Author Topic: Help me realize FI now!  (Read 4571 times)

cornbread

  • 5 O'Clock Shadow
  • *
  • Posts: 20
Help me realize FI now!
« on: September 14, 2016, 05:20:39 PM »
I'm tired of work :(. Mentally exhausted....

What does it take to produce 50-60k of annual income from 1M investment?  600k of which will be from sale of home if I choose to sell.  Does it make sense to put all into the market?  I feel more comfortable diversifying the investments but if I hold onto the house and rent it out, it'll only produce 1k income after mortgage, property tax, insurance, and upkeep.

How should I invest the 600k?  I'm only expecting 5% return.  Oh where to invest the $ or do I have to settle for the 1k return/month (a pitiful 2%return)

Thanks so much in advance.

ender

  • Magnum Stache
  • ******
  • Posts: 4689
Re: Help me realize FI now!
« Reply #1 on: September 14, 2016, 05:26:15 PM »
How old are you?

What is your "1M investment" in - IRAs? cash? Sounds like $400k is invested and $600k is house?

Do you need to buy a home if you move? Are you planning on moving geographically?

Why do you need 50-60k income in retirement?

TexasRunner

  • Pencil Stache
  • ****
  • Posts: 927
  • Age: 27
  • Location: Somewhere in Tejas
Re: Help me realize FI now!
« Reply #2 on: September 14, 2016, 05:44:18 PM »
Why do you need 50-60k income in retirement?

This.  Many people on here are living very comfortably on half of that.  Keep in mind that when you retire, it may be easier to avoid keeping up with the Joneses because you don't have work colleagues to impress, and those who are important should be impressed with you have 50 hours of you life back each week.

cornbread

  • 5 O'Clock Shadow
  • *
  • Posts: 20
Re: Help me realize FI now!
« Reply #3 on: September 14, 2016, 06:24:14 PM »
400k in investment account.  I will have a place to stay in without additional cost.  The necessary 50-60k is the budget for fairly definite tuition cost for kid for the next 10 years.  (Non negotiable due to kid's need)

I'm somewhat frugal living in HCOL area and can drop to 1 vehicle to lower expense.

I'm only middle age and feel wrung out already, won't last another 5 years much less 10 years.

Any suggestions with minimal investment maintenance effort best due to current stress level.  My goal is to produce enough income to cover tuition (preserve principal) and will work PT for basic living.
« Last Edit: September 14, 2016, 06:26:04 PM by cornbread »

TexasRunner

  • Pencil Stache
  • ****
  • Posts: 927
  • Age: 27
  • Location: Somewhere in Tejas
Re: Help me realize FI now!
« Reply #4 on: September 14, 2016, 06:29:34 PM »
Any possibility to relocate?  Expected PT income?  Is there something else (PT or Full-Time) that you would enjoy?

With a 4% SWR, you only need to stretch 10-20K (edit:  I see you meant 50-60 for the tuition, what is the expected COL?) out of the part time gig (assuming selling the house and all associated costs still lands you with 1MM in liquid assets).  College professor?  Management consulting?  Regular day-teaching?

What do you want to do, because that would generally define what you need to do to be content (I'm assuming lack of contentment due to corporate BS is the cause of this).
« Last Edit: September 14, 2016, 06:31:26 PM by PriestTheRunner »

FrugalFan

  • Pencil Stache
  • ****
  • Posts: 910
Re: Help me realize FI now!
« Reply #5 on: September 14, 2016, 06:43:31 PM »
Sounds like you need a change! Maybe your current job is wearing you out, but it's possible a totally different job would be fine. You also have enough money (if you sell your house) that you could consider taking a 1-2 year sabbatical to get a much needed break and figure out where to go from there.

You probably shouldn't rely on more than 4% from your stash if you want to survive for 30 years or more, but since the huge expense is only temporary, your porfolio could probably support that for 10 years without much depletion. Have you tried running simulations from cFIREsim? You can input all these numbers and see where you'd be, on average, at the end of the 10-year period (just use that date as the end of "retirement"). How much would you need after 10 years, and what other sources of money could you count on by then (SS, pension, etc)?

As for alternative ways of investing, none are as easy as investing in broadly diversified index funds in the markets. Depending on where you invest, real estate investments elsewhere could match or exceed the markets, but there is a steep learning curve and it sounds like you are burnt out.

Another thing to consider is moving away. Is the type of school that your son needs really 50-60 k everywhere? Could he get the same quality of education somewhere else for a more reasonable price? I think this situation is leading to you feeling trapped in a terrible job, and who could blame you.


cornbread

  • 5 O'Clock Shadow
  • *
  • Posts: 20
Re: Help me realize FI now!
« Reply #6 on: September 14, 2016, 06:47:35 PM »
Can't relocate and won't need to due to family providing almost free housing so I'll only need around 25k or work 2 days a week for living expenses.

The income from the available 1M investment will be dedicated for tuition only.  After 10 years, I'll feel free to use the 1M for myself :)
« Last Edit: September 14, 2016, 06:52:33 PM by cornbread »

Financial.Velociraptor

  • Handlebar Stache
  • *****
  • Posts: 1413
  • Age: 46
  • Location: Houston TX
  • Devour your prey raptors!
    • Financial Velociraptor
Re: Help me realize FI now!
« Reply #7 on: September 14, 2016, 07:15:44 PM »
Can't relocate and won't need to due to family providing almost free housing so I'll only need around 25k or work 2 days a week for living expenses.

The income from the available 1M investment will be dedicated for tuition only.  After 10 years, I'll feel free to use the 1M for myself :)

In this scenario, what I would personally do is look for closed end funds in the fixed income space.  There are plenty that pay 5-6% after taxes.  You want to buy the ones that are at a discount to NAV only.

I'm currently in IIM 5.12%, IQI 5.57%, NEA 5.68%, NVG 5.76%, all of which are municipal bond funds and fed tax exempt.  The discounts to NAV are getting a little narrow so today might not be the best time to buy.   Pimco's PCI looks attractive to me right now (11.14%).  I also own and like in current environment JPS (preferreds) 8.02% and JRO (variable rate debt) 7.24%.

You might try running a screen at: http://www.cefconnect.com/closed-end-funds-screener 

Kick off income for 5-6 years to pay for college and then redeploy into something with better inflation protection after.

cornbread

  • 5 O'Clock Shadow
  • *
  • Posts: 20
Re: Help me realize FI now!
« Reply #8 on: September 14, 2016, 08:21:22 PM »
Thanks FV for investment suggestions, will definitely check them out.  I don't feel confident about my investment strategy.  My portfolio hasn't increased much the past few years and it's made me hesitant and nervous.  I don't want to lose any investment capital but at the same time I need the investment income for the kid.  This is more of a need, not a want, unfortunately.

If I'm successful at getting a decent return, I can cut back on my hours.

Vagabond76

  • Stubble
  • **
  • Posts: 226
  • Age: 42
  • Location: Destin, FL
Re: Help me realize FI now!
« Reply #9 on: September 14, 2016, 08:40:42 PM »
Can't relocate and won't need to due to family providing almost free housing so I'll only need around 25k or work 2 days a week for living expenses.

The income from the available 1M investment will be dedicated for tuition only.  After 10 years, I'll feel free to use the 1M for myself :)

In this scenario, what I would personally do is look for closed end funds in the fixed income space.  There are plenty that pay 5-6% after taxes.  You want to buy the ones that are at a discount to NAV only.

I'm currently in IIM 5.12%, IQI 5.57%, NEA 5.68%, NVG 5.76%, all of which are municipal bond funds and fed tax exempt.  The discounts to NAV are getting a little narrow so today might not be the best time to buy.   Pimco's PCI looks attractive to me right now (11.14%).  I also own and like in current environment JPS (preferreds) 8.02% and JRO (variable rate debt) 7.24%.

You might try running a screen at: http://www.cefconnect.com/closed-end-funds-screener 

Kick off income for 5-6 years to pay for college and then redeploy into something with better inflation protection after.

All of those are leveraged closed end funds.  The leverage jacks up not only the yield but also the expenses.

My experience watching such funds over the last five years is they tend to creep up over time but get slaughtered at the first sign of rising interest rates.  That makes sense because price always moves opposite of rates, and the leverage exasperates these moves.  The cost of the leverage, which is reflected in the expense ratios, eats into the funds' earnings and can cause the payout to decrease.  This is turn causes the share price to fall further.

Vagabond76

  • Stubble
  • **
  • Posts: 226
  • Age: 42
  • Location: Destin, FL
Re: Help me realize FI now!
« Reply #10 on: September 14, 2016, 08:43:59 PM »
Thanks FV for investment suggestions, will definitely check them out.  I don't feel confident about my investment strategy.  My portfolio hasn't increased much the past few years and it's made me hesitant and nervous.  I don't want to lose any investment capital but at the same time I need the investment income for the kid.  This is more of a need, not a want, unfortunately.

If I'm successful at getting a decent return, I can cut back on my hours.

What do you own?

cornbread

  • 5 O'Clock Shadow
  • *
  • Posts: 20
Re: Help me realize FI now!
« Reply #11 on: September 14, 2016, 09:27:28 PM »
The 400k is evenly split btw US bonds, international, large cap, emerging, s&p.  All mutual funds.

It hasn't budged much the last 3 years.  That's why I'm asking for help if I'm to sell my place and needing the income.  In order for me to switch to PT, I need it.

DavidAnnArbor

  • Handlebar Stache
  • *****
  • Posts: 1979
  • Age: 53
  • Location: Ann Arbor, Michigan
Re: Help me realize FI now!
« Reply #12 on: September 15, 2016, 06:38:28 AM »
I'm not sure if I should even broach this issue, but you're son/daughter has a very expensive tuition. Is there any way to transfer to a more affordable choice? You've basically subsumed your whole financial life toward this tuition. I just don't understand this decision but maybe there's other issues of which I'm not aware.

Retire-Canada

  • Walrus Stache
  • *******
  • Posts: 6724
Re: Help me realize FI now!
« Reply #13 on: September 15, 2016, 06:53:49 AM »
The 400k is evenly split btw US bonds, international, large cap, emerging, s&p.  All mutual funds.

It hasn't budged much the last 3 years.  That's why I'm asking for help if I'm to sell my place and needing the income.  In order for me to switch to PT, I need it.

Somebody with better asset performance chart kungfu will have to provide the illustrations, but it seems impossible that your investments haven't made any money in the last 3 yrs.

ender

  • Magnum Stache
  • ******
  • Posts: 4689
Re: Help me realize FI now!
« Reply #14 on: September 15, 2016, 07:00:19 AM »
The 400k is evenly split btw US bonds, international, large cap, emerging, s&p.  All mutual funds.

It hasn't budged much the last 3 years.  That's why I'm asking for help if I'm to sell my place and needing the income.  In order for me to switch to PT, I need it.

I don't understand how those funds "haven't budged much" in the last three years. VGTSX has stayed about flat, VEMAX has decreased slightly, but the others have all gone up significantly for the past three years.

Perhaps you need to simplify your portfolio. Or is your portfolio in expensive funds? The SP500 and large cap vanguard ETFs are up 40% over 3 years, total bond index up about 11%, and the Vanguard ETFs for emerging/international about even.


What do you mean by "hasn't budged?"

cornbread

  • 5 O'Clock Shadow
  • *
  • Posts: 20
Re: Help me realize FI now!
« Reply #15 on: September 15, 2016, 10:43:04 AM »
Alas, this child is unique and best to stay put.  I can probably design a home program for around 30k but than I'll have to do all the monitoring and chauffeuring.

I haven't had time to monitor investments closely, may have picked mostly flat performing funds.  The last time I rebalanced the portfolio was 2 years ago.  I had planned on rebalancing once a year.  It seems to have only gone up by the additional funds I put in.  Currently dollars cost averaging a few thousand a month into vanguard with the goal of FI asap, not necessarily FIRE (this would be a stretch goal before turning 50).

I'm looking for advise on which funds to pick (3-4 diverse funds) to invest the proceeds from home sale since I don't trust my own picks.

ysette9

  • Magnum Stache
  • ******
  • Posts: 4617
  • Location: Bay Area, CA
    • Insert Snappy Title Here (Journal)
Re: Help me realize FI now!
« Reply #16 on: September 15, 2016, 10:55:48 AM »
Can you post the specific ticker symbols for the funds you are in? If your asset allocation is what you say it is, I agree with other posters that it definitely shouod not have been flat over the last three years. This makes me think that you could be in very high cost funds where your gains are getting eaten up with fees.

TheAnonOne

  • Handlebar Stache
  • *****
  • Posts: 1462
Re: Help me realize FI now!
« Reply #17 on: September 15, 2016, 11:16:01 AM »
The 400k is evenly split btw US bonds, international, large cap, emerging, s&p.  All mutual funds.

It hasn't budged much the last 3 years.  That's why I'm asking for help if I'm to sell my place and needing the income.  In order for me to switch to PT, I need it.

I don't understand how those funds "haven't budged much" in the last three years. VGTSX has stayed about flat, VEMAX has decreased slightly, but the others have all gone up significantly for the past three years.

Perhaps you need to simplify your portfolio. Or is your portfolio in expensive funds? The SP500 and large cap vanguard ETFs are up 40% over 3 years, total bond index up about 11%, and the Vanguard ETFs for emerging/international about even.


What do you mean by "hasn't budged?"

Maybe he means from about late 2014? The market has been at least fairly flat since then (up < 5% I think...)

TexasRunner

  • Pencil Stache
  • ****
  • Posts: 927
  • Age: 27
  • Location: Somewhere in Tejas
Re: Help me realize FI now!
« Reply #18 on: September 15, 2016, 11:39:52 AM »
Maybe he means from about late 2014? The market has been at least fairly flat since then (up < 5% I think...)

Ahh.  OP, flat also means 'up' because of dividends (1) if you are in the market and (2) if you are in funds with lower expense rations.  If you are losing 2% to the fund management, then yes your results will probably be very flat.

+1 to someone earlier in the thread that asked what funds and expense ratios.

Maybe bear with one more year (and another 200k) before pulling the trigger in order to gain access to more investment capital?

cornbread

  • 5 O'Clock Shadow
  • *
  • Posts: 20
Re: Help me realize FI now!
« Reply #19 on: September 20, 2016, 10:33:20 PM »
VCLAX intermediate government bond, 100k around 4% return
Emerging market 50k was flat
Target retirement 2040, 80k
Energy fund, 50k, negative
TIP fund, 20k somewhat flat with minimal return
Large cap, 80k
Small cap, 20k

I'm leaning towards selling by end of year or maybe in the spring to get better pricing (90% sure).  It's so much work getting rid of all the accumulated junk.

So should I put proceeds all in government bond fund?  REIT?  50/50 split?

I'm looking for dividends to use for the tuition and classes.  I can work very part time for living expenses.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 27689
  • Age: -999
  • Location: Traveling the World
Re: Help me realize FI now!
« Reply #20 on: September 20, 2016, 10:51:48 PM »
So should I put proceeds all in government bond fund?  REIT?  50/50 split?

You should not be investing hundreds of thousands of dollars in investment vehicles with so much uncertainty on your part, based on a few thoughts from random internet strangers.

Sounds like you need to educate yourself on investing.  Read JLCollins' Stock Series, and Bogleheads Guide to Investing.

Looking for income (dividends) to cover this specific expense, rather than looking at a total return strategy, is going to handicap you, and your results.  Drawing down on principal is possible, but allowing that possibility allows for a much better liklihood of much better results.

I'm also not 100% clear on your situation.  More data and a more clear picture can help us offer other solutions.

This is what I gather:
Once you sell the house, you'll have 1MM.  Does this account for all selling fees, any taxes not excluded, etc.?
You'll then have very cheap housing, and can estimate your annual spend at 25k during this time.  How long will that last?
Your kid(s) will need tuition on the order of 50-60k for the next 10(?!) years.
You want the 1MM to provide for that tuition, and then will work part time to cover your own spending.

Is all of the above correct?

How much do you make annually now?
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

cornbread

  • 5 O'Clock Shadow
  • *
  • Posts: 20
Re: Help me realize FI now!
« Reply #21 on: September 20, 2016, 11:36:01 PM »
Similar houses selling for $1M so after selling including all costs should net 600-650k depending on final sale price.  No more mortgage payment (2k/mo.) property tax (1k/mo.)

I will have at least 1M for dividend investment (that's what I'm working towards).

Income is around 200k +/- depends on bonus. But net is much less due to taxes, approx. 120k

Yes, I'll need 50-60k for schooling for the next 10 years.  After that my pension kicks in at 30k/yr so I can quit working.  I also have 401k (350k) but can't draw for another 15 years.

I suppose I can draw down on the vanguard account but want to preserve it just because being frugal and all (except for education).

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 27689
  • Age: -999
  • Location: Traveling the World
Re: Help me realize FI now!
« Reply #22 on: September 21, 2016, 12:06:15 AM »
Similar houses selling for $1M so after selling including all costs should net 600-650k depending on final sale price.  No more mortgage payment (2k/mo.) property tax (1k/mo.)

I will have at least 1M for dividend investment (that's what I'm working towards).
...
Yes, I'll need 50-60k for schooling for the next 10 years.

Okay.  According to cFIREsim, if you, historically, invested 1MM into 80/20 stocks/bonds, 0.2% expense ratio, withdrawals of 55k/yr (adjusted up for inflation each year), you will have, after 10 years:
Average Ending Portfolio: $1,116,239
Median Ending Portfolio: $1,051,815
Highest Ending Portfolio: $2,423,923
Lowest Ending Portfolio: $166,063

So your best case scenario, even withdrawing 5.5% of the initial amount (and adjusting upward each year) per year for 10 years, is the portfolio being worth 2.5x what it started at.  Worst case, you still have some money left (never, historically, would you have run out).  The regular scenario, though, leaves you with all of your initial capital.

Seems pretty good to me.

[/quote]After that my pension kicks in at 30k/yr so I can quit working.[/quote]

Alright, so that solves the longevity problem, as long as it's stable.  Whatever is left in the portfolio (and remember, most of the time it's 1MM+) is gravy.

Quote
I also have 401k (350k) but can't draw for another 15 years.

Sure you can! 

How to withdraw funds from your IRA and 401k without penalty before age 59.5

That 350k is extra on TOP of the 1MM?  And that will grow over the next decade?

Sounds like you have plenty.  You'll be left with likely a minimum of 500k (from the 401k + amount leftover from the 1MM) + a pension providing 30k (for an annual spend of ~50k, using a 4% WR) in a WORST case scenario.  The average scenario leaves you with over 1.5MM + the pension, for an annual spend of 90k.  Best case scenarios let you spend over 150k/yr in 10 years.

When even the worst case scenario is ~50k/yr spend, the average almost double that, and the best case 3x that, I think you're good.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

cornbread

  • 5 O'Clock Shadow
  • *
  • Posts: 20
Re: Help me realize FI now!
« Reply #23 on: September 21, 2016, 12:59:54 AM »
Thanks arebelspy. 

Seeing numbers help me a lot, especially when I don't trust my own judgement.  I guess I'm too burnt out to think clearly.  12 hour workdays are not healthy.

Got sucker punched in 2000 and 2008, that's why the hesitation and nerves.  Didn't sell but couldn't bring myself to look at portfolio.

I'm looking forward to planning this out the next 1/2 year.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 27689
  • Age: -999
  • Location: Traveling the World
Re: Help me realize FI now!
« Reply #24 on: September 21, 2016, 01:02:53 AM »
Got sucker punched in 2000 and 2008, that's why the hesitation and nerves.

The numbers show that even if the next 10 years match the worst ever in US history, you'll be fine.

Panicking now, when nothing has happened, and switching to some alternative investments on some scheme to cover college spending over a decade is about the worst thing you can do.

Relax, stay the course, you'll be fine.  :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.