Am I Ready for Early FIRE

[milford]

So I got the dreaded call from my boss and HR last week that I will be laid off at the end of the month due to Covid since my company is not doing well. I wasn't too surprised as I work in corporate for a hospitality industry so I knew layoffs were coming soon. I've always been frugal and had FIRE in the back of my mind ever since I graduated from college, but after running the numbers I am leaning towards FIREing vs. finding another job and am hoping to get some validation before I take this leap of faith.

Below are some of my key numbers:

Single: 38 years old
Paid off condo: $500,000
Cash/Investments: $1,500,000
Retirement: $500,000
HCOL Area projected monthly expenses: $3,500

Assuming I use a little bit more conservative approach of 3.5% withdraw rate so I would get $52,500 or $4,375 so that should cover my expenses? But I would have to take taxes into consideration (how is this done)?
I currently set aside about $400 for medical insurance monthly is that enough? Reasonably healthy with no pre-existing condition

Taxes and insurance have me kind of worried since I'm not quite sure how to estimate them any pointers would be appreciated and if there is anything else I should think about before I FIRE. Thanks!

 

[Dtail]

Sorry about your layoff.
From a non financial perspective, even for this site 38 y.o. is on the younger side. You could be retired for 50+ years.
Have you thought about how to fill your time?

 

[TechLead]

I would not fire yet.

However if you are single 38 year old 2.5 million net worth is impressively good number. At this pace by the time
you are 50 you can have pretty good time IMO.

 

[pb4uski]

I think you can. Whether you should is a whole different kettle of fish.

How is your $1.5m of cash/investments invested? You may be surprised to know that you could have as much as $52,400 of qualified dividends and Long-term capital gains in 2020 and not owe any tax!

To get an idea of your taxes, use this calculator: https://www.dinkytown.net/java/1040-tax-calculator.html or if you use Turbo Tax you can use their What-If worksheet and be sure to check the box to do 2020 taxes.

Put in your projected 2020 numbers and do a separate run of 2021 with no earnings to get an idea of what your taxes would be. Depending on the results, you may also want to consider doing some Roth conversions if you can do them at a low-tax cost. Or capital gains trading if you have room.

Also, for health insurance, spend some time with healthsherpa.com

If health insurance is really expensive in your area, with so much in taxable account assets you may be able to manage your income to get some ACA subsidies to reduce the cost.

Also, you need to provide for periodic car replacements, HVAC replacements, etc in your retirement budget and it isn't clear if that has been considered.

Now all of that said, you probably "have enough". The other thing to think of is at 38, what will you do all day? I have a friend who was independently wealthly through family money and was offered a buyout from his long-term employer at age 50. He found some difficulties in finding people near his age to play with... he loved to ski, windsurf, etc and was very physically active. He did eventually fall into doing a lot of volunteer work helping handicapped youth ski.

 

[milford]

I would not fire yet.

However if you are single 38 year old 2.5 million net worth is impressively good number. At this pace by the time
you are 50 you can have pretty good time IMO.

Not quite sure what you mean by having a a pretty good time when I'm 50, but I am assuming I would have accumulated more money and will have a bigger spending budget but to be honest I am already very thankful and content with living off a budget of about $3500 a month currently.

 

[milford]

I think you can. Whether you should is a whole different kettle of fish.

How is your $1.5m of cash/investments invested? You may be surprised to know that you could have as much as $52,400 of qualified dividends and Long-term capital gains in 2020 and not owe any tax!

To get an idea of your taxes, use this calculator: https://www.dinkytown.net/java/1040-tax-calculator.html or if you use Turbo Tax you can use their What-If worksheet and be sure to check the box to do 2020 taxes.

Put in your projected 2020 numbers and do a separate run of 2021 with no earnings to get an idea of what your taxes would be. Depending on the results, you may also want to consider doing some Roth conversions if you can do them at a low-tax cost. Or capital gains trading if you have room.

Also, for health insurance, spend some time with healthsherpa.com

If health insurance is really expensive in your area, with so much in taxable account assets you may be able to manage your income to get some ACA subsidies to reduce the cost.

Also, you need to provide for periodic car replacements, HVAC replacements, etc in your retirement budget and it isn't clear if that has been considered.

Now all of that said, you probably "have enough". The other thing to think of is at 38, what will you do all day? I have a friend who was independently wealthly through family money and was offered a buyout from his long-term employer at age 50. He found some difficulties in finding people near his age to play with... he loved to ski, windsurf, etc and was very physically active. He did eventually fall into doing a lot of volunteer work helping handicapped youth ski.

I am currently at 40% stocks and 60% bonds/cash. Prior to Covid and being laid off I was actually planning on using a good portion of the bonds/cash for down payment for a house. I will be adjusting to 75% stocks and 25% bonds now that I don't plan on getting a house and FIREing.

I haven't really thought about what I will be doing exactly, but some things I have in mind is traveling, joining meetup groups, and probably start a small side gig (i.e. eBay or something).

Thanks for the feedback.

 

[SALTedOut]

If you don't qualify for a good subsidy health insurance including deductibles could approach $15K+/year. If you do qualify for a subsidy they may disappear in the near or distant future.

Any future interest in marriage/kids? If so, those can dramatically increase the budget.

 

[TheHobbit]

First, I wouldn't wait till 50, that's pretty foolish if you have a nest egg like yours at 38 IMO. Years in your 40s are worth a ton more IMO than those in your 50s. As for people whining about what you might do with all your time.... the best way to figure that out is try it out for a year and see. If you are bored, you can always go back to work, or do it part-time -- better yet... work for yourself.

I'll be tapping out in my early 40s. My years of working for somebody else will be done and over. If I still want I'll be doing the self-employed thing, I want to control my time, my calendar, and where I work from. This notion that you should work into your 50s because you might be "bored", give me a break. If you want to be the richest person in the grave yard, be my guest.... but that's not going to be me.

 

[TechLead]

Not quite sure what you mean by having a a pretty good time when I'm 50, but I am assuming I would have accumulated more money and will have a bigger spending budget but to be honest I am already very thankful and content with living off a budget of about $3500 a month currently.

It is OK to have another 1 million or more.

You may have job that requires high skills and if you leave it coming back after X years may be difficult.

Clearly 2 million dollar investment you have should easily generate 3500 a month (Inflation adjusted).

 

[DrRoy]

Investigate the actual cost of medical insurance first, and definitely include all taxes.

 

[Aerides]

Below are some of my key numbers:

Single: 38 years old
Paid off condo: $500,000
Cash/Investments: $1,500,000
Retirement: $500,000
HCOL Area projected monthly expenses: $3,500

Assuming I use a little bit more conservative approach of 3.5% withdraw rate so I would get $52,500 or $4,375 so that should cover my expenses? But I would have to take taxes into consideration (how is this done)?
I currently set aside about $400 for medical insurance monthly is that enough? Reasonably healthy with no pre-existing condition

You have too many questions to retire right now, but $2M for that long for 1 person might work. You're 38 - do you plan to stay single and never have kids? If you're firm on that, ok, if, not, stay working until you decide as you'll need more.

As far as healthcare, you can't gamble on costs based on your health at 38. Look at plans in your area - including the deductible, and budget as if every year you'll meet the cap, because that becomes your real out of pocket max. And don't just look at the cheapest plan as they go up a bit every year.

You're close, another couple of years could help raise the confidence, and allow you to get a real handle on your actual expenses.

 

[pb4uski]

.... As far as healthcare, you can't gamble on costs based on your health at 38. Look at plans in your area - including the deductible, and budget as if every year you'll meet the cap, because that becomes your real out of pocket max. And don't just look at the cheapest plan as they go up a bit every year. ...

I think that planning to meet the full deductible every year is way too conservative unless one has chronic health issues.... it crosses the line from prudence to paranoia.

 

[Toocold]

I think financially you're fine, but before you pull the trigger, ask yourself, "have you accomplished what you want to accomplish in your life?" That ultimately will be the more important question for you.

 

[Aerides]

I think that planning to meet the full deductible every year is way too conservative unless one has chronic health issues.... it crosses the line from prudence to paranoia.

Just basing it on my first two years on the ACA, both of us with no pre-existing stuff, no meds. Our plan costs about ~$400 per month but we budget ~$1k per:

Year1:
DH had a wonky blood test that resulted in more tests and more tests and sleep apnea diagnosis, met deductible by about August.
Year2:
I tore my meniscus, had a few doc visits, MRI, etc., now surgery to repair it and I'm already 1k away from meeting my $6k deductible.

Maybe we've been unlucky and it we'll be low spenders for the next few years, but I'm glad I've been maxing out my HSA for years before RE.

 

[AreWeThereYet0]

I am hoping to retire at 50 and I am planning 1k a month for health insurance. From everyone’s past comments that I have read I think it would be prudent. Also, it’s no just the health insurance but you might have to pay for prescriptions or part of the cost of an MRI or X-Ray. I would look for a job but be picky and look for something that I wanted to do. Take your time.

 

[Foodie]

mildford,


Welcome to the forums. Hope you find the discussion, questions and suggestions useful.


I have a couple of points to add.


First. You mentioned 3.5% SWR of $1.5 million. But you also list $500K in retirement accounts. So, the SWR is only for the time between now and 59.5. Then, you would be able to withdraw a bit more money. That has to count somewhere.


Second. Any plans of finding a partner / having kids? That would be a significant change to the budget discussion.


Third. Budget for $15K / year for health to be conservative.


Fourth. Keep in mind that even after a couple of years of taking time off you will be only 40 and you can always do a little something that perhaps brings some money to the table and also keep you engaged and has meaning to you....in the event that things get tight financially. Namely, you are obviously resourceful and talented and you will not just sit there if you see your stash evaporate faster than what you prefer.
​

 

[pb4uski]

Just basing it on my first two years on the ACA, both of us with no pre-existing stuff, no meds. Our plan costs about ~$400 per month but we budget ~$1k per:

Year1:
DH had a wonky blood test that resulted in more tests and more tests and sleep apnea diagnosis, met deductible by about August.
Year2:
I tore my meniscus, had a few doc visits, MRI, etc., now surgery to repair it and I'm already 1k away from meeting my $6k deductible.

Maybe we've been unlucky and it we'll be low spenders for the next few years, but I'm glad I've been maxing out my HSA for years before RE.

Unclear if the plan costs of $400/month is for one or two, I'm guessing for one, but worst case, $400/month for one plus $1k for deductible is a lot less that the "and budget as if every year you'll meet the cap" that you recommended. There will be "bad/unlucky" years where you spend the deductible and good years were you spend very little.

Absent unusual circumstances that we have, our ACA costs would be ~$545/month for 1 with a $6,750 deductible, but our actual sending on health care services in the deductible is less than $1k a year on average.... so for us $8,500/year would be a conservative estimate, but the max would be $13,290.

 

[milford]

Appreciate everyone's input here and below are my thoughts on some of the questions and concerns that some have brought up.

In terms of family, I've been living with my gf for a couple years now and we haven't really talked about marriage, but in terms of kids I think we both are leaning towards not having kids. I really admire people that are able to juggle having kids and a career and with the all the stress that comes along with it.

For healthcare I have a line item for Misc Healthcare which I have currently allocated $300 a month, and my current HSA has about 10K so l can always dip into that if need be.

Lastly, I am really hoping to find a small side gig that comes with some steady income eventually. I had some success with real estate, but sold off my rental property last year and I am thinking of getting back into it, however I'm not sure if it would be wise to take on that much risk now.