It’s been a while since we’ve done one of these, and now that we’re in ANOTHER lockdown, it’s as good a time as any to open up another reader case.
Here we go:
Hello Firecracker and Wanderer,
Long time reader, first time writer. I need a sanity check about whether or not to leave my job. I know this is a no-brainer for you but hear me out. I am a U.S. special category federal employee, which means I get benefits that, from what I have heard/read, no longer exist. My employment category receives an even better pension than most other feds. Minimum retirement age for me is 50 and my pension would be approximately $55,000 annually if I retired at this age. Plus, and this is the big one for us Americans, as long as I am covered by my employer’s super affordable and subsidized health insurance plan during my last five years of employment, I can take that same health insurance with me into retirement. I have been very unhappy for the past few years and found out about the FIRE movement about 2-3 years ago including through your blog. By my calculations we are nearly FI right now, but……….. these very rare benefits of my job have me wondering if I would be crazy/stupid to leave it all behind. I am 40 so staying will cost me 10 more years of potential unhappiness at work. Another benefit is the option to take up to a three year leave of absence that would all still count towards my years of service for my retirement pension and therefore not force me to retire any later. But because I would not actually quit I could not use the more than $400k in our 401ks to test out an early retirement. After reading one of your articles I asked to see if I could cash out my pension but they only return what you have contributed which for me was less than $20k or something silly. Also, I am married, the breadwinner and have two young children.
One other thing you should know, in my job I am often assigned abroad during which time we can save a boatload of money because my employer pays housing and utilities, tuition for our kids to attend private school, and all moving expenses. Also we often live very close to work so transportation costs are pretty low. Honestly, we could have been FI much earlier if we had known what we were doing, but you don’t know what you don’t know I guess.
Here is my math:
|Gross annual family income||$157,000 from my salary|
|Net annual family income||$108,000|
|Monthly family spending||$4500 per month|
|Debts||none – sold our home that had a mortgage in 2019|
|Fixed assets||We have a paid off car worth about $12,000|
|Investments||$575,351 total; $424,830 of this is in 401k plans|
We are accredited investors and yes we have a stupid amount of cash on hand. This is because we are about to buy some more investment real estate to increase our income independent of my W-2 job. Don’t worry we are not buying single family homes or even condos in this absurd real estate market. We are shopping for commercial real estate and we are being very, very conservative to make sure the deal is good. I know how much you hate real estate ;), kidding – you actually helped us see the light on this issue which is why we sold our home in 2019. One another note about real estate, we own two investment properties worth approximately $1.7 million which we bought for $120,000 which net us $25,000 in annual income after all expenses are paid. We owe $867,493 between the two mortgages.
We currently are on assignment abroad and so have no rent or mortgage for a primary residence. If we took the FI plunge or even just a leave of absence we would relocate to the U.S., at least initially, so we are also worried we may not accurately estimate our expenses because we have not lived there since 2011.
So what is your opinion?
- A decade is too long even if you take leave and only have 7 more years to work – take the plunge and get out of there!
- The pension and health insurance are gold, find a way to hang on.
Thanks for all the great content and inspiration.
I have to admit feeling really conflicted on this case study. Stock options and corner offices are one thing, but a defined benefit pension worth $55,000 a year plus subsidized health benefits, all backed by the federal government is such a shiny set of golden handcuffs that most millennials would blow Uncle Sam himself to get it.
On the other hand, the numbers for FatPensionOrFreedom are really compelling. Let us math shit up, shall we?
Math Shit Up!
OK, so our intrepid reader’s monthly spending is an estimated $4500. That equates to $4500 x 12 = $54,000 a year.
FatPensionOrFreedom also owns two commercial real estate investments. Now, before you think I’m going to automatically go off on them for owning real estate, investment real estate is a very different game than primary residences, and commercial real estate is another ballgame altogether as well. Commercial real estate is a lot of things, but it definitely isn’t passive, especially during a pandemic. Behind every shuttered storefront you see on the street is a stressed out owner and a pissed off landlord screaming at each other in small claims court. Not fun.
That being said, our reader’s real estate investments seem to have somehow worked out in this environment, and they report netting $25,000 a year in profit after all expenses are paid.
This $25,000 can go directly towards this family’s living expenses, so of the $54,000 in spending, only $54,000 – $25,000 = $29,000 needs to be covered by their retirement portfolio.
That portfolio is worth $575,351 + $437,809 = $1,013,160. The 4% rules states that their target portfolio size should be $29,000 x 25 = $725,000. So not only are they Financially Independent, they’re Financially Dependent by a healthy margin. A spending target of $29,000 and a portfolio worth over a million means their withdrawal rate is only $29,000 / $1,013,160 = 2.9%.
That’s as safe a retirement as you can ever have. No need for any more commercial real estate, just throw that sucker into an indexed portfolio and you’re done!
Money or Freedom?
So on one hand, we have really attractive golden handcuffs that promise not only an additional $55k a year in spending but subsidized health care as well. But on the other hand, as far as I can tell they can leave tomorrow and never look back.
Here’s where I think pre-pandemic Wanderer and post-pandemic Wanderer would have disagreed. Pre-pandemic Wanderer was extremely risk-averse, especially when it comes to money. The pension wouldn’t have been too interesting to me, but the health care coverage would have been very tempting. Pre-pandemic, I probably would have been advised them to tough it out for just a few more years to get those golden handcuffs cashed in. After all, even with 7 more years of work, FatPensionOrFreedom would retire at 47 and that’s not bad at all.
But then the pandemic hit, and as I wrote about before, my Dad was unexpectedly diagnosed with brain cancer. That upended all my priorities and made me realize that time, not money, is the most precious resource any of us have. Specifically, time spent with your loved ones being healthy.
Having health is what allows you to enjoy life, not having health insurance. Nobody who’s sick but has great health insurance is like “Sweet! I get to use my insurance now!” They would give up their health insurance in a heartbeat if they could get their health back. So staying in a job when you no longer have to just for the health insurance doesn’t really make sense.
This is doubly true if that job is risking your health. I’m not sure what kind of job our reader has, but they describe being stressed and unhappy. Stress is a real killer, and chronic exposure to the stress hormone cortisol has been shown to wreak havoc on your long-term health. Stress can trigger hypertension, weight gain, and panic attacks which, as FIRECracker will tell you, are no fun. In fact, our journey towards FIRE started when one of FIRECracker’s co-workers collapsed and almost died at his desk. He had been working double-shifts and was under constant pressure, and when he woke up in the ER, the doctors told him his vitals were the equivalent to someone who smoked two packs a day.
So now, post-pandemic me would say that financially, you have enough. You’re done. If you want to stay at your job because you like it, then fine. But don’t do it just to pad numbers onto a bank account.
Avoid Black and White Thinking
Last week FIRECracker wrote a post on How Not To Fail At Retiring Early, and one of the things she wrote about is to Avoid Black And White Thinking. The choices we face aren’t always binary. Stay or retire. Sometimes there’s a choice in the middle that might get you the best of both worlds. Here’s a few ideas.
Take a Partial Pension
Most pensions aren’t built such that you have to stay to retirement age or you get nothing. After all, if they did it would heavily incentivize employers to lay you off a day before retirement age so they can get out of paying you. Instead, most pensions have a vesting date in which you are entitled to a portion of your full pension, with that amount ramping up to 100% if you retire at a “normal” retirement age. Many pensions also allow you to defer taking your pension to a later date to increase the amount you would get.
Talk to your pension administrator to see what options you have. If you can leave now, but defer taking the pension to your 50’s, it might be possible to still get part of your pension at that time. And if this amount is enough to cover the insurance premiums on the ACA exchanges, then you get the best of both worlds: early retirement AND government subsidized health care!
Take a Sabbatical
FatPensionOrFreedom mentioned that they could take up to 3 years leave of absence, potentially reducing their 10 years of service to 7. My question: Why wait?
Start taking your leave of absence now, for a year at a time. Give yourself a year to recharge, then go back to work for a year or 2. After that, take another year off. Then go back for another year or to. Rinse and repeat until you can retire fully.
This gives you a few major advantages. First, you don’t have to wait to get a taste of freedom. You can do it now! Secondly, it keeps your job available for you to go back to, so no identity crisis. And finally, it gives you a chance to try out early retirement and see if it’s right for you. For many people, quitting their job and spending more time with their family is the dream. For others, it might turn out to be a nightmare. Especially if their families suck. And if it does, then all of a sudden, your annoying job may not seem so annoying anymore.
Either way, early retirement is a big life decision, and like you said not many people have the options that you have, so if you have the opportunity to try it out before jumping in with both feet, I say go for it.
Change Your Job
And finally, consider the idea that maybe you’re not unhappy with working, but just unhappy with your current job. Job satisfaction is influenced by many factors, including pay, the work itself, the people you work with, or your boss. Sometimes changing one or more of these factors can inject a fresh dose of happiness back into your life.
At my old job, even though I really did love it for the most part, I would find myself getting bored and restless after about 3 years. That’s when I would naturally start looking around for other teams and departments that had open positions. In my 10 years there, I worked in 3 different teams and each time I switched it was a whole new set of challenges that I could rally sink my teeth into. In many ways, it felt like starting a new job each time. So ask yourself if a change of scenery or job title might be what you need rather than retiring completely.
What Would You Do?
So that’s my take. If you were in our reader’s situation, what would you do? Would you stay or would you go? Or would you try to work out a solution where they get a little bit of both options? Let’s hear it in the comments below!
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