The Intersection of FIRE and Disney

[runwad]

@arminnie I think spending in retirement will be my hardest challenge after a lifetime of saving!

Sounds like you had some wonderful trips, I hope I'm half as lucky.

 

[arminnie]

@arminnie I think spending in retirement will be my hardest challenge after a lifetime of saving!

Sounds like you had some wonderful trips, I hope I'm half as lucky.

It was. I was so used to choosing everything from what I ate (cheapest thing on the menu) to which hotel based on what was the cheapest.

 

[bernina]

I wonder if anyone could help me with a sanity check on calculations? Starting with the easier thing to track, savings.

Income:

• Take home pay (total of all our paychecks, including our 2 bonus paychecks)
• Add back in items that are removed from paychecks (401k contributions, car payments, life insurance premiums, HSA contributions, Dependent care contributions, Federal and State refunds) plus Employer HSA contribution. These items added about $54K to our paycheck income in the first bullet.

Savings:

• 401k contributions, employer 401k matching, Roth IRA contributions, HSA (net of disbursements), general savings (the money we put into our liquid savings accounts), mortgage principal payments

The reason I'm asking is that doing this, I came up with a savings rate of 51%. I'm actually in a bit of shock honestly and I'd love another set of eyes on things. I also have a question on bonuses and how folks handle in calculations. It's not income we can count on each year (although it has been somewhat steady the last 8 years). If I remove the bonuses we're at 45%. These aren't commission based bonuses, they're basically profit sharing.

And now on to expenses. Is it safe to say that if we're saving 51% then we're spending 49%? My detailed analysis will show what categories we're spending on, but that's pretty much the number?

Thank you in advance!

 

[bernina]

I figure that anybody who has achieved FIRE and retired has to be living off of one of 3 things:

• Dividends, Interest & Distributions from stocks (probably using some SWR of 2.5-4%)
• A portfolio of rental real estate
• A pension or some defined benefit plan that they qualified for at a "young-ish" age (i.e. achieved 30 years service at age 51)

I do think we have a few FIREd folks here on the thread who are living off of #1 above My goal is to achieve #1 by 45ish (so in about 10 years).

Jumping off this (and I apologize now because this is probably such a basic question I should know the answer to)...

Right now we have our 401ks, Roth IRAs, some liquid savings in high yield checking accounts (under $50K), and our pensions (we could get lump sum payouts of around $150K each if we quit today), plus about $185K of equity in our house.

Say we were able to retire in 5 years (just throwing it out there). I'd be 47, DH 52. Too early to draw from 401k which is our largest savings by far. What can we put in place now to allow us to have something to draw from without penalty for those 7 or so years until DH hits 59 1/2? Should we be investing more into stocks outside of 401ks? We definitely don't play the stock market (other than our investments mentioned above, mostly in target retirement funds), but maybe we need to?

 

[WVMomof3]

Jumping off this (and I apologize now because this is probably such a basic question I should know the answer to)...

Right now we have our 401ks, Roth IRAs, some liquid savings in high yield checking accounts (under $50K), and our pensions (we could get lump sum payouts of around $150K each if we quit today), plus about $185K of equity in our house.

Say we were able to retire in 5 years (just throwing it out there). I'd be 47, DH 52. Too early to draw from 401k which is our largest savings by far. What can we put in place now to allow us to have something to draw from without penalty for those 7 or so years until DH hits 59 1/2? Should we be investing more into stocks outside of 401ks? We definitely don't play the stock market (other than our investments mentioned above, mostly in target retirement funds), but maybe we need to?

There are ways to get to your 401K earlier. I know a lot of people are converting to Roth if that makes sense for you or doing the 72(t) SEPP. This website explains things much better than I can.

https://www.madfientist.com/how-to-...0kJOwaZR1AdIj2eGy-2wsQbCzclnaz3d2-t0OeMPY0TwM

 

[bernina]

There are ways to get to your 401K earlier. I know a lot of people are converting to Roth if that makes sense for you or doing the 72(t) SEPP. This website explains things much better than I can.

https://www.madfientist.com/how-to-...0kJOwaZR1AdIj2eGy-2wsQbCzclnaz3d2-t0OeMPY0TwM

Thank you for sharing, that’s a great article and some really surprising comparisons. My gut would tell me to never take the 10% early withdrawal penalty but the numbers really aren’t that bad. Lots to consider for sure.

 

[SouthFayetteFan]

I wonder if anyone could help me with a sanity check on calculations? Starting with the easier thing to track, savings.

Income:

• Take home pay (total of all our paychecks, including our 2 bonus paychecks)
• Add back in items that are removed from paychecks (401k contributions, car payments, life insurance premiums, HSA contributions, Dependent care contributions, Federal and State refunds) plus Employer HSA contribution. These items added about $54K to our paycheck income in the first bullet.

Savings:

• 401k contributions, employer 401k matching, Roth IRA contributions, HSA (net of disbursements), general savings (the money we put into our liquid savings accounts), mortgage principal payments

The reason I'm asking is that doing this, I came up with a savings rate of 51%. I'm actually in a bit of shock honestly and I'd love another set of eyes on things. I also have a question on bonuses and how folks handle in calculations. It's not income we can count on each year (although it has been somewhat steady the last 8 years). If I remove the bonuses we're at 45%. These aren't commission based bonuses, they're basically profit sharing.

And now on to expenses. Is it safe to say that if we're saving 51% then we're spending 49%? My detailed analysis will show what categories we're spending on, but that's pretty much the number?

Thank you in advance!

Keep in mind, there is no absolute right answer on how to calculate this. It really comes down to something you can measure consistently and are comfortable with. It is entirely possible that 51% is the right number. Depending on how you're categorizing things, you might find that your expenses as you detail them are not 49% of your income but then you'd ask: where's the other money? I have some strange categories of misc cash inflows and misc cash outflows that affect the final numbers but don't go specifically into the numerator or denominator as you'd expect them to. Just make sure that you are happy with how you're calculating it and be consistent. By tracking it consistently, you can determine if you're hitting your goals (i.e. are you increasing income, cutting expenses in certain categories, etc.)

Jumping off this (and I apologize now because this is probably such a basic question I should know the answer to)...

Right now we have our 401ks, Roth IRAs, some liquid savings in high yield checking accounts (under $50K), and our pensions (we could get lump sum payouts of around $150K each if we quit today), plus about $185K of equity in our house.

Say we were able to retire in 5 years (just throwing it out there). I'd be 47, DH 52. Too early to draw from 401k which is our largest savings by far. What can we put in place now to allow us to have something to draw from without penalty for those 7 or so years until DH hits 59 1/2? Should we be investing more into stocks outside of 401ks? We definitely don't play the stock market (other than our investments mentioned above, mostly in target retirement funds), but maybe we need to?

I would recommend a series of blog posts by the MadFientist, JL Collins & Root of Good for this:

• https://www.madfientist.com/how-to-access-retirement-funds-early/
  
• https://www.madfientist.com/traditional-ira-vs-roth-ira/
  
• https://jlcollinsnh.com/2013/12/05/...-roth-conversion-ladders-from-a-mad-fientist/
  
• https://rootofgood.com/roth-ira-conversion-ladder-early-retirement/

Primarily your goal is to avoid early withdrawal penalties.

• 401k and IRA has a 10% penalty before 59 1/2; HSA has a 20% penalty before 65 (if I remember correctly)
• Substantially Equal Periodic Payments is one way to avoid these penalties but it seems pretty complex and VERY inflexible
  
• The Roth IRA Ladder is the Early Retirees best friend and it's pretty easy to understand actually.

Roth IRA Conversion Ladder
1) As you approach early retirement, you need to have 5 years of living expenses accessible to you. This could be a combination of taxable investment accounts, liquid savings (CDs/Money Markets), and Roth contributions you've made up to this date that will have hit the 5-year mark.
2) It's important to know that CONTRIBUTIONS (not earnings) can be withdrawn from a Roth IRA after they've been in there for 5 years. This applies to both contributions and conversinos from traditional IRAs. Another step you'll want to do is rollover all your 401k money into a traditional IRA (usually after you quit your job).
3) So during your first 5 years, you live off of the money you built up in number 1. At the same time, each year you convert a portion of your traditional IRA to a Roth IRA. You will incur taxes on this but since you're not making any money (you're living the dream as an early retiree) your tax liability will be very little! There is NO 10% penalty on this conversion.

If this all sounds complex, I'd read the Root of Good article thoroughly. He actually puts some charts in there to show how this works in practice. It really makes sense to see it with real numbers.

Review all of this and let me know what questions you might have. I've done a lot of research on this - I consider it to be fun reading!

 

[1st*toright]

Keep in mind, there is no absolute right answer on how to calculate this. It really comes down to something you can measure consistently and are comfortable with. It is entirely possible that 51% is the right number. Depending on how you're categorizing things, you might find that your expenses as you detail them are not 49% of your income but then you'd ask: where's the other money? I have some strange categories of misc cash inflows and misc cash outflows that affect the final numbers but don't go specifically into the numerator or denominator as you'd expect them to. Just make sure that you are happy with how you're calculating it and be consistent. By tracking it consistently, you can determine if you're hitting your goals (i.e. are you increasing income, cutting expenses in certain categories, etc.)

Thanks for the reading list - I'm still very much focused on the savings part, not so much the what happens after you have "enough" part. I haven't really considered what happens next - its still a ways out for me.

Also, I love the "savings rate" discussions. Its a tough metric to pin down, and just figuring out an approach that works and sticking with it seems like excellent advice. I've been basing my "how much is enough" number on our monthly expenses, rather than worrying too much about our savings rate. I mean, obviously the more we can save, the better, but the amount I'm bringing in now is in no way a yardstick that will determine what we need in retirement. We live a very different lifestyle now than we will when we retire - we live in a high COL area (pay crazy high property taxes), have 2 kids worth of activities and clothes in the budget and have to siphon off a good bit of savings towards college expenses. So I'm mostly still taking the approach that I control costs as much as I can and put everything else in savings. I don't really take into account savings that I don't actively control - my employer match, my 401k contribution, my HSA savings are all fixed amounts that I can't increase (I max out all of the above). The savings rate I focus on is how much of our take home pay I can set aside in a given year. Its a much easier calc, and works for me.

 

[punkin]

Sorry. Wrong thread.

 

[QueenIsabella]

Thanks for the reading list - I'm still very much focused on the savings part, not so much the what happens after you have "enough" part. I haven't really considered what happens next - its still a ways out for me.

Also, I love the "savings rate" discussions. Its a tough metric to pin down, and just figuring out an approach that works and sticking with it seems like excellent advice. I've been basing my "how much is enough" number on our monthly expenses, rather than worrying too much about our savings rate. I mean, obviously the more we can save, the better, but the amount I'm bringing in now is in no way a yardstick that will determine what we need in retirement. We live a very different lifestyle now than we will when we retire - we live in a high COL area (pay crazy high property taxes), have 2 kids worth of activities and clothes in the budget and have to siphon off a good bit of savings towards college expenses. So I'm mostly still taking the approach that I control costs as much as I can and put everything else in savings. I don't really take into account savings that I don't actively control - my employer match, my 401k contribution, my HSA savings are all fixed amounts that I can't increase (I max out all of the above). The savings rate I focus on is how much of our take home pay I can set aside in a given year. Its a much easier calc, and works for me.

See, this is a lot of the issue that we have in this house. We're FI, but DH has no plans to RE. I'm a SAHM, and we plan for that to continue. There's no point in my going back to work.

Anyway, what we're looking at is, how the heck do we plan expenses in retirement, when we're still in the thick of raising kids. Oldest is 23 and launched, youngest is 13--we've been at this a long time, and not through the woods yet. I just found out last week that DH has another small pension that will be coming in--total of pensions + SS for both of us (if taken at age 67) will be ~$60k a year. Plus RMDs--both existing ones (from inherited IRAs), and future ones from our own IRAs. It doesn't look like there will be any low-income years when a Roth conversion might look promising--we could still do them, but we'll pay a relatively high tax. Bottom line, we don't know how it's all going to shake out. we're pretty frugal, but have some home renovations coming up, on top of college costs for our younger two, and the entire family loves us some travel. So, with all the different moving parts, it's tough to know if we're spending enough, too much, too little... Okay, at this point, I don't think there's such a thing as spending too little, not with 2 college educations staring us in the face. But, you get what I mean.

 

[elaine amj]

Anyway, what we're looking at is, how the heck do we plan expenses in retirement, when we're still in the thick of raising kids.

My kids are 16 and 17 so not quite there yet although I am close. I finally gave up trying to predict and went with our current expenses when I FIREd. If it ends up being more than I need after the kids are launched, that's gravy I did make sure I had their education savings in a separate bucket I did not add to my FIRE number. It's not a massive amount, but should be enough to cover basic tuition for both. They have been told since they were 12 that they will have to cover everything else through jobs, etc.

As for trimming expenses, we do everything we can to reduce and optimize our daily expenses. We are frugal and are used to delayed gratification. That said, we spend on the things we care about (like Disney haha) and I have never been a believer in waiting until retirement to live our dreams. So while there is a strong case for delayed gratification which we practice regularly, we also chose to build our best lives even while we were working.

When I FIREd last year, it really is just more of the same. Our lives haven't changed dramatically. We still spend about the same. Just have more time and flexibility for vacations.

Although I did have to put a hard limit on my vacation spending...who knew extra time on vacation could cost THAT much more?! We don't travel for as long periods as I envisioned....but I also don't crave those extra days like I used to. I'm often quite happy to come home now.

 

[bernina]

Keep in mind, there is no absolute right answer on how to calculate this. It really comes down to something you can measure consistently and are comfortable with. It is entirely possible that 51% is the right number. Depending on how you're categorizing things, you might find that your expenses as you detail them are not 49% of your income but then you'd ask: where's the other money? I have some strange categories of misc cash inflows and misc cash outflows that affect the final numbers but don't go specifically into the numerator or denominator as you'd expect them to. Just make sure that you are happy with how you're calculating it and be consistent. By tracking it consistently, you can determine if you're hitting your goals (i.e. are you increasing income, cutting expenses in certain categories, etc.)


I would recommend a series of blog posts by the MadFientist, JL Collins & Root of Good for this:

• https://www.madfientist.com/how-to-access-retirement-funds-early/
  
• https://www.madfientist.com/traditional-ira-vs-roth-ira/
  
• https://jlcollinsnh.com/2013/12/05/...-roth-conversion-ladders-from-a-mad-fientist/
  
• https://rootofgood.com/roth-ira-conversion-ladder-early-retirement/

Primarily your goal is to avoid early withdrawal penalties.

• 401k and IRA has a 10% penalty before 59 1/2; HSA has a 20% penalty before 65 (if I remember correctly)
• Substantially Equal Periodic Payments is one way to avoid these penalties but it seems pretty complex and VERY inflexible
  
• The Roth IRA Ladder is the Early Retirees best friend and it's pretty easy to understand actually.

Roth IRA Conversion Ladder
1) As you approach early retirement, you need to have 5 years of living expenses accessible to you. This could be a combination of taxable investment accounts, liquid savings (CDs/Money Markets), and Roth contributions you've made up to this date that will have hit the 5-year mark.
2) It's important to know that CONTRIBUTIONS (not earnings) can be withdrawn from a Roth IRA after they've been in there for 5 years. This applies to both contributions and conversinos from traditional IRAs. Another step you'll want to do is rollover all your 401k money into a traditional IRA (usually after you quit your job).
3) So during your first 5 years, you live off of the money you built up in number 1. At the same time, each year you convert a portion of your traditional IRA to a Roth IRA. You will incur taxes on this but since you're not making any money (you're living the dream as an early retiree) your tax liability will be very little! There is NO 10% penalty on this conversion.

If this all sounds complex, I'd read the Root of Good article thoroughly. He actually puts some charts in there to show how this works in practice. It really makes sense to see it with real numbers.

Review all of this and let me know what questions you might have. I've done a lot of research on this - I consider it to be fun reading!

Thank you for the new reading material! Although now it's going to take me longer to get through the remaining 20 or so pages I have on this thread

I really need to sit down and explore how we could get 5 years of costs into accounts that would be accessible during the early years of early retirement. Like I said, our 401ks have the bulk of savings at the moment, then our pensions or lump sum payouts (depending on if we work 30 years or decide to walk away from 1 or both jobs prior to hitting 30 years), followed by our Roths and cash savings. This has giving me some great food for thought and identified an area that I honestly wasn't very focused on.

I'm really so grateful for this thread because not only is it helping us to refine (or in some cases define) our strategies, just doing some high level analysis has already given both DH and I a bit more peace of mind that if one (or both) of us were to be laid off tomorrow, we will be OK. We'll have tough decisions to make and one or both of us would need to return to the workforce, but things would work out.

 

[SouthFayetteFan]

Thank you for the new reading material! Although now it's going to take me longer to get through the remaining 20 or so pages I have on this thread

I really need to sit down and explore how we could get 5 years of costs into accounts that would be accessible during the early years of early retirement. Like I said, our 401ks have the bulk of savings at the moment, then our pensions or lump sum payouts (depending on if we work 30 years or decide to walk away from 1 or both jobs prior to hitting 30 years), followed by our Roths and cash savings. This has giving me some great food for thought and identified an area that I honestly wasn't very focused on.

I'm really so grateful for this thread because not only is it helping us to refine (or in some cases define) our strategies, just doing some high level analysis has already given both DH and I a bit more peace of mind that if one (or both) of us were to be laid off tomorrow, we will be OK. We'll have tough decisions to make and one or both of us would need to return to the workforce, but things would work out.

My plan is largely my Roth contributions mixed with liquid investments.

 

[2TxAgs]

2) It's important to know that CONTRIBUTIONS (not earnings) can be withdrawn from a Roth IRA after they've been in there for 5 years.

I don't believe this is correct. Since your contributions are made with money that has already been taxed, it is yours to take at any time, even if the Roth IRA is less than 5 yrs. old.

 

[SouthFayetteFan]

I don't believe this is correct. Since your contributions are made with money that has already been taxed, it is yours to take at any time, even if the Roth IRA is less than 5 yrs. old.

You’re correct - I got some concept merge between the 5 year holding rule (ie you can’t withdrawal earnings I believe until 5 years from your initial contribution) and the 5 year rule on traditional conversions. Why do they have to both be 5 years lol! And then there’s some subtly differences between a Roth 401k and Roth IRA too I think. So much to keep straight haha.

At any rate - nobody should trust some random guy who created a FIRE thread on the DIS for this stuff. Trust a random blogger instead HAHA

 

[RamblingMad]

I wouldn’t count mortgage payments toward savings.

 

[SouthFayetteFan]

I wouldn’t count mortgage payments toward savings.

I would absolutely count the principal portion of my mortgage payment as savings. And the interest portion is an expense.

 

[RamblingMad]

I would absolutely count the principal portion of my mortgage payment as savings. And the interest portion is an expense.

You can’t do anything with that principal.

Now, if this was an investment property or a rental, I can see it as savings since you’ll eventually sell it. But your primary residence is where you live.

 

[SouthFayetteFan]

You can’t do anything with that principal.

Now, if this was an investment property or a rental, I can see it as savings since you’ll eventually sell it. But your primary residence is where you live.

Agree to disagree. The reduction of a liability is certainly not an expense. The house is an asset, the mortgage is a liability. A principal payment reduces the liability and increases my net worth. You’re welcome to account for it your way but most people in the FIRE movement would treat principal payments as a component of savings.

 

[coast2coastmickey]

Yeah @SouthFayetteFan I'll disagree with you as well. Principal pay-down as savings only makes sense if you plan on selling the home at some point in order to fund FIRE. Further, the Trinity folks didn't include home equity in their 4% rule research.

For me personally: I track 2 things:
Time to FI: basically how many years left to work only based on FIRE expenses, current liquid investments, and current savings rate. Home equity not a factor.
Net Worth: A meaningless number, but I like to document the progress. Home equity is included here, so pay-downs do impact this number sometimes, but there's a corresponding decrease in my cash when that happens, so it balances out.