Case Study: When can we Semi-FIRE?

[MrsGrey]

Hi! New poster, have been reading for a while. Really enjoy the site, advice, and sharing of knowledge. Looking for some insight on our situation...

Married filing joint, 43 and 41 years old, no kids. Live in NC.

Income: 120k joint

Bi-weekly Pre-Tax Deductions: 401k $692, parking $60, med ins $380, fsa $50

Bi-weekly After tax deductions: ROTH IRA $423 

Taxes: Fed 9,180, St 4,100, FICA 7,440

Net Pay: ~$4,675 monthly

Current Expenses: $4,400 monthly

Expected ER Expenses: $4,000 monthly

Assets:
Home is worth $350k, mortgage $246k
Cars $16k and $28k both paid
401k $320k (90% equity, 10% bonds)
ROTH IRA $48k (80% equity, 20% bonds)
EF $35k in money market account earning 1%

Liabilities:
Home $246k left on mortgage at 4%, 30 year fixed (P&I $1,198 T&I $422)

We are currently maxing out 1 401k and both Roth IRA's. We don't have as much saved as we would like, partly because we paid off student loans and up until a year ago, lived in a HCOLA. We would love to Semi-FIRE and just work enough to cover our expenses until full retirement, sometime in our mid-late 50's. We are considering all options of lowering our expenses including selling the house in a couple of years. We love the house and where we live, but know that we might have to downsize in order to Semi-FIRE.

The question for you fine mustachians is how soon can we semi-fire if we continue doing what we are doing? My goal at that time would be to work closer to home, possibly contract or part time, not have to continue adding to retirement stash, but not taking anything out of it either until at a minimum 55 years of age.

Thank you in advance, and I hope to have included enough info. If not, please let me know what I can add for a clearer picture.
 

[MDM]

The question for you fine mustachians is how soon can we semi-fire if we continue doing what we are doing?

What does the simple "Time to Fire?" chart in the case study spreadsheet suggest?

[MrsGrey]

Sorry, I missed that when trying to get familiar with the forum. I wasn't able to open the charts from the computer I was using. My post wasn't meant to waste anyone's time. I have looked at retirement calculators like firecalc, I just wanted to get some opinions from real people. I will look at the chart since I have not seen that in the past. Thanks.

[MDM]

Sorry, I missed that when trying to get familiar with the forum. I wasn't able to open the charts from the computer I was using. My post wasn't meant to waste anyone's time. I have looked at retirement calculators like firecalc, I just wanted to get some opinions from real people. I will look at the chart since I have not seen that in the past. Thanks.

Your post is well written and not a waste of time.  Tone of voice is, unfortunately, difficult to convey in a forum.  Mostly interested in your perception of what a firecalc or similar is "telling you" - i.e., a Socratic method approach.

Another line of questions: what is the most per year you could put into traditional IRAs and 401ks and still be cash flow neutral?  What do you think about contributing that much to traditional plans?

[MrsGrey]

I took your post to say that I should look at more available information. I am always willing to do that, and any input that gives me more knowledge is appreciated! In looking at the different retirement calculators, I think that if we max out at least 1 401k and both roth accounts for another 7 years or so, we should be ok to let it keep growing until 55 or 58 prior to withdrawing anything and semi retire. Of course, I could be missing something. I need to figure out how to semi retire and still keep health insurance going. That is my biggest worry. We are ok with downsizing the house if we need to, I am just not sure if it is necessary yet. I see a lot of benefit in putting as much away in traditional accounts as possible. I feel comfortable with the amount we have in the EF if anything comes up, so I don't think we need much more leftover. Both of the cars are only a few years old and we plan to drive them into the ground, so we shouldn't need replacements anytime soon.

[scantee]

Hi Mrs. Grey.

Your question is a good one and one I've spent a lot of time thinking about since I'm more interested in downshifting rather than retiring completely. You'll need a stash of around $1.35MM to support your current expenses of $54k a year and, it sounds, like you'll be retiring in around 15 years. There are a lot of different scenarios that will allow you downshift and continue to grow your current stash of $400k to the amount you need to fully retire.

You could probably downshift now if you can continue to save around $15k over the next 15 years until retirement. Do you get a match on your 401ks? That alone should get you a good part of the way there if at least of you gets a match. It shouldn't be hard to save up the rest. You could probably drop your income by $30-35k and easily continue to support your current level expenses and save. Probably the biggest downside of this scenario would be that it would probably require one of you to work a full-time job, and the other person a part-time one,

Another option would be to cut your expenses as much as possible and focus on saving as much as possible for the next 3 years or so. Maxing out your 401ks ($36k), plus any match you receive ($5k?), and maybe a little bit of extra savings (~$6K) will bring your stash to around $635k, assuming a 6% return. At that point you could save nothing else and be very close to the amount you need to fully retire in 12 years. The biggest downside of this scenario is that you have to wait several years before you can downshift which  I think will seem like forever to you.

There are a million of other different scenarios that are variations of these two. I think those of us who are interested in downshifting want to do it NOW so any scenario that requires you both to continue to work full time for several more years will probably not be super appealing to you. Were I in your situation, I think I would spend the next year saving as much as possible, reducing expenses as much as is comfortable, with a goal of trying to get as close to $500k before you downshift. You'll still need to save a bit every year after you downshift, but I think you could get by with one full-time job or two part-time jobs between the two of you.

Whatever option you choose, I think you're really close! With downshifting as opposed to retiring fully, you can get there quicker and through a lot of different pathways. Spend some time playing with the numbers, mulling over your part-time options and I think you'll soon land on path that works best for you.

[Viking Thor]

I don't want to discourage but you are a long ways out based on the #s cited, but I guess it depends on what you mean by downshift.   For $4k month in FIRE expenses you need at least $1.2M in investments using the commonly used metric of a 4% safe withdrawal rate, and you now have ~$300k. How many years depends on a lot of assumptions you could model out but at your current savings rate it would take a while to add another $900k.

For you to retire early/soon you would need to make some kind of significant shift, e.g. cutting expenses to get the $4k/month down, developing a post-FIRE income stream, and/or finding a way to invest more now to get to $1.2M quicker.

If by downshift you mean a job with health benefits and enough income to generate at least $48k/ year post tax, of course that could be doable financially but most jobs with that level of income require a significant commitment.

Of course anything is possible if you set your mind to it, you could get there quicker, but would require some changes. Good luck!

[MrsGrey]

Thank you for the responses! The different opinions are giving me a lot to think about. DH does not have a 401k option, so we max out mine. I don't get a match this year since I just started the position, but will next year. Match will be around $5k. We would be ecstatic to be able to semi-fire in a couple of years! We started saving late and are pretty happy with where we have gotten to so far, but know we have quite a bit to go. Our expenses were a lot higher, we spent some time figuring our where we can cut back and were able to identify enough cutbacks to get us from $5k in monthly spending to $4.4k. I am sure there is room for more, but trying to get adjusted to this new budget first, and then will try for phase 2. The goal in our cutting back was to have enough money to max out both Roth Ira accounts this year, which we are now able to do. Current thought process is to continue to max out my 401k and both roth accounts for the next 5 years, which would also get us a $5k match per year for 4 of those years. At that point, I would still keep my full time job making $70k, put in 7% in 401k in order to continue getting the $5k match, and DH can cut back to a less stressful position. Depending on the position he gets at that time, I would like to continue to at least max out 1 roth account going forward. That might require additional budget cuts. Not sure if that plan is too aggressive, or if it is doable.

[Viking Thor]

That plan sounds pretty feasible, in 5 years your savings will be much higher and you would still make enough to cover expenses.

Hopefully the stock market does not give us a face punch in the next 5 years. I am in same boat as you building toward retirement and heavily stock invested, planning to ride out any stock turbulence but if we hit a rough patch of market returns that would probably push my date back.

[MrsGrey]

Thank you, I appreciate the feedback. Reading the post fire threads really motivates me and luckily DH is on board as well. Trying to balance and enjoy life along the way, while still trying to see where we can continue to trim our expenses. As you mentioned, the stock market could change our plans a bit. Health care costs are always another unknown. I think we will make 5 years our target date and adjust as needed. It's a start! Thanks again for all the replies!!