2 years And 8 Months Left Until Financial Independence – This Is My Plan!

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This blog post was awarded “Blog Post Of The Month” by FIREhub.eu.


Updating My Plan From 5 Years To Under 3 Years

I’ve always been interested in evolving myself. Right now financial independence is my main priority. I read Vicki Robin’s “Your Money Or Your Life” again last year, and after reading it for the second time I started tracking my income and expenses every month.  

For the first 10 months this year I’ve spent $16,175 and I’m in route to spend under $20,000 for the whole year. Using the 4%-rule this means I can reduce mt FI-number from $600,000 to $500,000. 

Remember, this is for me alone. I live together with my fiancee, but we have separate economy (like A Purple Life).

Anyway, things tend to go a little faster with the right motivation. You can truly say I’m top motivated for reaching financial independence, and that’s why it’s time to update the 5 year plan I made in march.

First of all I think there is no need for me to set a FI-number of $600,000, when my true life costs is below $20,000/year. The right number for me is therefore $500,000.

Secondly I think that the 4%-rule is being a bit conservative for me. Why? In case you don’t know I’m only 32 years old. Do you really think I’m never going to earn a $ again for the rest of my life? Of course not! 

Being financial independent for me means that I can feel secure to try other options in life. With other options I mean eg:
-switch to part time work
-starting a business (my own consulting firm)
-write a book
-do random jobs whenever I feel for it
-angel investing

What if I instead used the 5%-rule? Then I could reduce my FI-number to $20,000 x 20 = $400,000.

Having $282,000 invested in the stock market already, I think I’ll continue with the 4%-rule and with the costs of $20,000/year = $500,000 will be my new FI-number.

What If I fail?

Many of you may think I’m a crazy idiot, reducing my FI-number from $600K to $500K, but let’s look at it another way. 

A lower safe withdrawal rate has a large opportunity cost while only protecting against a potential risk.

Why do you want to FIRE? While there are millions of reasons, most are some form of – I would live my life differently, if I didn’t have to worry about earning money. This may mean stop working, working somewhere else, volunteering, traveling, etc. The point is, every year you are not FIRE you are not living that life.

It seems that when picking a safe withdrawal rate, most people don’t fully appreciate the opportunity cost of lowering it 1-2%. Let’s take an example of a 45 year old with a current net worth of $725,000, who wants to spend $40,000 a year in retirement (and let’s say they have an income of $70K post tax). If they use a 5.5% withdrawal rate – they could retire today. If they want to do a 4% withdrawal rate, they will need to work another 4 years. If they want a 3% withdrawal rate, they will need to work another 8 years.

This is a MASSIVE cost. If this person lives until 90, they are giving up 9%/18% of their FIRE time. Additionally, they are giving up the BEST FIRE time while they are still young enough to do what they want to do. This person incurs this cost 100% of the time.

Still not convinced?

Let me show you with Four Pillar Freedom’s genius calculator.

If I save up 25 x my expenses of $20,000/year my portfolio value is $500,000. The success rate of my portfolio lasting for 10 – 20 years is 100%. If my portfolio should last for 50 years (I will be 82 years old), then the success rate is still 93%.

93%! 

But it’s getting better. The median portfolio value will have increased by 10,39 x my starting portfolio value after 50 years even if I withdraw 4% of it year after year. This means that my starting portfolio value will be worth: $500,000 x 10,39 = $5,195 million!

What if I earn a small amount of money some years after I reach Financial Independence?

Let’s say I earn $2,000/year from random projects when I’m FI. For me to earn this sum at my day job today means working aprox. 1 1/2 week.

I mean there’s no way I won’t earn that kind of money during retirement, because I’m not going to just chill at the beach sipping margaritas.

Earning $2,000/year when I’m FI will be easy.

The success rate of my portfolio lasting for 10 – 20 years is also here 100%. If my portfolio should last for 50 years (I will be 82 years old), then the success rate is up from 93% to 98% just by earning $2k/year.

But it’s getting better. The median portfolio value will have increased by 11,58 x my starting portfolio value after 50 years even if I withdraw 4% of it year after year. This means that my starting portfolio value will be worth: $500,000 x 11,58 = $5,790 million!

What’s the worst case scenario?

Using a FI-number of $500,000 and earning a active income of $2k/years means that my success rate will be 98%. This means that 98% of the time – working extra years to reach a higher FI-number will not benefit me.

Additionally, it is not like you will wake up when you are 85 to learn if you are in the 98% or in the 2% – other research has shown that the returns of the first few years are massively predictive of success vs. failure. This means that if you do get unlucky, you will know quickly and be able to do something about it.

Research has also shown that lowering your withdrawal rate if your portfolio drops substantially increases your chances at success. So if I am willing to be flexible in my spending (which I am), then I’ve just reduced my risk quite a bit.

Let’s say everything goes terribly – the market crashes, you can’t lower your spending etc. You can always go back to work for a few years. Remember, that’s where you already are! This was what you were going to do anyway.

How Am I Going From $282,000 invested to $500,000 in 2 years and 8 months?

I expect the market to increase 10% in the long run and that I invest $3,600 every month on average. Then you’ll get the table below.

New FI-date is therefore sometimes between july/august 2022 which is only 2 years and 8 months left!

And yes, I know the market is volatatile and this plan may not be realistic if the market crashes..but then I’ll just have to update my plan again. There’s no other risk. I’m flexible.

Conclusion

For the first 10 months this year I’ve spent $16,175 and I’m in route to spend under $20,000 for the whole year. Using the 4%-rule this means I can reduce mt FI-number from $600,000 to $500,000. Which I do, my new financial independence number is now: $500,000.

The success rate of my portfolio lasting for 50 years (I will be 82 years old), is 93%.

The median portfolio value will have increased by 10,39 x my starting portfolio value after 50 years even if I withdraw 4% of it year after year. This means that my starting portfolio value will be worth: $500,000 x 10,39 = $5,195 million!

I don’t see any reason to continue in a job if you don’t have to. The point is, every year you are not FIRE you are not living the life that you want to.

Let’s say I earn $2,000/year from random projects when I’m FI. My success rate will be up from 93% to 98%. This means that 98% of the time – working extra years to reach a higher FI-number will not benefit me.

I’m taking that chance.

What about you?

Are you postponing your best years for some extra % safety that you may never need?


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11 Replies to “2 years And 8 Months Left Until Financial Independence – This Is My Plan!”

  1. I have a similar idea to you on opportunity cost but I call it discount life flow.
    Like. Discount cash flow but for your life energy.
    It’s one reason why it’s better to love now than slave away in an office to only go to live in a fancy old folks home when you are 70

    1. route2fi says: Reply

      Thanks for your thoughts!

  2. One point that many in the USA atleast doesn’t take into consideration is healthcare cost in FIRE. It can be $20K easily per year to get premium plans for families. That is a quite an expense that doesn’t go into the market! Unless we get some kind of break through subsidies, that is one of the reasons, these numbers you project are not rosy as you project.

    1. Mr route2fi is a lucky Norwegian 🙂

      1. route2fi says: Reply

        Thanks. How is your FIRE-journey going?

    2. He lives in a European country with free health care 😉

      1. route2fi says: Reply

        Thanks for informing, mate!

  3. I have a similar FI number but it is sci-fi to invest $3,600 / month in my country (Czech Rep.). Only a handful of people have such a high salary here and moving to work abroad is not an option because of family. Therefore I have to work 4x longer than you for the same amount of money. #FML 🙂

    1. route2fi says: Reply

      Wow, when you say it like that I feel incredibly lucky! Good luck on your journey, my friend 😀

  4. Hey Route2FI,
    this blog post received a lot of interest from our readers on FIREhub.eu, it is the blog post of the month of November! Congratulations!
    https://firehub.eu/blog-post-of-the-month-november-2019/

    1. route2fi says: Reply

      Wow, thanks a lot, Noemi! 😀 It’s an honor!

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