Reaching Fatfire in VHCOL

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
scientist_87
Posts: 45
Joined: Sun Jun 23, 2019 1:13 pm

Reaching Fatfire in VHCOL

Post by scientist_87 »

Hello Bogleheads,
Longtime lurker here and have gotten solid advice from experts here in the past. So need your advice/guidance on this.

We are a household of 3 living in VHCOL.
Household TC: ~400k/yr.
Both DH and DW are mid 30-s.
Was going through our NW spreadsheet and found that we reached 2M NW including primary home equity.
Portfolio: 45% investments,(90% VTI/SPY, 10% bonds), 22% cash (earning 4.5%-5% interest in CDs, HYSA), 33% home equity.
Savings around ~120k/yr (includes pre-tax and post-tax).

Assuming our household TC remains ~400k for the next 10 years with same savings rate, can we reach FatFire (~10M with home equity) ?
Has anyone here reached FatFire with this TC and a steady job without side hustles in VHCOL ?
Do we need higher income than what we already have to achieve Fatfire in the next 10 yrs ?

Would love to hear some success stories from this forum.
bombcar
Posts: 2187
Joined: Sun Aug 12, 2007 6:41 pm

Re: Reaching Fatfire in VHCOL

Post by bombcar »

I would simply factor out the home equity entirely (and probably the associated mortgage to be fair) UNLESS you’re doing appreciation hacking (sell every 2-3 years and move to another same sized house in a more expensive area that you can barely afford and gamble on appreciation).

If the $2m was all stocks or whatnot and doubled to $4m you’d be $6m short. I don’t see $120k a year (1.2m$) making up that shortfall without extreme market luck or appreciation hacking or something else.

I also think I don’t know what the “fat” part of fatfire is but at $6m you should be able to at least not work as hard.
Firemenot
Posts: 1525
Joined: Wed Apr 01, 2020 8:48 pm

Re: Reaching Fatfire in VHCOL

Post by Firemenot »

If you are saving 120K per year on 400K pre-tax, you don’t need 10M.
snowday2022
Posts: 930
Joined: Sun Jan 16, 2022 1:48 pm

Re: Reaching Fatfire in VHCOL

Post by snowday2022 »

Holding way too much cash.
muffins14
Posts: 6206
Joined: Wed Oct 26, 2016 4:14 am
Location: New York

Re: Reaching Fatfire in VHCOL

Post by muffins14 »

scientist_87 wrote: Sun Jul 07, 2024 5:50 pm Hello Bogleheads,
Longtime lurker here and have gotten solid advice from experts here in the past. So need your advice/guidance on this.

We are a household of 3 living in VHCOL.
Household TC: ~400k/yr.
Both DH and DW are mid 30-s.
Was going through our NW spreadsheet and found that we reached 2M NW including primary home equity.
Portfolio: 45% investments,(90% VTI/SPY, 10% bonds), 22% cash (earning 4.5%-5% interest in CDs, HYSA), 33% home equity.
Savings around ~120k/yr (includes pre-tax and post-tax).

Assuming our household TC remains ~400k for the next 10 years with same savings rate, can we reach FatFire (~10M with home equity) ?
Has anyone here reached FatFire with this TC and a steady job without side hustles in VHCOL ?
Do we need higher income than what we already have to achieve Fatfire in the next 10 yrs ?

Would love to hear some success stories from this forum.
If you are making 200k-400k, your “side hustle” should be “getting better at your job”. It’s way more likely that you grow your compensation internally or from a new role at the 300-400k level than that you’d strike it rich from a side hustle like blogging or selling crap on Etsy
Crom laughs at your Four Winds
muffins14
Posts: 6206
Joined: Wed Oct 26, 2016 4:14 am
Location: New York

Re: Reaching Fatfire in VHCOL

Post by muffins14 »

And yes 440k cash seems way too high if you’re not saving for a huge renovation project or second home payment.

Keep some emergency fund but get that invested in the 90/10 portfolio
Crom laughs at your Four Winds
Topic Author
scientist_87
Posts: 45
Joined: Sun Jun 23, 2019 1:13 pm

Re: Reaching Fatfire in VHCOL

Post by scientist_87 »

muffins14 wrote: Sun Jul 07, 2024 6:32 pm And yes 440k cash seems way too high if you’re not saving for a huge renovation project or second home payment.

Keep some emergency fund but get that invested in the 90/10 portfolio
440k cash includes emergency fund and extra payments to be made to mortgage. I plan on paying off mortgage in the next 5-6 years.
z06ray
Posts: 219
Joined: Tue Jul 09, 2013 11:24 pm

Re: Reaching Fatfire in VHCOL

Post by z06ray »

Assuming $2M is all invested in stocks which you admitted was not since home equity is in equation. Then for $2M to reach $10M in 10 years would take an interest rate of 14.5% on top of your annual $120k contributions. Someone may poke a hole in this but this is how I see it

Props to you on reaching $2M at such a young age

https://www.calculator.net/future-value ... #calresult
Topic Author
scientist_87
Posts: 45
Joined: Sun Jun 23, 2019 1:13 pm

Re: Reaching Fatfire in VHCOL

Post by scientist_87 »

bombcar wrote: Sun Jul 07, 2024 5:56 pm I would simply factor out the home equity entirely (and probably the associated mortgage to be fair) UNLESS you’re doing appreciation hacking (sell every 2-3 years and move to another same sized house in a more expensive area that you can barely afford and gamble on appreciation).

If the $2m was all stocks or whatnot and doubled to $4m you’d be $6m short. I don’t see $120k a year (1.2m$) making up that shortfall without extreme market luck or appreciation hacking or something else.

I also think I don’t know what the “fat” part of fatfire is but at $6m you should be able to at least not work as hard.
I am not sure how many millions constitute fat in fatfire, but I have noticed that 10M is what some people seem to think.
unwitting_gulag
Posts: 920
Joined: Mon Dec 05, 2016 3:37 pm

Re: Reaching Fatfire in VHCOL

Post by unwitting_gulag »

bombcar wrote: Sun Jul 07, 2024 5:56 pm I also think I don’t know what the “fat” part of fatfire is but at $6m you should be able to at least not work as hard.
"Fatfire" is lingo for a kind of early retirement, where it's not incumbent to be thrifty, and where pre-retirement spending more or less equals post-retirement spending. Which brings us to...
Firemenot wrote: Sun Jul 07, 2024 5:59 pm If you are saving 120K per year on 400K pre-tax, you don’t need 10M.
... The OP would need to calculate his/her after-tax income, subtract from that the running-savings, and arrive at annual expenses. From $400K gross in a VHCOL (presumably VH tax too) area, that's maybe $270K net... minus $120K saved --> $150K. How to replace $150K/year? Use one of our handy multiples (contentious, and the subject of passel of threads), such as 33X --> $5M. Thus the OP would need around $5M in investment-assets (not counting the house).

Three caveats: (1) health insurance costs, and (2) portfolio-taxes, which would have to be paid out of the 3% annual withdrawal... meaning, more than $5M invested... perhaps the $6M that bombcar mentioned. The third caveat is inflation. In 10 years, the $6M won't be worth $6M anymore. Assuming 2.5% annual inflation (reasonable?), that's about a 30% hit... escalating the $6M to just under $8M.

If the above numbers are reasonable, then the OP would need to increase his current investments (again, don't count the house) to $8M in 10 years. At historical market-rates, and the planned $120K/year savings, that does not seem reasonable. However every additional year helps, assuming vitality of income, and continued frugality. A rough calculation suggests that extending from 10 years to 15 years, assuming the same savings rate, makes the numbers work. That would also put the OP into around age 50, which seems to be a more culturally acceptable age, at which to definitely declare oneself to be retired.
User avatar
Watty
Posts: 29430
Joined: Wed Oct 10, 2007 3:55 pm

Re: Reaching Fatfire in VHCOL

Post by Watty »

"VHCOL" area is a tricky term since there are housing costs, and non housing costs.

In many areas like that once you get a paid off house the rest of your cost of living does not need to be all that high unless you include things like owning a yacht and belonging to expensive country clubs.

Some places like Hawaii will have high non-housing costs since almost everything needs to be shipped in.

Some people have posted places like the Bay Area or NYC are not as expensive to retire in with a middle class lifestyle as you might assume as long as you have a paid off house.
Topic Author
scientist_87
Posts: 45
Joined: Sun Jun 23, 2019 1:13 pm

Re: Reaching Fatfire in VHCOL

Post by scientist_87 »

unwitting_gulag wrote: Sun Jul 07, 2024 6:51 pm
bombcar wrote: Sun Jul 07, 2024 5:56 pm I also think I don’t know what the “fat” part of fatfire is but at $6m you should be able to at least not work as hard.
"Fatfire" is lingo for a kind of early retirement, where it's not incumbent to be thrifty, and where pre-retirement spending more or less equals post-retirement spending. Which brings us to...
Firemenot wrote: Sun Jul 07, 2024 5:59 pm If you are saving 120K per year on 400K pre-tax, you don’t need 10M.
... The OP would need to calculate his/her after-tax income, subtract from that the running-savings, and arrive at annual expenses. From $400K gross in a VHCOL (presumably VH tax too) area, that's maybe $270K net... minus $120K saved --> $150K. How to replace $150K/year? Use one of our handy multiples (contentious, and the subject of passel of threads), such as 33X --> $5M. Thus the OP would need around $5M in investment-assets (not counting the house).

Three caveats: (1) health insurance costs, and (2) portfolio-taxes, which would have to be paid out of the 3% annual withdrawal... meaning, more than $5M invested... perhaps the $6M that bombcar mentioned. The third caveat is inflation. In 10 years, the $6M won't be worth $6M anymore. Assuming 2.5% annual inflation (reasonable?), that's about a 30% hit... escalating the $6M to just under $8M.

If the above numbers are reasonable, then the OP would need to increase his current investments (again, don't count the house) to $8M in 10 years. At historical market-rates, and the planned $120K/year savings, that does not seem reasonable. However every additional year helps, assuming vitality of income, and continued frugality. A rough calculation suggests that extending from 10 years to 15 years, assuming the same savings rate, makes the numbers work. That would also put the OP into around age 50, which seems to be a more culturally acceptable age, at which to definitely declare oneself to be retired.
Thank you for your detailed calculations. I agree 15 years is more doable assuming income remains constant at this level.
10 years is probably too aggressive and may require us getting higher income jobs, which brings more work pressure.
radiowave
Posts: 3382
Joined: Thu Apr 30, 2015 5:01 pm

Re: Reaching Fatfire in VHCOL

Post by radiowave »

scientist_87 wrote: Sun Jul 07, 2024 5:50 pm Hello Bogleheads,
Longtime lurker here and have gotten solid advice from experts here in the past. So need your advice/guidance on this.

We are a household of 3 living in VHCOL.
Household TC: ~400k/yr.
Both DH and DW are mid 30-s.
Was going through our NW spreadsheet and found that we reached 2M NW including primary home equity.
Portfolio: 45% investments,(90% VTI/SPY, 10% bonds), 22% cash (earning 4.5%-5% interest in CDs, HYSA), 33% home equity.
Savings around ~120k/yr (includes pre-tax and post-tax).

Assuming our household TC remains ~400k for the next 10 years with same savings rate, can we reach FatFire (~10M with home equity) ?
Has anyone here reached FatFire with this TC and a steady job without side hustles in VHCOL ?
Do we need higher income than what we already have to achieve Fatfire in the next 10 yrs ?

Would love to hear some success stories from this forum.
I'm missing something . . . your income is 400k, savings 120k where is the other 280k going?
Bogleheads Wiki: https://www.bogleheads.org/wiki/Main_Page
Topic Author
scientist_87
Posts: 45
Joined: Sun Jun 23, 2019 1:13 pm

Re: Reaching Fatfire in VHCOL

Post by scientist_87 »

radiowave wrote: Sun Jul 07, 2024 7:07 pm
scientist_87 wrote: Sun Jul 07, 2024 5:50 pm Hello Bogleheads,
Longtime lurker here and have gotten solid advice from experts here in the past. So need your advice/guidance on this.

We are a household of 3 living in VHCOL.
Household TC: ~400k/yr.
Both DH and DW are mid 30-s.
Was going through our NW spreadsheet and found that we reached 2M NW including primary home equity.
Portfolio: 45% investments,(90% VTI/SPY, 10% bonds), 22% cash (earning 4.5%-5% interest in CDs, HYSA), 33% home equity.
Savings around ~120k/yr (includes pre-tax and post-tax).

Assuming our household TC remains ~400k for the next 10 years with same savings rate, can we reach FatFire (~10M with home equity) ?
Has anyone here reached FatFire with this TC and a steady job without side hustles in VHCOL ?
Do we need higher income than what we already have to achieve Fatfire in the next 10 yrs ?

Would love to hear some success stories from this forum.
I'm missing something . . . your income is 400k, savings 120k where is the other 280k going?
Expense and Taxes.
radiowave
Posts: 3382
Joined: Thu Apr 30, 2015 5:01 pm

Re: Reaching Fatfire in VHCOL

Post by radiowave »

It may be helpful to itemize expenses so members can get a better picture of your finances as well as portfolio.
Bogleheads Wiki: https://www.bogleheads.org/wiki/Main_Page
muffins14
Posts: 6206
Joined: Wed Oct 26, 2016 4:14 am
Location: New York

Re: Reaching Fatfire in VHCOL

Post by muffins14 »

scientist_87 wrote: Sun Jul 07, 2024 6:51 pm
bombcar wrote: Sun Jul 07, 2024 5:56 pm I would simply factor out the home equity entirely (and probably the associated mortgage to be fair) UNLESS you’re doing appreciation hacking (sell every 2-3 years and move to another same sized house in a more expensive area that you can barely afford and gamble on appreciation).

If the $2m was all stocks or whatnot and doubled to $4m you’d be $6m short. I don’t see $120k a year (1.2m$) making up that shortfall without extreme market luck or appreciation hacking or something else.

I also think I don’t know what the “fat” part of fatfire is but at $6m you should be able to at least not work as hard.
I am not sure how many millions constitute fat in fatfire, but I have noticed that 10M is what some people seem to think.
The absolute value of the number doesn’t matter. The only thing that matters is the size relative to your expenses
Crom laughs at your Four Winds
muffins14
Posts: 6206
Joined: Wed Oct 26, 2016 4:14 am
Location: New York

Re: Reaching Fatfire in VHCOL

Post by muffins14 »

scientist_87 wrote: Sun Jul 07, 2024 6:46 pm
muffins14 wrote: Sun Jul 07, 2024 6:32 pm And yes 440k cash seems way too high if you’re not saving for a huge renovation project or second home payment.

Keep some emergency fund but get that invested in the 90/10 portfolio
440k cash includes emergency fund and extra payments to be made to mortgage. I plan on paying off mortgage in the next 5-6 years.
Why do you want to do that? You can earn like 3-5% after-tax on bonds and your mortgage interest is likely deductible, right?

You already have 33% of your money in the house, and likely you’d retire faster if you had more stocks rather than more home equity.
Crom laughs at your Four Winds
Topic Author
scientist_87
Posts: 45
Joined: Sun Jun 23, 2019 1:13 pm

Re: Reaching Fatfire in VHCOL

Post by scientist_87 »

I am earning 4%-5% on the cash. It is a substitute for bonds which haven't done well compared to cash.
I don't want to have any liability (like mortgage) when I fatfire. That's why I plan on paying it off early.

In this economy, finding a job which pays 400k is not easy. So I keep cash to cover around 2 years worth of expense. The rest of the cash serves as substitute for bonds.
snowday2022
Posts: 930
Joined: Sun Jan 16, 2022 1:48 pm

Re: Reaching Fatfire in VHCOL

Post by snowday2022 »

scientist_87 wrote: Sun Jul 07, 2024 8:24 pm I am earning 4%-5% on the cash. It is a substitute for bonds which haven't done well compared to cash.
I don't want to have any liability (like mortgage) when I fatfire. That's why I plan on paying it off early.

In this economy, finding a job which pays 400k is not easy. So I keep cash to cover around 2 years worth of expense. The rest of the cash serves as substitute for bonds.
If you want to reach FIRE AsAP you need to take more risks in your investments. Having a huge EF is reasonable, as is paying off the mortgage but you will work much longer to pay for those choices.
CletusCaddy
Posts: 3029
Joined: Sun Sep 12, 2021 4:23 am

Re: Reaching Fatfire in VHCOL

Post by CletusCaddy »

I just did this math for myself.

You’re spending $150k per year. Let’s say that requires a $4M portfolio to sustain. Let’s also assume that your expenses will stay the same in retirement (some items will increase but other items will go down).

You have a $1.3M portfolio right now. You are saving $10k/month. Let’s assume you can earn 5% real return annually on your investments.

That means you will need to work 11 more years to reach $4M real dollars when you are in your late 40s.

How does that sound?
Normchad
Posts: 6104
Joined: Thu Mar 03, 2011 6:20 am

Re: Reaching Fatfire in VHCOL

Post by Normchad »

snowday2022 wrote: Sun Jul 07, 2024 8:45 pm
scientist_87 wrote: Sun Jul 07, 2024 8:24 pm I am earning 4%-5% on the cash. It is a substitute for bonds which haven't done well compared to cash.
I don't want to have any liability (like mortgage) when I fatfire. That's why I plan on paying it off early.

In this economy, finding a job which pays 400k is not easy. So I keep cash to cover around 2 years worth of expense. The rest of the cash serves as substitute for bonds.
If you want to reach FIRE AsAP you need to take more risks in your investments. Having a huge EF is reasonable, as is paying off the mortgage but you will work much longer to pay for those choices.
And this isn’t just FIRE, this is FATFIRE. They have a very long way to get to FATFIRE. Most will never make it…..
CookieDough
Posts: 266
Joined: Sun Dec 25, 2022 1:07 pm

Re: Reaching Fatfire in VHCOL

Post by CookieDough »

It's not about savings rate or income; it's about annual expenses. Annual expenses of $150k/year require a smaller pot than $280k/year. Calculate what you spend now, massage it with what you'll want/need to spend in retirement (including health insurance, other healthcare costs, and income taxes, as mentioned above; and subtracting any current expenses you won't have in retirement, like parking costs at work), and get your annual spending number. We typically call that "x".

Then you multiply x by whatever you feel comfortable with, based on AA and research. There's the 4% rule of thumb, which would mean you need 25x to FIRE. Some folks prefer 3%, which would mean ~33x. I think most folks land somewhere between 3% and 4%, which means 25x to 33x as a ballpark figure to aim for.

To me, FatFIRE means you can spend more than you spent before (like on hobbies & travel). FIRE means you can spend like you did before. LeanFIRE means you can retire but have to cut back your spending. So for some folks $2m is FatFIRE, and for others, it's LeanFIRE or not FIRE yet. Some folks FIRE on under $1m. Just depends on your spending habits and requirements.
jarjarM
Posts: 2608
Joined: Mon Jul 16, 2018 1:21 pm

Re: Reaching Fatfire in VHCOL

Post by jarjarM »

10 year will be tough since you'll need >15% real return (assuming same inflation adjusted contribution). However, if you can increase substantially the contribution (higher income) then I think 10 years is possible. We are in the FatFIRE range, though I'm still working but DW is now full time SAHM, achieved through high contribution and blessed with both high income and good return in the last decade +.
KyleAAA
Posts: 9553
Joined: Wed Jul 01, 2009 5:35 pm
Contact:

Re: Reaching Fatfire in VHCOL

Post by KyleAAA »

If you double your savings rate and the stock and bond markets are fairly generous, I'd say $10mm in 10 years is realistic. But saving $120k per year, I think it's very unlikely you'll come close to meeting your goal.
sailaway
Posts: 8761
Joined: Fri May 12, 2017 1:11 pm

Re: Reaching Fatfire in VHCOL

Post by sailaway »

You only need $8M to maintain your current spending level at a 3.5% SWR. How did you pick $10M?

The higher the savings rate, the earlier you can meet your goals. You need to ask yourself if any spending cuts are worth it and what you actually plan to do/ spend money on in "retirement." You might find that the right answer is to spend a little more now to enjoy life and not worry about FIRE. You might find that $5M is plenty fat.
bombcar
Posts: 2187
Joined: Sun Aug 12, 2007 6:41 pm

Re: Reaching Fatfire in VHCOL

Post by bombcar »

One question to seriously consider is what you want to DO when you're fatfired.

If it is something "job like" you may be able to get a low paying job after "retirement" that covers some expenses and maybe even gets some money.

$20k a year for doing part-time work for whatever that you enjoy is equivalent to half a million in savings, in some ways.
User avatar
CyclingDuo
Posts: 6201
Joined: Fri Jan 06, 2017 8:07 am

Re: Reaching Fatfire in VHCOL

Post by CyclingDuo »

scientist_87 wrote: Sun Jul 07, 2024 5:50 pm Hello Bogleheads,
Longtime lurker here and have gotten solid advice from experts here in the past. So need your advice/guidance on this.

We are a household of 3 living in VHCOL.
Household TC: ~400k/yr.
Both DH and DW are mid 30-s.
Was going through our NW spreadsheet and found that we reached 2M NW including primary home equity.
Portfolio: 45% investments,(90% VTI/SPY, 10% bonds), 22% cash (earning 4.5%-5% interest in CDs, HYSA), 33% home equity.
Savings around ~120k/yr (includes pre-tax and post-tax).

Assuming our household TC remains ~400k for the next 10 years with same savings rate, can we reach FatFire (~10M with home equity) ?
Has anyone here reached FatFire with this TC and a steady job without side hustles in VHCOL ?
Do we need higher income than what we already have to achieve Fatfire in the next 10 yrs ?

Would love to hear some success stories from this forum.
Sounds like you are targeting Obese FIRE rather than Fat FIRE. :beer

Also factor in your SS streams (and any pension) over and beyond the table below of what the portfolio will or could produce in retirement. Also factor in your goal of retiring early (in your mid 40's), and the withdrawal rates that could last 40 years or more in retirement. And factor in those bridge/gap years until taking SS will require a withdrawal rate that is higher than when the SS stream(s) eventually begin. Agree, that 10 years from now with inflation the numbers in the graphic below will be ratcheted up to account for that, so what sounds like Obese FIRE today, may drop down into or close to the Fat FIRE numbers ten years+ from now.

Image
https://www.facebook.com/campfirefinance

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel | "Pick a bushel, save a peck!" - Grandpa
newseahorse
Posts: 52
Joined: Sun Nov 04, 2012 10:36 pm

Re: Reaching Fatfire in VHCOL

Post by newseahorse »

Three caveats: (1) health insurance costs, and (2) portfolio-taxes, which would have to be paid out of the 3% annual withdrawal... meaning, more than $5M invested... perhaps the $6M that bombcar mentioned. The third caveat is inflation. In 10 years, the $6M won't be worth $6M anymore. Assuming 2.5% annual inflation (reasonable?), that's about a 30% hit... escalating the $6M to just under $8M.
I don't understand why they need the third caveat i.e. pad 2M for inflation beyond 33x expenses and the first two caveats.
The 3% safe withdrawal rate with a diversified portfolio already assumes real returns of > 3%
In other words the portfolio should continue to grow (or at least not decrease) after adjusting for inflation
sailaway
Posts: 8761
Joined: Fri May 12, 2017 1:11 pm

Re: Reaching Fatfire in VHCOL

Post by sailaway »

newseahorse wrote: Tue Jul 09, 2024 12:17 pm
Three caveats: (1) health insurance costs, and (2) portfolio-taxes, which would have to be paid out of the 3% annual withdrawal... meaning, more than $5M invested... perhaps the $6M that bombcar mentioned. The third caveat is inflation. In 10 years, the $6M won't be worth $6M anymore. Assuming 2.5% annual inflation (reasonable?), that's about a 30% hit... escalating the $6M to just under $8M.
I don't understand why they need the third caveat i.e. pad 2M for inflation beyond 33x expenses and the first two caveats.
The 3% safe withdrawal rate with a diversified portfolio already assumes real returns of > 3%
In other words the portfolio should continue to grow (or at least not decrease) after adjusting for inflation
Sustainable withdrawal rates do not make real return assumptions, much less real return equal to the SWR. A sustainable withdrawal rate allows for portfolio depletion, it just isn't supposed to happen before you stop needing the funds.

On average, the portfolio will continue to grow, but that is not an assumption built into the program.
anoop
Posts: 4066
Joined: Tue Mar 04, 2014 12:33 am

Re: Reaching Fatfire in VHCOL

Post by anoop »

Home equity of primary residence should not be factored as net worth.

The target number for FIRE should be some multiple of expenses (including accounting for taxes and health insurance). Targeting a $ amount when we have moderate inflation won't give the right picture. So you need (current expenses * 1.x + cost of healthcare) * number of years of expenses (which should be a min of 25, but probably closer to 50 given your level of spend), where x is your expected tax rate.
Firemenot
Posts: 1525
Joined: Wed Apr 01, 2020 8:48 pm

Re: Reaching Fatfire in VHCOL

Post by Firemenot »

anoop wrote: Tue Jul 09, 2024 12:35 pm Home equity of primary residence should not be factored as net worth.

The target number for FIRE should be some multiple of expenses (including accounting for taxes and health insurance). Targeting a $ amount when we have moderate inflation won't give the right picture. So you need (current expenses * 1.x + cost of healthcare) * number of years of expenses (which should be a min of 25, but probably closer to 50 given your level of spend), where x is your expected tax rate.
If he’s willing to potentially sell and move to cheaper housing if markets don’t cooperate it certainly could be in his case.
anoop
Posts: 4066
Joined: Tue Mar 04, 2014 12:33 am

Re: Reaching Fatfire in VHCOL

Post by anoop »

Firemenot wrote: Tue Jul 09, 2024 1:07 pm
anoop wrote: Tue Jul 09, 2024 12:35 pm Home equity of primary residence should not be factored as net worth.

The target number for FIRE should be some multiple of expenses (including accounting for taxes and health insurance). Targeting a $ amount when we have moderate inflation won't give the right picture. So you need (current expenses * 1.x + cost of healthcare) * number of years of expenses (which should be a min of 25, but probably closer to 50 given your level of spend), where x is your expected tax rate.
If he’s willing to potentially sell and move to cheaper housing if markets don’t cooperate it certainly could be in his case.
Then they have to factor in all kinds of things like selling fees and taxes and the cost of a newer, cheaper house. Even when it comes to determining eligibility as an accredited investor, the guidelines say to exclude equity in primary residence. And if one carries a mortgage, then net worth should be reduced by the amount of that mortgage.
newseahorse
Posts: 52
Joined: Sun Nov 04, 2012 10:36 pm

Re: Reaching Fatfire in VHCOL

Post by newseahorse »

Sustainable withdrawal rates do not make real return assumptions, much less real return equal to the SWR.
You can certainly attempt project out whether your real returns will exceed or come very close to SWR for a certain porfolio mix

As a concrete example the chart below shows you can get very high probability of capital preservation (in real terms) with 3% withdrawal and say 75% stock portfolio (last table shows success rate of capital preservation)
Image

From this blog
https://earlyretirementnow.com/2016/12/ ... depletion/

Curious to understand if this is a specious claim because I am planning my numbers with the assumption that 3% SWR and 70/30 stock/bond is very likely (> 90%) to preserve capital in real terms indefinitely (30 to 60yrs)
Topic Author
scientist_87
Posts: 45
Joined: Sun Jun 23, 2019 1:13 pm

Re: Reaching Fatfire in VHCOL

Post by scientist_87 »

I haven't factored in SS (not sure how much I will get if I have 15-20 working years and if there will be SS 20 yrs from now) and there is no pension.
Given unknown inflation numbers and unknown tax-rates, (assuming in worst case these will remain high), unknown health-care costs (assuming we will need long-term care when old), I thought a higher number of 10M would be better than the 5M-6M that standard Fire calculators come up with.
Once I FatFire, I don't plan on working. So we can assume that there will be zero income.

So far, I didnt come across any Bogleheads who has Fatfired between 40-50 and shared their experience. That was the point of my post to learn from others how they have done it.
Wannaretireearly
Posts: 5222
Joined: Wed Mar 31, 2010 4:39 pm

Re: Reaching Fatfire in VHCOL

Post by Wannaretireearly »

scientist_87 wrote: Tue Jul 09, 2024 10:46 pm I haven't factored in SS (not sure how much I will get if I have 15-20 working years and if there will be SS 20 yrs from now) and there is no pension.
Given unknown inflation numbers and unknown tax-rates, (assuming in worst case these will remain high), unknown health-care costs (assuming we will need long-term care when old), I thought a higher number of 10M would be better than the 5M-6M that standard Fire calculators come up with.
Once I FatFire, I don't plan on working. So we can assume that there will be zero income.

So far, I didnt come across any Bogleheads who has Fatfired between 40-50 and shared their experience. That was the point of my post to learn from others how they have done it.
I’m sure there are BH that have done as you’ve said.

I haven’t, yet. i may never do if $4-5M liquid is enough for FI, hopefully in a few short years til I’m 50. Currently around $3.7M liquid. Plus $2M house and roughly $300k college fund
“At some point you are trading time you will never get back for money you will never spend.“ | “How do you want to spend the best remaining year of your life?“
justworld
Posts: 39
Joined: Fri May 24, 2024 9:54 pm

Re: Reaching Fatfire in VHCOL

Post by justworld »

bombcar wrote: Mon Jul 08, 2024 12:01 pm One question to seriously consider is what you want to DO when you're fatfired.

If it is something "job like" you may be able to get a low paying job after "retirement" that covers some expenses and maybe even gets some money.

$20k a year for doing part-time work for whatever that you enjoy is equivalent to half a million in savings, in some ways.
Would be probably easier to do some consulting in a current field than to deal with all the inconveniences of a low paying job (less autonomy, more time required, etc)
bombcar
Posts: 2187
Joined: Sun Aug 12, 2007 6:41 pm

Re: Reaching Fatfire in VHCOL

Post by bombcar »

justworld wrote: Wed Jul 10, 2024 12:12 am Would be probably easier to do some consulting in a current field than to deal with all the inconveniences of a low paying job (less autonomy, more time required, etc)
Some non profits I know hire “volunteers” for
Minimum wage because it puts them on the insurance for liability purposes. It’s not much but it can add up.
Firemenot
Posts: 1525
Joined: Wed Apr 01, 2020 8:48 pm

Re: Reaching Fatfire in VHCOL

Post by Firemenot »

scientist_87 wrote: Tue Jul 09, 2024 10:46 pm I haven't factored in SS (not sure how much I will get if I have 15-20 working years and if there will be SS 20 yrs from now) and there is no pension.
Given unknown inflation numbers and unknown tax-rates, (assuming in worst case these will remain high), unknown health-care costs (assuming we will need long-term care when old), I thought a higher number of 10M would be better than the 5M-6M that standard Fire calculators come up with.
Once I FatFire, I don't plan on working. So we can assume that there will be zero income.

So far, I didnt come across any Bogleheads who has Fatfired between 40-50 and shared their experience. That was the point of my post to learn from others how they have done it.
One thing to consider about working to 10M is it may well end up being somewhat counter-productive in the end. If social security ultimately ends up being means tested due to demographic challenges your extra years of working may backfire a bit. And you’ll end up paying high marginal taxes on large RMDs. If you really like your job maybe doesn’t matter.
tribec07
Posts: 17
Joined: Thu Jul 05, 2018 4:31 pm

Re: Reaching Fatfire in VHCOL

Post by tribec07 »

scientist_87 wrote: Sun Jul 07, 2024 6:46 pm
muffins14 wrote: Sun Jul 07, 2024 6:32 pm And yes 440k cash seems way too high if you’re not saving for a huge renovation project or second home payment.

Keep some emergency fund but get that invested in the 90/10 portfolio
440k cash includes emergency fund and extra payments to be made to mortgage. I plan on paying off mortgage in the next 5-6 years.
I don't see many good reasons to pay off your mortgage, unless it's north of 6-7%. You'll make more money putting that elsewhere and generally want to grow the more liquid portion of your portfolio. Also, mortgage interest is one of your few tax-advantages. Also, you say family of 3 and if you're mid-30s, I assume that's one young kid. From experience, they push fatfire out at least 7-10 years, even with public school.
KlangFool
Posts: 32755
Joined: Sat Oct 11, 2008 12:35 pm

Re: Reaching Fatfire in VHCOL

Post by KlangFool »

OP,

1) What is your portfolio size excluding the home equity?

2) If you need the home equity to be counted for your FIRE, you are not FatFIRE.

3) Don't pay down or pay off your mortgage until you are financially independent.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
jarjarM
Posts: 2608
Joined: Mon Jul 16, 2018 1:21 pm

Re: Reaching Fatfire in VHCOL

Post by jarjarM »

scientist_87 wrote: Tue Jul 09, 2024 10:46 pm I haven't factored in SS (not sure how much I will get if I have 15-20 working years and if there will be SS 20 yrs from now) and there is no pension.
Given unknown inflation numbers and unknown tax-rates, (assuming in worst case these will remain high), unknown health-care costs (assuming we will need long-term care when old), I thought a higher number of 10M would be better than the 5M-6M that standard Fire calculators come up with.
Once I FatFire, I don't plan on working. So we can assume that there will be zero income.

So far, I didnt come across any Bogleheads who has Fatfired between 40-50 and shared their experience. That was the point of my post to learn from others how they have done it.
I'm probably near where you're looking to be, mid 40s and have enough to FatFire (~70x) right now excluding home equity, social security and 529s. DW is already a SAHM or I'm pondering. So I'll give you an overview what are some of the concerns we have:

- Estate planning, given that we're over the expected post-2025 estate tax limit with long horizon for asset growth, it's a tough decision to decide on what to do.
- The kid is in grade school right now so it's hard to travel freely. Also concerning is to demonstrate to the kid the value of hard work but also balance the time we can spend with them. It's a tough balance.
- What should we do with health care? A bit concern about health insurance in the future given there's a potential chance of individual market seeing substantial disruption next year or 2 (not political discussion, just pointing out the concern).

While it's nice to know that financially we'll be fine short of a catastrophe, financial planning for the future (especially relating to wealth transfer) is not an easy task.

P.S. Don't pay off your mortgage unless the rate is >5%. My was locked in for 10 years at 1.625%, so I just put some money in STRIPS treasury that's set to mature when the 10 year is up so I can pay it off then. No reason to make a financially inferior decision just for the peace of mind, at least that's how I view it.
Post Reply