February 2019 Update
Progress to Early Retirement: 45%
Progress to Financial Independence: 91%
Progress to Half Income: 100%
Percent Home Ownership: 44.48%
Net Worth Breakdown: Home Equity 15% Non Retirement: 26% Retirement:60%
January 2019 – ER: 44% FI: 87% HO: 44%
December 2018 – ER: 44% FI: 89% HO: 44%
November 2018 – ER: 46% FI: 90% HO: 43%
October 2018 – ER: 45% FI: 90% HO: 42%
September 2018 – ER: 42% FI: 90% HO: 41%
August 2018 – ER: 44% FI: 89% HO: 41.9%
This Month’s Story:
The big deal for this past month has been our family talk about paying down or mortgage and adding money to our son’s college savings account We did the maximum contribution to our son’s account that our state allows for our tax benefit.
The Mortgage Story
We have extra cash in our accounts. That money, along with some investments will be put to bear on our mortgage. We decided to put in a bit less than 1/3 of our remaining balance. I wanted to do a bit less than 1/2, but my wife was not comfortable with that much today. I get that, and she agreed that we could put more in over the coming year. I created a blog post about the options if you want to see, look here.
What we decided to do was the 1/3 option. The 1/3 option will shave 8 years off our mortgage. 55% of the money we put in will be returned to us in interest that we will not pay. This includes the loss of the tax deduction for the interest that we will pay. Were it not for that, it payback would be about 71%, so Uncle Sam takes about 16% of the savings in income tax. But what convinced my wife was the 55% earnings on the 1/3 of our remaining balance. That’s a deal that’s hard to beat over 8 years, with 100% guarantee. Admittedly, we are making the assumption that our house value will not drop significantly.
The 1/2 option that I prefer will save us about 47% instead of 55%, but it’s still a larger number even after tax penalty. This option shaves us 12 years, and I think in a few months she will be comfortable doing that.
We are eating into our emergency fund a bit, but we will restore that over the next year. We will eat 3 of our 12 months of our emergency fund. I think that is safe enough. I should add that we are still putting an extra 15% of our monthly payment, excluding the cost of taxes and insurance, against our principle. That works out to shave about 20 months off our loan which has, at the moment 21 years left. We’ve made extra mortgage payments that have shaved more than a few years off the mortgage in the past, so this is a big one.
This Year’s Home Improvement
Every year we do something significant to the home. Last year was new furniture. The year before was windows. Before that, we painted. Before that we bought 2 heat pumps over 2 years. This year will be a new deck. We want to make it a three season room with at least screens to make our deck a usable space. Most homes in our town have such rooms due to the high mosquito population in the are. That itself is a good thing due to the large number of homes with wells in the town. We need to find a contractor, but I am sure that will not be an issue.
When Can We FIRE
A new thing that I will start talking about is when I think we can FIRE. We want to have a FAT FIRE that replaces our current income. This is our comfort level, and while I see others that will retire on less, younger, we do not feel comfortable with that idea.
I have a few spreadsheets that I use to estimate when we will hit our target. Of course a lot depends on how well we keep earning, and of course it also depends even more on the market.
What I did was to take our current net worth and apply a simple calculation that adds 3% to 8%. If we can average 5% over the next few years, then if we add no more money, we will be able to FIRE in 19 years. If we can average 8% a year, and again we do not add any more money to our investments, then we will fire in 12 years. Amazing that spread.
Now assuming we continue to add the same amount that we have been for the last few years for every year until we FIRE, then the 3% option will get us there in 19 years. 5% will get us there in 14 years, and 8% will get us there in 10 years.
Now when we FIRE, I still plan on working, but I will give up my 9-5. I really am hoping for the 10 year option, but since we are due for a market correction sometime in the next few years, I don’t expect that. I think we will hit our number some time, around 15 years from now. That’s the 5% and our current savings rate.
I am not sure why folks feel comfortable with a thin FIRE, but I understand the rationale. I am just not one of those folks. It seems like you are taking one heck of a risk, and it’s not like the old days where you could live like Rudyard Kipling suggested in his poem If. I do love that poem, but I will not gamble my savings on one throw of the dice. A thin FIRE sounds like that to me, but then I also did not save a lot when I was young. I should have, but I partied and lived it up in NYC. Those were great memories, and I am glad for them. That is how I view a thin FIRE, and in my case, this is why, best case scenario, I will retire in my early 50s, and likely in my late 50s. My early retirement will only be a few years before 65. I am not counting on Social Security, although I will likely get something. I have heard reasonable expectations of getting 70% or so of what I should. Being a high earner, I could also see that they may cut me further. It is for those reasons, I will not plan on getting any money. Then whatever we do get will only be a bonus, and will help us live better.