Area here and I think your food budget is fine. There's always someone on the forum who runs over their own animals, wears the skins as slippers, makes beads out of the bones to sell at craft fairs, and smokes the meat...... and here we are buying overpriced food in our city where everything is expensive and we're all overpaid. You also clearly get into food as an interest, and in my mind that's what retirement is about, indulging your interests.

Your budget sounds actually pretty light to me and I would just make sure you give yourself enough room to have fun in your new free time with extra travel and hobby expenses. You are right at my goal for retirement age, with similar aged kids and this gives me hope. Out of curiosity when did your spouse retire?

Omg, thank you for a good laugh today. How did I miss this before? *wears the skins as slippers… giggle giggle*