What's A Realistic Fire Date

[firefirepantsonfire]

Hello,

My fiancee and I are 26 and are curious what a (relatively) realistic goal is to retire. We would like to have kids in 4 - 5 years so we realize these numbers can (will?) change drastically.

Roth IRAs: 67,000
Roth 401k: 30,000
Traditional 401k: 27,000
HSA: 11,300
Cash: 35,000
Taxable: 170,000
Primary Residence Equity: 140,000

Annual Income: 110,000
Annual Expenses: 45,000

Current Annual Contributions:
Roth IRA: 11,000
Roth 401k: 0
Traditional 401k: 27,000
HSA: 3,400
Taxable: 0
Savings: 7000


We live in Portland, OR, which I would call low, high cost of living city and don't want to move. We could cut down our lifestyle but don't see the need to at the moment. We will likely move to a different area of the city when kids are closer but we own our condo and don't want to move anytime soon.   

Because of all the unknowns, does it even make sense to have a "goal" FIRE date? We are so far away and so many potential changes to the timeline that it seems silly but I like the idea of having something to work towards. Really appreciate all your input!

 

[MDM]

firefirepantsonfire, welcome to the forum.

What do you get from the simple "time to FI" calculation when you put your numbers into the case study spreadsheet?

Same question, but using one or more of the tools in Best and/or Recommended Retirement Calculator - Bogleheads.org?

[Ben Kurtz]

Current Annual Contributions:
Roth IRA: 11,000
Roth 401k: 0
Traditional 401k: 27,000
HSA: 3,400
Taxable: 0
Savings: 7000

Any reason why you are putting $7,000 per year in (after-tax?) savings when you are not fully maxing-out your deductible 401k space, and you already have $35,000 in cash plus a whole lot more in taxable investments? I gather that Oregon has a fairly punitive 9% marginal state income tax rate starting at an absurdly low income, so even if your top federal tax bracket is 12% you are still effectively in a relatively high 21% income tax bracket. At rates like that it makes sense to tilt towards getting the full 401k deduction. In fact, you have so much Roth savings right now and so little deductible retirement savings that it would even probably make sense to shift some or all of your IRA contributions into the deductible side -- although that is a closer call, especially since having deductible IRA money lying around can get in the way of future backdoor Roth IRA maneuvers (if your income should grow high enough to make that relevant). You can clear the decks in that case with a "reverse roll" of deductible IRA money into a 401k, but only if your 401k plan has that feature built in. So maybe keep it simple and just focus on maxing out deductible 401k contributions.

My rule of thumb for young couples starting out, especially with six-figure incomes, is to have a goal of a paid-off home plus $1,000,000 in productive investments (securities in retirement accounts, well-performing investment properties, whatever you are comfortable with). That's enough to allow a family to plausibly (if frugally) live entirely off passive income indefinitely, and in practice it gives most families the freedom to pursue what they really want to do without any real concern on the salary side. Most people will still do something productive and generate active income or earnings, but it's purely optional and on your own terms. My other rule of thumb is that if you get to a paid-off home plus $500,000 in investments, somebody still has to work and you have to pay some attention on earnings, but you can pretty much coast in on one or two part-time jobs in the family in any old field, especially with a decent employer health plan.

Given your stated assumptions, I think you can make it to the million mark (plus a paid-off home) within about 10 years if you work at it. If having a semi-concrete goal will be helpful -- and it sounds like it might -- that's my stock goal and it sounds like a good starting point for your discussion

I would also caution against putting off children for too long. It doesn't get easier as you get older. Plan your wedding, have a few big international trips and adventures, and then raise your kids while you still can keep up with them. My rule of thumb is built around having one or two kids in the house -- not much slack for more -- and it means being something of an old-fashioned hippie parent: lots of love and home-cooked meals and Dad's help with the science fair project; not a lot of room in the budget for the latest video game systems or a brand new car for Junior when he turns 16.

[Ben Kurtz]

Where are the extra $17K going?

I'm guessing taxes. That would imply an average tax burden of around 15.5%, which seems right for Oregon (with federal + state income tax).

I'm slightly a bit more of a hippie than you are, recommending $40,000 per year spending outside of housing costs -- I took your $60,000 to include housing costs, so net-net I'm guessing that implies $45,000 per year spending outside of housing costs. And your suggested $1,500,000 net worth includes the house, while my suggested target is $1,000,000 without counting the house.

The reason I state my figures on an ex-housing basis is that housing costs can vary wildly depending on city and region, and most of that cost is positional and not really tied to objective quality. But the rest of cost of living -- food, clothing, transportation -- varies far less by U.S. region. Someone with a $1,250,000 net worth could have a nice paid-off family house in a good school district, and a million left over in investments, if he lived in El Paso, Texas -- or even Vancouver, Washington -- but probably not in Portland proper. On the assumption that the OP will stay put in Portland, I think he is looking at a total net worth of $1,500,000 or a bit higher, as you suggest, so my ten year timeline morphs into your 13.5 year timeline.

I'm glad to see my thinking more or less vindicated by the wisdom of the crowds!

I also lean in favor of paying off the house before formally pulling the "FIRE" trigger, because I find that most people who rely on passive investments sleep better at night when their fixed required monthly cashflows are as small as possible, so that market downturns scare them less. Other folks take the view that, mathematically and based on investment history, you're probably better off staying leveraged and keeping more investments riding in the markets through thick and thin, because of the long term growth, but doing that successfully requires a certain mentality that many people don't care to cultivate. And if an early retiree does get spooked in the middle of a downturn and sells his equity investments low, there is a good chance of wrecking the FIRE plan and having to go back to work.

Still and all, I'm just trying to err on the side of optimism for this young fellow -- keep numbers nice and round and motivating!