Safety vs. a Dream

[Mr. Green]

I'm torn about my FIRE date. I really want to FIRE with $1M NW. I've been keeping detailed track of our finances for years now and I believe our spending post-FIRE will max at 40k with kids, vacations, and a decent healthcare premium. It's possible our actual spending might not make it past 30k, I've given myself that much room just in case.

We have 675k right now, and we're accumulating at ~175k per year. I have not included in that 675k a piece of property we own outright that is under contract for development. If the contract goes through it will be a seven figure net payout. If it doesn't develop right now we could sell it as is and pocket 200-300k, but it's highly likely it would develop in my lifetime so the sensible thing to do would probably be to sit on it. I have also excluded 70k worth of property we will live on when we FIRE. I feel weird about including the land I'm going to live on in the NW calculation because needing that money implies selling my land and moving.

I've promised myself I'll FIRE no later than March 31, 2017, come hell or high water. We will pass the $1M mark (excluding the properties above) by that point unless there is a correction, in which case I'm still fine with FIRE-ing because we would have added a substantial amount to our NW at a lower cost basis and there's lower risk of another drop the first couple years in FIRE. I would actually prefer the correction.

It's been a long time dream of mine to thru-hike the Appalachian Trail. Before I found MMM and realized FIRE was so close, I had strongly considered doing this in 2016. I could still do it, FIRE-ing before the hike, but it will cost us about 170k in savings. Worth noting is that I don't want to continue doing my job any longer. I'm there just for the paycheck at this point and some days are a struggle. I want to be free so badly.

I think I could technically FIRE right now if I were strictly using MMM's rules for 25x annual spending and I include the development property (at the cheap 200-300k sale point) and the land we're moving to in FIRE. Yet for whatever reason I'm really nervous that more of that $1M NW amount isn't liquid. Right now it's about 450k investments, 100k cash/CDs, and 450k real estate (if I include the development property). It's likely I'll end up doing something in FIRE that will make money anyway. I'm only 31 and I'm a pretty capable person. On top of that, my wife could do her job remotely and her employer loves her. I don't want her to work but if we needed a boost that would be an easy option.

I guess I'm basically dealing with OMY syndrome at this point? I could work until the hike next summer and that would put our NW at ~850-900k (excluding the the properties in the second paragraph). A certain part of me just feels like I'm cutting it too close.

I thought maybe some of you early retirees might have experienced similar feelings and could provide some input that would be helpful. Thank you for reading!

[deborah]

I don't like to include things I'm hanging on to that don't make money in my net worth. To make that sentence positive - I only include things generating money in my net worth, so I am with you.

I don't think you are ready to retire if you are going to spend $170,000 to hike the Appalachian trail - you must be donating gold plated pathways! It cannot cost that much! Work out how to make it mustashian as an exercise before you retire. This will make you a lot more ready to retire and more mustashian. It cannot cost you 17% of your projected retirement funds!

[forummm]

Your NW doesn't need to be liquid. Does the income from your real estate plus 4% of your investments (minus the costs associated with moving and buying property there) equal your intended spending?

Generally, don't include your residence in your NW for FIRE portfolio purposes, since that residence won't be generating returns for you to live off of.

My understanding of hiking the AT is that it costs you almost nothing. You're just walking all the time. You have very limited gear on you. There are occasional hotels to stay at and you bring food with you, and have more supplies mailed to you along the way. But it shouldn't even need to cost you $10k.

[Financial.Velociraptor]

I'm torn about my FIRE date. I really want to FIRE with $1M NW. I've been keeping detailed track of our finances for years now and I believe our spending post-FIRE will max at 40k with kids, vacations, and a decent healthcare premium. It's possible our actual spending might not make it past 30k, I've given myself that much room just in case.

We have 675k right now, and we're accumulating at ~175k per year. I have not included in that 675k a piece of property we own outright that is under contract for development. If the contract goes through it will be a seven figure net payout. If it doesn't develop right now we could sell it as is and pocket 200-300k, but it's highly likely it would develop in my lifetime so the sensible thing to do would probably be to sit on it. I have also excluded 70k worth of property we will live on when we FIRE. I feel weird about including the land I'm going to live on in the NW calculation because needing that money implies selling my land and moving.

I've promised myself I'll FIRE no later than March 31, 2017, come hell or high water. We will pass the $1M mark (excluding the properties above) by that point unless there is a correction, in which case I'm still fine with FIRE-ing because we would have added a substantial amount to our NW at a lower cost basis and there's lower risk of another drop the first couple years in FIRE. I would actually prefer the correction.

It's been a long time dream of mine to thru-hike the Appalachian Trail. Before I found MMM and realized FIRE was so close, I had strongly considered doing this in 2016. I could still do it, FIRE-ing before the hike, but it will cost us about 170k in savings. Worth noting is that I don't want to continue doing my job any longer. I'm there just for the paycheck at this point and some days are a struggle. I want to be free so badly.

I think I could technically FIRE right now if I were strictly using MMM's rules for 25x annual spending and I include the development property (at the cheap 200-300k sale point) and the land we're moving to in FIRE. Yet for whatever reason I'm really nervous that more of that $1M NW amount isn't liquid. Right now it's about 450k investments, 100k cash/CDs, and 450k real estate (if I include the development property). It's likely I'll end up doing something in FIRE that will make money anyway. I'm only 31 and I'm a pretty capable person. On top of that, my wife could do her job remotely and her employer loves her. I don't want her to work but if we needed a boost that would be an easy option.

I guess I'm basically dealing with OMY syndrome at this point? I could work until the hike next summer and that would put our NW at ~850-900k (excluding the the properties in the second paragraph). A certain part of me just feels like I'm cutting it too close.

I thought maybe some of you early retirees might have experienced similar feelings and could provide some input that would be helpful. Thank you for reading!

Mr. Green,

I take it the 170k to hike the trail is the opportunity cost of lost wages and not your outlay to hike? 

Your emergency fund is large and partially unnecessary once you FIRE.  I mean, it is largely there to cover loss of job right?  When I went FIRE, I deployed my EF into my brokerage account, mostly in bond allocation.  When I have emergencies such as A/C going out last year, I put it on cash back credit card.  I pay the card off immediately with a margin loan from Interactive Brokers.  My new cash back card is 2.0% cash back and the current margin rate at IB is about 1.6%, so I have more than a year to pay back any emergencies and come out interest positive.  YMMV.

I think you could probably do it now, especially if you sold the undeveloped RE for a cool quarter mill.  I pulled the plug earlier than my planned date, forgoing an annual bonus because I just couldn't take it anymore.  Best. Decision. Ever.

[Mr. Green]

Mr. Green,

I take it the 170k to hike the trail is the opportunity cost of lost wages and not your outlay to hike? 

Your emergency fund is large and partially unnecessary once you FIRE.  I mean, it is largely there to cover loss of job right?  When I went FIRE, I deployed my EF into my brokerage account, mostly in bond allocation.  When I have emergencies such as A/C going out last year, I put it on cash back credit card.  I pay the card off immediately with a margin loan from Interactive Brokers.  My new cash back card is 2.0% cash back and the current margin rate at IB is about 1.6%, so I have more than a year to pay back any emergencies and come out interest positive.  YMMV.

I think you could probably do it now, especially if you sold the undeveloped RE for a cool quarter mill.  I pulled the plug earlier than my planned date, forgoing an annual bonus because I just couldn't take it anymore.  Best. Decision. Ever.

Yes, I should have been more clear about the hike. If I quit my job in June 2016 instead of March 31, 2017, the opportunity cost is about 170k that would have gone directly to investments. My cash position is large because before I found MMM I had intended to stockpile enough that I could build my house with cash. Half of that money is in 5 year CDs paying 3%, which doesn't look too bad right now, so I figured I'd let those CDs run their course and then invest that money. The other 40k sitting in a savings account is to pay for the yurt and shed/garage we'll be building on our land when we FIRE. It should only cost about 30k for all things involved but I figured I'd leave a small buffer. When we move, all the equity in the house we live in now will go to investments. I have included this in my NW since we're moving and downsizing significantly.

The development property is technically paying me 8k per year while under contract. If the contract does not close that land pays me no ongoing income unless I sell it. Its base value is 200-300k, which I believe I should technically include in my NW but the idea that it will one day be worth about $2M means maybe I sit on it for 10-20 years if necessary in order to see that money. Of course there's a point where having the money to invest and enjoy now outweighs a large cash payout late in life. I don't know where I would say that point is right now.

[forummm]

It seems like hiking the AT is one of those things that's easy to put off a year. It really won't set you back in any way to do that. Now, whether you want to work that long is a different issue.

I had actually promised myself the same March 31, 2017 date. But now I'm thinking about changing to a career that I might actually like, so I might keep going longer. Is that a possibility for you? Maybe delaying FI because you can find something you like doing?

[deborah]

Sorry about the gold plated pathways!

Working an extra year to add 17% to your stash may be a worthwhile thing if you think that you are at the edge. It is important to recognise when you have enough for you. If you have enough, you have enough. FIRE is not a race, or a challenge to accumulate more than your fellow mustashians (although some posts really make me think that people haven't got this). It is to give you enough to live for the rest of your life.

Not being an American, I often forget to ask, but you appear not to have included a number of things - your development block (which you could treat as a kind of SS), your SS... So you are already being conservative in your evaluation of your stash. You just need to ask yourself if you really NEED the extra 17% or not.

[Mr. Green]

It seems like hiking the AT is one of those things that's easy to put off a year. It really won't set you back in any way to do that. Now, whether you want to work that long is a different issue.

I had actually promised myself the same March 31, 2017 date. But now I'm thinking about changing to a career that I might actually like, so I might keep going longer. Is that a possibility for you? Maybe delaying FI because you can find something you like doing?

I think I'm done with tech and IT. I want to be outside and moving. It's possible I would find "work" I enjoy after FIRE but I don't want to bank on it. We'll be having our first kid right around then so I might find I don't want a job at that time but I think eventually I would get into something. One of the aspects of FIRE that I look forward to is figuring out what I would like to do, instead of doing what pays the most. It might end up being something completely worthless or maybe it would be something that turns into a successful business. I could see myself getting into real estate (I kinda already am a little). I like looking at deeds digging into zoning ordinances, and doing the research. I might not even mind working on Saturday and Sunday. After all, who wants to be at all the stores when everyone else is? Not me anyway. I have plans to turn the land we're moving to into a micro farm. Aquaponics and Aeroponics are pretty cool. Maybe that could turn into some local restaurant supply gig. Farm to table is trending right now. I think I'd just let whatever came naturally happen and if there was an opportunity to make some money and have it fit into FIRE then I'd do it.

[Guesl982374]

I vote stay the extra time through March 2017. As a fellow high earner who wants freedom to hike/bike/work without the consideration for money, I am going to personally make sure my family isn't going to be at risk when I do check out of corporate. Similar to your dream of hiking the AT, I want to bike across the US. Could I take a couple months off to do it now and then job hunt when I get back? Of course I could but I'd rather not give up my cash-fire hose of a job in the off chance I end up coming back at a lower salary and have to extend hitting a true FI number.

Find ways over the next 1.5 years to enjoy your time now, hike after work/weekends, spend time with people you care about, etc. Be thankful you have 1) family, 2) luck and work ethic to achiever a higher income vs. the vast majority of humans who have ever lived, and 3) you have the discipline to save & invest.

[Langer83]

Perhaps there's a third option. You could do a 1-4 week section hike, which would allow you to return to your job to boost your stash but would still allow you to live a little of your dream now. And part of the reason I suggest is that roughly 80-90% of people who start the AT don't finish it. If you haven't done a long hike before, you can't even be sure you'll like it. Keep in mind that "A Walk in the Woods" comes out this fall; the AT will be more crowded than ever next year. I've been doing week long hikes every summer the past couple years, because they're long enough to feel like a real separation from the grind but short enough that work and spouse are fine with me gone. Many people say that 3 weeks is needed to fully get the disconnecting effect of a thru-hike...that's just about how long it takes to hike the John Muir Trail. But you definitely don't need to be gone a full 5 months for a wilderness immersion.

[soccerluvof4]

In my opinion at 31 yes you could probably do it BUT at 33 its a lot simpler and your still extremely young. I'd stick with the extra year but make that your cap if your that unhappy.

[wordnerd]

Perhaps there's a third option. You could do a 1-4 week section hike, which would allow you to return to your job to boost your stash but would still allow you to live a little of your dream now. And part of the reason I suggest is that roughly 80-90% of people who start the AT don't finish it. If you haven't done a long hike before, you can't even be sure you'll like it. Keep in mind that "A Walk in the Woods" comes out this fall; the AT will be more crowded than ever next year. I've been doing week long hikes every summer the past couple years, because they're long enough to feel like a real separation from the grind but short enough that work and spouse are fine with me gone. Many people say that 3 weeks is needed to fully get the disconnecting effect of a thru-hike...that's just about how long it takes to hike the John Muir Trail. But you definitely don't need to be gone a full 5 months for a wilderness immersion.

Off-topic: They're making a movie? Interesting. It'll be so different without Bill Bryson's voice.

[Mr. Green]

Can you provide a bit more detail about this land contract?  Let me see if I am understanding correctly:

1)  The underlying value of the raw land is in the 200-300k range.
2)  Right now, the developer is paying you 8k/year for the option to develop the property
3)  If the property is developed, you will eventually net 1mm +

Some key questions:

A)  What is the timeframe on closing the current contract?  1 year, 5 years, 10 years?

B)  If the contract closes and the developer starts development of the land, do you continue to get the 8k/year (or more) while the property is being developed?  And what is the projected timeframe for payout on the final sales after the property is developed?  Would you get paid in stages as parts of the development sell, or would you have to wait until the very end?  If the latter, how risky is that -- what would happen if the developer goes belly up? 

C)  How is the market for raw land in your area -- do you think you could easily come up with a buyer within a few months at the 200-300k range?

D)  What is the reputation of the developer?  Have they done projects like this before?  Have you talked with the people they partner with?

If the development deal is going to pay you 8k a year indefinitely, with minimal risk to you (i.e. the land reverts to you anyway if the developer goes under) it might be worth hanging on to, since you always could still sell it for the value of the raw land.  8k/year is 1/5 of your projected 40k annual spend -- not a bad sum.  But you could feasibly get a similar 4% return if you sold and invested 200k.  Really depends a lot on what is happening with property values in your area.

I have a very loud inner bag lady so personally in your situation (high income, very young, lots of unknowns about future family size/living situation (will you/your wife really be ok living long term in a yurt with a bunch of kids underfoot?) I would keep working the extra year.  The Appalachian Trail isn't going anywhere.   

Think of it like an option contract. The land stays untouched until they buy it. When they buy it, we see a big check and that ends my involvement in it. The contract gives them about 7 years from today to get everything where they want it do be. Permitting, approvals for infrastructure, all that jazz. It's largely all paperwork and red tape but the idea is that the minute they buy the property they're ready to break ground. If the deal completes, the 8k a year is part of the sale price. If the contract falls through then I keep the money. The developer is very large. They have several projects in my county alone and they operate in multiple states. They've done projects smaller than mine and much larger.

My area is growing and will only continue to grow as the population grows. The property is adjacent to town limits and is on the town's radar for development in the future. Obviously I can't guarantee it will sell for 200-300k as raw land until it was sold but I have pretty solid data that backs this up. Around here people pay about $10,000 per acre for plain farm land and the parcel we own is about 20 acres. When I think about farms around here that were in the middle of nowhere 30-40 years ago and they're now nothing but houses, it seems impossible that the fate of this property is anything but development within the next 40 years (at the longest). If it didn't develop now I think it would be a no-brainer for any wealthy person who wanted to diversify his income by picking up a property for a few hundred thousand and turn it into a couple million within a decade or three. For that matter, it's possible I could take on investors and split the ownership. It would provide some income near term and then still allow me to see a piece of the payout later.

I hadn't actually thought about the 8k as an annuity of sorts (at least for the next several years) until after I posted this. That's certainly worth considering. It's the equivalent of a 200k stash and in the end I either still have the property to sell for 200-300k (or sit on) or I just cashed an insanely large check.