What is fatFIRE and what do I need to reach it?
What is fatfire? It’s retiring early... without the extreme frugality
Even though I like my work and it's a great way to learn, I would love to be able to retire early and “manage my own affairs”. But, there's one obstacle to retiring early: it would take millions of invested dollars to replicate my current wage via passive income. I could retire on less, but the entire point of fatfire is that it is FAT; instead of just Financial Independence Retire Early, fatfire is all about having your cake (early retirement) and eating it too (being able to live a normal, non-frugal lifestyle). The obvious implication there is that you need a pretty large lump sum to create the passive income that makes fatfire possible.
Don’t believe me, see for yourself.
If you type some figures into the fatfire calculator below, even with a relatively aggressive 4% withdrawal rate, it would take over $2m of invested capital to replicate a $100k/year salary. If you are trying to fatfire in a high cost of living city, that is truly just the starting point of what is necessary.
Clearly, unless I have a massive windfall, I will need some other sources of passive income in retirement.
The only other way to make #fire work is with low low expenses. I have to admit that I wasn't enamored with the extreme sacrifices people often have to make in order to decrease their cost of living and afford early retirement. Many FIRE bloggers are happy to live on ten bucks a day, but I am content "having" to work if it means I can travel and "say yes" to the experiences I want in life. That's my adult choice, just as frugality is theirs.
So, #fire either requires enormous amounts of money, or extreme frugality. Although that's pretty discouraging, I've been wondering if there is a way for me to have my cake and eat it too. In other words, #fatFIRE, financial independence, but without the extreme frugality.
After some analysis I think it's more than possible for me to have a slightly late fat FIRE at 47, but it'll take focus, luck, and a lot of work. Most of all, it'll take passive income.
How much income will I need to fatFIRE?
The most difficult part of this equation was figuring out how much income I actually need. There are a lot of variables in the equation. Instead of overthinking the exact dollar amount in annual income, I approached this more from an aspirational perspective.
Since I already live in a very high COLA, I know that my current income is enough to cover a great lifestyle. But, extrapolating out 15 years and accounting for inflation, along with some potential additional costs like healthcare, it seems like it would be safest to budget for more than I am currently making: at least $200k in annual income. With a paid off mortgage, $155-$175k would likely be possible.
Now that I know what to shoot for, how do I get there?
Passive Income Source 1: Real estate investments
Real estate investing is a passion of mine and it will likely form the brunt of my retirement income. My intention is to add to the single rental condo that I currently have as time goes on. The condo has been a fantastic wealth generator so far, with over 25% in total appreciation and income per year for the 2 years I have owned it. The one negative is that it's still just barely cash flow positive, with rent at $2350 per month.
The longer term plan goes like this. Assuming I can raise rents 3% a year, I'll be collecting at least $3500 a month by my fatFIRE date at 47 in 15 years. As I collect more in rent, I am planning on paying down principle on the loan as aggressively as possible. Combined with the natural pay down of the loan, I should be able to completely pay off the property by the time I retire. That should net me around $2500 per month, or $30,000 a year, once there are only taxes and the HOA fee to worry about.
In the next several years, I should be able to leverage the gains from my ISO's to purchase 2 or 3 additional condos (or a small apartment building) and replicate the exact same process. Obviously this would lead to timelines that are slightly delayed from the original condo. If I follow that plan, I will be able to generate around $10,000 in monthly income (4 condos x $2,500) from rental real estate by the time I am 50.
Total passive income from rental properties: $120,000=$10,000*12
Total passive income left to cover: $200k-$120k=$80k
Passive Income Source 2: Investment portfolio
I've written quite a lot about my long term portfolio. After real estate, it will likely be the largest source of income in retirement. I also have a 401k that I invest similarly, although obviously I won't be able to touch that until later.
To avoid overcomplicating this, I used the Personal Capital retirement checkup tool. As you can see below, if I max out my 401k ($18k per year) and contribute $15k-$20k per year to the long term portfolio, with ratchets to increase that every year, I should end up with a balance of around $800k-$1.3m at the time I retire. That should be good for anywhere from $4,000-$5,000 in income per month, or $48,000 a year (conservatively), with almost no effort at all.
If I continue to climb the ladder at work, hopefully I will be able to bank my raises and save much more than that.
Total passive income from investment portfolio: $48,000=$4,000*12
Total passive income left to cover: $80k-$48k=$32k
Conclusion: I have $32,000 in passive income to make up
Obviously, I am not quite at my $200k fatFIRE goal from rental properties or investment income. I am excited to see that $168k is in the realm of possibility, however. My plan might even generate $250k+ in annual income if rents rise more quickly than expected and my investments appreciate more than I am planning on.
Even if there is a deficit to make up, I can figure it out. I may be able to cover part of the shortfall with income from the blog (if I am still going in 15 years!). I could also consult on the side, or start another side hustle around one of my other passions.
For right now, I'm focusing on maximizing my income and savings rates across the board. No matter what happens that will make it easier and more likely that I will hit the numbers I outlined above.
What's your #fatFIRE goal? How are you going to get there?