2018 is finally here. We’re approaching my favorite time of year from a financial standpoint. In February my wife and I both get our annual bonuses and in March we get our raises for the year. Along with those, we usually get some amount of money back from our taxes (although I try to minimize that) and we also get our credit card reward certificate from our Costco Citi Visa. It turns out I’m a fan of easy money.
Our net worth continues to increase on a monthly basis and I continue to be absolutely amazed at how much it’s going up month over month. I keep saying that this can’t go on forever and I truly believe that, but we’ll take it in the meantime.
Our new net worth figure is $1,645,008. I really love using two commas! That’s an increase of $55,887 in a little over a month. (I think the Nov figure on the sidebar was late November). I still can’t believe we’ve gotten our net worth to this level. Not bad for a lower middle income kid who has paid his way through life with very little assistance. (Acknowledging I had a happy, safe childhood where we always had food on the table, even if it was hot dog casserole now and then.) Looking back at January 2017, we had a one year overall increase of about $330,000. WOW That’s just crazy! That’s far more than we made in the year at our jobs, that’s for sure. Money really does make money. No wonder the truly wealthy have it so easy!
Obviously the next milestone I’m looking for is the $2M in net worth. That’s a ways off but it’s the next big one for us. I’ll be 47 this year and so I’m thinking more and more about when I can pull the trigger on early retirement. There are a few driving factors for this. I want to have at least $2M in cash/investments before we pull the trigger. I also want to have my daughter through at least her 4 year college degree (We’ve been saving in a 529 plan all along), and I want to make sure I’ll be eligible to take a small pension (About $1300 a month at 55) before I retire. It makes the most financial sense for me to work until I’m 55 so that I can start drawing the $1300 a month in pension and also withdraw funds from my 401k account. Our company’s plan is a qualified plan so if I separate from the company at 55 or older, I can immediately draw funds from it without a penalty.
I really don’t want to wait until I’m 55 to retire though. The one other potential path to leaving before I’m 55 and still getting to draw the pension at 55 is if I’m laid off between the age of 49 and 55. Since I work in Information Technology that isn’t really a far fetched scenario but I’ve been a high performer up to this point so I don’t think they’ll likely want to lay me off any time soon. I suppose I could really start acting incompetent at about age 49 but I really don’t want to do that.
Anyway, lots to sort out over the next few years. Until then we’ll just keep pushing along the path. So far I can’t complain about the results. Here’s to a happy prosperous year to all of you!
There I was, sitting at my desk in my company’s office building at 5:50 in the morning, two weeks before Christmas, slowly trying to wake up while reading and responding to emails that had come in overnight. I usually get in to the office at 5:30 in the morning to miss the ridiculous traffic that starts to really build by 6:00 am. The office is pretty much a ghost town at that hour, although there are about 5 other people spread across the 3rd floor of the building at that hour as well. Two of those people actually sit on the other side of the cubicle wall from me and I can’t help but hear their daily conversations.
That morning their discussion was centered around Christmas gifts and what they wanted to receive. Bob, who is about 40 years old and married with one child, was telling Jason that he really didn’t need anything for Christmas because he usually bought everything he wanted during the year. “I’ve got to think of something”, Bob said. “My wife keeps asking me what she should buy me for Christmas and I don’t know what to tell her. I was thinking I’d tell her to buy me an Ipad Pro with the large screen, even though I already have two other regular Ipads.”
I couldn’t believe what I was hearing. Bob was considering telling his wife to spend $800 on an electronic tablet that he didn’t need, just to get her off his back. Previously I’d heard Bob mention that they were tight on their bills and were having trouble putting any money away for their retirement. It’s not hard to see why, when hearing things like that.
Fast forward 3 weeks to another early morning sitting in cubicle land. I heard Bob tell Jason that indeed his wife had bought him the Ipad. I just shook my head and went back to focusing on my emails. I won’t miss sitting there early in the morning listening to them when I retire long before they do.
When I checked a few of my stocks and funds on Google Finance today I saw some pretty crazy numbers. Apparently they are having some sort of issue:
I think it’s safe to say I would have retired today if I’d actually seen a 1 million percent return on a couple of my stocks. I suppose I”ll have to settle for only a 999K % return on a couple of the others.
Wow! I haven’t really been paying attention to our net worth and didn’t realize that in just about a month and a half we saw an increase of nearly $47,000. It’s actually hard to believe how quickly our net worth continues to increase. It sure is going to be a bit of a shock when we have a massive market crash.
Here’s a graphical view of how our net worth has been increasing since I started keeping records:
As you can imagine, we are very happy with our overall progress. Yes, we could have saved more. We’ve been trying very hard to live a rewarding life with some perks, while also making sure we save for our future. We continue to live on about 42% of our after tax, after investment income. That basically means we are living on 42% of our take home pay. We’ve been fortunate to have a pretty high income during our careers so that we were able to save a lot and also enjoy the fruits of our labor. We’re quickly getting to the point that we could do the “Barista FI” approach where we basically take low paying jobs with less stress and coast until we decide to stop working all together. Over the last couple weeks, I’ve started to realize the smartest thing we can do is just continue to grind away at our careers until our daughter is well through college so we can make sure she comes out of college with no debt and we have plenty of investments to pay for absurd healthcare rates. Another wrinkle that is starting to develop is that our daughter wants to be a doctor but is very debt averse (due to her father’s programming). We’ll be looking for creative ways for her to fund medical school if she indeed does continue on that path as we’ll only have about $100K in her 529 plan. The reality is that she may not be able to avoid debt to get through medical school.
One of the things about being an amateur blogger and personal finance geek is that we don’t have to pretend to know everything. I really don’t know that much about investing but I don’t have to and I can still meet my goals by copying what others are doing. I’ve been reading financial blogs since the beginning, and in fact started another personal finance blog over 10 years ago before selling it a few years back. During the first few years of owning that blog I spent hundreds of hours reading and linking to other great PF bloggers and gained an incredible amount of “basic” knowledge about how to manage our money, increase our net worth and choose investments that didn’t require tons of research and risk (low cost index funds). We’ve been paying ourselves first for more than 20 years and the results have worked out pretty well. For most of those 20+ years I never really paid attention to the dividends we were earning and in fact some of our funds don’t actually distribute dividends but rather the value of a share in those funds just continues to increase so it’s really hard to notice that we were indeed earning a return on those funds.
In the last 5 years I’ve been paying more and more attention to dividends because I know they’ll be a variable in how our investments provide annual income for us once we stop working. At the end of 2016 I tallied up each and every dividend we earned and was pleased to see that we earned about $16,000. We earned (and reinvested) more money from dividends than most people contribute to their investment accounts each year. When you add that to all of the actual contributions we were making it’s not hard to see how we were able to increase our net worth by such a large amount. Our new goal is to try to get the dividends up over $20,000 per year. We’ll do that by buying a few individual stocks to go along with our index funds. We already have a few and have seen some nice gains and dividends from them. From a risk perspective we are not buying very many and are keeping individual stocks to less than 10% of our overall net worth.
Another data point I’ve been tracking is how much we’d have in investments if we were to sell our primary residence, invest those funds and move to our second home that’s paid for in a more rural area of our state. Right now we would have roughly $1,250,000 in investments if we did that. If I use the 4% rule that would give us about $48,000 a year before taxes with very minimal expenses. We could literally pull the trigger on retirement now but would have a few risks such as health care and a bear market weighing on our minds. We’ve decided that we need to try to squeeze about 5 more years out of our careers, which would put us at just over 50 years old. At the current rate, that means we’d be saving an additional $100,000 a year which could generate an extra $4000 per year in income when we retire. 5 more years of work for an extra $20,000 a year in retirement income seems like a good plan. Of course, lots of things could change between now and then but we’ll keep chugging along either way.
It’s a new month and our net worth has increased to $1,542,269. That’s an increase of almost $25,000 in a month. To say the real estate and our economy in general feels like a repeat of the 2007/2008 bubble would be a bit of an understatement. Of course, I’m not crying myself to sleep at night with these gains, but I fully expect to see a correction, deflated bubble, etc etc at some point, so I’m just logging the numbers and am ready to start subtracting instead of adding to our net worth if that happens. (I’m a bit of a “Permabear”)
Last weekend, I was out with a group of about 10 guys that mostly all work in the tech industry (including myself). We were really enjoying a lot of geek type talk and as the night wore on, we found ourselves at a seedy dive bar in the Pacific Northwest. As I looked around the place, for some reason, it occurred to me that the group of guys at our table had a combined income of something like $1.5 million a year. I almost fell out of my chair when I realized this. (This is a long ways from my youth of eating hot dog casserole) While there are certainly plenty of other places in the country that this same phenomenon could have taken place (and likely did), I don’t think it’s probably a normal occurrence across the country. Bottom line, I feel incredibly grateful that I find myself in this situation and I think that’s one of the things that drives me to save as much as I can. Along with being a Permabear, I also try to realize that I could lose my job tomorrow and find myself in a completely different economic reality. The more we increase our net worth, the less I worry about that. Clearly my defensive approach to personal finance stems from a childhood where we were constantly at risk of not having enough to pay the bills.
So, month by month we continue our march towards financial independence. It feels like a slow grind at this point but I’m grateful to have the monthly gains we’ve been seeing. On a somewhat related note, last week I was perusing Reddit and came across a post in the “40Something” subreddit. It was a guy in his mid 40’s talking about feeling like his 40’s seems to be just all about working. He said there’s not much else happening in his life and he feels bored and stuck. As I read through some of the other comments, it seemed very similar to how I’ve been feeling. I’m sure this is where the whole idea of “midlife crisis” comes from. Some of the posts said things like, “Yeah, that’s just the way it is. Everything is set in motion and you just have another 20 years before you can retire!”. While I was relating to most of what people were saying, as soon as I saw that I thought “Nope!”. No way in hell I’m working another 20 years like this. I’m so grateful I took a longer view of saving and investing and started in our 20’s. I don’t think I can keep slogging along like this for 20 more years.
I finally got a chance to go through all of our financial updates and was pleasantly surprised to see that our net worth is continuing it’s upward trend. As of today our net worth is $1,517,338. If only that was just in investment accounts, we might consider throwing in the towel and driving off in to the sunset but, alas, it’s our total net worth including our home equity and vehicles. I’ve been tracking another figure besides our total net worth which I call our “retirement assets”. This includes the equity we have in our primary home that we will sell when we move to our secondary home outside the city and excludes our vehicle values. When you include that equity and our investment accounts you get a figure of $1,216,061. Why do I do this? Because it’s a more accurate figure of how much money we have to generate an income from. My hope is that number will get to about $1.7M by the time my daughter goes off to college. Once we get to $1.7M, I might actually start feeling comfortable enough to consider retiring.
One thing that I don’t include in my net worth is the value of a small pension I’ll receive from my company in retirement. They froze it a while back so it’s not increasing in value but should provide around $1250 a month at 55 years old. Realistically we’d like to have about $75,000 a year in retirement income once we hit 62 and that little bit of pension helps us cross the line. When you include 1 of our social security payments (I don’t like to plan the future assuming both of us will be around forever), and then add in the small pension amount, I’m estimating that will be somewhere around $3000 a month or $36,000 a year. That means I only have to generate about $39,000 a year from our investments, which should be a conservative figure if we can get our retirement assets up over the $1.5M mark or so. Like I said, I’m being ultra conservative on the estimates at this point. With a 4% withdrawal rate on $1.5M in retirement assets we’d be able to take out $60,000 a year. Add that to the pension/SS income and we’d be up over $96,000 a year. I’d rather plan with a 3% withdrawal rate which would give us a total income of about $81,000. At this point, I’m still just throwing numbers and estimates around while we are in the accumulation phase of our life but it does help give me an idea of how close we are to being able to pull the trigger and retire.
Geez! Time flies when you’re saving money! I just realized it’s been too long since I’ve updated the blog. In the last 3 months we’ve continued to see our net worth increase. The key areas we’ve seen increases are in our 401k’s and our home values. I recently booked some of the increase we’ve seen in our escalating real estate market. The real estate market in the Pacific Northwest is going bonkers. It feels exactly like the market of 2008 where every month saw big increases in our home values. We’ve now surpassed the peak of 2008 by almost 10%. It sure does make you wonder if it will all come crashing down again. I’m hoping that it keeps going up for the foreseeable future simply because we will likely be selling our house in about 4 years and every bit it increases or at least levels off helps our retirement “after tax” account. Since we own our vacation house with no mortgage, we’re planning to move out there so we’ll have all the equity of this house to use towards our early retirement.
Anyway, the new net worth number is $1,447,765. To many people that likely seems like a pretty big number. The reality is that it’s not enough to carry us through the next 40+ years of an early retirement so we’ll continue our march toward financial independence. Once we have about $2M in invested assets, we’ll think long and hard about pulling the trigger. I’m continuing to watch the health care situation in the US. It’s certainly not trending toward being helpful for early retirees. It’s hard to believe that the politicians will really make health care crazy expensive for older citizens that haven’t hit the medicare age of 65. If we are faced with $20,000+ health care premiums in our 50’s and early 60’s, we might have to work longer than we want to. The other option we are still exploring is moving to the UK when we retire since both my wife and daughter are British citizens. If we moved there, we’d likely pay more in taxes, but I think it would still be cheaper than paying all the taxes we do in the US, plus healthcare costs. Time will tell.
Edit: Holy moly! I just realized that from July 2016 to June 2017 we’ve averaged a monthly net worth increase of $20,416 and we still have the rest of June to go. Wow!
Day after day, week after week, month after month, our net worth keeps changing. It’s still continuing to go up, but I have to wonder if we may be in for some pretty good dips with all the things going on in the world. I’m totally fine with a good dip as that just means I get to buy our stocks/funds at a cheaper price. Since we’ve got a few more years ahead of us, I’d actually rather see a 25% dip and then have it slowly recover over the next 5 plus years. Of course, I don’t get to choose what happens so we’ll just keep doing what we’re doing.
As of March 27th, our net worth has climbed to $1,369,581. That’s actually lower than it was last month due to the stock market but it’s still significantly higher than our January number. I’m starting to think more and more about quitting my job as soon as my daughter gets out of high school. We currently have around $65,000 in her 529 education account and I think we’ll have somewhere around $90,000 by the time she heads to college. While that might not cover the entire amount, we’ve told her she should expect to work a bit while in college and also pursue as many scholarships as she can.
As we get closer and closer to the day we can walk away, I’ve been thinking a lot about what we’ll do with our time. The current plan is that we’ll sell our primary house and walk away with somewhere around $250K in equity to invest and then move out to our vacation house (that’s paid for) and live there for about 8-9 months of the year. We’ll spend the other 3+ months of winter down in Arizona or California. We’d like to find an inexpensive place in a 55+ community but unfortunately they don’t want us around since we’ll only be around 50-51. I guess that’s one of the drawbacks to retiring early. We don’t get discounts on our meals and we can’t live in the cheaper 55+ communities. Oh well, I’m sure we’ll be able to find somewhere to stay in Arizona during the winter. It’s a good problem to have.
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.