Over the last 5 years or so, I’ve been getting more and more serious about retiring early. As our assets have increased, early retirement has felt more and more possible. My goal for the past 5 years has been to stop working at 51. In the age of the Affordable Care Act (Obamacare for the 35% of people that didn’t know they were the same thing), I was confident that our assets, along with an affordable health insurance premium, would be able to support our modest lifestyle just as it has for Justin at Root of Good and so many other early retirees.
Then November 20th happened and the Republicans took over Congress and the Executive branch. As they’ve been saying for many years, they want to get rid of Obamacare as fast as they possibly can. While that sounds good to many people, it’s not clear how that will change the health insurance landscape. At this point, all we can do is wait. Initially it sounded like we wouldn’t need to wait long to see how the Republicans will change health care, although over the last week or so, there have been various reports that they won’t bring forward a plan until late this year or some time next year. So we wait.
So what am I going to do in the meantime? I’m going to keep getting up and going to work each day and try to just be patient. My initial thoughts are that I’ll likely continue working past 51 and head towards at least 55. That will give me an additional 4 years to keep building our assets and hopefully give us enough capital that we’ll be able to cover our health care costs from 55 until we are eligible for Medicare (currently age 65, although that could also change).
As we approach our early retirement, we’ll also seriously consider moving overseas. My wife and daughter are both British citizens so we’ve been considering moving to the UK at some point in the future. We’ve looked in to the requirements for legally getting me over there and it would be fairly easy to get approval due to my wife and daughter being British. Obviously moving to the UK has it’s pluses and minuses. Our taxes would be higher than they are here, but we’d also have more predictable expenses for health care and other social services. I think the health care would have to get pretty bad here for us to consider moving just for that but it’s always an option in the back of our heads. Before we did anything like that, we’d also have to run the numbers. It could very well be that we’d pay more in taxes over there than it would cost to stay in the US and just pay exorbitant health care premiums.
In a perfect world, it would be easy to anticipate our retirement expenses but since the world is far from perfect, we’ll continue to try to build a plan that can handle anything we throw at it. That means saving as much as we possibly can now and letting that money work for us in the market until we need it.
Well, it’s a new year and I figured I should update my net worth numbers here. We continue to make good progress on increasing our assets. Our net worth as of today is $1,314,233. We’ve been making great returns with the stock market being at it’s all time high and our continued contributions and dividends continue to add to the pile. With contributions to our various accounts and dividends, we are adding about $100,000 a year to the balance. That doesn’t include market gains. I haven’t calculated it all out but I think we’re actually beating my $10K a month increase that we were doing last year.
So, while this is considered the “boring accumulation phase”, it’s still very rewarding. We’ll just keep doing what we’re doing and watch the numbers fluctuate (but hopefully continue going up).
We continue to march forward on our net worth journey. The last couple months were pretty average, although average has been very positive. If we are averaging a little over a $10K increase per month, that equates to over $120K per year which is pretty fantastic. When I’m doing rough estimates in my head, I use the $10K per month figure to estimate how many years away we are from checking out of the workplace. While we’ve had months lower than that, and months higher than that, it usually comes out to about that average.
The main areas of NW appreciation are due to investment account contributions and company matching and also real estate appreciation. We are in the Pacific Northwest which is seeing crazy real estate values, once again. I’m starting to think this is turning in to San Francisco. While I’m booking the increases in our real estate, I’m doing so very cautiously. Earlier in our careers when I was tracking our net worth, I focused on the overall NW number which included real estate. Now I find myself looking at just the investment accounts, because a) I don’t trust what real estate is going to do and b) You have to live somewhere! All that being said, when thinking about our future, I usually count the equity in our main home as part of our retirement funds since we expect to move to our much smaller second home that is paid for when we retire.
Anyway, the march continues. I spend a lot of time on the FinancialIndependence subreddit over at Reddit looking for new ideas and to hear about other people’s stories. Other than that, it’s been a pretty boring march towards financial independence, which is pretty normal for this stage of the game. When we were younger, it was all about learning the fundamentals and putting them in to action. As we’ve progressed, it really comes down to self discipline and staying the course.
I was really impressed with an article I stumbled on to in the Atlantic about an author who decided to be open and honest about his financial state. It turns out he is like a majority of the US population: Broke and one problem away from financial disaster. While I found it somewhat depressing that a man at his age is so “stuck”, without any retirement savings, and no end in sight for his working career, I also appreciated his candor and detailed descriptions about the choices he’s made. I highly recommend it!
Also fascinating are the comments at the end of the article. There were so many contributions, that the Atlantic created a whole separate “Notes” article about some of the comments that were left.
As I browsed through the comments, I found one that spoke to me. It was about a community college art teacher that decided to devote a whole lecture on the subject of basic personal finance (even though it had nothing to do with the subject he was supposed to be teaching). While I’ve known these things for many years and they’ve helped me to build a sizable nest egg, it was still worth looking over again. He covers both concepts and basic “spend less than you earn” type stuff. He was shocked to see that it was the most attended, well received class he had ever taught and it was optional for the students. It just goes to show this stuff needs to be taught in schools at a much more detailed rate than it is now.
Well, we continue to make progress on our journey to financial independence. I’ve got it in my head that I’m going to check out of the working world in 5 more years. This month’s update to our net worth gives me confidence we just might be able to pull it off.
Here’s where we are at for August 2016:
Net Worth: $1,220,637
Overall we had roughly an $18,000 increase from July. Since I didn’t do a full post in July when I updated the side bar, I think it was actually higher than an $18K gain because I did do the July update later in the month. (I can’t remember when exactly).
When I look back at the June numbers, we saw an increase of over $42,000 over the last two months. I’m very happy with those figures. I’m going to try to be more consistent going forward to make sure I update the numbers right around the first of the month.
The major areas of gains for us were in our investment and retirement accounts. I haven’t been paying attention too much to the market but I think we had a bit of an uptick lately huh? Always happy to see that, although I still think we are going to see a correction sooner than later. Time will tell. (I’ve always been more of a sky is falling kind of guy). We also booked a small increase in our home values, although that was only $5000 and I think we are still being pretty conservative on our home’s worth.
This stage of saving and investing is proving to be as boring as you might expect. Once you have everything on autopilot, there really isn’t a ton to do each month when it comes to your finances. Updating our net worth once a month is about as exciting as it gets.
I had a fascinating conversation with a neighbor of mine this weekend. I had been helping him trim some of the bushes and trees around the house and we decided to sit down and take a rest in the shade for a bit. My neighbor, (We’ll call him John), doesn’t actually own the house. He is living with his brother’s family in the house due to not being able to afford a place of his own. John is 70 years old and never went to college. He is divorced and has a couple grown children and grandchildren. He has absolutely no savings or investments and is living off a low amount of social security.
Previously John and I have talked about money and he has asked me numerous questions. This weekend he asked me much more pointed questions wondering how someone that is 45 years old ends up in my situation. I had previously told him that I always pay cash for my vehicles because I don’t like debt. He also knows that we own our second home without a mortgage and that I intend to retire around the age of 50. As we sat in the shade, one of John’s first questions was how I ended up “being a saver”. I told him that there were a few influences that sent me down the path I’m on. The first was watching my parents suffer through the stress of struggling to pay the bills. Our family owned a business when I was a kid and I helped work in the business from the time I was about 11 years old. I would often go to work with my Dad on Sunday’s and sit behind the counter to keep him company. By the time I was 12, I was actively helping customers. I remember when I was about 13 years old. I was sitting in the back office with my mom as she was paying some of the bills for the business. I remember the stress in her voice and the concern in her eyes as she stacked bills in the “can pay” and “can’t pay” piles. I knew that she also had a similar approach for the bills at home. At 13 years old I remember feeling the stress of how they could pay all those bills. I swore I never wanted to own my own business or stress about paying the bills when I grew up. John was nodding his head while I told the story and said that he too grew up in a house with very little. He still didn’t understand how that sent me on such a quest to try to live the opposite of that.
It was really kind of a surreal conversation because I couldn’t help but think that my future would look similar to Jack’s if we weren’t actively saving and investing for our future. If anything, it makes me even more motivated to continue on the path we have in front of us.
A couple months ago I was sitting in yet another ALL DAY MEETING with a few of my peers at work and saw something that shocked the hell out of me. I was sitting behind my coworker who is probably about 55 or so. The way we were sitting was somewhat sideways looking forward to a big LCD display that had the meeting content on it. Because he was between me and the LCD screen I happened to be staring straight at the screen of his laptop whenever I looked down.
This guy, we’ll call him “Bob” decided to bring up his 401K account through our internal website. While I tried not to look, I couldn’t help glancing in his direction a few times. At one point he brought up his asset allocation screen that showed where his money was invested. I was SHOCKED to see that he had 100% of his $700,000 retirement fund in the company stock. Now this isn’t some kind of tiny company stock. Think Fortune 100 blue chip stock. Regardless, I couldn’t believe Bob had his entire retirement account in ONE stock. Our company stock has been relatively volatile compared to the overall market and frankly we are always one bad news article away from wild swings in the price. If Bob was 25 I wouldn’t really have thought twice about it (although if he was 25 and had a $700K retirement account I probably would have left my wife and tried to marry him). Unless he’s planning on working to 75 or 80, I just can’t comprehend why he’d think it was a good idea to have zero diversification in his retirement account. Of course maybe this account is a small portion of his overall net worth and I’m just imagining the horror that might be, but statistically, I think he’s probably just got all his eggs in one single basket.
I was messing around with one of the tools on the MadFientist site and when I punched in all the numbers it said I could retire in 5 years at 50 years old! I’ve somewhat been obsessed with the idea of “early retirement” and keep up with all the new posts on the Reddit /r/financialindependence subreddit. While, compared to a lot of people on that subreddit, 50 isn’t exactly groundbreaking for a retirement age, I know that it’s pretty darned early compared to most people.
I used the figure $60,000 as a retirement income and only used my investment account totals (as opposed to my total net worth with assets like houses etc) and was surprised to see that it calculates I only have 5 more years. That assumes that neither my wife or I work once I turn 50, which would not be the case. My wife actually likes her job and is expecting to work about 5 years longer than I do. That will give us the safety buffer of living off her income for 5 years and letting our investments continue to compound. We also will have the added benefit of getting our health insurance through her job.
So, my five year horizon is giving me hope and helping me hang on at work, even though I’m not very excited about my job. (And yes, it will be very hard to walk away from a job that pays over $100K per year.) I think what I’m most excited about is getting through the next five years and then knowing that I could pull the trigger at any time. As the saying goes, “I’m just one bad day away from retirement”. At this point, I’m 5 years and 1 day away from a bad day!
I’m a completely irrational human being. I often find myself fretting/obsessing or just plain paying waaaay too much attention to small expenses and then freely throwing around a few hundred dollars on *want* items without a second thought.
A great example of this is my reaction when I opened a toll summary statement to see that my wife had driven in the express carpool lanes three times last month. These are the lanes on the road that you have to pay a variable toll to drive in depending on how bad traffic is. We’ve always done well staying out of those lanes but my wife had been driving a carload of kids back from a camp and just couldn’t stand the thought of sitting in traffic any longer than she had to. Unfortunately the price of admission on that particular day was $10.00!! Basically a frugal guy’s version of a dagger to the heart. It KILLS me to spend money on things like that. To add a tiny bit of a shove to the dagger, she apparently enjoyed that trip so much, she decided to use the lanes twice more last month, luckily at a cost of $.50 a trip. I guess I have such a strong emotional reaction to a small charge like this because a) it’s not worth it to me and b) I see it as an unnecessary tax that we can easily avoid. Yes, I know we could spend lots of time discussing what our time is worth (and believe me, my rate is much higher than the $10 toll), but regardless, it’s still something I hate paying.
Compare that to the ease at which I willingly hand over a couple hundred dollars for things like a new Stihl weedeater or a new electronic gadget and it does make me look like an idiot. The phrase “penny wise and pound foolish” has entered my head a zillion times. What I’ve had to try to do is step back and look at the big picture. We’ve never really budgeted for “misc” type stuff each month, but in a sense, we are spending a few hundred dollars a month on just plain miscellaneous stuff. As a percentage of our budget, it’s really not much and should probably be expected. I think the most important aspect of this is that we are using cash, not accruing any debt and are meeting all of our other financial goals. Regardless, it’s really tough sitting here with the dagger poking at my side.
I finally stumbled on to someone at work that is looking at retiring early like I am. I was shocked when her date was two years sooner than mine (we are the same age). It helps that her husband is older than she is and already qualifies for a pension and has a large 401K. She will also qualify for a pension at 55 but she’s looking to retire before age 50!
We only had a short conversation about retirement but I look forward to talking more with her about it. She mentioned that they’d been to a financial adviser and I was thrilled to hear that she used a “fee only” adviser to avoid all the conflicts of interest with the other types. While we haven’t gone to an adviser yet, I’ve been considering it in the next couple years.
I was able to share a few things with her that she wasn’t aware of including that our 401K plan now lets you invest after tax dollars (up to a max of $53,000 a year including pretax) and then lets you do annual ROTH conversions. For us it would allow us to drastically increase our ROTH contributions, although I haven’t even taken full advantage of ROTH’s because we never set one up for my wife. That’s currently the number one thing nagging me in the back of my brain. It’s been foolish for me not to have started a ROTH for her. I found myself justifying by saying that I wanted to get more money put in post tax accounts to help us live during the years before we turn 59.5 even though I KNOW I can access all the ROTH contributions before 59.5. You know how sometimes you just make stupid decisions and can’t explain it? Yeah, this is one for me. My goal for this year is to correct that.