Mindy: Today’s episode tackles one of the biggest and most emotional financial independence questions that families face. When is it actually safe for one or more parent to stop working? Our guests, Katie and Jesus are originally planned to pursue aggressive FIRE with a target of $3.2 million so that both spouses could retire early. But after having a child, coupled with constant work travel and reevaluating what they really want life to look like, the goalposts have started to shift.
Mindy: Now the question is no longer just how fast can we reach FI. It’s can we afford for Katie to stay home, enjoy these early years with our son, and still build a long-term path to financial independence? That’s what we are going to figure out today.
Mindy: Hello, hello, hello, and welcome to the BiggerPockets Money podcast. My name is Mindy Jensen, and with me as always is my Loves Finance Friday episodes co-host, Scott Trench.
Scott: Thanks, Mindy. Great to be here, and excited to talk to Katie and Jesus about how their financial position is excelling. I’m so excited to talk to you guys today and thank you for joining us here on the BiggerPockets Money podcast.
Guest 1: Thank you for having us.
Guest 2: Thank you. Excited to be here. Huge fans.
Scott: Yeah, well, thank you so much for listening and thank you for submitting the information and providing such great detail. We’re super excited to get into it today. Mindy, do you want to kind of preview what we’re looking at today?
Mindy: I do. One of their big questions is when can Katie leave her W2 employment and will their current portfolio sustain them until Jesus retires at age 50? So, I’m going to just run through your numbers really quickly. You have a really impressive portfolio. You are doing great. And I think that Scott and I don’t do enough cheerleading when we have a really great situation. You guys are fantastic. You have a total net worth of just over $2 million. Most of that in a liquid financial investment portfolio. A little bit in your non financial portfolio, like primary residence, vehicles, personal random property, etc. But most of this is invested. Awesome, 1.8 in invested. We have an annual spend of $139,000 currently, about $11,000 a month and you’re making $300,000 a year. So that falls well within the amount that you could spend. Your expenses if you left would be reduced a little bit to about $9,500. Going over your expenses, I don’t see anything really, really crazy. We’ve got $2,600 in mortgage, 700 in extra housing expenses, 450 for vehicles, 800 for other travel, groceries at 1500. I mean, maybe you could trim that down a little bit, but that’s not going to change your whole life. Low eating out, $800 for shopping. That’s just like random shopping. I would want to see that like more spelled out. Insurance at 350, medical at 200, fun at 650. I love that you’re continuing to keep the fun in and miscellaneous at 1200. So if we’re looking at this 9500, we’ve got 1200 miscellaneous, 800 in shopping and 650 in fun. What is that, Scott? $2600 out of 9500 that could be trimmed a little bit and that could be the difference between what Jesus makes and what you’re spending.
Scott: Well, I also call out that there’s currently $3,600 in child care expense, which I can certainly relate to, and that would go to zero basically with the decision for Katie to step back from work. This is fundamentally a decision, right? Is we’re going to drop Katie’s income. That’s going to reduce our household income to a point that we can’t quite sustain on one salary, but can our investment portfolio give us that option? That’s the fundamental question, right?
Guest 1: Yes, and then still allow for us to have him retire early as well, just not quite as early.
Mindy: So with that 9500 that you’re spending and what Jesus is bringing in, does that include continuing to contribute to the retirement accounts or does that stop all retirement account contributions?
Guest 2: We would completely stop contributing to retirement accounts moving forward. All that we’d be working on is essentially my pension which I’d be able to pull when I’m 62. So that’s the only kind of retirement we would be contributing to, I guess, but they they just pull that from my checks. So whatever my salary shows that we take home, that that includes what they’re withdrawing for pension and all that good stuff.
Mindy: Okay, and how much is your pension when you start pulling it at 62?
Guest 2: Assuming I retire at 50 with the calculation, I think I came up with $5,000 because if I retire at 50, then it’s not inflation adjusted for those 12 years that I don’t get to pull it. So it would be based off my final salary. So if my final salary is at 50, then at 62 it would be around $5,000 in 62 years old dollars, not today’s dollars. Per month.
Guest 2: Per month, yes.
Mindy: Okay, so that’s about half of what you’re considering spending. I mean, I don’t know what inflation is going to be in 12 years.
Guest 2: Right, right.
Scott: What jumps out to me about this is, yes, this should be achievable. This is why we pursue financial independence. The high-level rules of thumb suggest that this should work. It’s harder than that in practice, and it’s your situation and your life. So it’s a big deal. And there’s real trade offs with it. But the the math of FI should support the situation. But let’s walk through it and what’s going on here. The the big headline issue is, Katie, you’re making $200,000 a year right now. What what do you do to earn that money?
Guest 1: I am in medical sales. I won’t be too descriptive about which industry, but medical sales has been a great career for me so far. Yeah.
Scott: Some of that’s variable and some of that’s fixed, right? For base salary.
Guest 1: Yes. So my base salary right now is 162,000 and then if I hit 100% to goal, I think I actually wrote for you guys was it’s $40,000 in commission is 100% to goal. It’s actually 46. I had a typo there. Depending on the year. I’ve gone far over and sometimes like, you know, beginning of this year, I didn’t hit in Q1. So it can change. But the 162,000 is the salary that I like to kind of base expenses off of and the rest is great if it happens.
Mindy: Yeah, I like that conservative estimation. Is there any opportunity for you to reduce your workload and stay where you’re at?
Guest 1: Not really, because I’ve been thinking about this a lot. It is definitely a demanding job, not just with the stress level of being in sales and having quotas and everything like that. It’s the travel aspect of it. I manage, you know, like nine states currently. So it’s very hard to be home with our and as I think we mentioned, I have a young son. So he’s about to be two and the travel part used to not affect me as much, but being gone probably a couple nights at least three weeks out of the month, it’s becoming a lot harder, which is why I’m now considering leaving the industry.
Mindy: So if you were able to get rid of the travel and just go part-time, would you want to consider that or are you ready to just be completely done?
Guest 1: So, to give you a little bit of history, like before I met Jesus, before we had a child, I was very focused on the financial independence journey. For me, it was when I reached, it was my goal was sometime between 40 to 45, I wanted to be done and be able to figure out what I enjoy more, have more of a routine, travel more. And so when we got married and having a child like that’s obviously changed a bit, but it’s really hard for me mentally to go from like going full force, high income, putting in these hours, getting commission, that sort of thing to like the idea of a part-time job where now I’m going to have to do it longer. Whereas like, I kind of feel like I still may want to just frontload if all it would take is like another year or two for us to get to this point. I’d rather put that work in now with my high income so that then I can have that early retirement that I’ve been working towards. So it’s like I’m in this space where I don’t want to give up that early retirement and that flexibility that comes with it, but I also don’t want to do it too early that I mess everything up. So I’m that’s where I was like, all right, I’m writing in to them to see what they think.
Scott: And Jesus, what do you think about this situation?
Guest 2: I’ve ran the numbers multiple times and I keep concluding that she can essentially leave now. Her job does come with a lot of stress and my job, I love my job and, you know, 50 was this number we kind of came up with at some point. And now with my new job, I’m like, I don’t know if I’m going to be ready to quit at 50, you know, like, I could see myself doing this longer. So with that in mind, I keep telling her again and again that I feel that we’re ready and I just feel that she has a case of the one more year syndrome. But at the same time, I tell her, you know, I’m going to support her in whatever she wants to do. And once again, that’s why she kind of reached out and just wanted to get somebody else’s perspective because it’s always good to kind of hear it from someone else as well.
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Scott: I I keep coming back to my initial hypothesis of like, yes, this should work. That’s where both of you guys are as well. And there’s the jitters because it’s a major life decision. And let’s be real, like, Katie, giving up $200,000 a year in income over 30 years is millions and millions and millions of dollars of opportunity cost. That’s also what we pursue FI for. Everybody who achieves FI, almost everybody is going to step back voluntarily or involuntarily at their peak earnings, right? That’s almost a definitional aspect of the journey with it. And that’s why it’s I think so so scary and why one more year syndrome is there. Let’s talk about ways to get there. And and you guys did a great job with this and you broke my model because my model is supposed to can only pull the taxes from one tab, but you created two tabs for income and expenses, one for pre-decision and one for post decision, which is awesome. So I went and cheated and plugged some of those those things there. But let’s say post decision, you’re going to need to spend $115,000 a year per your projections. Your job, I presume, covers health care, Hey Jesus?
Guest 2: Correct. Yes. So currently we’re on her healthcare and I get in lieu contribution, but we will be switching over to my job and it’s I I have good health care coverage. It’s it’s not very expensive at all.
Scott: Okay, but that will, is that factored in here accurately?
Guest 2: Yeah, it’s it’s should actually be less than 200, but yes, that that’ll cover the three of us.
Scott: Okay, and is that include out of pockets and those kinds of things for annual estimates in that?
Guest 1: That’s what I have there. Yeah, I’m
Guest 2: Okay. So yeah, that’s what that includes there.
Scott: Once you move on, next year’s income, so 2026 will be different because there’ll if you were to stop now, Katie, you’d have some income in 2026. But in 2027, presumably you’d have this number. Hey Jesus, is this reflect a raise that you’re anticipating?
Guest 2: Yeah, so I get a 5% in a couple weeks, a 3% in July. July’s our fiscal year, the start of the fiscal year. So then next May, I’ll get another 5% and July another 3% and so on. That shows this salary up until next July of 2027.
Scott: So we have $108,000 in top line income from your job, before we get to any investment income, and then we’ve got $114,000 in spend.
Guest 1: Yes.
Scott: So we’ve got 7 grand we got to make up on a $2 million investment portfolio with that way at the top line. Now, we also have taxes. So that’s what this computation is showing here, right? So we’re going to take we’re going to estimate somewhere in the ballpark of 9,000 bucks in federal and state taxes in a year where this is your only source of active income, right? Before we get to portfolio income. Is that about kind of what you guys think is ballpark there as well? So we actually have $99,000 in after tax take home pay if we don’t contribute to any of retirement accounts and those kinds of things. This is not including your FICA. So we’re probably going to have about 8,000 bucks in FICA. So $92,000 is really going to be our net after tax generation, most likely. So we got to make about 20, $22,000 bucks. is the difference. Is that right?
Guest 2: Should be. I think we came out with slightly different numbers. Yeah.
Scott: What did you get? What did you get?
Guest 2: I think we were at around $42,000 we would need to cover the first year. Because that’s not showing like deductions for your health insurance. And the pension as well.
Scott: Okay, so we have some deductions, we have some deferrals and some paycheck deductions where this is not going to hit. And you haven’t put those either, we either taken them out of pay or we haven’t put them into the medical expense category.
Guest 1: Correct.
Scott: Okay, so we need to make up about $40,000 once we factor in the health care that’s going to come out of Jesus’s paycheck, once we factor in FICA, federal and state taxes. There’s $114,000 in spending and there’s $74,000 in income that will come into your bank account each year. Is that right?
Guest 2: Correct.
Scott: So, what is your thoughts on this, about how how you’re going to fund that?
Guest 2: Well, currently we have a large cash position. So the idea behind that is to have that in place to weather the storm. So, you know, if the stock market’s doing good, how it has been doing the past few years, we can pull from from our investments. But when those down years come that are going to come someday, we have that cash position there to pull from that. I think currently we have four years worth of cash or something. And that once again, that’s assuming that she just never works again.
Scott: Let’s just try this here. Let’s try let’s try out some ways. I think that the more ways we can make you comfortable with this, the more ways you can get there, the more helpful this will be. So what’s your high yield savings account rate for this cash right now? 280 grand?
Guest 1: I think it’s at 3 and a half percent. I haven’t checked it in the last few months, but that’s about what it was.
Scott: Okay. $280,000 times .035 gets us $10,000 a year in simple interest from 9,800 bucks in simple interest just from that. So now we only have to make 30 grand from the rest of the portfolio. What’s the dividend yield alone on your $991,000 in after tax stock portfolios? Do you have any idea?
Guest 1: I do not off the top of my head, no.
Scott: Okay. Let’s see what the dividend yield of VOO is right as of today, May 21st. It’s about 1.06%. So let’s take that and 991 times .01. We got another 10 grand there. So that’s 20 grand right there between your interest on your cash and then your dividend there. So we still haven’t had to sell any stocks yet. Does this make you feel a little better?
Guest 1: Yes, other than the fact that like it fundamentally inside it’s like reinvest the dividends and I’m like, okay, wait, you have to stop doing that when you retire, do the fire thing at some point, but I’m like, wait, no, that’s supposed to keep reinvesting, Scott.
Scott: Another question I have here is about your mortgage here. So how many years we got left in this mortgage?
Guest 1: 25, I think.
Scott: 25. So, when the 4%, we talk about the 4% rule spending, right, which is, which is a big concern here, that adjusts for inflation up every year, but that mortgage is going to stay static relative to inflation that entire time. So that’s another nice hedge there is that expense will not grow with inflation. That’s literally a quarter of your expenses today. That’s another helpful mark on your portfolio here. So your core portfolio is only going to inflate on the $7,000 in annual spend. From there, let’s say that we just do those things. There’s a circular reference here, but our $280,000 in cash position is generating 10 grand, and you have a $10,000 dividend yield. So you just that cash, you just redirect that cash to come into your bank account, and we have that. Now, you only have to spend down $20,000 of this cash position if your expenses are correct each year. Right? Now you have a circular thing. So next year, this cash position goes to $60,000 before you sell any stocks, right? You haven’t liquidated any part of your portfolio yet to cover to cover this spread. Then the next year, it’s going to drop to 245. Then the next year it will drop to 222 or some you see what I’m saying? I’m I’m I’m simplifying a little bit of circular math because of the lower interest just will yield, you know, as time goes on and interest rates can change and all that. That’s a pretty powerful additional filter here in your financial position. I don’t know how many years that is, but it’s a lot more than four years of savings when you think through that shortfall here, right, in terms of annual income. How’s this helpful? Does it does this is it are all are these frameworks helping to give you more confidence in terms of lowering the risk of the decision to some degree?
Guest 2: Yes. So the whole, you know, our mortgage isn’t going to grow with inflation and our cash is going to be earning its own interest. I’ve brought these things up, but I didn’t even put them into the numbers I had previously showed her. And once again, it’s just kind of that one year syndrome. But these are all things that we’ve discussed and yes, so it does all make sense.
Guest 1: It’s like I get it, but it’s so hard for me, I’m obviously a far more anxious person when it comes to finances. And I want to make sure that I think through every scenario, you know, long term care, if something happens to my health or, you know, we have a young child that I’m like, I don’t know how much a teenager costs. Like there’s all these things that I’m I’m not good with unknowns and I feel like the future is unknowns for finances. So it is helping. It is something he’s like loving to be like, see, I told you, but it’s just I’m a little nervous about everything. So it does help to hear you kind of have the same take.
Guest 2: I think it’s also we don’t want to be limited on the life that we live. I think we’re frugal people at the end of the day. I mean, our we have high grocery bills, but it’s because we eat organic, grass fed, like we that’s one thing we don’t shy away from investing in is our health. But other than that, I mean, besides travel and just, you know, normal things that we enjoy, I guess we just don’t want to be limited in our day-to-day life. And I think that’s one of the fears is just currently we’re in a position to where we don’t really think too much about having fun. Whereas if we all of a sudden lose a $200,000 a year, you know, income, then we’re just worried that that might change how we live our day-to-day.
Mindy: Did you what did you what are you going to say?
Mindy: I was going to ask if they plan to have any more kids or are they one and done?
Guest 1: One and done.
Guest 2: One and done.
Mindy: One and done. Okay. Do you have health issues in your family history?
Guest 1: There is on my father’s side a history of Alzheimer’s and I think that’s where I get the most fear from is, you know, I’m trying to do things now to avoid that in my future, but it does run in my family and I know that can be extremely expensive.
Mindy: Okay, yeah, that that can be.
Scott: I would call out here. I have more work to do to develop a really strong framework on long-term care because it’s often dismissed and there’s probabilities of it happening and how we would fund it. But I think that for now, my working hypothesis is that a paid off home entering retirement is a very good way to think about that, the insurance need for that. It may or may not be exactly that, but your house is worth like 500 grand, a 500 grand inflation adjusted pool of money, which you would presumably sell, if you did needed long-term care, could be a good, a good way to think about defense against that particular item as a starting point. You know, I don’t know how much you want to you want to buy, but that seems like a pretty good amount plus a very conservative interpretation of financial independence.
Guest 1: Yeah, it’s a good point.
Scott: Jesus, tell me about this pension that you’re about you’re building towards with your work because you’re not stopping saving for retirement. You’re building a pension.
Guest 2: I guess we said we’re not contributing anymore because it’s something that I really don’t have a say in. But either way, I’d be participating in it. It’s I’m part of CalPERS. So, you know, I just started with them. But once again, even that number’s pretty conservative. In my position, there’s it’s the only position in the county that I work for. So there’s unfortunately not room for advancement, but like I said, it’s a position I really enjoy and I see myself doing this for as long as I want really. But the pension to answer your question, it’s the calculation is based off years of service times 2% times your final salary. You know, if I retire at 50 years old, I’d have 18 years of service times 2% and then whatever that number gives me times my final salary. So that’s how I came up with that 5,000 because my current salary, I just added 2% essentially, you know, for 18 years.
Scott: Right. And CalPERS is adjusted for inflation. So you’re going to get a $50,000 per year initial calculation, give or take, adjusted for inflation pension starting at age 62 if you have to wait till age 62 to claim that, right? So you really just need to bridge your financial independence position until that point at which point you’ll also get social security within a few years of that as well. You at least plan to work the entire time. You this is almost by definition a commitment to work to receive this pension if this is the working hypothesis and that would allow you to then get the pension and and social security. So that’s a serious asset. You’d need a portfolio of another million plus dollars to produce $50,000 in spendable liquidity like this, you know, at a 4% rule, inflation adjusted. So that’s a that’s a serious additional asset that you’re building here on top of what you already got. I can’t do the math in my head here and I don’t have an engine to to do it. But I wonder based on what we talked about earlier, how long just the cash position works here and whether you don’t get remarkably close to points in that bridge just by spending dividends alone and the interest from your checking account here, if you don’t invest that 280 grand.
Guest 1: So you’re thinking if we were to, you know, turn off the automatic like the reinvestment and just build up the dividends, pull that and then use our cash position for a while, that might be a good way to go with it.
Scott: I’m saying that’s an option. I think it’s probably suboptimal. You probably have too much cash and you should you ought to invest it to some degree. I’m trying to present ways to help you think about the situation and how secure this is relative to your spending right now. Your big risk or the way I think you ought to be framing your risk is you’re giving up what could be a 5 to $10 million financial position within a few years with this decision. If you want to spend $10,000 a month basically forever, it’s really hard to find financial rules of thumb that don’t allow that in your your position here. What you’re giving up and what you should have to jitters about is millions of more additional dollars of wealth and a dramatically different lifestyle that could be taking place in five years. This is fire, right? This is this is this is the tradeoff of financial independence to some degree, right? But that’s how what I think you ought to be like like, hey, we’re making a real decision. It’s that decision here. It’s not we’re going to run out of money at our current spend. It’s that we could have this different life if we wanted to, but we’re giving that up for fire, which is what, you know, everybody in the financial independence movement makes this decision at some level and gives up the next bit if they realize this.
Guest 1: Yeah, and that’s something that goes through my head a lot and it’s hard because you have this idea of, okay, work a few more years and have be able to live, you know, more extravagantly. But at the same time, we have a young son. It’s the only one we’re going to have. And how much of that time with me traveling, am I willing to give up as well? So it’s very hard. I go back and forth on like work a few more years and have a lot more flexibility in life or spend that time with him now while he’s young and he’s our only one we’re going to have. So
Mindy: Well, I don’t think these are binary choices. I don’t think it’s either quit now or work several more years. You could take time off now and then when he goes into kindergarten, you can go back for a shorter amount of time or find a different job that generates some income that you can either use to replenish what you’ve taken while you’re not working for three years or, you know, just build up your investable portfolio again. There are other sales jobs that you can do just because you’ve been in medical sales doesn’t mean you have to stay in medical sales or just because you’ve been in a traveling sales job doesn’t mean that you always have to be a traveling sales position. So, why do you want to retire early?
Guest 1: So, before, it was the idea of I had a lot of years where I had very successful years making my income and I’ve had to work very hard to do that and give up a lot of time when people were traveling or maybe enjoying material things a bit more than I have in my life. And it was kind of like, all right, if I get to this point between 40 to 45, I want to have time to figure out what brings me joy. I don’t have as many hobbies as I would like to. I haven’t traveled as much as I’d like to. I feel like I’ve been working so hard that I haven’t had that freedom to actually figure out what I want to do in retirement, which I know is like I listen to, you know, all the podcasts. I know if you don’t know what you’re retiring to, then it’s a problem. But since having my son, now, a lot of it is I’m not sure if I’m going to enjoy being a stay-at-home mom, but I would like the opportunity to figure that out and be able to be there on field trips and be able to pick him up from school and be like, how was your day? Like that’s all stuff that I’m not going to be able to do in my current job. And it’s kind of like I had one thing I was going for, one life I pictured before having him in early retirement and now it’s kind of been like, well maybe just being home and present is like what I want to start with and then figure it out from there.
Scott: I I think it’s almost a different conversation. You know, this is just like I’m going to stay home for six months and try it out and then get another job. Like it sounds like this job is not compatible with your needs right now. And that’s really the fundamental problem of what’s going on here. And guess what? Like that job is the highest paying, best opportunity you can get from an income perspective that was that’s available to you right now, realistically. That’s what it sounds like. Once you stop, that income goes to zero. It does not have to stay at zero. There are other ways to to generate more income downstream that can get you there. You are giving up whatever that spread is as part of this decision, which is why it feels high stakes because it is high stakes. It’s millions of dollars in long-term wealth that you’re you’re making a decision about. But you’ve also set yourself up to have this option. That’s the option, right? How much more is millions going to do? Maybe a lot. Maybe if your dream is to have something like a beach house or something like that, that’s the decision you’re giving up on this. But if you’re not sure, or it’s not, then I think there’s no way you can’t take three to six months here and just kind of see how that goes. And after three to six months, if you decide, you know what, I I want to do some kind of work, then you can go get another job. But really what fire is empowered you to do here is not work this job if you don’t want to. Your financial independence and you can work something that’s right for your stage of life here. There’s a real cost to that, but you’ve paid that price with the years of very disciplined, smart moves you’ve made to get to this position in the first place.
Guest 1: Yeah, it’s very hard because it’s not just my income. My work allows like flexibility when I’m not on the road. They pay for our car, my insurance, my gas. There’s a lot of perks that come, you know, stock options that it’s like, oh man, giving all of this up is very hard, but I also traveling and being away from my family is very hard. I think just knowing like having the baseline of, okay, if I were to quit my job now, at the end of this year, whenever it might be, we could continue affording what we’re doing right now and then still give him the option. Like he loves his job, but like I don’t know if at 50 he’s still going to love his job. So to still have him have the opportunity to retire early, like that is important to me. So I’m like, if we’re at a point that from what you’re seeing, from what we’re seeing where it’s like, we could support our current level of spending with what we have, then that provides some comfort to me.
Mindy: My question goes back to Katie. It doesn’t sound to me like you absolutely hate this job and you cannot wait to get out of it at any cost. It sounds like you don’t want to travel anymore. It sounds like you want to be able to have some of the perks, like the perks are nice, the income is nice. I would give you a bit of homework to just think about it, not in the context of right now I need the answer, but just for you think about what parts of your job do you like and would consider keeping in exchange for like you would do 50% of your job for 50% of the pay. Then you don’t have any issue at all because you’re generating more than what you’re spending. You will still be able to save for retirement if you’re making half of your income. You’ll still be able to spend some time with your son because you’re still going to have like 50% of your job. Or if like 0%, I don’t want any of it at all and I’m just not reading it right. But, you know, something to think about because a lot of people will go into their boss and say, hey, is part-time an option? And the boss is thinking, well, it’s either full-time or part-time. So no, part-time’s not an option. We want you here full-time, when the reality is, no, I’m asking, do you want me to stay part-time or do you want zero time because I’m going to leave? And sometimes the boss will change his mind when his only option is 50% or nothing.
Guest 1: Yes. The only issue that like comes to my mind with that is childcare right now. So if I were to cut my income in half, like the amount that I would be bringing in versus what we spend on childcare, I don’t know that it would be worth it at that point to even be working.
Mindy: And that’s valid. I was a stay-at-home mom for eight years because my income at the time would have been the exact amount that I was paying for childcare and I wanted to stay home with my kids. So that was an easy choice for me. If you went part-time at work, could you go part-time in the childcare?
Guest 2: I think finding a, because currently we have a nanny and I think, you know, that’s what we want to do as far as childcare goes until we feel he’s ready for daycare. So I think the biggest issue would be finding a nanny who’s also willing to only work half the time.
Mindy: Or maybe a nanny share.
Guest 1: Yeah.
Scott: Someone called me out of this recently on a YouTube comment, but it’s like, why am I not hanging out with my one-year-old and three-year-old all day? Why am I doing this instead of that? That’s just not my personality. I love my kids very much, but like, I need to be doing something else in addition to not just hanging around my three-year-old and one-year-old who would drive me crazy, the way I’m wired. If I was if that was all day every day, seven days a week, do you share that concern at all for yourself to some degree as part of this transition? Is that informing things?
Guest 1: Yes. We had this conversation with this morning where I’m like, I’m scared to quit, but I’m also scared not to quit. Again, a lot of it is the travel aspect. If I could do my exact job, be working from home, see him throughout the day like I do when I am home, I would keep going forever. It’s this whole leaving for multiple days almost every week that’s the hard part. But that’s why they pay me to do this is that travel aspect of it. So yes, I share that concern. I love my son, but wow, especially as he’s becoming a toddler, it’s a lot.
Scott: I mean, just the sheer exhaustion that hits around 7 o’clock on Saturdays after a whirlwind of activities is unbelievable. I don’t know if you guys feel this in your life with with just one, two, two magnifies the whole dynamic and you know, it’s wonderful and it’s just like crazy. People have strong opinions about that. Too bad. You can have strong opinions, whatever. I’m not going to do that every single day of my life. I want to take my kids out of school early and go to the zoo during some weekdays, have daddy daughter days, those kinds of things. Those are fun, but I’m not going that’s not my every day. And I think that’s totally fine, but but I think that there’s there’s a piece of this about what do I honestly want and maybe kind of articulating what perfection looks like would be helpful for you on that front because, you know, you can imagine a state where you’re not very happy with that overwhelming task now and and you’re you’re in this new position and not earning income. That’s a risk that’s financial and non-financial to some degree for you guys. There’s some to think through there and maybe to Mindy’s point, which I think is excellent advice, maybe it’s, let’s find out what the best alternative here is for me. If that’s not really what I want, if I want to do some kind of work or or cover cover child care to some degree, maybe there’s a place where you can talk to your boss and say, can I can I cut my pay, take this job that is only for local situations here, have this region or whatever, trade with this person and take a a paycheck and get a much better quality of life. Maybe you start taking looks at job offers that pay half or three quarters of this opportunity. And maybe you can take a month off or two weeks or however much PTO you have and try it out and see how you like the full quit version of that. And see it maybe you’re like, no, I absolutely love this. This is wonderful. I’m going to do this with my days indefinitely. Those are all viable things there. But maybe those would derisk what really you guys are worried about here, not the can we, can we bridge this? Which, of course, we know we know the answer to that is a technical financial yes, coming into the conversation, I think. What’s your reaction to this rambling train of thought?
Guest 1: You’re not wrong. I think that just depends on the day on if I’m like, yes, I want to be home every single day with him. And then there’ll be a day where he’s just yelling at me all day and I’m like, maybe I don’t want this all the time. So it is hard. I think I just want the confidence to know that I could. You know, you’re saying we came in and everything looks great. We knew the answer. I think he knew the answer. I think that I logically feel like we’re okay, but my money history comes from like my family having money and then all of a sudden we didn’t. So there’s definitely this fundamental like fear inside me of having money and then it being gone. And I’m like the stock market, most of our investments are in the stock market. I know that it goes up if you give it enough time, but it’s like it could be there and then it could be gone. So I appreciate all the work he’s done to like look at our numbers. I’ve done it for years. I track every dollar I’ve been spending for like 10 years at this point. So I know it’s there, but I was like, I need the confidence of just one more set of eyes to look at this and be like, no, you guys are okay so that then I can like breathe and be like, okay, what do I want? Do I actually want to quit? Do I want to figure something else out? That’s kind of where I was like, no, I actually do need you to look at this and tell me even if it seems obvious to you.
Mindy: Well, having a different set of eyes, having Scott’s eyes and talking about the interest on your cash and the dividend payout and all of that is fantastic. That’s not something that I have thought of, although I don’t have a ton of dividend paying stocks. Just looking at your exact numbers, 1.8 million in your liquid financial portfolio generates about $72,000 a year. If you’re going off of the 4% rule, you needed to cover a $40,000 gap-ish. So you could do that without all of Scott’s fancy dividends and interest on your cash thing. That would be covered. How to think about, you know, when somebody’s still working and somebody’s not working and, you know, it’s it’s a total amount that you need. You need $115,000, you’re getting X from Jesus’ income. So then you need to bridge that gap and that gap is easily bridged with the 4% rule. It’s probably easily bridged with the 2% rule. So looking at these straight numbers, yeah, you’re probably going to be fine. Again, for entertainment purposes only. However, what would happen if the stock market crashed? It went 50% drop. What would you do? Considering Jesus is still working, you have quit your job, the stock market crashes 50%. What happens to your mental state? Would you go back and get another job?
Guest 1: Yes.
Mindy: Okay. So your worst case scenario to quote Joel from episode 11, your worst case scenario is everybody else’s everyday life. Yeah. So you could test this out and see, first of all, is that actually what you want to do? Yes, it is. Okay, great. Continue testing. You test it out and the stock market crashes, you’re like, oh, I’m just going to go get a job. I’m going to get, you can get a job that bridges the $40,000.
Guest 1: One thing I that’s been hard for me to calculate is like, if he retires early at 50. So we know how to have like our fire number, right? Of what we need to go if we both quit and at 50, neither one of us are working. It’s like, okay, you have your fire number for the 4% rule. I guess it’s just been harder for me to be like, okay, well, if we spend this much money between me quitting and then him quitting, is our portfolio going to grow enough to then reach our original fire number that we had? Like, I think it’s that calculation there that we try to do and we’ve used like different calculators online. I we’ve been using like a coast fire calculator to try and be like, okay, well, if we had us dying at what year?
Guest 2: I essentially opened it up twice and on one I had us dying, you know, the money needed to last until I was 50 essentially. And then it shoots out what you would have left in your portfolio at that point if we were pulling whatever money we needed to bridge my salary difference. And then from that age, we ran it until 95, including my pension and you know, on the so on the second one, I open I included what we would have essentially died with when I turned 50 and I decide to retire. And that’s how I started the next calculation.
Scott: Let’s do this. And you’re saying in 25 years, am I going to be absolutely broke? Right? That’s the question, right? So in 25 years, we’re gonna have the house paid off, right? By definition, unless you get foreclosed on or something crazy happens, right? But like if we go into really fantasy land, like you can always construct a scenario where you fail. So there’s probabilities in all of these things, right? Let’s take this mortgage payment to zero, which it’s going to be at that point in time, and you hold your other expenses constant for inflation, right? Your kids are out of the house and doing their thing at that age. So you have $7,000 a month you need to spend and his pension covers $5,000 of that, inflation adjusted, right?
Guest 1: Yeah, once we’re 62, not from 50 to 62.
Scott: Once you’re 62, yes. So let’s say that you literally had nothing left, you would have to cut your expenses by two grand in that situation adjusted for inflation to cover this situation at age 62, before we get to social security.
Guest 1: Yes, okay.
Scott: Right? Because the pension is a real asset you’re building. Not you probably don’t that’s not what you want, right? And and there’s there’s also like an intellectual dishonesty in the fire community to some to a degree, I think for portions of them, which is where, oh, I’m fine with my portfolio going to zero if I can bridge it to social security in my pension with that. Nobody wants that as the outcome here. That’s not going to happen, and you’re going to course correct here. You are a clearly competent person making a significant income in a sales profession. So that’s like the best possible fire, kind of quasi quit your job thing. Surely that skill set to go and sell is not going to completely erode over the next couple of years if you can do that. It’s not like you’re an executive, you know, or a specialist in a technical field where your skills, you will there will be a different language or different evolutions of that that will be lost over time. You have a generalist sales toolkit that should be able to give you options downstream. My guess is you’re not going to want to stay home all day every day doing that. You may you may do that for a while and maybe for some days you do what you need to do during the day while your kid is childcare and you don’t earn income. You can and maybe should do that for portions of this. And then maybe you have some kind of income producing side thing that you do that’s fun um to supplement this. Maybe you get your real estate license or something like that uh in there. But there’s so many options for this where you go to zero base and only eat what you kill. I don’t know what they use in sales tool. But like maybe there’s something there. So like those are those are so many different options around all this. And then again, I think you should run this calculation. It’s going to be a, there’s a way to do it and I I just can’t think about it for for modeling purposes. But you take your 1% dividend yield, and then you take your simple interest on your cash, and then you circularly pull it down over the next couple of years with a realistic raise schedule for Jesus. And you say, do I actually ever run out of cash before I have to draw on the portfolio? That’s another way to think about this situation with your current spend. I don’t know what the answer will be. Maybe, maybe the answer is probably yes at some point if nothing else happens at all, then you have to finally sell an equity to fund some of your your lifestyle. But I think, you know, if Frank Vaskas were on here, he’d be like, you guys got to start spending more. But I think that would be an interesting analysis on this as well, the circularity with your cash position.
Mindy: Scott, I was going to bring up Frank Vaskas, I’m glad you brought him up. Frank and I went through and created one of his risk parity portfolios in an account that I have. I started out with $10,000 and I allocated it the way that he told me to. I’ve got small cap, large cap, mid cap, gold, I can’t even remember all the stuff that I have. But my portfolio, and with the express purpose, I created this so that I could pull out the equivalent of 5%. I pull it out monthly, so it’s like 5% divided by 12, it’s $42 because it’s a $10,000 portfolio. I pull it out. I have now, after pulling out since last July, I have $11,691. So I’m spending down my portfolio and it’s still growing. And I would encourage you to look at different portfolio makeups. Frank Vaskas has several that he promotes and believes in and he’s got sample portfolios that show what’s going on in each one of those portfolios, but I’ve been withdrawing from my portfolio and I still have more money than I started with. And it’s only a year and, you know, the market’s been doing well. But I wonder if a different portfolio makeup might help ease your mind.
Scott: What if you deployed 200k of this into that portfolio and practice that as your withdrawal portfolio, for example, that could be one path to doing that as well. We’re not going to recommend a specific portfolio here to be very clear with any of these things. But what like that’s an idea for you to consider is taking this cash that’s sitting here earning simple interest and putting it into a retiree’s portfolio and practicing the withdrawal math on that while spending yield from the other parts of the portfolio, for example. These are just tricks to get your mind to feel comfortable with the situation, not really like necessarily best practice in the portfolio because your problem is not do I have enough, it’s it’s how do I feel comfortable with the situation here? How do I more honestly state my fears around the the trade offs in the situation, which are not I’m going to run out of money, it’s it’s am I giving up something that I might want more than this this situation here? The hypothesis that I am coming to here for you guys, you can do do your own hypothesis with this or whatever to me, is Katie, you’re going to want a different job at some point that’s more flexible that earns some some income. You’re going to want to spend many days with your two-year-old and you’re going to not and you’re going to want to spend some days or some ports of days doing adult things for your own and maybe earning a little money as part of that. And maybe that’s really what I’m hearing you want more close than I want to stay home all day earning no income with my two-year-old for the next several years until he goes to kindergarten. Maybe that’s just more what you really want. I don’t know. Is that sound closer? What do you guys think?
Guest 1: I feel like maybe I don’t know what I want fully either. It’s just that those days when I’m gone are really, really hard. And so maybe I’ve just been so focused on, can I stop those days now or soon, rather than thinking about what other options I could do for work or how else I could make some income. It’s just been like for years I’ve been so focused on just once I quit work, then I’m done. I’m going to retire early, I’m done. So I have never really thought about the alternatives to what I’m doing now. So maybe that’s just more of what I need to spend time doing.
Mindy: Yeah, I think that’s a great idea. Take some time. It’s not a five-minute decision, but take some time. What is it in your life right now that you want to keep and what is it in your life right now that you want to get rid of or reduce? And have you filled out our goal setting worksheet? Scott created a worksheet for setting goals and like visualizing what it is you want your life to look like. So go to biggerpocketsmoney.com/resources. It is currently the second item in the resource page. Download for free. We don’t even ask you for your email address. Download that and take some time to fill that out. That could give you some real clarity on what it is that you’re looking for as well.
Scott: I think the specific homework we have here is go through a bunch of ways that your portfolio can generate income and talk about the 4% rule, withdrawal sequencing, what we can do with the cash that would make us feel good, that would be a portfolio that would maybe bump up the withdrawal sequencing on there. I think that the great advice that Frank Vaskas gave us is create a test portfolio. And you guys are textbook for that for this to try out even with 10,000 bucks or something to try something something out like that that that begins to build that habit. Katie, for you, I think that I would one encourage you to take a week of PTO and just stay home. Even if you pay your nanny. Just try it out. See how that goes. I think that would be a very very low low friction test. and just say, all right, Monday through Friday and the week through the weekend, both weekends, see how those 11 days go for you and what what whether that informs the next step. And it could be many, many people have that’s awesome. That’s what I want to do every day for the next three years. Great. Your situation that derisks a big part of your decision here. If the answer’s no, then what’s the next best alternative? What’s the next job? So I would literally begin applying for jobs or thinking about the opportunities out there and just understand what the realistic alternatives are. And then from there, you can then give the ultimatum to your boss about, hey, here’s here’s what I’m going to do. I would love to stay. I’m not traveling anymore. That’s got to stop. Or it’s going to be very infrequent, you know, you know, very very rare situations here, and here are the ground rules. And I’m willing to take a pay cut. I’m willing to take, you know, these lower things if that’s okay. And, you know, my my or my ideal state is two days a week and then I’m really I’m just closing deals or whatever and I can get some percentage of the pay and only do that. Once you have that power, they can all they can do is say no, and you can walk away and you actually have a real alternative for it. So I think that would be the the piece that would make this there. And if you decide you want to keep working, then the next piece is you got to think, how am I going to spend all this money that I’m going to accumulate because we’re going to have a bajillion dollars by the time you have retirement and anything there and we should probably update the life vision to spend it and to thrive a little bit more, whatever that means at the next level because that’s a real critique of people like us collectively on this that there’s more wealth than than there needs to be and not enough spending in there. And that’s going to be the next problem if you decide to keep working.
Guest 1: That’s good to hear.
Scott: All right, Katie and Jesus, thank you so much for sharing your numbers with us and your situation. We really appreciate your willingness to be so open. It’s very helpful not only for us to give suggestions of what we would do in that situation, but also for people who are in a similar situation. So we really appreciate your time today and we’ll talk to you soon.
Guest 1: Thank you.
Guest 2: Thank you, guys.
Mindy: All right, Scott, that was Katie and Jesus with a really interesting question. Can Katie quit her job. I think she can. I think we both came to the conclusion that she can, but I’m not sure that’s really what she wants. Scott, what did you think of their show?
Scott: Mindy, I think this is a classic we’ve were on the cusp of financial independence from if nobody works situation, and the leap from going from $200,000 a year to zero overnight is overwhelming mentally for folks. It’s clearly a first world problem with a bajillion people out there who would love to trade places with Katie and Jesus in terms of the financial problems that they’ve got uh in their situation. But yeah, it’s a big it’s a big deal and it’s also a high-stakes decision. Like I think that the fear of not of of the millions of dollars in additional wealth that you give up by quitting a $200,000 a year job is very challenging mental exercise. The question of am I going to be happy if I’m staying home from, you know, all day with my young child versus working is a very real conflict that people have, especially if your identity is been built around a career for a long time. and I I think that some people are critical of that and that’s fine. You can be critical of that, but that’s not how many other people are wired, myself included, in there and I’m not I’m not apologetic for it. I feel like I’m adding value with what I’m really good at uh doing this during the days in many in many cases. And that’s what I want to be doing, while also spending plenty of time with my kids, too. But it’s just that’s not it’s not all day every day for me. And so I think that’s a big a big fear there and then how I’m going to fill that. And then there’s the here’s my baseline spending and maybe I wouldn’t mind a little extra income to spend a little bit more if if it came my way. And I think all those things are going through their their minds and that’s a hypothesis about what you want. You got to test it and then refine and they’re in the position to go and test it. and I think that’s the big takeaway I have.
Mindy: Yep. And Scott, I’ve said many times, I was a stay-at-home mom. I didn’t leave a career. I just left a job that I didn’t particularly even like. So it was a real easy decision for me. And again, no judgment on whatever you decide to do. Just know that that’s like make the decision based on what you want to do, not what you think you want to do. So I think Katie has some interesting homework before she makes this this really monumental decision. But also, if she does make this decision and it turns out that’s not what she wants, she can always go back to work. I think a lot of people just consider this to be like, oh, I quit, that’s it, the end. And no, you can go back to work. Who cares?
Scott: One thing that we did not cover is healthcare costs. If Jesus were to quit his job, that would become a very big factor in their situation which would require one of them to work in this situation or would begin making the math of financial independence a little harder, especially in those those later years from financial independence. However, that’s also partially offset by the 25 years on their mortgage where that number stays fixed relative to inflation and then falls off entirely once paid off. So that’s a nuance there that I think people should should really think about when they’re approaching financial independence. If you have a mortgage that’s five years in, that likely offsets a big chunk of this risk in the healthcare space. If you don’t, then maybe that that healthcare risk is is a real big one that you need to plan for and buffer your position with, you know, anticipation of.
Mindy: Yeah. Well, anybody who is considering retiring early needs to really, really look into how much it’s going to cost for healthcare because like we’ve said before, Scott, the ACA subsidies are not designed for millionaire early retirees. So I can see an instance where that goes away. And then if you’ve planned on having those, that’s an issue. If you haven’t planned on having them and you you do get them and they go away, then your plan is still in place. All right, Scott, this was a super fun episode and to my dear listeners, if you want even more financial independence information, you need to visit our website. Go over to biggerpocketsmoney.com, check out our blog, our resources, you can listen to the podcast there. We’ve got a lot of stuff that we have been working feverishly on and I say we, but it’s really Scott. We’ve got the a lot of free resources, calculators, templates for you to use to accelerate your financial independence journey. We will see you next Tuesday. And that wraps up this episode of the BiggerPockets Money podcast. He is Scott Trench. I am Mindy Jensen saying, chop chop wood shop.
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