Hi All, thinking about ER... indecisive

[petershk]

Hi All,
been reading for a while, so I thought I'd post and get some feedback on a few things.

Situation:
Age: 39, DW: 34, 2 Kids: 10 months and 2 y/o

Liquid Net Worth:
3.6 Mil:
-about 100k 401k,
-750k Cash in painfully low interest account(I know time in market, not market timing.. I'm irrational),
-250k in dedicated education fund (not 529 yet), planning around 600k for 2 kids in 16 years... yikes
-the rest in about 80/20 stocks and bonds mix.

House: 686k Mortgage (Socal), 1.2ish Million value... not that it matters.

Costs:
-4.2K Mortgage + Tax + insurance
-4K: Everything Else" (kind of embarrassed by this). We travel perhaps more than we should and do lots of family dinners (big extended family ). Tracked via Mint for about 2 years. Scary how close to 4k we are EVERY month .
-No debt except mortgage and hopefully never will.

Work: DW is wonderful caretaker of children. I have full time very well paid job that I mostly enjoy.

From running Firecalc, I can pretty easily get to 95%+ success rate. My wife and I have discussed finances a lot... I'm lucky... we pretty much agree on almost everything when it comes to money. I'm pretty sure we can drop monthly costs by 1k without really much effort (I know, so do it!). In a terrible situation we could sell our house and get something about 50% less closer to extended family. I live in an expensive part of California primarily for work, but we like the area/good schools so aren't really motivated to move.

I ran through turbo tax simulations looking at different tax rates based on income coming from dividends + stock sales vs job income and also looked at impact on insurance costs so I don't see the burn rate going up much...

So... a couple questions:
1) I do like my job for the most part, but there's also lots of other things I want to do so I'm wondering if I should consider ER more seriously... or at least a long sabbatical.
2) Kids: I feel like our situation allows me to spend lots of time with our kids while they are young and that chance won't come back. Flip side is... will I go nuts being at home .
3) DW is a bit nervous about depending on investment returns to fund life. I'm more optimistic in the long run view and I'm a very boring long term investor so swings up and down don't really bother me.

Possible scenarios I've considered:
1) The crazy go for it: Just put a date on a wall, FIRE and forget. If I get bored I can still go back to work. If money becomes a problem we can cut back, move, etc. If I drive my DW crazy I can create a job at home. Done lots of startups in the past anyway. Would like to try again.

2) The more moderate approach: Go to employer and say "I'm cutting down to 2 days a week, cut my pay by 75%." Likely that would be accepted and at 75% cut it still covers our house payment. This makes my DW happy.

3) Temp time. Tell employer "I'm taking a year or two off to spend time on family." This may or may not fly, but it creates a long term unpaid "test" of (1).

4) Wait. Right now we save 150k/yr and if we focused we could increase that. in 3-5 years the situation looks a lot safer. During this time we live from investments and save 100% of income plus the chances of a "market correction" happening right at FIRE go down... in theory . But bulls can run a LONG time sometimes.

Why even consider (1). Well... I'm kind of a 100%er. It's very hard for me to partially do things so I'm thinking that I could TRY to work 2 days a week, but I'd get sucked in and then work for free. Same with "temp time." I could TRY to check out for a year, but if I'm going back I'll feel compelled to "stay in touch." Finally, I've read this board a lot and the one regret I see from people is that they wish they had pulled the trigger earlier. I really worry that if I delay/half ass it for 3-5 years I'll regret missing my kids before school and wish I'd done it sooner.

Thoughts?

 

[pb4uski]

My first thought is you have the world by the b@lls .... IOW, you're in a position where you can probably do whatever your want.

I'm surprised/skeptical that your expenses ex PITI (principal, interest, taxes and insurance) are only $4k a month ($48k a year) in SoCal. Even if you took your liquid net worth and carved out $250k for your kids education and let it grow from now until they enter college, your WR would only be ~3% and that doesn't consider that the mortgage payments eventually stop.

So IMO, financially you are all set and the question becomes what do you want to do. I worked part-time for a number of years before I retired and it was wonderful. There is certainly not a lot to be lost by trying it for a while if you decide to stop working full-time because you can still quit or take a sabbatical later if you decide you want to. The only caution I would make is that the issue I ran into is that even though I was working only 50% time (the minimum our firm required to get benefits including health insurance) I was on call 24/7 so I could not really carve out time that was only mine and where I could be confident that I would not be interrupted. If I could have carved out some full days that were mine and I would not be interrupted then I might still be working.

But no matter what, put that cash to work, even if it is temporarily in a number of on-line savings accounts to stay under the FDIC limits it will earn about 1%.

 

[veganbetty]

Wives are so wise. Do the 2 days per week if you're allowed. That gives you the best of both worlds. It also gives you perspective. I suspect before long even two days will feel like too much and you'll organically feel the need get out.

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[Live And Learn]

Welcome Peter. The 4k / month is not alot at all. I live in a small house in Florida and my "everthing else" is 8k / month for just 2 people. That includes 2k for Health Insurance (using the healthcare.gov site plus budgeting to hit the Out of Pocket max each year), and $1k / month for non-recurring expenses (new roof, replacement used car, home maintenance, etc). I only have $400/month budgeted for travel. That leaves 4.5k which is still more than your spending. Kudos to you on being able to do that especially with two kids ! And I thought I was frugal.

You can certainly do any of the choices on your list. I too like the 2 day a week option. But as mentioned, just make sure that its not 2 x 20 hour days to make up a full week workload ! I worked 3 days a week for a couple of years and it was a wonderful balance.

 

[MBAustin]

Welcome!

Congratulations for the hard work and financial discipline that got you to this point, as well as the fact that you and your DW are so much on the same page. Those 3 things I think are the fundamental keys for achieving FI - which it appears you have already accomplished.

In terms of RE - here are some thoughts:
- If you like to travel, it's actually easier to travel with young kids than older ones if you are willing to go at their pace (like don't mess with nap times). They don't have school restrictions or outside activity commitments to get in the way, and you can go places when they are less busy. So if travel is on your list, a sabbatical or two might be a great idea.

- Are you in a field where taking a few years off would make it difficult to re-enter at the same level? If so, then going the part-time route might make more sense. Could you do part-time in chunks rather than splitting up your weeks (like work the first two weeks of each month and then take two weeks off, or some other plan that gives you big chunks of time off)?

- Going P/T might reduce your income enough that you would qualify to contribute to a Roth, which would help down the road tax-wise.

The good news is that you don't have to do anything right away, so take time to ponder some scenarios together. And of course you know there are lots of folks here happy to give our opinions!

 

[ChrisTexas]

You are doing fantastic Work part time so that you do not go nuts. You are saving way too much for education (crazy). More available time with kids is the most important t issue. I am retiring in 6 years and my 3 youngest will be 13, 11, and 7. Getting to school, going to activities, he,ping the, with homework and projects will take up a lot of time but valuable time. I will have time to work out, keep up with the house and friends.

Just imaging if you moved to a lower cost area, you would be instantly debt free by selling your house and using the difference to pay cash for a house. $600k would get a mansion or a lot of land near where we live, Austin, and many other locations.

We also have a radical plan to go to Europe for about 4 months in about 7 years. We can handle educating the children while they see the world and experience culture. So much time is wasted in a typical school day, they won't miss much.


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[meekie]

I would try number 2 for about 6 months. See how it goes. See what you end up doing with your extra time. I think after a little while, you'll be able to figure out what it is you like to do and want to do, and you'll get pretty tired of those 2 days a week that you're working. And then you'll be ready for #1.

You have enough money to be free, now comes the question of what to you want to do with your life.

 

[Travelwanted]

peter - very similar situation here. I'm 43 and DW is bit younger. We have 2 kids with DW a SAHM. I'm hanging it up this summer. A few thoughts:

1-Why so much in college fund? And why not in tax favorable like 529? Many recommend investing in your retirement before saving for college.

2-Have you figured out a SWR? At our younger ages 4% is way above my comfort zone. I'm trying to stay <3%.

3-Due to my age I'm projecting monthly costs to increase to be safe (in addition to inflation). I'm factoring in as much error as possible given it is such a big decision. I do count SS in my calculations.

4-My biggest concern is why you have so much in cash? IMHO you really need to be putting it to work or risk failing ER. I think this cannot be understated. And to that end, I would strongly considering self-managing to save $$$. If you aren't comfortable, read some of the many suggested books by these great folks on this site.

4-Feel good in that as you have stated you could just end up taking a sabbatical. Many of us feel we are jumping off a cliff with no going back. This does not appear to be the case for you.

 

[petershk]

veganbetty: Yes. I think you may be right. I'm a lucky man, that's for sure.

 

[petershk]

Hi All
As expected, really great advice.


1) Job: I think you guys (and my wife) are right. No need to rush, transitioning makes sense. With regard to travel, it's a good point. I figured older kids would be easier, but I hadn't thought about the school stuff.


2) School costs: I know that I'm probably overfunded here. I want to do 529, just haven't done so yet but wanted the money "mentally" allocated so I don't factor it into our lifestyle. No good excuse here .


3) Spending: I'm actually kind of surprised that people find 4k/mo not including mortgage/taxes low . In SoCal, that's about 8.5k/mo in post tax income, which is roughly 12k pretax which is 120k/year. I always thought that was a pretty damn high salary that should still allow you to save at least 30%. I fortunately make more than that otherwise it'd be hard to save.... but when I was "only" making around 100 we lived in an $1200/mo 2 bedroom apartment. Going from that to a 4200/mo mortgage was like a knife in the chest. Fortunately, we bought in 2012 so we've gotten lucky with the housing market. That said, probably never selling that house.


When I look at mint it breaks down like this: 4.2k mortgage, 1k food, 500 "bills," 250 car, 250 insurance (life, umbrella, etc), 500 "home" this fluctuates a lot, so is an average, 500 "entertainment" doesn't include eating out, that's in food, 500 "travel" (spikes, but really close to 500 average), 500 "random stuff." Monthly fluctuates as low as 6500 and as high as 12k! But 8 is about average.


That seems like there's quite a bit of fat. I feel like we could get food to 600, I honestly have no idea of the value of "random stuff" and we make little effort to be smart about travelling . That might go up when I have more time.


I think I might be underestimating the health element based on posts I've seen, so perhaps I should be anticipating closer to 1k/mo or more.


3) Investments: Yes. I'm WAY too cash heavy. That has to do with the fact that while we've built up over time, in the last 3 months there was a decent size chunk as a result of getting lucky with company stock options. Who knew. I've always had options at jobs and they were always worthless so this was a nice surprise. Normally I just put it all to work right away, but man, the market seems expensive so I'm being a bit cautious... perhaps foolish. I suspect in the next month or two I'll get over it and realize that timing the market remains impossible, even when it's not 2010.


I always have and always will self manage. I've recently become a fan of betterment, but it's early in the game there. Generally though I'm pretty conservative.


4) Life
The problem here is that I don't really have something that I want to retire "to" except spending more time with family... but honestly my wife is concerned that if I just stay at home with the kids all day I'll lose my mind... causing her to lose hers . Plus... she thinks it's kinda dumb to stop doing a job I mostly like that also pays really well when I can just cut back and have the best of both worlds. Essentially she's rational and I'm not.


Thanks for the great advice everyone. At the macro level we feel incredibly lucky to have a situation that allowed us to get to this point. I've had pretty big ups and down financially... fortunately the really bad ones happened when I was young (mid-late 90s) and that taught me to be careful and thankful. I've also been super lucky with both jobs and health over the past 10-12 years; not to mention having a great wife and kids. None of that has anything to do with me being smart or hard working or anything like that... 80% of it is pure luck which is why I don't want to do something stupid or wasteful.

 

[petershk]

You are doing fantastic Work part time so that you do not go nuts. You are saving way too much for education (crazy). More available time with kids is the most important t issue. I am retiring in 6 years and my 3 youngest will be 13, 11, and 7. Getting to school, going to activities, he,ping the, with homework and projects will take up a lot of time but valuable time. I will have time to work out, keep up with the house and friends.

Just imaging if you moved to a lower cost area, you would be instantly debt free by selling your house and using the difference to pay cash for a house. $600k would get a mansion or a lot of land near where we live, Austin, and many other locations.

We also have a radical plan to go to Europe for about 4 months in about 7 years. We can handle educating the children while they see the world and experience culture. So much time is wasted in a typical school day, they won't miss much.


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We have seriously considered Austin, have friends there. And, you're right... for what buys you a shack in SoCal you can buy a palace in Austin.

Also, Austin has great schools and the weather is pretty good. My wife is not a fan of the bugs there and the other part is that we have lots of extended family in California.

But man... the idea of selling the house, paying cash for a BETTER house with the profit from the current one and cutting expenses by over 50% is DAMN compelling... not to mention lets say Texas has lower taxes than California.

I think if monthly costs were 4k TOTAL that's getting withdrawal rate really low... even if I add in more cost for health care and travel.

 

[rodi]

I'm a dozen years older than you as are my kids (older than your kids). I also live in southern cali. Some random thoughts...

Á kids get older they eat more. My boys have hit the bottomless pit stage. We spend about $1k/month on groceries and household items. Now that we're retired we cook at home a lot more than we used to.

Health insurance and our of pocket is much more expensive than under an employer plan.

Kids will definitely keep you busy. I'm swiping this on my phone waiting for the kids to get out of school.

Kids and travel... We're doing a big trip this summer... We're locked into the expensive season because if school. That said I'm thrilled to be taking my 12 and 14 year olds across Europe this summer. Being retired I have been able to shop deals on VRBO apartments and airfare.

 

[petershk]

I'm a dozen years older than you as are my kids (older than your kids). I also live in southern cali. Some random thoughts...

Á kids get older they eat more. My boys have hit the bottomless pit stage. We spend about $1k/month on groceries and household items. Now that we're retired we cook at home a lot more than we used to.

Health insurance and our of pocket is much more expensive than under an employer plan.

Kids will definitely keep you busy. I'm swiping this on my phone waiting for the kids to get out of school.

Kids and travel... We're doing a big trip this summer... We're locked into the expensive season because if school. That said I'm thrilled to be taking my 12 and 14 year olds across Europe this summer. Being retired I have been able to shop deals on VRBO apartments and airfare.

Much appreciated!
Can you quantify "much more expensive?" I did some simulations on the healthcare site, but reality is very different. Should I anticipate like 1k/mo more or even more than that?

Thanks!

 

[valueplayer]

I'm new here too, but just thought I'd throw it out there. I live in Nevada so the colleges are pretty limited but are decent schools. Anyways a couple of years ago I prepaid for a 120 units for each kid. It cost me about $24 per kid but it's locked in and I'm done. I also have two 529 plans and they both sit at around 50k. My children are 8-6 so those accounts still have time to grow, and will be used on things like housing, books, food etc. Being that you live in Cal have you ever looked into the pre-pay thing? It would be great in your state because as long as they pick a school in California your set. Anyways just a thought


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[rodi]

Much appreciated!
Can you quantify "much more expensive?" I did some simulations on the healthcare site, but reality is very different. Should I anticipate like 1k/mo more or even more than that?

Thanks!

My employer provided healthcare was around $300/month for a Kaiser Permanente plan with no deductible, $20 copay, and $10 prescription. Another $35/month got me family dental (including some orthodontia coverage).

Cobra for the same coverage was $1100/month medical and $165 dental.

Under an ACA plan (no subsidy) we signed up for high deductible plans. My husband decided to go with Sharp - his is $550/month, $6000 deductible, $9000 max OOP. It's expensive because he's 63. Getting old costs money.

My sons and I are still with Kaiser. We're paying $558 for the 3 of us. Similar individual deductibles, a family max, and a family max OOP.

Now's where it gets expensive. My older son was in the hospital for 3 days earlier this year. He's also had follow on care so lots of visits. My younger son broke his elbow 2 weeks ago. So ER visit, xrays, casts, and visits. We're halfway to that max family OOP and it's still February.

Some of it is just bad luck... the first year I switch from a comprehensive HMO to an HSA/High deductible plan is the year all @#$#@ happens. But, hey - that's what savings are for.

 

[petershk]

Update from last year-ish.

Been a good year despite the somewhat crazy market.

Breakdown
-4.3m liquid net worth. Mostly from options/profit sharing.
-around 20% in low interest cash (dollar cost averaging)
-the rest 80/20 stocks and bonds
-230K in education for kids (lost 7% last year )
-680K on house worth about 1.3... area has increased in value...
-no other movement of note

Expenses have stayed roughly the same at 8-9K/mo although I've seen spikes in travel expenses. Taking a month long trip in May.

Much more in control of ER now. Probably looking at 2-3 years from now. Still enjoy work but I can feel the pull of wanting to spend more time with my young kids. Might do part time but not super excited about that.

Nothing else much... thanks for everyone's support!

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