Turning an idea into a plan
I have been interested in FIRE for some time but just recently was made aware of the more complex math modeling that potentially adjust the SWR from 4% down to 3.5% or 3%. I would appreciate some guidance or observations on my path as I am reaching a check point age of 30.
I am 30, married, 1 kid, one more in planning soon. I put ~20k in 529 for kid 1 at birth and assume to make up any difference out of free cash flow. Unsure who (I or SO) will contribute for kid #2. We live quite comfortably – good vacations, nice (not luxury) cars every ~10 years. We live in an upper cost area of a relatively low COL major city. We contribute a set amount for joint expenses but keep finances separate so she has her own numbers beyond this.
Since budgets vary I will just use % because I feel those are more universally applicable. My “Target” is current gross salary using 3.5% SWR @ age 45 (Target = 100%). My current SR is ~50% of total benefits or 66% of my gross salary (I save 100% of any bonus, etc.). Also because some risks make big differences to a small portfolio, I will say that shouldn't be an issue with the cushion I have built in.
The reason my Target = 2x current spend is: The current spend includes limited vacation compared to goal (due to small kids) and also assumes I have a SO to split expenses (You just never know and I won’t have time to readjust after FIRE). Also I feel a contributing reason we can make good financial decisions is we have a cash cushion to manage unexpected events rather than digging the hole deeper with financing.
Current allocation as a % of my Target is:
1.9% cash (including E fund)
6.4% in rental property (would like to sell in a couple years to reduce time obligations)
Total = 24% of target (in 2017 dollars)
Assets (apart from cash) are pretty much 95% equity. I have no emotional issues with market crashes (tested 2008) and plan to move towards maybe 30% bonds by 45 through shifting contributions/dividends (big speedbump currently is the rising interest rates – plan to wait that out a bit before I buy in). I also have some stock bonus I did not include because of 3 year ‘ladder vest’ (each bonus vests 3 years later).
I recently requested a portfolio assessment from vanguard, waiting on that.
For projections I am using an annual contribution of 1.7%/yr of Target and a 5.5% interest rate on savings (after inflation). I assume my earnings will go up and my child care expenses will go down (current cost 0.4% of Target/yr) after kid #2 times out in 5 years but did not factor that in. I feel these numbers are somewhat conservative while remaining realistic. As for the SWR - I don’t really expect to spend the whole 3.5% every year and can easily cut back to ~2% in the event of a market crash. (The differential spend is projected as travel/helping out others type budget). Another variable I have seen mentioned a lot is health insurance: SO would have access to her nice plan for life around that time and otherwise ≤$1k/mo is easily affordable. Family history indicates minimal risk for health problems pre-medicare. Again, significant budget room.
I haven’t planned out if 45 is “The” date or if I want to keep working or change careers. I will probably do a deeper re-evaluation every 5 years to see how things have progressed.
I would appreciate comments around AA especially considering account type. Also curious about account balance risk with an adjustable SWR – I only see time based options in firecalc. To me, this allows me to feel comfortable with a higher failure rate because I only see peak spending 45-70 in bull markets and 70+ would easily be closer to the 2%. I was reading some comments earlier today (on here) about the pending market crash and the need to get more bond allocation.. I started to think maybe I should have bonds to allow rebalance... then noticed those comments were from 2014.