To FIRE now?

[seabourne]

I'm deeply sympathetic to your concerns, as I'm in a very similar situation, only about 5 years older than you - ~$340k, spending about $32k/yr, but could cut it to $25k, and very eager to get off the treadmill of work.

I don't think that either one of us can afford it yet, not without working at all, and possibly not at the jobs we want to take. For me, I can work on boats and enjoy myself, but i don't want to have to work year-round and worry if I don't have a boat for a season. I'm also wedded to a condo due to some worthwhile but restrictive financing (basically a sunsetting grant repayment - if I don't sell, after a certain time I'll never have to pay it back, so I'm attached to making the mortgage rather than downgrading).

The things that I'd look at for you are: the current job, saving $20k/yr - are you reasonably happy at this one? can you stay content for 2-3 years in it? adding $60k and getting 7% on your $340 leaves you with about $480 after 3 years. In 3 years you've dropped your withdrawal rate from 7.4% to 5.3%. If you work even part-time after than in something that you like, I think that you can make it, even if there is a tight year or two in there.

Careers are like a treadmill - once you get off, you really can't get back on without slowing it way down from where you were, and the faster/higher earning you were, the greater the difference.

6 months or a year off might be a great idea, especially if you can justify it to the job that you are coming back to in a way they appreciate - working for a volunteer organization, sailing across the ocean on someone's one-time only invitation, family estate management, long honeymoon, etc. But don't forget that putting off the last 3 years of work that you may need to do won't speed things up, even if it will help you get through them sane.

Other option would be 2 years full time and try to switch to 2 years half-time. If you're saving $20k/year, you can work half-time, live on your $25k/yr budget to practice, and not tap any of your investments. it's good practice on the high-wire while leaving yourself a safety net of income, and letting your investments grow undamaged for another 2 years. After 2 years, they should be (at 7%) growing about $30k/year. That working part-time is buying you a lot of flexibility down the road, and it hurts a lot less coming from full-time than it would coming out of retirement, and will probably pay a lot better.

Congratulations on where you've managed to get to. You're ahead in the race, you don't have to sprint to get a good finishing time, and you can see the final leg, but you're not there yet, and it's worth finishing the race.

 

[Aiming_4_55]

So, is the possible plan to retire for 10 years and return to the work force broke?

While each person has to determine individual risk tolerance, what % from FireCalc would be reasonable?

FIREcalc gives me a success rate of 15% if I live until I'm 87! Those aren't terrible odds....

And if only live another 10 years I have a 99.2% chance.....

 

[DeborahB]

I'm not sure why the 7.5% withdrawal rate is being put into question.

I'm saying that I have to earn 9% a year (2.5% inflation) and then take the 7.5% of earnings and that would cover my expenses.

I am not talking about going into the current savings at all.

9% is a high number but I think it's possible to return 9% a year if you pay attention to your finances and take advantage of opportunities.

A lot of people on this board are very conservative investors. I am not particularly risk-averse and I think you CAN get 9% a year if you invest aggressively. It will take a lot of your time to manage your portfolio, by the way. I know it does for me.

Other things in what you shared concern me. The 9% ... well, you can probably do it if you know about investing.

Health care - it appears (don't all scream at once) that in 2014 we will have health insurance of some sort for all. I would wait until then. You never know what will happen to your health and you could become uninsurable.

I have seen prejudice against hiring older workers, especially if you've been out of the job market for a while. There's also a similar issue with young workers. You don't want to hear this, but 27 IS young. You've been in the work force, what, 5 years? That's not a lot of years of experience.

In terms of taking a year off - it sounds great, but I've had unexpected years off and getting hired after that isn't as easy as you might expect. They look suspiciously at anyone who isn't totally driven to work hard. You may be seen as a slacker.

My advice is to keep saving - $20K in a 401K/year should add up to a lot more - and wait for 2014 because of the health care. It's only 3 years.

Could you do some writing and music (do you mean you're a musician?) in your spare time, now that you're working at a job that isn't as time-consuming, so you slowly ease into that? If you hope to make a living at any of your hobbies, that would give you a way to see if it's possible.

I had an odd experience at age 49. I was laid off and decided to travel for a while. Also it was late in the year and that's not a time when people are hiring. So I started a job search in January. I've got an MBA and had interviewed a lot over the years. I was getting a response I NEVER had heard before: something like "you know, this is kind of a stressful job and we're concerned about how you handle that... you seem so relaxed..."

I apparently blew a ton of interviews by being relaxed. Go figure... You will be relaxed too, with sufficient money and a year or two off. I had no idea it would show and/or be an obstacle. Anyhow after 6 months I got a job - I think by then I was desperate and no longer the least bit relaxed... and got lucky. I was starting to run out of large companies to apply to. I had to look at large companies because of health insurance issues - I am a cancer survivor. But the interviewers didn't know that.

 

[RonBoyd]

FIREcalc gives me a success rate of 15% if I live until I'm 87! Those aren't terrible odds...

So how would you describe an 85% chance of failure, then.

 

[Nords]

I don't really believe in these simulations much... I play with them a little but I don't think historical results is a good indicator of the future.

FIRECalc doesn't give a sh!t whether you believe in it or not. It just tells you how you would have done if your ancestors had tried this.

True, you could decide that the future is different than the past. That's what Monte Carlo is for. If you think Monte Carlo's math is based on history then you have not done sufficient research into the tools, let alone their use, to be able to ER with a solid foundation of financial discipline. Confidence, sure, but not fundamental mathematical probabilistic support for your dreams.

Then there's Otar. Listen to what this board's members are telling you, and spend an hour or two out of your busy life to read his advice on planning your future.

FIREcalc gives me a success rate of 15% if I live until I'm 87! Those aren't terrible odds....
And if only live another 10 years I have a 99.2% chance.....

Yeah, but you don't have to believe FIRECalc if you can just wing it.

If you can't handle a little cognitive dissonance from a bunch of strangers on the Internet then you'll have plenty of time to contemplate your own internal dialogue while you're trying to figure out how to achieve those 9% returns every year.

So, good luck with that, and thanks for stopping by...

 

[MichaelB]

Congratulations. You're hit the sweet spot of your financial life. If you can get 9.5% on your investments and are able to save much of your salary, there's no reason you can't double your assets in 4-5 years. That would give you lots of options - finance a career change, take time off, or retire early at a much lower withdrawal rate.

Leaving now is an option, and you might find a high paying job again in the future when you choose to return, but you may never have this capacity to save and increase your assets. It doesn't have to be now or never. There's nothing you can do at 29 that you can't at 33 - except maybe save most of what you make.

 

[mchas]

I am in a similar position, except about 2 years older than you are... and interestingly enough my only debt is 7.5K in 2% student loans.

There is no way I would do what you are suggesting. You said that a good portion of your money is in cash (as is mine, since I plan on buying a house soon). What if you decided to enter the market and then it took a big drop? There goes everything.

As for the age thing - there is no way you can think if you took 15 years off work and went back that you should be paid the same as another person in their 40s who now has 10x the experience that you do.

Sounds like you just need to take a vacation or a short hiatus and think about finding a career that you would be happier with. I am sure banking is stressful, but I'd be WAY more stressed trying to make 340K anywhere near as long as you're talking.

 

[Bankerwithabrain]

Thanks everyone for the food for thought.

I'm still digesting it all.

 

[foxfirev5]

FIREcalc gives me a success rate of 15% if I live until I'm 87! Those aren't terrible odds....

And if only live another 10 years I have a 99.2% chance.....

So it was a joke after all. Now - Get back to work

 

[accountingsucks]

I'm abit older than you at 35 but have about the same in $ kicking around and house paid off. I would love more than anything to end my work life right now but it's just not going to happen. As others have said, employers are very suspicious of gaps especially in finance type careers where everyone is typically a Type A personality and you simply do not have enough to retire now unless you want to live in a tent.

My plan is to grind it out til 40, take an extended break, then get into something lower paying and more flexible. At that time I'll have 25X expenses and will be working only to cover my needs and letting the nest egg grow. You indicated you can only save 20K per year....I suspect this does not include returns on the 300K+ that you have. Assuming 10% a year return on this (yes, high I know) that is 30K alone so I can't see why you can't sock away 50K a year for 7 years giving you about 750K in your mid 30's.

 

[cardude]

As for as spending more time actively managing money, I've found the more time I spend on it the worse my return gets. Lol. Really tho. I'm not kidding.

But seriously, you're too damn young IMO. I quit at 43 and that was probably too damn young as well. Take some time off to travel or whatever, then get back to work.

You can thank me later. ;-)

 

[traineeinvestor]

I'm not sure why the 7.5% withdrawal rate is being put into question.

I'm saying that I have to earn 9% a year (2.5% inflation) and then take the 7.5% of earnings and that would cover my expenses.

I am not talking about going into the current savings at all.

9% is a high number but I think it's possible to return 9% a year if you pay attention to your finances and take advantage of opportunities.

While there will certainly be years when 9% looks easy (like 2009 and 2010), there will also be years when you get it wrong and get a lower return or a loss (like 2010 for many). This happens to even the best of investors. Given that 9% (nominal) leaves you zero margin for error (lower returns, higher expenses), simple maths will tell you that you only need one "bad" year to put you in a position where your nest egg will not provide the financial support you need going forward.

Take a career break now if that's what you need, but expectations that you can FIRE now on what you have look more than a little optimistic to me.

 

[79protons]

I calculated I need about $25,000 a year to live.


Housing $700
Transportation 200
Personal Care 50
Clothing 60
Food 300
Entertainement 100
Health 200
Misc 200
Holidays 300
Total Monthly 2,110

This means I need about a 7.5% return (after inflation) per year.

Cut back a bit and you can maybe do it. One thing in your advantage is you will be in a 0% tax bracket, which helps.

I think you could probably get by if you do all of your own money managment and don't pay any fees. Get an account at a deep discount broker (I use optionshouse) so you can buy 20 or so equities and start writing covered calls on them (pick very stable large caps with cash on the balance sheet...dividend paying is good too). Spend 200K on this and put the other 140K in 5 year CDs. I have calculated you should be able to earn 10% to 20% a year in a flat or rising market with the covered calls, and if you get a downturn you can live off more of the CD money until your stock recovers to a point where you are comfortable writing the calls again.

Worst case you go back to work.

 

[DblDoc]

Cut back a bit and you can maybe do it. One thing in your advantage is you will be in a 0% tax bracket, which helps.

I think you could probably get by if you do all of your own money managment and don't pay any fees. Get an account at a deep discount broker (I use optionshouse) so you can buy 20 or so equities and start writing covered calls on them (pick very stable large caps with cash on the balance sheet...dividend paying is good too). Spend 200K on this and put the other 140K in 5 year CDs. I have calculated you should be able to earn 10% to 20% a year in a flat or rising market with the covered calls, and if you get a downturn you can live off more of the CD money until your stock recovers to a point where you are comfortable writing the calls again.

[-]Worst[/-] Most likely case you go back to work.

Fixed it for you.

DD

 

[BigNick]

9% is a high number but I think it's possible to return 9% a year if you pay attention to your finances and take advantage of opportunities.

Well, perhaps. I'd put it closer to 7%, and then you need a lot of luck.

But still, yes, many of us here managed well over 9% in 2010 by being well exposed to stocks. Apparently you're substantially in cash, and I presume that doesn't mean that you took a lot of profits on 12/31/2010. You aren't going to get 9% that way, ever. And you claim to be in corporate finance?

Something does not add up here.

 

[Bankerwithabrain]

You are right I am not extremely invested currently. I am 1/3 in stocks and 2/3 in cash. Although, the stocks I am in are highly volatile.

As I mentioned earlier, I am not actively managing my portfolio as I am busy working. I mentioned I only expect to gain 2-3% while I am working. 9% when I could actively manage.

 

[chinaco]

I would say some of the primary issues I am struggling with are:

1) I think older people get paid more. When I apply for jobs now I am still seen as "young" so they don't have to pay me as much. I think if I go back to the workforce when I'm 40 I would get a higher salary. I understand that generally people get paid more when they are older because they have more experience. But I also think there is some age bias.

...

Unless you are an absolute Superstar... this is common.

Don't get too upset about it.... you could continue working and have the last laugh and your life back permanently.

LBYM, save dilligently, stay out of debt (as much as possible), invest prudently, and create a plan to FIRE in your 40's... Some people do it and succeed. Look up the Kaderlis... they did it in their late 30's

 

[lhamo]

There are several books and on-line resources that might be useful for you:

1) The book Your Money or YOur Life. It is dated in some ways, but the basic premise of LBYM and figure out what is really valuable to you/how you want to spend your "Life Energy" is one that many on these boards appreciate and have applied with great results.

2) Several bloggers who provide advice and resources for those wanting to step outside the 9-5 and create a lifestyle and career that works better for them. Including:

Ramit Sethi at iwillteachyoutoberich.com -- yeah, the name is kind of sleazy and some people get put off by his pitches, but the man is action/results oriented and has some really good ideas and approaches. Check out his Earn 1 K program and the current "hustle" series. You may find it helps you think outside the box about how to fund your future.

Chris Gillebeau's The Art of Non-Conformity (http://chrisguillebeau.com/3x5/). Another great resource for not just imagining a different life, but making it happen. The man walks his talk, and the talk is not as "in your face" as Ramit's.

Sean Ogle's Location 180 (Location 180 | Location Independent Living for the Masses). He walked away from a corporate life last year, spent several months in Southeast Asia, and now is back in the US but working freelance. Shows how it is possible to combine work you enjoy with a location-independent lifestyle. Kind of a work hard play hard kind of guy.

Pam Slim's Escape from Cubicle Nation (Escape From Cubicle Nation). She's got a blog and a book of the same name. The book is a really good, step by step guide for leaving corporate life for a self-directed career. Her blog is essentially free coaching.

Hope some of these resources prove useful, if you didn't know about them already.

lhamo

 

[Bankerwithabrain]

There are several books and on-line resources that might be useful for you:

1) The book Your Money or YOur Life. It is dated in some ways, but the basic premise of LBYM and figure out what is really valuable to you/how you want to spend your "Life Energy" is one that many on these boards appreciate and have applied with great results.

2) Several bloggers who provide advice and resources for those wanting to step outside the 9-5 and create a lifestyle and career that works better for them. Including:

Ramit Sethi at iwillteachyoutoberich.com -- yeah, the name is kind of sleazy and some people get put off by his pitches, but the man is action/results oriented and has some really good ideas and approaches. Check out his Earn 1 K program and the current "hustle" series. You may find it helps you think outside the box about how to fund your future.

Chris Gillebeau's The Art of Non-Conformity (http://chrisguillebeau.com/3x5/). Another great resource for not just imagining a different life, but making it happen. The man walks his talk, and the talk is not as "in your face" as Ramit's.

Sean Ogle's Location 180 (Location 180 | Location Independent Living for the Masses). He walked away from a corporate life last year, spent several months in Southeast Asia, and now is back in the US but working freelance. Shows how it is possible to combine work you enjoy with a location-independent lifestyle. Kind of a work hard play hard kind of guy.

Pam Slim's Escape from Cubicle Nation (Escape From Cubicle Nation). She's got a blog and a book of the same name. The book is a really good, step by step guide for leaving corporate life for a self-directed career. Her blog is essentially free coaching.

Hope some of these resources prove useful, if you didn't know about them already.

lhamo

Thanks, already own/subscribe/read most of them. But will check out Cubicle Nation.

I think I'm on track to FIRE, but apparently the consensus is that I need more money still.

 

[scrabbler1]

One thing I built into my ER budget when I was nearing the day I could ER 2 years ago was a cushion or surplus. This way, if the surplus did not fully materialize, then I would still be reaching my budget target. The surplus could result from greater revenues from my investments or from lower expenses or any combination therein.

I also did this because I expect my expenses to rise more quickly in the next 15 years than my revenues, so today's surpluses will cover tomorrow's deficits and not cause a big meltdown in my portfolio.

 

[Bankerwithabrain]

One thing I built into my ER budget when I was nearing the day I could ER 2 years ago was a cushion or surplus. This way, if the surplus did not fully materialize, then I would still be reaching my budget target. The surplus could result from greater revenues from my investments or from lower expenses or any combination therein.

I also did this because I expect my expenses to rise more quickly in the next 15 years than my revenues, so today's surpluses will cover tomorrow's deficits and not cause a big meltdown in my portfolio.

I think the only risk of building in a cushion is that you may spend more time working then necessary. But yeah, I understand the need for more security.

 

[kaudrey]

You are right I am not extremely invested currently. I am 1/3 in stocks and 2/3 in cash. Although, the stocks I am in are highly volatile.

As I mentioned earlier, I am not actively managing my portfolio as I am busy working. I mentioned I only expect to gain 2-3% while I am working. 9% when I could actively manage.

But this doesn't have to be the case, IMO. You can easily invest in mutual funds or ETFs across a broad spectrum of markets and earn more than 2-3% (let's assume, ahem, that the stock market is increasing...). Especially at your age, it is worth being in stocks in some form, and set it on autopilot to invest a set $ amount each month. Go to Vanguard and pick a total stock market fund, an international fund, etc. and start from there...

You may not have time to research individual stocks right now, but investing consistently in a portfolio of funds takes no time at all once you are set up.

As for FIRE, I think you should change your mindset to "sabbatical" or "a few years off" rather than FIRE. You don't have enough money, plus if you ever do get married and have to go back to work, it will just be that your sabbatical has ended and not that you had to un-FIRE. Thinking about it as a less permanent state of being makes it not only easier to do, but also easier to plan and to actually do it, I think.

 

[Nords]

... (pick very stable large caps with cash on the balance sheet...dividend paying is good too). Spend 200K on this and put the other 140K in 5 year CDs. I have calculated you should be able to earn 10% to 20% a year in a flat or rising market with the covered calls, and if you get a downturn you can live off more of the CD money until your stock recovers to a point where you are comfortable writing the calls again.

When I look at the option pricing difference between volatile stocks and very stable large caps (especially very stable dividend-paying large caps), the biggest components of the option premium are volatility and time. Calls on those stocks wouldn't seem to yield over 5% in a flat market, and even in a rising market the option prices drop off pretty sharply when they're out of the money-- quite a risk of getting called away through chasing a higher premium for a strike price closer to the share price.

Even trying for a 10% total return sounds tough-- 3% from share price growth, 4% "yield" from covered calls, and a 3% dividend. The biggest problem with the portfolio is that gains are capped by the calls. If one of those stocks has a big upside for some reason (like a merger or acquisition) then it's called away.

The covered-call premiums are also short-term cap gains, making it challenging to keep his income in that low tax bracket.

But, hey, if you can come up with 20 stocks meeting your criteria at low commissions (which would include 20-30 call options per year) and show me the share prices and call options prices that you used to calculate they'd generate 10-20% total return over a decent portion of a retirement, say 5-10 years including a recession and a recovery... then I'm interested.

 

[glippy]

Lowering Expenses

So far in the thread there hasn't been too much focus on the possibility of lowering your expenses.

It looks to me that if you could get your expenses down to around $15k/year you could FIRE with a withdrawal rate hovering around 4%. It's easy for a clever person to get their expenses that low, just depends on how much you hate work and how attached you are to your home, diet and current transportation methods.

A rehabbed foreclosed home in a midwest college town, a bicycle, a green thumb, a humble wardrobe and some inexpensive or profit-producing hobbies and you're there, ready to FIRE today. Or if that sounds crazy you could, as everyone else in the thread is saying, work until your 40.

 

[RonBoyd]

So far in the thread there hasn't been too much focus on the possibility of lowering your expenses.

Did you miss this?

... and you simply do not have enough to retire now unless you want to live in a tent.