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).
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: $42,768
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.
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.
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.
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?