My plan to retire at 35

[REWahoo]

And please do yourself a favor. Ignore any naysayers that should react to this post with scoffing and hrmmphing devoid of any factual criticisms.

Alex, do you know something we don't about MMM?

 

[FUEGO]

Let's just look at this school issue first. Are you saying tuition and books is $30,000 for the 4 years. This seems quite low. I recently ran a projection for a 6 & 8 year old to go to a state school in the WA / OR area, and in 2023 I projected this 4 year cost to be $172,000 per child. This is both tuition and living, since not many college students want to live at home, though maybe you plan for them to fund half, but even tuition only would be about half that or $86k.

The other problem with your assumption would be the low returns of any college money you have invested --- these can not be in 100% equity, or really even in the stock market at all once you reach a year or two from college. Could your college fund really take a 40% drop in the year before college starts. This would be a good way to turn a 4 year college fund into a 2 year Community College fund!

Also, I don't know where you have this college money -- in a tax deferred 529 plan, or do you plan on paying taxes on this money as you pull it out. This would substantially raise your tax obligation while funding two kids for college at the same time.

College savings are in 529 plan. 100% equities now (or whatever the aggressive allocation fund is invested in).

We plan on covering about 1/2 the cost of college - tuition. Room and board don't increase at the high rate that tuition does at our state schools. Or at least there is the option of market rate apartments and grocery stores and restaurants that could replace the dorms and the dining hall. Plan B is probably they live at home with us for part or all of college. Plan A is that we have enough in the 529 and in our main investment portfolio to cover at least tuition and maybe more, and they can get some student loans and work a little, especially during summers. So they have a little skin in the game. I had so many scholarships and grants in college they paid me to go to school, so I wouldn't rule that out for them, especially the oldest two who have the advantage of being minority and female (if that still counts for anything in another 11-12 years).

As for allocation, sure we'll back off the aggressiveness closer to the time of college. Still 11-18 years out right now so no need to do so yet.

Plan C would be for me to hustle up some work to help pay for college.

We all have different philosophies on what we owe our children and I think I'm walking the middle road between letting them figure it all out on their own and rolling out the golden carpet for 7+ years through a PhD program or Med school. I have seen the availability of student loans with great terms that you sometimes don't have to repay, so I'm not too worried about the kids being destitute during college.

 

[FUEGO]

I am surprised that you are currently paying nothing on student loans on IBR with a combined 6 figure income. Is that because you are putting the maximum into retirement accounts and reducing your AGI?

We pay around $4k per year right now. We will pay zero in retirement when the kids are all still living with us, increasing to $1500/yr when it is just DW and I (for 6-8 years before our 25 years of repayments happens). The sum of all anticipated future payments is around $20k so we have a lump sum set aside on top of the target portfolio required to fund our routine annual spending. Now that I think about it, that lump sum would grow over the years since we won't touch it until a decade after ER.

 

[FUEGO]

Fuego,

Good for you!

You NEED to check out mrmoneymustache.com. You're going to find that blog to be an absolute goldmine of useful, applicable, innovative ideas on how to get where you want to go.

I read MMM's blog from time to time. And get updates on my Facebook feed. Very interesting reading usually. I'm not quite a MMM but it is a good example that it isn't that hard to live well on ~$30k/yr with a little attention to detail.

And please do yourself a favor. Ignore any naysayers that should react to this post with scoffing and hrmmphing devoid of any factual criticisms.

You may note I haven't spent any time responding to certain posts.

 

[FUEGO]

that is great! I hope in the near future I can add as much to our investments! Our expenses for a family of 4 are actually slightly under yours, except we are a one income ($85K) family, so there isn't quite as much to save... Hopefully we can plan on banking more when our kids, currently 1 & 4, are both in school and DH can do work other than raising kids!

We actually spend more than $23000 per year right now if you add in things like pre-tax deductions for dental ins and health ins, and deductions for child care FSA, and the mortgage we pay each month. I don't want to mislead anyone into thinking the $23000 is all that we live on right now with 2 working parents and 3 kids, 1 of which is in childcare year round, the other 2 needing summer care of some sort.

$23000 was the baseline for expenses that would (mostly) continue into retirement with the modifications outlined in my first post.

Hiking and European board games. Sounds like what I'd like to do in retirement! A friend recently introduced me to a new favorite, Dominion.

Good luck!

I should say long walks through the woods, parks or city, and/or day hiking. Much more accurate than any images of weeks long adventures on the AT.

I have played and enjoyed ticket to ride, Carcassonne, Settlers of Catan, and a few others. Haven't found one I don't like so far. Right now I have been playing a lot of "Conquer Club" - online turn based strategy/war game like Risk.

 

[ejman]

Congratulations to both of you for getting such a detailed plan together and working so well at such an early age. I didn't even think that ER was possible until I took a year's sabbatical at age 40. That's when I discovered that a permanent sabbatical is what I really wanted. Speaking of which, is there any chance that a try out sabbatical would work for you?

 

[gerrym51]

if i had 1.4 million at your age-retire now.

 

[FUEGO]

Congratulations to both of you for getting such a detailed plan together and working so well at such an early age. I didn't even think that ER was possible until I took a year's sabbatical at age 40. That's when I discovered that a permanent sabbatical is what I really wanted. Speaking of which, is there any chance that a try out sabbatical would work for you?

I'm not sure if my agency allows sabbaticals. Maybe I could cajole them into a "personal leave of absence" or some kind of FMLA "mental health leave of absence". Paid or unpaid. But it is a mega-agency so I'm not sure that there would be a bit of flexibility beyond the HR rules.

It could turn into 6 months off and maybe I'll consult back if I feel like it.

DW's job has a 3 months, partially paid sabbatical and I keep bugging her to take it.

 

[FinancialDave]

That's a great point cinman. I took the OPs SS estimate as correct; however, you are correct that the estimate that SSA sends you does assume continued income at the current level.

If you download the AnyPIA program from the SSA website, it does let you put zero income for future years and give a pretty good, although conservative estimate.

ESP does account for zero future earning in its SS estimates and spending calculations. One of the reason I like the software.

Remember also that SS takes 35 years of the highest averages, so if some of those years are zeros you will substantially lower the average.

 

[Kabekew]

Obamacare = cheap health insurance for our "low income" family with low out of pocket maxes.

From my research, which could be wrong, the kids will get free dental care through the state medicaid Children's Health Insurance Program. No asset test, just income, which we will easily meet, unless they have a new test for source of income (like cap gains or divs or 457 withdrawals meaning you are excluded from coverage).

I researched the same thing and found the Obamacare plan is still state-by-state and at least in mine there are asset tests. Google your state + Obamacare + medicaid requirements.

You can just imagine some local TV station running an "outrage!" story about millionaires qualifying for welfare/medicaid. If there's a loophole in your state, you shouldn't plan on it lasting those 35 years. Health insurance is going to be a big expense (lots more than $1500 a year) even if full Obamacare goes through.

Good job with your budgeting and being on top of the numbers, though!

 

[NanoSour]

The last time I use ESP+, they also had conservative/aggressive settings for MC results. What did you use? Also, OP indicates that at some point he'll have a plan to move away from a 100% equity portfolio.

If you are using ESP's average yearly performance / inflation numbers then you're discounting any sequence of return issues. I found this option to be useful to compare two different scenarios (eg. taking SS at 62 or 67, working additional years etc.), but I wouldn't base ER success on it.

I ran ESP+ MC with Cautious spending. 1/2 mean return of 100% Dimensional US Core Index 1. For my run I used 1.4Mil as normal assets and 17K as Pension for SS since I didn't have any wage history.

I'm a beginner with ESP so your results may be more useful.

 

[FUEGO]

I researched the same thing and found the Obamacare plan is still state-by-state and at least in mine there are asset tests. Google your state + Obamacare + medicaid requirements.

You can just imagine some local TV station running an "outrage!" story about millionaires qualifying for welfare/medicaid. If there's a loophole in your state, you shouldn't plan on it lasting those 35 years. Health insurance is going to be a big expense (lots more than $1500 a year) even if full Obamacare goes through.

Good job with your budgeting and being on top of the numbers, though!

We are planning on getting the subsidy for health insurance from obamacare, not the totally free medicaid. Although I haven't researched the issue fully, it seems like paying $1000 or so in premiums for a regular insurance plan vs getting free medicaid is a good deal.

I have not heard of the insurance subsidies being tied to anything other than AGI.

For dental care, there is some kind of free children's healthcare program that includes dental care. I looked at the web page for it and they indicate income limits (155% of poverty level roughly speaking). No asset limits, although they do indicate you should bring bank statements, retirement account statements, etc. I think that is so they can show you don't qualify for medicaid, which entitles you to this other children's healthcare program.

My financial plans aren't strongly tied to the government benefits, since we don't spend that much on kids dental care in general.

 

[Fean]

Congrats FUEGO! I commend your detailed planning and preparation. You have been very active on this forum for over 5 years and you are only 32 now. That tells me that you are extremely dedicated to ERE!

I find your situation very interesting because it has a lot of parallels to mine. When I was your age, I went through a very similar set of calculations and desperately wanted to retire at 35. However, when the time came, I found that my risk tolerance just wouldn't let me do it and I've kept working in order to build up a bigger buffer. My current plan is to retire at 40 (less than 2 years to go!) and those 5 additional years of work will give me -- and more importantly, my wife -- considerably more confidence and more restful sleep at night.

I agree with the other posters that you need to budget more for medical / HI expenses. This is an enormous political issue and it affects so many people that I would be shocked if something major didn't happen over the next 60 years. We don't know what changes are in store, but I wouldn't feel comfortable retiring in your situation without a bigger buffer for this.

I also think that your target WR range of 3.2% - 3.5% is too low for such a long retirement -- especially when your budget's margin for error is already so small. I know that Firecalc says that it is fine so it's more of a personal choice, but I'm a bit more conservative now due to lower expected future returns (all the "experts" say it so it must be true, right? ). I'm shooting for a 2.6% WR with a baseline budget that has a lot of slack in it to cover increased travel, eating out, and hobby expenses in ER.

I'm also very interested in your situation because you have young children. I've tracked every penny we spent over the last three years in Quicken so I know our current budget very well. However, I don't know yet what new expenses my DD will incur as she gets older so that is a big unknown variable in my plan.

Congrats again on your success. I'll be watching your progress with great interest

-Fean

 

[NanoSour]

Remember also that SS takes 35 years of the highest averages, so if some of those years are zeros you will substantially lower the average.

Another question I have is what about wife's SS. I don't see it figured in to the equation. Is she eligible for her own, or is she only eligible for Spousal. If you are getting 17K at 62, she should at least be able to get another 5-6K of Spousal. That's a significant amount once you reach that phase of life.

I ran ESP again using Monte Carlo simulator and it has you with 77K of spending available with 11K in taxes on top of that. I used cautious spending which assumes your asset return rate will be 1/2 the mean historical return for a 100% equities portfolio.

Again, this is as fine tuned as I can get it not knowing the particulars of asset allocation and past/future income. But, it for sure looks doable with the numbers I do know and at 77K spending with no mortgage, that's a pretty good living even with 3 kids at home.

For the past 3 years we've have lived on 77K budge which includes a 1280/month mortgage payment. We don't live rich by any means, but our three pre-teens don't go without much. At least not in relation to my childhood.

 

[daylatedollarshort]

My financial plans aren't strongly tied to the government benefits, since we don't spend that much on kids dental care in general.

Dental expenses can be huge. Even though we do not have many cavities, both kids had braces, one had to have a braces redo, one adult had braces, one gum surgery, one root canal, one wisdom teeth removal, a couple of chipped teeth, regular cleaning and exams twice a year per family member, the odd cavity filled or filling replaced here and there, plus probably a bunch more stuff I can't remember offhand.

Just the orthodontic work alone was probably over 20K and our dental insurance only covered about 25% of that. I am not sure what will be covered for kids for dental expenses with the new health care system, but you may want to look into this more closely and perhaps budget more in this category, especially if you want to track items with a 20K+ possible order of magnitude.

 

[FinancialDave]

Also if you don't hold out until full SS retirement age, this puts a serious crimp on any spousal benefits.

 

[glippy]

Fuego,

Just wanted to say congratulations on your progress and good luck. I'm 29 and currently live off of investment income with a similar budget to yours. My investment income is enough to keep the house warm and keep my gas tank and belly full and to put a little aside for a rainy day. But it's not quite enough for me to do some stuff I'd like to try down the road, like flight lessons, buying an RV or a sail boat, international travel, or putting a small addition onto my house.

Like you, I (hopefully) have a long road ahead of me, which makes it a bit nerve-racking imagining every possible failure scenario that could crop up over the next ~40-70 years. But I counter that a few ways. First, I've learned a ton about home and car maintenance. I've plumbed entire houses from scratch, rewired circuits, helped replace a leaky roof, re-framed walls rotted-out from water damage, replaced windows and doors. I always do the regular maintenance on my car myself and have replaced half of a rusted out undercarriage on my old sedan and installed a tow hitch. Home repairs aren't so bad when you're just paying for materials, and most of the cost of fixing a car is labor. I cultivate hobbies that are no/low-cost or that actually save or make me money; hiking, biking, gardening, home-brewing, cooking/baking, tinkering with stuff, glass blowing, wood working, reading/writing, gaming, computer programming, boat-building. I own my home outright in a nice small town and have low property taxes ($150/month).

It's a good, full and easy life.

It also puts my mind at ease knowing that the most-likely failure scenario isn't absolute destitution, it's just coming up a bit short on my annual budget, most-likely by only a few thousand dollars. That's a pretty easy shortfall to make up for through a temp job or some kind of side hustle. And you would see it coming and have years to figure out how to deal with it. So if your plan does fail, it's not likely to be a catastrophic failure, but just something that will require some adjustments, albeit unpleasant but probably just temporary.

While my goal is to be in a position to not even have to think about trying to make any money from my labor or hobbies, I'm not quite there yet. But thankfully I am at a point where I no longer need a job to sustain myself and maintain my current lifestyle. I'm much happier figuring out how to make some money to increase my portfolio here and there from stuff I enjoy doing when I'm in the mood to do it, as opposed to waking up to an alarm clock, shaving, putting on a necktie and dealing with job-related BS whether I'm in the mood to do it or not.

One other big bonus of having a large portfolio at a young age is the power of compounding interest. One goal of mine is to set aside an additional $100k within the next few years, forget it exists aside from occasionally re-balancing the allocation, and just letting it compound on itself. So that, when I'm in my 60's, that account by itself will be approaching $1M. I'll think of it as my just-in-case "old man money". If I don't end up spending it on health care it'll likely just go to making my nieces and nephews very happy one day.

I'm child free though so that makes all this risk-taking a little easier on the nerves. Kudos to you and your wife for pulling early retirement off as parents.

 

[Candy83]

3 kids, age 1, 6, and 7 (eldest are in 1st and 2nd grade, respectively).

Thoughts?

Keep working.

 

[Huston55]

Fuego,

Just wanted to say congratulations on your progress and good luck. I'm 29 and currently live off of investment income with a similar budget to yours. My investment income is enough to keep the house warm and keep my gas tank and belly full and to put a little aside for a rainy day. But it's not quite enough for me to do some stuff I'd like to try down the road, like flight lessons, buying an RV or a sail boat, international travel, or putting a small addition onto my house.

Like you, I (hopefully) have a long road ahead of me, which makes it a bit nerve-racking imagining every possible failure scenario that could crop up over the next ~40-70 years. But I counter that a few ways. First, I've learned a ton about home and car maintenance. I've plumbed entire houses from scratch, rewired circuits, helped replace a leaky roof, re-framed walls rotted-out from water damage, replaced windows and doors. I always do the regular maintenance on my car myself and have replaced half of a rusted out undercarriage on my old sedan and installed a tow hitch. Home repairs aren't so bad when you're just paying for materials, and most of the cost of fixing a car is labor. I cultivate hobbies that are no/low-cost or that actually save or make me money; hiking, biking, gardening, home-brewing, cooking/baking, tinkering with stuff, glass blowing, wood working, reading/writing, gaming, computer programming, boat-building. I own my home outright in a nice small town and have low property taxes ($150/month).

It's a good, full and easy life.

It also puts my mind at ease knowing that the most-likely failure scenario isn't absolute destitution, it's just coming up a bit short on my annual budget, most-likely by only a few thousand dollars. That's a pretty easy shortfall to make up for through a temp job or some kind of side hustle. And you would see it coming and have years to figure out how to deal with it. So if your plan does fail, it's not likely to be a catastrophic failure, but just something that will require some adjustments, albeit unpleasant but probably just temporary.

While my goal is to be in a position to not even have to think about trying to make any money from my labor or hobbies, I'm not quite there yet. But thankfully I am at a point where I no longer need a job to sustain myself and maintain my current lifestyle. I'm much happier figuring out how to make some money to increase my portfolio here and there from stuff I enjoy doing when I'm in the mood to do it, as opposed to waking up to an alarm clock, shaving, putting on a necktie and dealing with job-related BS whether I'm in the mood to do it or not.

One other big bonus of having a large portfolio at a young age is the power of compounding interest. One goal of mine is to set aside an additional $100k within the next few years, forget it exists aside from occasionally re-balancing the allocation, and just letting it compound on itself. So that, when I'm in my 60's, that account by itself will be approaching $1M. I'll think of it as my just-in-case "old man money". If I don't end up spending it on health care it'll likely just go to making my nieces and nephews very happy one day.

I'm child free though so that makes all this risk-taking a little easier on the nerves. Kudos to you and your wife for pulling early retirement off as parents.

Impressive that you can live from your investments as such an early age; lots of discipline required to do that.

Don't forget about inflation though. For example, your $1M example assumes an 8% annual return for 30 yrs, which is not likely in this environment. Account for what many knowledgable forecasters are saying about future returns, subtract inflation, and your real return over 30 yrs is more like 4-5%, resulting in $300-$400k in your 60s.

 

[glippy]

Don't forget about inflation though. For example, your $1M example assumes an 8% annual return for 30 yrs, which is not likely in this environment.

True. But in 30 years I'll still only be 59 and in 40 years I'll still be in my 60's. Though I'd still need to average almost 6% (after inflation) for $100k to make it to $1M (in today's dollars) in 40 years.

 

[FUEGO]

Dental expenses can be huge. Even though we do not have many cavities, both kids had braces, one had to have a braces redo, one adult had braces, one gum surgery, one root canal, one wisdom teeth removal, a couple of chipped teeth, regular cleaning and exams twice a year per family member, the odd cavity filled or filling replaced here and there, plus probably a bunch more stuff I can't remember offhand.

Just the orthodontic work alone was probably over 20K and our dental insurance only covered about 25% of that. I am not sure what will be covered for kids for dental expenses with the new health care system, but you may want to look into this more closely and perhaps budget more in this category, especially if you want to track items with a 20K+ possible order of magnitude.

You definitely have a point. I put $500 in the budget as a placeholder. Basically cleanings for the adults, and occasional x-rays, plus a cavity per year or so. And I assumed all else (besides maybe some $5 copays) would be covered by whatever the child dental program is that the state runs.

Orthodontia, if required, would obviously be a huge extra expense ($5-8k per mouth?). I think 1 kid will need it but she is still losing baby teeth so I'm not sure what her mouth will look like in a few years. The dentist hasn't mentioned "OMG start saving for braces now" so I still have hope. Probably a good Q for the dentist at the next checkup. My in-laws have obtained braces for all their kids from the state dental plan for free, but there is some hoop-jumping (like it has to be for medical necessity). This might be one of those expenses I put down $10k or $20k to cover lumpy orthodontia and wisdom teeth (for kids, as adults have already had these procedures).

20k unexpected expenses out of a $1.4 M portfolio isn't too significant, but I can't miss too many of these expenses and still succeed.

 

[FUEGO]

Also if you don't hold out until full SS retirement age, this puts a serious crimp on any spousal benefits.

DW will draw based on her own record, which is very similar to mine (hers is slightly smaller IIRC).

SS is gravy for us, and doesn't really impact our planning or thinking very much since we won't see it for at least a few decades. We will either have a successful ER or go back to work before we get to SS age with a risky low value portfolio.

 

[FUEGO]

Like you, I (hopefully) have a long road ahead of me, which makes it a bit nerve-racking imagining every possible failure scenario that could crop up over the next ~40-70 years. But I counter that a few ways. First, I've learned a ton about home and car maintenance. I've plumbed entire houses from scratch, rewired circuits, helped replace a leaky roof, re-framed walls rotted-out from water damage, replaced windows and doors. I always do the regular maintenance on my car myself and have replaced half of a rusted out undercarriage on my old sedan and installed a tow hitch. Home repairs aren't so bad when you're just paying for materials, and most of the cost of fixing a car is labor. I cultivate hobbies that are no/low-cost or that actually save or make me money; hiking, biking, gardening, home-brewing, cooking/baking, tinkering with stuff, glass blowing, wood working, reading/writing, gaming, computer programming, boat-building. I own my home outright in a nice small town and have low property taxes ($150/month).

I'm not quite as handy as you, but I can research most home, car, appliance, and electronics/computer issues and fix them ok. Or at least be very informed about the best way to fix them on the most optimal schedule in order to minimize costs. Small stuff I can do myself, and large stuff gets done by a pro. The small stuff I do myself is usually very cheap ($10-15 bucks). Large stuff to me are things like replacing HVAC, hot water heater, timing belt change, etc. I make a point to identify quality contractors that don't price gouge ahead of time, so if I need something done relatively quickly, I know who to call instead of trusting an internet search.

 

[PatrickA5]

Sounds like you've got a good handle on most everything and a very detailed budget lined out. Congratulations.

As others have mentioned, the one area that I see that will probably need to be increased in kids expenses. Do your best to come up with what you think it will cost and then multiply by 3 or 4. I've spent literally thousands of dollars a year on kids activities. My older girls were in cheerleading, piano, etc. I've shelled out thousands of dollars for my DS sports and I'm still paying even though he's playing high school ball now. Not to mention cell phones, cars, insurance, braces, prom dresses, MAJOR food increases, movies, etc. Have you priced car insurance for a 16 year old? When my oldest turned 16, she ended up costing more for liability only insurance than my wife and I were paying for full coverage (combined).

Then came college. First kid cost $98K all in for a state public college. Second kid is half way through and is going to be a little cheaper. Third kid will probably be over $100K, (but fortunately I've got that covered in his 529 plan). We didn't qualify for any grants, due to income, so yours should be lower.

Planning to replace a roof is easy compared to planning on your kids expenses.

On the plus side, you'll never miss a kids activity which for me was worth every penny spent. Good luck!

 

[FUEGO]

Sounds like you've got a good handle on most everything and a very detailed budget lined out. Congratulations.

As others have mentioned, the one area that I see that will probably need to be increased in kids expenses. Do your best to come up with what you think it will cost and then multiply by 3 or 4. I've spent literally thousands of dollars a year on kids activities. My older girls were in cheerleading, piano, etc. I've shelled out thousands of dollars for my DS sports and I'm still paying even though he's playing high school ball now. Not to mention cell phones, cars, insurance, braces, prom dresses, MAJOR food increases, movies, etc. Have you priced car insurance for a 16 year old? When my oldest turned 16, she ended up costing more for liability only insurance than my wife and I were paying for full coverage (combined).

Then came college. First kid cost $98K all in for a state public college. Second kid is half way through and is going to be a little cheaper. Third kid will probably be over $100K, (but fortunately I've got that covered in his 529 plan). We didn't qualify for any grants, due to income, so yours should be lower.

Planning to replace a roof is easy compared to planning on your kids expenses.

On the plus side, you'll never miss a kids activity which for me was worth every penny spent. Good luck!

I have heard $2000 per year from friends who have kids getting their licenses right now. That is about 3x our current liability and comprehensive coverage.

As for college, those amounts are about what our local top tier state universities say is the cost of attendance for students living at the school. Our plan right now is for our kids to have some skin in the game and help pay for college. To what extent remains to be determined, and may depend on what resources we have available when they enter college (ie did our portfolio return 3% per year for the 7 years from ER to first kid starting college, or did it return 8% per year).

College costs and how much we spend on the frills during college are all part of our spending decisions and there are always trade offs.

As for cheerleading, sports, music, etc, those are also spending choices in my opinion. Our kids have some friends even in 1st and 2nd grade that are too busy with extracurriculars to be able to schedule play dates. Maybe these kids love these extracurriculars, but they are also missing their childhood playing outside, riding bikes, playing pick up basketball or tennis or soccer at the park, etc. We may end up spending some on these activities but I don't think we will ever spend thousands per year. And we are lucky to have a lot of very inexpensive municipal sports leagues and recreation programs that are incredibly cheap. Like all day summer camp for $20-50 per week (depending on site).