Mindy: Welcome to the BiggerPockets Money podcast, show number 334, Finance Friday edition where we interview James and talk about figuring out your FI number and determining when you can live out your retirement dream.
Scott: I don’t even know if you necessarily need to build a real estate empire. I just think you’re your boogey man here is that more than half your spending is going towards your rent. And so if you buy a primary residence that is a duplex uh, or it works for Airbnb with and you and you just live in the carriage house and use that as your home base to get your mail or something. Now all of a sudden that barrier goes away and a bunch of the options that you want to enjoy in retirement become accessible right away. You just happen to work, you know, eight hours a day while you’re living in those in those retirement locations.
Mindy: Hello, hello, hello. My name is Mindy Jensen and with me as always is my shining example of what to always do, co-host, Scott Trench.
Scott: You’re always right, Mindy.
Mindy: Scott. What a humble man.
Scott: What did I do?
Mindy: Scott and I are here to make financial independence less scary. Less just for somebody else. To introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter when or where you’re starting.
Scott: That’s right, whether you want to retire early and travel the world, like this episode, go on to make big time investments in assets like real estate or start your own business. We’ll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams.
Mindy: Scott, I am excited about today’s episode. I really enjoyed talking to James. I think he is facing a dilemma that many people are facing. I know that I want to retire early, but I’m not quite sure what my numbers are. I’m not quite sure when I can actually retire. So, we have created a fire planning sheet that kind of gives you some questions that will help you as you answer them, help kind of streamline your thinking a little bit based on my numerous experience with all these people in the fire community.
Scott: I think that the reality of his situation is James has finished or is in is is two-thirds or three quarters of the way through this grind to F that um almost everybody has to go through some some version of. And at the towards the end of that, do you really have to wait the the last five years to fully reap the benefits of F or can you start layering them in sooner than that. And I think that’s really the the crux of today’s episode and it’s a fun problem and something that we hope many people have.
Mindy: I need to tell you what my lawyer makes me say, the contents of this podcast are informational in nature and are not legal or tax advice and neither Scott nor I, nor Bigger Pockets is engaged in the provision of legal, tax or any other advice. You should seek your own advice from professional advisors including lawyers and accountants regarding the legal, tax and financial implications of any financial decision you contemplate. And one more thing before we bring in James, I just wanted to note that the fire planning sheet will be linked to the show notes.
Guest: James, welcome to the Bigger Pockets Money podcast. I’m so excited to talk to you today.
Speaker 1: Thank you.
Guest: Today, James is joining us to talk about finance. He is 49 years old and lives in a high cost of living area, single with no kids and he does not plan to have any. He is considering his next steps and deciding if he should move away from his career and start a new journey in a lower cost of living country. Before we chat with him, let’s go over his numbers. He has a net worth of approximately $730,000. Yay, James. His salary is $7,100 a month including a bonus that happens once a year. He his expenses are $2,100 for rent, $80 for electric, $20 for water, $80 for internet, $80 for cell phone, $1,200 for credit card and $184 for gifts for his mom. Normally I would be like, hey, what do you mean $1,200 for credit card? Let’s break that down, but his grand total spending is $3,700 a month and he’s bringing in $7,100 a month. I don’t really think that spending is his problem and I don’t think we need to really dive deep into that area of your life. I think that you have your expenses down pretty much as long as these are accurate. Going into your investment types, we have a 401k of $465,000. That’s fantastic. A Roth IRA balance of $138,000, HSA of $45,000, after tax brokerage account of $69,000, cash reserves of $20,000. Normally I’d be like, wow, that’s a little low. But that’s what, six months expenses. I think that’s fine. And additional emergency funds of $43,000. So I think that you are doing pretty well in that regard, also. You have a 401K match that I before we started recording was like, you get an 8% match. 14% of his uh salary is contributed to his 401K every year. Does that max it out?
Speaker 1: It does.
Guest: Okay, good for you. Uh HSA is 2.3% for a total of 24% and post tax is after tax 401K 9% of his salary, 16% of post tax income, 8.1% to a Roth IRA, additional saved surplus 15.9%, total 40%. So, James, what do you call us for? Why on earth do you need our help?
Speaker 1: Well, mostly to figure out what the end point is, what the goal is. I had started my uh, you know, financial independence and, you know, uh journey uh just knowing that I needed to embrace the rigor of doing it and I don’t think I’d ever imagined that I might achieve an end point, but I’ve started to realize that, oh, I’m closer than I imagined I would ever be. And so I need to decide where the jumping off point is.
Guest: Okay. Let’s look at your money story. Very briefly, let’s look at where you started with your journey to financial independence and how you got to where you are now.
Speaker 1: Sure. So, um, when I was 28 is when I really started coming to terms with my personal finances and getting control of them. They were out of control completely before. And so I initially just uh developed a budget, which was, you know, difficult for all of its own reasons, you know, being the first time to do it. And then I started, um, you know, paying down uh credit card debt and then staying in good standing with my student loans and then fast forward 10 years to 38, then I had gotten a new job and had a pretty good salary and realized that I needed to get started with actual investing uh now that I had my budget under control and a good job then, I just needed to start the investment journey. And here I am today at 49.
Guest: Awesome. You have mentioned that you want to, you need some help with defining your goals. And I think that this is something that we have spoken with several people recently about and I think this is something that people kind of struggle with. So, I have created a sheet that I am going to walk you through. Uh first of all, when do you want to retire?
Speaker 1: Well, good question. Um Sooner would be great. Um with my financial planner, we are estimating out till 55, which is earlier than she is comfortable with, you know, but she came up with a plan and uh it has a good confidence of success, but I’m just kind of wondering, okay, well, you know, are there some things that I’m not thinking over that she’s not thinking of that might open up a door sooner than 55.
Scott: What does retirement look like?
Guest: Yeah, so, um, you know, I thought about that over the last couple of years, uh, you know, with the whole theme of retiring to something and really, I really like the way that I was living before the pandemic. Um, you know, hanging out with friends, going to brunch, and in being in Washington DC, you can just go to all of the museums all the time. There’s always new exhibits. And so it’s, you know, free activities to fill your time with. I was thinking about joining uh a museum’s membership and then just letting their event schedule fill out my social calendar so that I’m, you know, mixing with different people and being exposed to things that I wouldn’t normally go to. Um so that’s mostly it.
Scott: in Washington. did you say DC?
Guest: Right.
Scott: Okay. Why why do you want to retire and where do you want to retire? Is it Washington DC?
Guest: Well, that’s a good question. Um, I had always kind of imagined that maybe I might retire to the Pacific Northwest, maybe Portland or maybe a second tier city like Baltimore or Philadelphia. Um, but then over the last during the pandemic, what came into my awareness was people going to Portugal or lower cost of living countries. And that’s just fascinating to think about. I don’t really know, I don’t really know how that would work out from a life perspective, but it it’s fascinating to think about because the cost of living is supposed to be so much lower.
Mindy: When Scott asked you what your retirement looked like, you said museums in Washington DC. So, I think a really great homework assignment is to really think about, okay, I have all the money that I need. I’m gonna quit my job today. What are all the things that I want to do? Watch that movie, The Bucket list. I actually really like that movie because it gets you thinking about all these different things that you want to do. The Pacific Northwest is great. How do you handle rain? I lived in the Pacific Northwest for 15 months when I was in second grade. So like weather didn’t really affect me because I was in second grade. It rained for 12 months. It snowed one day and then sporadic uh sunshine for the other three months over the course of 15. It can be really um depressing. So if that is something that you don’t do well with, the Pacific Northwest may not be for you. But lucky for you, you can go check it out. Go during one of the really rough months and see how much you like it.
Guest: That’s one of the things is that especially over these last 10 years of, you know, pursuing financial independence. I haven’t traveled or anything. And so there’s there’s a list of places that I need to go look at. I need to go to Portugal and see if whether I might like it. I need to go to Philadelphia and see if I might like it Portland, the same story. Um So yeah, I haven’t been to any of these places.
Guest: Okay, so that is another homework assignment. That’s a fun homework assignment. That’s not like doing pages three through nine in your math book. That’s I get to travel. Okay. Go to Portugal and check it out.
Scott: So let’s let’s take a step back here and zoom out. You’ve got $730,000 in net worth. The vast majority of that is going to be in your retirement accounts, your 401K and your Roth IRA, with a small amount in after tax brokerage and a healthy cash reserve and emergency fund. At the 4% rule, we could say that that might generate $29,000 a year, which is actually fairly close to your monthly spending. So you’re not, you’re not very far away at a 4% rule threshold, and you have a nice cash cushion on that. You also at the highest level, you earn what, like 170,000 a year. If you earn your bonus, 165, 170.
Guest: Right.
Scott: And you you spend less than half of your take home pay um on that or around half of that take home pay. So we’ve got a really really good base here. You can you might not be able to retire tomorrow and generate that passive income at the highest level. But you could take a job for half pay and live in Portugal next, next month if you wanted to do that and still be able to accumulate wealth.
Guest: Well, that’s one of the things that I’ve also been thinking about is, you know, not going making a hard cut, you know, and going into retirement and being completely job free, but, you know, doing something else that might be interesting or just taking a a side step, you know, into something that’s 50,000 per year and remote that I could do, you know, internationally maybe.
Scott: Yeah, I I think that’s a really good option for you right now, because I think, I think you’re like, hey, I’ve been working towards five for a long time. I now am starting to bubble up a number of options that I’d be happy with. I’d be happy with the Pacific Northwest. I’d be happy in Washington DC. I’d be happy in Portugal. Um, does your work require you to come in multiple times a week or is it full-time in person?
Guest: No, so right now it’s full-time remote still and um, we are, we are likely to stay remote. Um, at this point. There are some events that are on the horizon that, you know, might turn out uh, in some different way next year, but for right now we’re all remote. Um, but I can only work in the United States remotely. I can’t go to another country.
Scott: Um, I I think that’s that’s that’s very fair, you know, the employer has to set up a different agreement with that. But could you travel to another country and just happen to work uh, for a month or two while while traveling?
Guest: Yes, I can do that.
Scott: Now, what what is your living situation like right now? You said you rent?
Guest: Yeah.
Scott: And where are you located?
Guest: Oh, uh, I’m in Silver Spring Marilyn.
Scott: Civil Spring, Merlin. Awesome. I am from uh Howard County, Maryland. Right around the corner, where I grew up. Oh, okay.
Guest: Oh, okay.
Scott: Awesome. And and what does your lease allow you to Airbnb your your property if you were to travel for a little bit?
Guest: You know, I don’t know that. Um, yeah, I don’t know.
Scott: Okay. Well, you can see where I’m going with this, right? where where I don’t think I I don’t think we have, you know, I I think you know that you need to continue to begin be be investing for retirement in order to build that wealth over the next couple of years to really have a solid nest egg that could totally support you without work with a good, a good variety of life lifestyle options. But you’re not really far away. You’re probably coastfy currently. You probably don’t have to contribute anymore and by the time you hit, uh, with your spending, with your if you keep it this low, um, by 59 and a half, you’ll be able to begin withdrawing and you should be set. And then social security will kick in. And yes, you can count on at least some social security, um, uh, a good chunk of it. You might, you know, get count on 75% of what you think you can get, um, would be a a fairly conservative thing. But you’re, you’re going to have a a pretty good setup as long as you don’t do anything drastically, like start spending down your retirement portfolio right now. Um, with that. So, you’re you’re pretty close. Um, but but I think what what’s more important is like you’ve been, you don’t you you’re you’re you’re grinding and you don’t have to be grinding. You can actually start reaping some of the rewards of that flexibility you’ve created right now, if you just start experimenting here, you know. And and and my preferred my instinctive approach is see if you can Airbnb out your rental um, for a little bit with your landlord’s permission. You know, if you give him a little higher security. Well, if it’s not in the lease, probably you can just do it. If it is in the lease, you want to maybe talk to the landlord and say, hey, can I well what, there’s no rule against it. Can you not? what what is he gonna do? Um, but if but if there is maybe you can say, hey, can I do this? I’ll split some of the income with you. I’ll give you a higher security deposit, whatever, um, or she. And then can I go and travel to Pacific Northwest for a month or two and stay there? Can I go to Washington DC? which is, you know, only a 50 minute drive for you. Um, and then can I go to Portugal for a month or two and just see what it’s like to live and work there? You’re not gonna change your benefits or your address. You just happen to take a two month vacation, a working vacation. Um, so anyway, what what do you think about some of those thoughts and suggestions?
Guest: Right. No, I think those sound like good ideas and I had wondered about that, you know, so, um, I think about maybe lowering my cost of living, lowering my housing costs, and so I think of maybe Philadelphia or something. And then I, you know, step along the path and I realize, oh, I need to actually go check it out. But then when I think about it, I can tell that this past decade of being so focused on building my accounts, I’m really uh, I’m a little tight fisted to actually pay for housing somewhere else because I’m paying for housing here. Being being this apartment would, you know, help help with that. But it’s kind of funny to me just to observe how cautious I am, you know, about doing additional spending, even though it accomplishes, you know, trying, trying Philadelphia on and seeing if it would fit. Uh but yeah, those are those are good ideas. Um I just haven’t made any plans to to do them and then given the pandemic, I’m still sort of feeling that out.
Scott: So so this leads me to another, another so two two reactions to that. One is house hacking. That would be a potentially great move for you if you were open to that. Um, and if you thought about that, how do I buy a house that gives me the maximum flexibility that’s a perfect Airbnb for when I’m traveling and not there and maybe even has a carriage house or something that I can, um, rent while I’m, I am living there with that. That that might be a really good if your goal is truly as soon as possible to move to Portugal or DC or the Pacific Northwest and get out of Silver Spring, then that’s a really good move while you’re living in one of those areas, is just buy a property that makes a lot of sense as an income property and take advantage of that and think through that. Another option, and I just read about this today on the news, um is this concept of exchanging your home. Um so there’s a literally a site called Home Exchange. I forget which news source I saw it on. But it’s like, hey, I want to go travel to Portugal and perhaps someone from Portugal wants to travel to Silver Spring. Great, we can just swap houses. We have relatively similar houses. We’re going to vet each other similar to how Airbnb would vet it and and go from there. That was a new concept that I didn’t know about until previously today where we’re recording this at the end of August uh in the news. But that might be an option for you that would also help you avoid having to spend too much money. And then third would be Airbnb. I’m going to Airbnb out my current place and I’m going to not spend too much more. It’s just the spread between am I getting a little bit more rent from A and B than I am in this. And and now we get to test out a couple of things and I I think you’re at the point where you could make some some big decisions and say, I’m going to enjoy my life for the next five years. I don’t have to grind it out until retirement. I’m I’m coastfy. I can I can start reaping the rewards of this even if I can’t quite totally check out at this point.
Guest: Yeah, I’ve I’ve been wondering about that and I’ve kind of been estimating in the projections, uh you know, maybe doing some uh uh some partial income from 50 to 60. And I have wondered about whether, you know, buying a house or something, you know, might in some way make sense. Uh it’s obviously missing, you know, from my budget, but because I’ve never really, you know, as much as I’ve read about real estate, I’ve never been able to feel like I understood it enough to feel like I wanted to get involved with it. I’ve just been very cautious about that. Um so it’s mostly just a big question mark that I don’t really feel like I know enough about to uh to to make a, make a good move.
Mindy: I have a website for you. It’s called biggerpockets.com. We will teach you how to invest in real estate. We have a forum, we have books, we have podcasts, we have information, we have videos, we have YouTube channels, we have information in whatever medium you choose to consume it. and a blog. I we have so much I can’t even remember all the things we have. biggerpockets.com your source for real estate investing information online. Does that sound like a commercial?
Scott: A little bit.
Guest: I think that, you know, I don’t even know if you necessarily need to build a real estate empire. I just think you’re your boogie man here is that more than half your spending is going towards your rent and you go and take take, you know, um take off to Portugal, you’re gonna still have to pay $2,000 a month in rent. And so that I think a that’s got to be a huge mental hurdle to overcome to start enjoying some of the flexibility that you like that is just right there at your fingertips. And so if you buy a primary residence that is a duplex uh, or it works for Airbnb and you and you just live in the carriage house and use that as your home base to get your mail or something. Um now, all of a sudden, that barrier goes away and a bunch of the options that you want to enjoy in retirement become accessible right away. You just happen to work, you know, eight hours a day while you’re living in those in those retirement locations. You might find that you can do that in multiple different places around the world for a time period and your your employer may not care. I don’t know what your relationship is there. But like, you know, I I don’t think that would be a problem at bigger pockets if people did that. Um and in fact, I I I think that people would just do that and not even tell me and it would be totally fine and I’d never know and it’d be great for them. Um, and so I think that’s a the, you know, how I would think about it at the highest level. And that’s why I would suggest real estate, not necessarily you can build a rental portfolio. you’re you’re in a great position to do that if you chose to do that. You’d have to bring down your 401K savings a little bit. Um, but I don’t necessarily think you need to to achieve F you just need to do something with your primary residence that’s more flexible.
Mindy: I have a fourth option for housing. Um, before we started recording, we spoke of your mother and her housing, perhaps you could have that as your home base while you travel and then you don’t have your own apartment at all. If you’re going to be in the Pacific Northwest, and then in Philadelphia, and then in Portugal and all these pea’s, if you’re gonna be all these places, um, why do you need a home base at all? Why do you need like your own space?
Guest: Right. Yeah, I hadn’t thought about that. Um, so I I don’t, I don’t know if that would exactly work. She’s uh, she’s many states away and in a remote area of her state. She’s in a good situation for her. It’s just not, it’s not easily accessible and there’s no like additional space to, I mean, I could put my things in storage and that kind of stuff, and I guess use her address, but um, it it wouldn’t practically, I I don’t think it maybe it would work quite work out.
Mindy: Ah, okay. For some reason I thought she lived closer to you.
Guest: Oh, no, no, we’re we’re many states away.
Mindy: Many states away. Okay. Well then that’s, you know, that’s just an option. Lots of things to come.
Scott: So Mindy telling you to move back in with mom. Oh, I love it. Oh, fantastic. That’s a that’s what we’re all about here. Yeah.
Guest: Well, I’ve I’ve wondered, I have wondered about some really exotic things that I’ve read about. Um, I read something about, I guess people who do RVing in their uh retirement years. I’m not interested in that at all, but I guess they set up a domicile in Texas or North Carolina and somehow that satisfies some legal requirement to have a a uh a domicile, whatever whatever on earth that is. And then they just travel around. Um, I mean, it seems like maybe that would be something that would work but that’s that’s very exotic. I haven’t really looked into it.
Mindy: It’s not that exotic. My parents do this. They have lived in an RV for the last uh 15 or 16 years and they live in South Dakota. They have South Dakota license plates. They have a South Dakota address, which is like a mailboxes etc. Um that will mail all of their mail because you have to get credit card bills and I mean, you could get them online but not my parents. So um, and they have South Dakota driver’s licenses. The requirements to be a South Dakota resident is that you have to sleep in South Dakota one day out of 365.
Guest: Okay.
Mindy: But but this is this is a really good point, right? This is I mean this is this is actually a actually a huge nuance, right? I I I I don’t know how serious like are we going in the right direction that you want to go in with in terms of flexibility and being able to to to live in various locations all year or are we going way off the goal that you wanted to get here?
Guest: Well, I mean, I think it’s in the ballpark um because one of the things that I’d also imagined years ago is um, just moving from city to city, you know, and just getting the flavor of those places like maybe, you know, for six months live in New York and six months live in Boston, six months in Philadelphia, you know, and just hop around and just do that until I get bored with it and then do something else. I I had wondered about that. I don’t know if I’m really that adventurous, but at the same time, you know, I I wouldn’t know until I try it.
Scott: Well, well, if if if you want to do that, then I think again, it comes back down to flexibility of primary residents and I think we’re we’re right on with this, right? Go, you have to do some research, figure out where your home based state needs to be. I don’t know. I I that was the first, I I’m a complete novice in this. I have a lot of research to do and I’m going to do this after the show. And I want to learn about South Dakota. Like, oh, you have to live there one, one day a year, very interesting. Can I do the same thing in a state with, I don’t know about South Dakota, maybe it has um, no state income tax, but could I do that in Florida? Um, that has no state income tax. That’s a huge tax break. I’m gonna live in Pacific Northwest for a month or two, then Boston, then then DC. Okay, great. Now when I do that, my effective rent is probably going to be like three, four grandd in each of those cities. Um, so what what am I going to do with my home based residence to help either offset that, um, or have some place where I can, you know, how how am I going to think through those those challenges? And that’s where an Airbnb in my home state might make a lot of sense. Um, if if we can do that because you can put down a low down payment, get a low, a fairly low interest rate mortgage, although they’re certainly fairly high right now, um, uh, uh relative to where they were six months ago and think through that.
Guest: Yeah, when I thought about that years ago, I was really just thinking that I I would actually just move and I I wouldn’t have a like permanent residence somewhere else. I would just move to these uh different places. I don’t know how practical that is.
Scott: I I think changing your address 10 times a year is going to be really inconvenient. Um so I to me, it just seems like you need to have a place where your mail goes um that is your resident if you think through this. and ideally, that place is either super low cost or potentially generates income for you to a certain extent. Um so that that would be how I would how I would think through that. I I think moving literally moving all of your belongings every month would be very expensive and very very inconvenient potentially. Your employer might not not enjoy the your HR department will be very good friends with you um by the by the time that’s over as well.
Guest: Yeah, no, they they definitely don’t love that, which is why I always thinking on the order of, you know, six months in any one place. So it’s just a couple of times a year, but still it’s it’s a big hassle.
Scott: Yeah.
Guest: Oh and then there’s the tax filing. You’re gonna file in both both states.
Scott: Well, apparently, you know, I I I would be underpowered if Mindy’s parents really just file in South Dakota where they sleep one night a year.
Guest: They do. That is their state of residence. and they chose South Dakota for several reasons, no state income tax, and there’s a lot of states or not a lot, there’s like three or four states that have no state income tax, but I think South Dakota is easy for them to get to and the residency requirement of actually sleeping there one night is something that they can do. I mean, you could essentially sleep there on January 1, 2022 and December 31, 2023 and satisfy the requirements without being there for essentially two whole years.
Guest: Yeah, you could probably just stay overnight between connecting flights as you passed through the state.
Scott: Yeah, that’s uh, that’s one way.
Mindy: So, have you calculated your FI number? Have you sat down and and run the numbers and figured that out?
Guest: I have, yeah. So, um, so the, this is something that, um, I may I should have mentioned earlier. So maybe I don’t know. Uh My expenses are $43,000 per year.
Scott: Yeah, $3700 a month, right?
Guest: Okay. Yeah, so uh uh a multiplied by 25 and I I like to do a little bit more because you know, the 4% rule, you know, they’re recommending closer to 3%. So I really try to think more towards between 3.3 and 3.6. So I usually multiply by 28 just to try to land in a ballpark. It ends up, you know, it’s between 1.2 and one, 1.5 million. Uh, which is also what my, you know, financial planner ended up ends up estimating at 55. Um so, yeah, I’ve calculated the number. Um, and so I’m just kind of, you know, wondering, okay, but is there some legal room? are there different decisions? and then, you know, Portugal super low cost of living just sits out there. It’s just a very exotic thing. Or, you know, just getting a roommate, I mean the easiest way um that most people end up taking care of their housing expenses is they have a significant other that they split, you know, housing costs with. So if I just had a roommate, maybe that accomplishes something similar.
Scott: Can I can I just say something about the 4% rule? Um, I I think it’s I I it it is uh, it was correct or I think it was more correct to worry about the 4% rule being not conservative enough at the beginning of this year when the valuations were super high and bond yields were super low, right? You’re mixed stock bond portfolio can’t support that. Inflation is at 10%, right? I I think that now, three quarters of the way through the year, like the scary part there there there could certainly be further declines in the market in the overall sense. There could certainly be inflation um looming. But we’ve now seen that get eaten up, right? So people who were out of 4% rule are now going to be under that, right? their portfolio may not be able to sustain that at this point in time. But as far as going forward, if you’re meeting the 4% rule, I think I I think that now we can go back to that as a rule in a general sense. I think there may have been a period there for a few months where, okay, I’m a little concerned about the combination of really high stock valuations, really low bond yields and really high inflation and this rule not being appropriate. But I think inflation is going to start coming down over the next couple of months and I think that um stock market valuations have come down pretty substantially and bond yields are much higher now. So, just I would just put that bug in your ear as do I really need to go down to the 3% rule at this point in time or am I just scared because that’s that because rightfully so we were all scared earlier this year when when things when it was like how how can this possibly be sustainable? Now, sure, it could go up, down or could stay sideways, but I think I think there’s more more question marks about where the economy is at. So anyways, that’s one point. And then second, I think that um, from a uh a a an investing standpoint, you’re likely to hit that 1.5 million mark um within the next seven to eight years with your current savings rate. Is that would you agree with that?
Guest: Yeah, um, probably around 55 um is what the projection seems to suggest but definitely between 55 and 60 solidly for the 1.5.
Scott: And I’m I do you think that there’s anything you can do to accelerate that meaningfully or do you think that’s just kind of like, let’s play that game and and that’s a great outcome?
Guest: The only thing I think I can do is to reduce the housing expense, you know, so to move in with a roommate and then that would save about $600 um per month. Um, so that’s, you know, 7,600 per year, but that’s I think that’s all I could do to boost it.
Scott: I I like the option of of moving of living in all these different locations at $2,000 a month, um, uh, for the next five years and enjoying your life very much even while you’re still working. Um, much better than living in with a roommate in Silver Spring and grinding it out till financial freedom for this. I don’t know about you, but that that seems like a much better approach to me.
Guest: Yeah, I agree. James, how do you handle risk? How do you handle stock market declines? Do you remember back in March 2020 when it like bottom out and people were like, oh my goodness, what’s going on? How did that feel?
Mindy: Yeah, so, um, that didn’t feel awesome. Uh but I’m pretty steady. Uh you know, I’ve been working with my financial planner for the last 10 years and doing all, you know, reading all of the financial planning articles that, you know, came across my phone all those years. And um I I’m pretty steady. I’m fairly relaxed about it. Uh, I there’s no, there’s no danger of, you know, not having a job or anything like that. So with that being secure, the money’s invested for the long term and so, okay, you know, it goes down for understandable reasons, um, and then, you know, you you just wait and you don’t react to it. Everything is in ETFs. I don’t have anything in, you know, individual stocks or anything like that. So there’s nothing that I I I that I’m particularly concerned about. So I just waited it out. Um and then of course, in March 2020, there were lots of other things to be distracted by, so that was only one among many things I was concerned about.
Mindy: Yes, that’s a good point. When the stock market was going down, there were so many other things to also be concerned about. It’s hard to know where to put all of your attention. Have you listened to episode one hundred and twenty five with Fritz Gilbert of the Retirement Manifesto?
Guest: I don’t think so.
Mindy: Okay, so you are approximately five years, you are within five years of retirement. And Fritz decided five years before he was going to retire, he was going to write his retirement manifesto. This is what I need to be doing five years before retirement. This is what I need to do four years, three years, two years, one year, six months, you know, the month before I retire. And it’s a really great checklist and overview of all the things that you may or may not think about when you are on your uh, retirement journey, your uh winding down of your career. So I am going to give you more homework to listen to episode 125 and to read the retirementmanifesto.com/the ultimate pre retirement checklist which we will link to in the show notes because it’s got a whole bunch of hyphens and stuff in it. Um I would also invite you to run your early retirement numbers on a couple of calculators. There is one at networthify NETw h i f y.com. um an early retirement calculator, when can I retire? You plug in the numbers and it tells you how long it will take you to retire. And there’s a fire simulator at Cfiressim.com that I would also encourage you to go and use because the numbers, I’ve seen your spreadsheet, you like numbers. You will have a great deal of fun playing with these numbers in ways that are because you’re a numbers person so solid for you to to look at. Uh I would also send you to episode 323 with Jess from the Fineers. We talked about uh the concept of um Coast F where which Scott has brought up a couple of times.
Scott: Love it. I think those are great resources. James, what else can we help you with today? What what are some of the the big questions that that we haven’t covered or that you’d like to go deeper on?
Guest: Um, I’m not sure there’s really anything else. Um We’ve we’ve touched on a lot of stuff, you know, different ways to do the, you know, housing costs to control the cost of living, different ways to, you know, build uh lifestyle changes in and then also coastfi, uh, which I have been wondering about. Um, I think that’s pretty much it. Um, it it sounds like you’ve confirms that, um, you know, the possibility exists and is relatively soon. It’s sometime within the next decade, might be within the next five years. Um, so that, that agrees with my financial planner and I was just looking to hear if there were alternate ideas that I hadn’t stumbled across.
Scott: I I think you you’re doing a great great job. You’ve got a really good income. Um, you’ve got really low expenses that gives you a ton of flexibility um, uh, and and ability to coast towards, you know, early retirement at a very with a very high probability at age 55. And I think that you have um, more than that an opportunity to kind of start living in the here and now with this. You you can, you can achieve much of that, a big chunk of that retirement dream while earning income, um, if you think about that primary residence and how you can live in various locations over the next couple of of of years. So I’d be really interested to hear what you choose on that front and how things go. Um, personally, I I like the uh grind it out and get a roommate much less than the live it up and go in to a couple of these different places and and keep, you know, saving at a generally the same rate. You could even bring it down a notch um and go from 3700 to 4,000 or something like that and probably be fine. Um, to still to still hit FI. I I would also just want to leave one parting shot about this 4% rule thing, right? If if we if we go to the 3% rule for example, right? That that assumes, let’s say the 3.3% rule, right? That that says I’m gonna spend 30 uh, I’m gonna accumulate 33 years worth of spending is what that says. And that’s before social security, before my emergency reserve, before any other earned income assumes you never earn another dollar after age 55 from any source um in any sense. And, you know, it doesn’t doesn’t assumes you don’t adjust your spending if things go bad, whatever, right? So that that says if you’re at 55, that’s gonna last you until you’re 88, even if you just put it in a big pile of gold or something that matches inflation and spend it down one one bit at a time. So it’s it’s so conservative that it’s kind of like, really, um, uh, do do we need that? So I I just, I think that there’s there’s some thoughts to have around that as you’re, as you’re thinking about, what do I want out of out of my life over the next little bit, and you’re gonna have some some boosts to that that may make you feel a little bit more confident as as you approach traditional retirement age there.
Guest: Yeah, no, they they definitely don’t love that, uh which is why I always think on the order of, you know, six months in any one place, so it’s just a couple of times a year, but still, it’s it’s a big hassle.
James: Yeah, I have also thought about that. I know that all of the projections are very conservative because my my biggest fear that I talked about with my financial planner is to, of course, run out of money when I’m old, you know, being 85 and on the street and starving is not a solution. Um but um there are things that I haven’t done, like I haven’t been traveling, you know, over these 10 years when I’ve really been focused on building my accounts and you know, that that would be nice to do. Um I actually took my first trip to Germany about 10 years ago and realized that I like traveling, you know, to other countries and um and experiencing that. So it would be nice to have some of that built in too, but um I’m out of practice, I’m unfamiliar with the spending and so there’s a little bit of just hesitance in doing the spending. Um but yeah, those are all good things to think about.
Scott: You got to free up the housing um constraint as well. By the way, right now, great time to travel to Europe. Dollar is as strong as it’s been relative to the euro in memory. So, I I just think that’s a, I think it’s a um, you know, you’ve got a great window of opportunity right now on a relative sense.
Guest: Okay, one more episode I’m going to send you to is episode 243 with Ramit Sati. He talks about letting go of your financial tight-fistedness and embracing spending. And that uh I struggled with that. I still struggle with that. And that was a that was a great episode to give you a different point of view. And you’re not gonna just instantly start spending. I didn’t but uh you will hopefully get some great tips from Ramit who is apparently a master at spending. But he can afford it. He can afford it.
James: Right.
Guest: Okay, yeah, that would be great. Awesome. Well, James, thank you so much for your time today. This was a lot of fun and I hope this was really helpful for you.
James: Thank you. It was. I appreciate the time and all the ideas.
Guest: Great. Well, we will talk to you soon. Have a great day.
James: Thank you.
Guest: Okay, that was James. That was a lot of fun. I really, really enjoyed seeing his eyes kind of light up at the ooh, I should go take out all these places and and see if Portugal is really where I want to live or Philadelphia or the Pacific Northwest or, or, or, or, or. So that was exciting, Scott.
Scott: yeah. I, I thought it was a really fun conversation and it’s great, you know, to, to, to, to see, hey, these these things I want to do with my life, I can, I can do them now. Why, why not? Um, I can really, you know, I, I don’t know, if you moved to Portugal, what do you do every day for eight hours, um, there? I don’t know, you know, during the middle of the day, could you not just, you know, work and earn earn earn income there and then enjoy the most of Portugal right now? I don’t know. That that seems like a, like a potential plan to me. So I think, I think it’s fun and I think it’s, it’s worth this, worth really seriously considering achieving those dreams in the here and now, if you have a flexible situation like James definitely has.
Mindy: I liked what you said in the intro. You don’t have to wait until you get all the way to the end of FI to start layering in some of the things that you want to do. I like that layering in. You don’t just jump in with both feet. You start adding a little bit at a time. I think that’s great advice for James.
Scott: And by the way, I’d be giving different advice if it was, I’ve got a hundred grand in net worth right now and want to and and want to make it there. Okay, well, then you need to get into this grind mode and consider, you know, continuing to keep those expenses very low. I mean, otherwise, you’re going to be in trouble um at that at that future state and you you you’re really going to be relying on on social security or these other these other types of things. But that’s not his case. Um so it’s just it’s just a a different spin based on where his situation was and his his ability to coast to that outcome.
Mindy: Absolutely. The suggestions we make in the show are for the specific set of circumstances that we are being presented by our guest. If you have a different set of circumstances you’d like us to review, we’d love to talk to you. You can apply to be on the show at biggerpockets.com/finance review. and I want to plug again the fire planning sheet that I mentioned in the beginning of the show, just because I think it’s really, really helpful for people who are wondering what the next step is looking for a little bit of suggestion on how they can figure out what their fire number is, where they want to be. Is this even attainable with my current savings rate and all the questions that you have with regards to financial independence? I do feel a little uh uniquely qualified to comment on it since my husband actually did quit his job.
Scott: Yes, he’s wifefi. Um, which is a great strategy. Now, so so Mindy did Mindy did a great job with this. And there’s five key questions for me in this that that kind of, um, really get to the root of this is, why do you want to retire? What do you want to do когаÑо you are retired? when do you want it by? Can you do some of that right now? And is that what you’re is what your retirement goal look look like? Is that what you’re doing with your weekends and your free time and your vacations, um to a large degree. And then lastly, have you have you run your numbers? What is the what are the numbers that are needed to support that dream? Are you on track to that? Do you have a plan to get there? What’s that going to look like? There’s a whole bunch more that goes into it like how are you going to handle your risk, you know, how do you think feel about risk? What what would you do if your worth did plumb it 50%? Like you know is going to happen in the next 50 to 100 years from a stock market to client. at some point, we’re going to see that. Um, you know, where do you want that to be? What what’s what are the the the nuances and specifics? How do you think about cash flow versus appreciation? Are you willing to sell off part of your stock portfolio? A lot of people have a real hard time with that in a practical sense, even though the 4% rule talks about that. They would much rather be much more comfortable spending income that the portfolio is generating than selling off principle. So, lots of things to think through as you get into this, um, and a really good resource there.
Mindy: Yeah, lots of things to think about and this is not an end all be all questionnaire. This is just something to get you started on your uh started thinking on all the things that you need to consider before you jumped ship. Okay, Scott, should we get out of here?
Scott: Let’s do it.
Mindy: From episode 334 of the Bigger Pockets Money podcast. He is Scott Trench and I am Mindy Jensen saying to Kangaroo.
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