Modified FIRE plans, minus the FI

[aspiringnomad]

Sorry in advance for the long post. My wife and I are in the midst of making some major changes to our FIRE plans, so much so that I can't even really call it FIRE anymore, and wanted others' opinions on whether it made sense to unlock the golden handcuffs early or if we're crazy to do so.

When I initially set up my FIRE projections about three years ago, I planned to FIRE around age 40-42 with a stash that supports 80k a year in living expenses including housing. The plan was always to do some travelling post-FIRE and to eventually settle in my wife's HCOL country long-term. The larger-than-typical stash (by Mustachian standards anyway) would allow us the flexibility to sort out a new lifestyle in a new country and afford us relatively frequent travel. My wife wasn't initially on board with the RE part, so I figured I could FIRE first while she continued to work as long as she wanted either in the US, her home country, or elsewhere. After a few years, we are on track to hit that level of supported spend towards the early end of my initial projections (all-time market highs will do that I guess).

Over time my wife has been slowly coming around to the idea of FIRE, and now she's fully on board with it. So much so that lately we've been thinking it makes sense to move up our quitting date by at least three years to 2019 to better balance our true financial security needs against our desire for freedom while still young and adventurous. We currently spend about 70k a year in our HCOL US city - 30k of that goes towards a 15-year mortgage on a 1 BR condo, but we're definitely spendy by the standards of most folks here. And no matter how much we save or what the market does between now and 2019, we would not have enough invested to support that spend indefinitely. We currently make about 280k combined gross. Even after netting out taxes and accounting for this HCOL area, it's a ton of cash and neither of us loathe our jobs. Given the amount we're able to stash each year, you can see why I called them golden handcuffs. Our savings rate maybe makes a strong argument for sticking it out until our early 40s so that we can FIRE indefinitely. So why pull the plug early?

Because the timing feels right. We think we'll be ready for a new adventure in a couple years; many days, we're ready for it now. We don't have kids. Moreover, after some reflection, I think even with pulling the plug early our financial situation will be much more comfortable than it needs to be for two people with relatively simple tastes (other than travel I guess) and with skills and interests that should be able to generate income if needed. We're also very lucky to have several citizenship/residency options so that getting long-term visas are not a problem in most of the developed world, and want to take advantage of that.

So here are the financial nuts and bolts of our plans beginning in about two years. Would appreciate any thoughts:
-We plan to sell our primary residence which will have 200k in equity conservatively and accounting for selling costs.
-We plan to put 80k of that into paying the remaining amount owed on a rental property mortgage and plunk the other 120k (or whatever it will be) into a savings account.
-We plan to slow travel, living off the net cash flow from the rental property (probably about 10k a year after maintenance, taxes, insurance, and HOA) and the cash in savings until we get sick of travelling or the money runs out.
-Depending on how things are going with our spending and the market, some of that cash would also be available to buy into the market after big drops to hopefully mitigate sequence of return risks (understanding that the traditional 4% SWR doesn't really apply here).
-I estimate we'll have roughly 700k in invested assets (85/15 stocks to bonds) when we pull the plug, a little less than half of which will be in taxable accounts. Of course, that's dependent on what the market does between now and then.
-I'll start a Roth conversion ladder for the tax deferred accounts during the first full year of not working to take advantage of the low tax rates.
-The idea is to not touch that invested pot of money except maybe to add to it as mentioned earlier, and hopefully let our capital work for us while we're not using our labor to generate income.
-If need be, we would sell the rental property before touching the invested money. Due to nearby development in the pipeline, I expect above normal appreciation until about 2022, so we would ideally not sell before then.

When we get sick of travelling or our financial picture takes a turn for the worse we'll consider getting full or part-time jobs somewhere, probably in my wife's country but maybe back here in the US or somewhere else. I have no idea what our lives, much less our FIRE outlook will look like that point. There's too many variables to even try to plan it out. But I'm fairly certain we'll need to go back to work at some point. Hell, we may even want to for the social benefits in a new home where we don't know a lot of people. In my dream world, that work could be something fun, active, and rewarding, but I'm open to a short-term return to the corporate world at some point. Is there anything we're missing about our plan? Are we crazy or does this seem reasonable?

[SwordGuy]

I want to make sure I understand.

You intend to live of the $10,000 a year from the rental and to spend down $120k.

Question One: I'm not clear what kind of spend rate per year you're contemplating while traveling.  $30k / year?  $60k / year?

Question Two: What kind of spend rate are you expecting after you "settle down"?

The biggest risk to FIRE on a stock portfolio (which is what you will be doing long-term unless you live on less than $10k a year) is the sequence of returns risk.

So your spend rate becomes really important.   $700k in the market gives a $28k spend rate at 4%.   $10k rental added in makes that a $38k spend rate.  We've had a really long bull market.   If you were declaring FIRE at the end of a bear market that would be one thing.   But you're not.   So it's realistic to expect a bear market in the next 5 years.

You mentioned an $80k spend rate in your original plan.   I don't see how this plan gets you anywhere close to that.

Also, are you including set-asides for repairs and vacancy on the rental property?  Is that already taken out in our calculation of the $10k net you're expecting for rental income?

[Hargrove]

You apparently can live off 40k when you're living in a place you own, since you spend 70k without owning your 1BR yet.

If you travel constantly, housing remains a factor. 10k + 14k from your taxable investments is only 24k (you can't draw your non-tax investments yet).

The difference between what you're spending and what you can expect to bring in is pretty large. You said 120k in a savings account, which you would burn in close to two years (at your current spend, but this amount would last longer in lower COL destinations). However, you also  mention waiting two years to do this. If you saved 200k more in those two years, it would be 10k + 22k, which is short of your spend if you stayed at a home you owned.

You seem to be talking about a massive, FIRE-imperiling vacation instead of FIRE. I guess I don't understand a vacation adventure "until the financial picture takes a turn for the worse," when you make a quarter million a year at jobs you don't dislike. You can't pepper the year with two-week vacations that hit the spot on wanderlust and save the enormous pile of money you're making for a while longer?

You seem to suggest spending less is not an option, but it's, like most things, the easiest way you could contemplate FIRE after those two years, no problem at all. The problem isn't travel - you would only burn your savings account in two years if your spend stayed the same, which presumably it wouldn't because your money would stretch at many of your destinations, but moving back to a HCOL area with only 700k and 24k income would present some challenges if you expect to resume something like your current spend. You may really not want to return to work at that point, which would again force you to face cutting expenses.

[aspiringnomad]

I want to make sure I understand.

You intend to live of the $10,000 a year from the rental and to spend down $120k.

Question One: I'm not clear what kind of spend rate per year you're contemplating while traveling.  $30k / year?  $60k / year?

Question Two: What kind of spend rate are you expecting after you "settle down"?

The biggest risk to FIRE on a stock portfolio (which is what you will be doing long-term unless you live on less than $10k a year) is the sequence of returns risk.

So your spend rate becomes really important.   $700k in the market gives a $28k spend rate at 4%.   $10k rental added in makes that a $38k spend rate.  We've had a really long bull market.   If you were declaring FIRE at the end of a bear market that would be one thing.   But you're not.   So it's realistic to expect a bear market in the next 5 years.

You mentioned an $80k spend rate in your original plan.   I don't see how this plan gets you anywhere close to that.

Also, are you including set-asides for repairs and vacancy on the rental property?  Is that already taken out in our calculation of the $10k net you're expecting for rental income?

Yes to your initial question about what we plan to live on. The 10k includes a conservative buffer for repairs and some vacancy, but for what it's worth, I've had 0 months of vacancy in 3 years of ownership so far - I tend to lease it slightly below market rate and have my pick of tenants.

Answer to Q1: I can't say exactly. We're planning to stay in small towns in Southern Europe for the first part, so my hope and expectation is that our spending falls dramatically, particularly on housing. But I don't have much relevant data to base that on. But I imagine somewhere around 40k USD a year would feel pretty opulent, based on the little research I've done. Given that we're drawing from this cash reserve rather than investments, I was planning to sort of compartmentalize that as the allowable amount we could burn through before settling somewhere or figuring out next steps.

Q2: No idea. I guess I'm hoping that we'll live within our means, whatever those means turn out to be. We're generally flexible people. Our spending has been high lately in part because we've been coasting towards FI in accordance with our initial plans and high incomes and haven't been hyper focused on reducing spending. Whether we "retire" in two years or fully FIRE in 5-7, we are planning to move abroad, so it sorta makes cost estimating difficult. We're not at all materialistic (though I spend too much on booze and food) so I tell myself that a lot of my spending must be directly related to living in a HCOL. But who knows?

I suppose it wouldn't be a pleasant FIRE if we're worried about money all the time. And we could, and maybe should, continue to coast towards a more secure FIRE, but really wanted to explore the possibility of an early-early-retirement based around flexibility and the willingness to return to the work force if necessary. For example, if the market does do a 2008-style drop in the first year of this plan, I think we'd pour most of that 120k or whatever is left of it into the market and come back with our tail between our legs looking for jobs. Of course, in that event jobs may be hard to find, but part of the flexibility is that we have the ability to work in the US, Europe, Australia, and New Zealand.

[aspiringnomad]

You seem to be talking about a massive, FIRE-imperiling vacation instead of FIRE. I guess I don't understand a vacation adventure "until the financial picture takes a turn for the worse," when you make a quarter million a year at jobs you don't dislike. You can't pepper the year with two-week vacations that hit the spot on wanderlust and save the enormous pile of money you're making for a while longer?

You seem to suggest spending less is not an option, but it's, like most things, the easiest way you could contemplate FIRE after those two years, no problem at all. The problem isn't travel - you would only burn your savings account in two years if your spend stayed the same, which presumably it wouldn't because your money would stretch at many of your destinations, but moving back to a HCOL area with only 700k and 24k income would present some challenges if you expect to resume something like your current spend. You may really not want to return to work at that point, which would again force you to face cutting expenses.

Ha, "massive FIRE-imperiling vacation" is one very legit way of putting it. Yeah, we could definitely continue to take shorter vacations, but would rather stay longer, surf all summer, immerse myself in a different language, etc. :)

Spending less is always an option and we are doing some belt tightening this year which will benefit us no matter what we decide. Ideally, if we do slow travel by the time we move back to a HCOL area that 700k will have grown some, but who knows what the market has in store. Could also be a lot less at that point.

Thanks for the alternate perspective - it's exactly what I was looking for. To me, all the contingencies/flexibilities we have make me think we'll be okay no matter what. But being okay isn't the same thing as being in a better position. And we're in a pretty great position now...so lots to think about.

[Hargrove]

Basically, lower your spend immediately. If that works, you have your answer - your 900k - 1.1MM in two years would cover a 3-4% draw supplemented by your 12k income for 42-52k/yr.

If you can't bring yourself to lower spending to that (before your home is paid), then you are going on a massive vacation instead of hitting FIRE, and you'll know what you will need to be comfortable with in making the decision to do it or not.

If you CAN lower your spending to that, the numbers work - just know your major scenarios with things like healthcare and taxes and so on wherever you're going (who pays, how does it impact the budget, etc).

[travelawyer]

I read your post and was like "this person is me." :)  I'm also looking to FIRE around age 42 (in 8 years), with annual spend of $80k (with 2 kids however).  It's our plan to be "nomads" for at least a couple years, until we get tired of it (if ever), and I really wish there was a way to do it sooner without compromising the intended lifestyle (good food and wine, adventure activities, centrally-located Airbnbs).

You ultimately have 3 options, and only you can decide which is best for you.

1. Suck it up and keep working to reach your goal.

2. Reduce your spending to under $40k a year.  I understand if that's not something you are interested in, but there are only 2 of you, so perhaps try and run some estimates of what you think your yearly travel costs would be (an important step you seem to have skipped).  Also, you haven't considered healthcare in your current estimates, so you spending could actually go up if you keep up the same lifestyle (unless you can become citizens of a country with free healthcare, which maybe you can?)

3. Do what you have discussed and take a few years sabbatical, with the understanding that you WILL have to go back to work.  Is it worth it to start the travelling a few years sooner, vs. being able to travel forever?  Maybe the answer for you is yes, or maybe not.  Will you be able to get equally good jobs after your sabbatical?  (<--This is what keeps me at the job--I know I'd never get back into the industry after a long hiatus, and this is true in many high-paying professions.)

Interested to hear what you decide to do, as I could see myself falling into this One Less Year syndrome at some point as well.

[JoJo]

+1 for the Sabbatical idea.

I've been taking extended breaks over my life.  Took 2 years off at age 31-32 (quit the job, sold the house & car), and 3 months off at 39 (leave of absence).  I have no problem that this expanded my working years by a couple years.

[toucansurfer]

from a fellow expat point of view make sure if you plan to work overseas you don't spend more than 30 days in the usa otherwise you don't qualify for the 92k tax free exclusion on overseas income.  Note this only works if you spend most of your time outside the us.  your assets in the usa will likely still be taxed but just make sure to keep track of it or the IRS will do it for you :p. 

If you reckon it's not a big deal to get back the jobs you're currently in (keep the door open) i don't see why this is a bad idea.  Other options might be taking extended periods of time un-paid off the job therefore securing your position but giving you the option to come back.  A few guys at my work did this and works out quite well especially if you have no kids.

Just my 2 cents

[aspiringnomad]

I read your post and was like "this person is me." :)  I'm also looking to FIRE around age 42 (in 8 years), with annual spend of $80k (with 2 kids however).  It's our plan to be "nomads" for at least a couple years, until we get tired of it (if ever), and I really wish there was a way to do it sooner without compromising the intended lifestyle (good food and wine, adventure activities, centrally-located Airbnbs).

You ultimately have 3 options, and only you can decide which is best for you.

1. Suck it up and keep working to reach your goal.

2. Reduce your spending to under $40k a year.  I understand if that's not something you are interested in, but there are only 2 of you, so perhaps try and run some estimates of what you think your yearly travel costs would be (an important step you seem to have skipped).  Also, you haven't considered healthcare in your current estimates, so you spending could actually go up if you keep up the same lifestyle (unless you can become citizens of a country with free healthcare, which maybe you can?)

3. Do what you have discussed and take a few years sabbatical, with the understanding that you WILL have to go back to work.  Is it worth it to start the travelling a few years sooner, vs. being able to travel forever?  Maybe the answer for you is yes, or maybe not.  Will you be able to get equally good jobs after your sabbatical?  (<--This is what keeps me at the job--I know I'd never get back into the industry after a long hiatus, and this is true in many high-paying professions.)

Interested to hear what you decide to do, as I could see myself falling into this One Less Year syndrome at some point as well.

Very cool to hear there are others in our situation and frame of mind. Even more badass that you plan to do it as parents - lucky kids!

Yes, after writing this out and seeing some of the responses it's clear to me that the next step is to sit down and run some rigorous travel expense projections. The plan is to stay in small towns with cool stuff nearby (i.e., beaches in Portugal, wineries and chateaux in France) where renting longer-term is pretty cheap compared to overnight stays. But apart from checking a couple rental sites, and thinking about some of the upfront costs, I haven't done any cost planning. Some of those upfront costs that I have looked into include travel insurance which should cover healthcare while we bum around. Longer-term, we're very lucky that my wife's home country has public healthcare for all since it's a more civilized civilization :).

As for jobs when we return, she'll probably be able to easily find something similar to what she does, but maybe at less pay. I think she would want to do something similar too. I on the other hand, could probably find some kind of job in my line of work, but would not easily replicate the managerial position I have now. It was super-competitive to get the most recent promotion, and I probably would not have been offered it if I had to explain a couple years of not working mid-career. That's okay with me. I've now spent 11 years in various white-collar offices doing analytical stuff or managing people, and I'm quite interested in trying out different life experiences anyway. Another benefit of my wife's country is that the minimum wage is higher, so even if I end up slinging espressos, or whatever, I should make a livable wage.

[aspiringnomad]

from a fellow expat point of view make sure if you plan to work overseas you don't spend more than 30 days in the usa otherwise you don't qualify for the 92k tax free exclusion on overseas income.  Note this only works if you spend most of your time outside the us.  your assets in the usa will likely still be taxed but just make sure to keep track of it or the IRS will do it for you :p. 

Thanks, this is very helpful. I'd assumed the exclusion applied to all non tax residents and figured half a year was the cut-off...complicates things a bit since we were planning to spend a decent chunk of time visiting the US each year after we settle in her country.

[With This Herring]

*snip*

Q2: *snip*
 Whether we "retire" in two years or fully FIRE in 5-7, we are planning to move abroad, so it sorta makes cost estimating difficult. We're not at all materialistic (though I spend too much on booze and food) so I tell myself that a lot of my spending must be directly related to living in a HCOL. But who knows?

*snip*

Well, shouldn't you know?  Aren't you tracking your expenses enough to be able to parcel out which costs are due to a HCOL and which ones are due to becoming accustomed to life on large earnings?  After all the spending tracking recommended on these forums, I would hope you are at least using pencil and paper to track your spending, if not a spreadsheet/Mint/GnuCash/Quicken or any other more sophisticated measure.  ;)

[aspiringnomad]

*snip*

Q2: *snip*
 Whether we "retire" in two years or fully FIRE in 5-7, we are planning to move abroad, so it sorta makes cost estimating difficult. We're not at all materialistic (though I spend too much on booze and food) so I tell myself that a lot of my spending must be directly related to living in a HCOL. But who knows?

*snip*

Well, shouldn't you know?  Aren't you tracking your expenses enough to be able to parcel out which costs are due to a HCOL and which ones are due to becoming accustomed to life on large earnings?  After all the spending tracking recommended on these forums, I would hope you are at least using pencil and paper to track your spending, if not a spreadsheet/Mint/GnuCash/Quicken or any other more sophisticated measure.  ;)

Fair enough. I do track everything using Mint but she doesn't. I can easily estimate her total expenses because I know her take-home, how much she puts towards the mortgage, and how much she invests every month (no real savings beyond the monthly investments).

But I don't have a way of comparing what my expenses are to what they'd be in a LCOL area. Grocery expenses, for example, are 20-30% higher here than in the LCOL area I grew up in. The difference in housing expenses is much more shocking. Because we live near a bunch of friends and lots of bars and restaurants, we do go out more than good Mustachians should. No excuse, but it is a source of a lot of our expenses, and much of it would likely go away if we're travelling slowly through a place where we don't know anyone. In other words, I suspect a lot of our expenses are not a result of us being inherently spendy, but our circumstances (which yes, includes a bit of carelessness thanks to our high income). I haven't traveled long-term since studying abroad in college so I don't know to what extent we'd reduce those expenses, but I would guess quite a bit. That's moot when we move to her country though, as it seems most things except maybe housing are even pricier there.