Two Years of FIRE Q&A

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Welcome to my two year’s FIRE follow up, questions that I sourced from readers. What did they want to know about two years into FIRE?

The Health Insurance Question?

The question of FIRE and health insurance.  I decided a few years ago that reaching FIRE in the United States would require us to save $400,000 for healthcare.  That would cover insurance and spending $6,000/yr out of pocket on medical expenses.  This has been higher than our actual costs, but was a conservative number I was comfortable with.  I currently purchase a plan on the healthcare exchange, paying $676/mo for a bronze plan (catastrophic insurance).  It covers 100% of in-network costs after we’ve spent the first $6,850 per individual.  There is no out of network coverage except for emergency services.

Self employed people and small businesses have been buying insurance for years, so eventually I had to be comfortable taking the plunge.   The mechanics of going to the doctor are identical to my corporate insurance:  I show up, show them the card, they can’t tell me what it’s going to cost, then three weeks after the visit I get the “negotiated rate” and pay the bill.  My deductible is about 2x what the corporate insurance was and I no longer have a company contributing a few hundred dollars towards my premium.

Now for the last decade I’ve been hearing about “what if the ACA goes away”, but regardless of all the rhetoric, politicians rarely take away a benefit once granted.  I wasn’t going to continue to work just past the fear of “maybe kinda one-day sort-of” this would be changed.   If this were to change for the worse, I can alter my plans in the future and have enjoyed one heck of a sabbatical.   I could write a long opinion piece on all of this (maybe I should !?), but instead I’ll just leave my conclusion:  Health insurance in FIRE is more of a financial decision than anything else.       

What are you living off of?  Retirement Accounts?  What is your order of withdrawal?

We are not leanFIRE by any means.   Our target budget was $6,000/mo in the FIRE plan and we’ve been around that amount spent.  I make one transfer a month from our taxable brokerage account to our checking account and pay our bills like I was when working.  We still use reward credit cards and pay those fully from the checking account.   Any active money we earn gets deposited directly into the brokerage account.

To break down exactly where our cash flow comes from, I break it down into three parts which have been roughly one third of our expenses each over the first two years:

  1. Withdrawals from our taxable investment account:  We saved enough financial runway outside of retirement accounts to cover a number of years of living expenses.  We keep some cash and bonds along with equities in this account and I’ve made a couple of small stock sales to support the withdrawals.  
  1. Non Qualified Deferred Compensation Plan (the private sector 457):   I had access to a deferred compensation plan that pays out monthly over 15 years.  This is pay I elected not to take and it was instead invested in stock and bond index funds during the second half of my career.   It looks just like any other 401k when I log in, except the title is different and it pushes money to me every month.
  1. Actively Earned Income:   Consulting work, Instacart deliveries, and a little bit of money from months of active work I’m putting into resolving a small estate.  

I’m also navigating money out of retirement accounts.  In lieu of doing a Roth Conversion Ladder for 2020, 2021, and 2022, I took a CARES ACT Distribution for $100,000 in 2020 and we realize the income on our tax return over a three year period.  The immediate access to these funds was more valuable to me than IRA conversion.

Going forward I plan on using Roth conversions up to the end of the 12% marginal tax bracket and continue to spend down the taxable account.  I will likely add the 72t distributions with one or both of our pre-tax IRAs once the deferred compensation plan ends at 52.  I’m also eligible for a small pension at age 55 if the company doesn’t offer me a lump sum between now and then.   If you wonder “why the 72t?”, I don’t know yet.  It seems like a nice replacement when the already inflexible payout structure ends.  

Was it Worth It?

Was the FIRE journey worth it?  Absolutely.  I get to wake up and control my day.  I had a big moment giving a retirement notice a few days shy of turning 37, even causing the C Suite manager to have a “wtf moment”.

Would I do things differently knowing what I know now?  Yes.  I looked at the FIRE journey as two distinct phases of life, the hustle/optimize phase and the early retirement phase.   Realistically there are three phases, the hustle/optimize phase, the coast phase, and the work optional/retire early phase.    I didn’t need to take the last two promotions/moves to get where I am.  Once investment dollars get over a certain point, the hustle phase can be dialed back with minimal impact on the work optional phase of life.

Now I realize just how hard it is for people to move into/between the hustle, coast, and FI stages of the journey.   It’s difficult to reach FI without the hustle/optimize phase.  There are droves of people hanging out on twitter whining about how tough work/savings is while simultaneously claiming a desire to be financially independent.   Instead of scrolling their phones, they should be hustling.   Those are people who are consciously choosing not to pay the cost of admission for financial independence in their 20s and early 30s.   Building career skills, side hustling for money, and optimizing expenses are all required.  The first decade of habit forming and investments is what sets you up for the rest of your life.

Once those hustle habits are formed, it’s then difficult to dial it back into the Coast stage.  As someone is approaching financial independence, investment returns are doing almost all the work.  The aggressive earning/savings aren’t competing investment returns.   Working at this level/pace can be unhealthy, especially into the last years of a career.  I’m now two years out and can say I only fully recovered from burnout after fifteen months.  My ego and continued hustle mentality drove me to that point.  

I now firmly define financial independence as a three step journey,I skipped that interim step, and paid a price I wish I hadn’t paid.  

What do I wish I knew in advance?

Leveraged long bets in Tesla!  Diversify with both stocks and options!

Now for the serious answer…

So much of the focus of FIRE and the math behind FIRE is about what can go wrong instead of what can go right.  The 4% rule (or 3.75%, ect) is based on surviving the worst markets and never earning another dollar.  Things can go right as well:  Our net worth has grown by roughly the same dollar amount it did while working, even though we’ve withdrawn six figures over the last two years.  This is courtesy of decent market returns but mainly the power of compounding and overshooting the goal originally   

I have written about this part in the past, but I do wish I would have finalized my housing / location before quitting.  The current housing shortage and insanity around price is frustrating, it’s being driven by lower and lower mortgage rates.  As a retired / minimally employed person, my borrowing capacity is limited and 75% or so of my assets are in qualified accounts.  It may take another one to two years before we can get the house we want through some combination of borrowing and using up most of our regular brokerage account.

Tax Diversity and the impact of State Taxes:  I wish I switched to the Roth 401k option in my last two years of working.  I was earning money in a state without income taxes and now live in a state with a 7% tax rate.  If we move to Hawaii, that number goes up to 8.5%.   Unless we end up on the coast of Florida, I’m going to be paying a paradise tax in the form of income taxes to live where we want to live.  

How much did you plan for the non-financial part?  

I didn’t do too much planning for the nonfinancial part of early retirement.  My plan was to retire and figure it out.  I created a general goal list that I think I’ve done pretty good on.  This included getting moved, travel, more time with family, exploring neglected/new hobbies, and hobby entrepreneurship.   

The most important part of my plan was telling *everyone* I was taking at least eighteen months away from my career.  This easily answered all of the questions I was fielding, whether it was a job opportunity or the constant “is retirement forever?” and “are you saying you’ll never earn another dollar”.   Instead of presenting someone with something they don’t understand, responding to everyone that you’re committed to a minimum of eighteen months away was something people respected.   This gave me the freedom and coverage to figure things out on my own.  

Wrapping Up:

If you have other questions, please feel free to send them my way. I’m always looking for additional topics or questions to write about. I think preparing for early retirement is equal parts financial and psychological and it takes work on both to take that plunge and enjoy a successful life after full time employment.

Want to get notified every time a new post is written? Please subscribe on the right hand side page and don’t miss the most recent content. Have additional thoughts?  Please leave a comment below!   

Other Resources:

Retirement Healthcare: What Are Your Options by Can I Retire Yet

Justin @ Root of Good: Justin does 1-2 hour consulting calls for Financial Independence coaching and is the best I’ve seen at understanding health insurance for early retirees. He makes the case that at 250% of the Federal Poverty Level or below, (which happens to also be the average salary in the European Union), the United States has universal health care with the ACA’s Cost Sharing setup. He’s one of the best at helping people understand the mechanics of this.

14 Replies to “Two Years of FIRE Q&A”

  1. Great idea on telling people that you’d be stepping away for “at least 18 months”. I’m not retired early yet myself but it is on the horizon. I haven’t talked with too many people about the specifics of our plans but the few people I’ve shared even general thoughts with have all (predictably) reacted with questions and doubts. One even asked me “what about the American dream?!”. It was kind of funny in hindsight but I like the idea of just avoiding those types of questions in the first place by giving people something a little easier to grapple with mentally (an extended leave of absence that turns into “forever”).

    1. Yeah I think the 18 months was wise. I told everyone I was taking 6 months off. And that was my plan, but ultimately I started getting questions day one as to what I am going to do next. In reality, I knew i was likely to not be doing a heck of a lot and with some effort might be able to build up passive income streams and full on retire.

      Alas, I wish I had settled on a year or something, it may have bought me more time, but ultimately people just want the gossip and the dirt, and I think they’ll eventually figure out that I am not “working” in the traditional sense ever again.

    2. There was a bit of a trial and error, but the eighteen month comment worked the best. So many otherwise smart people would just look at me with the stare of “does not compute, does not compute”

  2. Great post! Also good to meet you. Few questions about your post.

    In order to have a taxable account built up, was there a year you skipped maxing out your 401k/IRA/HSA? Or did you have enough savings to max out every year and still deposit into the taxable brokerage account?

    Do you have a post outlining how you’ll cover your cash flow needs up until age 59.5? I know you mentioned deferred compensation pension – can anyone do that or only if you are at a specific company level?

    Would love to understand more about the Roth 401k and taxes in retirement. I have exceeded the Roth IRA income limit, so unsure how to get into the Roth 401k so money is tax free at distribution.


    1. Jenn,

      Thanks for not outing me as the semi-anonymous blogger. You’ve won on inspiring my next blog post, something about the concept of financial runway and the taxable brokerage vs retirement accounts.

      To the specific questions, the deferred compensation plan is something that is company specific, either the employer offers it or doesn’t and they outline eligibility. I would recommend inquiring to see if there’s a Roth option with your employer’s benefits department or plan administrator.

      Regarding the Roth IRA income limit, do you have any old 401k plans you’ve rolled into an IRA? If not, you can contribute to a Roth via a process known as the Backdoor Roth IRA. You contribute to a non-deductible IRA then the next day do a Roth IRA conversion. It’s a dumb loophole, but I used it once before quitting to get more in the Roth.

      Here’s a case study I did for another reader including outlining the withdrawal strategy:

  3. Great post as always!

    Quick question on the 250% of FPL… For a 2 person household, am I understanding correctly that this is around $45,000?

    1. That’s correct, it’s a doable number for us if we buy a house outright. I’ve also seen strategies of alternating high and low income years to meet the criteria for universal coverage

  4. That’s inexpensive medical. Ours cost over $16,000 for me and my wife for a catastrophic bronze plan. I stayed on Cobra as long as I could because even it was cheaper than private insurance. We were older and that is why they charged so much. The only thing they can legally use to adjust rates is your age, so they do. But even at that it was a bargain to have basically unlimited coverage.

  5. I am about a year away from FIRE and am grappling with some of the same housing issues, mainly how to qualify for a mortgage not having a job. It is one area I haven’t really seen addressed very often. Do you have a link to what you referenced in your previous writing, as I couldn’t find it easily after searching? We are also considering Hawaii as well but unfortunately the housing prices have just exploded the past 12 months.

    1. I highly recommend buying a 2nd home and closing on it a few weeks before you quit your job. It’s difficult, mortgage lenders will look at 1099 income, dividends/interest, and possibly some consistent IRA withdrawals. A smaller bank might be willing to do an asset depletion calculation, but you’ll be paying higher than conforming mortgage rates.

      As for Hawaii real estate, everywhere with a paradise tax seems to have a ton of disruption. Hawaii has some extra issues with rapidly changing AirBNB laws, high unemployment, and restrictive laws on new inventory. I don’t know all the issues, but will be exploring them further later this year.

  6. Hey Mr. Shirts,

    Great help as always. If you’re still taking requests for future articles, I would love to throw in a few. Thanks

    1. Withdraw advice – Bucket strategy vs. withdrawing from brokerage monthly. There have been several bloggers recommending pulling a years worth of expenses and drawing down. To me, this feels like market timing. Wouldn’t it make sense to stay in the market as long as possible and withdraw a preset amount directly each month?

    2. Qualifying for a rental agreement – Similar to owning, is it difficult to rent a home without income? If you do need to share financial statements, balance sheets, tax statements etc, how do you do it without compromising your data security with a landlord.

    3. Buying the dips when you are in withdraw mode – How do balance keeping your safer asset allocation money (bonds, cash, etc) available for future drawdowns vs. buying equities cheap after a market correction. If you still have regular income, it’s easy to shift to buy the dip. However, if you are using the money for regular expenses, maybe it makes sense to keep drawing from safe money until the market recovers.


    1. Great questions!

      1) I don’t think there’s a correct answer, but I can say what I’m comfortable with. I run a 80/20 portfolio, with most of that 20% in long term bonds but some in cash. I keep that cash in the brokerage account and reallocate every six months or so.

      2). Fortunately half or more of the single family rentals are owned by individual landlords and not large companies. We looked at three rentals, two of the properties were self managed by individuals with less than 10 units and they had no problems provided I send them some sort of asset verification. The third was through a property management company and I could tell early there might be some friction so I moved on.

      3). There’s no right answer, but for me this is where I use individual stocks. There are companies I’ve known and invested in for a decade or more, have solid businesses, and consistently grow earnings. The “dip” I’m looking for at this point in my life is a function of panic and margin calls, where everything but treasuries fall, then just look for companies / sectors with an outstanding risk/return profile. In hindsight, my best purchases this past dip were REITs that were in associated with any of the economic disruption, like STAG Industrial with leases logistics warehouses. I also bought the small cap value index, which is heavy in small banks. Once PPP was rolled out, it was clear the small banks would survive and didn’t deserve to have their value cut by 60%. Berkshire B was available for $180/share or less from March through late June. These weren’t the biggest home runs, but were an appropriate risk/return wager for me to be comfortable deploying cash.

      I hope this helps!

  7. This was great — thanks! We recently hit our FI money, but we also recently moved from the US to Canada so I want to confirm that our spending is what we’d anticipated. As we start to get serious about retirement, I’m really grateful for honest reflections like this. I’m in coast mode (and, honestly, kind of always was). And I’m also realizing that I probably want to keep working part-time for a long while — I just like it. Thus, I’ve been spending a lot of time thinking about what would I want to do 15-20 hours a week? Without the need for income, I feel like it’s really up to me. My wife wants to teach part time. Me, I’m still figuring it out. I don’t think having no structure would ultimately be good for me. We shall see!

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