Financial Independence Check In

[Anonymous]

I noticed awhile ago that ABCD mentioned reaching FI/RE (Financial Independence, Retired Early) status around age 40. I'm wondering if anyone else in FICOLand is FI or RE and would be willing to talk a little about their circustances and journey. One of the things I'm most interested in is learning how some of you have come through bankruptcy to FI/RE on the other side.

I'll start: My wife and I are fully FI and currently have significant commercial property holdings, personal real estate, and indexed market investments. We are very early 30's, and not RE. We could retire at or slightly above our current lifestyle at any point, but we like what we do and have some future personal purchases and business aspirations that we're not ready to let go of quite yet.

We made it here through a series of fortunate investments and not through some otherworldly ability or spectacular inventive success. We consider ourselves extremely fortunate, stay engaged in our community (we have some major improvements we're planning to one of the cities we live in over the next decade,) and desire to stay connected to people all across the income and wealth spectrum.

I'm hoping to hear from anyone interested in the subject, walking the FI/RE path, or already at the RE part of the journey. I'd also be happy to answer any questions about FI in general or our experience in particular!

[iced]

This is a very subjective goal, so you're going to get wildly different results.

Case in point, my wife and I have close to a million dollars sitting in non-property investment accounts (until I sell a property, I consider its value to be $0, but that was covered in another thread already). I consider this amount highly insufficient so I'm still about 30 years away from being financially independent, but someone else may may consider that sufficient to be financially independent today. Likewise, someone else may consider my target number for independence (around $4.6 million today) insufficient and require 2 or 3 times that amount to attain FI.

I filed bankrupcty about 15 years ago and really started saving about 3 years ago. I feel like I'm mostly just trying to make up for lost time. Had I been doing what I'm doing now way back then I'd probably have reached my goal already.

Perhaps the other half of FI(RE) is also to understand someone's cost of living and/or lifestyle at the asset levels they become FI at. That way, those reading this can understand a bit of the context around what life is like at that level of FI. That makes it easier for readers to gauge where they stand and if they're closer (or further) from their goals than they think.

[Anonymous]

I'm late to the game at 37, but have been researching/reading/planning ever since ABCD mentioned it.

I cringe to think of all the money I blew from when I started working at 14 up until filing BK at 34. I worked two jobs my junior and senior year of high school. Landed a good office job right after (and usually had a service industry job at night.) I COULD HAVE HAD MULTIPLE PROPERTIES PAID FOR IN FULL BY 25 . . . had I not been blowing money on cars, concerts, travel and a good time. I had a blast and can't fully say I regret it, but I am tightening the screws and getting serious like nobody's business now. Perhaps the fact that I "lived" so much at a very young age is letting me feel like I'm not missing out on that stuff now.

I've cut A LOT of bills this year. I can comfortably put away about $30k of my salary next year. (I can actually get a lot crazier with my budget and do another $10-$15k maybe.) Sometime in 2019, I think I should be able to buy the first rental property in cash. Probably in FL where I'm from. (Real estate in the Northeast is kind of nutty.)

I think I'll be able to retire in 10 years. That's the goal for now. 13 years TOPS at age 50.

The thing for me is that I don't ever see myself needing much to live on. I've lived in a studio apartment in NYC for a decade. It seriously changes your relationship with "stuff".

I'll be just fine if my homebase is on wheels and I spend my retirement traveling and exploring and staying at different RV parks around the country. Maybe one day when that's old I'll settle into one of my paid in full rentals.

[Anonymous]

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@iced wrote:

This is a very subjective goal, so you're going to get wildly different results.

Case in point, my wife and I have close to a million dollars sitting in non-property investment accounts (until I sell a property, I consider its value to be $0, but that was covered in another thread already). I consider this amount highly insufficient so I'm still about 30 years away from being financially independent, but someone else may may consider that sufficient to be financially independent today. Likewise, someone else may consider my target number for independence (around $4.6 million today) insufficient and require 2 or 3 times that amount to attain FI.

I filed bankrupcty about 15 years ago and really started saving about 3 years ago. I feel like I'm mostly just trying to make up for lost time. Had I been doing what I'm doing now way back then I'd probably have reached my goal already.

Perhaps the other half of FI(RE) is also to understand someone's cost of living and/or lifestyle at the asset levels they become FI at. That way, those reading this can understand a bit of the context around what life is like at that level of FI. That makes it easier for readers to gauge where they stand and if they're closer (or further) from their goals than they think.

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All good points. I'll put out a couple definitions to clarify.

Financial Independence - I can choose what I do from here on out; I don't actually have to go to work to make the money I need to live.

Safe Withdrawal Rate - The percentage of a portfolio that can be spent per year without negatively impacting future plans. For me, I work with 3-3.25%.

FI Net Worth - No point in looking at real estate that doesn't generate income (exception: primary residence that reduces overall expenditures) or any other assets that rapidly depreciate (cars, furniture, etc.) These assets less debt are only those that generate investment income on a year after year schedule.

Total Net Worth - All assets less debt obligations. Mine is a little higher than my total FI assets.

Lean FIRE - Typically a portfolio that can generate between 25k and 100k per year at the users selected SWR.

Fat FIRE - Typically a portfolio that can generate north of 100k per year at the users selected SWR.

I'm not necessarily too concerned about how people get where they're going or where they're trying to get; I'm more interested in the mindsets that drive people in this direction  and in comparing some of the assumptions that we all make in order to reasonably project future portfolio performance. 

Regarding lifestyle: at a very conservative 3.25% SWR a $1.5mm portfolio generates $48,750 per year, $4mm is $130,000. All of this gets adjusted for inflation over time, so these numbers are in the dollars you would be using on the day you meet FI. Essentially, if you have $4 million properly invested today, you've got enough money to have $130,000 (with a conservative margin of error) worth of today's spending power per year for the rest of your life.

Oh, and huge props on digging out of BK and getting your savings going with some serious speed!

[Anonymous]

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@Anonymous wrote:

I'm late to the game at 37, but have been researching/reading/planning ever since ABCD mentioned it.

I cringe to think of all the money I blew from when I started working at 14 up until filing BK at 34. I worked two jobs my junior and senior year of high school. Landed a good office job right after (and usually had a service industry job at night.) I COULD HAVE HAD MULTIPLE PROPERTIES PAID FOR IN FULL BY 25 . . . had I not been blowing money on cars, concerts, travel and a good time. I had a blast and can't fully say I regret it, but I am tightening the screws and getting serious like nobody's business now. Perhaps the fact that I "lived" so much at a very young age is letting me feel like I'm not missing out on that stuff now.

I've cut A LOT of bills this year. I can comfortably put away about $30k of my salary next year. (I can actually get a lot crazier with my budget and do another $10-$15k maybe.) Sometime in 2019, I think I should be able to buy the first rental property in cash. Probably in FL where I'm from. (Real estate in the Northeast is kind of nutty.)

I think I'll be able to retire in 10 years. That's the goal for now. 13 years TOPS at age 50.

The thing for me is that I don't ever see myself needing much to live on. I've lived in a studio apartment in NYC for a decade. It seriously changes your relationship with "stuff".

I'll be just fine if my homebase is on wheels and I spend my retirement traveling and exploring and staying at different RV parks around the country. Maybe one day when that's old I'll settle into one of my paid in full rentals.

---

10 years is a great goal, and 13 isn't a very far backstop either! 

If you're doing real estate, I highly recommend you reconsinder leverage over all cash. All cash makes it really hard to accelerate at the same pace that a stock and bond index buyer can. Take a look and see what kind of rates you can get with 20-30% down on rental property; you might be surprised to see how much you can make in the year or so you would sit on the sidelines.

[Anonymous]

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@Anonymous wrote:

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@Anonymous wrote:

I'm late to the game at 37, but have been researching/reading/planning ever since ABCD mentioned it.

I cringe to think of all the money I blew from when I started working at 14 up until filing BK at 34. I worked two jobs my junior and senior year of high school. Landed a good office job right after (and usually had a service industry job at night.) I COULD HAVE HAD MULTIPLE PROPERTIES PAID FOR IN FULL BY 25 . . . had I not been blowing money on cars, concerts, travel and a good time. I had a blast and can't fully say I regret it, but I am tightening the screws and getting serious like nobody's business now. Perhaps the fact that I "lived" so much at a very young age is letting me feel like I'm not missing out on that stuff now.

I've cut A LOT of bills this year. I can comfortably put away about $30k of my salary next year. (I can actually get a lot crazier with my budget and do another $10-$15k maybe.) Sometime in 2019, I think I should be able to buy the first rental property in cash. Probably in FL where I'm from. (Real estate in the Northeast is kind of nutty.)

I think I'll be able to retire in 10 years. That's the goal for now. 13 years TOPS at age 50.

The thing for me is that I don't ever see myself needing much to live on. I've lived in a studio apartment in NYC for a decade. It seriously changes your relationship with "stuff".

I'll be just fine if my homebase is on wheels and I spend my retirement traveling and exploring and staying at different RV parks around the country. Maybe one day when that's old I'll settle into one of my paid in full rentals.

---

10 years is a great goal, and 13 isn't a very far backstop either! 

If you're doing real estate, I highly recommend you reconsinder leverage over all cash. All cash makes it really hard to accelerate at the same pace that a stock and bond index buyer can. Take a look and see what kind of rates you can get with 20-30% down on rental property; you might be surprised to see how much you can make in the year or so you would sit on the sidelines.

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Thanks and will do!

[iced]

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@Anonymous wrote:

All good points. I'll put out a couple definitions to clarify.

Financial Independence - I can choose what I do from here on out; I don't actually have to go to work to make the money I need to live.

Safe Withdrawal Rate - The percentage of a portfolio that can be spent per year without negatively impacting future plans. For me, I work with 3-3.25%.

FI Net Worth - No point in looking at real estate that doesn't generate income (exception: primary residence that reduces overall expenditures) or any other assets that rapidly depreciate (cars, furniture, etc.) These assets less debt are only those that generate investment income on a year after year schedule.

Total Net Worth - All assets less debt obligations. Mine is a little higher than my total FI assets.

Lean FIRE - Typically a portfolio that can generate between 25k and 100k per year at the users selected SWR.

Fat FIRE - Typically a portfolio that can generate north of 100k per year at the users selected SWR.

I'm not necessarily too concerned about how people get where they're going or where they're trying to get; I'm more interested in the mindsets that drive people in this direction  and in comparing some of the assumptions that we all make in order to reasonably project future portfolio performance. 

Regarding lifestyle: at a very conservative 3.25% SWR a $1.5mm portfolio generates $48,750 per year, $4mm is $130,000. All of this gets adjusted for inflation over time, so these numbers are in the dollars you would be using on the day you meet FI. Essentially, if you have $4 million properly invested today, you've got enough money to have $130,000 (with a conservative margin of error) worth of today's spending power per year for the rest of your life.

Oh, and huge props on digging out of BK and getting your savings going with some serious speed!

---

I have a few mindsets and assumptions on my strategy I'll share:

- What drives me in this direction? I'd like to retire someday. I'm not in a particular rush for the RE part (in fact, I don't think it's realistic I can even retire before I'm 70), though I would like to reach a point of FI as soon as possible. I'm on a 30-year plan because that's how long I'll have to save money to reach FI at my current savings rate (around $65,000/year).

- I assume a 0% growth YOY of my investments. Yes, this means I'm assuming that the entirety of my portfolio at retirement was contributed, but it also means I'm not going to be caught with my pants down if the market performance slows and I didn't contribute enough to retire on. I've been fortunate to have around an average of 16% return over the last 3 years, so I'm well ahead of my planning in that regard. I'm also quite aware that rate of return is ephemeral.

- I don't do real estate. The cost of entry is too high, the risk is no better or worse than equities, and the math on renting out units shows I break even or lose a little in most situations.

By your definition, I'm already Lean FIRE but I can assure you I'm nowhere near FI or RE. This is why I was going with lifestyle/cost of living as a factor. Someone living in the midwest may well live a simple but complete life on $30k/year whereas someone in the Bay Area is going to need $150k/year. If someone in the Bay Area read about someone else who is FI with $900k in assets, they would wonder how that's possible, just as I imagine some people are wondering why someone like me can't be FI with several million in assets.

[Anonymous]

I'm in total agreement on that last part, and should maybe edit upthread. I guess it would make more sense to peg everything to a cost of living metric. 25k-100k in an average COL city in the US makes sense for lean FIRE; it would be absurd in Seattle, Portland, the Bay, NYC, or even LA proper. Some people handle this by earning in HCOL and retiring to LCOL, but I want to live where I want to live and do what I want to do.

The 0% rate of expected return during the accumulation phase is interesting. If you eclipse your current FI number early from gains in the market will you ride off into the sunset?

Real estate is hugely location driven and I wouldn't be in it at all if we weren't occupying some of our commercial spaces. I agree that stock and bond investments make way more sense in most locations and situations.

[iced]

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@Anonymous wrote:

I'm in total agreement on that last part, and should maybe edit upthread. I guess it would make more sense to peg everything to a cost of living metric. 25k-100k in an average COL city in the US makes sense for lean FIRE; it would be absurd in Seattle, Portland, the Bay, NYC, or even LA proper. Some people handle this by earning in HCOL and retiring to LCOL, but I want to live where I want to live and do what I want to do.

The 0% rate of expected return during the accumulation phase is interesting. If you eclipse your current FI number early from gains in the market will you ride off into the sunset? 

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I would play it by ear. If I'm still happy in my career and able to keep life and work balanced, it could be difficult to walk away from that and the income it provides. It's a first world problem, but lets fast forward twenty years and assume I just turned 60 and had $5 million in savings. I could:

A. Retire immediately and start withdrawing from my funds. I'll travel the world several times a year and visit my vacation home on some weekends.

B. Keep working and continue to save more for retirement. I'll travel the world several times a year and visit my vacation home on some weekends.

I think the people who most dream of RE are those who aren't happy and/or fulfilled in their current profession (though there's always exceptions). It's a similar mindset to the people who dream of winning the lotto so they can blaze into the office with both middle fingers waving, grab a beer, then slide down the emergency chute into the sunset. Work is a means to an end for them, and they're sacrificing their best years in exchange for more years of independence later.

However, there's also a group of people for whom work isn't a means to an end, and it doesn't interfere with their dreams or plans. For instance, every single CEO of a Fortune 500 company could retire tomorrow and have more money than they'll ever need, and yet they keep on CEOing. Why get off the gravy train when you have a good seat?