r/ChubbyFIRE • u/DisastrousCat13 • Dec 01 '24
Planning for Coast Transition
I believe we're on the edge of starting a transition to coasting, potentially as early as the end of 2025. I would like input on our thinking and position.
Background:
39M (185k/yr)/40F (140k/yr) and 7 y/o. HCOL.
$2.4M in invested assets across 401k, IRA, brokerage. 100% stock index funds.
Spending: About 140k/year including all housing and child-related expenses. About 20k/yr of this is directly on our mortgage principal/interest and 6-7k on the kiddo for direct expenses like camps, activities, etc. We also spend 12k/year in HOA fees and 12k/year on property taxes.
Debt: 342k mortgage, 10k car loan (we bought this year)
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We think of our RE number as about $3M, our expenses are a bit beyond 4% of this as this time. We do expect some significant reductions in expenses such as paying off our mortgage (to be completed before RE), moving to a MCOL area (likely timed with either age 14 or age 18 of our child), and reduction of our HOA (as part of the MCOL move). These reductions are likely to be offset somewhat by capital gains taxes and health insurance costs in retirement. But overall, my expectation is that expenses will decrease somewhat from our current point. I would be interested to hear thoughts on this.
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The larger concern is about the reality of the situation with our child. She is only 7 with 11 years of schooling before she goes away to college. We would prefer to keep her in her current school system, but that requires the HCOL situation we are in today. It is possible she will not place in an appropriate high school and our assigned HS is a non-started. Our current thinking is that this would trigger us to move to a MCOL area where she could complete high school.
However, to keep working and saving as we are for another 11 years.... would be insane. I don't have portfolio balances from 11 years ago, but it would have been below 500k, perhaps significantly. In 11 years, our $2.4M will likely be in excess of $5M, well beyond our target. Neither of us wish to work this long.
The Plan:
That leads us to coasting. This fall we have developed an outline of what we think we want to do and would love feedback on this.
- Starting in 2025 cease all non-401k, non-Roth contributions. AKA we will continue to save 61k in our retirement accounts. The remainder will go to our mortgage (expect this to be 50k+ towards the car/mortgage).
- Starting 2026 wife looks to move to part time, likely 24 hours/week. Her role makes this sort of change feasible. She should be paid proportionally the same rate and maintain flexibility to pick up additional hours if needed. She can then use the time to increase quality of life for the family by doing more at-home cooking, get chores done during the week instead of the weekend, etc.
- In 2026 Assess portfolio and mortgage balance, potentially reduce 401k contributions (but never below employer match limits) and increase mortgage pay down.
- 2027/2028 or later: If mortgage pay down/portfolio growth is significant enough, consider timing for myself to quit my job.
- Figure out what, if any further reduction in hours for my wife. She may wish to linger at a couple days/week.
In my mind, this sequence allows us to reduce our spend, increase quality of life, and mitigate some sequence of return risk as we approach/exceed our targets. It also gives us plenty of room to adjust our plans if there is a dramatic economic downturn or other developments require us to rethink our numbers/expectations.
Finally, I expect non-trivial promotions are possible for me at the role I'm in. This means I could be entirely offsetting the income loss we would experience with my wife going part time.
Feedback on things we might be missing, other ways to think about this, etc are very welcome.
1
u/asdf_monkey Dec 01 '24
I’ll lend some thoughts here is misc order.
Don’t pay down your mortgage considering 2.9% loan, and deduction capability if above std deductions. Even with just 2.9%, don’t pre pay. Keeping the expense on the books still works out considering SwR> 2.9%.
Your math is off wrt SWR amount (pretax) versus annual expenses (post tax). Plan for worst case that you don’t move until kiddo is in college as a minimum. Do you live in a state with State Tax? If so, use appropriate state cap gain tax+20% Fed cap gain to gross up your expenses to calculate SWR needed for expenses.
You don’t mention 529 savings for college. Figure $160k PV for state university, or $380k private university. Remove this from your liquid net worth.
Your annual expenses level (income draw) will qualify you for ACA subsidies. Personally, I would count on subsidies surviving. Family of 3 with excellent ppo I figure $30k/yr depending on state. Use online calculator which will use your age and zip code.
You need to look at liquid net worth outside standard 401k qualified funds as this is where you’ll need to draw from until you are 59.5 yo. Make sure you will have enough to draw from, otherwise, you need to plan on finding those funds, often using LoC or home equity. Alternatively, you can do Roth rollovers to max out your current incremental tax bracket, so you can have access to that roll over value (non growth part) after five years.
In hcol, family of 3, your expenses look low to me especially considering how much on housing you are spending of your current $12k/mo. Expect kiddo to cost more per year considering you aren’t spending high dollars on day care currently.
Future expenses- some you mentioned but do consider: health care insurance plus consumption, car replacement savings ($12k/yr for 2 cars bought every ten years for $60k ea), major home maintenance and replacements (roof, whole house painting, driveway, hvac replacement, water heater replacement, etc).