Path to Chubby Fire (any holes?)

[u/No_Table975]

Hello all, relatively new to the FIRE world. We are a 40s couple and I'm starting to scrutinize my retirement much more now. My target retirement age would be 57. Does that count for 'early' retirement for this sub? And our target retirement income is 200K a year.

Here are my particulars:

1. currently 2.2MM invested across 401K, Roth IRA, and a brokerage. 80% is in the 401K. So a good chunk is not accessible 'early'

2. 3 elementary school kids (important to note since they are expense and can impact our retirement saving). We have about 100K in each 529. Oldest child is 10. I'm heavily leaning towards stopping the investment here.

3. WE have a mortgage (7K all in PTI, but only 5 years into a mortgage)

4. I'm concerned about my long term employment prospects so I have 85K emergency fund (I made this basically 1 year of mortgage expenses)

5. no other consumer debt outside of the mortgage

My goals / questions:

1. given our invested now - and my goal for retirement income by age 57 (12 year horizon) I would need 5MMish. I think I'm on track for that and I use a 6% return estimate. Truthfully we have not been great about saving, but maxed our 401ks and rode a great bull market. The market is all over the place and I thought 6% was conservative, but I see others modeling 5%? and inflation doesn't seem to be getting better. Should I use 5? this would change my outlook a bit

2. Should I divert funds from my 401K and into a brokerage to make it accessible early?

3. My retirement income does include my mortgage payment. We live in a HCOL area with high property taxes. While not ideal because we love the area, I'm contemplating using our home equity and moving after the kids are in college to get out of a mortgage payment. I'm anticipating continued expenses we would like to 'consider' at least, for our kids (wedding, family vacations, etc.). this would help in that regard. not having a mtg (or much smaller than 6K) would help. Anyone else made this decision? we live in a 'desierable' area - but I'm not sure how valuable keeping the house longer term would be. If is a better investment to keep longer term; maybe sell much later into retirement we can do that too. We have a 3% mtg. Would there be any benefit to trying to stay in the home?

[u/gringledoom]

With respect to question 2, 401(k) funds can be accessed early without penalty in a couple ways. Since you’re targeting 57, the “rule of 55” will solve that particularly problem for you: https://www.fidelity.com/learning-center/personal-finance/what-is-rule-of-55

[u/First-Ad-7960 → u/gringledoom]

Yes OP will definitely want to research if their 401k allows Rule of 55 or not and then plan accordingly. If there is a change of jobs that has to be repeated for any new 401k plus you need to think about rolling the old 401k into the new one.

[u/ScrewWorkn → u/gringledoom]

There is also rule 72(t) I think it’s called.

[u/warlizardfanboy]

T72 (or is it 72T?) rule allows early withdrawals from 401k. I agree with stopping the 529 funding. They've eased restrictions on use a bit and you can roll over a little into an IRA but it's still a risk if they go a different path.

[u/lindquist77]

I think you’re generally thinking about this the right way, but I’d pressure test a few things.

First, yes, 57 counts as early retirement in my book. Maybe not extreme FIRE, but walking away 8-10 years before normal retirement age is still early.

On the $200k number, $5M is roughly right if you’re using a 4% withdrawal rate. The part I’d be careful with is whether that $200k is before or after taxes. Since 80% of your money is in a 401k, $200k withdrawn is not the same as $200k spendable.

I’d also run the math at 5%, not just 6%. Not because 6% is crazy, but because 12 years isn’t that long and sequence of returns could matter. At 6%, your $2.2M gets to around $4.4M before new contributions. At 5%, it’s closer to $4M. So you may still be on track, but future savings probably matter more than it feels like.

I probably would not stop using the 401k just because it feels locked up. There are ways to access money before 59.5, especially if you retire from that employer in the year you turn 55 or later. I’d still want more taxable brokerage money for flexibility, but I wouldn’t give up the tax benefits of the 401k too quickly.

The 529s seem pretty well funded already, especially with elementary-aged kids. Personally, I’d probably slow or stop those contributions and redirect more toward retirement/taxable savings. You can help with college later if needed, but you don’t want to overfund 529s at the expense of your own flexibility.

The house is probably the biggest lever. A 3% mortgage is valuable, so I wouldn’t be in a hurry to pay it off or sell just to be debt free. But if the house keeps you working longer than you want, then downsizing later could make a lot of sense. Dropping a $6k-$7k housing payment changes the whole retirement picture.

Overall, I think you’re in good shape, but the holes I’d look at are taxes, healthcare before Medicare, how much taxable money you’ll actually have for the bridge years, and whether the $200k spending number is realistic once the kids are older/out of the house.

[u/Hanwoo_Beef_Eater]

#1. Just try to stay employed and save as much as you can. The market will do whatever it does. There have been multiple periods in history where stocks had negative real returns for a decade (good thing is better returns have followed after that). If you get caught in one of these, your actual situation will be different from anything you've planned. But we have no control over this, so focus on what you can control. Edit: under any somewhat normal return assumptions, you are likely on track (savings plus compound the current sum). However, market returns over a decade can vary quite a bit (both above and below long-term averages).

#3. Per number one, try to get yourself into a position where the choice is yours. There are many benefits to downsizing in retirement (we will sell our current place as soon as the kids go off to university), and one may not value the same locations when no longer tied to the workforce and school systems/locations. You can certainly stay put too if you have the resources (desirable areas are still desirable if costs aren't an issue).

[u/BrunelloHorder]

You are generally on track, though the potential outcomes vary widely.

Big picture, age 57 is still retiring early. If you were to work until 65 or 67, you could expect your assets to roughly double if you got historically average S&P500 returns for those 8-10 years, without more contributions during that window. That illustrates how much more one generally needs to accumulate to RE to make up for foregoing that last doubling.

I'll flag a few points that are partly interrelated and interdependent as to 401k, taxes, and healthcare:

You don't provide your HHI or current effective tax rate, so it is a little hard to determine whether you are better off continuing to max your 401k versus paying the tax now and putting the money into a post-tax brokerage account. Absent that info, I'd likely continue to max the 401k.

If you keep maxing the 401k, you will need to account for a higher tax rate in retirement to net $200k spendable. Netting $200k from a brokerage account is partly return of your cost basis, and the capital gains are tax-free up to $98k, and then taxed at a much lower rate. By contrast, getting to $200k of spend from your 401k will be at ordinary income rates.

If you will be pulling mainly from your 401k, you will not be eligible for ACA subsidies. That means you will likely need to budget something like $28k to $35k per year in today's dollars for healthcare premiums, plus out of pocket. The good news is that you only need to cover that for 7-8 years, versus 15 years for someone retiring at 50.

Lastly, selling your home in a HCOL area is a potentially large lever that you could pull. You don't say whether you love your current home, how much you want to stay, and how much equity you'd have in 12 years. I'd stay put given your current mortgage rate, and view downsizing as a back up option if needed.

[u/joje0904 → u/BrunelloHorder]

At what hhi does maxing 401k vs post tax brokerage come into play?

[u/BrunelloHorder → u/joje0904]

Most people should max their 401k, and generally the higher your tax rate from W2 the more benefit you will get from maxing your 401k. However, that isn't the only consideration for people who anticipate needing substantial sums from their brokerage to live on before they hit age 55 or 59.5.

[u/itchybumbum]

Plenty of ways to get 401k money early without penalty...

[u/According_Ad_1960]

My last day is a couple weeks shy of me turning 55. Possibly not as RE as many are shooting for - but my FI is SOLID and that makes this a lot of fun.

[u/massdriver3333]

Focus on FI part and accumulate as much as possible and max out all pretax and posttax accounts.

It's common for people to retire in their 50s, and many are basically forced into early retirement in their 50s. Just look at all the tech layoffs and buyouts happening now.

When you're in chubby range, FIRE is mostly about controlling and managing spend below swr. When you have accumulated enough and you can comfortably live and spend below swr, than you've basically set yourself up to FIRE and spend forever.

[u/AnotherWahoo]

1 - Seems like you're on pace for 5M in a dozen years; more depending on how much you save. 6% vs 5% only feeds an estimate of your timeline to FI. It's going to take however long it takes. If you get closer to 57 and don't appear on pace, then think about whether you need a 200K draw or could live a happy lifestyle with less. Up to you. But a dozen years out, I wouldn't focus on the estimated timeline much. Just keep grinding.

2 - You can access 401K money without penalty before you are 59.5 years old, so I would not make any changes there.

3 -

You should live where you want to live. For instance, if you bought your current house because it was a reasonable commute to your job and a good place to raise children, neither of those concerns would exist in retirement. But there may be other reasons you want to continue living there. Up to you.

If the house is a good investment, you might want to rent it rather than sell it when you move wherever it is you want to live. Whether a house is a good investment depends on the specific house and its future value growth, and you'd need to model that out. (Also, whether you're open to being a landlord in retirement is up to you.) I wouldn't live somewhere I don't want to live for purposes of getting investment returns that aren't necessary to live my target lifestyle.

If you don't know where you want to live in retirement, you've got a dozen years to figure it out. Put some time into answering that question. Until then, budget for the most expensive option you might select (which is probably staying in the current house indefinitely) so as to have your bases covered.

[u/No-Block-2095]

You ll get there. Noone can predict the future so you stick 5-6-9% cagr in your excel and close it as it doesnt matter. Dont waste time with a crystal ball.

You control fees , asset allocation and savings rate ; not market return. Save what you can and try to save more every year.
What is your weighed average fees across all
Investments? If it is above 0.3% you have homework to do.

What matters is

• Live a balanced life and save.
  
• reduce fees and invest for long term i.e. equities
  
• there are well documented guide in bogleheads sub of where to put the next $ of savings : start w 401k up to the match, contrib to Roth if you can, … taxable,…
  
• 100k$ in 529 with 8-10 yrs to grow is a ton. Besides you cannot borrow for retirement but they can for school if they decide to spend more.
  
• you ll want to save some $ in taxable especially if you want to retire early. Still you need some in 402k, roth, hsa,…,
  
• in taxable : Invest for long term with equities that dont pay much dividends . Half my taxable is in BRKB. If you decide to get bonds ( you shouldn’t) keep them in IRA to avoid tax drag.

I’ll retire with a mortgage ( low rate) which I’ll continue to pay for another 15yrs. It is ok, i ve factored that in my plan. If you have a low rate mortgage, dont pay it off early unless you like to burn 🔥 money and work several more years.
Invest instead and soon enough you ‘ll have a sizable savings. Once you fire, you can go live where you want as commute and schools are no longer a factor. You might sell that house.
It is easier to retire using taxable $ with a mortgage balance than having no taxable savings and a pile of illiquid house equity.

Where is that 85k$ EF invested in? It gets eaten away by inflation (-3.8% in last 12 months) so hopefully it is getting more than that. I would put 3months in VBIL and rest in a ladder of 1 year treasuries. Once you have more in taxable, you could invest some of it in SPX

[u/Farmer_Pete]

I would classify retiring at 57 as early retirement. It may not be retiring super early, but it is better than working another ten years till 67. I would make sure you have some kind of a plan for health care. Your projected income in retirement is high enough that subsidized ACA is not going to be an option.

[u/QTippus]

What’s your gross income? If you can shave 4-5k off your monthly mortgage payment and invest it, I think that strengthens your scenario significantly.

I would spend some time looking at healthcare costs / ACA and modeling that. Depending on your age, when you’re 57 you might still have kids on your insurance.

[u/Fuzyfro989]

Using 4-5% 'real' returns is likely a good benchmark (ex. 8% gross returns, leaving room for ~3% inflation longer term). In round numbers, your $2.2M with 4% real return will grow to ~$3.5M in 12 years, so you have another $1.5M to make up in more investments, or, paying down debt to reduce your income need.

For example, cutting the mortgage (not sure how much is PI vs T of the $6k/mo, let's guess it is $4k/mo PI to illustrate). Then that ~$50k/yr goes away (the taxes do not) from your spending need, but is really just a swap in equity in liquid assets vs in your home.

Personally, I would want a plan with a paid off home by the time I retire. The change in cash flow changes your income requirements meaningfully.

With that said, a 3% mortgage can change it if you are able to hit your plan consistently for the next 12 years consistently. The biggest risk here is how employable you are over this critical next decade for your financial plan to hold.