I will likely FIRE in the next year or so at the age of 49. I work from home (even before Covid) and prob average about 15 hrs/wk now, but its not a consistent 15hrs but rather fluctuates a lot anywhere from 0 hr week to the occasional 40 hour wk (there are variable projects that I need to manage when they are running, and there’s not a lot of heads up as to when they begin and end). The pay is great (the 15 hrs/wk average after taxes is about $10k/mth, which is pretty equal to what we spend), and I like the people I manage and the person directly over me, but there is plenty of aggravation that comes with it, and the unpredictability of the day to day does retract a lot from the benefit of the reduced overall hours. My wife (47) has been a stay at home mom for about 15 years now and will likely not seek full time work in the future. As the kids got a bit older she got into community stuff and currently has an elected part-time position that pays about $5k per year. I’m sure she’ll try to keep that position or similar one as long as she can as it’s the right amount of work for her and she really enjoys it.
My investment & spending plan in FIRE has developed a lot over time, and it has morphed into mostly a kind of bucket approach that I like. I just thought I’d throw it all out there for any thoughts/concerns/input/suggestions etc anyone cares to share. Thanks for your time.
Overall Net worth is about $4M.
Outside of the investment portfolio is:
$320k -- Paid for house. We’ve been here for almost 20 years now and I doubt we’ll move, though I can imagine becoming snowbirds once all the kids have left the nest. Made a lot of improvements on it since we bought it to turn it into a very nice and comfortable home in a nice “medium” COL area. We checked out some of the most expensive homes in the area a couple years back to see what was available (and for me to see if I needed to factor a larger home into the FIRE plan) and we just weren’t that impressed with what we saw out there that would cost twice as much or more than our current home is worth. Its hard to beat having wonderful neighbors, which we currently do.
$380k – 529s for my 3 kids. Each had $130k in their accounts, which is the price of the state flagship university Tuition Room and Board for 4 years. The first has started college. The deal I made with him when he started looking at schools was that the money in that account I consider basically his, that this is probably the only real money he’ll get from me until he gets his inheritance which is hopefully when he’s old and grey, and that any money left over in the account he could have when he holds a degree and a job and no debt (other than a mortgage). He made some smart choices and got some scholarship money etc, so is on a track to have a marketable bachelors and masters degree and should still have about $40k or so left over in his account. I don’t know if I’ll just distribute that to him from the 529 or pay it to him separately and get the 529 money in there. Only about a third of that money is earnings so the tax + penalty hit would only be about (15%+10%)*(1/3rd $40k) = ~$3k, so I’m not really that concerned about having ‘oversaved’ in these accounts. I do need to look into the whole scholarship thing that has reduced his need and see if that means I can take some of this out without penalty to make the hit even less? And do I need to do each year of the scholarship, etc?
$110k – Donor Advised Fund – I set this up and funded during a huge profit year I had in my business. Between that tax bracket and the fact I contributed some of my highest gaining equities, and that the charitable deduction is likely worthless to me in FIRE, I feel like I’ve doubled my future giving on that one move. Our charitable donations in FIRE will come from this. We’ll probably spend about 6%-7% of its actual balance each year so we spend it down over time but not too quickly or completely.
$150k – Half share in wife’s childhood home that she recently inherited. Currently rent it out, and it pays for itself, but not a lot more, which is why I just put it in this ‘non-investment’ area to pretty much ignore it for income/asset purposes. She and her sister own it and this just seems a good set-up for now while they figure out what they want to do with it.
Investment Portfolio
$3.1M Total with overall about 75/10/15 equities/bonds/cash allocation I just finished migrating to. My plan is to just move $10k each month into our spending account (our current average spending, we could definitely maintain a happy SOL on less and adjust our spending downward if need be at any point, I just don’t see the need to at the start). Again this has kinda naturally morphed into a bucket type plan, or at least that’s the easiest way for me to visualize it, and I do a lot of modeling in FIRECalc and the like on both the whole of investments and each part.
Ages 49-51 – First 3 years of FIRE I plan to just spend from the big pile of cash in the taxable account. $240k should cover it as the dividends thrown off by the taxable account would add the other $120k required over the 3 years. I really like the idea of not worrying about touching the investments during these first few years as I get situated with RE, how this kinda creates a sorta reverse equity glidepath going into RE by spending down half the cash in my portfolio, and I did a ton of modeling that just showed how little affect having this additional cash for a few years would affect my overall success rate, end balances, etc. I also think this will make it easier for me to see what I can do to get my AGI down for both ACA and FAFSA reasons. I’m researching that now and see neat things like how you can contribute to a HSA and get the above the line deduction even without earned income, etc). I think with the ACA subsidy in RE I could cut as much as $1k/mth off of my current healthcare expenses. I do need to also look at moving money into a Roth from traditional tax free, which will be a competing interest with this AGi reduction plan, so I think it’ll be interesting figuring out best overall strategies.
Ages 52-65 – So due to most of my career of me not having access to a 401k at work, and then having a couple huge years self-employed at the end where I was able to save many many times more than what my solo 401k would take, most of my investments are in a taxable account. I envision this being the main source of income for this period, though if it makes sense at some point in it to sell/draw something from the retirement accounts I’ll of course do that. Not including the $240k in the above starting cash bucket, its about $1.9M. So hopefully that’ll at least grow with inflation or more until I start using it, and unless markets are extremely horrible and I net a loss, there should be investments still left in it when I hit 65 and probably a significant amount. The $240k of cash in this bucket I intend to be used as the income source whenever markets are down over 20% from their highs, as at least in my life that’s been long enough for big market drops to recover fairly well, and given this is a 14 year period I expect at least one drop to happen that is large enough to concern me. Not sure but I doubt I’ll balance back into the cash after it gets used for this purpose, so again it’s kinda another small reverse equity glidepath.
Ages 66+ -- I kinda see this as a different financial time in life. I’d probably collect SS around this time, for the two of us it would be around $35k/year, though once we get to this point we’ll of course consider the options of waiting, etc. We’d now be on Medicare. The kids will all be fully grown and I assume any money we’d be giving them at this point would be because markets did well and we have excess. I have about $575k in IRAs and $350k in Roth stuff that of course hopefully will grow a lot in real dollars by the time I get to these. The allocation of these investments are currently about 90/10 equity/bonds, and fairly small & mid cap overweighted (esp. the Roth).
Even though I know I should, given our good health, and that there is the both of us, it’s really hard for me to picture us still being around past 80, as we don’t see evidence of that in our family history. Whenever I run calculations and see failures after this age I don’t really take them seriously, but I think probably the more justifiable reason to not be concerned is given we have so much ‘extra’ in our planned budget we could always cut at any point if need be, and that maybe our spending will naturally reduce over time. If our 52-66 bucket does well and we still have a lot of that available for 66+, maybe we’ll just wait to 70 to take SS as a kinda of longevity insurance. I had looked at so-called “longevity insurance” products in the past, but given current interest rates they sure are costly so I haven’t really considered them. There is also just the fact that the kind of horrible market returns that would make longevity insurance necessary also seem to be the kind of conditions that would make them potentially fail lead me to not consider them. I guess at some point we should get LTC insurance, let me know at what age that seems smart to do given costs and length of time before need.
