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Life/Early Retirment Question

Started by Jpfire1, April 30, 2019, 03:10:53 PM

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Jpfire1

Would really appreciate any feedback/insight from other readers. My wife and I are in our early 30's with a 1 year old son.
We currently have about $2.1M saved, with less than 15% of it in pre-tax accounts. Most of our NW (more than 80%) is in equities with the balance in cash.
Completely self made from a W2 job and investing my savings over the last decade. My hours are much better than they were, but can't see myself doing this forever. Our income is over $400K and my NW is primarily the function of aggressive saving/investing. I am a partner within a larger advertising firm and I may have some leverage if I were to leave in terms of negotiating an exit, but I'm really not sure. My income will significantly jump up if I stay working inside a decade. Would be hard to fathom a scenario where I  wasn't making 7ish figures (double plus what I'm currently making) in a decadeish with a solid work/life balance. That's just a long time from now. My wife works in retail and her income is relatively modest.
We are at a point where a 6% return on our accounts is in excess of what I can save annually as I am only saving just over $100K annually of our income with the added expenses of having a child and living in a HCOL area.
I feel conflicted and think I have 2 choices. To set myself free or keep grinding...

If I were to stop working tomorrow, we could generate about $150K of income assuming my wife makes her 65K plus 4% of our savings. She wants to work forever. We could relocate to NC where we have some family and live a solid life. However, the thought of walking away now seems crazy, but the longer I stay the harder it will be to walk away bc my large income jump potential is within a decade.

Option 2-embrace our life. Live it up more. Buy a sweet primary residence (1.5Mish) and just plan on working for extended time and figure the rest out later.

Until I "buy" into one of these paths my life is on hold. I won't buy a place if I stop working as we would move to NC and leave the area we are in. My wife understandably wants to know where we are going as we have a family now and wants to establish roots and a house .

Just not sure. Thoughts/feedback would be helpful!

whitetail

This question doesn't appear to be about maths. It's about what you want out of life and what's the best way to achieve that. That's an impossible question to answer for someone.

I would say that you can play this down the middle between your options for a few years, as well. You might benefit from the time spent to consider what you want.

Do you love the work or the scoreboard of it? What are you going to do for the next thirty years?

Sam

What do you want to retire to? That's the key answer. If you still like your job, you might as well keep on banking the money for as long as possible.
Regards,

Sam

Jpfire1

I really appreciate the quick responses. I would agree that my dilemma is really less about the math and more about what I want out of life etc.

The honest answer is that as a 32 year old and a father of a 1 year old, I honestly still don't know yet as sad as that sounds in terms of what kind of life I want. While my job isn't intolerable, I really don't like "punching the clock" all that much. I don't enjoy it simply put and it's stressful. Given my NW rising, I have lacked more motivation career wise at the agency  and have itched to have more freedom. Unfortunately, my current role is really all or nothing as I don't have the ability to work from home or further dial back my hours.

I would undoubtedly be happier spending time w my son and hopefully more children down the road. Sylvia (my wife) and I also would be more satisfied living in a diff area like NC where we have more family and our lifestyle would be better. I don't know what I would do other than be home w/ my boy and hopefully other child if we are blessed to have another one. It's possible I would pick up some work on the side,  but really have no idea. I would want to be more active/present as I haven't been able to do much of anything else the last decade bc of work. If that means, swimming, hiking, and being outside more...well, that sounds like a dream. It will just be a massive change as a chunk of my happiness and and sense of self worth was tied to my job performance.

On some level, leaving the money on the table of future earnings and what could be would be very painful to deal with esp. given I'm consumed with tracking my net worth. While many have future career upside, my situation is more unique due to my financial arrangement where it would jump considerably coupled with more total flexibility....but I would be in my early 40's at best by then.

Either way, we don't need much and our passive income coupled with my wife's salary would be more than sufficient, particularly in a cheaper area.

For whatever reason, I feel a desire (really for the first time) to indulge assuming I continue grinding at the job. This is particularly true for a potential primary residence. We are currently renting a small apt and I dream of purchasing a large home for my family to grow into. Given where we are, the financial implications are major to buy a home. Our monthly payments would jump 2.5xish...Assuming I work forever, this wouldn't be the end of the world financially or that big of a deal I think.

I guess I can keep kicking the can to figure out what my next move will be. We don't need the extra space yet and we can continue socking away and saving the 100kish plus a year until kid number 2 comes assuming we are blessed one day. The issue is that the longer I stick it out, the harder it will be to ultimately walk given the massive increase ahead inside a decade. It kind of seems like it's now or never due to that variable. I have been somewhat indecisive throughout my life, but this has left me in a paralyzing state of what to do...
Albeit, I realize I'm very fortunate to even have this decision/opportunity.

Any further feedback/thoughts would be greatly appreciated.

david123

Quite the dilemma.  Do you become a slave to the almighty dollar, or not.

My thought is that money does not buy happiness, but lack of money can cause a whole lot of sorrow.  I became somewhat of a slave to earning.  I'm 49 now and my wife is 50 and our nestegg is about $3.8M, if you include home equity that jumps to about $4.6M, and I still don't think we have enough to retire.  My goal is to work another 5 or 6 years and retire when I have $5M in investments and the houses paid off (current value $1.2M with $400K of mortgages).  6 more years will get all my kids through college and the houses paid off.

One piece of advice is to live way below your means - just because you can afford a $1M house, doesn't mean you should get one.  Taking on a lot of debt and an expensive lifestyle reduces your options later in life.

Money Ronin

I live in a HCOL area and left my $250,000/year W-2 job in my early 40s.  At the time my kids were 4 and 5.  I had become disenchanted with my work environment, but I found it difficult to walk away from the pay.  Unlike you, I did not see significant upside no matter how long I stayed.

The layoff notice was my ticket out; I happily took the severance package.  My wife makes a little less than me, and I was confident that:

1. We could survive on her pay alone and cut back as needed
2. I could generate at least some income on the side (I had been a consultant most of my career so felt very comfortable with the notion of project work).
3. I wanted to diversify our net worth (90% in the stock market at the time)
4. I could potentially accelerate our investment ROI if I had more time to focus on investments
5. Our net worth was sufficiently large (> than your number at the time) to weather a few years of no income
6. We would not move to a LCOL area

Everything worked out.  I invested in real estate and have significantly increased our net worth--far more than what I could have achieved had I remained a W-2 employee.  I accomplished this while being able to spend a lot more time with my kids.

Despite my success, given that you are in your 30s with higher pay, I would find it very difficult to walk away if I were in your shoes.  You are leaving too much money on the table too early.  I would figure out a way to restructure your job that is it is more to your liking even if that means fewer hours and fewer dollars.  When I consider the current real estate cycle and your W-2 earning potential, the better bet for increasing net worth is staying put.

I also would not assume that it will be harder to leave later.  That significant bump in pay may or may not happen.  You could get laid off.  You also might have a different outlook on money in the future.  It will be easier to walk away when you have a higher net worth.

N.C. sounds like it would be a good life for you, but I would want to be in a financial position where I could move back to a HCOL area if I changed my mind.  In my opinion, $2.1M in your 30s is not enough to retire forever.  I believe I've hit that number now, but it's still nice that my wife has retained her full-time job providing stability and benefits (for now).

Money Ronin

I live in a HCOL area and left my $250,000/year W-2 job in my early 40s.  At the time my kids were 4 and 5.  I had become disenchanted with my work environment, but I found it difficult to walk away from the pay.  Unlike you, I did not see significant upside no matter how long I stayed.

The layoff notice was my ticket out; I happily took the severance package.  My wife makes a little less than me, and I was confident that:

1. We could survive on her pay alone and cut back as needed
2. I could generate at least some income on the side (I had been a consultant most of my career so felt very comfortable with the notion of project work).
3. I wanted to diversify our net worth (90% in the stock market at the time)
4. I could potentially accelerate our investment ROI if I had more time to focus on investments
5. Our net worth was sufficiently large (> than your number at the time) to weather a few years of no income
6. We would not move to a LCOL area

Everything worked out.  I invested in real estate and have significantly increased our net worth--far more than what I could have achieved had I remained a W-2 employee.  I accomplished this while being able to spend a lot more time with my kids.

Despite my success, given that you are in your 30s with higher pay, I would find it very difficult to walk away if I were in your shoes.  You are leaving too much money on the table too early.  I would figure out a way to restructure your job that is it is more to your liking even if that means fewer hours and fewer dollars.  When I consider the current real estate cycle and your W-2 earning potential, the better bet for increasing net worth is staying put.

I also would not assume that it will be harder to leave later.  That significant bump in pay may or may not happen.  You could get laid off.  You also might have a different outlook on money in the future.  It will be easier to walk away when you have a higher net worth.

N.C. sounds like it would be a good life for you, but I would want to be in a financial position where I could move back to a HCOL area if I changed my mind.  In my opinion, $2.1M in your 30s is not enough to retire forever.  I believe I've hit that number now, but it's still nice that my wife has retained her full-time job providing stability and benefits (for now).

There is a whole other aspect that you haven't mentioned which is the shift from a highly compensated professional to ???.  It is a psychological adjustment I am still dealing with.  Despite my financial success in my post W-2 life, it's a difficult thing to put on a resume or explain to people.  It's the kind of accomplishment that sounds like bragging. "I manage investments and increased my net worth by X% in Y years".

chitown-2020

Quote from: Jpfire1 on May 01, 2019, 01:46:41 PM
Any further feedback/thoughts would be greatly appreciated.

Hi... I think I can relate a lot to your situation.   Mine's not exactly the same, but I've had a decently high income for a long time and I'm living right on the edge of having 'enough', but also have a huge earning potential ahead of me.    I'm a few years older than you -- and I've risen through the ranks and could easily double my salary again with the right effort and a little more career luck.

What has kept me going is to have a very clear financial goal.    Like you, I've made it to the 'minimum FIRE' but I know that I'll feel a bit sad if I leave too much on the table.    There is definitely somewhere between where you are now -- and what is truly enough that you could still have some of the nicer things that you want.   You just have to delay gratification a little bit longer and you'll be set for life.

Make it super personal -- once you reach your goal, that will be the day you can hang it up.   It's motivating and gives you something clear to shoot for.    Personally, I evaluate this on an annual basis, so that I don't have to wrestle with it every day.   Am I up for another year or not?   Have I reached the goal or not?   

In the end though, it comes down to what you want more (and I wrestle with the same thing).   Is it better to have total time freedom or financial freedom?   So I'm shooting for the balance.    If you choose the time freedom sooner, you just have to be able to live with letting go of the extra income. 

I also think Sam is right -- its probably worth spending some time creating a picture for yourself of what you'll do with freedom -- because that can sure get boring quickly too.

Hope it helps!

FinMess44

I am curious if you have made a decision over the past few months?

I can relate to your dilemma. You identify with your current job as you've given it everything over the past decade, but as soon as that first kid comes along you realize there is more to life and your priorities start to shift quickly and it takes a while to find your footing between the two worlds.

As you state, the longer you stay, and your comp increases it will be harder to walk away.....but really, it will also be easier if you think about it. If your comp increases and you have more time for to balance with your family life that sounds like a major win. You can provide everything you hoped, and have time to be there to enjoy it with the family. If your comp increases, but you aren't sure you want to do what you do anymore and you blink and you are 40, your first kid is 8, your second is 6, but you have a house that is 50% paid up, and you banked another $500k, hopefully grew the existing $2.1M, then you look at it and say, wow now I have $X. You are still in a better spot.

Perhaps sit back, try to find the "small wins" as enjoying a few things in your job, but also congratulating yourself when you make it home in time for dinner once or twice a week. Look at it like you are a Free Agent professional. Take it Year by Year. How much did you make, how much did you bank, how was your quality of life? Would you like to have another year like that?

FinMess

Jpfire1

It has been quite some time since I responded to my thread. Update in the last year is that we had our second kid!! Additionally, our investable assets are around 2.54M and working from home (since Covid) has been really nice. It has potentially provided me with more flexibility in the future, which makes the idea of continuing to work more tolerable.
We are now thinking of buying our first home together. In light of my previous posts, I simply wanted to know what you thought was a reasonable and acceptable amount to spend on a house/housing expenses. I'm not planning on FIRE any time soon in the next decade given expenses are quite elevated to raise a family in the Northeast. My wife and I are making approximately $420Kish gross combined with the idea that we will see modest increases. I have an opportunity to make materially more nearly a decade from now, but am not thinking or counting on that! Additionally, of the $2.5Mish in savings, $2Mish is in taxable accounts. These assets are predominantly still in equities.

We were thinking of spending around 1.75M with approx 1.2% property taxes. Additionally, we are open to an interest only mortgage option to make the payments more manageable or a 10/1 Arm.  Do you think that is reasonable or too much money to spend on a house. Any feedback would be greatly appreciated! Thanks.

chitown-2020

Quote from: Jpfire1 on August 22, 2020, 04:30:29 AM
We were thinking of spending around 1.75M with approx 1.2% property taxes. Additionally, we are open to an interest only mortgage option to make the payments more manageable or a 10/1 Arm.  Do you think that is reasonable or too much money to spend on a house. Any feedback would be greatly appreciated! Thanks.

It's a lot to wrestle with -- and you probably live in a HCOL area.   That being said, my rule of house buying at higher income levels is no more than 3 to 4x annual salary, IF you want to be free financially.   Some people are comfortable with owing on a house forever --I am not.   But with the idea of financial freedom, it means borrowing less -- with the intent to eventually not have to owe anything, or manage a low debt burden for the advantages of debt without the risk of a cash crunch if the markets go against you.   

You didn't mention what size down payment you're making, which would be a factor.   I would for sure steer clear of an interest only or ARM when rates are so low.   Lock in at 30 years and forget it -- you can always pay more if you want to pay it off faster.

We're in a time of extreme uncertainty.    It's anybody's guess as to whether housing costs are going to rise significantly or crash.   The markets would have you believe today that they're going to rise significantly, but the next 6 months could shift that view, quite a lot.   Its a time when we're seeing both inflation and deflation at the same time, depending on what goods you're looking at.  Crazy.

To put my money where my mouth is, I've recently purchased a home (mid-covid-crisis).   I did a lot of research and managed to spend around 3x my salary (borrowing only 1x).    This way I have plenty of cash flow to manage an up or down market, but still benefit from overall market appreciation (if it happens), inflation (if it happens, making debt easier to carry) and tax deductible mortgage interest.   

All that to say, I think you're pretty close to the sweet spot, if you believe that your job is likely to continue, even if things get considerably worse economically.   My only caution is that 1.75M would make it a outsize portion of your net worth... so you'll definitely need to work for quite awhile to FIRE, if that's your goal.

Hope that's helpful!   My two bits...

Jpfire1

Thanks for the quick response, much appreciated. It is certainly a high cost of living area, and I have limited options to  reduce my housing costs other than buying a smaller home. The area that we are specifically looking at has a premium associated with it, yet nearly 1% lower property taxes relative to neighboring towns. It certainly sounds like I am going to be in the  wheelhouse financially, yet would be in a much more comfortable spot if I can continue to grow my income, which is always a crapshoot with very limited visibility or control over the next five years.

Regarding how much I was planning on putting down, I am thinking of pledging my investment portfolio instead of putting down a down payment. I can't think of many reasons to use a down a down payment (other than Reducing my monthly nut) given I would think I can do better than 3% over the next 20 to 30 years. It is certainly intimidating to have a large monthly nut, yet  would think the financial arithmetic would lend itself to having the money freed up in my investment account. Additionally, I don't pay a premium or any costs associated with pledging my assets. It would be around $350Kish freed up assuming a 20% down payment on my price point.

Additionally, I do not envision much, if at all, appreciation over the next decade or so given the demographic trends of very expensive/high tax areas within the Northeast. I simply want to get confirmation that I am in the wheelhouse of what is appropriate to spend and I'm not overreaching too much. Thanks for all of your interest and feedback and would appreciate  more of it!