Kat and her husband Jay live in the Okinawa Prefecture of Japan where Jay is stationed as a Captain in the U.S. Marine Corps. They are childfree by choice and have an adorable dog named Sadie. Although they’re just 29, they’ve been diligently saving, investing and planning for the date when Jay gets out of the military.
Their goal is to reach financial independence by that deadline, which is now five to eight years away. Kat would like our help determining if this is a reasonable goal and, if not, advice on what they should do to make it feasible.
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The Goal Of Reader Case Studies
Reader Case Studies highlight a diverse range of financial situations, ages, ethnicities, locations, goals, careers, incomes, family compositions and more!
The Case Study series began in 2016 and, to date, there’ve been 102 Case Studies. I’ve featured folks with annual incomes ranging from $17k to $200k+ and net worths ranging from -$300k to $2.9M+.
I’ve featured single, married, partnered, divorced, child-filled and child-free households. I’ve featured gay, straight, queer, bisexual and polyamorous people. I’ve featured women, non-binary folks and men. I’ve featured transgender and cisgender people. I’ve had cat people and dog people. I’ve featured folks from the US, Australia, Canada, England, South Africa, Spain, Finland, the Netherlands, Germany and France. I’ve featured people with PhDs and people with high school diplomas. I’ve featured people in their early 20’s and people in their late 60’s. I’ve featured folks who live on farms and folks who live in New York City.
Reader Case Study Guidelines
I probably don’t need to say the following because you all are the kindest, most polite commenters on the internet, but please note that Frugalwoods is a judgement-free zone where we endeavor to help one another, not condemn.
There’s no room for rudeness here. The goal is to create a supportive environment where we all acknowledge we’re human, we’re flawed, but we choose to be here together, workshopping our money and our lives with positive, proactive suggestions and ideas.
And a disclaimer that I am not a trained financial professional and I encourage people not to make serious financial decisions based solely on what one person on the internet advises.
I encourage everyone to do their own research to determine the best course of action for their finances. I am not a financial advisor and I am not your financial advisor.
With that I’ll let Kat, today’s Case Study subject, take it from here!
Kat’s Story
Hi Frugalwoods! I’m Kat, I’m 29, and my husband Jay is almost 29. We are childfree and have one adopted dog named Sadie. We currently live in Japan where Jay works as a US Marine Corps Captain. We met in 2015 on a study abroad trip, got married in 2017, and have moved nine times since then! We love to travel, hike and camp, snorkel in the ocean, go on long walks with our dog, watch movies, and read.
What feels most pressing right now? What brings you to submit a Case Study?
When I initially applied for a Reader Case Study, Jay had a one-hour commute to work on top of a long work day. He was waking up at 4am and getting home between 7 and 10 pm. We’ve since moved and he now has a 20 minute commute! So, that’s one major problem solved.
The other main issue is that I would like us to be financially independent by the time Jay gets out of the military in five to eight years. I want us to have options, rather than feeling like we need to jump into new careers the moment he leaves the military. As we near this self-imposed deadline, the goal is feeling more and more daunting.
We want to take advantage of our limited time in Japan – traveling, having cultural experiences, and spending time in nature. But this conflicts with our larger goal of wanting to be financially independent.
Post-Military Life Plans
Jay would need to serve for 20 years in order to get a pension. We’re instead hoping to fund our own retirement so he does not need to stay in that long. He loves what he does, but it is draining. After he leaves the military, we will need to purchase our own healthcare. Without a pension or disability discharge, Jay won’t be eligible for VA care. He is open to serving in the reserves, which would continue his healthcare.
We are not sure where we want to settle down. Ideally, we will travel full time for a few years after Jay gets out of the military. Some states we are considering for our home base are Oregon, Washington, Montana, Vermont (or another northeastern state), and Minnesota. We’d like a progressive community near hiking trails with housing that we can afford. We would love suggestions! Our families are pretty scattered now, so we likely won’t live near most of them.
What’s the best part of your current lifestyle/routine?
We love where we live. We are very privileged to get to live in a beautiful place and experience a new way of life.
I am also enjoying my free time. I’ve primarily worked as a writer in the past. I most recently worked as a kitchen assistant at a friend’s restaurant, but resigned due to our recent move. So, I’m currently between jobs, as one might say. I’m using this time to take care of all of the domestic labor and life management tasks, learn the Japanese language, spend time in nature, and read. Now that we have internet at our new house, I will try to pick up some freelance work with a former employer, but I am not yet sure how it will work out with the time zone difference between the US and Japan.
What’s the worst part of your current lifestyle/routine?
Jay’s difficult job and long work hours. What little time we have together is mostly spent resting and preparing for the next week. We’re on opposite ends of the spectrum right now – he is overworked and tired, whereas I am in need of social time and a challenge.
Where Kat Wants to be in Ten Years:
- Finances: Financially independent, living comfortably off of our investments.
- Lifestyle: Traveling often with a home base in the states. Lots of quality time together.
- Career: Enjoyable part-time work, volunteer work, homesteading, and/or a creative hobby business that we run together.
Kat & Jay’s Finances
Income
| Item | Number of paychecks per year | Gross Income Per Pay Period | Deductions Per Pay Period (with amounts) | Net Income Per Pay Period |
| Jay’s Income | 12 | $9,638 | taxes: $1,226 life and dental insurance: $43 TSP contributions: $1,864 TOTAL deductions: $3,133 |
$6,505 |
| Annual net total: | $78,048 |
Debts: $0
Assets
| Item | Amount | Interest/type of securities held/Stock ticker | Name of bank/brokerage | Expense Ratio | Account Type |
| Joint Brokerage Account | $183,256 | VTSAX, some VTIAX | Vanguard | 0.0004 | Investments |
| Thrift Savings Plan | $105,239 | C Funds | The Federal Retirement Thrift Investment Board | 0.0006 | Retirement |
| High Yield Savings Account | $40,170 | Earns 4.75% APY | CIT | emergency savings | |
| Kat Roth IRA | $26,057 | VTSAX | Vanguard | 0.0004 | Retirement |
| Jay Roth IRA | $23,041 | VTSAX | Vanguard | 0.0004 | Retirement |
| Brokerage Account | $10,044 | Mutual funds | Vanguard | 0.001 | Investments |
| Checking Account | $4,710 | Earns 0.01% APY | Chase | Checking | |
| TOTAL: | $392,517 |
Vehicles
| Vehicle make, model, year | Valued at | Mileage | Paid off? |
| 2001 Daihatsu Mira Gino | $1,800 | 87,000 | Yes |
| 2004 Mitsubishi Pajero Mini | $2,700 | 87,000 | Yes |
| Total: | $4,500 |
Expenses
| Item | Amount | Notes |
| Housing | $1,900 | rent, insurance, trash, gas, electric, water, internet (paid in yen) |
| Travel | $546 | flights, airport parking, accommodations, dog sitter, transit |
| Groceries | $459 | |
| ATM Withdrawals | $160 | Cash is still widely used in Japan. Used for attractions, events, and small restaurants. |
| Household Goods | $133 | household essentials, cleaning supplies, furniture, gardening |
| Restaurants | $121 | |
| Cell Phones | $108 | provider: SoftBank |
| Auto | $99 | Two cars and two drivers. Personal Damage Liability Insurance (PDI), Japanese Compulsory Insurance (JCI), annual road tax, toll road fees, US driver’s license renewal fees, maintenance |
| Dog Care | $71 | |
| Charitable Giving | $63 | |
| Subscriptions | $62 | Apple Music, iCloud storage, Hulu, Duolingo, Microsoft, VPN |
| Clothing & Shoes | $55 | |
| Entertainment & Hobbies | $54 | painting class, bowling, movie theater, cultural events, snorkeling and hiking gear, book club books |
| Personal Care | $51 | |
| Gasoline | $49 | |
| Health Insurance | $0 | covered as part of Jay’s compensation |
| Monthly subtotal: | $3,931 | |
| Annual total: | $47,172 |
Credit Card Strategy
| Card Name | Rewards Type? | Bank/card company |
| Capital One Quicksilver | Cash Back | Capital One |
| US Bank Cash+ | Cash Back | US Bank |
| Chase Freedom Unlimited | Cash Back | Chase |
| Chase Freedom | Cash Back | Chase |
Kat’s Questions For You:
Does it seem feasible for us to “retire” between the ages of 34-37? Or at least get out of the military at that age and both work part-time?- If not, what do we need to cut back on to achieve this goal?
- What type of paid work should I pursue next? Any suggestions for timezone-flexible remote work?
- How can Jay and I better connect during times when we’re on opposite ends of the work/life balance spectrum?
Liz Frugalwoods’ Recommendations
Kat and Jay bring us an interesting Case Study today and I’m excited to dig in and see what’s possible for these two! They’ve made excellent frugal choices over the years, as evidenced by their lack of debt and impressive net worth. Let’s get right to Kat’s questions!
Kat’s Question #1: Does it seem feasible for us to “retire” between the ages of 34-37 (in 5-8 years)? Or at least get out of the military at that age and both work part-time?
This question is predicated upon how much they intend to earn, spend and invest over the next 5-8 years. Let’s take a look at where things stand now and make some projections for their future.
Asset Overview
It’s rare that I don’t have recommendations for a Case Study subject to change something about their asset allocation, but Kat and Jay hit a home run here! I don’t think I have any edits to suggest! Here’s why:
Debts: $0
Crucially, Kat and Jay are completely debt-free, which opens up a lot of options for them. When you’re not beholden to debt, your fixed monthly costs can be very, very low. Fixed costs are things you cannot change–like your rent/mortgage, insurance, etc–and if debt repayments aren’t part of that picture, you’re automatically spending less and saving more every single month.
Net worth: $392,517
Since they have no debt to service, all of their assets count towards their net worth. Nicely done, you two!
Investments: At Vanguard
It’s obvious Kat and Jay have done their research (and read a lot of Frugalwoods!) because their investment choices are almost exactly what I would do. They’ve selected a brokerage, Vanguard, with an excellent reputation for low-fee total market index funds. This is evident in how low the expense ratios are on all of their investments. Expense ratios are what you pay a brokerage to invest your money and, since they’re fees, you want them to be as low as possible.
They are invested aggressively in almost 100% stocks, which in my opinion makes a lot of sense since they’re young and have a number of years before they’ll be drawing down this money. In general, you want to invest aggressively when you’re young and then decrease your risk exposure as you near retirement age. The old adage in investing is high-risk=high-reward and low-risk=low reward.
Their selection of Vanguard’s VTSAX as their primary investment is also something I would do since it’s a total market index fund, which means they’re invested across the entire stock market. This reduces risk since they’re well-diversified across every sector of the market. It’s the opposite of stock-picking whereby you limit yourself to just one or two companies and really hope that they don’t tank. Investing in something like VTSAX is the epitome of not putting all of your eggs in one basket. A good plan!
Cash: In a high-yield savings account
Kat and Jay have their cash stashed exactly where I would advise: in a high-yield savings account. Their interest rate of 4.75% on this account is phenomenal! The only teensy note I have is that they’re overbalanced on cash.
Between their checking and savings, they have $44,880, which is WAY more than they’d need in an emergency fund. An emergency fund should be around three to six months’ worth of your spending. For Kat and Jay, this $44k is nearly what they spend in an entire year. The downsides of having so much cash are that: cash loses value (because it doesn’t keep up with inflation) and there’s an opportunity cost to not having it invested in the market. Having the majority of their cash in such a high-yield savings account mitigates those risks somewhat, but it’s still an underutilization of this money.
Technically, they should retain just six months’ worth of living expenses in cash and dump the rest into their taxable investment account.
However, given their level of investment sophistication, I have to imagine they have a reason for keeping this much in cash, but I did want to point it out. When they near the time for Jay to leave the military, they’ll want to have a good buffer of cash on hand, but since that’s at least five years away, I see no reason to sit on that much cash in the meantime. But, if they plan to buy a house in five years? This could make sense as their downpayment savings.
Let’s refer back to Kat and Jay’s ultimate ten-year goal:
Kat stated they want to be “Financially independent, living comfortably off of our investments.”
→What does that actually mean?
When we talk about financial independence in this context, we mean the ability to:
- No longer need to work for money;
- Have enough invested to enable a safe rate of withdrawal to cover all of your living expenses;
- Have the ability to do this until you die.
The key to making this work is actually fairly straightforward:
- You have to earn a sufficient amount of money during your early working years;
- You have to save and invest the vast majority of this money;
- You have to keep your expenses low enough to enable you to do this.
A person who makes $1M per year but also spends $1M per year will not be able to reach financial independence. That person is living paycheck to enormous paycheck. They are completely reliant upon their job to fund their lifestyle. A lay-off would be a crisis for them because, despite having a ridiculously high income, if they don’t save any of it, they have nothing to fall back on.
On the other hand, a person who (like Jay & Kat) earns $78,048 per year but only spends $47,172 annually, will be able to invest the $30,876 difference each year. This is the amazingly simple math behind FIRE (financial independence, retire early).
You have two levers here: income and expenses.
You can increase income, you can decrease expenses, you can do both.
There’s a bit more to it since you HAVE to aggressively invest this difference–as Jay and Kat have done.You cannot keep all of this in cash and expect to become financially independent. You need the compounding interest of spending many decades invested in the stock market.
Over time, historical models indicate that the market returns a roughly 7% annual average. Of course past performance does not promise future success, but, it’s all we have to go on. That’s why I question Kat and Jay’s overbalance on cash. While the 4.75% interest rate their cash makes in its high-yield savings account is good, history indicates that money will perform better for you in the stock market (again, a ~7% annual return on average, over many decades).
Living Off Your Investments
This means you have enough invested in the market that you’re able to withdraw a safe percentage every year to cover your living expenses. So again, but two variables: how much you spend and how much you have invested. Folks quibble about what percentage constitutes a “safe rate of withdrawal,” but the most commonly cited is 4%.
How to do this math:
4% of your investments = the amount you can withdraw to live on annually
If we look at Kat and Jay’s current full net worth of $392,517, 4% of that is $15,700 per year. Based on their current spending level of $47,172, that’s not enough for them to live on. We can do backwards math to determine how much they’d need in order to spin off $47k a year. That answer is ~$1.2M (4% of $1.2M = $48k).
While that’s the number for today, it’s tough to project into the future because there are so many unknowns in Kat and Jay’s situation, including:
- Jay’s annual salary for the next 5-8 years
- Kat’s annual salary for the next 5-8 years
- What the stock market will do over the next 5-8 years
- Their post-military stateside annual spending, which could change dramatically depending upon:
- If they’re paying for their own health insurance
- Where they decide to settle down
- If they buy a home
- How much their rent/mortgage is in the US
- Inflation
In light of that, we can’t precisely model out exactly what their financial situation will be in 5-8 years, but we can absolutely do some back-of-the-envelope math to give them a sense of direction.
To do this, I used my favorite compound interest calculator:
I input the amount Kat and Jay currently have invested in the market ($347,637) as well as the amount they’re able to invest each month ($2,573) assuming they invest their full $30,876 annual difference between their income and expenses. I went with a flat 7% market return.
Here are the results:
If the market returns 7% each year and Kat and Jay continue to invest $30,876 annually, they’d have ~$665k in five years. Let’s turn to our safe rate of withdrawal percentage now to see what they’d have:
4% of $665,138.69 = $26,605.54 available to spend each year
This still wouldn’t be enough to cover their current level of expenses, but, one of Kat’s questions is whether or not they’d be able to work part-time to make up the difference. Absolutely! Earning more money is always going to make this math better.
Scenario #1: Retire from the Military in Five Years and Enact “Coast FI”
While fully retiring in five years isn’t really possible with their current numbers, they could certainly have Jay leave the military and find part-time jobs that pay enough to cover their living expenses.
The idea behind Coast FI is that you no longer need your fully-loaded full-time job with retirement and benefits and instead, just need to earn enough to cover your expenses. Thus, you’re no longer investing for retirement or in your taxable investment account, but you’re also not drawing down anything from your investments. You’re letting your investments “coast” and grow until they’re substantial enough to enact a 4% withdrawal.
In this instance, your spending directly dictates how much you need to earn at your job.
What Would Happen If They Retired in Eight Years Instead?
Kat noted that their goal is 5 to 8 years, so let’s bump the timeline out three years and see what the calculator says:
With all of the same variables as above, and three years longer in the market, the picture changes dramatically:
4% of $914,086.75 = $36,563.47
This brings Kat and Jay a lot closer to their current spending level. The challenge here, again, is that we don’t know what their incomes or the market will do during this time period. However, they can utilize this calculator to determine how they’re progressing towards their goal.
Will They Run Out Of Money Before They Die?
The next question Kat and Jay need to answer is whether or not they’d run out of money before they die. To grapple with that, I turn to the Rich, Broke or Dead? calculator, which sets out to answer just this query:
As we can see, if Jay and Kat retired at age 37 and lived to age 90, they’d have an 89% chance of not running out of money before they died. I don’t love that success rate. I personally am more comfortable with something like a 98% – 100% chance of success, but again, all of this is theoretical and we can’t know precisely what will happen.
Social Security?
Another major variable here is Social Security. Kat and Jay don’t know their anticipated Social Security payout, which could change the above calculation by quite a bit. If they’d like to do this math on their own, they can input their anticipated SS in the above calculator under the section “extra income” along with the age at which they expect to start taking SS.
Kat and Jay can figure out their anticipated Social Security benefits by following these instructions on how to retrieve their earnings tables from ssa.gov (the government’s Social Security website).
Can Kat & Jay Reach FI in 5-8 Years?
The final answer is that we don’t know. What we do know is that Kat and Jay are absolutely on the right path for achieving Financial Independence. They’re doing all the right things by:
- Maintaining a good salary
- Keeping their expenses low
- Wisely and aggressively investing the difference between their income and expenses
- Avoiding debt
→If they continue on this path, they will eventually reach Financial Independence, no doubt about it.
When exactly that will be depends on a number of variables we don’t know right now, which I articulated above:
- Jay’s annual salary for the next 5-8 years
- Kat’s annual salary for the next 5-8 years
- What the stock market will do over the next 5-8 years
- Their post-military stateside annual spending, which could change dramatically depending upon:
- If they’re paying for their own health insurance
- Where they decide to settle down
- If they buy a home
- How much their rent/mortgage is in the US
- Inflation
- Their anticipated Social Security payouts
- If they’d like to do Coast FI or pursue full FIRE
Kat next asked: If we’re not on track to reach FI in 5-8 years, what do we need to cut back on to achieve this goal?
I refer Kat back to my oversimplification of FIRE math and the two levers she and Jay can impact:
- Income
- Expenses
If Kat finds a job that works with their lifestyle, that would certainly speed up their progress towards FI. But, as it stands, if they’re willing to extend their timeline and have Jay work longer, she doesn’t need to get a job. It’s really all about how aggressive they want to be with these two variables.
If their ultimate priority is to reach full FIRE in 5-8 years, then Kat needs to find the highest-paying job she can, they both need to work as many hours as they can be paid for and they need to cut their spending to the bone.
That’s the extreme version and it’s but one option. The other options all fall somewhere in between. There’s no right or wrong here, it’s just a question of what they want most:
- Do they want work/life balance now and a longer timeline to FI?
- Or, do they want to work nonstop for the next 5-8 years in order to fully retire in their 30s?
Kat’s Question #3: What type of paid work should I pursue next? Any suggestions for timezone-flexible remote work?
See above: the highest-paying she can find if they want to FIRE ASAP. In terms of remote work, this is certainly a boom time for that. In terms of which job, I defer to the wise Frugalwoods readers who’ve charted these waters already.
I don’t know exactly what Kat’s work history is, but she mentioned she’s been a writer in the past. In my experience as a freelance writer for various magazines and online publications, this is a completely timezone-flexible job. The client doesn’t care what time of day you’re writing at, they just wants the piece delivered by deadline.
Freelance writing doesn’t pay very well, but it could be something for Kat to explore as an add-on to another job. Since she doesn’t need the benefits of a full-time position, she could cobble together a number of freelance gigs. That being said, if she did find a US-based employer with a matching 401k/403b retirement plan, that would certainly help with their FIRE math.
At present, Kat is not eligible to contribute to her own IRA since she doesn’t have earned income; but, she could look into opening a spousal IRA.
Kat’s Question #4: How can Jay and I better connect during times when we’re on opposite ends of the work/life balance spectrum?
It’s so hard to feel at odds with your spouse’s schedule and energy level. I wonder if they’ve considered establishing an evenings/weekends schedule that would enable them to both get what they need from their time together?
For example, maybe Saturday mornings are designated for them to hike together with the understanding that Jay needs Saturday afternoons to decompress and watch a movie. Perhaps by articulating how they want to divide up their time they’ll be able to come to some agreement on what’ll work best for each of them.
Additionally, Kat noted that a lot of their time together is used to prepare for the next week. If she’s not working, I wonder if she might consider shifting all of that prep work to during the weekdays when Jay is at work? Laundry, house cleaning, errands, meal prep, etc could all take place while Jay’s at work so that the weekends are reserved exclusively for free/leisure time together.
Summary
- Keep doing what you’re doing. You will reach FIRE eventually if you continue on this path.
- Determine how important the 5-8 year FIRE timeline is:
- If FIRE-ing ASAP is the priority, Kat needs to get a well-paying job, you need to cut your spending to the bone and shovel money into your investments.
- If Coast FI in a few years is appealing, consider what part-time jobs you might both enjoy working to cover your expenses.
- There are infinite possibilities here and you should feel confident that you have the basis to support whichever path you choose.
- Take a look at how much cash you have on hand and ensure that it makes sense with your timeline for leaving the military, buying a house, etc.
- Consider shifting all prep/household work to the weekdays to reserve the weekends for free/leisure time.
- Consider creating a weekend schedule that ensures both of you are getting what you need from your downtime together.
Ok Frugalwoods nation, what advice do you have for Kat? We’ll both reply to comments, so please feel free to ask questions!
Would you like your own Case Study to appear here on Frugalwoods? Apply to be an on-the-blog Case Study subject here. Hire me for a private financial consultation here. Schedule an hourlong or 30-minute call with me, refer a friend to me here, schedule a free 15-minute call to learn more or email me with questions ([email protected]).
