Are We on Track to Retire by Forty?

It's my birthday later this month, my thirty sixth. This month is my annual reminder to do a lot of things I usually don't care to think about, but still have to do. Note to self: remember to eat a bunch of cake while your friends and loved ones sing for you, pay for your life insurance policy, take a look at that beer belly and make some fitness goals, and check in on this plan to retire by the time you're forty.

Our early retirement goal is a scant four years from now, which on top of putting some real pressure on us to kick our savings into gear, is just plain old depressing since, you know, I'm going to be forty dang years old.

To the kids reading this, that whole YOLO thing has some legs. Get out there and live life while you're young and mistakes are encouraged.

But since this is supposedly a personal finance blog, we should occasionally talk about our personal finances, I suppose.

Transparency gets tricky quick when it comes to checking in our retirement progress, since we decided a couple years ago to take down all our Budget Porn and Net Worth posts. Since some of our friends and family read the blog, it felt weird being that open and that specific with figures that we'd been taught you just shouldn't share in public.

But then we found the Mad Fientist's laboratory, which is maybe the perfect tool for turning years of budget spreadsheet tabs into actionable data and planning out our early retirement. From piles of granular Excel data, we get a helpful graphic like this:

Neat, right? Without getting into a discussion of specific asset amounts, we can still get into the weeds a bit when it comes to where we're trending to with our retirement plan.

I entered our monthly spending (green data points), monthly saving, and net worth figures into the Mad Fientist's laboratory going back to the start of 2014, and it calculated the average spending figure over the last twelve rolling month period (red dash line, about $3,300 a month) and the current hypothetical income that could be generated by our portfolio (blue data points).

But the best bit is that the Mad Fientist's lab spits out a target financial independence date, March of 2020, which is a good deal closer than I thought. I figured we'd be working right up until the last day I was still forty. Now it seems we might be able to pull the plug while still in my thirties.

Net Worth & Portfolio Income

A few caveats here, because we never quite fit the norm. 

One, when deciding what to count in Net Worth, you'll get different opinions, at least when it comes to calculating how close you are to being financially independent. We chose not to include any of the equity in our personal residence or our rental properties. While there's a significant amount of capital tied up in these houses and we'd surely net some coin if we sold, we prefer to just be ultra conservative here.

In the same conservative vein, we do factor in (i.e. - subtract) our brand new mortgage on our personal residence. And to make things even more complicated, when it comes to our rental properties, we don't factor in the mortgage figures (or, as noted earlier, the equity). Basically, we work from the assumption that if we sold the rentals today, we would sell for exactly the amount we owe the bank, plus any transaction costs, and come out of the deal without making a profit or taking a loss.

I'm sure getting tangled in the details is terribly interesting for you readers, so let's just bottom line this thing. We take the total value of our paper assets (stocks, bonds, cash), then subtract the mortgage on our primary residence, and poof, that's the net worth figure we use. Our true net worth is higher, but whatever, we're just being overly cautious.

Our "True" Annual Spending

As we've written about the past few years, our annual spending is in the range of $35,000 or so, but the trend is towards some spending creep since 2014 and 2013. Looking strictly at the last twelve months though, that figure looks a lot like $40,000, and a worrisome pattern is emerging.

Not to make excuses for ourselves, but the last twelve months were particularly spendy due to the trip to Western Europe in the winter (London, Paris, Amsterdam, and Brussels are decidedly not cheap) and our recent trip to Africa (which while inexpensive on a day to day basis, lasted for almost a month). 

So I suspect our true average spend going forward will be less than the forty grand that the last twelve months have shown, but who knows? We have a mortgage adding about four hundred and fifty dollars to the monthly budget starting in September. And we want to start a family. Maybe our costs will be even higher once Baby Done by Forty rears her stupid, expensive baby head. We'll just have to wait and see.

The Date: March 2020

This would mean we'd hit financial independence a good half year before my fortieth birthday, which would be fantastic. But I suspect it's pretty optimistic.

Mrs. Done by Forty might focus on making said baby after she finishes her PhD, rather than going back to work. And our income would actually go down a bit if that happened, while our expenses would increase as she came onto my health insurance along with the future baby. Will these costs exceed those of the international travel that's probably coming to an end when we start a family? Will our investments start to earn enough as our nest egg grows, so that losing Mrs. Done by Forty's income might not be such a detriment?

I'm not sweating the details quite yet: it's just too hard for me to estimate future years' costs and income accurately. I figure we'll get an idea of the new financial realities as they come, and adjust. There's still plenty of wiggle in our budget, if we ever want to lean back into frugality.

The part I really love about the Mad Fientist's graph was that it's crazy motivational. As we've written about before, I'm kind of a sprinter, and I've been wearing down on this multi-year slog to financial independence. When I have a bad week or month at work, I'll find myself wondering if I can even make it the remaining years to FIRE, or if I'd be better off taking a sabbatical of sorts.

But seeing that we might only be three and a half years out, I notice that I am focusing on our budgets again, and writing more again, and all in all just finding that I somehow have the energy to make it through the home stretch. 

Sometimes, all you need to keep going is to catch a glimpse of the finish line.

*Photo is from Andreanna Moya Photography at Flickr Creative Commons.