Take severance & retire, or accept another role and save more? 37 y/o ~$2.4M

[Nerdjenni]

It's surprising how much it takes just to get by these days, especially in CA. With 2 kids, I can't imagine... I wouldn't be surprised if you re-evaluate your annual expenses once you have had a chance to experience the high cost of living first-hand. (London is 6% cheaper than SF!) If you lived in another state, I'd say you're there with your home equity; but you need to develop some cash flow. I've read it will take more than $100K of income per year for a middle-class Bay Area family lifestyle.

So true. I just checked out the EPI Family Budget calculator (link here: https://www.epi.org/resources/budget/) and it says that for family of 4 in the SF metro area to live a "modest yet adequate standard of living" requires $148K/year. Taking out taxes (assuming minimal taxes if I'm retired), I still need close to $120K. It's really crazy and explains why when I went back home over the holidays to visit friends in the bay area, everyone seemed to be struggling despite earning good incomes. Also just read this article on "Why Households Need to Earn $300K to live a middle class lifestyle" (https://www.financialsamurai.com/living-a-middle-class-lifestyle-on-300000-year-expensive-city/). Really puts a damper on any dream of real early retirement.

That said, I know myself well enough to know that complete retirement isn't my ideal life. I just want to be able to downshift and have greater freedom and flexibility.

 

[Nerdjenni]

Hmmm, Not knowing the specifics I will try to defend him. Let's say 2 six month sabbaticals over 16 years (let's say he graduated college at 21). So 15 years of work at 400K now but we'll say avg 250K. Saved 50% and had a great company match. 125 X 15 years = 1.8 or more even w/out match or compounding. Maybe DW worked until the kids were born. Maybe house cost 400 back in the day and is now worth 1 mil. Plausible.

So the answer is: I took 3 sabbaticals over the last 16 years of my working life, ranging from 6-12months. I was lucky enough to stay employed through two of them, which meant I didn't lose vesting. Company stock hasn't been stellar, but it's been solid. Spouse didn't bring much savings in but did bring the house (inherited), so I can't take credit for that. By the way, why do you think I'm a "he"?

 

[daylatedollarshort]

So true. I just checked out the EPI Family Budget calculator (link here: https://www.epi.org/resources/budget/) and it says that for family of 4 in the SF metro area to live a "modest yet adequate standard of living" requires $148K/year. Taking out taxes (assuming minimal taxes if I'm retired), I still need close to $120K. It's really crazy and explains why when I went back home over the holidays to visit friends in the bay area, everyone seemed to be struggling despite earning good incomes. Also just read this article on "Why Households Need to Earn $300K to live a middle class lifestyle" (https://www.financialsamurai.com/living-a-middle-class-lifestyle-on-300000-year-expensive-city/). Really puts a damper on any dream of real early retirement.

That said, I know myself well enough to know that complete retirement isn't my ideal life. I just want to be able to downshift and have greater freedom and flexibility.

Most of the high part of high cost of living areas is usually housing. We bought our Bay Area house a long time ago so it was not too expensive, have Prop 13 for low property taxes, a $2 a month Bronze ACA plan, we eat low on the food chain and shop at places like ethnic markets and outlet stores so our grocery bills are pretty low, we made the house more energy and water efficient making our utility bills low, kids went to good public schools for K - 12, they went to community college and in state public schools for college, etc. Overall our expenses are pretty reasonable, certainly no where near $300K for a middle class lifestyle.

 

[Aerides]

So I just want to be able to downshift and have greater freedom and flexibility.

Normally at 37 I'd say keep working full stop. But in your case, I would instead:

- Take the severance, minimum should be 6months salary + accrued vacation/bonus, negotiate for serial pay with healthcare included if you can (then you can cobra after if needed, but have time to shop around). Yes the quotes upthread about $25k for a family of 4, are real if un-subsidized.

- Take a short break to move back, get settled, kids, etc. 90-180 days ish.

- Contact recruiters that you are ready for a new role at another company, while simultaneously exploring what you'd do for a new lower-income role in a few years.

If you were 47 I'd say stay put and stick it out 2-3 years, but at 37 you have enough time to course correct as long as you don't take too long a break. A 38 year old explaining a <1 year gap on a resume "we relocated back from another continent with a 6 month old so I took some time for the move+family" is totally reasonable.

Pro-tip, if you get serial severance vs. lump sum, at most companies that means you are still officially employed until the end of the payouts, helping cover the "gap" in your employment.

 

[steveark]

In my case I make your desired spend rate working just one day a week. I also spend about 100k per year and because it is possible to charge a lot as a contractor and consultant it is not hard to earn $250 an hour, or $2,000 a day. So I can work one week then take the rest of the month off. That gives me a zero withdrawal rate over the three years I've been retired even though I pay about $23,000 on health insurance and our HSA.

 

[Out of Steam]

Other things to consider: A $1+M home will have a great deal of upkeep and maintenance. My experience as a home owner is that you need 1 - 2% of the value of the home per year (on average) for upkeep. This includes saving for a roof, taking down trees, window replacement, heat/ac/water heater/appliance/etc. I'd err on the high side.

We’ve spent about 1.5% of value per year over 18 years in our current house. That has been doing most routine things myself. I hadn’t spent anything near that in two previous houses, but large expenses that were avoidable over less than 10 years of ownership simply weren’t over the long run-and included everything on your list. One of our retirement goals is buying less house this time.