FI - how far out?

[Latamgringo]

Hey,

Do not plan to fully retire early but would like to shift to a lower stress job and/or something more meaningful than my current occupation in the financial sector.

Current net worth is 2,3 million USD of which 1,3 is in real estate (one for full time living, one beach house, and one rental unit). The other 1,0 is in liquid assets (a mix of mutual funds and ETFs mostly)

Annual expenses currently is about 50,000 USD but expect that to increase to 70,000 USD (kids growing older, more time to spend money). Could probably keep it at 40-50k if I wanted to but rather want to budget for 70k

Annual saving is about 250,000 USD.

Have one mortgage of about 130,000 USD

I am 40.

If I count the real estate as part of my funds I could probably call myself FI now. However, the full time living unit I would not count but counting the 3 units as 0 USD does also seem wrong. Downsizing is likely down the road so some cash would flow from them.

Firecalc, my own model, rules of thumb says that in 2 years I could decide not to work any day more of my life.

Thoughts?

 

[HI Bill]

Welcome! What’s the net cash flow on the rental? At your age, +2 years, I’d want at least $2.5M in invested assets, not including the primary or beach house. Unless you plan to sell one. Otherwise, it’s more of a liability than an income-generating asset.

If I was at your age and savings rate, I’d bite the bullet and keep going till I hit $4M invested for a deep safety margin and much better lifestyle, but that’s just me living in a high cost of living area and wanting to do extensive travel. If you are relying on $1.5M to generate $70k annually and we hit another recession, you could see the equities fall to the point you’d have to cut spending.

 

[Mdlerth]

How far out? Fifty years out

I'm intrigued by your ability to live on 50-70k while saving 4-5x as much. While it's a fine testament to frugality, I know that I'd feel a strong temptation to upgrade my lifestyle.

I'm only human, prone to vices and weaknesses, as is DW. You must be made of sterner stuff, but if that much discretionary money were passing through our hands, I suspect we'd stick to some of it, and there would be a few extra luxuries with less saving.

Bearing that in mind, I would plan on keeping the big income pouring in for a few more years, at least tripling that 1M invested. Quadrupling it or better would give you maybe not more quality of life but certainly more quality of sleep. At age 40, you have a very long life horizon to provide for, so you need to make allowance for a few bear markets.

Forget about the value of the real estate until you actually sell some of it.

 

[Latamgringo]

I'm intrigued by your ability to live on 50-70k while saving 4-5x as much. While it's a fine testament to frugality, I know that I'd feel a strong temptation to upgrade my lifestyle.

I'm only human, prone to vices and weaknesses, as is DW. You must be made of sterner stuff, but if that much discretionary money were passing through our hands, I suspect we'd stick to some of it, and there would be a few extra luxuries with less saving.

Bearing that in mind, I would plan on keeping the big income pouring in for a few more years, at least tripling that 1M invested. Quadrupling it or better would give you maybe not more quality of life but certainly more quality of sleep. At age 40, you have a very long life horizon to provide for, so you need to make allowance for a few bear markets.

Forget about the value of the real estate until you actually sell some of it.

Yeah, would probably make sense to keep going for a another 2-5 years from a pure financial point of view. Thing is that I am starting to value spending time with family, friends, nature, dogs, sports etc a lot more than when I was younger. The job is quite demanding but maybe the ROI is worth it until there is some 3 million in liquid assets.

Good point in the real estate, more of a liability than an asset especially the beach house.

We live well I think but yes well below our means. We rarely upgrade the car and when we change it it is to a second hand car with 30-40k miles on it. Also, actually buy second hand stuff sometimes. Just not worth it to buy everything new. House is paid of so no major monthly expenses really.

 

[Latamgringo]

Welcome! What’s the net cash flow on the rental? At your age, +2 years, I’d want at least $2.5M in invested assets, not including the primary or beach house. Unless you plan to sell one. Otherwise, it’s more of a liability than an income-generating asset.

If I was at your age and savings rate, I’d bite the bullet and keep going till I hit $4M invested for a deep safety margin and much better lifestyle, but that’s just me living in a high cost of living area and wanting to do extensive travel. If you are relying on $1.5M to generate $70k annually and we hit another recession, you could see the equities fall to the point you’d have to cut spending.

Cash flow on the rental isnt more than 10k USD per year. Its a small apartment. Yeah, as per the other poster probably smart to accumulate another 2-3 million before pulling the plug

 

[pjigar]

I am in a very similar situation but my spending is higher than your's. I would focus on generating sustainable cashflow from your after-tax investments. I am focused on that part right now and my time horizon is about 5 years for FI. Other than that, I think you are on the right track. My cashflow today is spread out from few single-family rentals and a multi-family rental. I am building two additional pots for cash flow: stocks and bonds. I have also an eye for a commercial real-estate if a right opportunity comes along.

 

[tb001]

I too would want more in the bank to make that decision at your age. If you're able to save that aggressively, maybe another 2-3 yrs and then down shift to something that provides more free time but covers your expenses and let your assets grow? It's hard to walk away from that level of income, but it really does take a toll on your life.