In my previous post, First Shot at our FI Number, we looked at how much money Mrs. AE and I will need to declare Financial Independence. In this post, we are going to look at how long it could take us.
Queue anxiety now.
I have mentioned this before, but we are not passionate about our day jobs. We are income sell outs. I don’t like being a sell-out, so we need to expedite this FI thing 🙂
Like the last post, there is a lot of uncertainty and this will likely change year over year.
Projected Time line provided by the Mad FIentist Laboratory
The Mad FIentiest developed an FI Laboratory with some calculators and Finacial Independence tracking that is trusted by a bunch of PF Blogging legends. If it’s good enough for them, it’s good enough for me (he also has a killer podcast).
Variables
Rate of Return: 8%
8% might sound aggressive and I was teetering between using 7 and 8%, but then I read a post by ESI Money “How Can I Get an 8% Investment Return” and saw the average return of large cap index funds is closer to 10%. Since we have a 100% stock portfolio it is not all that crazy to think we could average 8% if we stay invested LONG TERM.
Check out this table showing Annualized Returns of US Stock Classes going back to 1928
Yearly Savings: $41,616
40% of our after tax income, spread out across every paycheck and saved automatically.
Yearly Spending: $44,256
Read my previous post if you want to see how I broke our Annual Spending down with Financial Independence assumptions.
Net Worth: $118,546
Pulled from Personal Capital, subtracted out home equity and other material possessions. I don’t think I can pull cash out of my house without some weird ass reverse mortgage thingy.
Drumroll………
11 Years and 9 Months to Financial Independence
That would put us FI at 42and 40 years old, not too shabby compared to traditional retirement age. Plus the majority of the population never reaches Financial Independence.
But.
To be honest, I was hoping for (and expecting) a lower timeline. I told my self 10 years and under I would be happy so we are going to have to do something about this.
Accounting for inflation
I left inflation out of my last post, mostly because I didn’t know what my multiple would be until I did this one.
The 4% rule accounts for inflation as you withdraw, but since we are about 12 years from FI we need to account for inflation in our spending over that amount of time. That would mean taking our FI number of 1.2 million from the last post and multiplying it by 1.57
A few things I don’t like about using the inflation adjusted number as a goal:
- Assumes we will spend the same as prices increase on non-essentials
- Inflation can easily be beaten by increasing our savings at a higher percentage than costs are inflating
- Inflation is unknown (kinda like the stock market returns that would derail this projection as well)
Basically, I don’t want to inflate that number today with so many unknowns.
Instead, I will track our spending over time and if our spending climbs with inflation (which it will, but maybe not at the average 3% rate) I will simply move our FI number up as we go. This should keep us from setting too high of a target and pushing mandatory work off longer than it needs to be.
The same thing will be done for stock market returns, if I get a few years below 8%, our “Years to FI” will get kicked out. I like the idea of a moving target based on how these assumptions shake out.
How do we speed this up
So – I’m not quite happy with our timeline today, but there is a lot we have working in our favor over the next 10 years as well.
Move Debt Payoff to Investing (Next Year)
If you look at my countdown clock on the right side of this page, you will see my student loans will be gone next year. Once those are 6 feet under, we will have an extra $1,000 a month to play with.
We have also pumped a lot of short term windfalls into Student Loans over the last 3 years (mostly from ESPP sales) and those will also go to investing moving forward (outside of a small percentage going to a 529 plan for our daughter).
I am thinking of this as a $12-15,000 annual tax-free raise…….Mouth.Watering.
Income Increases (Now -> End of Working Career)
For the last few years, we have all but killed life style inflation as our income has increased. Little AE ate some of our last raise, but outside of that, the vast majority of our below raises have gone to our FI pursuit.
- 2012 – Mr. AE’s income only
- 2013 – Mrs. AE Starts FT work
- 2014 – 16.77% Increase
- 2015 – 15.75% Increase
- 2016 – 19.25% Increase (Some overtime contributed to this jump)
- 2017 – 8.8% Increase Projected – based on our current salaries
We won’t be able to continue these numbers forever, but hopefully, we can have a bottom of 6% with some double digit years mixed in.
Combining this with being consumer debt free and we should be able to make some significant progress.
Rental Properties (3-7 Years)
Rental properties are definitely in our future, shooting for 3 years from when we are consumer debt free but am leaving some wiggle room in here. Building equity and cash flow would make transferring to FI a hell of a lot easier.
Blog (Forever)
This is the opposite of passive income and a LOT of work, but this is my passion project and I absolutely love doing it. I haven’t put too much time into researching monetization but I will continue to recommend products I personally use and can hopefully turn this into a profitable passion side hustle.
How long do you have to reach FI? Any suggestions on speeding this up without taking away my craft beer?
We are in a similar boat! ~14 years for us, but hoping to either speed that up or find a way to take steps back from the 9-5 to more enjoyable work along the way. I’m hoping we also find a way into rental investing for additional income streams.
Save on craft beer… maybe brew your own? 😉
I used to brew and have all the stuff still tough to section off 4-5 hours to clean everything and get a brew done, once Little AE is a bit older I will get back to it.
We will look for more enjoyable work towards the end and maybe a transition plan will come through that as well
Ahh, I have the same experience. I thought we were much closer to FIRE than we actually are; looks like it’ll take much longer to reach than anticipated. But it’s still so worth having the extra life hours back. 🙂
Definitely still worth it, and we will speed this up 🙂 I don’t think I can sit in meetings for another 10 years
We are currently looking at 12 years until our early retirement date.
I’ve toyed with lots of ideas of what we could do to speed it up but a lot of those plans can’t be done until at least one kiddo is out of daycare.
I really want a rental property. During my next 12 weeks of paternity leave I want to figure out a side hustle I could do that won’t keep me from spending time with my family.
If you find any solid options, please let me know. That is my biggest hindrance in side hustling as well, not wanting to take any of my already too limited time away from my family.
Yes, please share if your track something down
It’s good to see both of your income grew overtime.
I am on the same boat really. I could probably reach FI before I am 40. But more and more I am valuing my time as I really don’t want to spend the next 10+ years stuck on something that I am not truly passionate about.
I am already contemplating leaving my job in the next year or two. I will still live a FIRE lifestyle but might pick up some part-time gigs and pursuing passions.
If the income growth continues, even at a slower path we should be able to speed this up significantly.
I like the idea of moving to passionate work instead but I would need to replace a significant % of my salary to make the switch sooner than later.
Really enjoyed this and part 1 as well, Mr. AE! You guys are in a great position to really ramp things up over the coming years which will likely pretty substantially reduce your time to FI. I have yet to get granular with our plan for some of the same reasons you outlined in the first post. Thanks for the motivation to give it a go and at least create a rough, rough draft. Also, great job on the income growth!
We are 4 to 10 years out, depending on a number of things, mainly when we decide to have kids. We plan to go down to one income once that happens. The four years sounds nice, but I’ll be happy with ten too!
Either sounds better than 30 🙂
Oooohhh Mr. AE I didn’t know you were interested in investing in RE! If done at the right time – it could speed things up a lot!
Let’s see, I only have August’s data point on the FI tracker but it says: 3 years 6 months. Neat! But that portfolio income seems a bit low for us to FI on. Because we have a rental, we have a higher liability and I don’t consider myself FI until I have enough liquidity to fully kill both mortgages and think nothing more of it.
Got ya – that makes sense.
Been waiting to slash all our debt before dedicating too much time into the RE game, but that time is coming!
Interesting – we’re about 10+ years out as well, but we started a decade later so will be correspondingly older than you’ll when we reach our ‘freedom’ number. In any case, your peak earning years are ahead of you so I think you’ll definitely get there sooner than you anticipate. Oh, and expect your number to “shift” as well 🙂
Definitely expecting a shift – probably in the wrong direction as well
It is kind of crazy to think about walking away during peak earning years, but that is a good problem to have
I was in an almost identical situation. 10 years ago our portfolio was almost the same as where you now stand. Also, we added about as much as you are planning on adding every year. Over the course of the last ten years, our salaries increased every year and so did our savings. We were able to grow our portfolio (not counting real estate and pension value) to over $700K. That was with an asset allocation of 75/25. Who knows what the future will bring. Good luck.
Fun follow up post! I like how you used your salary hikes vs inflation – either one works, just as long as something is considered for that part of the equation.
We are about 10 / 11 years away too IF we continue with similar spending and earning habits and market does not do crazy things. We could lower by a couple of years if spending lowers – after all our car will be paid in 4 years (0 interest rate) and house in 7 years.
Don’t think we can cut to much lower (most definitely no earlier than 45 – or 6 years from now) as we do have kids and they may not be interested in moving at that point but we will remain flexible. OR we may still decide to take a year off in about 4 years and then come back and work again (like we have done before – that broke it out really nicely and then made it even fun to get back to work for a while).
As we get closer we will still have to figure out healthcare and long term care and what is going on with our kids and their prospects in the future. So far we are hoping to self insure or do travel insurance as we plan to go nomad but, we will see.
Will be interesting to see how things change as we go in the journey, a lot of things can happen in just a few years!
Oh and don’t give up on finding a job you like that pays even better, in my case I was able to have a HUGE jump in salary after taking a few years off and restarting my career in a new industry and area and three years later I moved laterally to a job I LOVE and pays extremely well with fantastic benefits (in HR mind you).
For your career, keep moving for maximizing your salary once you start to slow down!
As for alternative side gigs, check out Turo, direct p2p lending or boat rentals in airbnb, for example. Perhaps investing in real estate for sale in countries where Americans are retiring to (like Mexico) as I have done before successful, though I prefer the freedom of owning nothing but my primary home and more liquid assets but this may be an interesting alternative.
Based on today, I am more than 20 years away from “early” retirement. Thankfully, that does not take into account the big jump in income I’m nearly about to make. Should reduce my years by halve at least.
I have about 15 years to go, BUT I like to look at it as shaving 20 years off my working life! That’s pretty great considering many people won’t be able to retire at all.
Nice Thought Provoking Article. Keep up the good work.
Toughing it out is challenging right? Even worse for me is that I just started the podcast where I talk to early retirees multiple times per week. Ugh! Hang in there. You guys are doing great.
I need to subscribe to your podcast! It’s on my list!
You are doing so well, but it’s great to continually push yourself – if the calculater said over 11 years and you aim to cut it down to 10 the best case scenario is you become financially independent sooner. Worst case scenario is you might be a few months off 10 years – still better than the original estimate!!
We’re hoping to be financially independent in 15 years, there are a lot of things we want to do before this though like buying our first house!
Ill have to check out this calculator! I’m wary of using the 4% safe withdrawal rule though. I think early 40s is a very respectable number and that’s actually what I’m shooting for too! Cmon when you say you are retired in your 30s sure that seems pretty “boss” but the rest of the world (outside PF world) may think it obnoxious :). Though of course who cares what people think I suppose…!
We abandoned our first FI number and our date has pushed out quite a bit. It was really about being honest with ourselves about what we truly spend and want to spend in retirement. Having a paid off house is a priority so I’m saving up a large cash balance for us as well, which adds to our date. Thanks for sharing your numbers with us!
Haha oh my I already read and commented here. I saw it trending on my twitter timeline and thought it was new! Too funny
Everyone seems to be in the 10-15 year range, which is where we are as well. Thanks for pointing out that calculator, I didn’t know one was readily available.