Reader Case #1: I love my job, but when can I FIRE?

This blog has been a mishmash of travel/food, cost of living, and some high-level finance posts so far. Today I want to focus on analyzing someone’s specific situation on when they can FIRE (financial independence retire early). My hope is that you can use this case (and future cases) to gauge where you are in your FIRE journey and walk away with a few actionable steps you can take to reduce your time to FIRE!

Today’s reader actually likes their job (whoa!) and just wants to understand how far they are from FIRE. They also want to understand how moving abroad and leaving the ($$$$) Bay Area could expedite their timeline to FIRE.

Want your situation analyzed? Fill out the form here: FIRE Reader Case Study Form

Situation

Hi intristang! I’ve never heard of FIRE before reading your blog, but now I’m really curious and I’d love to know how far I am from not having to work anymore. I actually really enjoy my job right now, so I probably won’t quit for a few years, but I’d still love to not *have* to work so I could travel, without feeling like I need to worry about money.

I’m in my early 30s and live in the Bay Area… where my rent is a really big expense. I currently have a full-time job in tech, and prior to COVID, I got a lot of my meals through work for free (which brought down a lot of my expenses). Most of my investments are pretty straightforward, but I work for a publicly traded company so I own some RSUs and participate in an ESPP (highlighted below). I love living in the Bay Area, but I’d love to know how much moving abroad (or even outside the Bay) would shorten my path to FIRE. Thanks for taking a look at my situation!

Here are the answers to the form you shared: 

Gross income: $175,000 

401k contribution: $19,500 

ESPP: maxed (10% of my post-tax paycheck)

Monthly spending: $3,950

Debt: ~$10k from student loans (currently frozen, so no minimum payment at this time)

Fixed assets: 

None (no home or car)

Investments: 

Savings: $4,100

401k: $97,300

RSU/ESPP: $30,100

Roth IRA: $16,800

Brokerage: $306,500

Again, thank you for reviewing and looking forward to hopefully hearing from you! 

-FIRE Novice

—

Thank you for reaching out! I’m glad you could learn about the FIRE movement from my blog. Hopefully you’re pleasantly surprised at how much sooner you can retire than you originally thought/planned.

At first glance, FIRE Novice has a strong income (maybe not too surprising given tech and the Bay Area). They also have fairly low monthly expenditures (free food helps!). The thing that stands out most to me is how much of their net worth isn’t tied up in retirement accounts. This is fantastic as a lot of folks’ net worth is usually within their 401k. Because so much of FIRE Novice’s money is in their brokerage, they’ll have little to no problems withdrawing money to live off of in early retirement.

Lastly, their willingness–or at least curiosity–to leave the Bay Area and potentially live abroad gives additional flexibility to bring forward their FIRE timeline. Not only is rent outrageous in the Bay, but eating out and health care are very expensive, too.

Read also: What is the 4% rule? Or (How much do you need to retire?)

Bay Area Analysis

Let’s kick off with cleaning up their financial situation:

First, let’s find their net income. We can start by deducting their 401k contribution from their gross income ($175,000-$19,500) to arrive at $155,500. Then I’ll use smartasset to calculate their California net income: $100,560. I will be adding back their 401k contributions in the savings section below. 

Because ESPP is deducted from their paycheck post tax, I’m going to leave their net income alone. Although their monthly paycheck(s) will be smaller because of the ESPP deduction, they are still saving that money each month (assuming they either sell it when it vests and/or that their company stock doesn’t plummet). 

Second, because their student loan payments are currently frozen, I’m not going to add it to their monthly spending. I will however deduct it from their total assets. 

With that, here’s their summarized financial situation:

Summary	Amount
Income	$175,000 (gross), $100,560 (net); $120,060 (incl. 401k contribution)
Expenses	$3,950 monthly & $47,400 annually
Debt	$10,000 student loans
Assets	$4,100 (cash) + $97,300 (401k) + $30,100 (RSU/ESPP) + $16,800 (Roth) + $306,500 (brokerage) = $454,800

Given the above, how far is FIRE Novice from financial independence and/or early retirement? Using the 4% rule and annual expenses of $47,400 gives us a FIRE target of $1,185,000 ($47,400 x 25 = $1,185,000). 

Their net earnings (incl. 401k contribution) of $120,060 with an annual spend of $47,400 yields a savings rate of 60.52% (($120,060-$47,400)/$120,060).

Let’s throw that into the Matrix to see how long it will take for FN to FIRE!: 

Year	Balance	Savings	ROI	Total
1	$444,800.00	$72,660.00	$26,688.00	$544,148.00
2	$544,148.00	$72,600.00	$32,648.88	$649,396.88
3	$649,396.88	$72,600.00	$38,963.81	$760,960.69
4	$760,960.69	$72,600.00	$45,657.64	$879,218.33
5	$879,218.33	$72,600.00	$52,753.10	$1,004,571.43
6	$1,004,571.43	$72,600.00	$60,274.29	$1,137,445.72
7	$1,137,445.72	$72,600.00	$68,246.74	$1,278,292.46

Boom! A little under 7 years. So by 2027 FIRE Novice could quit their job and travel or pursue new hobbies, or they could continue working and have the power to say “no thanks” if their manager/company asked them to do something they didn’t want to.

Given FIRE Novice is in their early 30s, retiring (likely) before 40 sounds pretty good to me. But wait! That calculation is for remaining in the Bay Area. What happens if we cut that rent? 

Kbye Bay Analysis

While leaving the Bay Area is a tough pill to swallow, there is one massive silver lining: that hole in your pocket that money seems to burn straight through repairs itself quite a bit. As wonderful as the Bay Area is, relocating will drastically reduce your monthly spend (duh).

There’s a handful of ways we can calculate their new, non-Bay Area monthly expenses. We could 1) apply X% savings to their current spend; 2) leverage a recent cost of living analysis.

If only we had access to a recent cost of living analysis somewhere less expensive than the Bay Area. Maybe somewhere relatively close to the US with access to a beach or a big city 😉 

See also: Paradise in Mexico: Cost of Living in Puerto Vallarta & Big City, Little Prices: How Much It Costs To Live In Mexico City In 2021

I’ll use my Mexico City cost of living as reference because a) it’s more recent; b) it’s higher than the PV monthly spend. I’ll also use the per couple numbers to be more conservative. Using $2,341.31 per month or $28,096 annually, this gives us a FIRE target of $702,400 ($28,096 x 25).

With that considerably lower target, let’s see how much time that shaves off: 

Year	Balance	Savings	ROI	Total
1	$444,800.00	$72,660.00	$26,688.00	$544,148.00
2	$544,148.00	$72,600.00	$32,648.88	$649,396.88
3	$649,396.88	$72,600.00	$38,963.81	$760,960.69

Only ~2.5 years! That shaves roughly four years off FIRE Novice’s path to FIRE (and gives them warmer weather and better taco access!). 

What to do with their 401k & Roth IRA?

They didn’t ask, but I wanted to tease a future article. What do they do with their 401k and Roth IRA in early retirement? Since they will be well under 59.5 years old, how do they access these funds? 

The good news is because FN’s net worth is 75% in non-retirement accounts, so this isn’t something they’ll need to worry about early on. However for other (or many) folks, this may not be the case. Stay tuned for a future article on this topic 😉 

Final Thoughts

Time, saving, and investing are three of your biggest tools when it comes to fire. 

However, another excellent weapon in your arsenal is geoarbitrage–pack up and go where it’s cheaper. While FN’s original FIRE assessment is a fairly short 6.5-7 years, they can cut that all the way down to 2.5 years by relocating to somewhere cheaper (in this case, Mexico). 

I’m sure there are a lot of skeptics out there, and I’ll be the first to say this is a very high level look at someone’s situation.

You might say what if they want to buy a house, or what if they want to have kids–wouldn’t their monthly costs go up? Probably. Another thing to factor in, is FIRE Novice wrote in with their own financial situation. While some folks may choose to never get married and have/raise kids on their own, FN’s net worth would (likely) increase if they were to get married. This example is just an exercise to give clarity on how much money one needs to FIRE if/when they know what their annual expenditures are (or if they’re willing to use my cost of living examples as a proxy for their future FIRE lifestyle). 

Would you be willing to move to FIRE/retire earlier? Have any questions about my math or any questions in general? Let me know in the comments!

If you’re interested in having me look at your situation, please fill out this form and I’ll do my best to get to you!: FIRE Reader Case Study Form

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