I ran into a friend this week that I hadn’t seen in many moons and he asked how the FIRE thing was going? At first I thought he was asking about our local FIRE club and I said it’s sort of on ice at the moment. But then he clarified his question, “No, how is FIRE going for you? Are you close?”
I’ve always struggled a bit with defining how much money I need to reach financial independence. It wasn’t until I found Mr. Money Mustache’s post on The 4% Rule: The Easy Answer to “How Much Do I Need for Retirement?” that things became much more clear. You see, I was approaching the problem from the wrong end. It wasn’t as simple as some percentage of my current salary over X years of retirement or some $3M to $5M figure I’d find in the financial press. I needed to understand how much I spent every year and work forwards (multiplying by 25) perhaps adding a safety margin buffer. I opened a Personal Capital account and immediately began tracking my expenses and investments.
That was late in 2017. Fast forward a few years and I have some useful data upon which to base projections. I figure I need somewhere between $1.25M ($50k annual spending) and $1.5M ($60k annual spending). This means I could retire now if pushed with $1.3M or in 2 years at $1.5M or 5 years at just shy of $2M. There’s also 4 children in the mix (2 closer to college and 2 closer to kindergarten) and some short term savings and home improvement plans. Hence the moving goalposts. Hand wave I’m 0, 2, or 5 years away from leaving my current job. Closer to 2 than 5 hopefully unless the job improves significantly.
Note: There is a social security income assumption of $30k per year beginning at age 67 when the portfolio value begins to climb again. These Personal Capital retirement planner projections exclude Mrs. Dress Pockets’ investment accounts and cash.
Interesting to see at the far end of the 10% percentile projection that I may end up with $11k balance at the ripe old age of 92. I don’t recall where 92 came from but I think I just added 50 years to my 42 year old self at the time.
As for safety margin that primarily comes from keeping Mrs. Dress Pockets as an independent variable. She tracks her spending and investments in Mint and has far more years of data than I. She may work a number of years beyond me or she may not. I also don’t track my home equity in my net worth nor retirement projections. We recently paid off our home mortgage in Feb 2021. There’s a pot of money there that can be used to pay for future housing should we move across the country or simply across town. While not the best investment decision to pay off the mortgage at historic low interest rates, it sure feels good to be debt free. Another variable we don’t need to worry about.
And lastly I know I could live on $30k to $40k per year if pushed. That’s where tracking annual expenses without a mortgage and day care provides reassurance.
