Why Spain? Why Granada?

As we approach financial independence and taking flight ... a common question is ... Why Spain?  Why Granada?

Well ...let’s back up a few years ... when we initially started talking about financial independence we decided we would like to move to a better climate / place with seasons (versus our very hot home of Houston) eventually, and we had our eyes set on Colorado as a possibility (and considered Oregon).  We were also hoping for a place we could enjoy the outdoors more.  These still may be on the table ... eventually.

Fast forward some time ... the kids ended up at my school and in the Dual Language program (Spanish / English).  This was never in the plans, but it has been the best thing for us (having them at school with me!) and them (learning a second language!).  Their teachers and classmates have been fantastic, and we couldn’t have asked for a better experience.  I don’t know the timing of it, but eventually Erik said ... well, why not Spain?  Full immersion in the language and culture for them and all of us!

So why Spain versus another country that is closer (hello, Mexico!) ... Maybe we will further explore some countries closer to the US, but as far as why Spain ...

-Climate
-Easy access to explore Europe (also beyond Europe ... I am looking at you, Morocco!).
-Culture Shock ... go to a place different than what we currently know / different area of the world.
-Cost of living.

(Also something else to throw in the mix ... why abroad?  To be honest, I am not sure the US public education system is the best place for my kids right now ... safety and the testing culture are two reasons so that has definitely played into this decision.  But that is probably for a future post, but you can see our post on World Schooling here.).

Why Granada?

-Climate (Yes, the winters get colder than we are use to in Houston, but we are looking forward to that change!).  And anything is cooler than Houston (surface of the sun).
-An hour give or take from the Sierra Nevada mountains (snow / skiing / etc.)!  This is a link to their ski resort in the Sierra Nevada mountains (things to do for families).
-An hour give or take to the beach (or really I should say beaches!).  (Granada is located in Spain’s Andalucia region along Costa Tropical with quick access to many beautiful beaches.  Being located that close to snow and the beach is a top selling point for all four of us - that is for sure!).
-Access to the great outdoors / hiking, etc.
-Walking City / Public Transportation
-I’m sure we might find some similarities to what we are use to in Houston, but overall we like that it is so different than what we are use to here.  For example ... The Albaicin neighborhood is where we plan to live like we’ve mentioned before.  So why the Albaicin?  The Albaicin is a Medieval Moorish area that dates back to the Nasrid Kingdom.  It has narrow winding streets on a hill with little access to cars, and it was declared a World Heritage Site by UNESCO in 1994.  We love the history and that it is so different than what the kids / we are use to now.
-Size (Population 240,000+)
-University City (University of Granada) ... A university brings in an international population and even more cultural / educational opportunities.
-History / Cultural / The Arts (The Alhambra being the most exciting destination.  A castle in our backyard?  Can’t beat that!).
-One of the last remaining cities in Spain with complementary tapas!
-Cost of living.
-Our kids are currently involved in golf and dance ... and both are available in Granada (and of course we would like them try new activities too.  Spanish guitar?  Flamenco?).  For example, Granada Club de Golf is close by.  And this school ... Lucia Guarnido may be a good dance school for our youngest offering both ballet and flamenco (and more).  I need to research both more, but I like what I see.
-Other American families have gone for sabbaticals (with kids) such as the family from Bucking the Trend.  We’ve also talked to families that have stayed more recently, and some that are there right now!
-And with the help of some expats currently there, I’ve researched and found what I think will be a great school for the kids (more on that one another time!).

Other perks?

-It is only about a 2 hour (or less) bus ride to Malaga (Picasso’s hometown!).
-So close and easy to access Morocco!  We can’t stay in Granada without a visit to Morocco.

And what about negatives?  The biggest negative has nothing to do with Spain or Granada (temporary distance between loved ones... come visit!), but every place has drawbacks, right?  The biggest “cons” I’ve heard / read about from American expats are ... slow process / red tape when dealing with city / government so we will just have to practice our patience.  And the other one we hear which is really more of a plus to me (and many expats) ... you have to get use to a slower way of life versus the typical American lifestyle.  Stop and smell the roses versus go, go, go... I see that as a plus!  But I’ve heard it takes some getting use to being able to slow yourself down.

So there you have it.  What was top of mind for us? ... Top of mind for us is climate / seasons, and we wanted to be able to enjoy the outdoors (it does get hot in Granada, but we plan to be back in the US visiting family during those months ... July and August).  We also wanted to be in a city that wasn’t too large right now (so therefore, not Madrid) with the ability to walk and access to public transportation.  (I love big cities (Houston is the 4th largest in the US!), but our goal right now is to do something different.  Besides the weather in Houston (too hot May - September), my other biggest complaint is how spread out it is (always driving) ...and lack of public transportation (and lack of the ability to walk).  I love being able to step out my door (hello, NYC!) and let my feet take me where I need to go.  I am an art teacher and love the arts ....so access to great arts / culture / education is a top priority for me too.  And of course there is a financial aspect to our decision ... the cost of living in Granada is very affordable if not better than what we are use to in Houston.

If you (when you!) reach financial independence and had the ability and time to go anywhere, where would you go?  Why?  What would be top of mind for you?

And how to reach financial independence again?

Step 1: Eliminate debt.
Step 2: Figure out your magic FI number!  What amount do you need to achieve financial independence?
Step 3:  Reduce spending and achieve high savings rate.
Step 4: Invest, invest, invest (once you eliminate debt).
Step 5: Reach your FI number and enjoy FIRE!  (Need help getting there?  Read more about how we can help.)

-Tara

Early Retirement: Year 1 Withdrawal Strategy (And One-Way Tickets!)

Sporting their new futbol jerseys from Spain.

Have you taken advantage of any travel deals in the new year?  We jumped on some airline deals this week, and in turn did one of our next big steps to Spain ... one-way tickets to Madrid!  Before Madrid ... we also found some deals for one-way to NYC from North Carolina.  And one-way to North Carolina from Houston (a budget airline was offering great deals out of Houston since it is new to the Houston area!). 

Why NYC?  Spend time with family ... (and it is a cheaper and shorter flight to Spain).

Why North Carolina?  This was a sort of spur of the moment trip ... we wanted to fit in some extra traveling before we left the US, and it just so happens a relative has an awesome farm and Airbnb (thank you for letting us come visit!).  We can't wait to spend time with family on this beautiful farm and explore the great outdoors and nearby Asheville, etc.

We used Google Flight to find the deals below:

12 One-Way Tickets: $1,809

Houston to Asheville, NC: $302 (Allegiant Air)

Knoxville to NYC: $418 (Delta)

NYC to Madrid: $1,089 (Air Portugal) - A friend from Spain recommended this airline.

So what's next?  Many things ... but Erik has been working on our withdrawal strategy for year 1 below!

-Tara

As we get closer to our early retirement (ER) date (I see you July 31^st), I’ve started to formulate a plan on how to actually implement our withdrawal strategy (more on accessing your 401k early here).  It's funny, all this time I have been focused on saving and investing so actually figuring out the best way to one day go about withdrawing the money took a bit of thought. 

I’m not going to pretend to have the next 50 - 60 years of this mapped out because I anticipate our situation remaining fluid.  Some years we will work and earn enough money to cover all of our expenses so our withdrawal rate will be zero.  Some years we won't work at all, and our withdrawal strategy will be 3.5% - 4%.  Then some years (most years is my guess), we will withdrawal some (let’s say 3%), pull some from our cash cushion (let’s say .5%) and also earn some income (lets call this another .5%).  That said, the focus of this post is going to be on our withdrawal strategy for year 1 of ER.  To help explain this, let's first go over our financial goals for year 1.  Setting these goals will help paint the picture for the withdrawal strategy we choose to use.  

To set up this example, let’s go back to our usual assumption of a person / family having $1,000,000 in investments / cash.  We will simplify this by dividing it up as follows:

Taxable account = $450,000

IRA = $450,000

Cash Cushion = $100,000

Total = $1,000,000

Goals

Have a 3.5% withdrawal strategy when the market was up the previous year, and lower it to 3% (as a safety margin) when the market was down the previous year (remember, we choose to base our withdrawal % for a given year on the previous year’s stock market returns).  For example, the market was up around 30% in 2019 so any withdrawals we make later this year will be made with the 3.5% figure in mind.

Make part-time income that equals .5% of withdrawal.  So, if we have $900,000 in investments and we follow the 4% withdrawal rate, that would mean we can withdrawal $36,000 per year (adjusted for inflation) and never run out of money.  Now, if we want to earn .5% of our withdrawal rate in income for year 1, we simple take $900,000 * .005 = $4,500.  This seems like a nice and easy goal to help ease into year 1 of ER.  

Ear mark $22,500 from the cash cushion to be set aside for those years that the market is in the tank.  What this $22,500 represents is 5 years worth of .5% withdrawals.  Remember, .5% equals $4,500, so $4,500 * 5 = $22,500.  We will use this as the market dictates to ride out the storm WHEN it comes.  It will essentially lower our regular 3.5% withdrawal rate from Goal 1 to an absolutely bulletproof 3% withdrawal rate.  Note, we are choosing to start our ER with a 3.5% withdrawal rate instead of the typical 4% because we are just super conservative like that.  I imagine as time goes by, once we get the hang of our new lifestyle, that the 3.5% will creep up closer to 4%.  Or maybe not, who knows ...

Divide the remainder of the cash cushion up by 10.  Why 10?  As you start your own journey towards ER you will come across many blogs that mention the first 10 years in retirement as being one of the most important indicators for the future success of your portfolio.  In other words, make it through the first 10 years with plenty of money left and you are likely golden for the next 40 - 50 years.  In this example, we have $100,000 in our cash account, and we want to ear mark $22,500 as our 5 year emergency fund.  This leaves us with $77,500 that we can now divide up by 10 to get an annual withdrawal amount of $7,750.  To be clear, I’m not saying you HAVE to spend this amount from your cash account every year, all I’m suggesting is that it is there to add just a little bit of flexibility to your spending should an unforeseen situation occur such as an unplanned trip to Paris for example ...

Now that we have established our financial goals for the year, let's turn our attention towards actually withdrawing the money.  First, let's imagine there are 3 categories for the money.  

Taxable Account

IRA

Cash Cushion

So what is our spending power?

With $900,000 in investments and a goal of having a 3.5% withdrawal rate, we know that we can pull $31,500 from our investment account(s).  We also know that we have an additional $7,750 that we can pull from our cash cushion that would push our spending up to $39,250 for the year (if needed / desired).  For this example, $39,250 is our magic number to stay within for year 1.  

Let the withdrawals begin!

IRA

I am listing IRA first on purpose because for the first 5 years of retirement we won’t be spending any money from this account.  Rather, we will be setting up our Roth IRA Conversion Ladder.  Keep in mind this money while not being spent at this time WILL count as taxable income in the year that the conversion is made (although by keeping income so low, the tax rate will be 0%).  Once year 6 rolls around, we will start pulling from this account, but for years 1 - 5 the withdrawal rate = 0%.  Withdrawal rate starting in year 6 = 3.5%.

Taxable Account

For the first 5 years of retirement, this is where the $31,500 is going to come from.  For year 1 we will be pulling $31,500 from this account.  We could do this as just one lump sum at the beginning of the year or as monthly payments of $2,625.  I like the monthly payment idea because if we do happen to earn a little income, as the year goes along, we could reduce the corresponding withdrawal for that month(s).  Withdrawal rate from taxable account for years 1 - 5 = 7%.  Withdrawal rate starting in year 6 = 3.5%.

Note, don’t let the 7% number scare you.  Keep in mind the important number is the 3.5% or $31,500.  I promise you won’t run out of money by pulling 7% from this account for the first 5 years.  Also keep in mind that your IRA during this time will have a 0% withdrawal rate so the two will cancel each other out.  It took me a while to understand this part of the strategy, but as usual Mr. Money Mustache cleared it all up for me.

Cash Cushion

This one is easy.  We can pull from the $7,750 mentioned in our goals above as needed throughout the year.  My guess is that we won’t spend all of this most years, but it's nice to know that it is there if / when needed.  

How would this scenario play out when compared to our year 1 expenses?

We can see that the $31,500 would easily cover our fixed expenses of rent, utilities, groceries, cell phone, and Netflix (don’t leave home without it) for our year in Spain.  Even when spending $1,000 per month (we most certainly will stay below this), we still end up $3,960 under budget for the year that could go towards miscellaneous expenses.  (Note: All expenses are for 12 months with the exception of rent / utilities in Spain for 10 months during the school year since we will be returning to the US to visit family during the summer.  Plans during that time are currently TBD.)

Should we decide to take an unplanned trip to Morocco or Paris, then we could tap some of the $7,750 from our cash cushion if needed.   

There you have it!  Our Withdrawal strategy for year 1 of ER.  

Have you thought about your strategy?  If so, please share it in the comments.  Need help with your strategy?  We now offer Financial Consulting.

-Erik

Becoming Nomads: Travel Gear (Travel Pillows)

If you read our last post (FI in 2020: New Year, New Beginnings (FI in 5 Years or Less!?)), you know we took our first big step towards FI (financial independence) and nomad life ... we sold our house and are living the temporary apartment life.  So far, so good (less space, less stuff, less to take care of ... sounds good to me)!

We've had many reactions (and questions) from people given that we have taken our first big step towards FI and nomad life (that's for another post), but a friend texted me this ... and I thought it was a good one to hold on to (thank you!).  (We are definitely not saying this is easy so positive reactions and support are helpful!).

"How exciting for you and your family!  So adventurous.  You are doing so many things most of us are scared of!  A new culture and way of life ...showing your kids life is out there!  Go live it!"

...

So what's next towards our big adventure to FI and nomad life?

Our (my) next BIG focus is prepping everything we need to obtain our Non-lucrative Visas.  This process feels overwhelming, very detailed, and it will be time consuming (but worth it, hopefully!).  At this point my main goals are to: 1) secure Non-lucrative Visa appointment (March-ish or maybe before) about 90 days out from appointment (June-ish or maybe before).  2) start making a list of everything I need to do and gather within that time period (Marchish - Juneish) for the Non-lucrative Visas.  (If we don't secure a Visa, we can only stay in Spain for 90 days with an American passport).

I'm sure January and February will fly by (especially with working FT), so I must get on my preparations.

So what else besides the Visas? ... Well, of course there are many other things to do ... but one "smaller" but still important task is figuring out what we are taking (just what is on our backs!) and what travel gear would be useful to us.  We really want to be smart packers (keeping it minimal and light!) so with that will require some research and testing out.

In our last post we also mentioned some of our Christmas gifts focused on travel items and gear.  Erik and I failed to communicate, and we both got the kids travel pillows (he also got two for us).  Not surprisingly, mine are based more on aesthetics, and his purchase was based on function.

(And I was totally sucked in by Facebook ads for gifts this year ... anyone else?!)

Tsumettows: They are cute.  They are from Japan.  And cute little pillow friend stuffed animals come out!?!  They can hold other goodies too ... I bet!  (Oh, and bonus ... they are soft, and the kids love them!).  Will they make it on our travels?

REI Co-op Trailbreak Foam Pillow: Erik got us four of these.  One side is to keep you cool (warm weather!) ... one side is for colder weather.  They fold up even smaller!  And maybe their biggest clever perk ... they can attach to another bag (which makes traveling with them even easier).

So what's our review?  Both are great!  Kids love both, and adults also give the REI one a positive review.  Will all make it on our travels?  Maybe not.  The Japanese one might be a bit bulky, but we shall see what the kids decide to prioritize.

So are travel pillows important for you?  Given our future life as nomads, I do think they are a priority.  We can't have sleepy and grumpy travelers!  Do you have a go to travel pillow?  What is your favorite travel gear?

-Tara