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Wow, what a week. Covid-19 wave 2, a nail-biting, anxiety-inducing election, and here we are, finally breathing a sigh of relief.
Now that I’m no longer glued to CNN and can concentrate on day-to-day tasks without having to distract myself with deep meditation, let’s get back to our regular scheduled program.
Today’s going to be reader case day, and I have to admit, this e-mail immediately caught my eye as soon as I read the words “post WW2 poverty” and “indebtedness to the Yakuza”. Geez, I thought growing up under a totalitarian government was hard. If you can survive the Yakuza, you can get through anything.
So, without further ado, here’s today’s reader case:
Hi,
Thanks for your brave post about your mom . I have a Japanese tiger mom whose life wasn’t nearly as tragic, but she could tell some hair-raising stories about growing up in post WW2 poverty and her family’s indebtedness to the Yakuza. Long story short, she joined an intense, abusive religious movement, moved to the U.S., and raised us with a combination of incredible, self-sacrificial courage and misguided neglect. Forgiveness is hard. I applaud you on your journey.
I’ll transition to Artist FIRE by saying that being raised as poor, mixed-race kids in small towns USA taught my husband and I how to NOT fit in. It was a great lesson! We were never “in the box”; so we learned how to think outside of it.
For me, that meant leading our family on this unconventional path towards financial independence.
For my husband, that meant pursuing a career as an artist. He went to (free) community college, then an (almost free) state school, then spent 2 years drawing 8 hours a days between restaurant shifts before landing his first Artist job. Within a couple years, we moved to L.A. with our two kids so he could draw for Disney, Netflix, etc.
Unfortunately, we both suck at spreadsheets! And could use some help with the math. Thanks for helping us ‘math shit up’!
What I can’t figure out: How to factor in all the moving parts:
1) When can we actually retire? Or Semi-retire?
2) Pension income (our Social Security + an Artist Union pension estimated at $55,000/year in today’s dollars, kicking in at age 65ish). I want to ‘count’ our pensions, while also having enough savings in case the U.S. decides to cut it to, say, 75%. A cut to 75% of our Social Security would be $45,000/yr total pension in today’s dollars
3) Low cost family medical insurance ($50 per month) if he works at least 400 hours per year for a semi-retirement option. This is a big deal in the U.S. as being insured outside of employment is incredibly expensive.
4) Lump sum amount when we sell our house. We had the dumb luck to buy during the housing crash and we kept the house as a rental. After taxes, I’m guessing we’ll have $200,000 to invest in our taxable account. Although we’re so grateful for everything our house has done for us, we don’t enjoy home ownership so won’t be buying another.
Gross Annual Artist Income: $150,000
Net Estimated (after taxes): $120,000
*I’m keeping the Rental House out of this equation as we will be selling in a few months. The rent covers the cost to own it.
Monthly Family Spending:
Rent & Utilities: $2,500 (2 bed, 1 bath home)
TV/Music Subscription: $23
Husband’s Art Subscriptions/Supplies (for his personal art development): $60
Internet: $60
Phones $50
Insurances (car, health, life): $160
Medical care: $60
Food: $1,100
Kids’ Stuff (clothes, swim lessons, low-cost community center classes, etc): $250
“Fun Money” (discretionary): $200
Home/Toiletries/Furniture: $180
Car Maintenance/Gas/Registration (just sold a car! Down to 1!): $250
Climbing gym Membership: $100
Artist Union Dues: $45
Bday Gifts (big family!): $60
Travel: $130
Debts:
None! Paid them off in 2019.
Fixed Assets:
(Again, treating the house as a ‘lump sum’ of $200,000)
Car: $7,000
Investments/Savings:
$180,000 Stock Index/Bond Index Funds (90%/10% ratio)
$9,000 Emergency Fund
Monthly Investments:
$4,900 Stock Index/Bond Index Funds (90/10)
Other factors:
1) We’re already as frugal as we’d like to be! My husband and I have negotiated for years and found a happy medium of what feels like ‘enough’. He cuts his own hair and we don’t have a 3rd bedroom, but he invests in high quality art supplies and our kids enjoy learning things they love, like Robotics and Swimming.
2) Geo-Arbitrage sounds fun someday, but we want Los Angeles as our home base. Between the 2 of us, we’ve lived all over the USA and in parts of East and Southeast Asia. L.A.’s open-minded, diverse, and happy culture (…and food!) is worth the extra costs of housing and taxes for us.
Thanks again for considering our Case Study. And even if you don’t choose it, I really appreciate your time and your voice in the world 🙂
Best,
ArtistFIRE
Since the FIRE space is crowded with STEM people, I was pleasantly surprised to hear from an artist—especially one who not only managed to achieve their dreams, but also do it without getting into massive amounts of debt with free community college and nearly free state school. Nice!
As I keep telling people, if you want to pursue art as a career, fine, but for God’s sake don’t PAY for it. But it sounds like they managed to avoid the student debt trap of so many aspiring artists and are well suited to this unconventional FIRE path. Welcome aboard!
And also, while all of us face challenges growing up, I think very few of us face “indebted to the Yakuza” type of challenges, so the fact that their tiger mother managed to come out of that is a victory in and of itself. She clearly passed those badass genes.
As a fellow artist who initially sold out for the STEM field, I’m happy to Math That Shit Up for them and see how close they are from the finish line. Let’s get started!
Summary:
Household Income (net): $120,000
Spending: $5228/month or $62,736/year
Debt: $0
Property: $200,000
Investible Assets: $180,000 + $9000 = $189,000
That’s a pretty impressive household income for a pair of artists. Granted, they’re living in L.A., but that’s also a double edged sword because the cost of living is so high. And even though an annual spending of $62,736 might seem on the high side to us, I regularly see spending numbers twice that amount in the L.A. area. That means that they are saving $120,000 – $62,736 = $57,264 per year, or $57,264 / $120,000 = 48% of their income! In L.A.! Pretty amazing.
Now, given their yearly spending of $62,736, using the 4% rule they would need $62,376 x 25 = $1,568,400. Adding together all their investible assets, they have a net worth of $189,000 to start.
How long would it take them to get to FI?
Year Starting Contributions ROI (6%) Total
1 189,000 57,264 14775.84 261039.84
2 261039.84 57,264 19098.2304 337402.07
3 337402.07 57,264 23679.9642 418346.035
4 418346.035 57,264 28536.6021 504146.637
5 504146.637 57,264 33684.6382 595095.275
6 595095.275 57,264 39141.5565 691500.831
7 691500.831 57,264 44925.8899 793690.721
8 793690.721 57,264 51057.2833 902012.005
9 902012.005 57,264 57556.5603 1016832.56
10 1016832.56 57,264 64445.7939 1138542.36
11 1138542.36 57,264 71748.3815 1267554.74
12 1267554.74 57,264 79489.1244 1404307.86
13 1404307.86 57,264 87694.3119 1549266.18
13 years. I don’t know for sure how old they are now, but based on what they said about moving to L.A., I’d guess late 20’s to early 30’s. So that would put their early retirement age in the low-to-mid 40’s range, or a full 20+ years earlier than the normies.
Nice! All thanks to their exceptional savings rate of 48%. Well done.
Let’s also remember that they have a generous Artist Union pension worth $55,000/year that vests at age 65. If they were to quit before 65, they’d be able to get the commuted lump sum value, which would also help them get to FI faster.
Now, to answer ArtistFIRE’s questions:
When can we retire?
At your current trajectory, in 13 years.
What about my pension?
The effect of retiring early with a DB pension is not a question we can answer because every pension has different rules. Having this will definitely help, but exactly how much will require the cooperation of your pension administrator. To be honest, they may not be able to give you a straight answer to a question like “How much would the CV pension be worth in 13 years” because of all the factors (like what interest rates will be in 13 years) that they simply can’t predict. My advice is to pretend the pension doesn’t exist for early retirement purposes, and then when you get closer to your projected retirement date ask your pension administrator what options you have to access the money early. Treat it as an unexpected bonus rather than try to plan your FIRE plan around a projection that may change drastically between now and when you need it.
What about semi-retirement with your husband working 400 hours/year to get healthcare coverage for $50/month?
Based on the 40 hours /week *52 week/year average work hours, 400 hours/year means you’re working at 19% of capacity. Taking your husband’s gross salary of $150,000, if we reduce that to 19%, it would be $28,500 gross, or (after plugging it into a tax calculator), $25,697 net.
That would cover some of your family’s $62,736 annual spending, leaving $62,376 – $25,697 = $37,039 per year that needs to come from your portfolio.
That means you would only need a semi-FI portfolio size of $925,975. Let’s see how long this would take you…
Year Starting Contributions ROI (6%) Total
1 189,000 57,264 14775.84 261039.84
2 261039.84 57,264 19098.2304 337402.07
3 337402.07 57,264 23679.9642 418346.035
4 418346.035 57,264 28536.6021 504146.637
5 504146.637 57,264 33684.6382 595095.275
6 595095.275 57,264 39141.5565 691500.831
7 691500.831 57,264 44925.8899 793690.721
8 793690.721 57,264 51057.2833 902012.005
9 902012.005 57,264 57556.5603 1016832.56
Less than 9 years!
What if I sell my rental?
It sounds like you don’t enjoy being a landlord. I don’t blame you. Having to deal with plumbing issues, evictions, and late rent during a pandemic is not my idea of a good time. If you plan to sell the house and manage to net $200K like you predict, then that would more than double your starting position from $189k to $389k. Let’s see what effect that has on your FIRE projection.
Year Starting Contributions ROI (6%) Total
1 389,000 57,264 26775.84 473039.84
2 473039.84 57,264 31818.2304 562122.07
3 562122.07 57,264 37163.1642 656549.235
4 656549.235 57,264 42828.7941 756642.029
5 756642.029 57,264 48834.3617 862740.39
6 862740.39 57,264 55200.2634 975204.654
7 975204.654 57,264 61948.1192 1094416.77
8 1094416.77 57,264 69100.8464 1220781.62
9 1220781.62 57,264 76682.7372 1354728.36
10 1354728.36 57,264 84719.5414 1496711.9
11 1496711.9 57,264 93238.5539 1647214.45
From 13 years down to just over 10 years.
And as for semi-retirement, you’d be able to get there in:
Year Starting Contributions ROI (6%) Total
1 389,000 57,264 26775.84 473039.84
2 473039.84 57,264 31818.2304 562122.07
3 562122.07 57,264 37163.1642 656549.235
4 656549.235 57,264 42828.7941 756642.029
5 756642.029 57,264 48834.3617 862740.39
6 862740.39 57,264 55200.2634 975204.654
Less than 6 years!
So there you have it. ArtistFIRE is doing a great job keeping their family’s costs low, even though they’re living in L.A. The secret? Not getting into student debt and not getting sucked into the high-cost high-flying California lifestyle that so many people get into. As a result, if they sell their non-performing rental, they can enjoy full FIRE in 10 years, or a semi-retirement timeline of less than 6 years!
Great job guys. So cool that you managed to this with a family, living in one of the most expensive places in the US, AND with an arts degree. Way to defy conventional expectations!
What do you think? Do you have any advice for ArtistFIRE?
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FYI – retiring early probably means means that pension will be way less than 55K….
This… it was my first though too.
What am I missing? Wouldn’t they have to buy health insurance after full retirement and that likely huge cost increase will need to get added to annual spending?
Not necessarily if your MAGI is kept low enough to qualify for ACA subsidies
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