The Redditor mentioned in their post the challenges they faced in holding onto their stocks. They expressed caution about investing additional funds during rising markets and admitted to being more inclined to hoard cash due to the volatility experienced during the pandemic.
For many individuals aiming to retire early, maintaining investments in financial markets over the long term is essential. Over time, one’s money can grow at a faster rate than it can be earned, with annual returns surpassing expenses. Index funds offer a solution to navigating volatile markets, as they provide automatic diversification with some funds consisting of over 100 stocks. The stress of enduring volatile markets is alleviated when investing in index funds compared to selecting individual stocks, particularly for those who prefer not to monitor their portfolios daily.
Investors who appreciate long-term investing but seek to avoid volatility may opt for less liquid assets like real estate. While selling real estate may require more time compared to selling stocks, property owners are also tasked with regularly attending to their properties. Not everyone desires for their investment portfolio to evolve into a full-time commitment.
The Redditor identified $120,000 as the target income for fat FIRE (Financial Independence Retire Early). This income goal is associated with an annual withdrawal percentage, which dictates one’s target net worth based on the desired withdrawal amount. For instance, aiming for 4% withdrawals would necessitate a $3 million portfolio. A lower withdrawal rate corresponds to a larger required portfolio, although a higher target minimizes risk and provides greater financial flexibility.
With a net worth of $600,000, the couple is positioned 20% towards their $3 million portfolio target. Their combined pre-tax income of $620,000 allows for substantial investments, especially given their annual expenditure of $60,000.
Relocating to an area with a lower cost of living could expedite the couple’s retirement within five years, enabling their funds to stretch further in more affordable locales. Such transitions are typically smoother for individuals without strong family ties, although building a supportive friend network can be achieved within a five-year timeframe. Some individuals opt to continue residing in high-cost areas to avoid starting anew with social circles.
When moving for fat FIRE, integrating oneself into the new community is crucial. Those contemplating a relocation to a cheaper location should consider saving up as if they were to remain in their current expensive area. Having the financial flexibility to choose between staying or moving is preferable to being compelled to relocate due to financial strain on fat FIRE funds.
