I remember about 10 years ago when I found MMM's blog and devoured all the posts, excited in realizing that I wasn't alone in some of my feelings and tendencies.
Thank you to everyone who responds on this forum to help people think through their financial and life situations.
Life Situation:
Married filing jointly, live in a fairly high cost-of-living city, and we plan to stay here. No dependents, not yet decided if we'll have a kid. DW and I are in late-30s / early 40s, own our home (with mortgage), no other property and no interest in being landlords (we did it previously and I found it too stressful). I'm a software engineer and am planning to retire in two months, but getting up my nerve to tell my boss. DW plans to continue working. I've been talking about ER for a few years and DW is supportive of my doing it.
I have always earned more than DW and so have paid more for (first) rent and (later) mortgage, and paid all the utilities. In support of my ER, DW is now happy to start paying all the mortgage and utilities, while I'll continue paying my part of shared day-to-day expenses (eg. groceries) and my personal expenses, averaging about $1k / month.
I have lots of (zero- or low-cost) hobbies and interests outside of work and am looking forward to spending more time on them and simply having a life change.
Gross Salary/Wages:
me: $140k
DW: $110k
Average annual expenses:
A long time ago we tracked everything we spent money on, but I could tell it was a burden on DW who isn't as into bean counting as I am, so I simplified our tracking. For the past 10 years, on the first of every month, we record the balances of all our accounts, and we record the total "money out" from our credit card / checking accounts, separating out utilities, home improvement, and property taxes and property insurance. The annual averages of these buckets for the past five years are:
groceries, hobbies, travel, personal expenses: $27k
utilities: $3k
home improvement: $5k
total: $35k
Mortgage - recently refinanced to a 30-year 2.75% fixed
Monthly payment is about $1800: $580 principal, $730 interest, $470 escrow (taxes + insurance)
Expected Early Retirement expenses:
$400 / month for adding me to DW's employer health / dental / vision insurance
Assets:
$875k tax-sheltered: 401(k)s ($557k), IRAs ($9k), and Roth IRAs ($310k)
$1.2M non-tax-sheltered savings
All ($2M+) except checking accounts ($22k) invested in FSKAX or similar; we do not get skittish when the market drops (at least we haven't when we are both earning steady incomes...)
Liabilities:
None other than mortgage.
In order to calm my worries about no longer having a paycheck, I cut the numbers this way:
- For take-home pay, I get $6k, DW gets $5k
- Our (average monthly) passive change in investment value over the past 6 calendar years was: $1k, $4k, $13k, -$5k (2018), $25k, and $30k (2020) **
- Our "expenses" (cashflow out) are $2900 + $1800 (mortgage) = $4700 (this will increase $400 / mo (pre-tax out of DW's paycheck) when we have to pay for my health insurance)
So, roughly speaking, DW's paycheck almost covers our expenses, and passive income will usually dwarf it anyway.
** 2020 was an anomaly because I did a non-mustachian thing and sat on cash from our rental property sale for 9 months and invested it all when the market tanked at the beginning of COVID.
Specific Questions:
1. Based on our current savings and expenses, I think both of us could retire today. DW's income will be nice insurance as our 'stash increases. Does that look correct?
2. When I stop working, I'll lose my employer health insurance. DW's employer health insurance will cost us $400 / month (pre-tax) and will increase the deductible / OOP max from $1500 / $3000 to $3000 / $6000. As far as I can tell, if I bought my own health insurance, whether through the open marketplace or DPC / Sedera, we would not be able to deduct the premiums, and the cost of premiums for those options are comparable to or more than DW's employer health insurance. So I should go with DW's employer health insurance, right?
3. How should I go about drawing off my savings to pay my $1k / month in my share of expenses? I would like to increase that in a year or so to again contribute to mortgage / utilities -- once we're into the 2022 tax year, our household income is lower, and I'm more comfortable with not having my paycheck. I remember reading the MMM article on Roth IRA ladder conversion, and I'm reading in other case studies here about converting 401(k)s into IRAs. I like to keep things as simple as possible. I need to find out if our Fidelity accounts support FIFO / LIFO for whenever I need to sell a small number of shares, and I'm not sure which one is best in terms of taxes.
Thank you!!!