Latest posts by Wanderer (see all)
- Reader Case: Keep Calm and FIRE On - May 31, 2019
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- Reader Case: Should I Buy a House as a Passive Investment? - May 17, 2019
It’s Friday, and you know what means: Reader Case time!
Before we start, a few thoughts on today’s letter. In fiction, one of the hardest things to pull off when writing dialogue is voice. Voice is what gives a character a distinct “sound,” if that makes any sense, and when done well can a) make the character instantly recognizable just by how they talk and b) makes you “hear” what the person sounds like in your head as you read it.
Just from a writing perspective, today’s letter is a fantastic example of something just dripping with voice.
Seriously, read this out loud and it’s impossible not to hear it in a down-South friendly-folksy y’all-come-back-now-ya-hear accent that I just absolutely love. Impossible, I say!
I’m an 32 year-old Okie from Muskogee…well not really that’s way too country. Mostly city chic living in Norman, OK! I always love saying I’m from Oklahoma but I really don’t want to live here for the rest of my life. Also my dad is from Thailand and spends 6 months there and 6 months in the US so I’m pretty keen on following his footsteps but way sooner than 62! I think I can do this sooner than later as I am a medical professional and make too much money to tell people to eat healthier and maybe they won’t be sick and achy all day.
Income: Gross: $9800/month (but can fluctuate). Net: $6500/month
Spending: ~ $3400
401k: Maxed out every year.
House: $119k with $42k mortgage
- 401k #1: $70k
- 401k #2: $22k
- Roth IRA: $12k
- Taxable account: $31k
- CapitalOne 360: $20k
- Chase: $3k
- HSA: $4k
As you can see I (potentially) earn a lot with very little expenses and low cost of living area but I can’t stay here much longer for my sanity. About 4 yrs ago after practice for 3 years I moved to Denver, Colorado and it was fantastic and still close to home (so much so that I would fly the 1.5 hr flight to wrk at my old hospital once a month). It is pricey to live there though cause all those dang Californians coming in with all the monies and buying shit up increasing the cost of everything. I met the love of my life and he was also from Oklahoma so we moved back about 1.5 yr ago as he thought he need to go get another degree he could (won’t) use. Any rate that’s a wash and now we both agree Oklahoma is not for long term. I say we’ll be 4 years but he says 2.
I saw on a previous reader case similar profile with again those dang Californians and high income and they could do it in 7 yrs for a million plus. I don’t need that much to be FI but I want as close as possible to RE and have some cushion and not freak my life partner into quitting his nice paying job.
I have a dilemma however that is keeping me put. A dang HOUSE! Can you believe it?? Well, what happened was my dad got the house in a college town as my brother was attending the same school. When I graduated I took over the mortgage and the house is in my name. Zillow states value is about 119k and mortgage is 42k left. Norman is about 40- 50 mins from OKC where my boyfriend and I work so it’s really silly to keep driving and we want to live in the city where rent is about $800-950/month. That’s as much as the mortgage I pay now. So do I sell and still pay rent?
I feel like this email is long-winded and confusing to what the problem is but that’s what is going on my life. I’ll list details below and probably once I type it out I’ll find my answer, but I like reading your responses to most people boneheaded ideas. It’s always a good chuckle.
Thanks for the entertaining reads weekly. I geek out on this stuff now.
You see what I mean? I just love this lady’s writing for so many reasons.
But anyway, I digress. How are OkeeFromMuskogee’s numbers? Any yes I know she explicitly says she’s NOT from Muskogee, but as a non-American I didn’t realize “OkeeFromMuskogee” was a thing that people say, and now I can’t stop saying it.
So first of all, what should she do about the house? Usually, I’d start whipping out numbers and P/R ratios to try to MATH SHIT UP, but this is one situation where the answer is totally non-mathematical.
The underlying assumption of owning any house ever is that you actually want to live there. By OkeeFromMuskogee’s own admission, the house isn’t near where they work, the drive is a pain, they want to rent in the city, and long term they aren’t even planning on staying in Oklahoma. Plus the rent and the mortgage are the same amount, so by selling they’d save on all the other expenses involved with owning a home, their actual base housing costs won’t go up, plus they’d unlock all their dead home equity and use it to help them retire.
But most importantly, if you don’t even want to live there, why would you own it? Sell that sucka!
So if they were to sell the house, they’d net $119k – 5% (real estate commission) – $42k (mortgage) = $71k
|Income||$6500 net + $1500 401(k) contributions = $8||000|
|Assets||$70k + $22k + $12k + $31k + $20k + $3k + $4k + $71k = $233k|
OK so with monthly expenses of $3400, OkeeWithMuskogee would need $3400 x 12 x 25 = $1.02M to retire. And given her current investable assets (assuming she eventually sells the house) of $233k, and a savings rate of ($8000 – $3400) x 12 = $55,200, how long would it take her to get to this number?
10 years. So it looks like she’s in a similar situation as those “Dang Californians.” Also, bwahaha! Next time I meet someone from California, I’m going to tell them that OkeeFromMuskogee does not approve of their California-ness.
However, OkeeFromMuskogee has indicated that she may be comfortable with not getting all the way to FI and is thinking of leaving Oklahoma in 4 years. How would the math work out on that idea?
Well, first of all, she’s in the right field for that. Doctors (and other medical professionals like nurses, pharmacists, dentists, etc.) often have a great deal of control over their hours, and can easily scale back by simply booking less patients. Generally, medical professionals want to keep a toe in their field in early retirement anyway, since working a few hours a month keeps their licenses current. Plus, should they later decide to scale their working hours back up, it’s relatively simple to do that as well.
So while medicine isn’t the most location-independent field there is (as licenses are usually country-specific), they do offer a great deal of flexibility when it comes to controlling how much you want to work. For us white-collar cubicle-dwellers, employment is often an all-or-nothing deal. Medical people can slide their hours up and down.
So let’s see. In 4 years, according to that handy table up there, OkeeFromMuskogee will have saved up $460k.
Using a 4% withdrawal rate, this portfolio will be able safely provide $460k x 4% = $18,400 of annual income, forever. That’s $1533 a month.
Knowing that her current monthly expenses are $3400, that means she can drop her working income all the way down to $3400 – $1533 = $1867 a month (net) and still be fine. Given that she’s currently making $6500 net, this would suggest she could drop her working hours all the way down to a third of what she’s currently working now.
Of course, I’m ignoring the impact of taxes here, but that’s because I don’t know where she’s planning on moving. As most states implement a progressive tax system, it’s very possible that working a third as many hours will result in even more than $1867 a month after-tax, since by earning less her average tax rate will go down. And of course, if she moves into a state with no taxes, it’s even better. And of course, if she moves to a state with a really high tax rate (like California) that changes the math even more, but somehow I doubt she’s planning a move to California post-retirement. Just a hunch.
So what do y’all think? Is OkeeFromMuskogee OK to go down to part-time work in 4 years, or should she keep working until she goes full-FIRE?
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