Is this FIRE plan crazy?

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sfgirl
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Joined: Thu Nov 28, 2019 12:51 am

Is this FIRE plan crazy?

Post by sfgirl »

I’m hoping to leave my 9-5 job early, and this is my plan (assuming no kids, partner, etc). I would love to hear your thoughts and whether this is too risky/aggressive/crazy or any recommendations I should consider.  I would like to stop working a 9-5 once I reach $2.5M in my taxable accounts (this number will depend on my age at early retirement (ideally at age 45, but maybe later in my early 50s) and where I plan to live, currently TBD).

Stats: almost 37 y/o, single, CA resident

Current NW allocation: 90% stock (25% individual stock, 75% index / mutual funds), 4% real estate equity and 6% cash.
$700k (100% stocks) is in my brokerage account. $435k (100% stocks; 62% roth; 38% pretax) is in my retirement accounts (IRA, 401k, Roth, HSA) 

To get to $2.5M in my brokerage account, I plan to invest $6-7k a month in my taxable account, mostly in index funds but also select companies where I think there will be high, long term capital appreciation, and continue to max out my HSA and 401k (company match of 7.5%). Besides my emergency fund, at any point in time, I won’t hold more than 10% of liquid assets in cash, and only in order to buy more stocks during major market dips. Therefore, the vast majority of my assets (90-95%) will be held in stocks for the next 8-13 years. I'm ok with a 95% stock portfolio because I've done this since 2006 and know that I won't sell during market lows, and if there is a prolonged market downturn during my early retirement years, I can always go back into the workforce to cover my expenses.

Beginning at age 60, I will begin rebalancing my stocks to bonds in my rollover IRA / 401k so that it’s 40% of my NW by the time I start withdrawing from my retirement accounts at 65.  At age 65, assuming I continue to max out my 401k, receive current company match, and max out HSA through the age of 45, the amounts in my retirement accounts at a 6% return rate from the age of 45 onwards will be around $4.8M, which will last me from 65 through 95+
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retired@50
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Re: Is this FIRE plan crazy?

Post by retired@50 »

It's riskier than most people can tolerate, but that doesn't mean it can't work for you.

One of the riskier parts of your plan that probably won't help much is the individual stocks. With a high savings rate, using index funds should be enough. The vast majority of the free world could easily survive on $2.5M or less, so if you really wait until you have that much money it sounds quite possible.

Regards,
This is one person's opinion. Nothing more.
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Wiggums
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Re: Is this FIRE plan crazy?

Post by Wiggums »

At age 45, when you retire with 2.5 million, are you drawing from the 10% cash or are you selling stocks each year?

What will you retirement expenses be when you stop working Make sure you include taxes, medical insurance, etc. also think about items that are not purchased annually. For example, a car, a new roof, etc. in other words, don’t underestimate your expenses.
ThisJustIn
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Re: Is this FIRE plan crazy?

Post by ThisJustIn »

This is all doable. I am also in CA, similar NW, 36, and planning to leave corporate in the next 5-10 years, semi-retire, so that I can run my own businesses.

Just a heads up, with the numbers you shared above, you can reach 2.5MM earlier than 45. Even with safe investing like 3-fund portfolio.

The question is, is 2.5MM enough for early retirement in CA? I think it is a little risky. If you can work until 45, you can probably get to 3.5MM-4MM range, with the numbers you shared in your post, which will give more room for early retirement in CA.
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Tamarind
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Re: Is this FIRE plan crazy?

Post by Tamarind »

If I were you I could retire much earlier than 45. Or perhaps you are not saving enough. We can't tell which it is without an estimate of your annual expenses.

I don't see any value in the individual stocks and excess cash holdings. It's unlikely to increase your risk-adjusted return.
PowderDay9
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Re: Is this FIRE plan crazy?

Post by PowderDay9 »

sfgirl wrote: Wed Jan 13, 2021 12:02 am Therefore, the vast majority of my assets (90-95%) will be held in stocks for the next 8-13 years. I'm ok with a 95% stock portfolio because I've done this since 2006 and know that I won't sell during market lows, and if there is a prolonged market downturn during my early retirement years, I can always go back into the workforce to cover my expenses.
Is your industry strong enough that it won't be substantially impacted by a prolonged downtown? That could impact your ability to go back to work. It gets harder the longer you are retired as well.

95% stocks with some individual stocks is risky. It's easy to be 95% during the last 10 year bull market while young and employed. How much money did you have invested in 2008? Your portfolio dropping by a million dollars in your 40s feels much different than it dropping by 30k in your 20s. It's even harder when you're retired with no new income.

Other than those risks, I think your plan is doable and you'll probably be able to retire very early.
Fogbank
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Re: Is this FIRE plan crazy?

Post by Fogbank »

I'm doing much the same thing OP, except I'm not as aggressive as far as my taxable allocation and am 100% in funds.

Maxing out tax-advantaged, but also auto-investing into taxable to the tune of $3000/month.

The plan is to retire as soon as I feel our Tax-Advantaged balances are high enough, and Taxable accounts can provide enough of a cushion for us to live off of until 59 1/2. Hoping that's in 7-9 years but who knows what could happen.

Good thing is DW will have a pension after age 60 so that will help reduce some of the risk.

Good luck!
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JoeRetire
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Re: Is this FIRE plan crazy?

Post by JoeRetire »

sfgirl wrote: Wed Jan 13, 2021 12:02 am I’m hoping to leave my 9-5 job early, and this is my plan

I would like to stop working a 9-5 once I reach $2.5M in my taxable accounts

Stats: almost 37 y/o, single, CA resident

To get to $2.5M in my brokerage account, I plan to invest $6-7k a month in my taxable account, mostly in index funds but also select companies where I think there will be high, long term capital appreciation, and continue to max out my HSA and 401k (company match of 7.5%). Besides my emergency fund, at any point in time, I won’t hold more than 10% of liquid assets in cash, and only in order to buy more stocks during major market dips. Therefore, the vast majority of my assets (90-95%) will be held in stocks for the next 8-13 years. I'm ok with a 95% stock portfolio because I've done this since 2006 and know that I won't sell during market lows, and if there is a prolonged market downturn during my early retirement years, I can always go back into the workforce to cover my expenses.
As long as your Plan B is to continue to work or to go back to work as needed, it's a reasonable plan.
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59Gibson
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Re: Is this FIRE plan crazy?

Post by 59Gibson »

Not one bit crazy..if it comes to fruition. Having flexibility is key and you can make it work some way on another- lowering expenses, moving, working p/t, taking SS earlier/later.. or any combo.
BTW I think p/t work should be on the table regardless rather than cold quitting in 30s-40s. Keeps you productive/resume safe and less reliant upon portfolio only, maybe you wouldn't need 90-95% equity and could dial it back to 50-70%
Last edited by 59Gibson on Wed Jan 13, 2021 8:28 am, edited 1 time in total.
jimkinny
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Re: Is this FIRE plan crazy?

Post by jimkinny »

I would consider how long term Treasury bonds might be be an alternative to cash in your plan. If not now, maybe take another look in 2-3 years to see if yields have gone up. I would not use them now because the risk seems higher to me now than in the past. I wish I had tthought about doing what you are doing at your age.

Good luck
Wanderingwheelz
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Re: Is this FIRE plan crazy?

Post by Wanderingwheelz »

When I read FIRE posts similar to this one, there’s always a disclaimer that reads something like the one in this fellow’s plan:

“I'm ok with a 95% stock portfolio because I've done this since 2006 and know that I won't sell during market lows, and if there is a prolonged market downturn during my early retirement years, I can always go back into the workforce to cover my expenses.”

Instead of focusing so much attention on the math that may or may not have the plan actually work, normally an extremely aggressive portfolio since that’s what’s needed to retire early, I’d dwell on the “what if’s” for awhile. It sounds so easy to renter the workforce after a decade or longer, but really think hard about what that would actually be like. Really imagine the stress that would lead up to that moment and then the stress that would occur once you have a new 9-5 job of one kind or another.

If you can’t retire early with a 30% or higher fixed income allocation I’d be very careful placing too much weight on the market giving you what you think it will simply because that’s what it’s done for you since 2006. Many of us here were invested from 2000-2009 and can tell you the risks associated with counting on stocks giving us a 10% per year return.
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canadianbacon
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Re: Is this FIRE plan crazy?

Post by canadianbacon »

It really depends on expenses. 2.5M is plenty of money for most people.
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mtn biker
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Re: Is this FIRE plan crazy?

Post by mtn biker »

As others have said, your numbers should be more than reasonable to FIRE in the general timeline you are hoping for.

If you are not purchasing individual stocks for the enjoyment and personal satisfaction of it, I would just do funds, you are unlikely to beat the market and you are likely to add stress as the money in individual stocks grows, and inevitably you make a decision that results in large losses from one of them. It's easier to tolerate large losses when you know to stick with the strategy, but buying individual stocks greatly complicates the idea of sticking with a strategy, especially as numbers grow and timelines shrink.

Consider what your long term goals are, that is what really matters. What are you actually going to do when FIRE, is there a reason you should wait until then vs going part time sooner and starting early on those things, etc. I assume you have thought that through, but if I could go back to my 30s I would focus more on doing what I love, the FIRE goal would still be important, but it is secondary to doing what you enjoy.
aristotelian
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Re: Is this FIRE plan crazy?

Post by aristotelian »

Usually folks increase their bond allocation just before retirement to protect against sequence of returns risk and to have cash on hand to weather a crash early in retirement. Some folks adopt a rising equity glidepath from that point. If you are going to retire at 45 with close to 100% stock, you should hopefully have a lot of flexibility to cut back on spending.

Your numbers seem reasonable for getting to FIRE but with a heavy stock allocation and short timeframe you will be dependent on the market. Have you done the math to see what average return you would need over the next eight years to get you to $2.5M? Stocks can certainly have flat or even negative return over that period of time.

I am a little confused as to what happens from 45-65. How does the portfolio grow to $5M? Won't you be withdrawing from the portfolio at that time? It is possible that you will end up with that much but there is a wide range of potential outcomes depending on how the market does. If your average return is 6% but you are drawing 3-4%, does that get you to $5M?
Last edited by aristotelian on Wed Jan 13, 2021 10:26 am, edited 1 time in total.
KlangFool
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Re: Is this FIRE plan crazy?

Post by KlangFool »

OP,

You are at 1.135 million. You save about 70K to 80K per year. Why are you gambling on the individual stocks and aggressive AA of 90/10? It is totally pointless.


Assuming that you save 70K per year, at 10% return per year, you reach 2.5 million in 6 years. At 5% per year, you reach 2.5 million in 9 years.

Starting Net Worth $1,135,000
Annual Savings $70,000
Years
Annual Return Rate 6 7 8 9
5.00% $1,997,142 $2,167,000 $2,345,350 $2,532,617
6.00% $2,098,291 $2,294,189 $2,501,840 $2,721,951
7.00% $2,204,059 $2,428,343 $2,668,327 $2,925,110
8.00% $2,314,617 $2,569,787 $2,845,370 $3,142,999
9.00% $2,430,142 $2,718,855 $3,033,552 $3,376,571
10.00% $2,550,814 $2,875,896 $3,233,485 $3,626,834



You should change your AA to 60/40 and avoid individual stocks. Only invest in index funds. You do not need a high return to reach your target of 2.5 million. You are less than 10 years from reaching your number. In a severe market crash, you do not have the time to recover.


The difference between 5% nominal return and 10% nominal return is only 3 years. It is not worth taking the extra risk.


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KneePartsPro
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Re: Is this FIRE plan crazy?

Post by KneePartsPro »

Congratulations on a good start and what seems like an achievable goal. I don't think your plan is crazy, but like Klangfool, I wonder about the upside of the individual stocks.

Best of luck to you.
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sandan
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Re: Is this FIRE plan crazy?

Post by sandan »

I'd say the plan is crazy in the sense that you don't know where you will retire and it requires going back to work if the market tanks. I think both need to be resolved for it to be a reasonable plan.
H-Town
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Re: Is this FIRE plan crazy?

Post by H-Town »

sfgirl wrote: Wed Jan 13, 2021 12:02 am I’m hoping to leave my 9-5 job early, and this is my plan (assuming no kids, partner, etc). I would love to hear your thoughts and whether this is too risky/aggressive/crazy or any recommendations I should consider.  I would like to stop working a 9-5 once I reach $2.5M in my taxable accounts (this number will depend on my age at early retirement (ideally at age 45, but maybe later in my early 50s) and where I plan to live, currently TBD).

Stats: almost 37 y/o, single, CA resident

Current NW allocation: 90% stock (25% individual stock, 75% index / mutual funds), 4% real estate equity and 6% cash.
$700k (100% stocks) is in my brokerage account. $435k (100% stocks; 62% roth; 38% pretax) is in my retirement accounts (IRA, 401k, Roth, HSA) 

To get to $2.5M in my brokerage account, I plan to invest $6-7k a month in my taxable account, mostly in index funds but also select companies where I think there will be high, long term capital appreciation, and continue to max out my HSA and 401k (company match of 7.5%). Besides my emergency fund, at any point in time, I won’t hold more than 10% of liquid assets in cash, and only in order to buy more stocks during major market dips. Therefore, the vast majority of my assets (90-95%) will be held in stocks for the next 8-13 years. I'm ok with a 95% stock portfolio because I've done this since 2006 and know that I won't sell during market lows, and if there is a prolonged market downturn during my early retirement years, I can always go back into the workforce to cover my expenses.

Beginning at age 60, I will begin rebalancing my stocks to bonds in my rollover IRA / 401k so that it’s 40% of my NW by the time I start withdrawing from my retirement accounts at 65.  At age 65, assuming I continue to max out my 401k, receive current company match, and max out HSA through the age of 45, the amounts in my retirement accounts at a 6% return rate from the age of 45 onwards will be around $4.8M, which will last me from 65 through 95+
I have a few comments:

1) You should build up a 2-3 year annual expense in savings along the way when you get closer to 45. That way, you can hedge against short-term market gyration.

2) It's a good financial plan. Now you just need to think about tax planning:
a. Roth conversion plan
b. Have you reached the 2nd bend point in SS chart?
c. Do you plan to move to LCOL or no state income tax area?

3) You're in a good position financially. So you may need to be prepared for unexpected life events. You never know what life can throw at you.
17outs
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Re: Is this FIRE plan crazy?

Post by 17outs »

H-Town wrote: Wed Jan 13, 2021 11:14 am
b. Have you reached the 2nd bend point in SS chart?
What does this mean?
H-Town
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Re: Is this FIRE plan crazy?

Post by H-Town »

17outs wrote: Wed Jan 13, 2021 10:15 pm
H-Town wrote: Wed Jan 13, 2021 11:14 am
b. Have you reached the 2nd bend point in SS chart?
What does this mean?
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