Did She Already Reach Coast FI at 46? (Finance Friday)

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2:37Mindy Jensen:Today, we're tackling two major financial questions that could reshape our guests' entire FIRE journey. One, has she already reached Coast Fi? And two, should she keep or sell her house? We will dig into the numbers on both fronts, exploring how her house fits into her Coast Fi calculations and helping break down decisions that could dramatically impact her path to financial independence.

3:06Mindy Jensen:Hello, hello, hello, and welcome to the BiggerPockets Money Podcast. My name is Mindy Jensen, and with me as always is my Zooming to Fire co-host, Scott Trench. Thanks, Mindy. Great to be here. I'd love to get a crystal clear picture into folks' finances and think about the paths to fire. Crystal, speaking of Crystal, thank you for your willingness to share all of your numbers for this episode of Finance Friday. We are so excited to explore your options and unpack your situation today. Welcome to BiggerPocketsMoney. Thank you very much. I, as well, am so excited to see what you guys can offer and see what we can come up with.

3:40Me too. Okay. Before we get into all of the numbers, could you give us, you know, the high level 10 ,000 foot overview of your journey with money to, you know, how we got here today? Sure. So I am probably like a lot of other folks. I grew up in a big family, one of six kids. My parents were definitely money minded. I would say looking back now that they more or fell to the scarcity mindset though. So we were super frugal, tracked money, tracked expenses, spent the least amount of money on most items, which I suppose really did help me as I grew into adulthood. And as soon as I got married at a young age, married somebody that was a service member and so got to start kind of my own money story.

4:34And that interestingly happened, I think, right after Roth IRAs started out. And so I didn't know a lot, but I had learned about specifically this one thing that you could do. And that became my mission is to save enough so that we could start filling this Roth IRA. So beyond, you know, anything else, I really didn't know a whole lot. I just knew to save money and then to fill this one bucket. Walk us through, you know, tell us about, you know, how that evolved to, spoiler alert, you are a millionaire, not, you know, and how did that transpire over the years? And when did you discover FIRE? I didn't really know what FIRE was.

5:21I knew the difference, you know, what we had and what we spent. That was a very simple idea to me. So I would, you know, sock money away in our Roth IRAs and I would save as much as possible. And it just grew in a savings account. Fast forward, you know, had multiple children and I just stayed simple. Um, that was something that my parents had done. So it was fill up, you know, this Roth IRA, it was save as much as possible. And it just slowly grew. Fast forward to about 2019, I started to realize that my marriage situation was going to change and that I really needed to figure out what I had and what I could do with it.

6:10So it, you know, started out with just this fascination with listening to the Dave Ramsey podcast. And so coming back to those simple, you know, baby steps, and I felt like, okay, well, I think I, I think I'm doing that. And then it slowly, I don't even know how I've heard about FIRE, but got involved in some of those podcasts. And then I really felt like, okay, I've got something to work with. I just didn't know what to call it. And yeah, and now we're here. Mindy, you want to preview the numbers?

6:48Mindy Jensen:Let's look at where here is. So your net worth is$1.32 million, which is something to celebrate. Yay! This is great. You are 46 years old with a net worth of 1.3. Where that money is, is a little different than what most people have. We've got$422 ,000 in cash with an asterisk because we're gonna discuss that, 31 ,000 in a 401k, 320 ,000 in the Roth IRA, 32 ,000 in the traditional IRA, and a primary residence worth$764 ,000 with a$241 ,000 mortgage against it. So about$500 ,000 in equity in that house. Your current income is$123 ,000. This comes from your full-time job. There's some nominal child support and income from investments.

7:51Mindy Jensen:Your current expenses are a whopping$4 ,800 a month. So we're talking$60 ,000 a year on$120 ,000 in income. So you're essentially saving half of your income. That's also something that we need to celebrate. And your debts are a whopping$241 ,000 on your primary residence. You do have an interest rate of 6.5%, which is higher than a lot of our people on this show. However, that's a reality that we're going to be seeing for a while. No rental properties, no pension or life insurance to talk about. So Crystal, what sort of help can Scott and I give you today? I feel like although I'm in a good position with numbers, it still comes down to I spend quite a bit just to live.

8:45And I have this house and it's been such a blessing for kids, but I'm nearing. I've got one child at home and the rest are basically on their own. And so I have this asset of this beautiful house, but I really only need a couple bedrooms. And so this idea of what do I do with my house, that's a big question. Maybe it has greater meaning because, again, I have about three years of kids at home. So what do I want next? What does Life 2.0 look like? I would love to optimize for simple. I would love to optimize for easy, but I don't know really what it would take. What cards do I need to play and at what timeline in order to be able to make those decisions?

9:42When I react to your overall situation, I see$800 ,000 in our traditional FIRE portfolio, right? The cash traditional and Roth IRAs with some of that cash is in private money notes. We are going to hope and assume that that all matures. And then the other half of your position is your primary residence. And so I think that the logical place to start is because there's a lot of lumpy decisions to make in that portfolio. Well, I guess the logical place to start is if we waved a magic wand and we took this$1.3 million and I handed it to you in cash, do you have even a first hypothesis or draft of what might feel like a good portfolio in that circumstance?

10:27I am leaning, and this has been kind of a process of the last few years, I have been leaning again towards simple and easy. And so by default, that hasn't, buying real estate seems like an okay idea, but it also comes with a level of work. And if I don't have to, maybe I don't want to. That's what I'm considering more the last year or so. I don't see there's no reason why you'd have to buy real estate in this portfolio unless you want to, of course. But let's zoom in on the primary residence here. Tell us about this primary residence. Do you want to be living in this in three years? What would you do if you sold the place today?

11:17Where would you live or how would you want to live? This house was such a gift. I have five kids. We bought it in 2011. It is, you know, is about a five minute walk from the water, um, out in the Pacific Northwest. Um, but it's a five bedroom house. And now, you know, looking at being an empty nester, you know, in the next few years, it makes sense to let someone else buy this, let someone else rent this, um, and then move on to something else. whether I want to be a transient kind of travel, that is still yet to be determined. I am planted here at least for the next three years. So I need to plan for the next, whatever the next three years may look like.

12:08And then beyond that could be something else.

12:11Mindy Jensen:Your mortgage is only$21.80. and you said that rent would be about$2 ,000 a month if you moved out of the house and moved into a mortgage. So right there, you're not really saving much, but you're releasing$500 ,000 in equity to invest in other ways if you do sell the house. So I think that selling the house is probably a really good idea. You've been there for a while. Are you sure it's only worth$764 ,000? That was looking it up on Zillow just recently. So however folks feel about Zillow just to give a ballpark range. Yeah, I think that's what... Okay, that's a good ballpark. It's a great place to start.

12:55Mindy Jensen:I wouldn't put a lot of rock solid support behind that, but that's a great place to start. And then I would talk to a real estate agent in the area just to get an idea of what your house could sell for, get an idea of the market and also pop into a rental and see what it would really look like. Is this really where you want to live? Take your child who's still at home with you and take them in there and see if this is where they would really want to live. Because from a monthly spend perspective, that's not going to really save you anything. But from an investment perspective, that could be huge.

13:30Mindy Jensen:We're going to take a quick ad break, but more from Crystal when we're back. Let's jump back in. What does your ideal life look like? If you had this, let's say, poof, you are fire in every sense of the word, fat fi, lean fi, barista fi, whatever you want to call it, what would you spend your days doing? From my perspective, I was very blessed to be a stay-at-home mom for nearly 18 years. So that's actually what I would love to go back to. So I would love to go back to, you know, tinkering in the house, cooking good meals, volunteering in my community, being able to help with kid events more readily.

14:11That's actually, that would be my fi life is a lot of aspects of being a stay at home mom. It was simple, but it was very fulfilling. So that's what I love so much about the idea of FIRE is to be able to make value-based decisions.

14:30Mindy Jensen:I mean, that's valid. I don't know if it sounds like you're like, oh, well, it's just this really simple thing. That's a great thing. You're talking to a former stay-at-home mom here. It was wonderful to be able to spend that time with my kids. I really enjoyed it. Do you like your job? I like aspects of my job. Okay. I would love to move to part-time work if I could or pick a side gig that would more or less bring in some income while hitting those boxes of fulfillment. I have a couple ideas along that route, but I don't have the time or mental space, I think, to really dump into that. What is your job?

15:08I work in a civil engineering firm. And are you an engineer or what is the work you do there? I do office management. Office management. Okay. Does that include being available to pick up the phone when people call? It is a lot of computer work. And that is what I don't enjoy as much. I really enjoy interactions. I started, you know, again, as a stay at home mom, very first job may go down as my favorite job ever. But I worked in a wellness clinic for the military population and absolutely loved it. I just was making almost poverty level money. And I kept bumping into, you know, I wanted to buy real estate, couldn't buy real estate because I couldn't qualify for anything.

15:53So I, you know, because of a lot of podcasts and the fire movement, you know, learning how to advocate for yourself and, and grow your income, that was a skill that I had to learn quickly and made a couple shifts in jobs to try and grow my income. And this opportunity to work for a civil engineering firm was fantastic because it did grow my income. It, you know, helped build a lot of these office and management skills that I didn't have. It's led to a lot of contacts and networking and, you know, in the real estate space that I wouldn't have had ordinarily. So it has been, you know, a great gift.

16:31I just know that, you know, if you ask me five years what I want to do, It's not a full-time job doing office management. Let me spit out a hypothesis is how I think. And you react and tell me what you like and don't like for this. Okay. Hypothesis. First hypothesis for you to react to. Look at the situation. One approach I might throw out there is we take the$800 ,000 in more of a traditional portfolio, the cash or loans that will come due shortly, your retirement accounts, and we build a very traditional retirement portfolio. 60-40 stock bond or the golden ratio portfolio with that and add surplus dollars that come into our life to that portfolio right there.

17:14Maybe it goes up, maybe it goes down, but there's a lot of, that's a very defensive, very low correlation portfolio that could be able to spit off 4 % to 5 % in most traditional retirement models. That gives you what, at 5%, 40 grand a year, right? Which is pretty darn close to your number here. The second major component to the question is the housing situation. And in this situation, what I'd be biased to do is I'd be biased to sell this property, collect what I imagine is a reasonable capital gain, and redeploy the money into some kind of lighthouse hack, something easy, something with maybe another area that you can rent out for portions of the year.

17:59I love the idea of a short-term rental in the Pacific Northwest. I'm sure that there's some, you know, if you're right on the beach and you like that, I imagine that there's some places where you could really do, you know, if you put 500 grand on a property, you could really do some damage on whatever remaining mortgage balance you pick up in there and partially supplement your income, obviating the need for any part-time work entirely if you're able to do that smartly in there. There's no consequence for swapping out the mortgage today because mortgage rates are about the same or even lower than your current mortgage.

18:33So there's no real reason to stay in the property unless you want that continuity for your child, which doesn't really change our plan because you can just do that same thing in two or three years at that point, most likely swapping out property. If you stay in the same area, you're swapping out property that's going to rise or fall with the market anyways, in that context. So that's my favorite plan there is to do some kind of lighthouse act that just really provides that extra stability and security in there. You could also just sell the property at some point in the future and pile the remaining dollars back into our traditional retirement portfolio if no options presented themselves that were good in that way.

19:06And then the last piece is I'd be looking for part-time work that is exactly what you want and actually applying for those situations over the next six to 12 months and seeing what that looks like. Maybe there's a way to do exactly the kind of job. If you write down, here's the job I want to do and what would be my ideal. You go and find it, maybe opportunities present themselves to you and they pay reasonably well. Maybe that's a reality that could come to manifest if you start looking for it in there. So that'd be my first hypothesis for your situation. How does that feel? How does that sit with you?

19:35Yes. I think that is very doable. I do like that you put kind of a timeline of six to 12 months to make that happen, socking it away in the market and essentially just getting that, What is it? Six percent? Is that what the golden portfolio is expected? If Frank Vasquez were here, he would design it around the baseline assumption of a five percent safe withdrawal rate. A lot of people have difficulty with that. And there's an endless debate. Should I withdraw at three to three and a half percent on the big earn camp? Or should I go to the higher end of the range, 4.7 or 5 percent, like Bill Begin's research and Frank Vasquez are saying?

20:15I think that with the way you're thinking about things and the way I'm wired, at least, I would probably say, okay, I'm going to mentally say it's a 5%, but I'm not going to count on that entirely. That's why I'm going to have some part-time work to offset that and why I'd also consider a house hack to give me so plenty of buffer in this particular situation. You may not even need to touch it for a while in there. And you may get far beyond what you need to do, even with the transition to part-time work, if you make a couple of smart plays or the market cooperates at all over the next couple of years.

20:48It could also work against you, which is why making these moves over the course of six to 12 months might give you a little bit more padding. That's helpful. I have been actively looking for properties and tried to put an offer in. Um, nothing has panned out yet, but I would also say that I I'm looking for a deal when I'm purchasing and I, um, just haven't found that yet in my, in my school district. Would you still stay in that school district or would the opportunities exponentially compound if you were out of the school district? They would. Yes, they would. I would have a great, greater pool of options if I left the school district.

21:29I'm in a rather small town. Yeah. The challenge here is what to do about the housing situation. So again, option A, plan A could be whenever kiddos done with school, you sell the place and you pocket this 500 grand, I'm assuming most of which is going to be tax-free. Is that going to be correct? It was purchased as a married, both of us, and then I refinanced. And now I'm single. So I think that there could be the potential of - What was the property's value when you purchased it? $344. Okay, so you might have a capital gain on this. There is a new tax bill introduced this week. I don't know if it will be live and kicking by the time we actually release this and post this episode or if it will be killed.

22:16But there is a bill that discusses killing the concept of capital gains on primary residence sales entirely. But yes, you will have at least some capital gain on this. It may not be consequential to your situation depending on the income tax bracket you're in in the year you sell the property. But that will be a tax move that we'll need to consider in that point. But we still should be able to pocket most of that gain of that$500 ,000 spread between your asset value and your mortgage balance whenever we sell. The bigger challenge then is if that house hack concept appeals to you, then the bigger challenge will be having an income that you can borrow against for whatever that purchase looks like in the future, in the future state.

23:01So let's say I'm now biasing towards this plan. Stay in the job or something similar to it for a year or three while your kiddo is in the school district. Keep that income. Leverage that to do that next house hack. Hopefully you don't need too much of a mortgage. Maybe there's a property for 500 or in there that allows you to just sell your property, pay it off in cash, and put it all into this new house. Or you're getting a small enough mortgage where it doesn't matter. But if you give up the income, the job, the salary, then you're going to give up the option to take on a mortgage probably in the several hundred thousand dollar range at the point when you want to transition to housing.

23:42And that's going to be the bigger barrier to you than any tax moves in this. So if you decide, hey, I don't really want to do a house hack. I'm not really care about that. I'm going to just put everything into a more traditional styled portfolio. Then you could make that move right now and rent until your child is done with school. But if you decide, hey, that's actually something that really appeals to me and would give me a really nice security blanket in here that I would feel good about, then I would want you to preserve the income source through that transition point. because I've learned that it's very difficult to get a mortgage if you make very little money.

24:17You don't need a big mortgage, but you may need a mortgage in this. I don't think your income would allow you to qualify for an$800 ,000 house with 20 % down, but it would allow you with 70 % down at that point. That'll be the thing you have to figure out is where do I want to really live once my kiddo's out of school. And if you can figure that out and you don't need to buy to make that work, to feel good about that situation, then you can sell at any point, rent for a year or two and make that transition. But if you do decide that, then you would want to, I think you'd want to burn it for another three years and figure out how to keep that job and that income source so you can make that transition smoothly.

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