If he had, I would have been retired much earlier.
But in my generation, retiring early was at 60. Now it’s somewhere around 40.
If I had known that there was a different way (either through MMM or my own realization), I would be retired earlier.
But how much earlier? I’ve always wondered that and have been meaning to dig into some numbers to find out.
So I went back and looked at over 23 years of Quicken data to estimate my financial independence (FI) date.
But before we get to that, we have some assumptions to make.
What Would We Spend?
As I wrote in Three Steps to Determine if You Have Enough to Retire, the first step in knowing when you can retire (or are at FI) is determining your post-retirement annual spending.
But what’s the right number to use in my situation?
There are many factors influencing to consider including:
- We are rather frugal, spending an average of only 17% of our gross annual earnings for 20 years so our retirement spending could be quite low.
- That said, because we also had a high income, 17% was a fairly decent number, especially since it included no house payment (our mortgage was paid off more than 20 years ago.)
- In retirement we would have lower taxes and giving (47% of our spending was in these two categories) and not need to save any longer (36% of our spending was here), making our three top expenses drop dramatically.
Taking these into account, I established three post-retirement spending levels (these are all without any mortgage costs, though we still did have insurance, maintenance, taxes, etc. on the house, of course):
- $30k per year — This would be the bare-bones level of spending that seems pretty common these days among those retiring super early. It includes the basics and not much else. Yes, you’re retired, but you still need to be pretty frugal just to make ends meet. Many people call this “light FI”.
- $50k per year — Close to what we actually spent for most of our lives. This would allow for a much more relaxed lifestyle. While we wouldn’t be living high on the hog, we also wouldn’t be eating mac and cheese every night to get by.
- $80k per year — Close to where we are now. This is a pretty good level of income which allows for many luxuries (like going to Grand Cayman) and not really stressing about money in any way.
These three give us a nice low-medium-high set of spending options to consider.
Now on to the next question…
How Much Would We Earn?
We know the spending side of the equation so it’s time to consider how much we would earn in retirement.
For now we’ll leave out my rental properties. We’re simply talking about side hustle/business interests in the income estimates below.
With that said here are three income options to consider:
- $0 per year — Even if I died I would earn more than this (from residuals — at least for a year or two), so it’s not really realistic. But it represents an “I’m doing/earning nothing” option we should have in this analysis.
- $10k per year — This is a realistic number even if I didn’t push it much. I could certainly earn this blogging with minimal effort.
- $25k per year — This is the “high end” scenario we’ll use, but I could probably do better. I’m going with this simply because I think it’s a reasonable goal for blogging if I want to put in moderate effort but not dedicate my life to it.
Now that we have both spending and income options, it’s time to crank some numbers.
Assets We Need at Various Levels
The spending/income levels above give us the following combinations to consider:
- $30k per year spending and $0 in income (spending needed to be covered by assets: $30k)
- $30k per year spending and $10k in income (spending needed to be covered by assets: $20k)
- $30k per year spending and $25k in income (spending needed to be covered by assets: $5k)
- $50k per year spending and $0 in income (spending needed to be covered by assets: $50k)
- $50k per year spending and $10k in income (spending needed to be covered by assets: $40k)
- $50k per year spending and $25k in income (spending needed to be covered by assets: $25k)
- $80k per year spending and $0 in income (spending needed to be covered by assets: $80k)
- $80k per year spending and $10k in income (spending needed to be covered by assets: $70k)
- $80k per year spending and $25k in income (spending needed to be covered by assets: $55k)
Putting these in order from lowest net need per year to highest, we get this:
- $5k per year
- $20k per year
- $25k per year
- $30k per year
- $40k per year
- $50k per year
- $55k per year
- $70k per year
- $80k per year
Assuming we use the 4% rule for asset withdrawal, here’s what each of the net needs levels would require in assets:
- $5k per year = $125k in assets
- $20k per year = $500k in assets
- $25k per year = $625k in assets
- $30k per year = $750k in assets
- $40k per year = $1,000k in assets
- $50k per year = $1,250k in assets
- $55k per year = $1,375k in assets
- $70k per year = $1,750k in assets
- $80k per year = $2,000k in assets
Now by checking Quicken we can see when I reached each of these asset levels (excluding our home, of course).
This would give us FI numbers as follows:
- $125k in assets — 33 years old
- $500k in assets — 38 years old
- $625k in assets — 39 years old
- $750k in assets — 40 years old
- $1,000k in assets — 42 years old
- $1,250k in assets — 43 years old
- $1,375k in assets — 45 years old
- $1,750k in assets — 47 years old
- $2,000k in assets — 48 years old
Now of course there are a lot of variables we could use to adjust these, but I’m not doing a financial audit here, just getting us in the ballpark is fine IMO.
Impact of Real Estate
Up to this point we haven’t talked about the impact of my real estate purchases.
There are two main reasons for this:
- I wanted to see when I got to FI without them.
- By the time I got my rentals, I was already at FI. 🙂
So really the real estate purchases were just icing on the cake. They allow us to live at the higher end of retirement spending while not dipping one bit into assets.
So what do I make of all this? Here are some thoughts:
- The earliest I was FI was when I was 33. It’s strange to think it was that long ago. Then again it was very light FI and I did not (and still don’t) want to live on pork and beans for 40 years, so it’s probably not realistic.
- The average (most reasonable) age I was FI was when I was 42. Ironically, that was with $1 million in assets (plus the house). It was a decade before I actually retired. Also ironically, it’s at an asset number that’s half of the $4 million I once thought I needed.
- The oldest age I was FI was when I was 48. This is the “spending a ton with no income” scenario which is unrealistic as well but at least gives us a “beyond-all-doubt” FI age.
- So by whatever measure you use, I was FI well before I actually realized I could retire. This is why I wish MMM was around 20 years sooner.
- None of these numbers were impacted by either real estate or my side businesses. These two alone get me to paying for retirement costs with no asset use, so if I had developed them much earlier, I would have been at full FI much earlier. They also provide a huge margin of safety in retirement.
- These results were achieved without trying that hard (because I was shooting for 60). If the MMM crew had been around earlier I probably would have tried harder.
- Another interesting question would be “when could we have hit FI if we had tried?” One big impact in this effort would be if we had eliminated or decreased our giving while we worked toward FI. Our giving was 26% of our gross income so even if we had cut that in half, we would be at FI many, many years earlier. That said, I’m glad we gave when we did for reasons I detailed in Where Does Giving Fit with Financial Independence?
- Downsizing our home would have also helped us reach FI sooner. We have had more than enough house for a long, long time.
In the end, these numbers don’t mean that much. But they are fun to look back on. A bit of math gymnastics now and then is good for the soul. 😉