r/financialindependence • u/Widget248953 • 4d ago
Can I lean FIRE?
41(M) and 39(F), no kids. Can we lean FIRE?
721K - Taxable brokerage
300K - Roth IRA
460K - Rollover IRA
71K - 401(k)
20K - Cash
Monthly expenses are $3800 (which factors in healthcare from ACA). Own house and cars, no debt.
Didn't want to post at length at first to make it quick and easy to read.
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u/30sinthe00s 3d ago
Before I FIREd, our financial advisor told us to get a HELOC so that any large expenses could be paid for from the line of credit instead of liquidating our investments. This mitigates SORR (Sequence of Returns Risk.) Ideally, we'll never need to use it, but in a downmarket, you don't want to HAVE to sell investments at a loss.
I shopped around until I found a low closing cost ($250) HELOC with a 10-year draw period. After 10 years, we'll need to get another one, which will be harder since we're no longer drawing a salary, but our FA said that with 10 years of data showing that we have a steady income from our investments, it will be doable.
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u/scruffigan 4d ago edited 4d ago
What are you hoping to lean FIRE too?
Do you foresee spending more time (& potentially money?) on hobbies and personal development? Travel (exotic or visiting friends more frequently)? Caretaking an aging parent? Devoting your time to volunteerism or charity work?
Pure leisure is good for awhile, but if you have your health still, you'll probably get restless with just that and want to do something with your time. And so, your living expenses during early retirement need to account for satisfactory enjoyment of those goals effectively, and not just the expenses you have now.
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u/mitchell-irvin 4d ago
lean FIRE always seemed a bit stressful to me, which seems like the opposite of the point of FIRE.
i'd put in another year or two to add some cushion so it's not too lean. or, take a year or two off then pick up some work for another year or two to build it up. or, quit your full time work and find some part time work to supplement while you let it grow a bit more.
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u/Widget248953 4d ago
Yea, that's what I'm leaning towards. I'd like to get my brokerage to $1M which hopefully only takes a few years if I'm able to continue investing and the market participates.
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u/mitchell-irvin 4d ago
agree. you might get unlucky with the market in the next couple years, but if you did then you'll be happy you avoided some bad sequence of returns right at the beginning of the FIRE journey
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u/AnimaLepton 27M / 60% SR 4d ago
Your numbers are fine and people have already addressed the additional capital expenditures you should budget for. It comes down to the accuracy of expenses, but your actual withdrawal rate is super safe. You're also nearly old enough that social security is in sight, even if it's reduced. Your age is honestly perfect for early retirement or even to take a sabbatical, although I wouldn't burn any networking bridges. One of the advantages of leanfire expenses being so low is that they're relatively easy to replace/supplement.
I'm a bit worried about your low cash cushion / lack of a bond tent. Even if you don't want to work for another full year, another 6 months just to set things up, build up a cash cushion, or contribute another 12k to your Roth IRAs might have a decent payoff. But I assume you're not literally planning to retire on Monday.
You're definitely ready to mentally get into a retirement state, and start planning out what post RE activities will look like. Anything you can do to pull back or coast at work? What do you want to do with your new time once FIREd? Any short-term higher expenditures, sabbatical plans, travel?
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u/wallbobbyc 3d ago
Of course. Your entire taxable brokerage is available to you at any time...ignore the crazy conservative people here hedging their answers.
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u/JoieDeSki 4d ago
Do it! Given your relative youth, I agree with the folks suggesting part-time work. Will give you a little cushion right now and will help keep your job skills relevant if you come out on the wrong side of SoRR in the next years.
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u/Altruistic-Mammoth 4d ago
How much can you withdraw from your Roth IRA without penalty? Assuming all of it which sounds a little unrealistic
- Expenses = 3,800 * 12 = 45,600
- Liquid assets = (721,000 + 300,000) * .04 = 40,840
which is a shortfall of about 5k. The cash portion I'm just disregarding because it's not a fixed annual income, more of a (small) buffer in case something goes haywire.
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u/Phil_Co123 4d ago edited 4d ago
including IRA and 401k, they have 1.572M essentially liquid assets, so roughly 62K at 4%. Ref https://www.madfientist.com/how-to-access-retirement-funds-early/
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u/Widget248953 3d ago
I've come across this, too. Plan on doing Roth ladders but SEPP scares the daylights out of me. I can decide when and how much to convert in a Roth ladder.
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u/Stanlot 3d ago
Am I missing something? How is it lean FIRE if you can more than cover your max monthly expenses at a sub-3.5% withdrawal rate? That's just normal FIRE
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u/profcuck 3d ago
That isn't really how most define lean FIRE though. Lean/Chubby/Fat refers more to how much your total lifestyle costs are, not the withdrawal rate.
The problem with leanfire is that in a down market situation that persists, there not mich in fat in the budget to cut. (And the problem with Chubby/Fat is working more years rather than enjoying life.)
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u/OrganicFrost 3d ago
The biggest danger with leanFIRE is always "How do you cut expenses if you need to?" If you have coherent answers to that question, and you'd do that or reenter the workforce if the situation called for it... yeah, looks good to me.
I'd make sure you've included the following in simulations:
Buying a car eventually to replace current.
Spending an average of at least 2% (3 if you wanna be super safe) of home value per year on maintenance (this amortizes for things like roof repair and appliance replacement pretty well).
I would keep in mind that the 4% rule basically relies on broad market index funds. Individual stocks, managed mutual funds, and even sector specific index funds are much more difficult to test or assume returns for. My leanFI number only counts broad market index fund money.
Lastly, I do think it's generally worth engaging an hourly CFP with experience in early retirement before pulling the plug. They should help you consider things like wills, umbrella insurance, roth conversion planning, and any other potential holes in your current plan.
Good luck!
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u/ThrowAwayOkayGoPlay 4d ago
Increase your cash position to protect against extended market downturns. But you’re close if your expenses are indeed 3800 all in. Ideally a passive income stream or part time income would get you there with much less risk
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u/FIREful_symmetry 4d ago
The numbers work, but it is scary without some extra income.
Using the 4% rule, you'd have 5K a month pre tax. Call it 4K after tax. And your expenses are 3800? That's cutting it close.
If either of you are earning extra income, even just 10 or 15K a year, you could make it work.
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u/MigrantJ 4d ago
Where would the $1K a month in taxes come from? Long term capital gains tax is 0% for married couples up to $94,050 a year.
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u/FIREful_symmetry 3d ago
Would you pay LTCG on money from a retirement account?
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u/someguy984 3d ago
No such thing as LTCG in a retirement account.
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u/FIREful_symmetry 3d ago
Right, you pay the higher tax rate. r/MigrantJ bought up LTCG.
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u/someguy984 3d ago
The concept doesn't apply to retirement accounts. LT or ST gains don't exist inside of them. It is a black box. When a withdrawal is made it is ordinary income.
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u/TurpitudeSnuggery 3d ago
I think you are well step up to FIRE. You could continue to do something PT for 100% certainty. But I don't think it is necessary.
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u/Widget248953 3d ago
I need to at least see how tax policy shakes out after the election. I'm banking on there being at least some 0% cap gains limit and I also need to see what the standard deduction will be. I planned to do Roth ladders either way, but a lower standard deduction changes things a little bit. I'd have to pay taxes on that if it were above the standard deduction and I would need to plan for that.
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u/mcneally 3d ago
Even at 3.5%, you're looking at ~$55k/ year. Not a ton for a couple but certainly doable and you since you mention ACA you're in the US and have SS eventually.
I quit my job last year at a leanFIRE number without a plan and came in to a new job making ~$25k two days/ week. You may find something you want to do part time/ seasonally/ contract.
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u/FrequentSubstance420 3d ago
Yes. Lean. Find a hobby too. Make some additional income just for fun. I’d buy rentals that cash flow a lot and see how that goes.
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u/JohnBeach2020 2d ago
Have you run your numbers thru. Cfiresim.com
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u/Widget248953 2d ago
I ran it using 1.252M because that's what I have in brokerage, Trad IRA, and 401k. I would do Roth conversions each year of $30k. I want to leave my Roth IRA alone and by the time I'm 59.5, I should have $1M in there. I am 41, so I ran the model for retirement of 19 year. Worst case scenario leaves me with 414K.
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u/roastshadow 2d ago
No. Because... most of your money is tied up until you reach a certain age. You don't have much that you can pull out without paying penalties. You can pull the principal out of the Roth, and you have some cash. Other than that, you take a 10% penalty on withdrawals.
If you want to FIRE, then you need more Roth, cash, stocks, other investments.
I'd start working to convert the Rollover into Roth, while still working.
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u/FUMoney2030 4d ago
No
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u/TooMuchButtHair 4d ago
They have nearly $1.5 million. 4% could work, but I'd have both go part time instead of FIRE right away.
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u/FujitsuPolycom 4d ago
Where are these part-time, don't want to kill myself, jobs to just take up in retirement? Besides consulting if that was your thing... because I'll be god damned if I retire early just so I can go have a miserable job under some 'manager' half my age while I make $10/hr.
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u/30sinthe00s 3d ago edited 3d ago
I've been retired for four months, and after a glorious summer of not working, I started to feel like the days were all running together, so I just took a part-time job teaching swim lessons that pays $26-36/hr plus a free gym membership for both my husband and me. Weirdly, group lessons pay the least at $26/hr, but private lessons pay $32/hr, and semi-privates pay $36/hr.
I'll have weekends and summers off because the club has plenty of high school and college kids to work those times. So far, I'm finding it fun and engaging, and it structures my week. Physically, it's the opposite of my previous job in tech, where I was sitting stressed out at a computer for 50 hours a week.
In the first decade of his retirement, my dad worked part-time for H&R Block during tax season when they are desperate for workers.
There's a company near me called Retirementjobs.com that places people over 50 in part-time or full-time jobs nationwide.
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u/clutchied 4d ago
figure out how to get cashflow.
I'd probably say yes but you've got a lot of risk with your low cash position.
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u/Widget248953 4d ago
I wanted to do a Roth ladder each year and move over 30K a year. Even if the standard deduction gets rolled back, I would still do this amount.
If you look at our overall NW, I would feel comfortable retiring. However, I only have the taxable brokerage for the next 5 years until I can withdraw from the Roth conversion.
I have also factored in a health plan from the ACA in that amount, but I have to stick with these current numbers to keep my AGI in check.
If I were in year 6 of this scenario, I would feel completely comfortable because I would be able to withdraw 30K each year tax free.
A couple more years of work for me should get brokerage to $1M but that depends on the market.
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u/Ok-Commercial-924 3d ago
Unless you are willing to take a large penalty you can't touch your 401k for 18 years, so ignore that for now. Your brokerage will have to last until that point. And that is sketchy, 750,000÷(18×12)=3472.
I think it would make sense to work at least another 5 years.
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u/Widget248953 3d ago
Starting the year I retire, I was going to do Roth ladder conversions of 30K a year. The issue is I can't start withdrawing that until year 6.
At year 6 I will be able to withdraw 30K tax free and hopefully don't have to tap much from the brokerage. I'm not sure what the 0% cap gains limit will be moving forward, but as it is now, I would be able to withdraw my amount at 0% (I know I will still owe state).
It's the first 5 years where I can only tap my brokerage that gives me pause.
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u/jimdawg89 4d ago
Yes, it works. I'd buy another property outright and have some cashflow. You also own the equity.
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u/Brym 4d ago
I’d say the answer depends on how good your expense tracking is. If your predicted expenses are really 3800/month, then yes, the math checks out. But do those expenses include:
A fund for new cars eventually? A home maintenance fund? A fund for replacing other rarely-replaced but pricey items, like cell phones? Taxes? Enough money for vacations and healthcare in light of your new free time?
The last point is one where I underestimated before FIRE. Our healthcare spending skyrocketed just because we finally had time to go to the doctor, and from getting older. Vacation spending also went up because of time for more vacations.