I’m an accountant and an Excel geek. If a “I ♥ Excel” bumper sticker existed, I’d put it on my car. It would be my only bumper sticker. Oh wait, I just found a “I ♥ Spreadsheets” sticker, I may need one.
I prepared my first budget before my sophomore year of college–because my father insisted. I was definitely not on board but the next summer I asked him to help me do it again and I have done an annual budget ever since. For me, New Year’s Day usually means football and budgets. Seriously, it doesn’t get any geekier than that. Even scarier, I have friends that do the same thing (ok, one friend)!
I have tracked my spending in Quicken since 1992. If I were starting to track today, I’d use Mint because it is comprehensive and free. The geek in me can’t give up all of that lovely Quicken history.
I use a spreadsheet that estimates income and expenses by year through age 100 though I hope to not live that long. The withdrawals from investments approximate the 4% safe withdrawal rule.
The 4% rule is based on the trinity study and says that you can withdraw 4% of your invested assets in the first year of retirement then increase that amount each year based on inflation. 96% of the time, you will end with more money than you started with. Here’s the best article I’ve read on the 4% rule. So basically, you need to save 25 x your annual expenses in order to retire.
If you want to accelerate your path to financial independence, you can reduce your expenses or increase your savings or both.
Skeptics love to beat up this rule because if you have significant market downturns in the early years the 4% withdrawals end up being not so safe. They also argue that today’s interest rate environment and overpriced stock market mean that 4% is too aggressive or that the rate of technological advancement will decline or . . .
I have a high need for financial security, so I built in some contingencies:
I keep at least 3 years of expenses in money market funds so I shouldn’t have to sell stocks at the depths of a severe downturn.
20% of my annual budget is for vacations and another 10% is for general spending well above the levels I have spent for years. So I could easily reduce my spending by 30% and still have a really nice life. Almost 10% of my budget is for “contingency”. If something goes terribly wrong, I’ll have money to pay for it. This is unlikely to be triggered often.
We can downsize from our ridiculously large home to a more reasonably sized home. We can move from our resort community to a more reasonably priced community. We can rent or sell our vacation home or sell our boat. This would reduce our annual expenses and provide additional funds to invest.
I can start a side hustle to offset some of my expenses or I can get a job—50 is the new 30 right?!
So that covers the financial end of early retirement.
There are emotional considerations as well. Taking the leap (I resigned on leap day, 2016) was easier than I expected. I miss my work people as I expected I would but haven’t missed my work. My husband thought I would miss being “important” and the busyness of work but I haven’t.
I am enjoying my new routine–relaxed mornings followed by outdoor adventures with new and old friends, work on this blog and exploring ways I can contribute to my communities.
We are so lucky to have super smart people sharing their knowledge with us about early retirement. If you are working towards financial independence, here are a few of the blogs that helped me get there:
And if you just want to learn more about personal finance, RockStarFinance trolls the web looking for useful articles about saving, investing and life and posts links to three of the best each weekday.
I welcome your comments.