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.
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.
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.
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 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.
Just doing some quick analysis of our saving progress. In my handy dandy net worth spreadsheet, it shows we are saving 31% of our gross income in our 401k accounts and additional payments to our mortgage. We put an extra $200 towards our mortgage balance each year just to help speed up the payoff a bit. While many will argue we should be directing those funds towards our investment account, I can assure you we are also contributing a decent amount to the “after tax” investment account as well. The goal is diversification and moderation with all of our money.
Overall we have about $237K left on our mortgage with an estimated home value of $380K. That’s our only debt and has an interest rate of 3.75% so we aren’t too worried about it. When we decide to quit working, we’ll sell our primary home and move to our other house that is paid for. The good part of that plan is we’ll be able to invest the equity from the house sale and have zero tax liability on it. That combined with our other “after tax” accounts will help us manage our pretax withdrawals to maximize tax efficiency.
Another statistic that I keep an eye on, although it’s not nearly as important, is what I call our “net worth savings rate”. This includes all dollars that we put towards all of our accounts. That savings rate is 47% and includes things like my daughter’s 529 account, all the 401k contributions and additional mortgage payments and also includes what we are putting in our after tax accounts. I’d like to get this up to over 50% but we’re pretty happy with the current overall progress.
At this point, we are really on autopilot. If we were to stop contributing to all of our accounts today, we would just have to wait longer to retire comfortably. We are continuing to aggressively save because, a) we don’t need all the money we make to live day to day and b) we’d like to have the option to retire earlier than the traditional age.