Readjusting FIRE Target

[Drakmon]

When my wife and I started this journey to FIRE in 2015, we had some general numbers in mind for our FIRE number, but mainly focused on cutting consumption and increasing our savings rate. Fast-forward almost 4 years and we’re taking another look at when we can actually retire. I’m hoping the forum can help clear some things up and help us optimize :)

My wife would like to know when she can jump off the hamster wheel and switch to something part time - her income contribution is about 40%. I too, would love to understand if we could partial FIRE and downshift to occasional consulting gigs or side hustles. Note that we both have dozens of ideas for companies and side gigs to do that will make money when we no longer have to make money - this is where I start overthinking, as wouldn’t that make my FIRE time sooner (if, say, I’m not saving x25 but instead x20)?

Current Savings: $300,000
Assets: $200,000 (house, paid $60k cash last year and restored - we live here!)
Monthly Savings Rate: $11,000 (~65%) - inclusive of 401(k)s

We currently budget about $6k/month on expenditures. Our actual spending, and our FIRE budget, is more like $4k monthly right now. We’ll probably adjust our actual budget once we have more data.

I think this puts us out at $1.25MM for our FIRE number.

My spreadsheet says we’ll hit this  in exactly 5 years (Nov 2023), if we stick to $4k/month spending and only earn modest raises to our existing income.

Questions!
- Does the above sound/smell right?
- How should our completely-paid-off house fit into this? I haven’t been counting it, because it’s not liquid and only contributes to our net worth.
- What would it look like for my wife to halve her salary starting next year? Obviously we wouldn’t hit our FI number for at least another year, but would that be fine if she’s happier and less stressed?
- Are there any Qs I should be asking and haven’t?
- Should we adjust our target and start our business ideas sooner rather than later?

Thanks!

[CheapScholar]

Do you really live in NYC?  You could probably lower your number if you were willing to relocate for retirement.

[Mr. Green]

If your spending really is 4k a month in FIRE then $1.2 million would be your goal if you're using the standard 4% math. You haven't mentioned anything about your asset allocation and your appetite for risk though. If you're more conservative and want more bonds in your portfolio you might need a little higher number.

However, you'll also have social security in your 60s, and you're 38 now so if you're FIREing in your early 40s you can probably be slightly more aggressive with the withdrawal rate because you only have about 25 years until social security retirement age.

As far as quitting jobs or scaling back before you hit that number, that's largely up to you and how confident you fell in your ability for make income after you quit/scale back. Some people call that CoastFI. They've accumulated enough income to take scaled back employment and coast into retirement as the market grows their stash over the home stretch.

At 48k expenses, you may want to do some research about what your healthcare costs will look like under the ACA. Who knows if it will still be the law of the land when you retire but you should know what that cost will look like with the current landscape.

If you plan to continue living in your house you're right not to count that in your stash. You have to live somewhere so a paid off house simply means less expenses after FIRE. If you planned to sell the place and rent or not have a fixed address after FIRE you could count the value of your house toward the stash but then you'd also have the added expense of rent or whatever it is you're doing for shelter post-FIRE.

[FIRE 20/20]

I think there are just too many unknowns here.  Do you have kids or other dependents, like parents you will choose to support if needed?  How much do you each expect from Social Security?  Do you have pensions?  How confident are you that your business ideas will actually generate money?  Are you already doing them so you really know, or are you guessing?  All of these factors and more impact how aggressive you can be.  If you have no dependents, have real proof that your business ideas will generate money, you both have significant SS coming, and both have pensions, then I'd say you should quit now and just work on the businesses.  Earn the $48k / year from your businesses and enjoy being free from the corporate shackles.  If you reverse the answers above, then I'd suggest you hit at least $1.25M, although I think your wife could probably drop to part time if you think that would improve your lives. 

Overall it seems as though you're in a fantastic position.  There are two things that concern me about your post.  One is that it doesn't sound like you really know what your FIRE budget will be.  I thought I knew what mine was until I tracked my expenses for a year.  I realized that many of my estimates were off - some high and some low, but definitely off.  The vagueness of your budget also makes me question whether or not you've accounted for things like taxes, ACA subsidies, health care costs, etc.  The second thing is something I mentioned above, and that is the business ideas.  I think I've heard that most businesses fail within something like the first 3 years.  Are the businesses something that your wife could do after she moves to part time?  Or could she quit entirely and get the businesses going?  If they really generate income that she wants to do then that might be a way for her to get off the treadmill and also prove out the ideas you have.   

Good luck.  Whatever you decide you're making it from a position of strength.  It looks like you have a bunch of really good options to choose between rather than the multiple bad options that so many people who live beyond their means have to choose between. 

[Drakmon]

Thanks for the replies, everyone! Here are some clarifications and new Qs...

Do you really live in NYC?  You could probably lower your number if you were willing to relocate for retirement.

We moved about 90 minutes north of the city. I take a train in every day to work for my big money job. $500/mo for commuting and 60 hours out of every month for commuting - it's very UGH, but we had to do it to get to an affordable area with a house that we could see ourselves putting down roots in. Unfortunately, I can't find my kind of money up where we live. I've evaluated switching jobs and taking a massive pay cut, but it's a difficult decision between more time at home now versus getting to FIRE sooner. Jury is still out, but here I commute, regardless :) At least my wife works from home.

If your spending really is 4k a month in FIRE then $1.2 million would be your goal if you're using the standard 4% math. You haven't mentioned anything about your asset allocation and your appetite for risk though. If you're more conservative and want more bonds in your portfolio you might need a little higher number.

Thanks! We're 85/15 and comfortable with risk.

As far as quitting jobs or scaling back before you hit that number, that's largely up to you and how confident you fell in your ability for make income after you quit/scale back. Some people call that CoastFI. They've accumulated enough income to take scaled back employment and coast into retirement as the market grows their stash over the home stretch.

CoastFI! I love it.

At 48k expenses, you may want to do some research about what your healthcare costs will look like under the ACA. Who knows if it will still be the law of the land when you retire but you should know what that cost will look like with the current landscape.

Oh, really good point - I have super Cadillac health insurance paid for by my company. I don't have healthcare costs in any of my projections and know nothing about how that works yet.

I think there are just too many unknowns here.  Do you have kids or other dependents, like parents you will choose to support if needed?  How much do you each expect from Social Security?  Do you have pensions?  How confident are you that your business ideas will actually generate money?  Are you already doing them so you really know, or are you guessing?  All of these factors and more impact how aggressive you can be.  If you have no dependents, have real proof that your business ideas will generate money, you both have significant SS coming, and both have pensions, then I'd say you should quit now and just work on the businesses.  Earn the $48k / year from your businesses and enjoy being free from the corporate shackles.  If you reverse the answers above, then I'd suggest you hit at least $1.25M, although I think your wife could probably drop to part time if you think that would improve your lives.

We have no kids, no parents to take care of (yet), no idea on SS (according to SS.gov, about $3500/mo total if we retire in 5 years?), no pensions.

In terms of business ideas, we have consulting and contracting gigs we have done in the past we can go back to and we can do part-time. We have business plan drafts for the rest of the ideas with revenue and cost models, etc. which we have a high confidence in hitting. The businesses require both of us to dedicate our time to make them successful, however.

The vagueness of your budget also makes me question whether or not you've accounted for things like taxes, ACA subsidies, health care costs, etc.

Taxes for sure (we always seem to owe ~$8k at tax time, so I account for that). ACA and health care, as I mentioned above, I have not factored in at all - I take it for granted at present because it's automatic and costs me nothing. Time to get educated on another thing, I guess ;)

[freya]

If you own your house and live in a relatively low cost area, why are you spending $4K/month?  And what's the deal with the tax underwithholding?  It really sounds like you have a lot of planning to do yet, if you haven't even considered the impact of health care post-FIRE - let alone budgeting for things like major home repairs and replacing a car.  A reader case study post may help you with these details.

You definitely want to test the waters on those "business ideas" before jumping in.  What would it take for you to do that while still earning at least enough to cover expenses?  I would think that your highest priority is shaking you loose from that insane commute.   Even if local jobs pay less, your net profit might well be the same.  3 hours a day could more profitably be plowed into that business you're considering!

[Much Fishing to Do]

Figure out how much take home income you would really be losing from your wife making half of what she does now (after taking taxes and commuting expenses into account), it may not be as much as you think given the brackets two good incomes push you into.  By far the safest way to try out a new business concept is for her to quit and start one of the businesses and, once it looks likes it has enough potential, has proven itself to be more enjoyable than a "real job", and she needs the help you then quit yours.  Or maybe she's successful and doesn't need you and then you can quit your job and give one of your ideas a shot.

Whether she starts this this year, in a few years, or after you reach FI I'd say all comes down to how satisfied you both are with your current life at the moment.  I would be careful saying things like you'll be hitting FI in exactly 5 years and thinking thats spot on, even once you do have expenses totally figured out..if you're heavily invested in equities there's a fairly large margin or error there....

[Catbert]

With regard to how you consider your paid off home in your assets...you don't.   The money you don't pay in rent/mortgage payment means your spend is lower.  You should only consider your home equity  is if you plan to sell and rent/buy something cheaper.

[Drakmon]

Thanks everyone who responded on the home equity question. One down!

If you own your house and live in a relatively low cost area, why are you spending $4K/month?  And what's the deal with the tax underwithholding?

$1k of the $4k budget is for ongoing home renovations ($500) and commuting ($500). The rest is as optimized as we feel comfortable making it. I look at it this way - when we started this journey, we were spending upwards of $11,000 per month living in Brooklyn. As of last year, our cheapest in NYC, we were still at a budget of $8k/month (nearly half on rent). We're good now.

The home renovation budget isn't used every month, so whenever it isn't (or any "monthly" budget) we plow whatever is above our checking account "water line" into after-tax investments.

Not sure on the taxes - our I-9s are configured with 0 withholding. The only thing I can think of is to maybe pay extra every month in tax? Instead, I put the $8k in after-tax investments and let it earn money, then pull it out when we need to pay come tax-time. At least then the money is working for me.

You definitely want to test the waters on those "business ideas" before jumping in.  What would it take for you to do that while still earning at least enough to cover expenses?  I would think that your highest priority is shaking you loose from that insane commute.   Even if local jobs pay less, your net profit might well be the same.  3 hours a day could more profitably be plowed into that business you're considering!

Covering expenses would be easy with consulting and other gigs - we would just kill our savings rate. That would definitely be a radical approach to getting away from the commute. For now, I'm going to see how my company leadership responds to my partial work-from-home proposal - if they go for it, I'll stick it out here and enjoy my big city salary in the comfort of my own home. If not, I'll definitely move more strongly to alternate working situations.

[SwordGuy]

So, if I understand you correctly, you're annual expenses are $48,000.
You spend $6,000 of that on commuting costs which would go away when your FIRE.
You spend $6,000 of that on home renovations, which SURELY TO GAWD would be done within 5 years.

That means you're FIRE expenses less health care should be $36,000.   You should be able to find health insurance for about that $12,000 (or less!) that you just quit spending on home renovations and commuting.

Check out this article on the ACA:

https://rootofgood.com/affordable-care-act-subsidy/