Financial Freedom at 40ish @ 4.5M ?

[phiMD]

Married, 41/37 yo, 3 kids (0,2,4)
NW: 4.5M (Taxable = 3.0M, Tax-Deferred/Roth = 1.5M)
Debt: 0
Renters (no mortgage)
AA: 65 stocks, 35 fixed income
Expenses: 120K/yo (2.66% of NW)

We are ready to take a few year sabbatical to travel, are we financially free/independent?
Variables I'm concerned about:
-Order of spending (do you pull from taxable first? dividends etc)
-Cost of shelter (as renters)
-Cost of education (college)
-Cost of healthcare
-Taxes (how do you calculate taxes as an expense, I've factored in 12K/yo, but we live in OR 9.9%, so probably higher)

Thank you in advance

[G3G4G5]

I recommend modeling your scenarios at projectionlab.com. Really nice tool! Good luck!

[retired@50]

Married, 41/37 yo, 3 kids (0,2,4)
NW: 4.5M (Taxable = 3.0M, Tax-Deferred/Roth = 1.5M)
Debt: 0
Renters (no mortgage)
AA: 65 stocks, 35 fixed income
Expenses: 120K/yo (2.66% of NW)

We are ready to take a few year sabbatical to travel, are we financially free/independent?
Variables I'm concerned about:
-Order of spending (do you pull from taxable first? dividends etc)
-Cost of shelter (as renters)
-Cost of education (college)
-Cost of healthcare
-Taxes (how do you calculate taxes as an expense, I've factored in 12K/yo, but we live in OR 9.9%, so probably higher)

Thank you in advance

Start by taking the dividends paid from the $3 million in taxable.

That will probably get you somewhere between $60k and $90k annually, depending on what you hold in the taxable account and the current dividend yield of your holdings.

Then, sell as necessary from taxable since you're too young to tap the tax-deferred account without penalty.

This strategy may lead you to use the tax-deferred account and/or Roth account to rebalance to your desired 65/35 mix.

Regards,

[doobiedoo]

Married, 41/37 yo, 3 kids (0,2,4)
NW: 4.5M (Taxable = 3.0M, Tax-Deferred/Roth = 1.5M)
Debt: 0
Renters (no mortgage)
AA: 65 stocks, 35 fixed income
Expenses: 120K/yo (2.66% of NW)

We are ready to take a few year sabbatical to travel, are we financially free/independent?
Variables I'm concerned about:
-Order of spending (do you pull from taxable first? dividends etc)
-Cost of shelter (as renters)
-Cost of education (college)
-Cost of healthcare
-Taxes (how do you calculate taxes as an expense, I've factored in 12K/yo, but we live in OR 9.9%, so probably higher)
..

Travel with kids that young will be a hassle. Road trips are ok. Long plane rides, not so much.
And when the 4-yr old starts kindergarten in a year, you will be tethered to the school schedule.
My experience is that sabbaticals/early retirement do not feel like sabbaticals/retirement in that scenario.

OTOH, if you just want time off to relax and enjoy your kids, nothing wrong with that.

[phiMD]

Noted, thank you! Also, well said on the traveling with kids, definitely not easy. I'll check out that app, how do you calculate taxes? I'm guessing it's going to be 23.8% federal + 9.9% OR state, so 33.7% of my income from taxable account (70K/yr) so roughly 24K, that's more than I factored in.

Best,

Married, 41/37 yo, 3 kids (0,2,4)
NW: 4.5M (Taxable = 3.0M, Tax-Deferred/Roth = 1.5M)
Debt: 0
Renters (no mortgage)
AA: 65 stocks, 35 fixed income
Expenses: 120K/yo (2.66% of NW)

We are ready to take a few year sabbatical to travel, are we financially free/independent?
Variables I'm concerned about:
-Order of spending (do you pull from taxable first? dividends etc)
-Cost of shelter (as renters)
-Cost of education (college)
-Cost of healthcare
-Taxes (how do you calculate taxes as an expense, I've factored in 12K/yo, but we live in OR 9.9%, so probably higher)

Thank you in advance

Start by taking the dividends paid from the $3 million in taxable.

That will probably get you somewhere between $60k and $90k annually, depending on what you hold in the taxable account and the current dividend yield of your holdings.

Then, sell as necessary from taxable since you're too young to tap the tax-deferred account without penalty.

This strategy may lead you to use the tax-deferred account and/or Roth account to rebalance to your desired 65/35 mix.

Regards,

[wilwoodjoyce]

Have you considered the option of moving to no income tax state? As you mentioned, OR is a high income tax state. No house ownership, no full time job, kids are still not in elementary school yet, so moving makes sense to me.

[er999]

Even without any income I’d plan on being full pay for college. The school assess your ability to pay at 5.64% of taxable assets which would be $168k/ year.

You should have plenty of money, though if you can keep your expenses $120k with that low a withdrawal rate.

If you are a MD I’d look into part time locums as an option. Not because you don’t have enough, but for someone to do and an income buffer if you want to scale up your lifestyle.

Great job savings all that money in Oregon. I used to live there but now live in Washington as trying to get ahead with less taxes.

I’d consider renting an apartment in Vancouver and move there for a couple months to establish residency (changing your drivers license to Washington, receiving mail there, etc.) before your multi year trip to avoid Oregon taxes. If you decide to do so I’d buy a new car before moving there as Washington doesn’t charge sales tax on any cars bought more than 90 days before becoming a resident (double check though). Might be worth the slight hassle.

[retired@50]

... how do you calculate taxes? I'm guessing it's going to be 23.8% federal + 9.9% OR state, so 33.7% of my income from taxable account (70K/yr) so roughly 24K, that's more than I factored in.

It may not be that bad. Play around with the calculator(s) from the wiki page.

Here is one I like: https://engaging-data.com/tax-brackets/

More here: https://www.bogleheads.org/wiki/Tools_and_calculators

Or use turbo tax or other tax software and do a mock tax return.

Regards,

[phiMD]

Excellent advice, so appreciated, will check out new calculator website.

[skier]

That tax calculator site is good for understanding effective rates, but a couple taxation points it sounds like you might not be aware of:
- Qualified dividends (held for certain amount of time, not REITs) are taxed as capital gains by fed. You could easily have most of your income be tax free, whether it is from dividends or stock sales doesn't matter.
- State taxes almost universally treat capital gains as ordinary income.
- In a non-flat tax state you would expect your effective state tax rates to drop significantly when your income goes down to just your investment income, but OR has much higher floor here than eg CA where the change would be much more significant.

[topofthebellcurve]

Very interested in this thread, thanks for posting!

Similar demographic/NW: 39/37, 3 kids (2, 4, 6), ~$4MM investment portfolio, ~$800K home equity. Also considering my degree of financial freedom and focused on the same major expenses (minus shelter since we own our home with a low leverage, cheap mortgage).

Curious what line of work you and your partner are in? I expect some types of work are more or less able to be paused for a few years and restarted (if you decide to do as such). My wife really enjoys working in her field (pharma R&D), so my future pontifications assume her working.

How are you thinking about colleges savings? I posted about my 401K thinking here: https://bogleheads.org/forum/viewtopic.php?t=435596

Will follow this thread with interest!

[bonesly]

Married, 41/37 yo, 3 kids (0,2,4)
NW: 4.5M (Taxable = 3.0M, Tax-Deferred/Roth = 1.5M)
Debt: 0
Renters (no mortgage)
AA: 65 stocks, 35 fixed income
Expenses: 120K/yo (2.66% of NW)

As Retired@50 said, you'll be pulling from Taxable for the first 19 years (unless you have a pension you can tap at age 55, you can't draw from your Tax-Deferred & Roth Tax-Free accounts until 59.5).

As she is 37 that's a 58-year withdrawal period, so the 4% for 30-years rule from the Trinity Study is reduced to 3.15% (which is a near perpetual withdrawal rate, but still has some risk of running out early). $3M x 3.15% = $94.5K which is short of your $120K/yr expenses (and that $94.5K is before taxes, likely at 15% LTCG). It might still be feasible if you draw at a higher rate from Taxable and then reduce overall draw at age 60 when you can tap the tax-advantaged accounts.

Some more insight about your portfolio would be helpful. Without input here's an assumption: Your Tax-Deferred account is twice the size of your Roth Tax-Free account; that forces you to hold some bonds (probably tax-exempt municipals) in Taxable, since holding bonds in the Roth is less tax-efficient than holding them in Taxable.


If we just look at the Taxable account until he turns 60, drawing $120K/yr, then the residual balance looks something like this:

Taxable
End-Bal Percentile
$894.2K 5th
$4,401.9K 25th
$8,749.0K 50th
$15,657.4K 75th
$34,067.6K 95th

During that same 20-year time-frame, your $1.5M in Trad/Roth grew to something in this range:

Tax-Advantaged
End-Bal Percentile
$3,331.3K 5th
$4,664.4K 25th
$5,642.1K 50th
$7,061.8K 75th
$10,112.6K 95th

If we plan for a bad sequence of returns, your total portfolio balance at age 60 is $894.2K + $3,331.3K = $4,225.5K, which then supports a 3.5% withdrawal over the next 38 years (until she reaches age 95) of $148K/yr. $120K x (1.03)^20 = $216K, so when you reach age 60, you'd be drawing $216K/yr ($120K in today's dollars assuming steady inflation of +3%/yr), but since $216K > $148K the whole portfolio won't sustain that kind of draw if you have a bad sequence of returns (5th percentile outcome).

You can always assume more risk that your particular sequence won't be that bad (like 10th, 15th, or even 20th), but that assuming the 50th percentile outcome as "the plan" means a 50% chance of not reaching that balance and having to cut back on spending or return to work. Assuming a 5th percentile outcome, also means there's a 95% chance you'll have a bigger outcome than that conservative planning balance, at which point you can adjust your spending based on your actual balance, so it's not all gloom and doom, but if it passes the 5th or 10th percentile planning number, then that's pretty high confidence of "financial independence." You could also use a different withdrawal strategy than constant-dollar (no pay cuts), like constant-percentage or VPW (which requires flexible spending due to pay cuts in market downturns, but has no risk of running out early).

A sabbatical "for a few years" seems fine, but I would not say you're financially independent of pensions & SocSec unless your spending is significantly reduced at some point during the withdrawal phase.

----------
Results above are from my Accumulation & Withdrawal Monte Carlo models (images and links below, along with other models that don't require Excel).

Taxable Only ($120K draw increasing by +3%/yr) for first 20 years


Tax-Advantaged (no contributions) for first 20 years


Whole Portfolio ($148K draw increasing by +3%/yr) for last 38 years


Data and Models I use for Monte Carlo:
NYU Data Set 1928-2017 with Model Fits
Accumulation Monte Carlo
Withdrawal Monte Carlo

You'll need a MS Excel license; download to your local machine and enable macros (required for the 1,000 random trials and results aggregation).

I'm using my own model as I like to know what's under the hood, but there are other models I like that have public facing website interfaces:
Portfolio Visualizer's Monte Carlo (with distribution modeling rather than the historical returns array),
FiCalc (easy interface, but only historical data array),
TPAW (historical data, but adjusted to avoid limitations of a random index into the historical array),
and many others here seem to like FireCalc (also historical data, but lots more inputs to tailor to your situation).

I don't care for a random index into the historical array of returns, compared to distribution modeling, as noted in this thread HERE.

[phiMD]

Wow! What a thorough analysis, thank you. You're right, I'm probably not financial free when you consider the 19.5 years necessary to access tax-deferred account. I think this helps educate me to look at the taxable portion separately from the tax deferred account (which you're right, I cannot access till 59.5yo). Is there a taxable amount that with my current expenses 120K would last me till 59.5yo? I assume I'm short at least 1M.

Best,

Married, 41/37 yo, 3 kids (0,2,4)
NW: 4.5M (Taxable = 3.0M, Tax-Deferred/Roth = 1.5M)
Debt: 0
Renters (no mortgage)
AA: 65 stocks, 35 fixed income
Expenses: 120K/yo (2.66% of NW)

As Retired@50 said, you'll be pulling from Taxable for the first 19 years (unless you have a pension you can tap at age 55, you can't draw from your Tax-Deferred & Roth Tax-Free accounts until 59.5).

As she is 37 that's a 58-year withdrawal period, so the 4% for 30-years rule from the Trinity Study is reduced to 3.15% (which is a near perpetual withdrawal rate, but still has some risk of running out early). $3M x 3.15% = $94.5K which is short of your $120K/yr expenses (and that $94.5K is before taxes, likely at 15% LTCG). It might still be feasible if you draw at a higher rate from Taxable and then reduce overall draw at age 60 when you can tap the tax-advantaged accounts.

Some more insight about your portfolio would be helpful. Without input here's an assumption: Your Tax-Deferred account is twice the size of your Roth Tax-Free account; that forces you to hold some bonds (probably tax-exempt municipals) in Taxable, since holding bonds in the Roth is less tax-efficient than holding them in Taxable.


If we just look at the Taxable account until he turns 60, drawing $120K/yr, then the residual balance looks something like this:

Taxable
End-Bal Percentile
$894.2K 5th
$4,401.9K 25th
$8,749.0K 50th
$15,657.4K 75th
$34,067.6K 95th

During that same 20-year time-frame, your $1.5M in Trad/Roth grew to something in this range:

Tax-Advantaged
End-Bal Percentile
$3,331.3K 5th
$4,664.4K 25th
$5,642.1K 50th
$7,061.8K 75th
$10,112.6K 95th

If we plan for a bad sequence of returns, your total portfolio balance at age 60 is $894.2K + $3,331.3K = $4,225.5K, which then supports a 3.5% withdrawal over the next 38 years (until she reaches age 95) of $148K/yr. $120K x (1.03)^20 = $216K, so when you reach age 60, you'd be drawing $216K/yr ($120K in today's dollars assuming steady inflation of +3%/yr), but since $216K > $148K the whole portfolio won't sustain that kind of draw if you have a bad sequence of returns (5th percentile outcome).

You can always assume more risk that your particular sequence won't be that bad (like 10th, 15th, or even 20th), but that assuming the 50th percentile outcome as "the plan" means a 50% chance of not reaching that balance and having to cut back on spending or return to work. Assuming a 5th percentile outcome, also means there's a 95% chance you'll have a bigger outcome than that conservative planning balance, at which point you can adjust your spending based on your actual balance, so it's not all gloom and doom, but if it passes the 5th or 10th percentile planning number, then that's pretty high confidence of "financial independence." You could also use a different withdrawal strategy than constant-dollar (no pay cuts), like constant-percentage or VPW (which requires flexible spending due to pay cuts in market downturns, but has no risk of running out early).

A sabbatical "for a few years" seems fine, but I would not say you're financially independent of pensions & SocSec unless your spending is significantly reduced at some point during the withdrawal phase.

----------
Results above are from my Accumulation & Withdrawal Monte Carlo models (images and links below, along with other models that don't require Excel).

Taxable Only ($120K draw increasing by +3%/yr) for first 20 years


Tax-Advantaged (no contributions) for first 20 years


Whole Portfolio ($148K draw increasing by +3%/yr) for last 38 years


Data and Models I use for Monte Carlo:
NYU Data Set 1928-2017 with Model Fits
Accumulation Monte Carlo
Withdrawal Monte Carlo

You'll need a MS Excel license; download to your local machine and enable macros (required for the 1,000 random trials and results aggregation).

I'm using my own model as I like to know what's under the hood, but there are other models I like that have public facing website interfaces:
Portfolio Visualizer's Monte Carlo (with distribution modeling rather than the historical returns array),
FiCalc (easy interface, but only historical data array),
TPAW (historical data, but adjusted to avoid limitations of a random index into the historical array),
and many others here seem to like FireCalc (also historical data, but lots more inputs to tailor to your situation).

I don't care for a random index into the historical array of returns, compared to distribution modeling, as noted in this thread HERE.

[bampf]

Wow! What a thorough analysis, thank you. You're right, I'm probably not financial free when you consider the 19.5 years necessary to access tax-deferred account. I think this helps educate me to look at the taxable portion separately from the tax deferred account (which you're right, I cannot access till 59.5yo).<snip>

I trimmed things down a little bit for ease of reading. There are scenarios where you can draw from your tax deferred accounts. Consider the following from the IRS website: Tax deferred scenarios

[ThankYouJack]

I feel like any other forum you'd be considered financially independent. On Bogleheads though, you'll probably get convinced to work another 30 years before taking a break

With kids 0-4, now is the time to take time off, be with them and travel. Take the sabbatical and live life to the fullest. You built up a great fortune, count your blessings

[phiMD]

Maybe just 5 more years Thank you for that reminder.

[bonesly]

Is there a taxable amount that with my current expenses 120K would last me till 59.5yo? I assume I'm short at least 1M.

To support $216K/yr draw at 3.5% withdrawal rate, you need a portfolio at age 60 that's $6,170K. If the tax-advantaged accounts have a 95% chance to reach $3,330K by age 60, then the delta is $6,170K - $3,330K = $2,840K as the target residual balance on Taxable. When I ran the Accumulation MC with varying initial balances of $3M, $3.5M, and $4M for three sets each of 1,000 trials (and drawing $120K/yr with +3%/yr increases), the best guess linear interpolation I got was that you'd need about $3,980K to have a 5th percentile residual of $2,840K.

So your guess of "short at least $1M" seems pretty accurate ($980K ± some variability/noise in MC projections).

[bonesly]

There are scenarios where you can draw from your tax deferred accounts.

That could also make things a lot easier... $120K on $4,500K total balance is only a 2.67% withdrawal rate, which is below the 3.15% "perpetual rate," so that would very likely work if he could tap the IRA accounts earlier than later.

Even though the Taxable account is twice the size of the IRA accounts combined, not having access to the whole portfolio right away is what is causing the recommendation to add another $980K to Taxable so sustain that $120K/yr withdrawal with inflation adjustments and no pay cuts in market downturns, for an extended 58-year withdrawal period (nothing like the typical 30-year period).

I feel like any other forum you'd be considered financially independent. On Bogleheads though, you'll probably get convinced to work another 30 years before taking a break

Asking about financial independence for a 30-year period is very different from asking about financial independence over a 60-year period. If any other forum didn't consider that impact, then I'd prefer to hear it from a Boglehead and get a dose of reality instead of copium.

[cmr79]

It wouldn't make sense to do this if you only intend to take a sabbatical, but your tax deferred accounts aren't locked away behind penalties until 59.5 if you retire early.

https://www.bogleheads.org/wiki/Substan ... c_payments

[ge1]

Financially you are obviously in great shape.

Just a thought on the travel: When you say "sabbatical", do you mean something like living abroad for a few years? Thinking back when our kids were that age, wouldn't that be more fun when your youngest is maybe 3 or 4, so she/he will have memories of that time? I think's is an awesome idea, just not sure I would want to spend all day with a newborn and a 2 year old

[ThankYouJack]

I feel like any other forum you'd be considered financially independent. On Bogleheads though, you'll probably get convinced to work another 30 years before taking a break

Asking about financial independence for a 30-year period is very different from asking about financial independence over a 60-year period. If any other forum didn't consider that impact, then I'd prefer to hear it from a Boglehead and get a dose of reality instead of copium.

What's a good SWR for a 60 year period? Many on here will go with an ultra low number with more of a doom and gloom, rigidity mindset than having an any flexibility. I don't know any ultra-successful 40 year olds with mid-seven figure portfolio who went broke.

To me (and I've run plenty of calculations), being FI is more of a mindset and being able to take a chance. If 40 year olds aren't there yet with $4.5M, living off $120k, and a plan to go back to work in a few years, I'm not sure when they'll get there.

As for apps, I like the Rich, Broke, Dead one - https://engaging-data.com/will-money-last-retire-early/

[BogleRocksDB]

Married, 41/37 yo, 3 kids (0,2,4)
NW: 4.5M (Taxable = 3.0M, Tax-Deferred/Roth = 1.5M)
Debt: 0
Renters (no mortgage)
AA: 65 stocks, 35 fixed income
Expenses: 120K/yo (2.66% of NW)

We are ready to take a few year sabbatical to travel, are we financially free/independent?
Variables I'm concerned about:
-Order of spending (do you pull from taxable first? dividends etc)
Google 'gocurrycracker draw down plan' - this gives a good idea of options. You could take dividends first and then sell a bit. MY AA is 75/25, and because this was a big step for me, I kept like 4.5 years is VFMXX and the rest in the G fund, which is a bond fund that acts a bit better than an intermediate bond fund over time (no risk to principal but somewhat inflation adjusted return).
-Cost of shelter (as renters)
If this is in your 120k/year, I think it is less relevant.
-Cost of education (college)
Nothing specific on this other than you will probably want to start setting aside money for this. You have room to do this on the delta between your 120k expenses and your net worth.
-Cost of healthcare
Ironically, with Obamacare, if you manage your gross income, you will likely have access to 'cheap' healthcare once an open enrollment event comes or a qualifying life event.
-Taxes (how do you calculate taxes as an expense, I've factored in 12K/yo, but we live in OR 9.9%, so probably higher)
google go curry cracker never pay taxes again. It goes through taxes and draw down plans.

Thank you in advance

Congrats! I think you are financially free, yes, based on your numbers. A few years older and kids 10/13 and we just took a sabattical this year. NW about where you are.

See above for my thoughts.

[sailaway]

It wouldn't make sense to do this if you only intend to take a sabbatical, but your tax deferred accounts aren't locked away behind penalties until 59.5 if you retire early.

https://www.bogleheads.org/wiki/Substan ... c_payments

Also: https://www.madfientist.com/how-to-acce ... nds-early/

[phiMD]

Brilliant, thank you for the specificity and encouragement. Cheers

Married, 41/37 yo, 3 kids (0,2,4)
NW: 4.5M (Taxable = 3.0M, Tax-Deferred/Roth = 1.5M)
Debt: 0
Renters (no mortgage)
AA: 65 stocks, 35 fixed income
Expenses: 120K/yo (2.66% of NW)

We are ready to take a few year sabbatical to travel, are we financially free/independent?
Variables I'm concerned about:
-Order of spending (do you pull from taxable first? dividends etc)
Google 'gocurrycracker draw down plan' - this gives a good idea of options. You could take dividends first and then sell a bit. MY AA is 75/25, and because this was a big step for me, I kept like 4.5 years is VFMXX and the rest in the G fund, which is a bond fund that acts a bit better than an intermediate bond fund over time (no risk to principal but somewhat inflation adjusted return).
-Cost of shelter (as renters)
If this is in your 120k/year, I think it is less relevant.
-Cost of education (college)
Nothing specific on this other than you will probably want to start setting aside money for this. You have room to do this on the delta between your 120k expenses and your net worth.
-Cost of healthcare
Ironically, with Obamacare, if you manage your gross income, you will likely have access to 'cheap' healthcare once an open enrollment event comes or a qualifying life event.
-Taxes (how do you calculate taxes as an expense, I've factored in 12K/yo, but we live in OR 9.9%, so probably higher)
google go curry cracker never pay taxes again. It goes through taxes and draw down plans.

Thank you in advance

Congrats! I think you are financially free, yes, based on your numbers. A few years older and kids 10/13 and we just took a sabattical this year. NW about where you are.

See above for my thoughts.

[GolfnCycle]

Yes, you’re good to take whatever time you need. It’s highly unlikely you’ll never make a dime again, irrespective of what your current position is. Take as much time as you want and then reassess when needed. As someone in similar age/financial situation, I’d be willing to bet that it will be harder than you are estimating to actually pull trigger. I hope you do!

[avalpert1]

Financially you are obviously in great shape.

Just a thought on the travel: When you say "sabbatical", do you mean something like living abroad for a few years? Thinking back when our kids were that age, wouldn't that be more fun when your youngest is maybe 3 or 4, so she/he will have memories of that time?

Yes very much this. Travel with an infant and even a toddler is more work than fun and adds very little to their development. Once they get into that older preschool age it will have more lasting impact.

But you also should have some idea of what you want for them (and if what you want is all about you what an independent observer may think they would want for themselves) when they get into real school-age both educationally and socially.

[Soobs]

If I was in your situation I would just look at it as freedom of choice. Would I stop my income? Nope. Would I explore a career or income source that gave me all the freedoms I want? Yep. At the very least I'd be pretty darn carefree.

[slow n steady]

You really really need to spend some time learning about your specific tax situation. Handled correctly, I think the feds will pay you a couple thousand to file your taxes and Oregon will take a few thousand.

You can convert 30k from traditional to Roth (to be used later in life), and have 95k of qualified dividends and long term capital gains and pay zero in taxes. Then you get 1600 refunded for each child under the child tax credit. You get paid 3k to file your taxes!

Deep dive into this then maybe start a separate thread to go over withdrawal strategy/tax plan.

[majiaknight]

Married, 41/37 yo, 3 kids (0,2,4)
Renters (no mortgage)
Expenses: 120K/yo (2.66% of NW)

Your 3 kids are big variables in terms of future spending. IMO your budget is low for a family of five unless you move to a LCOL area.

[stupidkid]

A few years older, two kids 5 and 2, a higher NW and equally higher expenses, but looking to do the same, live abroad for a year or two. As others have suggested, we're thinking to wait until the 2 year old is fully out of diapers, mobile, and verbal. Maybe in 1-1.5 years.

Expense creep is no joke. Even fairly fixed expenses - property taxes and insurance, have climbed dramatically where we are. You rent, but those costs will still be passed on to you.

We have become (frustratingly) less frugal - which keeps changing my calculations. Kids are certainly a factor, but not the only for us. One thing they do impact is travel costs. 4 plane tickets instead of 2. More luggage means more likely to rent a car, and different lodging choices. Food, constantly planning to eat - and eating for four. All manageable if you're good at planning but forget some snacks or miss the time and you're at the mercy of whatever is available.

Things you likely already know with a 4 and 2 year old, but I would give yourself more breathing room on spend. Always easier to not spend it than not have it...

[sambb]

with three kids at that age, and the unknowns of the world (healthcare, legal issues, disability, breakups, issue with parents or kids) i would keep going with employment in some form

[Ccthealias]

How hard is it for you or your wife to go back fo work after the sabbatical? It’s one thing if you are already laid off but another to quit. Traveling with kids isn’t that much fun. Even on road trips, there has been too much puking from car sickness and you have to consistently worry about child safety when you stay at a hotel and Airbnb. Even now I spend 2 weeks on vacay with my kids and I come back feeling drained and excited to go to back to work

[Wannaretireearly]

Amazing progress. Take the sabbatical when it works for your family

[mffl]

I feel like any other forum you'd be considered financially independent. On Bogleheads though, you'll probably get convinced to work another 30 years before taking a break

With kids 0-4, now is the time to take time off, be with them and travel. Take the sabbatical and live life to the fullest. You built up a great fortune, count your blessings

Lol so true. Nothing better than coming here to make you lose all confidence in your financial situation. Even here, I expect not a very high percentage have $5M+ NW.

So, you might end up with $45M, and you might end up broke. I think the missing piece is that pretty much anyone in practice would adjust withdrawal rate if necessary, both up and down. With $120K after tax expenses, it seems like you'd have a lot of opportunity to choose between finding a way to reduce tax liability, or reducing expenses to $100K for a few years, or going back to work, keeping in mind all you'd have to do is temporarily cover the shortfall. If your withdrawal amount is closer to the bare minimum a human can survive on, that's going to be less flexible. But $120K ain't that.

This isn't to contradict or criticize the analyses you've been offered. Quite the opposite, those are eye opening for a good reason. But that kind of analysis does tend towards "work until you're dead or there's a 1% chance you'll be broke, but a 20% chance you're a Rockefeller" type outcomes. Or... just be willing to suffer a couple skinny years if things go wrong, that should take care of that 1% risk.

[dbr]

I would pose the question as how can you estimate how much you can spend to be FI with those assets. Others are suggesting tools to do that.

But the actual answer to your question is that of course you are FI if you are willing to live within the means you have now. You are already wealthier than and would be able to spend more than almost everyone in this country.

But my point is that I think there is use in assessing retirement prospects from the point of view of what one can do with what one has rather than what one needs to meet some arbitrary target for spending. A person can affect what they spend more easily than they can affect how wealthy they are, at least as applied to most people who would ask here. People with much more limited means are in a different situation.

[phiMD]

Well said, and food for thought, thank you.

I would pose the question as how can you estimate how much you can spend to be FI with those assets. Others are suggesting tools to do that.

But the actual answer to your question is that of course you are FI if you are willing to live within the means you have now. You are already wealthier than and would be able to spend more than almost everyone in this country.

But my point is that I think there is use in assessing retirement prospects from the point of view of what one can do with what one has rather than what one needs to meet some arbitrary target for spending. A person can affect what they spend more easily than they can affect how wealthy they are, at least as applied to most people who would ask here. People with much more limited means are in a different situation.

[ScubaHogg]

Yes, given that budget you can definitely retire. And in most scenarios you’ll be richer in ten years than today

This is a horrible place though to ask about early retirement. These folks are terrified of their own shadows. I’ve seen people say 100x in expenses isn’t enough.

Discount the naysayers appropriately

I’d run the whole thing through tpawplanner.com

[Wwwdotcom]

Married, 41/37 yo, 3 kids (0,2,4)
NW: 4.5M (Taxable = 3.0M, Tax-Deferred/Roth = 1.5M)
...
-Taxes (how do you calculate taxes as an expense, I've factored in 12K/yo, but we live in OR 9.9%, so probably higher)

Well.. your plan is to withdrawal $120k a year and you qualify for tax-free capital gains up to $123,501. So under the current law, the only reasons you should be paying $10k or more is a screw up in tax planning or a change in tax laws.

[am]

Yes, given that budget you can definitely retire. And in most scenarios you’ll be richer in ten years than today

This is a horrible place though to ask about early retirement. These folks are terrified of their own shadows. I’ve seen people say 100x in expenses isn’t enough.

Discount the naysayers appropriately

I’d run the whole thing through tpawplanner.com

4.5 mil in retirement probably puts you in the top 2-5% of us citizens depending on the source. How could that not be enough?!

[ScubaHogg]

4.5 mil in retirement probably puts you in the top 2-5% of us citizens depending on the source. How could that not be enough?!

Exactly. And I don't think Social Security hasn't even been addressed

[Wrench]

Married, 41/37 yo, 3 kids (0,2,4)
NW: 4.5M (Taxable = 3.0M, Tax-Deferred/Roth = 1.5M)
Debt: 0
Renters (no mortgage)
AA: 65 stocks, 35 fixed income
Expenses: 120K/yo (2.66% of NW)

We are ready to take a few year sabbatical to travel, are we financially free/independent?
Variables I'm concerned about:
-Order of spending (do you pull from taxable first? dividends etc)
-Cost of shelter (as renters)
-Cost of education (college)
-Cost of healthcare
-Taxes (how do you calculate taxes as an expense, I've factored in 12K/yo, but we live in OR 9.9%, so probably higher)

Thank you in advance

My top line answer to these questions is to use a TIPS ladder to see if you can do it. $120K income for 30 years today requires ~$2.8M (using https://www.tipsladder.com/).
If you use your taxable account for that, you will have ~$200K left as a buffer. This is guaranteed inflation adjusted income. In 30 years, your 1.5M Roth should at least double and maybe triple in real value. Rinse and repeat and you are set to your spouse's age 97. (Of course no one knows what TIPS rates will be in 30 years so it may not be a good approach then so you might have to re-adjust withdrawal strategy at that point). And that does not include social security, which should add a bit more after age 70, though likely not too much more since you won't have 35 years of contributions. The one potential issue with this approach is taxes. TIPS in taxable is often said to be tax inefficient, but the devil is in the details. TIPS income will be state tax free, which helps you in OR, and with three kids and child tax credits you may or may not find the fed tax situation with TIPS to be OK. You will have to dig into the details to figure that one out.

You mention health care - I'm guessing that will run you $20K-$30K without subsidies on the exchange. You'll have to dig into the details of that too to see if you would qualify for subsidies.

Bottom line as far as I'm concerned (assuming you have factored in health care costs in your expense estimate): go for it if that is where your heart leads you!

Wrench

[Stick5vw]

From June 2019-Nov 2020 I took a sabbatical with a 2 year old (turned 3 in the middle), and with far less saved than you - we had about $1.46 mn saved IIRC (maybe half of that accessible immediately) so we always knew that we would be back in the job market. I had some RSUs rolling off which we used for income, and had de risked a bit to ensure we had enough cash on hand (in hindsight too much!) “just in case” for any eventuality as we were relocating back to the USA from overseas.

It was meant to be a 12 month sabbatical but March 2020 was quite the curveball! Job search took a bit longer than expected but professionally was back on track by Dec 2020, fortunately.

So that’s my framework for how I thought about a sabbatical. Reading your post, a few thoughts/questions spring to mind, which may be worth considering. Some might have been addressed already too.

*At your level of savings perhaps there’s a way to retire forever - or at least downshift. What kind of life do you want to lead? Where do you want to live, do you want to send your kids to private/public, does your wife want to work, do you want to pay full freight for college etc etc? Figure out your costs, goals, and plan accordingly in terms of income, investments, and maybe even work.

*Yes, travel with a newborn will not be easy. We did a few trips here and there, domestic and international. We found it hard enough with a toddler, so having 3 young kids and the stress that entails may not be how you want to spend your time! Spending time with the kids will be great but “on the road” is another story.

*We had our kid in a nursery school and were already thinking about where we would live and school districts etc which meant being grounded somewhat. Will you rent forever? Are you returning to the location you are based?

*Your kids (even the oldest) will not remember very much of the trips you take.

*Figure out your health care situation for the year(s) you take off. Could be expensive

*I’d suggest having a re entry plan (even just a loose one) back into the workforce. You may find that you like work for any number of reasons, whether a change of pace from being at home, mental challenge, desire for achievement, or to make $$. I imagine you are a driven individual so simply switching off could be tough. Keep your contacts fresh and take a class or two. Do you plan to go back to the same job, a new job, or are you really thinking about FIRE altogether?

Taking time off was great - I would urge anyone to do the same - the memories and time spent with the family will prove to be priceless. However use the time to “relentlessly audit your life” as this opportunity may not materialize again and think about what you/family want in the next chapter(s) of life

[Baylor Boy]

I feel like any other forum you'd be considered financially independent. On Bogleheads though, you'll probably get convinced to work another 30 years before taking a break

This is hilarious because it is so true. I'm more than a decade older, have only one kid, a relatively high income secure profession, and more than double the OP's net worth and reading this forum has me petrified at times. But, I appreciate the ultra conservative demeanor of this forum's posters. It keeps me from looking at things stupidly and making grotesque errors in assumptions.