I’m considering starting FIRE prematurely by quitting my job in April/May this year. Wanted to get some expert opinions on how reasonable or stupid that would be!
Life Situation:
32, live with life partner, 30. Partner and I keep our finances separate, not because we don’t love each other, but because she wants to reach FIRE on her own, and because I have weird emotional baggage about money from ‘08 and my parent’s ugly divorce, and don’t want it harming our relationship. So weird as it may sound our finances are independent of one another, and thus I’m giving you “my” situation (which feels weird even typing that). Effectively I’m financially single, and I’ll throw in nuance as necessary. Right now we file separately as single but marriage is likely and we’ll switch back and forth for joint and single filing for whatever makes most sense in any given year. Zero dependents currently, expected 2 in the future.
Have a stressful job I hate as an IT director and engineer. Actual passion is music, and if I quit I can pretty much guarantee I will refuse to go back to traditional work and will try and force something as financially unstable as music to work. Also, I’ve hated every job I’ve ever had so I’m admittedly bias against the idea of going back even part time to any traditional work. The reason I’m even considering retiring prematurely is due to the cost benefit of even a few more years of pain and putting my life on hold is starting to seem like it’s not worth the extra financial security.
I intend to use a legal team benefit from my job before I quit to set up an LLC to hopefully use it as the intake valve for any music or odd job money I make in retirement. I thought to choose LLC over a sole prop. due to the legal shielding it could provide, which I’ve heard is important for the music industry.
Gross Salary/Wages:
Salaried, low 6 figures, I save 80% of that income, which of course disappears in April/May if I quit.
Reliably expect an 11k bonus in March, which I intend to inject 100% of into my 401k like I did last year, if that still works out
No other income streams currently. Expect low and random income into LLC in retirement, but have no idea how much.
Adjusted Gross Income:
Not totally positive, as I’ve job hopped, and my brokerage and loss harvest has never been 18k before this year. I also don’t know if injecting my bonus into my 401k will carry major tax consequence or not. I’ll ballpark it around 90k +/- 3k
Taxes:
Not too complicated, I expect standard deduction which is what I usually do, and have too little assets or liabilities or deductions to complicate this answer: probably about 11-15k in taxes. This is of course based on 1 year of salaried employment, but I expect near $0 in retirement, so 2023 would just be the first half-ish of the year as income, and thus maybe like 5k in taxes? Then 0% bracket after that every year perhaps.
Current expenses:
Live in a cheap apartment, no mortgage, etc.
Built average spending from ~7 years of data, which includes: groceries, restaurants, basic healthcare expenses and separated out emergency healthcare expenses, auto, travel, entertainment, utilities, rent, insurance for car and renter’s insurance, fitness, gifts and charity, some tech items (cloud storage, stuff like that), misc (minimal). My average monthly spending right now is 1200
Average vacation expenses per year (also built on ~7 years of data): 1300
Expected ER Expenses:
No significant change. I aimed for 1300 per month and 1400 per year on vacations (with the same categories, etc.) but there’s nuance to this I’m worried about which I’ll explain later.
I’m leaving a lot out here because largely the questions I have pertain to this.
Assets and Liabilities:
No debt or liabilities
Do not own a house or any other real estate. Currently don’t have interest in owning real estate, unless the ROI proved worth it (like living in one side of a duplex and renting out the other side, with a mortgage or upkeep costing about what I spend on rent currently anyway).
Own 1 car worth around 3k
Total physical assets don’t exceed 15k in value (most of that value is in electronics and music production equipment).
Checking account: ~8k
Trad IRA: 85k
Roth: 48k
457: 74k
401k: 26k
Brokerage: 67k – harvested 18k losses for 2022
No HSA or FSA or life insurance.
So with market fluctuations I’m around 308k at the moment, but will (hopefully – markets) have more than that by April/May.
Questions start here!
Projected Budget / Nest Egg:
I have several different calculations for how much my nest egg needs to be, and even the estimate with the “tightest belt” I’m still 100k off of. I’m using 3.85% withdraw an 7% growth for these figures. The eggs are based on those fairly robust averages I mentioned above:
Minimum egg: requires I get rid of my car and go full bike, has no room for surprise medical issues, has no funds for moving abroad if we decide to do that, and guesses that annual child expenses are 1k per year which I know is way too low - 409k nest egg needed
Medium egg: no car (bike instead), no health emergency funds, and guesses 2k as annual child expenses - 438k
Conservative egg: keep car, contains healthcare emergency funds, moving expenses included, but still guesses 2k for children because I don’t have a clue - 504k
Notice too that none of these eggs contain extra capital for real estate purchases or investments. I’m open to considering those, I just don’t have them projected as you can see.
The Plan:Roth conversion ladder. Roll my 401k into the IRA after quitting, and little by little for that first 5 years convert funds from IRA to Roth while staying in the lowest income bracket, living off of my brokerage in the meantime via slow sell offs as necessary.
I don’t know about the 457 (if better to roll into IRA and go through the conversion ladder from there, or directly withdraw, or directly convert to roth). I have to do more research.
The Wrenches in the Plan:
We’re strongly considering having kids before I turn 35. We’re thinking 2 kids. We’re good at cutting our own living expenses, so I would expect we’re on the leaner side of child costs, but we don’t know how much to expect to set aside. We expect to do 50/50 split on expenses as always. We expect we’ll both be around (me earlier than her obviously) to not need daycare funds and we have no intention of showering kids with material things or a college fund (both of us got through college on our own). As for any fertility treatments if necessary, the actual hospital bills for birth, etc. I haven’t the slightest clue or savings – and even further complex if we have children abroad probably, or maybe for the better? I am leaving this one open ended, knowing I need further research. My partner does have free fertility benefits through her current employer, but she’s likely to retire in the next 3 ish years too (yay), but that may be just enough time to have 2 kids? We’re not sure, it of course also depends on variables we don’t know yet.
We also want to move abroad within the next 1-5 years if possible. We were thinking Germany because we both like it, I have friends there, and we both speak some German (me decently fluent, and she’s advancing quickly). I’ve only recently wrestled enough energy away from work to research that idea: not only do I have no clue how much it will cost to move our 700 square foot apartment of stuff over there (some of it is expensive amplifiers I can’t just buy randomly abroad), but I’m also finding out Germany would consider retirement distributions as ordinary income and Roths as brokerage accounts with capital gains taxes, effectively gutting the conversion ladder plan. That is, if I’ve understood right and haven’t stopped my research prematurely. Still would like to do it, if it’s not cost prohibitive, so looking for tips on this as a side note if anyone has any.
Things I know I don’t know: birth and childcare costs for 2 kids and some estimation of lean child rearing, whether or not it makes financial or other sense to have said kids abroad (Germany?), whether or not it’s even realistic to move abroad or what those parameters would be for two FIRE folks with kids (Germany, again, the primary I’d like to investigate), what moving physical assets would cost to move abroad, some sense or ideas for healthcare expectations in lean FIRE (again, sprinkling on the Germany possibility and how that may change it), what to do with my 457 in the wake of the roth conversion, and what music or other work may bring as income or if I should just pretend it’s $0 for these calculations (I don’t expect an answer for this, I just recognize it’s a problem).
Bottom Line:
What am I missing? What haven’t I thought about, or have made poor assumptions on? Am I just too eager to retire and I’m not being realistic? Have I not given enough info about something that could make a big difference?
I’m extremely grateful for you all. I’ve already received so much help on earlier posts and I don’t know how I’d even have come as close as I am without your help. So thank you for even reading this far, and thank you extra if you have any thoughts or questions!