What our FIRE Lifestyle Will Look like
We’ll go over our starting net worth, projected expenses every month, and long term funding plan.
Starting Point
Initial Net Worth as of 3/2021
$2.2 million
Invested assets
$1.6 million (Net Worth Minus Home and College Fund)
Debt
$0
Rough Breakdown
| Rental Property | $234,000 | 10.6% |
| Primary Residence | $396,000 | 17.9% |
| Retirement | $1,271,856 | 57.5% |
| Taxable | $230,066 | 10.4% |
| HSA | $22,068 | 1.0% |
| 529 | $56,422 | 2.6% |
Note: Our “college fund” includes more than the 529 accounts. It’s basically the current in-state tuition at Rutgers University multiplied by 2 (not including room and board), along with what I expect to pay for the remainder of my masters program.
Monthly Spending/Income
Monthly Spending Projections
| Primary Residence – Property Tax+Assoc. Fees | $972 |
| Rental – Property Tax+Assoc. Fees | $936 |
| Internet | $56 |
| Cell Phone | $82 |
| Gas + Electric | $160 |
| Water/Sewer | $40 |
| Food (Groceries) | $1000 |
| Food (Eating Out) | $600 |
| Gas (driving) | $200 |
| Car Insurance | $240 |
| Life/Home/Umbrella Insurance | $213 |
| Health Insurance [WAS $690; NOW:$300] | $300 |
| Misc/Buffer | $600 |
| Total Monthly Expenses | $5,440 |
Monthly Side Income Projections
| Hobby Website Minus Taxes | $263 |
| Rental Income Minus Taxes | $1,401 |
| Total Monthly Income | $1,663 |
We expect that we’d need $5,440 – $1,663 = $3,777 per month.
Annually, that’d be $3,777 x 12 = $45,325.
Withdrawal Rate
| Annual Withdrawal Amount | Annual Withdrawal Rate |
| $64,000 | 4.00% |
| $60,000 | 3.75% |
| $56,000 | 3.50% |
| $52,000 [Initial Expectation] | 3.25% |
| $48,000 [Current Expectation] | 3.00% |
Based on our projected spending and earnings in retirement, we estimate our initial withdrawal rate to be under 3%.
Funding Plan
Because most of our assets are in our tax-sheltered retirement accounts (401k, Roth IRA, 403b, 457b, etc.), we plan to use a Roth Conversion Ladder to fund our retirement. Every year we’ll convert one year’s worth of spending from our retirement accounts (most likely starting with our 401k’s) to our Roth IRA. In doing so, we’ll pay taxes on the conversion itself, but we’ll avoid the early 10% withdrawal penalty by delaying our withdrawal until 5 years later.
Our first year doing this may not be until 2022. In 2021, Mr. FireDesired had earned some income before submitting his resignation. Also, he may pick up some contract work to supplement our income during this transition year. If it covers all of our expenses, we won’t need to start the conversion ladder until after 2021.
Once we do start the conversion ladder, we expect to initially withdraw less than 3.00% or $48,000.
With this ladder in mind, we saved about 5 years worth of expenses in our taxable accounts to hold us over until we can withdraw from our Roth ladder. And, we should be able to make up for any shortcomings by withdrawing from the Roth IRA accounts that we’ve already been contributing to over the years.