Reader Case Research: Stationed in Japan with the US Marine Corps, Hoping to FIRE

Kat and her husband Jay dwell within the Okinawa Prefecture of Japan the place Jay is stationed as a Captain within the U.S. Marine Corps. They’re childfree by alternative and have an cute canine named Sadie. Though they’re simply 29, they’ve been diligently saving, investing and planning for the date when Jay will get out of the navy.

Their aim is to succeed in monetary independence by that deadline, which is now 5 to eight years away. Kat would really like our assist figuring out if it is a affordable aim and, if not, recommendation on what they need to do to make it possible.

What’s a Reader Case Research?

Case Research tackle monetary and life dilemmas that readers of Frugalwoods ship in requesting recommendation. Then, we (that’d be me and YOU, expensive reader) learn by way of their scenario and supply recommendation, encouragement, perception and suggestions within the feedback part.

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The Purpose Of Reader Case Research

Reader Case Research spotlight a various vary of economic conditions, ages, ethnicities, places, objectives, careers, incomes, household compositions and extra!

The Case Research collection started in 2016 and, up to now, there’ve been 102 Case Research. I’ve featured of us with annual incomes starting from $17k to $200k+ and internet worths starting from -$300k to $2.9M+.

I’ve featured single, married, partnered, divorced, child-filled and child-free households. I’ve featured homosexual, straight, queer, bisexual and polyamorous folks. I’ve featured girls, non-binary of us and males. I’ve featured transgender and cisgender folks. I’ve had cat folks and canine folks. I’ve featured of us from the US, Australia, Canada, England, South Africa, Spain, Finland, the Netherlands, Germany and France. I’ve featured folks with PhDs and folks with highschool diplomas. I’ve featured folks of their early 20’s and folks of their late 60’s. I’ve featured of us who dwell on farms and folk who dwell in New York Metropolis.

Reader Case Research Tips

I most likely don’t have to say the next since you all are the kindest, most well mannered commenters on the web, however please notice that Frugalwoods is a judgement-free zone the place we endeavor to assist each other, not condemn.

There’s no room for rudeness right here. The aim is to create a supportive atmosphere the place all of us acknowledge we’re human, we’re flawed, however we select to be right here collectively, workshopping our cash and our lives with constructive, proactive recommendations and concepts.

And a disclaimer that I’m not a educated monetary skilled and I encourage folks to not make critical monetary choices primarily based solely on what one particular person on the web advises. 

I encourage everybody to do their very own analysis to find out the very best plan of action for his or her funds. I’m not a monetary advisor and I’m not your monetary advisor.

With that I’ll let Kat, immediately’s Case Research topic, take it from right here!

Kat’s Story

Hello Frugalwoods! I’m Kat, I’m 29, and my husband Jay is sort of 29. We’re childfree and have one adopted canine named Sadie. We at the moment dwell in Japan the place Jay works as a US Marine Corps Captain. We met in 2015 on a research overseas journey, bought married in 2017, and have moved 9 instances since then! We like to journey, hike and camp, snorkel within the ocean, go on lengthy walks with our canine, watch motion pictures, and skim.

What feels most urgent proper now? What brings you to submit a Case Research?

Once I initially utilized for a Reader Case Research, Jay had a one-hour commute to work on high of a protracted work day. He was waking up at 4am and getting dwelling between 7 and 10 pm. We’ve since moved and he now has a 20 minute commute! So, that’s one main drawback solved.

The opposite major challenge is that I would really like us to be financially impartial by the point Jay will get out of the navy in 5 to eight years. I would like us to have choices, relatively than feeling like we have to bounce into new careers the second he leaves the navy. As we close to this self-imposed deadline, the aim is feeling increasingly daunting.

We need to benefit from our restricted time in Japan – touring, having cultural experiences, and spending time in nature. However this conflicts with our bigger aim of desirous to be financially impartial.

Put up-Navy Life Plans

Jay would want to serve for 20 years with a view to get a pension. We’re as a substitute hoping to fund our personal retirement so he doesn’t want to remain in that lengthy. He loves what he does, however it’s draining. After he leaves the navy, we might want to buy our personal healthcare. With out a pension or incapacity discharge, Jay gained’t be eligible for VA care. He’s open to serving within the reserves, which might proceed his healthcare.

We aren’t positive the place we need to cool down. Ideally, we’ll journey full time for a number of years after Jay will get out of the navy. Some states we’re contemplating for our dwelling base are Oregon, Washington, Montana, Vermont (or one other northeastern state), and Minnesota. We’d like a progressive neighborhood close to mountain climbing trails with housing that we will afford. We might love recommendations! Our households are fairly scattered now, so we doubtless gained’t dwell close to most of them.

What’s the very best a part of your present way of life/routine?

We love the place we dwell. We’re very privileged to get to dwell in a gorgeous place and expertise a brand new lifestyle.

I’m additionally having fun with my free time. I’ve primarily labored as a author up to now. I most not too long ago labored as a kitchen assistant at a buddy’s restaurant, however resigned as a consequence of our latest transfer. So, I’m at the moment between jobs, as one may say. I’m utilizing this time to care for the entire home labor and life administration duties, be taught the Japanese language, spend time in nature, and skim. Now that we’ve web at our new home, I’ll attempt to choose up some freelance work with a former employer, however I’m not but positive the way it will work out with the time zone distinction between the US and Japan.

What’s the worst a part of your present way of life/routine?

Jay’s tough job and lengthy work hours. What little time we’ve collectively is generally spent resting and getting ready for the following week. We’re on reverse ends of the spectrum proper now – he’s overworked and drained, whereas I’m in want of social time and a problem.

The place Kat Desires to be in Ten Years:

• Funds: Financially impartial, dwelling comfortably off of our investments.
• Way of life: Touring typically with a house base within the states. Plenty of high quality time collectively.
• Profession: Pleasurable part-time work, volunteer work, homesteading, and/or a inventive pastime enterprise that we run collectively.

Kat & Jay’s Funds

Earnings

Money owed: $0

Property

Autos

Bills

Credit score Card Technique

Kat’s Questions For You:

1. Does it appear possible for us to “retire” between the ages of 34-37? Or no less than get out of the navy at that age and each work part-time?
2. If not, what do we have to in the reduction of on to attain this aim?
3. What sort of paid work ought to I pursue subsequent? Any recommendations for timezone-flexible distant work?
4. How can Jay and I higher join throughout instances after we’re on reverse ends of the work/life stability spectrum?

Liz Frugalwoods’ Suggestions

Kat and Jay carry us an attention-grabbing Case Research immediately and I’m excited to dig in and see what’s potential for these two! They’ve made wonderful frugal decisions over time, as evidenced by their lack of debt and spectacular internet value. Let’s get proper to Kat’s questions!

Kat’s Query #1: Does it appear possible for us to “retire” between the ages of 34-37 (in 5-8 years)? Or no less than get out of the navy at that age and each work part-time?

This query is based upon how a lot they intend to earn, spend and make investments over the following 5-8 years. Let’s check out the place issues stand now and make some projections for his or her future.

Asset Overview

It’s uncommon that I don’t have suggestions for a Case Research topic to alter one thing about their asset allocation, however Kat and Jay hit a house run right here! I don’t assume I’ve any edits to counsel! Right here’s why:

Money owed: $0

Crucially, Kat and Jay are fully debt-free, which opens up a variety of choices for them. Whenever you’re not beholden to debt, your mounted month-to-month prices could be very, very low. Fastened prices are stuff you can’t change–like your lease/mortgage, insurance coverage, and many others–and if debt repayments aren’t a part of that image, you’re routinely spending much less and saving extra each single month.

Internet value: $392,517

Since they don’t have any debt to service, all of their belongings depend in direction of their internet value. Properly performed, you two!

Investments: At Vanguard

It’s apparent Kat and Jay have performed their analysis (and skim a variety of Frugalwoods!) as a result of their funding decisions are nearly precisely what I’d do. They’ve chosen a brokerage, Vanguard, with a superb repute for low-fee whole market index funds. That is evident in how low the expense ratios are on all of their investments. Expense ratios are what you pay a brokerage to speculate your cash and, since they’re charges, you need them to be as little as potential.

They’re invested aggressively in nearly 100% shares, which for my part makes a variety of sense since they’re younger and have quite a few years earlier than they’ll be drawing down this cash. Normally, you need to make investments aggressively whenever you’re younger after which lower your danger publicity as you close to retirement age. The previous adage in investing is high-risk=high-reward and low-risk=low reward.

Their choice of Vanguard’s VTSAX as their main funding can be one thing I’d do because it’s a complete market index fund, which suggests they’re invested throughout your complete inventory market. This reduces danger since they’re well-diversified throughout each sector of the market. It’s the alternative of stock-picking whereby you restrict your self to only one or two firms and actually hope that they don’t tank. Investing in one thing like VTSAX is the epitome of not placing your entire eggs in a single basket. An excellent plan!

Money: In a high-yield financial savings account

Kat and Jay have their money stashed precisely the place I’d advise: in a high-yield financial savings account. Their rate of interest of 4.75% on this account is phenomenal! The one teensy notice I’ve is that they’re overbalanced on money.

Between their checking and financial savings, they’ve $44,880, which is WAY greater than they’d want in an emergency fund. An emergency fund ought to be round three to 6 months’ value of your spending. For Kat and Jay, this $44k is sort of what they spend in a whole yr. The downsides of getting a lot money are that: money loses worth (as a result of it doesn’t sustain with inflation) and there’s a chance price to not having it invested available in the market. Having nearly all of their money in such a high-yield financial savings account mitigates these dangers considerably, nevertheless it’s nonetheless an underutilization of this cash.

Technically, they need to retain simply six months’ value of dwelling bills in money and dump the remainder into their taxable funding account.

Nonetheless, given their stage of funding sophistication, I’ve to think about they’ve a purpose for retaining this a lot in money, however I did need to level it out. After they close to the time for Jay to go away the navy, they’ll need to have a very good buffer of money readily available, however since that’s no less than 5 years away, I see no purpose to take a seat on that a lot money within the meantime. However, in the event that they plan to purchase a home in 5 years? This might make sense as their downpayment financial savings.

Let’s refer again to Kat and Jay’s final ten-year aim:

Kat said they need to be “Financially impartial, dwelling comfortably off of our investments.”

→What does that truly imply? 

After we speak about monetary independence on this context, we imply the power to:

1. Now not have to work for cash;
2. Have sufficient invested to allow a protected charge of withdrawal to cowl your entire dwelling bills;
3. Have the power to do that till you die.

The important thing to creating this work is definitely pretty simple:

1. It’s a must to earn a adequate sum of money throughout your early working years;
2. It’s a must to save and make investments the overwhelming majority of this cash;
3. It’s a must to maintain your bills low sufficient to allow you to do that.

An individual who makes $1M per yr but additionally spends $1M per yr won’t be able to succeed in monetary independence. That particular person resides paycheck to huge paycheck. They’re fully reliant upon their job to fund their way of life. A lay-off could be a disaster for them as a result of, regardless of having a ridiculously excessive earnings, in the event that they don’t save any of it, they don’t have anything to fall again on.

Alternatively, an individual who (like Jay & Kat) earns $78,048 per yr however solely spends $47,172 yearly, will be capable of make investments the $30,876 distinction every year. That is the amazingly basic math behind FIRE (monetary independence, retire early).

You’ve two levers right here: earnings and bills.

You may improve earnings, you’ll be able to lower bills, you are able to do each.

There’s a bit extra to it because you HAVE to aggressively make investments this distinction–as Jay and Kat have performed.You can’t maintain all of this in money and count on to turn out to be financially impartial. You want the compounding curiosity of spending many many years invested within the inventory market.

Over time, historic fashions point out that the market returns a roughly 7% annual common. After all previous efficiency doesn’t promise future success, however, it’s all we’ve to go on. That’s why I query Kat and Jay’s overbalance on money. Whereas the 4.75% rate of interest their money makes in its high-yield financial savings account is sweet, historical past signifies that cash will carry out higher for you within the inventory market (once more, a ~7% annual return on common, over many many years).

Residing Off Your Investments

This implies you might have sufficient invested available in the market that you just’re in a position to withdraw a protected share yearly to cowl your dwelling bills. So once more, however two variables: how a lot you spend and the way a lot you might have invested. Of us quibble about what share constitutes a “protected charge of withdrawal,” however essentially the most generally cited is 4%.

How to do that math:

4% of your investments = the quantity you’ll be able to withdraw to dwell on yearly

If we have a look at Kat and Jay’s present full internet value of $392,517, 4% of that’s $15,700 per yr. Primarily based on their present spending stage of $47,172, that’s not sufficient for them to dwell on. We are able to do backwards math to find out how a lot they’d want with a view to spin off $47k a yr. That reply is ~$1.2M (4% of $1.2M = $48k).

Whereas that’s the quantity for immediately, it’s robust to mission into the long run as a result of there are such a lot of unknowns in Kat and Jay’s scenario, together with:

• Jay’s annual wage for the following 5-8 years
• Kat’s annual wage for the following 5-8 years
• What the inventory market will do over the following 5-8 years
• Their post-military stateside annual spending, which may change dramatically relying upon:
  • In the event that they’re paying for their very own medical health insurance
  • The place they determine to cool down
  • In the event that they purchase a house
  • How a lot their lease/mortgage is within the US
  • Inflation

In mild of that, we will’t exactly mannequin out precisely what their monetary scenario can be in 5-8 years, however we will completely do some back-of-the-envelope math to provide them a way of course.

To do that, I used my favourite compound curiosity calculator:

I enter the quantity Kat and Jay at the moment have invested available in the market ($347,637) in addition to the quantity they’re in a position to make investments every month ($2,573) assuming they make investments their full $30,876 annual distinction between their earnings and bills. I went with a flat 7% market return.

Listed here are the outcomes:

If the market returns 7% every year and Kat and Jay proceed to speculate $30,876 yearly, they’d have ~$665k in 5 years. Let’s flip to our protected charge of withdrawal share now to see what they’d have:

4% of $665,138.69 = $26,605.54 obtainable to spend every year

This nonetheless wouldn’t be sufficient to cowl their present stage of bills, however, one in every of Kat’s questions is whether or not or not they’d be capable of work part-time to make up the distinction. Completely! Incomes more cash is at all times going to make this math higher.

State of affairs #1: Retire from the Navy in 5 Years and Enact “Coast FI”

Whereas absolutely retiring in 5 years isn’t actually potential with their present numbers, they might actually have Jay go away the navy and discover part-time jobs that pay sufficient to cowl their dwelling bills.

The thought behind Coast FI is that you just not want your fully-loaded full-time job with retirement and advantages and as a substitute, simply have to earn sufficient to cowl your bills. Thus, you’re not investing for retirement or in your taxable funding account, however you’re additionally not drawing down something out of your investments. You’re letting your investments “coast” and develop till they’re substantial sufficient to enact a 4% withdrawal.

On this occasion, your spending instantly dictates how a lot it’s essential to earn at your job.

What Would Occur If They Retired in Eight Years As an alternative?

Kat famous that their aim is 5 to eight years, so let’s bump the timeline out three years and see what the calculator says:

With the entire identical variables as above, and three years longer available in the market, the image modifications dramatically:

4% of $914,086.75 = $36,563.47

This brings Kat and Jay loads nearer to their present spending stage. The problem right here, once more, is that we don’t know what their incomes or the market will do throughout this time interval. Nonetheless, they’ll make the most of this calculator to find out how they’re progressing in direction of their aim.

Will They Run Out Of Cash Earlier than They Die?

The following query Kat and Jay have to reply is whether or not or not they’d run out of cash earlier than they die. To grapple with that, I flip to the Wealthy, Broke or Useless? calculator, which units out to reply simply this question:

As we will see, if Jay and Kat retired at age 37 and lived to age 90, they’d have an 89% probability of not working out of cash earlier than they died. I don’t love that success charge. I personally am extra comfy with one thing like a 98% – 100% probability of success, however once more, all of that is theoretical and we will’t know exactly what’s going to occur.

Social Safety?

One other main variable right here is Social Safety. Kat and Jay don’t know their anticipated Social Safety payout, which may change the above calculation by fairly a bit. In the event that they’d like to do that math on their very own, they’ll enter their anticipated SS within the above calculator below the part “additional earnings” together with the age at which they count on to start out taking SS.

Kat and Jay can work out their anticipated Social Safety advantages by following these directions on how one can retrieve their earnings tables from ssa.gov (the federal government’s Social Safety web site).

Can Kat & Jay Attain FI in 5-8 Years?

The ultimate reply is that we don’t know. What we do know is that Kat and Jay are completely on the best path for attaining Monetary Independence. They’re doing all the best issues by:

• Sustaining a very good wage
• Holding their bills low
• Properly and aggressively investing the distinction between their earnings and bills
• Avoiding debt

→In the event that they proceed on this path, they are going to finally attain Monetary Independence, little doubt about it.

When precisely that can be depends upon quite a few variables we don’t know proper now, which I articulated above:

• Jay’s annual wage for the following 5-8 years
• Kat’s annual wage for the following 5-8 years
• What the inventory market will do over the following 5-8 years
• Their post-military stateside annual spending, which may change dramatically relying upon:
  • In the event that they’re paying for their very own medical health insurance
  • The place they determine to cool down
  • In the event that they purchase a house
  • How a lot their lease/mortgage is within the US
  • Inflation
• Their anticipated Social Safety payouts
• In the event that they’d love to do Coast FI or pursue full FIRE

Kat subsequent requested: If we’re not on observe to succeed in FI in 5-8 years, what do we have to in the reduction of on to attain this aim?

I refer Kat again to my oversimplification of FIRE math and the 2 levers she and Jay can influence:

1. Earnings
2. Bills

If Kat finds a job that works with their way of life, that would definitely velocity up their progress in direction of FI. However, because it stands, in the event that they’re prepared to increase their timeline and have Jay work longer, she doesn’t have to get a job. It’s actually all about how aggressive they need to be with these two variables.

If their final precedence is to succeed in full FIRE in 5-8 years, then Kat wants to seek out the highest-paying job she will be able to, they each have to work as many hours as they are often paid for and they should reduce their spending to the bone.

That’s the intense model and it’s however one possibility. The opposite choices all fall someplace in between. There’s no proper or mistaken right here, it’s only a query of what they need most:

1. Do they need work/life stability now and an extended timeline to FI?
2. Or, do they need to work nonstop for the following 5-8 years with a view to absolutely retire of their 30s?

Kat’s Query #3: What sort of paid work ought to I pursue subsequent? Any recommendations for timezone-flexible distant work?

See above: the highest-paying she will be able to discover in the event that they need to FIRE ASAP. When it comes to distant work, that is actually a growth time for that. When it comes to which job, I defer to the clever Frugalwoods readers who’ve charted these waters already.

I don’t know precisely what Kat’s work historical past is, however she talked about she’s been a author up to now. In my expertise as a contract author for varied magazines and on-line publications, it is a fully timezone-flexible job. The consumer doesn’t care what time of day you’re writing at, they simply desires the piece delivered by deadline.

Freelance writing doesn’t pay very properly, nevertheless it may very well be one thing for Kat to discover as an add-on to a different job. Since she doesn’t want the advantages of a full-time place, she may cobble collectively quite a few freelance gigs. That being mentioned, if she did discover a US-based employer with an identical 401k/403b retirement plan, that would definitely assist with their FIRE math.

At current, Kat isn’t eligible to contribute to her personal IRA since she doesn’t have earned earnings; however, she may look into opening a spousal IRA.

Kat’s Query #4: How can Jay and I higher join throughout instances after we’re on reverse ends of the work/life stability spectrum?

It’s so onerous to really feel at odds together with your partner’s schedule and vitality stage. I ponder in the event that they’ve thought-about establishing an evenings/weekends schedule that will allow them to each get what they want from their time collectively?

For instance, possibly Saturday mornings are designated for them to hike along with the understanding that Jay wants Saturday afternoons to decompress and watch a film. Maybe by articulating how they need to divide up their time they’ll be capable of come to some settlement on what’ll work finest for every of them.

Moreover, Kat famous that a variety of their time collectively is used to organize for the following week. If she’s not working, I ponder if she may think about shifting all of that prep work to throughout the weekdays when Jay is at work? Laundry, home cleansing, errands, meal prep, and many others may all happen whereas Jay’s at work in order that the weekends are reserved solely without spending a dime/leisure time collectively.

Abstract

1. Preserve doing what you’re doing. You’ll attain FIRE finally for those who proceed on this path.
2. Decide how essential the 5-8 yr FIRE timeline is:
   1. If FIRE-ing ASAP is the precedence, Kat must get a well-paying job, it’s essential to reduce your spending to the bone and shovel cash into your investments.
   2. If Coast FI in a number of years is interesting, think about what part-time jobs you may each get pleasure from working to cowl your bills.
   3. There are infinite potentialities right here and it is best to really feel assured that you’ve the idea to assist whichever path you select.
3. Check out how a lot money you might have readily available and be certain that it is sensible together with your timeline for leaving the navy, shopping for a home, and many others.
4. Think about shifting all prep/family work to the weekdays to order the weekends without spending a dime/leisure time.
5. Think about making a weekend schedule that ensures each of you might be getting what you want out of your downtime collectively.

Okay Frugalwoods nation, what recommendation do you might have for Kat? We’ll each reply to feedback, so please be at liberty to ask questions!

Would you want your individual Case Research to look right here on Frugalwoods? Apply to be an on-the-blog Case Research topic right here. Rent me for a non-public monetary session right here. Schedule an hourlong or 30-minute name with me, refer a buddy to me right here, schedule a free 15-minute name to be taught extra or e-mail me with questions (liz@frugalwoods.com).