The questions raised show that just reaching FI doesn’t guarantee happiness, and that you should seek happiness/fulfillment now, instead of waiting for FI (or something else) to come along and make you happy.
From “The Daily Stoic” by Ryan Holiday
“Nothing will ever befall me that I will receive with gloom or a bad disposition. I will pay my taxes gladly. Now, all the things which cause complaint or dread are like the taxes of life – things from which, my dear Lucilious, you should never hope for exemption or seek escape.” Seneca
As your income taxes come due, you might be like many people – complaining at what you have to fork over to the government. Forty percent of everything I make goes to these people? And for what?!
First off, taxes go to a lot of programs and services you almost certainly take for granted. Second, you think you’re so special? People have been complaining about their taxes for thousands of years, and now they’re dead. Get over it. Third, this is a good problem to have. Far better than, say, making so little there is nothing left to pay the government or living in an anarchy and having to pay for every basic service in a struggle against nature.
But more important, income taxes are not the only taxes you pay in life. They are just the financial form. Everything we do has a toll attached to it. Waiting around is a tax on traveling. Rumors and gossip are the taxes that come from acquiring a public persona. Disagreements and occasional frustration are taxes placed on even the happiest of relationships. Theft is a tax on abundance and having things that other people want. Stress and problems are tariffs that come attached to success. And on and on and on.
There are many forms of taxes in life. You can argue with them, you can go to great – but ultimately futile – lengths to evade them, or you can simply pay them and enjoy the fruits of what you get to keep.”
In the end, we’ll pay our taxes, but nothing says we can’t do our best to keep them as low as possible.
Mr. 39 Months
Most of us working on FIRE are not there yet. We have to continue to slave away at work while we build up our resources and dream about life once we are there. Or we have hit FI, but continue to work because we enjoy what we are doing. Either way, we need to continue to work on staying competent in our roles as the technology and work change (in some cases, very dramatically)
Mr. 39 Months happens to work in the logistics industry (warehousing, trucking, etc.) – an industry which has started to feel the effects of the next wave of automation. Previously, automation meant conveyor systems to move packages, packaging machines to handle some of the mundane tasks, etc. The new wave of automation coming out is more heavily weighted towards robots and AI (an area that I am behind the curve on).
Every other year, my industry has a trade show, called Modex, in Atlanta GA. Imagine a floor about the size of 2-3 football fields, filled with the latest technology in pallet racking, conveyors, robots, software, hardware, etc. As an engineer, its like a kid in a candy store. The problem is having enough time to both see everything, and to talk in-depth with the vendors of technology you feel can be used in your company.
In addition, these shows have numerous seminars and training sessions that cover the technology, which enables you to better understand its uses, and how it might impact your company. While these sessions are put on by specific companies (who are trying to get you to buy their product) it still is a great way to train yourself in a new work method or piece of equipment.
I had a great time over the 4-days, learned a lot, and helped to improve my ability to assist my company. I would urge everyone who is working to seek out the professional society and trade shows for that group, and make an effort to attend. I don’t think you will be disappointed.
Mr. 39 Months
There has been a lot of ink spent on trying to answer this most basic of questions. In the FIRE community, there are strong voices advocated each choice, and there are a lot of bloggers, even though their analysis shows that renting for them is optimal who choose to get a house anyway.
It is a decision that is based on numerous variables, each of which has to be determined for a market that is dramatically fractured. In my state of New Jersey, the price for the town next to mine is ½ to 1/3 the price of my own town. This is primarily due to the school system and the perceived value of that town.
Some of the monetary variables that need to be considered include:
- Home value
- Mortgage rate
- Down payment
- Property taxes
- Repair costs
- Condo fees
- Decorating/remodel costs
- Increases in home value
- Increases in rent rates
- Home insurance costs vs rental insurance costs
In addition, there are numerous non-monetary factors that impact this:
- Neighborhood/School system – major factor with families
- Closeness to other family
- Not selling/owning home vs. continuing to rent into your retirement (i.e. if you purchase a home, its yours after 15/30 years, but if you rent, you are still renting at the age of 65)
- Flexibility/ease to move (hard to move quickly while having to sell a home)
- Ease of finding rental (in some markets, like Colorado, it’s almost impossible to find a rental. Home prices have shot up so much that it has forced out rental opportunities)
- Rental increases in excess of model (you don’t have control of this, unlike a locked in mortgage rate – the owner could jump your rates 10% and you are out of luck)
I would say these intangible factors are what causes a lot of the FIRE bloggers who have done the math to buy a home anyway, even if the numbers say it doesn’t make sense.
- Our Next Life (about 1/3 down the page they talk about it)
In the end, the answer is – it depends. There are too many variables and too much personal preference involved in the decision. Everyone has to do the math for their specific situation, take into account the non-monetary factors, and then decide.
To help, here are some “make vs. buy” tools available for free on the internet.
NerdWallet: 4 years
Realtor.com: 9 years
NY Time: 9 Years
Zillow.com: 2 years
Smartasset.com: Depends on what you put in
I think NerdWallet and Zillow leave out a few things that need to be considered (Zillow has a hidden agenda to get you to buy a home). Realtor and NY times include a lot more items to be considered (maintenance of home, Condo fees, etc.). I like smart asset, because it lets you input a lot more of the data yourself (mortgage rate, repair costs, etc.) so you can match it easier to your current situation.
Other blogs to review:
Rockstar Finance: Pay off mortgage vs. Invest extra
Any thoughts on make vs buy for you?
Mr. 39 Months
A lot of folks have been bemoaning the drop in the market, talking about the billions of $ that have been lost, and how the market seems to been in danger of a major correction. The doom-and-gloom people have been out in force. Still, most folks in the FIRE community have taken in all in with a “grain of salt” because of our long-term outlook and our financial knowledge. We all remember that it’s all paper losses, until you sell.
One of the major benefits of a market drop is the potential to buy things “on sale.” If we truly believe that the long-term trend of the market is up, then this sudden drop gives us the chance to purchase something we wanted. I know most folks in the US flock to sales like crazy (especially around Christmas), but seem to shy away from “sales” on stocks. Seems odd, doesn’t it.
This has an added benefit when you find yourself with some excess funds, for some reason. Mr. 39 Months company paid out their bonus for 2017, and since the company did well, I got a decent amount of money. With the timing the way it is, I can drop that into the market and buy some items on sale at the equivalent of a 4.1% discount (based on Jan 31 prices). Also, since I put 100% of it into my deferred account, I am able to put that money into the market without paying taxes on it (I did have to pay Social Security and Medicare taxes).
The result was a nice bump in the money that I can access when I retire early, as part of my draw down strategy.
Find any bargains out there?
Mr. 39 Months
After going through the health care analysis earlier, I (like so many others) have had to adjust my retirement plans and drawdown strategy to account for Obamacare and changes to it. Like so many others, as well, I will have to continually monitor the situation and make changes. In addition, Mrs. 39 Months looks like she wants to continue to work after we hit FI, but her job probably wouldn’t provide benefits.
The key issue is the provision for subsidies for individuals that do not make more than 4X the poverty level (the poverty level was around $16,000 for 2017). Thus, if your income, before deductions, is $64K or less, you can be eligible for subsidies. This may mean the difference between paying $1,400 a month and $600 a month for the same level of healthcare. Needless to say, if the situation remains the same, I’ll either need to make $64K, or $74K (the $10K necessary to pay the additional medical). I know many folks in the FIRE community knew this, but I thought it was $64K after deductions, not before.
Our initial budget post-retirement, was going to be about $72K, in order to pay for everything, including medical. This would provide for all bills, some travel, and $1K a month each for Mrs. 39 Months and myself in “fun money”/personal expenses. That would push us over the $64K figure. In addition, if Mrs. 39 Months works (earning around $24K), it adds a level of complexity. So how do I “square this circle?”
When we hit FI (27 months from now), we should have the following amounts.
- Savings: $132K (can spend without having to pay taxes)
- Deferred Income from work: $179K (when paid out, have to pay taxes on it)
- Brokerage Account: $94K (can spend about $60K of it without paying taxes. The rest, will be taxable.
- Inherited IRA from my father: $137K (taxable when we take it out)
- 401K/IRAs: $546K (taxable + penalty)
- Roth IRAs: $257K (non-taxable)
- Total: $1,345K liquid assets
- House: $298K (not depending on it unless absolutely necessary, i.e. no reverse mortgage)
- Mrs. 39 Months making $24K/year. Have to start from there
- Inherited IRA will force us to take around $6K a year
- When I leave company, I have to start taking my deferred amount. I believe I get to stretch it over 5 years, but that still winds up as a minimum of $36K a year
As you can see, I’m already up to $60K, without the ability to alter it. How do I get to $72K of income, without going over the $64K of taxable income?
- Use the money in my brokerage account by selling some of the stocks there. I would only have to pay for any capital gains on it. Since it looks like about 2/3 of money in it will be basis money, I could take out $12K, and it would only show as $4K of income.
- Use some of my Roth IRA money, which is not taxable, to make up for the shortage. Even though I would only be 56 when I hit FIRE, I can still withdraw the money I put in, tax free. However, I am loathe to do this.
- Get myself a side gig/part time job to keep myself from going crazy from retirement boredom and pay for the additional medical costs. We will have to see about that.
What is my current plan? I’m going to plan for option 1, and if I get really bored in retirement, I’ll probably shoot for #3, with the understanding that I will be working half of my time just to pay for medical. Like so many others in the US, medical is driving the train!
Of course, all this could change over the next 27 months as we move forward.
So, any changes to your drawdown plans, folks?
Mr 39 Months
I think the chart below is excellent. Its from FourPillarFreedom.com (a blog I’ve got to start reading now) that was linked to by The Simple Dollar. It shows, at certain income and spending levels, how many years it will take you to reach FI (assuming the 4% rule and a 5% interest after inflation). I believe it also takes into account taxes, etc. in the annual spending (i.e. your annual spend should include your taxes)
Many folks find it difficult to explain to people why they should save so much, and how it takes effort and sacrifice to reach our financial goals. This chart makes it a little easier to explain to people how long they would have to work in order to retire/reach FI.
Four Pillars has a lot of other tools (listed under his “Visuals” area) that help to show many of the FI concepts.
Check him out.
Mr. 39 Months
What do you do if you have reached FI, but are scared to “pull the trigger.”
What do you do when you’ve been diagnosed with a terminal disease that might mean your death in the next 5 – 10 years – but you are still scared of leaving the workforce?
I think this is close to many FIRE folks big nightmare. They work and scrimp and save, only to have something come up right as they are heading out to their new life.
I hope your thoughts and lives are doing better than this!
Mr. 39 Months
Sorry the posting has been a little late. I’ve been on the road traveling (11 hours in the car on Wed, 7 hours yesterday) so it was a little difficult to get posting up.
I’m traveling down to North Carolina to take a woodworking class (You’ve got to have hobbies!) and took the opportunity to stop off and see family in Knoxville TN on the way (Mom, Brother, other folks). It’s always great to have the opportunity to see family, especially when you are living 11 hours away by car.
Family has always been important to me, or at least I think so – but you couldn’t tell by my life choices. Mrs. 39 Months had a mother who wasn’t in the best of health, so we ended up moving to a place a little closer to her (3 hours) than my family. Even then, we would see her side maybe twice a year. Mine I would see, if I was lucky, about once a year. We always complained that nobody came to visit us, that we always had to be the ones traveling – but we also didn’t have any children to draw the grandparents to us.
Visiting my old homestead, where I lived for 18 years and was formed (and which I still feel is my home state) brings up a lot of memories. I see the choices I made growing up, and think about what could have been, had I made a different decision. I see places I enjoyed as a youth, and it brings back memories of old friends, lots of fun, and sadness at the passing of time. I have a tendency to be morbid about the past at times (something that Mrs. 39 Months chastises me about), but its part of my character. It doesn’t last very long, and typically I return to my usual upbeat self after only a short time.
That is why I have embraced stoicism with some vigor. The teaching help me deal with these feelings, as they show that what is past is gone, never to return. The decisions made then have gotten you to where you are now, but all you can control are your decisions now. It is useless to spend time and emotion on something you can no longer control. I know the logic behind it, but still have moments.
I also have been reflecting on what I’m going to do once I hit FI. I believe this is a topic that many folks explore vaguely, or in their first couple of years. They do all the things they have wanted to do all their lives (travel, hobbies, etc.). Then they look in the mirror, after a decade of pushing like crazy to reach FI, and see that they no longer need to push. They have to alter their personality, and it’s tough. That is probably why some of my favorite blogs to follow are those folks who have reached FI, and what they are doing now – years afterward.
I am still working that out.
Additional Reading on subject
Mr. 39 Months
Many folks know of Rick Edelman. Noted financial advisor, owner of Edelman Financial, author of numerous books on finance (investing, saving, homes, etc.), he runs seminars all over the US, and hosts a weekly 2-hour radio talk show. His book “The Truth about Money” has been a bible for many people in the US, as they seek to decipher the labyrinth of their money. For many folks, Ric is the voice of financial planning.
Like most financial advice, it is difficult to get too general in the rules of finance, and you often need to get a lot of an individual’s specific details to give accurate advice (something that Ric and his team say many times on their radio shows). Still, in his book, Ric does offer some advice that, while it might work for most folks in the world, does not match what I think works (and I think many in our FI community would agree).
In the real estate section of the book (that I was reading last night), Ric calls for you to:
- Pay as low a down payment as possible on your home and get as large a mortgage as you can(leave your remaining cash for investment)
- Go for the longest mortgage period possible (30 years+)
- Don’t make extra mortgage payments or pay bi-weekly, i.e. don’t pay your debt off sooner
- Don’t work on becoming debt free with no mortgage (rates are low, invest that money, use mortgage deduction to reduce taxes).
Some of his points to this are that if you pay your house off, it’s not liquid; you can’t sell portions of it to pay bills. You also don’t have flexibility if you want to move – you’ll have to sell the house (or rent it out, which can be a pain). Home price increases often merely track inflation, so you won’t gain there. Finally, a home will continue to cost you money (repairs, decorating, etc.). It is not an investment, and should not be considered one.
I have the same problem with him here that I do with folks that criticize Dave Ramsey’s debt snowball (“you should be paying off the highest rate credit card, not the one with the lowest balance”) – while the numbers are correct and make complete sense, it doesn’t take into account human psychology. We are emotional beings, not Mr. Spock, so we need to understand how keeping a mortgage forces us to behave & think, versus being debt free.
For many folks in the FI community, the path to financial independence is reached by keeping a close eye on their expenses, and finding ways to reduce these costs. Once we get our spending under control, we work to hit that 25X / 4% amount in order to achieve our freedom. Since Ric’s books says that 40% of a person’s spending is going into their home (mortgage, rent, taxes, utilities, furniture, etc.), by reducing this number, it suddenly opens up a big lead in our race to FI.
It wasn’t until Mrs. 39 Months and I paid off mortgage that I caught the FIRE bug. It suddenly seemed possible. When Mrs. 39 Months lost her job, we were just finishing up paying off the mortgage. She told me she felt much less stress about her job loss, knowing that we had the home paid off.
We all saw the possible disaster that could befall you if you followed Ric’s advice completely. We suffered a major crash (2008/2009) with job losses and a dramatic drop in home prices. There are a lot of folks with the huge mortgage that is “smart” that, when the market’s crashed 50% and they lost their job, were in a terrible spot. Don’t tell us “this could never happen” – we saw it happen.
For most folks who are ok being on the treadmill, who are fine with getting the large mortgage and house and paying it off over 30 years while saving for a retirement in their 60s, Ric’s ideas work. For those of us in the FIRE community, who want to get our independence early, the idea of tying ourselves down to a huge mortgage for the next 30 years really doesn’t look that “smart.”
Other articles on this topic:
Mr. 39 Months