I have a series of financial goals, and each one is a step on the way to the next. Until recently, the steps were these:
- Get out of debt: I expect this will happen when we sell the house and use the proceeds to pay off my student loans. This will drop the mortgage and finish off the student loans all at the same time. You can follow this journey on my monthly stats posts.
- Become financially independent: Save enough in retirement and taxable accounts to have 25 times our annual spending. At that point, we will be free of the need to actively earn money because we’ll have enough passive income to cover our spending. I hope to start posting about this journey to our target number soon, but it pretty clearly leads to the final step:
- Retire early: This one should be pretty self explanatory; I want to have time to sleep and follow the rest of my passions. That doesn’t mean I’ll never make money again, and it doesn’t mean I’ll be sitting on the couch watching TV all day, either. I want control of my life so I can focus on the things that give it meaning – and working for a paycheck certainly doesn’t.
However, in a recent very (very very very) long car ride with DW, we talked through a lot of our financial plans and reworked these goals a little. Now, they look more like this:
- Get out of debt. This step doesn’t change.
- Reach our coast number: Once we hit a certain amount in investments, we can stop investing and let them grow on their own and still be able to retire at 65. This is called a “coast number,” because, once you hit it, you can just coast until retirement. Of course, the more you invest after you hit that number, the closer you’ll bring retirement. Selling the house and moving to Florida will help with this step: first, not living in such an expensive house (with its requisite maintenance and taxes) lowers our target number; second, putting the rest of the house equity into investments will move us toward that target number; third, dropping state and local taxes (Florida has neither) will let us start maxing out my 401k every year; and fourth, the difference between our house payment and our target rent payment can go into our taxable account.
- Retire early: Since DW has just gotten an agent for her first manuscript (yay!), it looks like, by the time we start getting closer to FI, she’ll be actively and passively bringing in some income. Seeing as how she plans to continue writing for the rest of her life, I can actually retire before we’re fully financially independent, as long as we can cover our spending while still letting our investments grow.
- Become financially independent: As long as we’re spending less than 4% of our investments each year, they should grow, eventually producing enough passive income to cover all of our spending. At this point, we are free of needing to actively earn money!
So, this is probably a good time to talk a little about our spending! Once we start renting, our target spending will be 40k pa. I’ll break that down in a future post, as this one’s getting a bit long, but that 40k pa translates to $1 million in pre- and post-tax accounts. (This doesn’t take into account any future income from social security or pension.) For us to reach that number by 65, here are our coast numbers for each year:
This chart assumes 4% real returns pa, so these are all in today’s dollars. If we hit our coast number of $253,415.47 this year and stopped investing, I would expect our investments to track basically like the chart until we had $1 million in today’s dollars in 2051. Of course, we’re not going to hit that this year, so the actual numbers may be a bit different by the time we do. However, it’s good to have a goal that’s closer than FIRE.
Once we move to Florida in 2018 and have more leeway with our cash flow, I’ll start to feel less stressed. Once we hit our coast number, which I expect to happen some time in 2020, I’ll feel much more secure in our finances. At that point, I may try to go to 80% time at work. I’d prefer 60%, but I think that would push my retirement date out too far, and having three day weekends is still a sight better than what I’m doing now.