Planning to semi-FIRE in 10 years!

[Urchina]

Hi, all. While I've been lurking awhile, I just posted my first real thread (re: college savings) and decided I'd better be polite and introduce myself as well. My husband and I are in our early 30s with two small children. I quit a government job three years ago to stay home with our kids -- it was a great job, but staying home has been a great decision It's been so good, in fact, that the idea of neither my husband nor I working (at least not in a busy, time-sucking job) is really looking attractive.

After reading "Work Less, Live More" for the second time in a couple of years, I ran some numbers and realized that we could semi-retire comfortably but not extravagantly in about 10 years; 15 would give us nearly complete FI. Financial breakdown is:
160K in deferred comp plans (his and mine);
~$6000 in state pension plans (mine; am considering rolling these over into an IRA but am not sure about the process)
45k in IRAs (we each have a Roth and a Traditional; no longer eligible for Roths but hope to convert the traditionals into the Roths in 2010);
45K in savings (which we will use within two months to pay off a debt, see below)
Own our condo (245K left on mortgage; have approximately 270K in equity
Owe ~ 70K on a second mortgage, which we will pay off in a couple of months with savings (see above)
Cars are paid for and newer (2003 and 2006)
No CC debt
Dividend and interest income of ~ $1600/month in addition to salary

Asset allocation in the deferred comp plans and IRAs is 90 stocks / 10 bonds, with about 35% in US Large caps, 30% in international indexes and 25% in US small caps with the remainder 10% in high-grade corporate bonds. We're comfortable with the aggressive profile and will change the allocation as we get older and closer to RE.

Our immediate plan is to pay off the second mortgage and then save $35K for our emergency cushion, which we will put either into a MM account or ladder in 6-month CDs. We'll continue to max out IRA and deferred comp plans yearly, as well as save for kids educations.

The real question is what to do with additional savings -- do we put it in a taxable brokerage account, do we save for a down payment on another house (see below for rental plans) or do we use it to pay down the mortgage on our current place? Given that once we refi our current place we can cover expenses with the rent we'd get, paying down the mortgage just seems like a cash trap, but it has strong emotional pull for me. Thoughts?


We've got a couple of things going in our favor -- my husband's job is relatively well-paying and we tend to be good savers (last year averaged about 40% of take-home pay plus maxing out his 401K) and relatively frugal. Once kids are in school full-time I can go back to part-time work for the county, if I want to, doing and making roughly what I was doing and making before. Disadvantages are that we live in a very high cost-of living area (2 bedroom condo goes for over $500k) and opportunities for relocation with his company are nil. He likes his work and his company; they treat us well, so leaving isn't something he'll do lightly.

Another disadvantage is that we are fairly limited as to where we'll live once we FI; we'd like some land (3-10 acres) to practice self-sufficiency on (or as close as we can get to it) and have decided to stay in California or Oregon due to proximity to our families. So after FI we won't be able to drastically slash spending costs by moving to the Heartland or South.

Finally, we're really interested in buying some rental properties and managing them ourselves (I have some experience in this type of work and am aware of and able to deal with the feeling of being "on call"; I also like working with people and resolve conflict well). We are thinking that we'd like to get three or four properties (including our current home, which we will be outgrowing soon) purchased and rented out, cash-flow positive, to provide some additional income in RE. Has anyone approached RE this way, through rental properties?

We're still constructing our RE plan, so advice is appreciated! I'd like a cohesive, integrated plan that gets us where we need to be in the next decade or so -- I get the feeling that sound planning now will make our dreams possible.

Looking forward to participating on the boards and learning still more!

[Rambler]

Nice post. Welcome.

The emotional pull of paying off a house is strong. And there are advantages to investing instead of paying off the mortgage. For us, the warm comfortable feeling we have when we realize we own our home free of any encumbrance except property tax is priceless. Regardless of whether I have my job or lose it, I have my home, and my wife and kids are protected from the elements.

We used to have rentals. I'll not likely ever do it again (you may have seen another post I made about that). But, as I have been around longer now and have learned a few things, I have found that there are ways to create cashflow other than rentals, whether in equities, bonds or a mix. For some, rentals have a place in the mix, but not for me anymore.

Love your idea of self sufficiency. We bought and built on two acres a few years back and hope to be able to move there in a couple years or so (on assignment overseas now). I'm planning a large garden and family orchard. We have solar electricity (grid-tied with battery back-up) that takes care of all electric power needs, our own well, etc.

The semi-retirement option sounds great. I think you will get there. You may want to consider what exactly semi-retirement means to you though...is it work everyday, but only 4 hours (+ or -)? or is is work every few days? or is it here and there but on no set schedule? or is it self employment? (that one will/could be dangerous to RE...you'll likely work more than you intend).

For DW and I, we are about 10 years older than you, and plan to work FT until RE, so we can do what we want when we want, and not have the worry of having to be back at a job by a certain time/day/date. I'll be a couple years, give or take a little, probably less than 3 (would have been 2 yrs or less if the market wasn't being so uncooperative lately - incentive comp is tied to stock price).

Best of luck to you! Hope to hear from you again.

R