Hello from new guy !

[goodguy1_64]

Hello all,

Wanted to introduce myself, and give you my situation and join the discussion for input on various FIRE topics.

Myself 41, DW 40 plus 3 kids 11, 13, 15. I was planning for a graceful exit into retired life in Janary 2007 ( 16 months from now), but downsizing at the company I work for has accelerated this timeline and I’ll be laid off in about 3 weeks.

I’ve been making ~$160k for the last several years, but living well below our means and spending ~$50,000 after tax dollars annually.

My financial situation:

Assets

Taxable accounts $1.45m
Deferred accounts $ .45m
Other assets $ .5m     ( mostly our primary residence)
-------------------------------------------------------------------------------
Total                 $2.4m

Debts

None

Expenses:$55,000 annually + kids college starting in 3 years

I’ll be receiving a severance representing 7.5 months salary when  leave and I also have an equity stake in the business that will vest in January (66%) and next June (33%) that is currently worth a total of $440,000 ( before taxes and will be treated as ordinary income)

I’m not confident that this equity will have this value in January and June, so I’m ignoring it for modeling purposes.

Questions:

1) What general guidance can you give me on the appropriate setup for insuring that I have $$ available for expenses, but am not having to sell securities or mutual funds in a downturn ? My initial thoughts are to set up a 2 year CD ladder with maturities every 3 months so that I always have a minimum of 2 years expenses covered.

2) Making the transition? While I’ve been working, my time has always been the most valuable commodity, so I haven’t been as frugal as I could have been in some areas of my spending.  Soon, my money will have more value than my time., so I need to shift my mindset.

3) Friends/relatives ? Most of my friends and relatives will be concerned about the fact that I’ve lost my job as they don’t know how well we’ve set ourselves up. My initial plan is to tell them that we’ll be fine due to the severance that I received and savings we’ve got. Over time this could work into a “I’m self employed” message or I could go with a “We figured out that we had enough to live on frugally forever” message.

4) Kids: I don’t want the kids to worry, but at the same time I want them to continue to learn fiscal responsibility. My thought is to let them know that Dad isn’t working anymore, but that we’ll be just fine because we avoid debt and have saved for the future. The kids don’t know how well off we are ( ala Millionaire Next Door)

I’ve definitely a bit apprehensive over this change ( due to 21 years of conditioning ), but excited at the same time because I’ve got several years worth of projects listed out on paper and am really looking forward to waking up in the morning and spending an hour reading the paper and going on with what I want to do in a leisurely fashion rather than the 100 mile per hour lifestyle that we’ve been in for the last 20+ years.

Any input is welcome

goodguy1_64

p.s. you’ll be hearing from me a lot more often in about 3 weeks 

 

[brewer12345]

Congrats, goodguy. Looks like you are nicely set up. I count about $2 million in financial assets, which would easily support a fatter lifestyle than you currently have. I would suggest that you might not see expenses go down that much. Have you lined up health insurance for the post-job world? That is likely to be your biggest expense.

Specific thoughts:

1) I've seen it done multiple ways. The ones that look best to me are to either set up a 5 year CD ladder or put 3 to 5 years expenses in a MMF. You might also consider getting a HELOC for added liquidity.

2) Take your time. Most ER's I have heard from have said it takes 6 months to a year to really make the transition.

3) If it were me, I would just say something vague about starting a business/becoming sellf employed. You will have a challenging enough transition without having to explain yourself to people who may have a hard time understanding.

4) Dunno what to say. I think that the best way to do it would be to explain to the kids about your finances and how you got there, but it really depends on the individual personalities.

 

[Nords]

Welcome to the board, GoodGuy! You're in great shape and yeah, what Brewer said.

1. Frank Armstrong's website advises a short-term bond fund. He's recently updated his classic article on spending during retirement. We keep one years' expenses in a MM and a second years' expenses in a five-year CD with a 3-month early withdrawal penalty. In the last three years we've sold off enough winners (rebalancing) that we haven't needed to touch the CD. As long-term rates rise, eventually we'll break that up into smaller long-term CDs so that we can cash one or two in if the market really tanks. Frank's method gives you enough to survive a seven-year bear but you may choose to have less of a stash. For starters you'll probably want to bank all that severance and just use it for living expenses while you decompress & tweak your finances.

FWIW conventional wisdom has been to seek CPA/tax advice on that equity stake to see how it's treated and if/how it can be rolled over into an IRA or some other tax-deferred investment. It's a niche area that most ERs aren't real familiar with. You don't need a financial adviser but you may need tax advice in this one area.

2. Now that your time is your own, you'll find it generally less hassle to do for yourself what you've been paying others to do for you. If you've been using a housecleaner or a yard service, you'll probably decide to stop. You might take over your own home repairs & car maintenance, which trades your (now worthless) time for money. This might extend to all areas of your life or you might decide to keep buying your meat at a supermarket instead of butchering your own cattle. Take your time and don't feel that you have to rush into decisions-- one ER, Paul Terhorst, advocates changing nothing for two years. The big difference between ER & working is that now you have a choice instead of a time crunch.

3. You might mention that you're taking time off before thinking about looking for a job. "Maybe the time is right for that ER you've been dreaming about". You're going to decompress and spend time with the family before making any big decisions. You've looked at the numbers and things seem good to last the rest of your life with a decent (not "extravagant") lifestyle. My father took seven months off before he went back to work full-time, and when he ER'd he did it as a series of part-time gigs that tapered off over three-four years. You may do something similar or you may go cold turkey. It's your decision (and perhaps your family's), not the decision of your peers or your relatives.

No matter how you phrase it, you'll quickly find out who your friends are. Unfortunately you're stuck with the relatives.

4. Kids don't care as long as they get more of your time & attention. One ER was quite concerned about keeping up appearances for his teen daughter only to learn years later from her that not only did she not care, but she was so busy getting through teenhood that she didn't even notice he was ER'd. When our kid discovered how "rich" we are, we pointed out that it seems like a lot of money now but that it has to last for the rest of our lives instead of to next month's allowance payment. The older kids will understand, especially if they've had to manage a clothing allowance to last 6-12 months. If they're suspicious you could have them do some calculations to see how fast it'll disappear if they're not fiduciary. Then you reassure them that you've learned how to handle it and you'll teach them how to do it too someday. Within a year or two you'll catch them bragging about your ER to all their friends & teachers.

Unfortunately while you can show the kids how to do the math, you'll never succeed with some of the grownups. It seems that the more closely related they are to you, the less they understand your actions or your calculations...

Congratulations and welcome to the club! Don't forget to thank your boss for arranging to help you get your "FIRE" started. In about three weeks you can exchange your temporary membership card for the permanent badge with its decoder ring & secret handshake...

 

[maddythebeagle]

Welcome, I really like your attitude on things. I think your idea of giving others the impression that you arent independently wealthy is a good one, but giving your kids a little more info. so they dont worry is good. Looks like you will have a lot of individual questions on health insurance, asset allocation, etc. and look forward to your posts.

 

[retire@40]

Most of my friends and relatives will be concerned about the fact that I’ve lost my job as they don’t know how well we’ve set ourselves up. My initial plan is to tell them that we’ll be fine due to the severance that I received and savings we’ve got. Over time this could work into a “I’m self employed” message or I could go with a “We figured out that we had enough to live on frugally forever” message.

Watch out on this one.  I would say as little as possible to friends and relatives, especially about your savings.  I would recommend you just say you have transitioned your job to be able to work from home as a consultant.  Hopefully, the conversation will end there. 

Many "friends and relatives" get jealous when they hear of the success of others.  Others may want to use you you to help them babysit, move lumber, drive their mother-in-law to the airport, etc. since you are free all day.  Some may ask for just a little money to get by this month and they will stiff you pay you back as soon as possible.  Other may expect you always to pick up the tab volunteer to pay for things when you go out.  And even worse, some may want to be your friends just because you have money in the hopes some of it may trickle down to them down the road.

 

[wabmester]

Just give friends and relatives your best Daffy Duck impression, and they'll leave you alone.   This one works for me:

http://www.wavsite.com/sounds/57664/daffy11.wav

 

[lookindum]

Although I have a number of laddered CD's, you may want to consider short term T-bills or notes for your short term living expenses, as they usually pay a little more than CD's.

I also agree with not telling your friends/relatives "anything" about your personal financial situation.  The first question that people asked me when I went ER was "what are you going to live on until you can draw SS and pension from company?".  My response was, along with a dumb look, "I'm working some" and selling my "aluminum can collection".

 

[maddythebeagle]

Many "friends and relatives" get jealous when they hear of the success of others.  Others may want to use you you to help them babysit, move lumber, drive their mother-in-law to the airport, etc. since you are free all day.  Some may ask for just a little money to get by this month and they will stiff you pay you back as soon as possible.  Other may expect you always to pick up the tab volunteer to pay for things when you go out.  And even worse, some may want to be your friends just because you have money in the hopes some of it may trickle down to them down the road.

I am already getting some of this and I am just on my way to FIRE.

how about buying a cane and telling everybody you are on a disability

 

[HFWR]

how about buying a cane and beating the **** out of telling everybody you are on a disability. 

 

[sgeeeee]

how about buying a cane and beating the **** out of telling everybody you are on a disability. 

Nasal milk moment . . . and I was drinking wine.

 

[maddythebeagle]

I bet that's got to burn