A FIRE case study: Can this Reddit user with $2 million invested and thousands more in cash retire early?


After hearing so many stories of people saving hundreds of thousands or millions of dollars and then quitting their day jobs, it’s natural to wonder, “Can I do the same?”

That’s the question one Reddit user, called “Firetaway” on the site, posed to the financial independence sub-section of the online forum, and provided plenty of relevant information for fellow members of the internet to weigh. “Firetaway,” who has $2 million invested and another $200,000 in cash, said he was planning to stay at his job longer, and amass $3 million, but is miserable at work after a few management changes occurred.

So the user, who said he is a long-time reader of the financial independence group, is considering an early jump into FIRE, short for “financial independence, retire early.” FIRE has become something of a movement online, with many personal finance bloggers posting about their frugality, intentional spending, investing strategies and goals upon leaving the workforce well before the traditional retirement age of 65.

See: These early retirees bought their ‘disgusting’ house in Montana with cash and budget less than $1 a pound for food

Some Reddit users responded to “Firetaway” saying he was in a good position to retire and live semi-frugally, but that he may want to take this opportunity to live in early retirement for a few months or a year to test the waters, and then go back to work. Referring to the specifics of what he shared about his job, one person said, “It seems like you’ve got a niche in a market pretty well cornered with what you do,” one person said. “Can you take that to a competitor? Or even start-up a business doing that and only that? If you could do that to the tune of even $50,000, you could mostly just let your investments keep compounding.”

The details

Here are some more details about “Firetaway” and his situation. MarketWatch reached out through Reddit to try clarifying a few details, but did not receive a response.

• Age: Early 40s

• Lives in a high cost-of-living area

• Single

• Base salary is $160,000, but goes up to $200,000 to $300,000 most years

• Investments: $2 million, and indicates there is $700,000 in 401(k) money and $50,000 in Roth IRA accounts. An additional $200,000 is sitting in cash. He mentions equity, potentially from his job, but never expands on it.

• Home equity: $325,000 with a $75,000 mortgage left at 2.625%

• Yearly budget: $60,000

He had a few additional concerns as well: He has a chronic auto-immune disorder that could disable him from working, although he is fine now. He has $100,000-plus medical spend per year covered by insurance at work and expects to buy an Affordable Care Act plan that would cover that if he retires early, but said the long-term disability coverage from his job was a stress-reliever.

He also doesn’t exercise, drinks a lot and most of his social circle includes work friends. He thinks leaving his job could correct some of these things, like cutting back on drinking and going to the gym, and trying to make more friends through various activities. “I want to be free to do whatever the hell I want to do. I’m just a little worried that this freedom will come at a cost.”

His original goal was to save up to $3 million before he retired early, but some issues from re-organizations within the company have made it a toxic work environment, which is why he is considering doing it with $2 million. To get a similar position at another company, “Firetaway” would have to potentially move across the country. If he were to retire now, he expects to use a 3.5% withdrawal rate of his investments after adding in costs of health care and taxes, and would pay off the mortgage in a few years. The strategy would involve spending down cash first, and he would spend his time working on hobbies, traveling for cheap, perhaps starting a business and getting more socially and physically active. “So my salary is the same and I still have my equity, figured I would just grind it out for some time. Well I just don’t think I can any longer. I dread going to work and literally am not doing much work at all.”

Don’t miss: These people left their jobs behind to retire early — then life got in the way. Here’s how they coped with FIRE plans gone wrong

What the experts say

Financial advisers said there are a few key points “Firetaway” should focus on before quitting, and noted these suggestions just scratch the surface because it’s based on information provided in a Reddit post.

The dollar figure someone needs for early retirement depends highly on an individual, his lifestyle and spending habits. “Some folks are comfortable with 3.5%, some are comfortable with 4%, whereas some say they need 3%,” said Daniel Kenny, a financial adviser who works closely with people pursuing FIRE at his firm FI-nancial Planner in Sterling, Va. So by those standards, “Firetaway” is likely in a comfortable position. But there are more details, some of which the Reddit user didn’t disclose in his post, that could derail his early retirement, such as an improper health insurance plan and how much of the equity he has from his job is in company stock.

“Firetaway” should start shopping around for a health insurance plan now, while he’s still working. He should also look at what his equity is comprised of, as company stock could become a risky investment. He should consider selling stock if the market is still high when he retires, Kenny said, especially if it is company stock, because it would reduce investment risk and garner a cash cushion for emergencies.

Some people noted “Firetaway” sounds like he enjoys working, and doesn’t necessarily want to give it up — he’s just not in the right environment anymore. Leaving now and relying on the $2 million in investments might be cutting it close, said Leon LaBrecque, chief growth officer at Sequoia Financial in Akron, OH. “I do agree that if he hates what he does, he should reboot,” he said. “He should think about setting up a business, or what he wants to do that will make him happy. Really, what he should consider is finding a job/gig/business (with health care) that he loves that pays something.” Even a fraction of his current salary would suffice, as it would be supplemented by investments.

Before actually making his decision, “Firetaway” should come up with a few plans to eliminate as much controllable risk as possible, including long-term care expenses and health care costs. “While he is fine now, his auto-immune disorder could destroy quickly his FIRE plan,” said Byrke Sestok, president of Rightirement Wealth Partners in Harrison, N.Y. Qualifying for long-term care insurance now depends on his diagnosis, and if he isn’t eligible, he may have to save more money to cover the health expenses that come later in life. The Reddit user should also pay off his mortgage while he’s still earning an income.

Also see: Why does the early-retirement movement have so many haters?

But there’s one more component “Firetaway” doesn’t touch on. “What’s missing from this description is what he wants to do for the long-term should he retire for good,” said Hui-chin Chen, a financial adviser at Pavlov Financial Planning in Arlington, Va. “Retiring now without a purpose will eventually lead him back to finding something, or a job, to do.” Especially if he’s already unhappy with his drinking and exercising habits, said Sestok. “Sitting at home with idle hands could quite possibly amplify his sedentary alcoholic lifestyle,” he said.

People pursuing FIRE don’t always account for the mental shift from accumulating assets to spending down, or no longer having a place to go for so much of their days. “If he quit cold turkey today, his lifestyle would get worse before better in the short term,” Kenny said. “They don’t have these connections anymore and ostensibly, what they’re doing is sitting in a dark room counting chips like Scrooge McDuck — you don’t want to do that. You want to be able to live a life you enjoy, and that’s something you can do whether working or not.”

Source : MTV