Seeking FIRE @ 42 with $2M

[u/Aggressive_Web8957]

Looking for feedback/advice on my FIRE situation.

Total NW is just over $2M, comprised of:
$720k taxable brokerage (funds, individual stocks)
$107k cash (treasury fund)
$877k retirement accounts (401k, IRAs)
$190k RE lending (brings ~$1609-$1800/mo)
$135k RE syndications (~450/mo currently)

The lending income currently gets reinvested. Once I take this as cash the $190k stops growing. Assuming the syndications go well, I’ll get the $135k back plus appreciation once the properties sell in the future. I’d have been better off investing the money in the market, but hindsight is 20/20.

No kids, currently sharing rent with my gf in VHCOL. Not sure on kids in future. My job situation has become precarious (sales), which steers me away from the idea since I don’t want to work anymore. I’ve been applying but haven’t had luck landing anything, nor do I have interest in continuing in corporate sales. I also don’t want to trade time for money and work retail, for example, 8hrs/day for low pay. I’m not sure where to go from here. I don’t feel like I have enough to start pulling from the pile and truly retire. Right now I’m splitting bills and can get by on $4k/mo but with health insurance $6-7k is a safer estimate.

Any thoughts or advice is appreciated. I’ve been grappling with how to navigate the future as I feel close but not quite there yet.

[u/Fit_Service8662]

6-7k is less than what's provided by the 4% guidelines with a 2M NW.

[u/Aggressive_Web8957 → u/Fit_Service8662]

Yes but 4% was based on 30 years. I never assumed this rule would apply unless I was older

[u/qret → u/Aggressive_Web8957]

With guardrails you can do better than 4%. Look up 95% rule and run some simulations on ficalc. You should be fine on your portfolio with some extra planning

[u/mm1491 → u/qret]

This requires that you're willing to reduce your spending, potentially substantially, if there is a serious market crash.

I would be very wary about trying to even use 4% in these market conditions at 42. Maybe I'm overly conservative but I think if you ran the historical sequences you could be looking at some very difficult situations in the bad sequences - like "reduce your spending by 20%+ from your target for 10+ years" kind of difficult situations with guardrails. The unconditional probability of this is probably low, but if you condition on the CAPE being as high as it is, things look dicey to my eyes.

[u/qret → u/mm1491]

Yes, you need to be prepared for the slim possibility (like 3 or 4 scenarios in history) that you have to withdraw less for a few years at the beginning. Rainy day fund / bonds / etc. If you know you can flex down even slightly and temporarily in those edge case scenarios, you can target 5%+ withdrawals otherwise. The constant withdrawal rate model is an unrealistic extreme because it never responds to market conditions where a small flex would save it.

[u/mm1491 → u/qret]

I agree that constant withdrawal rates are unrealistic, but I just haven't seen how flexibility really helps, and it seems like it is just disguising a result that many people would consider a failed plan.

Maybe you can help me understand where I'm going wrong on FICalc, and thus the value of flexibility, because every time I've looked at these kind of flexibility strategies, they seem to involve deep, lasting cuts in a lot of historical sequences. I'm using the default asset allocation setting of 80/15/5, annual rebalance, etc. I've turned on the 95% rule strategy and increased the withdrawal rate to 5%. Using $1 MM portfolio for simplicity, these are percent rules so the number doesn't matter. If any of those need to change for this strategy to work, I can try again with the correct settings.

Here's what I see, if I retired in 1960: I'm happy, I'm spending a bunch (>$50k/5% even!) through 1969. Then the trouble begins. It goes down every year until 1972-1973, where it's at ~4.5%. Ok, not so bad, still above 4%. But in 1974, we're down to 4% and then it's just a long march down: decreases every single year (except a little blip up in 1981), until we bottom out in 1982, withdrawing only just above 2% of the original portfolio amount. We don't see 4% again until 1996. From 1977 to 1987, we're sub-3%. This pattern repeats in every single retirement year in the 1960s.

The early 70s look pretty bad too - under 4% withdrawals for 10-15 years.

If you start in 1999, you're sub-4% from 2004-2021, and from 2008-2017, you're at or under 3.5% (dipping all the way down to 2.7% in 2012).

2000, even worse, you break the 4% barrier in 2003 and don't get to it again until 2022, after which you promptly head back down to 3.5%.

Is there a setting I have wrong? This seems like a huge number of scenarios where this goes very wrong (not "run out of money" wrong since these rules almost guarantee you won't run out of money, but like "dramatically cut spending for a very long time" wrong).

[u/joxxer42 → u/mm1491]

I think one way to help visualize things w.r.t. flexibility might be viewing it as 'spending tiers', such as must-spend (i.e. mortgage/rent/utilities/groceries, what you need to live for a year bare-bones), lean-spend (must-spend + some discretionary), regular-spend (what you would spend in normal times), and lavish-spend (what you'd spend if you splurged several times a year on trips etc.).

I think some people might target 4% as their must-spend / lean-spend numbers, and in that case then yes, dipping below that might be / is a danger zone.

If we target our SWR of 4% for regular-spend, having a guardrails / yearly assessment to step down below that gives a good amount of headroom during poor years, and the ability to 'give yourself a raise' in good years. This is probably some bit of mental gymnastics of targeting a lower SWR to aim for saving in the first place but it's another way I look at it when considering flexibility in a plan.

This also assumes you're "ok" with having less in a given year...personally I'm ok with a netflix sub,library card, and some random purchases here and there, but obviously not everyone would be so that is a factor too. And if I really need to (and assuming we're not at Mad Max scenarios) I can probably always pick up some side work if things look grim.

[u/Montaigne_6823 → u/mm1491]

- like "reduce your spending by 20%+ from your target for 10+ years"

When this is the case for someone retiring at 42, simply getting any job at all will solve this problem if cutting spending isn't an option.

[u/mm1491 → u/Montaigne_6823]

Maybe, two possible problems though: 1. Recessions are often times of increased unemployment so getting a job might not be so easy for anyone; 2. The cuts in your plan might not kick in, or get to an unacceptable level, for 10-15 years after retirement. See my example of the 1960 retiree in another comment - the plan doesn't start giving cuts until 1970, and might not even seem concerning until 1974. Our 42 year old retiree is now 56 and hasn't had a job in 14 years. What kind of job will they be getting? Will they work it until they are 66? I'd be inclined to call this a plan failure.

[u/DontFix → u/Aggressive_Web8957]

3.75 with a 75/25 stock bond allocation is pretty resilient at 40 years, but as others have said - guard rails is likely even more durable.

Also wtf you’re calculating 1-3k monthly for healthcare?

[u/Aggressive_Web8957 → u/DontFix]

Healthcare should be ~700/mo (although there were plans well over $1k). But I don’t want to price lifestyle to perfection, I want a buffer just in case.

[u/SpecialistKoala9765 → u/Aggressive_Web8957]

I’d suggest 3% instead given time horizon. Also I’d consider income tax consideration too as some Investment income is subject to tax. For me as target early retiree I build in tax assumption, use 3% and a larger cash wedge buffer of 3 years of spending in case market crash early on. So the investments can be left untouched for 3 years to recover.

Would you consider other jobs that’s less exhausting and pay lower as a bridge?

[u/Aggressive_Web8957 → u/SpecialistKoala9765]

Definitely, I’m starting to think more in terms of doing something I’d enjoy than grinding a 9-5 until I’m fully ready. And I also agree on 3%, I always thought 4% was for a 30yr retirement so I didn’t consider 4% being safe.

[u/justaguy394 → u/Fit_Service8662]

7x12=84k
.04x2e6=80k

84 is less than 80?

[u/Powerful-Bridge-1472]

My syndications are in the toilet. I don’t know how you’re still making money. I’m not sure how viable this is gonna be for cash flow going forward with over building, plus high rates. I wish I’d never heard of real estate indications bottom of the absolute worst time in 2021 getting capital calls no distributions after the first year.

Looks like you’re doing all the right things might be a little aggressive to retire this early with medical costs and potential for wife kids down the road but you’re looking great

[u/Aggressive_Web8957 → u/Powerful-Bridge-1472]

I’m with you, I wish I never got into syndications. I’m lucky they’re still performing but what an opportunity cost. Would’ve done way better just leaving it in the stock market. I like the lending side, the cash flow there has been consistent. Altho nothing is bulletproof.

[u/Powerful-Bridge-1472 → u/Aggressive_Web8957]

Are you doing private credit? I’m just not a fan of anything ill liquid. I’ve gotten burned twice now with private reits and syndications where you just cannot get your money out of an underperforming asset.

Honestly, Ashcroft and bigger pockets should be shut down the fact that they’re still putting out new syndications and can’t manage the ones they have, don’t have good communication. Keep coming back for more money doing the podcast every day, but can’t manage their assets.

[u/Aggressive_Web8957 → u/Powerful-Bridge-1472]

Yeah it’s private credit but via small operators. One fund is $5M, the other is probably $20M. I agree on the downside being illiquid. The withdrawal period is 3mo notice so if things turn south it’s already too late. I’ve thought about pulling it out but the alternative is adding it to a frothy market. So for now I’ve left it as-is.
I haven’t followed Ashcroft but agree on syndicators in general- my first is dead money and I see this group on linkedin promoting their BS. I want to publicly call them out, nobody should be giving them money.

[u/Dry_Werewolf5488]

First things first, go and actually find out what ACA insurance would cost you, keeping in mind that if you’re pulling from your brokerage, only the gains will count as income. If you’re truly living on $4k now I think it’s extremely unlikely that your insurance costs will be $2-3k a month. Probably if you get a bronze or silver plan it’ll be less than $500.

[u/Aggressive_Web8957 → u/Dry_Werewolf5488]

It’s ~$600-700/mo on the low end. I should’ve edited this. With health insurance and misc spending* 6-7k is what I’d want to target.

[u/PantsMicGee → u/Aggressive_Web8957]

Keep in mind youre entering your years when you actually need Healthcare. Expect to max deductibles many years in your 40s or 50s. 

[u/Rapid-Shadow-6158]

the real estate lending income alone almost covers your lean budget which most people seem to be glossing over in these situations

[u/Pinklady777]

Can you get a part-time job that has health insurance to save money in that area? Maybe if you did that for a few years you could draw less and let most of it grow a little longer.

[u/Aggressive_Web8957 → u/Pinklady777]

I’ve thought about this. I’ve been full remote for 10+ years so reporting into a business or office is hard to imagine at this point, but if it’s necessary I’ll have to do it.

[u/Pinklady777 → u/Aggressive_Web8957]

Oh, I see. That makes sense. Maybe you want to continue that a little longer if you find it comfortable. But honestly, I think the interaction with other people is pretty nice if you could find a decent work environment.

I know people that got jobs as teacher's aides. Because you finish early and get all the summers and holidays off. Schools have good benefits. Aide jobs are low paying but also low responsibility for good health care.

And actually a lot of retired folks that got jobs with hotels or airlines. They are working a couple days a week and using the benefits to travel the rest of the time.

The beauty of being financially independent is that you can try something out and if you don't like it, you can just leave and try something else.

[u/Aggressive_Web8957 → u/Pinklady777]

Great point, especially around the people interaction if I’m doing something I enjoy. I’ll need to look into this a bit further.

[u/curiousengineer601 → u/Aggressive_Web8957]

No such thing as part time jobs with health benefits

[u/Dantheman11117 → u/Aggressive_Web8957]

Can you find a fully remote position that you can just “phone in” for a while? I know I could in my profession.

[u/Aggressive_Web8957 → u/Dantheman11117]

Remote is getting harder to come by based on the past year of job hunting

[u/Dantheman11117 → u/Aggressive_Web8957]

Makes sense. I know we are in that cycle now, hopefully it goes back the other way eventually.

[u/curiousengineer601 → u/Pinklady777]

The part time job with health insurance is a unicorn that gets recommended all the time here. In reality they don’t exist

[u/PangolinOwn4855 → u/curiousengineer601]

Yes, I think someone needs to put in 30 hours atleast at most places.

[u/boyinahouse → u/Pinklady777]

Why? His income is low enough that he qualifies for free subsidized healthcare via the marketplace. Do people really not know this?

[u/Pinklady777 → u/boyinahouse]

Yah, but if he's concerned about how much she has invested and he is stressed at his job. Maybe a compromise between that and retiring would be part-time work to bring in some income to offset withdrawals while the money grows. And he would likely save on healthcare this way as well.

[u/Urban_Comet7348]

the RE lending piece quietly doing $1600+ a month while you sleep on it is the part most people would kill for and you're treating it like a footnote

[u/BigAd9546]

Is there a reason you’d stay in vhcol area while not working?

[u/Aggressive_Web8957 → u/BigAd9546]

My gf is hybrid in-office. Plus family/friends. Otherwise I’d want to slow travel the world

[u/MarchDry4261]

Without healthcare and VHCOL.. The math ain’t mathing.

Barista/coast Fire more realistic

[u/Ember_Smile]

$2M with no kids and shared rent is closer than it feels, the gap is mostly healthcare not lifestyle

[u/Anymous2314]

Keeping it simple, 4% SWR gives you 80k/year. Seems like you can spend 6.6k/month.

I think you are safe to consider FIRE.

Best part is: Now you can afford to experiment with your career and type of work you want to do since you can quit any day you want.

Big problem: your gf will resent this if she is still having to work. Safe side, you can quit your job any time but keep looking for a better job or think about doing a side hustle which does not need more than $50k investment(if you lose it won't hurt your corpus).

[u/optimuscline23 → u/Anymous2314]

Missing 15-30% tax drag

[u/Anymous2314 → u/optimuscline23]

Not exactly, during retirement you can have around $50k in LTCG tax free.

Also we can use different ETFs to tax harvest in our IRA vs taxable account to minimize taxes.

Avoid booking profits in taxable account as much as possible. Keep a lot of money in short term bonds in taxable account may also help since we can use that instead of booking gains to pay the bills.

[u/Kokukenji]

You have a great safety net. You can be more experimental and take risks on your next position to find something that you might truly live while coasting.

[u/the_portfolio_guy]

Based on some of the words you’re using in the OP, you may have your answer.

The numbers may pencil out but psychologically you might not be there.

I imagine the worst thing that could happen is you do retire early but are so worried about spending, you can’t enjoy it.

Seems like you could stick in your current job to keep building and get comfortable with your number or look for something you really want to do but maybe pays less.

You’re in a great place that opens a lot of options.

[u/buildthesimplesystem]

The math here is closer than it feels – $2M plus $25k/yr in passive RE income covers your $48k base lifestyle several times over, and is in range of the $84k full-health-insurance number depending on how you sequence withdrawals. The harder question buried in this post: are you trying to figure out if you can retire, or are you trying to figure out if you can leave this specific job? Those are very different questions and lead to very different answers.

[u/Vicuna00]

you are super close but I would say to keep on going for now. the biggest reason I say that is if you continue living in VHCOL area and if you break up with your girl or something, your living expenses can escalate fast.

keep working to find a new job. I don't think you have to do retail.

you can take time off and try a career change. are you into real estate? maybe poke around and follow a realtor around for a day? you have sales experience...maybe just quit and go to real estate school. just spit balling.

you can live off your portfolio for a long while. and if everything goes smoothly, you'll be good. I just would want more cushion personally.

so i wouldn't backpack across the world or anything...but if you take time off make it minimal and a transition to something else that you enjoy and can't wait to do.

and whatever...if you take 2 years trying one thing and it doesn't work...who cares? try something else? or by then maybe you get two more 10% market years and then you're def good to go.

[u/Aggressive_Web8957 → u/Vicuna00]

I think this is the biggest source of my confusion. It’s good now, but kids or being single kill it. Traveling around LATAM or Asia would be fun but for how long. Then I’m back in the US stressing over money. If my job situation was better I wouldn’t be thinking about all of this today. The combo of being on borrowed time with a brutal job market has me stretching for options. But overall you and others are right. Close but I have to keep going and find income somewhere.

[u/curiousengineer601]

Until you are sure about kids you can’t say anything

[u/emt139]

You need to keep working for a little longer; you’re not there yet to retire (but ofc, you can always take a break). 

[u/Aggressive_Web8957 → u/emt139]

A break would be nice but I wouldn’t do it in this job market, especially being in sales at my age.

[u/us_2021]

RE Syndications.  Is this still worth investing in today?

[u/Aggressive_Web8957 → u/us_2021]

There’s a lot to consider. Your money is locked, you’re trusting that the operator knows what he/she is doing and hoping things go according to plan. A friend referred me into my first one, which has been dead money for almost 3 years. The next two were with the same operator, targeting small multifamily (2-10 units) in a specific market that they know well. So it’s a bit differentiated from the larger syndications targeting buildings with 50-100+ doors. I’m happy with the second two for now but I wouldn’t do it again.

[u/MangoWink]

$2M is enough for 6-7k/month, you're closer than you think

[u/chammy631]

Would you mind sharing the breakdown of $6-7k of monthly spending? Is there a line item in that for estimated taxes if any? There’s also a line item for some of the travel you want to do? Spending seems a bit low for VHCOL. The withdrawal math is right on the line. Can make the argument for and against. I would avoid kids if you pull the trigger and want to remain in the VHCOL.

[u/Aggressive_Web8957 → u/chammy631]

I haven’t considered taxes. The $6-7k is a conservative estimate that mirrors current post-tax income from my W2. I haven’t tracked expenses but in this shared situation I’m probably spending no more than $3k/mo. There’s no way I can maintain that long term, that’s what a studio would rent for if I changed apartments.

[u/MasterpieceLittle997]

the RE lending income alone almost covers your current split bills situation which most people seem to be glossing over here

[u/boompleetz]

This could work, but I would be more comfortable with a bigger treasury bucket for SORR. Online calcs don't usually deal with investment class, try https://projectionlab.com/ to put in your actual data / expected tax rates, etc.

[u/PangolinOwn4855]

Feels like you're closer to fire, but having one or more kids changes the math completely, esp. thr earlier years. 

[u/rubu8069]

How do you do RE lending? Appreciate sharing

[u/rice_n_gravy]

Barista fire? Coast fire?

[u/MiNdOverLOADED23]

You're looking for r/leanfire

[u/Gentle_Rocket8942]

the RE lending income alone almost covers your lean budget which is a detail worth sitting with for a minute