In my previous post, we heard from MamaMinou, who would like to retire, but just isn’t sure if she has “enough”.
Overall Financial Picture
- Household budget: $58,100
- Estimated Healthcare Costs in Retirement: $24,000
- Future Income: ~$4,800 / month
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Real Estate Value:
$420,000 (house) - $169,000 (mortgage)
$617,000 (rental) - $347,000 (mortgage) = $521,000 - Combined Investments: $1,423,000
- Networth: $1,944,000
MamaMinou's Questions
- When is it feasible to stop working? When would it be feasible if I ended up solo?
- What do you think about my “giving back” moral dilemma?
- How should I manage savings until I do retire?
Financial Mechanic's Thoughts
First off, I want to recognize MamaMinou’s intentionality in making a big life change. She has sat down with her partner and tracked their spending. She is tackling tricky questions like is it selfish to retire early when I have the credentials and skills to help people?
Also, on a financial level, she and her partner have been doing great! They have a 47% savings rate. They are doing quite a bit better than even three years ago when their net worth was $1,601,000. They’ve saved $343,000 in that time! Way to go.
Some Differences From 3 Years Ago
MamaMinou had a few goals in 2022 that she met by 2025. She stayed on at her company through 2022, enough to see a bump in her pension. She mentioned before that she wanted to build an emergency fund, and she’s done that!
A few things are quite different from 3 years ago, when MamaMinou first wrote in. One huge difference is in the estimated retirement spending. It went up by $30k per year! What’s with that?
That’s because the two of them are budgeting $24k per year for healthcare (at least until PapaM turns 65).
Holy Healthcare Batman
It makes sense why early retirement is hard to pull the trigger on when you expect to pay ~50% of your average yearly spending on top of what you already planned. No wonder a lot of us early retirees go abroad. To estimate healthcare costs in retirement, you can enter in your information into HealthCare.gov, use a Health Insurance Market Calculator, and/or apply for ACA.
You can also get ahead of it like Ali did and fill out the ACA application ahead of time to see what the premiums might be.
$24,000 per year on healthcare premiums seems high but believable. I am going to take their word for it in this case study, would really hope they end up being pleasantly surprised once they actually retire.
Knit Together Your Rich Life
I’m very pro spending on these types of things! I say YES to spending on fitness and health. I also say YES to indiscretionary spending in the yarn store. KNIT YOUR HEART OUT MAMAMINOU!!!
Okay. I think I got that out of my system. I’m actually very happy to see the rise in spending on things that make her happy. And if a second car isn’t going to make them more happy, then it’s great that they reconsidered.
Part of a recent spending uptick was due to some construction projects around the Minou house, but I tend to recommend keeping to the spending numbers as they are, without disregarding “one-offs”. There will always be one-offs!
Budget for What You Love
One thing I did want to point out to MamaMinou is that it’s okay that she’s spending more. I am not a fan that the projected retirement budget doesn’t include things they love: Travel and Subscriptions. I wouldn’t want to retire either if I had to give up travel!
We can see in MamaMinou’s visit to her sister-in-law that sometimes there’s sacrifice in order to live a simple life. For her sister-in-law, not running the heat is one trade off to live on a small pension. I would personally be MISERABLE if I could not run the heat, and it would not be worth the trade off to me. I would work longer if it meant running the heat, and I think the Minou family should keep the things they love in their budget.
Based off of the fact that MamaMinou just came back from a month long “Taste of Retirement” trip in France, I think it’s an expense well worth it! Especially as travel has been a consistent inspiration for MamaMinou.
I asked MamaMinou for some estimates on these costs.
Based on the line item for streaming services in her original case study, $1,200 would go towards TV services. For travel, she estimates about $5,000 per year. This adds up to a new retirement budget of ~$88,300.
Crunching The Numbers
For the numbers, we will not include the Minou’s primary home. However, I will account for the income from the rental. It’s also important that the Minou’s could hypothetically sell that property if they needed to for funds in early retirement.
Here’s the back-of-the-napkin math for the 4% rule:
($88,300 retirement spending – $13,800 rental income)* 25 = $1,862,000 in investments.
Their investments are $1,423,000. So they are not ready to retire by back-of-the-napkin scribbles. But don’t forget, that doesn’t account for future income in the form of Social Security and pension.
To be thorough, I put all the numbers through the cFIREsim calculator. The website uses historical market data to run numbers through hypothetical markets through history. It checks portfolios against the Great Depression, 1970s stagflation, and the dotcom bust, for example. It will then give you a percent success rate for retirement. I made some basic assumptions about portfolio allocation. I encourage MamaMinou to play around with the calculator to test different scenarios (e.g. what if we did buy that second car? What if we change the amount we have in stocks vs. bonds? What if we sold the rental and invested the money instead?)
Results of Different Scenarios
- Account for future income such as pension, Social Security, and rental: 98.40% chance of success*. That’s pretty dang good!
- Reduce expenses (cut out travel and subscriptions) and account for future income: 100% chance of success.
- MamaMinou mentioned not wanting to include SS and Pension in their numbers. This is not as good of a result: 74.40%
- But say they could cut out some expenses in retirement when times got tough. If they didn’t depend on SS and pension, but reduce spending, the chances of success go up to 84%.
What this tells me is that the Minou family is set up very well to retire. Especially if they can count on income in the future by way of social security and pensions. I imagine that they have been conservative with some of the numbers and with a little finagling of the calculator, their portfolio, or flexibility in spending, they have what it takes to make it work!
If they ease into retirement (PapaM works a little longer, or MamaM works part-time for a bit) they will increase their changes of success. But if MamaM was seriously done working, I think she could make it happen.
Just MamaMinou's Numbers
MamaMinou also wanted to be sure she could stay retired if something—not of her own choosing—meant that PapaMinou left the picture.
She estimates that her yearly spending would be $60,000, a high estimate as she can see herself living more simply.
$60,000 * 25 = $1,500,000
As she currently has $1,235,000 in investments, she would not be able to stay retired if she kept up $60k in spending per year. However, if she spent $49,400 per year, she could stay retired. She’d still be able to leave some lights on and run the heat and be okay. Especially since as little as three years ago the entire family budget landed at $42,840!
What Should Early Retirees Do With Savings?
MamaMinou asked how to manage her savings. She has $20,000 in a money market cash fund and $10,000 in CDs (a savings account that typically delivers a fixed interest amount). I am concerned to see that PapaMinou doesn’t seem to have any savings. We’re focusing on Mama today but it does seem important to note!
That is about 5 months of savings. For early retirement, it’s useful to have a large cash cushion to draw on while you set up the systems of withdrawal from your investments such as Roth Conversion Ladders and selling stock from the brokerage account. I recommend an emergency fund to cover 6 months to a year. The more cushion, the easier it is to weather the uncertainty of a fledgling retirement. The cash should be easily accessible.
A CD can be great to lock in a high interest rate. Some people employ a “CD Ladder” where you stagger the length of the CDs in order to access the money in blocks of time. I’m not sure if this is how MamaMinou set up the $10k, but I would recommend looking into that.
I am glad to hear that MamaMinou has $20,000 that is easily accessible. However, I would want to be sure that it is in a high yield account. Money market cash funds usually don’t have a high interest rate. I recommend something a money market fund like VMFXX or a High Yield Savings Account like Ally. If she is earning anything less than 3% interest, I would suggest that she take it elsewhere. Let it work for you!
It's Time To See A Professional
A lot of my advice to MamaMinou remains the same as 3 years ago. I would particularly urge them to meet with a fee-only financial advisor, who is qualified to crunch their numbers into a retirement plan.
*I am not qualified to provide tax, legal, or accounting advice, and these Reader Case studies are for informational purposes only.
A professional should be able to provide some peace-of-mind that in different scenarios, joint, solo, market crashes, rising healthcare costs, political instability—you name it—the Minou family will be okay. Sometimes it takes someone showing you the graphs, crunching your numbers, and telling you that daily gelato on your Italy holiday won’t bankrupt the retirement plan.
It's Never Going To Be Enough
One common issue with those of us pursuing financial independence is that “enough” evades us. People who are able to save so much, like the Minou family, tend to be risk-averse and conservative with their numbers. The target number gets higher, and the saying is, “Once I get $____, THEN I can finally relax.”
This can be great for building a bullet-free retirement plan, but your plan will never be worry-free unless YOU are worry-free. When I crunched the numbers 3 years ago, the Minou family had enough to retire (they could as a family and MamaMinou on her own… In the case of a split, PapaMinou would have had to work longer).
Part of the problem is that political instability is not going to go away. The insanity of healthcare in America is unfortunately not going to be fixed any time soon. If any of us are waiting for the abatement of chaos… we will wait until we die.
Getting to “enough” is more of a psychological hurdle than a numbers game. What will it take MamaMinou to feel like her family has “enough”? It’s not something I can answer. Maybe the same psychological safety that happened when she reached $1M in assets will settle once she reaches $2M. But the problem is that the goalposts are too easily moved. The most I can say is: build a life you are excited to retire into.
Time For A Different Organization?
One thing MamaMinou makes clear is that she wouldn’t mind working under a more flexible arrangement. When she first wrote in, she was burnt out from working long hours during COVID. Then she got an opportunity with the same company which would allow her to learn new skills.
BUT… the new job is within the same organization. It does not meet MamaMinou’s new goals in creating a flexible work life where she doesn’t have to work full-time. Might it be time to look elsewhere?
Sometimes a change in a job can help us on our way to retirement, because sometimes what you needed was a shake up. Sometimes you’re trapped in your job, not in your career. Maybe set up an ultimatum. Ask for the thing that would make you happiest at your job, and if they don’t give it to you, go somewhere else (or quit!)
If not finding a new job or volunteer role, maybe MamaMinou could take a sabbatical. A taste of freedom could be the ticket for never wanting to go back. OR she can realize what bits of work she missed and see if she can work them back into her life.
Build A Community Apart From Work
If not a shake up at work, are there other ways MamaMinou can’t shake up her day-to-day to make retirement more appealing?
I noticed upon second reading that a lot of MamaMinou’s hobbies can be pretty solitary. “I love to travel, knit, read, write, walk, do yoga, hike, nap, visit libraries and the great outdoors, and make things. ” Amazing! A great mix of community-oriented and solo activities.
I hope MamaMinou has a community built up outside of work to support her when she puts in her notice. If not, I’d suggest she’d start building.
Is It Ethical To Leave A Career In Healthcare
MamaMinou brought up an interesting conundrum. How do you leave a career where you have the skills to help people… to save their lives even?
As a software engineer, I didn’t have this dilemma. I made websites where you can order cakes online. Not to say all code-writing is useless. I also used to write software for a bio-tech company that manufactured devices to provide blood and cell-based treatments. It was just that my work felt a few steps removed from truly saving someone’s life. But MamaMinou has been a healthcare worker and doula and surely had a hand in saving and assisting countless lives. Would it be selfish of her to leave a career where she makes this kind of impact?
She’s not the only FIRE-interested healthcare worker to run up against this conundrum.
Hear From Other Healthcare FIRE-ees
It makes complete sense that MamaMinou wants to consider the ethical considerations of leaving. Recently, the exodus of medical workers has been due to burnout. They aren’t leaving because they want to, but because they are overworked to the point of intolerance. That was the state of affairs the first time MamaMinou wrote in. However, with a new job, MamaMinou might have mitigated burnout, but not the desire to leave her career.
Here’s what other healthcare workers had to say about leaving the workforce early:
In the end, leaving medicine is a highly personal decision. I wonder if MamaMinou can find ways to incorporate her skills in retirement, even if it means volunteering, training, or even writing about her experience in the medical profession!
Final Thoughts
I commend MamaMinou for being so intentional with her life in her 50s. She has been taking those international trips, tracking her finances, and applying for new opportunities at work. She is on track to have a fulfilling retirement, as soon as she does that hardest step: quitting her job! It’s clear she has enough to retire. But it’s a huge lifestyle change she may need to ease into.
I admit to my retirement-bias as someone who has really been enjoying it. I have a dream of hearing back from MamaMinou in a year or so as she gallivants across more of the world, knitting on trains across the Netherlands, jam-tasting in Southern France, and meditating in Vietnam. I hope she talks to a fee-only advisor to get the official green light. I hope she can still fulfill her purpose with a part-time or fun job doing the parts of healthcare that she loves the most.
I’m cheering her on!
What about you?
MamaMinou wants your advice.
What would you do to prepare for early retirement?
What do you think about MamaMinou’s ethical conundrum of leaving a healthcare profession early?
What are your thoughts on paying for healthcare in FIRE?
Share your thoughts below!
What a great read and inspiring post! Indeed: Build a life you are excited to retire into.
A family member of mine retired very suddenly (because she was exhausted) and consequently did so without having prepared any lifestyle tools to help her navigate this ‘new normal’.
Therefore, I’m all for the idea of a sabbatical. To me, it comes across as a bridge wíth a safety net.
Thanks!
Totally agree, a bridge into retirement helps so much!