FI estimations to feel better about setting better boundaries at work

[johnsmith4578]

Hello! My wife and I are tech industry employees. I want to set better boundaries at work (for example, work at most 50 hours per week, stop trying to push myself so hard to meet increasingly tight deadlines, use more of our PTO). Adding more boundaries comes with job security risk, and getting more pressure from leadership.

To try to be more resistant to work pressure, I want to ask for help to assess our finances, so I can feel more comfortable "risking my job" by gradually setting better work boundaries. I'm also unsure how to estimate expenses post-FIRE vs current expenses. So, I've listed them here to see if they make sense.

Life Situation:
Age: early 40's
IRS Filing Status: Married Filing Jointly
State Income Tax: 9%
Federal Tax Bracket: 37%
Dependents: 1 (child, toddler aged)
Location: US

Assets
House: $1.2M worth, owe $400K at 6% mortgage rate, but we plan to pay it off in about 1-2 years
Cash: ~$300K
Mutual Fund Investments (taxable, tax deferred, and tax free): $3.5M, about half in taxable, mostly index funds and a small amount of bond funds.

Gross Salary:
Me: $450K per year before tax.
Spouse: $300K per year before tax.
Our incomes have risen a lot in the past several years. 5 years ago, we earned about half as much.
Total effective tax rate is probably about 35% all in, so $700*0.65=$455K after-tax annual income.

Current Average Expenses (Excluding Mortgage P+I)
We have almost enough cash to pay off the mortgage very soon, and do plan to pay it off in 1-2 years, so haven't included Mortgage P+I in current expenses.

The expenses in red are those that I think will be different if we actually retire.

Item	Yearly Cost	Monthly Cost
Health Insurance+Out of Pocket	$8023
Dental Insurance+Out of Pocket	$2180
House Property Tax	$14000
House Maintenance	$7000
Car Replacement Every 10 years	$2500
Car Insurance	$1200
Umbrella Insurance	$200
Kid Activities		$500
Kid Stuff (clothes, toys, supplies)		$200
Food		$1200
Water/sewer/garbage		$80
Electric		$150
Natural Gas		$50
Internet		$45
Cell phone plans		$50
Cell phones replace every 2 years	$500
Laptops replace every 4 years	$300
Entertainment		$100
Travel/Vacation		$1000
Others		$500
Total Annual Current Spending	$82,900

Post-FIRE Expenses (House will be paid off)
I would imagine some spending would increase if my spouse and I both retired, so separately estimating those below.

Item	Yearly Cost	Monthly Cost
Health Insurance+Out of Pocket	$20,000
Dental Insurance+Out of Pocket	$3,000
House Property Tax	$14000
House Maintenance	$7000
Car Replacement Every 10 years	$2500
Car Insurance	$1200
Umbrella Insurance	$200
Kid Activities		$1000
Kid Stuff (clothes, toys, supplies)		$200
Food		$1200
Water/sewer/garbage		$80
Electric		$150
Natural Gas		$50
Internet		$45
Cell phone plans		$50
Cell phones replace every 2 years	$500
Laptops replace every 4 years	$300
Entertainment		$100
Travel/Vacation		$2000
Others		$1000
Total Annual Spending If Retired	$120,900

At 3% withdraw rate, this $120,900 annual expenses would seem to need ~$4 million invested assets. We don't quite have enough right now, but probably would in a few years assuming our jobs are ok for a few years. The "post-retire" expenses are quite a bit higher, primarily because of increased expected health insurance costs, and increases travel/vacation costs. For expected health insurance costs, I didn't plan for ACA subsidies given uncertainty about whether they will continue to exist going forward.


Questions

• How "reasonable" are my estimated Post-FIRE expenses given current spending levels? Anything I'm missing anything, or any part of the estimates that don't make sense?

[secondcor521]

I'd suggest trying to nail down the retirement health care number.  That $20K looks suspiciously like a conservative guess, so it's probably off.  High or low, who knows, but it'd be good to nail down because it's the biggest red number you have and the 25x multiplier means it could mean the difference between being barely FI or sorta not yet FI.

I was an engineer and an engineering manager for two Fortune 500 tech companies for about 20 years.  You're in higher paying, probably higher pressure jobs than I ever was, but I still suspect (remember I'm just SGOTI) that you're overestimating the risk to your job if you choose to back off but still do a decent job at your jobs.  Talk to your boss(es), tell them you're burned out and want to ease off the gas a bit and see what they say.  They'll probably tell you if you're really at risk or in danger.

If the two of you work at different companies, you have a bit of safety factor in the sense that you probably won't both lose your job.  If one of you does, they can probably get hired somewhere else relatively soon or if not can be a SAHP and the other person just works a few years longer - maybe not perfect but possibly still a fallback position worth counting on.

I've been FIRE for 9 years now and on the ACA since leaving my last Fortune 500 job.  People have said it's at risk since 2014, and they have been wrong so far.  My contingency plan if the ACA failed was to "figure it out" and hope that I could find a workable solution post-ACA.  That's still my plan, but also I have over twice the dollars now as when I first retired, so it's even less of a concern.

...

Other comments:

1.  A married couple in their early 40's could use a 3.5% WR and probably still be very conservative.

2.  It sounds like you're in California.  You could sell the house and move anywhere in the US more than 50 miles from the ocean, cut your cost of living by 20% to 50% and be FI now.  Probably with enough money to buy plane tickets and hotel rooms to go back to California and visit any family remaining there.

[Sandi_k]

Taxes are missing - and they ARE an expense in retirement, just like the PG&E bill. For us, we expect the tax bill to go UP, since we will have no ability to save or pay for anything pre-tax.

In CA, we're assuming $45k annually in retirement, between Fed and state taxes.

[Moonwaves]

Make sure to have a read of this thread if you haven't already: https://forum.mrmoneymustache.com/welcome-to-the-forum/epic-fu-money-stories/
Lots of stories of people setting boundaries at work.

Also, have you read the threads about not paying off your mortgage? It's often (always?) actually the sound financial decision, and you have to decide if the emotional and psychological aspects are worth it to you.

[ixtap]

Seems you can afford to live off one salary for a while and even continue to save.

Many people become more valuable as they set boundaries, as they can be more productive with proper rest and balance. If that doesn't happen, you have the wiggle room to decide what downshifting looks like for your family.

[johnsmith4578]

Taxes are missing - and they ARE an expense in retirement, just like the PG&E bill. For us, we expect the tax bill to go UP, since we will have no ability to save or pay for anything pre-tax.

In CA, we're assuming $45k annually in retirement, between Fed and state taxes.

Thank you it's a good point.

Let's say $120K annual spend:

Gross Withdraw	133000
Fed standard deduction	30000
Assumed Percent Dividends	50%
Fed Cap Gains (0% bracket up to ~90K)	0
Fed Income Tax (12% bracket)	6180
State Tax (7% bracket, minus ~$5000 standard deduction)	6825
Net Amount from Withdraw	119,995
Effective tax rate	~10%

So, paying 6180+6825 in taxes to get a net $120K withdraw, assuming 50% of the withdraw comes from short term dividends from a taxable account, and the 50% is long term capital gains.

This is probably actually a overestimate, since some of the withdraw will the principle which is untaxed, so actual tax will be lower.

How much would you be spending per year, if you're paying $45K per year in taxes? That seems quite a bit more than what I have calculated here for me.

[johnsmith4578]

I'd suggest trying to nail down the retirement health care number.  That $20K looks suspiciously like a conservative guess, so it's probably off.  High or low, who knows, but it'd be good to nail down because it's the biggest red number you have and the 25x multiplier means it could mean the difference between being barely FI or sorta not yet FI.
...

Other comments:

1.  A married couple in their early 40's could use a 3.5% WR and probably still be very conservative.

2.  It sounds like you're in California.  You could sell the house and move anywhere in the US more than 50 miles from the ocean, cut your cost of living by 20% to 50% and be FI now.  Probably with enough money to buy plane tickets and hotel rooms to go back to California and visit any family remaining there.

You're right about nailing down the health care cost. I went on the ACA website and checked. For mid 40's, we would paying ~$1000 in premiums per year without subsidies, with a max out-of-pocket cost of $14,000. Together, that would be $26,000 per year maximum. This year and next we we expect to hit the max out-of-pocket for our current insurance, so that's why I'm estimating with max out-of-pocket cost.

But, counting subsidies, assuming an income of $90K (reasonable since the $120K estimated above will have some principle, so not all income that is taxed), it would reduce the premium cost by $6K or so, arriving at $20,000 per year. So, looks like by chance I got the $20K estimate right initially, but it required including ACA subsidies to do it.

We are not in CA, but in another higher tax, higher cost state.

[johnsmith4578]

Many people become more valuable as they set boundaries, as they can be more productive with proper rest and balance. If that doesn't happen, you have the wiggle room to decide what downshifting looks like for your family.

Thanks! I have also been considering this too for awhile, but it's been a struggle to delegate more, and be less detail oriented and perfectionist. It's been a little tough because of the whole "what got you here won't get you there" situation, but I think you are correct. I need to be more willing to take the risk, and more willing to potentially have that risk sometimes go badly here and there.

[Sandi_k]

How much would you be spending per year, if you're paying $45K per year in taxes? That seems quite a bit more than what I have calculated here for me.

I will have a generous pension, my Social Security, DH's Social Security, and pre-tax investments. So I can't control our income very effectively.

[Laura33]

Many people become more valuable as they set boundaries, as they can be more productive with proper rest and balance. If that doesn't happen, you have the wiggle room to decide what downshifting looks like for your family.

Thanks! I have also been considering this too for awhile, but it's been a struggle to delegate more, and be less detail oriented and perfectionist. It's been a little tough because of the whole "what got you here won't get you there" situation, but I think you are correct. I need to be more willing to take the risk, and more willing to potentially have that risk sometimes go badly here and there.

I suggest applying this to your case study here.  You have $3.5M in investments, $300K in cash, $90K in spending, and an employed spouse.  You are 100% fine, even if you walk out of your job tomorrow and never work another day in your life.  And you're about 99% fine if your wife also walks out of the job tomorrow and never works another day in her life.

And really, how likely is it that you guys both quit tomorrow and never have the chance to earn any money, ever again?  If your wife stays employed, you can live forever on her wife's salary, without even touching your investments.  If even one of you gets a different job making a fraction of what you make now, you can cover your expenses without touching your investments.  Hell, if you both work at McDonald's, you can cover half your expenses and thus extend the longevity of your investments even more.  And if everything goes into the shitter, you can cash out the extra million in home equity and move to a LCOL area where, again, neither of you ever have to work another day if you don't want to.  There is literally no rational reason to continue to put up with a situation that is making you even slightly unhappy.

Don't let the perfect be the enemy of the good.  You are unhappy with work.  You have multiple layers of safety net to protect your family if you lose that job.  Ergo, you have absolutely no reason not to set those boundaries and turn your job into something that isn't draining you -- and to walk away entirely if that doesn't work.  There is no risk here, because even if the worst happens, you will be more than fine.  The only thing stopping you from making your life significantly better is yourself.

[father time]

You are well on your way if not already there.  As someone else mentioned, don't be afraid to set limits.  Your household is not going to go from $700K/yr income to zero overnight.  Set limits at work and then set a loose date in the near future for pulling your chute(s).  If work-life balance has improved, maybe you stay a little longer -- or not.  A few comments:  no doubt you have thought of this but another kid adds expenses.  If you're done, then disregard.  Kids get more expensive as they age:  gear, activities, tuition, braces, increased car insurance premiums, another car for the kid -- I could go on but you get the point.  Also, maybe I missed it but your numbers don't include clothes, gas/car maintenance, household items (TP, towels, etc) or any miscellaneous.  Basically, I wonder if your expenses number might be a bit light.  You'd know best -- just my reaction. 

But bottom line, congrats on an impressive income-to-expenses ratio and building a good stash that is going to provide you with lots of optionality. 

[FIRE 20/20]

I'm with @Laura33 here.  I would go so far as to say you would be fine FIREing today - both of you.  I understand the urge to use a withdrawal rate of lower than 4% - I hit 4% then worked another year so I understand the reasoning, but 3% is waaay low.  Just to make the math easy (I'm not suggesting *doing* this) let's say you take the $300k in cash and $100k from investments to pay off the house.  That would leave you with $3.4M in investments plus a paid off house.  If you use a 4% withdrawal rate, you need about $3.0M to cover your $120k in spending.  That leaves you with a $400k buffer if the SHTF, plus a $1.2M paid off house, plus likely Social Security (I would guess that in 25 years or so that should cover close to half your planned spending).  Even if we assume zero S.S. and you never sell the house or access the equity, that $400k buffer is gigantic.  Think about it - it's growing during all the years you're spending down the $3.0M. 

And that's if you FIRE today. Every month you're adding close to $40k to your savings or driving down your mortgage balance.  So yeah, I think you're more than safe speaking up at work.  You could go full Peter Gibbons and wouldn't have to (Spoiler alert)

Spoiler: show

work construction at the end of the movie.