Hello MMM community,
I am seeking your wisdom to help us cross the finish line in 2 years. We have committed to saving every last dollar we can to reach FIRE in November 2020. We worked extremely hard through school, our careers and have been frugally saving and investing (although 2018 expenses are out of control). We hate our jobs and would both quit the day we hit our number. We need to save $500K and we're sprinting there.
Husband: 39
Wife: 33
2 pets and no plans for kids. We like the DINK life.
Income
- Husband: $160K base + $40K variable = $200K
- Wife: $151K base + $150K RSU = $301K
- Rental 1: $7.2K cash flow per year
- Rental 2: $5.4K cash flow per year
Annual income: $513.6K
Due to our income, we don't have many tax deductions. We max out 401K and get match. Every January, we execute a backdoor ROTH of $5.5K. Can't think of any other tax shelters.
Net worth
1. Non-taxable
- Husband 401k: $638.4K
- Wife 401k: $57.6K
- Wife backdoor ROTH: $26.5K
Total non-taxable: $722.5K
2. Taxable
- Betterment: $170K (90/10 Stock/Bond allocation)
- Wife RSU: $101K
- Husband RSU: $42K
- Wife Schwab brokerage: $36K (mostly Apple stocks)
- Husband ESPP: $23K
- Husband TD brokerage: $14K (random stock picks before discovering low-cost index funds)
Total taxable: $386K
3. Real estate
- Rental 1: Zestimate $776K, mortgage $293K, equity $483K (monthly cash flow $650)
- Rental 2: Zestimate $552K, mortgage $300K, equity $252K (monthly cash flow $450)
- Primary: Zestimate $625K, mortgage $491K, equity $134K
Total real estate equity: $869K
4. Non-mortgage debt = $0
No student loans (paid off $200K several years ago), no car loans (2 used clunkers bought with cash), no personal loans, no HELOC, no credit card debt.
Net worth: $1.977M, sometimes $2M on a good market day
Expenses and excuses
Below is Mint record of every transaction
Row Labels Monthly
Auto & Transport $475.44
Cash & ATM $201.77
Clothing $92.23
Entertainment $130.29 (Spotify, Netflix and Symphony tickets)
Fees & Utilities $324.69
Food $1,170.16
Giving $59.39
Health & Fitness $369.01 (gym membership + contact lenses + my shrink + meds)
Home $2,436.73 (we are renovating, mostly ourselves)
Pets $842.93 (One of them needed surgery this year)
Misc. $11.02
Mortgage & Rent $7,664.20 (Actually $2,364 after rental income)
Personal Care $74.75
Shopping $618.97 (Costco and Amazon are my weaknesses)
Sports $1,664.31 (Adventure trips... our only "luxury")
Tax $2,194.15 (we were hit with $22K fed tax for 2017)
Travel $383.43
Uncategorized $-
Grand Total $18,713.45
From average monthly total, I'm subtracting what I would assume to be non-recurring or offset expenses:
$18,713.45
- $4,502 (rental income)
- $2,194 (tax bill... we assume we won't be in the highest tax bracket when we retire)
- $2,036 (renovation portion of Home expense, which should be one-time)
= $9,981 per month
Yikes! We will get this down to $8K month in 2019. We want to FAT FIRE with $100K a year ($8.3K per month), which means we would need $2.5M to retire, assuming 4% SWR. We think we can save $500K in the next two years to hit our number.
Specific questions
Our net worth is comprised of 44% real estate, 37% non-taxable accounts and 20% taxable investments. We hold almost no cash in an attempt to plow every dollar into the market. While $2M is a large number, much of it is illiquid and untouchable for 20 - 30 years given our age.
My overarching question is how can we generate $100K of withdraw-able cash from $2.5M asset base, given our allocation today? What do we need to start thinking of to pivot to an asset allocation that will get us to FIRE in 2 years?
- Idea 1: Sell Rental 2 to pay off mortgage on rental 1. Then rent ($3000) would completely cover the mortgage of primary residence, effectively getting us to $0 housing. Keep in mind Rental 2 appreciated by $140K since our purchase -> tax bill!
- Idea 2: Sell Rental 1 to pay off mortgage on Primary. Then we would have $0 housing + $450 a month cash flow from rental 2. Keep in mind Rental 1 appreciated $360K since our purchase -> tax bill!
- Idea 3: Don't sell any real estate since they are cash flow positive. Let them keep appreciating in value and equity. Focus on generating withdrawable cash flow from taxable accounts. The next $500K that we save to get to $2.5M will go into Betterment, which means we will retire with $900K / $2.5M in taxable liquid securities.