Most FI(RE) bloggers I know have either a timeline to financial independence or an early retirement age listed prominently on their website. While my wife and I definitely want to retire early, I have never felt comfortable creating a timeline to financial independence. The closest I get is listing our “percentage FI” in our monthly spending reports. However, I’m always a little lukewarm about how significant those are as well. I thought I should write a post describing why I don’t have a timelines to financial independence. The post is as much for me to work through some of the mental issues I have about FI(RE) as it is to explain why we don’t have a timeline to financial independence.
Reason #1 I don’t believe our spending reports
The biggest reason I haven’t calculated our timeline to financial independence is that I don’t fully trust our spending reports. Let me explain. I don’t doubt that we’re accurately tracking our expenses. However, I’m scared about the thought of living on a passive income that matched our expense reports.
When we started tracking our expenses, I was shocked at what an extremely low number our family lives on per year (when we exclude daycare & mortgage, see reason #2). While I don’t feel comfortable sharing out total expenses, our family of 5 would be living well below the limit of “lean FIRE”.
Lean FIRE
I’m not sure if I’m impressed by our frugality or extremely scared about the thought of it. But because our expenses are so low, I don’t feel comfortable setting up my family of 5 to live off our lean FIRE number at a 4% safe withdrawal rate (SWR). I know that the 4% SWR is often debated and some people in the FIRE community are working towards 3.5% SWR or 3% SWR. Given that my wife and I will both have pensions (guaranteed income) that we can access between 55-62 that aren’t included in our FI numbers, I feel fairly confident that a 4% SWR is safe for us. But when I think about retiring early with a plan to live off of a lean FIRE number, I freak out.
Sometimes I wonder why I’m freaking out about this. We live a very comfortable and happy life now. If someone said that I could continue my standard of living without working, I’d take them up on the offer in a heartbeat. But here’s the rub– if you’re lean FIRE, and you only have assets to cover lean FIRE, you have a lot smaller cushion if something changes dramatically.
Withdrawal rate
I’m comfortable with a 4% SWR. And I’m comfortable living our lean FIRE life. But I’d also want to make sure I had enough money to account for some curveball that would derail our lean FIRE life. I don’t know how much I’d need for us to feel “safe” in case of an emergency. There doesn’t seem to be good examples of this in the FIRE community. I started to do the math about how much money in an emergency fund (not counted in the 4% SWR) would be needed to make me feel comfortable. When I calculated that “number” it ended up being the equivalent of having enough money to withdraw at a 3.5% or 3% SWR.
So does that mean I’m uncomfortable with a 4% SWR? Or does it mean I’m comfortable with a 4% SWR if I have a post-fire emergency fund? Perhaps I am being overly pendantic. However, mentally a 4% SWR with an emergency fund is different from a 3.5% SWR to me.
My “FI” number
I still think it’s useful for me to calculate my “percent FI” every month (at 4% SWR). It’s a big milestone for me. While I don’t think we’ll be ready to retire early once we reach 100% FI, I will feel a lot more financially secure.* At 100% FI, I’ll know that if either of us lost our jobs, we shouldn’t pursue additional employment. In other words, the “percent FI” I list is in reality a measure of how close we are to financial security, or financial independence in the truest sense of the word.
Reason #2 Our timeline to financial independence depends upon our future expenses
As anyone who has looked at our spending reports knows, we list two different percent FI numbers. The first one is how close we are to FI today. Alternatively, we also list “future percent FI” which is how close we are to FI once we pay off the mortgage and our youngest starts school. (Dacyare is a major obstacle to FIRE)
If we are to retire early, then it will be a lean FIRE after we’re finished with these two biggest expenses. In other words, these two future dates set an early limit on our early retirement date but don’t define the full picture. (Current prediction Fall 2024).
Calculating a timeline to financial independence involves a lot of assumptions and savings rates and growth rates. Our savings rate will change dramatically once we finish paying off these two biggest assumptions. As a result, trying to come up with a computer program or spreadsheet that predicts an early retirement date with all of these factors seems overly complicated and a wasted effort. Especially so because I can’t even decide on a “number” that I feel good about for early retirement.
At this point, I have a “wait and see” approach. I’m going to wait until these expenses are done and then see how far away we are from a potential early retirement.
Reason #3 Healthcare
Why does healthcare need to be so complicated. Our current monthly expenses calculation includes our health care expenses- my insurance premiums and all of our medical care (since we have a high deductible plan). As my friend at The 76K project wrote about, it can be extremely hard to find a reasonably priced health care plan on the exchange.
It seems that healthcare is a politically charged issue and the legislation regarding healthcare changes yearly. As a result, the insurance companies are constantly adjusting their prices to react to legislation. Since we’re several years away from early retirement, it doesn’t make sense to figure out exactly how much money our insurance will cost once we leave our employers. (Because I can’t imagine it won’t change at least several times before then).
This creates a chicken-and-egg scenario. We can’t calculate our FI number because we don’t know how much health insurance will cost when we want to retire. But we won’t know how much insurance will cost until we’re ready to retire. At any rate, healthcare is the biggest unknown expense in our post-FIRE life and we can’t calculate a timeline without a likely poor assumption of what this expense will be.
Reason #4 Leaving behind great benefits
I’ve already written about this last point a lot. Walking away from a federal job before minimum retirement age (MRA) means walking away from at least a million dollars in benefits. Is that a reason to stay in a job even if you have enough money to not need to work?
I can’t decide if I’d actually be willing to walk away from all of the non-pension retirement benefits. In some ways, I feel cowardly for wanting to stay until MRA to collect all of these sweet benefits. But today, it’s impossible to say if the tradeoff between early retirement and the benefits is worth it because there are too many unknowns.
I think that in the future, once we’ve reached our financial independence number, I’ll be able to weigh the pros of early retirement against the cons of losing out on the sweet benefits. Until that point, I won’t know exactly what my pension benefit will be and/or how many years away I am from MRA or a possible VERA age. It could be that we reach FI very close to MRA/VERA and I try to hold on for a couple of years to snag it.
I also need to remind myself that 57 is a relatively early age for retirement, generally speaking (just not in the group of my online friends).
Summary- we don’t have a timeline to financial independence
In summary, I’m super confused about how I feel about early retirement. (Although I’m 1,000% on board with financial independence.) Because of this I can’t get excited about calculating a “number” or a “timeline”. However, I am watching our progress towards FI. Once we get closer, then I’ll start to run different scenarios and see how things look.
Postscript- do all other bloggers really have a timeline to financial independence?
After I wrote this post, I wondered if all other bloggers had a timeline or if I was unique in not having one. So I put a call out on Twitter. While this wasn’t a scientific poll, I learned a lot. I’ve tried to list the blogs into groups. Where the blogger has a specific post on the topic, I’ve linked to the post. Otherwise, I’ve just linked to the blog.
Strict timeline to financial INDEPENDENCE
- A Purple Life “My 2018 Financial Recap”
- The Fioneers “Our plan to achieve financial independence“
- The Financial Mechanic
- The Modest Millionaires “The Modest Millionaires 2025 Plan“
- Route2Fi “FUCK the 4 % rule – My Detailed Plan For How I Will Become Financial Independent In Only 5 Years!“
- My Own Advisor “Financial Freedom Target: Age 50 – May 2019 Update”
Vague timeline to financial independence
- The Money Vikings “FIRE (Financial Independence Retire Early) Is Improbable, But We Must Pursue It Anyway“
- Mrs. MoneyPenny “Goal Setting – Saving for your children to go to University“
- Trip of a Lifestyle
- Treat Lightly Retire Early
- HisHerMoneyGuide “Wow. I’m 34 and have half my working life behind me“
No real timeline to financial independence
It appears that roughly 1/3 of bloggers fall into each of these categories. It makes me feel a lot better knowing that we’re not alone in our pursuit our pursuit of FI without a strict timeline.
Footnotes
*This seems like a dangerous statement. Once X happens, I’ll feel Y. I know that these statements are rarely true. Perhaps once I reach 100% FI, I’ll feel like I need to reach 150% FI to be secure. I think it’s okay to work towards a goal but also have some healthy skepticism of such statements.
What do you think? Do you have a timeline to financial independence? Leave a comment!
Nice post, and really good reasoning all around. I would say that we fall squarely into the “vague timeline” category. Although we have an age targeted and are tracking progress toward an FI goal, I have a lot of doubts that we’ll actually pull the ripcord when we hit that age. The other great benefits of Federal employment certainly can feel like “golden handcuffs”, and the more I think about and analyze the tradeoffs, the more readily I’m able to convince it’s crazy to leave before the MRA.
In the meantime, we’re sticking the course here for our “vague” goal, and we’ll evaluate it again along the way and change if it makes sense. I think that’s an important piece here – just as it’s easy to get dependent on money, it’s also easy to become dependent on reaching the FI goal to an unhealthy extent. The goal helps us plan, but I definitely see how it could also become a big source of negative energy.
Federal FIRE recently posted…Our Plan for FIRE – Balancing Deferred Retirement, Roth Ladders, and Pensions
I’m not working toward FI per se (except for traditional retirement age) so I can’t comment on my own timeline. It’s pretty standard obviously.
But I think it’s smart not to have a strict timeline. I know Done by Forty is kicking himself for the domain name because he is now considering not retiring until 41 or 42 (or later). So I think locking yourself in, while motivating, can also be problematic.
And I don’t blame you for not trusting low numbers. It’s scary to think that you might be missing something (even when you know you’re not).
I do! (As you noted) but I didn’t have one before I started the blog. I felt like there should be some concrete goal to share with readers so they could get a sense of the (frankly extreme) goals I set forth for FI. I don’t think it’s necessary for a blog though and I think it’s ok to set something like “leanfi” numbers and regular Fi and “fatfi” so you don’t have to get up and quit at your number. That should help with the anxiety a bit!
Although I’ve been super focused on personal finance for over two decades my husband and I never set a specific timeline for FI. When we reached the holy grail of independence I didn’t even realize we’d crossed the threshold. I’m still not exactly sure when it happened. My husband is currently working and I intend to return to work after my youngest reaches kindergarten. There are many reasons to keep working and great benefits and guaranteed payouts are certainly a reason. I also think it’s nearly impossible to predict future expenses. I could document every expense and still find so many that pop up unexpectedly. Take my son’s recent $6,000 visit to the orthodontist as an example. I think healthcare and long term care are huge black holes for future spending!
Pensions are a mixed blessing. I had a pension at my former company that made me want to continue there until I reached the minimum retirement age. Every anniversary I counted down the number of years I had remaining there. Then one day they cut the pension and I was unbelievably relieved. I no longer felt the tug of that timeline pulling me to continue working. I wonder how your pension influences your feelings and how differently you might feel without one.
One Frugal Girl recently posted…The Value of the Latte Factor – It’s Not What You Think
Oh the pension is a huge part of this. I calculated that leaving a day early costs a federal employee a million dollars. I can totally agree with your perspective of it being an anchor as much as a blessing!
I did, but it was because we were very close and we had time.
I was 36 and I wanted to retire from my engineering career before 40. So I had 4 years and did it in 2.
Well, we saved and invested for years before that so it wasn’t just 2 years.
In hindsight, I should have just quit that job and look for a better job. I would have lasted longer as an engineer. I’m very happy now so I can’t complain. It’s been 7 years since I quit working full-time.
I think it’s perfect to go for FI and put off RE. It’s an option that you can always go to.
Hey Mr. GovWorker,
I loved this post! I think you have extremely valid reasons for not having a FI timeline currently. It’s interesting. I was actually fairly surprised to see our plan to FI post in the specific timeline category. I guess we did write that post before I started working part-time and before we’ve started to explore semi-retirement as an option. I would say our timeline is definitely more vague/in flux, but we do like to calculate various scenarios just to see what they’d be (which is different from you). We have the keeping things the same, how long it would take # – and we have the rental property cash flow # – and the semi-retirement number, so I guess maybe we do have specific #s, we just haven’t chosen the specific route. 🙂
Again, great post!
Jessica
Jessica recently posted…Balancing Work and Family with Part-Time Employment
By my calculations, I’ll reach FI by my 43rd birthday, BUT that’s relying on spending levels that are lower than my 2017-2019 spending averages (by quite a bit, if I’m being honest). My 2015-2016 numbers were low, but probably most similar to what my FI life will look like (I worked from home). And by that time, I’ll be able to pay off the mortgage, if I choose to do that, which will drop my living expenses quite a bit more!
And that is why I don’t have any FI dates on my blog! 😁
Josh recently posted…Leftovers
This is well thought out and captures a lot of our thinking as well. While we are *likely* to retire a little early, we aren’t desperate to do it. This gives us a lot of flexibility if things go well. We are vaguely shooting for 5 years from now, but could go a bit earlier if things go well. Of course, if they don’t and we end up at 7 years…we’re in golden handcuff mode because we’d be just a few more years from full pension benefits. Hard to walk away from that.
We’re pushing to go before 50, but will be fine if we don’t. Good to have a goal, and our flexibility adds a whole lot of security to our financial plans.
PFI recently posted…Natural Consequences
I’m feeling this post 100%. Like… healthcare is such a gamble (although there are options outside of the US that would work for us) in retirement, and the age I qualify for full pension benefits is the same year my district would guarantee 80% coverage of my current health plan continued and the same year my spouse would be eligible for Medicare under the current plan. However, that’s a lot of stuff that could change dramatically. I love my benefits! When I’m out of debt (probably 18 months… woo hoo!) I want to calculate a number that would make me feel good about taking a sabbatical for a year while earning my doctorate (a great benefit I have not yet used). That would be a fabulous option!
Thanks for the comment Diana! I’m glad you like the post. I like the idea of taking a sabbatical. It’s definitely a lot safer than fully disconnecting from your job.
Great insight! I wish I had this post in my twenties.