Our investment value actually went up a small amount this month. However, spending was up substantially compared to last February. This more than cancelled out our small gains. Our assets now sit at only 14.3X our annual expenses.
Our increased spending has been driven up by a combination of health related expenses. Our grocery bill continues to be over double what it was a year ago as we continue to experiment with changing our diet to address Mrs. EE’s auto-immune type symptoms. My contribution to insurance premiums has also more than doubled since the start of the year. We also have higher deductibles with this new plan increasing our share of medical bills which came due for testing for Mrs. EE. All of this goes to show how important good health is to successful early retirement and how vulnerable a plan can be to health care expenses, even if planned for carefully.
On a more positive note, we also had some increased spending due to taking our first ski trip west since having our daughter which was a really fun splurge and well worth every penny. We also made an unexpected fairly large charitable donation to an organization that we are involved with that is having tough financial times. Both of these instances make us realize that spending more can be a positive thing and this is again one of our values reflected in our future plans.
Is Your Plan Changing?
The recent drops in the markets have our numbers looking pretty bad. To recap, these numbers represent our investment assets as a multiple of our annual spending. We determine annual expenses by keeping a rolling 12 month average, updated at the end of each month. Our investments include stocks, bonds and cash which are used to produce income. Our residence, cars, other investments earmarked for Little EE’s future education expenses, etc are excluded from these numbers.
Less than one year ago we peaked with our investments at just over 18X our expenses. Since then, we’ve kept our overall spending pretty consistent. At the same time we’ve continued to contribute substantially to our investments by maxing out both of our work sponsored retirement accounts, maxing out 2 Roth IRA’s, saving the remainder of my paycheck and all of the money from our side-hustles in taxable accounts and reinvesting all of our dividends and interest. Tally it up and it is a sizable contribution. Despite this, our number has dropped and has been hovering in the range of 14-16X our expenses.
I know other people write about moving their retirement dates up when their numbers look good or thinking they may have to work longer when their numbers look bad. So are we changing our plans? Not at all.
I’m curious to hear how others are changing (or not) their plans. I am finishing up a post that explains exactly how we plan to live and fund our early years of our early retirement. Until then, here are a few random thoughts on this topic that will set it up and hopefully start others thinking and discussing this issue.
What Are Your Biggest Risks?
Almost everyone who writes an early retirement blog has written their take on using the 4% rule to guide how much money they will be able to spend in retirement. Using the inverse of 4%, the thought is that we will be financially independent when we have 25X our expenses in investments. Here is our stab at the topic from one of our earliest posts. We also wrote a post titled “Is a 4% Withdrawal Rate Too Much or Too Little for Early Retirement”.
We, like most in this community, spend a lot of time planning and thinking about the issue of how much money we will need to retire. (Like every month when we do these updates.) It is important. However, running out of money in retirement is only one risk that we face. Given our flexibility, conservative nature and understanding of our finances, I would say that the odds of us actually running out of money in retirement are minimal to none. This is in line with the thinking of Michael Kitces who argues that the whole idea of “probability of failure” should be replaced with “probability of adjustment” in this excellent and entertaining blog post about phrases that should be banished from retirement planning.
We outlined how we came to our FI date in this post. I more recently wrote a post called “Fail Upward” in which I outlined the many reasons we remain on this path. We are committed to our plan and FI date, whether we have 25X or even 20X our expenses saved up in investments by that time.
Waiting Too Long
Another risk that we face is waiting too long to leave our 9-5 lifestyle to pursue a different course for our lives. We have always been good at delaying gratification. We were the ones working multiple jobs in college while our friends were maxing out credit cards to go on spring break. We were the ones that were driving cheap, used cars while our peers were financing their luxury vehicles.
We don’t regret those decisions at all as they have been instrumental in setting us up where we are today. However, our willingness to delay gratification can make us too conservative. A couple of things have this front and center on my mind.
Our daughter is now three years old. This is a magical time and I treasure every second I can spend with her. It is amazing looking back at baby pictures that in my head seem like just yesterday and not even recognizing her as she has grown and changed so much. It kills me to know that she spends more time being raised by daycare and her grandparents than either of us. We know we have only one shot at any stage in her life and then that little girl is gone. We want to have the time to be there as much as possible.
I also have been watching my mom struggle with some significant health issues. My parents did everything “the way it should be done”. They are amazing parents to my brother and I. They have always been there for everything for us. They are extremely financially responsible and taught me the most important lessons that I now share on this blog about money and life.
After dedicating their adult years to raising us to the best of their abilities and running a small business, they were able to FIRE in a more traditional sense, retiring in their early sixties. This should be their time to kick back and enjoy life, travel with their friends, play and be active with their grandchild, etc. Instead while my mom is strong of mind and has plenty of money to do whatever she wants, her body is failing and it is painful for me to see.
As Mrs. EE began to have some recent medical symptoms of her own, it made us realize that our time and health is not guaranteed. The things that we love to do including hiking, climbing, and skiing are not guaranteed to be possible at some later time. While we know we must plan to live to 100 or beyond, not even tomorrow is guaranteed. We need a retirement plan that reflects that reality.
Not Creating Problems
We have been very fortunate. We have never had financial stress in our adult lives. We have had the amazing opportunity to do things that others only dream of. We have traveled the world, climbed big mountains, dove in the clearest oceans and saw amazing reef, hiked and backpacked in beautiful places, spent time in amazing cities around the world and attended major events such as Super Bowls and major concert festivals.
While we have evolved somewhat over time and learned to enjoy more simple pleasures, we are not frugal people by nature. We have never lived on a strict budget. We only in the past couple of years began tracking our spending. We don’t desire a life that is constrained by living on a fixed amount of money and is conducive to developing a “poverty mentality.” We don’t want to replace the stress of not having enough time to live the life we want to live with a newfound stress of not having enough money to live the life we want to live.
So to recap, as we developed a plan for our lives we are trying to balance these three competing issues. We want to ensure that we have saved enough. We want to leave the 9-5 rat race ASAP to create more time for our family and other interests we are passionate about. We don’t want to trade the stress of working for the stress of living on a fixed budget. In short, we want to make sure we enter our early retirement with a well thought out plan and not a mid-life crisis.
That is what we are thinking about as we begin to develop our transition into early retirement over the next year and a half. We will soon reveal more details of how we plan to achieve this. Until then, we’d love to hear what is important to you and how your FIRE plans are holding up or changing with the recent market volatility. Please share below.