The Intersection of FIRE and Disney

[pillow]

I've been thinking about something and figured this group may have an opinion about it.

DH and I have a HSA account that we've maxed out for the past two years (our company switched to a qualifying plan last year). We can pay for our medical expenses without using the money in the account, so is it better to leave the money in the HSA account to build up for retirement, or should be go ahead and withdraw the money and add it to our regular savings since we have plenty of expenses that qualify for the withdrawal?

If it matters, I'm 48 and DH is 54, so we're obviously not in the RE part of the FIRE plan, but I like to be as smart with our money as possible, and I'm just not sure which way to go with this account (or if it really matters in the long run). At this point, our tentative plan is that we will both retire around the same time when I turn 56. That is when I will have the maximum number of years in our pension plan at work. DH loves his job and really has no desire to retire before that point. I also love my job, but I also want us to be able to enjoy retirement, so am looking forward to the flexibility of being retired!

Are you already maxing out 401k's? If you reimburse yourself now, what would you do with the funds? Would that enable you to contribute more to a 401k that might possibly have better investment choices? It depends on your circumstances I think. If you're maxing out retirement accounts already, and if you don't need the money, I would probably lean toward leaving the funds in the HSA. You could always track expenses and make a lump sum withdrawal if you needed to.

I'm glad you asked this question. We pull our funds out because at the moment we are paying for DD's college and are a bit cash poor. However, I probably should rethink this strategy . . .

 

[laceltris3]

I will say that we have decided to allow our HSA to build up and have invested a large portion of it (we leave enough to cover a full year out of pocket max for an emergency and sweep the excess monthly into index funds).

We do it for this reason: 1. It is tax deductible. 2. When it is invested it grows tax free. 3. We can use the money to pay for health expenses in retirement (which on average run about $200K or something in excess of Medicare). The money can grow and is NEVER taxed. And this year hit us pretty hard tax wise, and I have to believe that rates are historically low and could be a good bit higher in the future.

But it's a TOTALLY PERSONAL DECISION.

 

[elaine amj]

Hi all. New to this thread, but definitely not new to the FIRE concept! How do you balance Disney trips/family fun with your savings?

I think our goals are to live our best lives, right? What I learned a lot from the FIRE movement is to figure out the cheapest and most efficient way to live my best life NOW. All the extra money just got shovelled into savings. I had no interest in the Early Retirement Extreme version of bare bones living. To me, FIRE has never been about deprivation.

So basically I focused on creating a life filled with all the things I valued (incl travel to Disney), figured out how to do it all as efficiently and cheaply as possible (credit card hacking has been awesome!), and then figured out how much that life cost us. Once we figured out our FIRE number for a comfortable, non-deprived life, we were able to work towards something concrete. (Now the trick here is that the less you need to live on, the less you need to save. We found out there was a LOT we could happily do without)

I FIREd last year at 39 and we did not deal with a significant change in our standard of living. It's more or less the same as when I was working. And we continue to spend more or less the same (which was my goal).

I will admit I have had to cut back my grand travel plans a bit though. Even with CC hacking, travel can get expensive when u have unlimited vacation time!

 

[SouthFayetteFan]

I think our goals are to live our best lives, right? What I learned a lot from the FIRE movement is to figure out the cheapest and most efficient way to live my best life NOW. All the extra money just got shovelled into savings. I had no interest in the Early Retirement Extreme version of bare bones living. To me, FIRE has never been about deprivation.

So basically I focused on creating a life filled with all the things I valued (incl travel to Disney), figured out how to do it all as efficiently and cheaply as possible (credit card hacking has been awesome!), and then figured out how much that life cost us. Once we figured out our FIRE number for a comfortable, non-deprived life, we were able to work towards something concrete. (Now the trick here is that the less you need to live on, the less you need to save. We found out there was a LOT we could happily do without)

I FIREd last year at 39 and we did not deal with a significant change in our standard of living. It's more or less the same as when I was working. And we continue to spend more or less the same (which was my goal).

I will admit I have had to cut back my grand travel plans a bit though. Even with CC hacking, travel can get expensive when u have unlimited vacation time!

(assuming you're married...) Are both you and your spouse now retired? Are you living off of dividends and investment returns or is your current FIRE status based on some other source of passive income? If it is stocks, would you care to shed some light on your strategy re:How much to keep in cash when retired? Last week we had some discussion started by @alryan regarding this topic. Unfortunately, a lot of the responses were more focused on an "emergency fund" which wasn't really the gist of her question. Also, many of us here are chasing FIRE, not actually FIREd and therefore it's difficult for us to answer the question and truly put ourselves in that situation mentally. She was obviously more asking about the concept of keeping a year or more worth of living expenses in cash constantly to potentially avoid selling investments at an inopportune time. Here's a few comments to give you some context of what was said on the topic:

I have a question for those of you further along in your FIRE journey. So, I sometimes hear advice that you should have money, maybe a year or two of income, not invested in the stock market so that if the market is in a severe downturn you don't have to take money out. First, is this something that any of you are doing? And if you are, where does this money come from? Do you just change where your savings goes for a few years before you plan to retire? I think it sounds like a good idea, but wondering how it works in practice.

I think @alryan is talking about when you’re actually in the retirement period. (Or if not, that’s what she meant haha).

I know Root of Good blog talks about something like that. You keep 1-2 years living expenses (ie $50k-70k) typically in laddered CDs with varying maturity dates to at least keep up with inflation. Then in a market downturn you use those funds before selling at a loss and once markets recover you replenish those funds.

I’m not advocating for or against the strategy as I personally haven’t thought through all of that yet. On the surface it seems like a sound strategy though.

Yes, I did mean when you are actually retired, I can never phase my questions right!

 

[elaine amj]

I too really struggled with what to do with drawdown strategies after FIRE. Saving money is easy. Taking money out...that's tough! It was also REALLY weird to stop to automatic transfers to my retirement accounts.

I FIREd 5 months ago and we still have some income streams so haven't had to touch the stash yet. Still, hard to say when those income streams will stop so I am planning as if they could stop any day.

It worked out that just before I FIREd 5 months ago, property prices finally went up in my area and we sold one of our rental properties. On top of that, we got a small cash gift from my father in law. Combined, we ended up with about 2 years living expenses in cash.

After FIRE, I realized we would be most comfortable with at least a couple of years of expenses in cash/CDs. We had it in CDs for a few months and right now I have it stashed in a high interest savings account. I am planning to start chasing high interest savings accounts with this money. Looks like we should be able to easily get 2.5-3% or so if I keep moving the money every few months. Currently my HISA is providing similar interest rates to any CDs I have been able to locate.

Like discussed previously, having a good chunk of living expenses in liquid funds will give us a bit of a hedge against having to liquidate stocks when prices are low. I am a Couch Potato investor but DH likes to time the market and I think liquidating $60k (our annual budget for our family of 5) during market downturns would really upset him. So having a cash cushion should really help from an emotional perspective.

I am still not exactly sure just how we will manage this cash cushion but I am thinking having it hanging around really isn't a bad thing. Especially since my DH really, really needs to see a decent chunk of cash readily available to feel comfortable. Sometimes I worry we are missing out too much on investment returns though. In time, I may invest more of this cash.

I have to say - after FIRE I don't crunch numbers nearly as often as before (I was a bit obsessive lol). We've set this train in motion and are now just hoping for the best.

 

[RamblingMad]

Another way to think about it is that you want a certain percentage in cash. I consider cash short term treasuries. This forces you to rebalance as your equities go up, so that you take some profits. However, what percentage you need to have in cash depends on your overall financial picture. This is definitely something to think about. What if the market drops 50%? Do you have enough in cash to ride it out? The last time the market sank in 2009, it took until the middle of 2012 to come back. That's about four years. It's very likely that if that happened again, you'll be selling equities that are down.

 

[QueenIsabella]

FYI... @QueenIsabella

<== NOT a her

Ooops! well, from over here, you looked....never mind! j/k!

 

[Mrs Daisy]

I enjoy watching this thread! Our only debt now is a 3.25% mortgage and we have a small DVC contract (not sure if that's considered a liability or asset lol). My plan is to retire early at age of 57. Im 32. Can't be any earlier due to my pension, but I love how it gives me a set date to work with. My husband will likely tone down his hours at this age as well. His work is more accommodating to flexible hours (he is self employed).

We save about 10% of our income towards retirement, which I'm happy with since right now 30% of our income goes towards full time daycare.

Although we save for retirement and live within our means (were the type where we cut our own hair), our "musts" for spending is:
health: buying healthy foods, vitamins/supplements, moderately priced gym memberships, even things like bicycles, etc. It can be a broad category. The only time of year we eat out is on vacation.

Education/camps: work training for my husband is always worth it. Also, with us working full time, paying for quality child care is SO worth it. We switched to a new daycare a few months ago and the cost is painful. Thousands and thousands, but the difference it has been for my kids is like night and day.

Travel: this is our big "WANT" in life. We travel moderately, on points and discounts and will drive instead of fly when we can. I avoid things like cruises which costs $$$$ for a 3-4 night trip. We often travel with friends and family to help split costs and gives us lasting memories!! Traveling has also been a great way to keep me and my husband's relationship strong. We've been a couple since we were teenagers and it seems like traveling together has always helped us bond. This past Fall, we drove 14 hours to Disney and still laugh about our shenanigans. So its nice doing a mix between familiar activities (disney) as well as new things. So, really, it's more like an investment (in our relationship) than an expense, right??

 

[RamblingMad]

What’s the plan to deal with inflation? Let’s say it remains at 2ish percent. Your real yield on Treasuries is barely positive.

If you think your buying power will drop by that rate each year, you’ll need to at least grow your money at that rate to keep your lifestyle. In 30 years, if you don’t keep up with inflation, your money is worth about half as much.

However, if you go into higher yield assets, you risk the principle.

How are you guys managing the inflation risk when you’re no longer adding money?

Also, if you look to retire early, how are you managing the healthcare insurance and hit to social security in the future?

 

[speedyfishy]

What’s the plan to deal with inflation? Let’s say it remains at 2ish percent. Your real yield on Treasuries is barely positive.

If you think your buying power will drop by that rate each year, you’ll need to at least grow your money at that rate to keep your lifestyle. In 30 years, if you don’t keep up with inflation, your money is worth about half as much.

However, if you go into higher yield assets, you risk the principle.

How are you guys managing the inflation risk when you’re no longer adding money?

Also, if you look to retire early, how are you managing the healthcare insurance and hit to social security in the future?

The Trinity study assumes a 4% withdrawal rate plus inflation after the first year.

Healthcare right now my plan is using the ACA. A family plan for me would be about $400 a month if we withdrew 90,000 a year. I hope by the time I retire the healthcare situation is vastly improved.

 

[RamblingMad]

The Trinity study assumes a 4% withdrawal rate plus inflation after the first year.

Healthcare right now my plan is using the ACA. A family plan for me would be about $400 a month if we withdrew 90,000 a year. I hope by the time I retire the healthcare situation is vastly improved.

My significant other buys from the exchange, and in order to get a decent deductible, she’s paying almost $600 a month.

What deductible is the family plan you’re looking at for $400 a month?

Healthcare costs have gotten worse since I finished university.

 

[ski_mom]

This is a really tough one to give good advice on. I think people can tell you what they are doing, and why they are doing it...but to tell you what to do, I would really question that advice. It's just a very personal decision that can be driven by the math, or by the psychology, or by your relative health, or numerous other factors I probably can't think of. And, as you point out, it's also possible that it won't even matter to you in the long run (in your particular situation).

What I'm doing is taking those reimbursements immediately. Our HSA is growing faster than we could possibly spend it at this point. It's hard to explain exactly why I'm doing that, other than to say, I've thought about it a ton and think that's the best way for my family to proceed. You are at a different age than I am (that's a super nice way of saying you're slightly older than me ) so that's a factor I probably can't get my head around.

All that said, it's good to think about this and come up with a strategy. I'd just really hesitate to fully trust somebody that suggests that their way IS the right way on this one. Unless they 100% knew your situation and asked dozens of questions, that advice is not personalized to you

Are you already maxing out 401k's? If you reimburse yourself now, what would you do with the funds? Would that enable you to contribute more to a 401k that might possibly have better investment choices? It depends on your circumstances I think. If you're maxing out retirement accounts already, and if you don't need the money, I would probably lean toward leaving the funds in the HSA. You could always track expenses and make a lump sum withdrawal if you needed to.

I'm glad you asked this question. We pull our funds out because at the moment we are paying for DD's college and are a bit cash poor. However, I probably should rethink this strategy . . .

I will say that we have decided to allow our HSA to build up and have invested a large portion of it (we leave enough to cover a full year out of pocket max for an emergency and sweep the excess monthly into index funds).

We do it for this reason: 1. It is tax deductible. 2. When it is invested it grows tax free. 3. We can use the money to pay for health expenses in retirement (which on average run about $200K or something in excess of Medicare). The money can grow and is NEVER taxed. And this year hit us pretty hard tax wise, and I have to believe that rates are historically low and could be a good bit higher in the future.

But it's a TOTALLY PERSONAL DECISION.

Thanks for the thoughts! I keep mulling it over and every time I think I decide what's best, I start to question myself. I do agree though, that it's not something that would have the same answer for everyone. I'm leaning towards leaving it in there because we aren't getting any younger and I know that medical expenses will play a large part in our costs in retirement. DH is on some costly meds that I don't see going away. For that reason, I feel confident we will be using whatever is in the account when we get to retirement. Our plan does have some good investing options (similar to a 401k) so it should grow as it sits in there.

It's definitely a good point though, that if we took our reimbursements, we could then up our 401k contributions. We currently put in 10%, but that does not get either of us to the yearly max available to contribute. That money is more flexible in retirement, but is taxed, so there's that consideration as well.

Decisions, decisions!

 

[speedyfishy]

My significant other buys from the exchange, and in order to get a decent deductible, she’s paying almost $600 a month.

What deductible is the family plan you’re looking at for $400 a month?

Healthcare costs have gotten worse since I finished university.

I don't remember the exact deductible when I looked, but it wasn't crazy. The plans can vary based on what state you are in. I think my state is one of the ones that's ACA friendly.

 

[pillow]

Thanks for the thoughts! I keep mulling it over and every time I think I decide what's best, I start to question myself. I do agree though, that it's not something that would have the same answer for everyone. I'm leaning towards leaving it in there because we aren't getting any younger and I know that medical expenses will play a large part in our costs in retirement. DH is on some costly meds that I don't see going away. For that reason, I feel confident we will be using whatever is in the account when we get to retirement. Our plan does have some good investing options (similar to a 401k) so it should grow as it sits in there.

It's definitely a good point though, that if we took our reimbursements, we could then up our 401k contributions. We currently put in 10%, but that does not get either of us to the yearly max available to contribute. That money is more flexible in retirement, but is taxed, so there's that consideration as well.

Decisions, decisions!

Your question prompted a discussion here between DH and I last night. I think we might try to leave ours in as well.

 

[SouthFayetteFan]

What’s the plan to deal with inflation? Let’s say it remains at 2ish percent. Your real yield on Treasuries is barely positive.

If you think your buying power will drop by that rate each year, you’ll need to at least grow your money at that rate to keep your lifestyle. In 30 years, if you don’t keep up with inflation, your money is worth about half as much.

However, if you go into higher yield assets, you risk the principle.

How are you guys managing the inflation risk when you’re no longer adding money?

Also, if you look to retire early, how are you managing the healthcare insurance and hit to social security in the future?

Those that are deep into their FIRE journey have likely spent hours reading books and blogs on the topic. I’m not concerned about inflation - a few reading excerpts for context:

https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/


https://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need-for-retirement/


https://www.mrmoneymustache.com/2018/11/29/how-to-retire-forever-on-a-fixed-chunk-of-money/


https://www.madfientist.com/safe-withdrawal-rate/

Healthcare is a concern that I’ll field when I have a million dollars. No reason to worry today about what healthcare in this country will look like in the 10-15 years. Worrying about things out of my control won’t help my cause. I’ll deal with it when the time comes.

 

[pillow]

Healthcare is a concern that I’ll field when I have a million dollars. No reason to worry today about what healthcare in this country will look like in the 10-15 years. Worrying about things out of my control won’t help my cause. I’ll deal with it when the time comes.

Things change so much, its difficult to project when you're younger and far away from retiring. We are much closer though, and DH could retire fairly soon. I do worry about health care costs. At the moment, we could get insurance pretty cheap via the ACA, but if that changes, we may have to adjust plans.

We've also discussed the fact that it would be nice for our kids to stay on our current insurance until age 26. If they are working and have decent insurance options through work, it wouldn't be a concern. But DS will be in grad school (at his expense), so it would be nice if he could stay on our insurance as long as possible. So DH may work longer for that reason. Maybe. Lots of things to consider.

 

[1st*toright]

I don't remember the exact deductible when I looked, but it wasn't crazy. The plans can vary based on what state you are in. I think my state is one of the ones that's ACA friendly.

In my opinion, the ACA and the increased availability of non-employer dependent health insurance is a big factor in the growth of the FIRE movement. If I have a reasonable monthly cost and a deductible (even a high deductible) that puts a ceiling on my health insurance costs for the year, I can plan around that and factor the cost into my FI number. Without the ACA (specifically the provisions relating to pre-existing conditions), I could have to work until I'm eligible for medicare! I have a genetic condition that is easily managed by cheap medication/monthly blood work, that pretty much has no impact on my health (other than in pregnancy - not an issue in retirement!) But my medical history would likely make it difficult/prohibitively expensive for me to get insurance on the open market without to the ACA. I could pay out of pocket for the care I need to manage my condition (probably less than $100 a month, without insurance), but I could not afford to run the risk of an unrelated major medical issue without insurance.

 

[elaine amj]

I go with the 4% safe withdrawal rate which takes inflation into account. Basically, I am relying on the fact that we are both smart, flexible people who are more than capable of bringing in extra dollars or trimming our expenses if needed. There's still a lot of fat in our daily budget and we could definitely tighten up quite a bit more before it starts to hurt.

I am Canadian so am thankful I don't have to worry about healthcare costs.

 

[SouthFayetteFan]

From the WSJ: The Case Against Early Retirement: https://www.wsj.com/articles/the-case-against-early-retirement-11555899000?mod=hp_featst_pos2

A few of my favorite parts:

• Without the purpose of fulfilling work, retirees can feel adrift and become depressed.
• They become sedentary and watch too much television. They eat too much. They drink too much. They smoke too much.
• The good news is that many older Americans are working longer.
• We should be encouraging older workers to stay on the job for their own health.

Ok - so you wrote an article about demeaning early retirement but then studied regular retirees...

I don’t think people chase FIRE to watch TV, eat, drink and smoke. I have never had a drink and have never smoked - I don’t think FIRE will force me to start. I’m already fairly sedentary, perhaps NOT sitting in front of computer 8 hrs a day would be an improvement. I envision a day partially spent taking a walk, working in my yard, riding a bike...(vs taking an after dinner nap because I’m tired after my workday)...ok who am I kidding, I’d take a nap too in early retirement

The fact that Americans working longer is “good news” is crazy to me! So let’s all just work until we die, it will be great for you! And while we’re at it, let’s encourage people to work longer “for their health” vs actually encouraging them to have better health.

This article...ugh...wow...

 

[QueenIsabella]

From the WSJ: The Case Against Early Retirement: https://www.wsj.com/articles/the-case-against-early-retirement-11555899000?mod=hp_featst_pos2

A few of my favorite parts:

• Without the purpose of fulfilling work, retirees can feel adrift and become depressed.
• They become sedentary and watch too much television. They eat too much. They drink too much. They smoke too much.
• The good news is that many older Americans are working longer.
• We should be encouraging older workers to stay on the job for their own health.

Ok - so you wrote an article about demeaning early retirement but then studied regular retirees...

I don’t think people chase FIRE to watch TV, eat, drink and smoke. I have never had a drink and have never smoked - I don’t think FIRE will force me to start. I’m already fairly sedentary, perhaps NOT sitting in front of computer 8 hrs a day would be an improvement. I envision a day partially spent taking a walk, working in my yard, riding a bike...(vs taking an after dinner nap because I’m tired after my workday)...ok who am I kidding, I’d take a nap too in early retirement

The fact that Americans working longer is “good news” is crazy to me! So let’s all just work until we die, it will be great for you! And while we’re at it, let’s encourage people to work longer “for their health” vs actually encouraging them to have better health.

This article...ugh...wow...

I read that article. It sounded more like they were looking at people who retired early because they were forced to, and they didn't have a plan of what they would do with their lives. My MIL was widowed before 60, and she didn't slow down until ~80 or so--she traveled all over the world, was on several committees, the board of her local symphony, etc. She did work sporadically as a bookkeeper, but more for fun/keep her skills up. Towards the end (last 5 years or so)--yeah, she did sit and watch a lot of TV, and drank to excess, but it was more age/mobility catching up with her.

Most people who I know who are interested in FIRE aren't looking to watch the grass grow, they just want to have enough money that they can choose how to live their lives, rather than being wage slaves. Whether it's volunteering with Habitat for Humanity or hiking the Appalacian Trail, you need something to look forward to each day.