Two Years Out: Are We on Track for Financial Independence?

Today's my birthday. I turn thirty nine, one away from the big year where I leave my thirties, turn forty, and run against the number I foolishly set as my goal for reaching financial independence.

Astute readers will note that I'm only one year from turning forty, and wonder why the post says I'm still two years out from the goal.

A while back I decided to give myself a little wiggle room: that if I hit financial independence by the last day I'm still forty years old, I'd call it a success. I used to post net worth updates and budget porn posts, giving readers (and myself) a monthly check in on all the financial details in the Done by Forty household. Somewhere along the line I decided I didn't like doing that, so now you voyeurs just get one chance a year to peek in.

So let's take stock and see where we stand. Are we on track to make the goal in time?

Recently paying off our mortgage has changed our annual spending quite a lot, even as it took a big chunk out of our nest egg. Our annual spending should go down, from $49,000 over the past twelve months ($53,000 if we use the 2018 calendar year) to something like $33,600, once we're no longer paying principal and interest, and just have property taxes, insurance, and maintenance to cover.

Assuming a 4% rule SWR and that super skinny $33,600 budget, we are technically financially independent already, according to the Mad Fientist's laboratory.

Click for bigness.

So we have that going for us, which is nice. 

But we're going for a slightly increased $35,000 annual budget with no mortgage, and want to use a 3.5% SWR thanks to Big ERN's harrowing series on safe withdrawal rates. Under those assumptions, here's how far we are from financial independence:

One year and four months. We're on track to hit our true goal with some time to spare.

There are some upcoming changes that will impact our finances, and probably change our financial independence plans, too.

First, Mrs. Done by Forty has accepted a position and will be working full time. It's pretty rad. She's getting to work in her field on a pretty cool project, and locally, too. We're kind of over the moon that the stars lined up for that to happen for her.

Thanks to the fairly ridiculous benefits that she gets with this new position, she will be able to max out not one, but two different retirement accounts, completely shielding $38,000 from income taxes each year.

It's a post-doc position, and who knows what she or I will feel about working full time, after a couple more years. But in the interim, with this extra, tax-free income, that should probably have some impact on how quickly we reach financial independence, right?

Unfortunately the Mad Fientist's Laboratory doesn't have a feature that lets you forecast with future savings, or future investment balances. Trying to account for this ends up being a big pain in the ass, but I tried anyway.

(In order to get a forecast, I entered future months' hypothetical savings and spending figures once Mrs. Done by Forty's income kicks in, starting in November: using our past year's savings numbers and adjusting to account for the fact that we no longer have a mortgage, and then assuming our spending will be at $35k. That covered the savings rate and expenses, but what about our investment balances? 

In order to be consistent with the prior graphs, I stuck with the existing 7.1% growth rate assumption: that is, having the prior month's investment figure grow by 0.59% in a month, and then added in the amount saved that month. After that, I checked to see which month we'd hit financial independence under those assumptions. 

And after I got to December 2019...the Mad Fientist's laboratory wouldn't let me enter in spending and expenses for future months anymore. There was no option to enter in expenses for 2020: presumably because what kind of dork would try to enter in expenses for the future.

In any case, here's what the projection shows with just a couple months of Mrs. Done by Forty's income hitting the books in November and December:

There are a couple more big things we could consider in these projections. First, there is the fairly expensive daycare we'll be putting Baby AF into, and whether we should incorporate that into our monthly spending figures or not. On one hand, it's spending so why not include it? On the other, our plan (subject to change) is to take him out of daycare if both of us are retired. Should we run our calculations off of a five figure expense that's not going to be here in a couple years? And now that Mrs. Done by Forty is working, we might want a second vehicle. That probably changes these FI dates a bit, too, but we have to work with the information we have.

Somewhat surprisingly, the graph shows pretty much the same date as our projections did prior to adding in Mrs. Done by Forty's income: one month earlier, October 2020. A couple things may be at play here.

One, this reflects only two months of Mrs. Done by Forty's income, so of course that will only have minimal impact. It shortened the projection by a month after only two months of her full time income. That's a pretty damn good result.

On the other hand, we're very late in our financial independence journey. With only a year and four months to go, there's only so much any of our actions can shorten that 16 month runway. How much quicker can we reach financial independence? Maybe four or six months earlier? For better or worse, maybe most of the impact is going to come from our investment portfolio, rather than our incomes and contributions. 

But I figure this is the reality at this point in our financial independence journey. The tradeoff is that our portfolio is doing most of the work, so we don't need to rely as much on our contributions as we did when we first heard about this stuff back in 2012.

Put another way, the things we choose to do with our hours from nine to five, the work we choose to take on, becomes more and more detached from the paycheck it comes with. Mrs. Done by Forty will talk more about this in her future post, but the reality is that she's the first one of us taking on employment from a perspective of financial independence: of choosing to work because she would rather spend her time doing the work than not, and not because she needs the money.

Absent an extra month or three shaved off our already-close financial independence date, we don't really need the money.

I'm excited to see what that's like for her, and for us. I'm excited to learn from her, as she approaches work in this new way.

For me, I still am caught up in the same view of work I've always had. I like my job some days and it's hard some days. It provides the right amount of challenges and I get satisfaction from knowing that I have the skills to do the work and that I'm good at my job; but make no mistake: I am here for the paycheck. 

In some ways, the more interesting part about this final push to financial independence is figuring out whether I have enough time to prepare for what comes next. Will writing on this blog prove to be the right kind of fulfilling work, or should I plan to pursue something else, like trying to intern at a local paper or public radio station? Will I like being a stay at home dad with Baby AF and baby-to-be-named-later? (MC Baby is the frontrunner.) Would I be happy with side projects, like creating a podcast?

I suppose I should be worrying about the money itself. Whether we saved enough or if our asset allocation is too risky for where we are in the process.

But I'm more concerned with the other stuff: the good stuff. The way I want to spend time with my friends and my family, and myself. This big wide life I still have ahead of me: one that I can't really plan all that well, no matter how much I noodle over it. I'll just have to figure some of it out as I go, I think, and that's probably true for a lot of us. We can't know what we're going to think about something until we try it, until we do it. 

I've got a year or two until we get there, and I can't wait.


*Photo is from bubili at Flickr Creative Commons.
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