When Can I Retire?

Do you love what you do? Do you struggle waking up every Monday morning? Can you imagine doing it for the next 3 to 4 decades of your life? Have you ever thought when you could stop? Do you want to do something else? Or do the same work not for the paycheck but because you love to?

On knowing our FI number from our previous post today I think about…

When can I retire?

View on Retirement

My parents had worked for the same company for more than three decades. It is the same company where they had met. It was and still is a very good company and my dad always said that being employed there is like leaning against a sturdy wall. They had good benefits and their loyalty was always rewarded.

I’m not sure if they loved it, but I know they are good at what they do. By the admiration of their co-workers / friends, who saw how dedicated they were. There could be several factors, but I think that this dedication might have affected their health.

According to discovernet.io, the average age of retirement for Americans is 66, which is up from 60 years old in the 1990s. My parents retired a few years earlier than this, but close.

On the same site, it said that when 18- to 19-year-olds were interviewed about retirement, they expressed optimism that they will be able to retire early. However, once they hit 30, this optimism wanes upon recognizing the realities of working and adult life. Now, I am at a point in my life when I start to consider about our retirement, and I am facing the same uncertainty.

When can I retire?

On knowing the amount of money that we need for retirement (FI number), we continued to become curious. We wanted to know for how many years we must still work to arrive to this number. I found a very simple formula that would do just that:

Years to Financial Independence = (Financial Independence number – Net Worth)/ Annual Savings

FI number from previous article: $2,085,000

Net Worth: What it is and what it is not

The next number that we need, to know your FI timeline is your Net Worth. This is simply all your Assets minus all your Liabilities.

Remember that Income is not Net worth. It does not matter if you earn $200,000 a year, if you spend all of it your Net worth would still be $0.

Net Worth = Assets – Liabilities

Assets

These are your engines, the accounts, investments, and properties you own that earn you future money and can be converted to cash. This includes money in your bank accounts, retirement savings, and personal property that you can sell.

When I started working, I had always thought that all the money in my checking account was simply my Net worth. It was lost to me that this is just half of the equation.

In 2019, my wife and I each have our own checking accounts and savings accounts. I had just started contributing to our company 401k. I also have a ROTH IRA account and taxable investment account by Wealthfront.

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  • $23,179.13         Taxable Account
  • $22,852.98         Roth IRA
  • $2399.17            401K
  • $5270.03            Checking
  • $1000.24            Savings
  • $54,701.55         Asset Total

Liabilities

These are your anchors, everything that you owe and must pay or else. They increase other peoples’ net worth, but not yours.

One good advice that I luckily caught early is to always pay my credit cards on time and in full. This way I do not have to worry about paying crazy interests. As I built my credit score, I signed-up with credit cards when I saw a good perk, but I never went crazy to rack up thousands of consumer debt.

We were doing some travelling in 2019, we had family over and we wanted to treat them and show them the around. There were flights, road trips, theme parks, tours, and dining that we expected to spend but did not plan for.

$8597.00             Combined Credit Card debt

Assets – Liabilities = Net Worth

$54,701.55 – $8597.00 = $46,104.55

We were thankful to be in a position where we had a positive net worth. For the least, we do not have to start paying of debt first just to get to a $0 net worth. We can plan to save right away towards our retirement.

Then again it was surprising to know that while I had been working as a physical therapist in the U.S. for 4 years and my wife for 2 years that we only had $46,104.55 between the 2 of us.

We do not have the income of orthopedic surgeons, but knowing that the median income for home health PTs is $92,875, where did all the money went? I thought about all the times that we put in at work, driving around in all kinds of weather and staying up later to do our charts.

How much more of this can we do? Should we just keep our heads down and work hoping we get there? Are we being intentional with our money? Are we willing to spend more of our time away?

Annual Savings

This is the portion of your hard-earned check that you pay your future self. It is the money you set aside in your savings accounts for a rainy day. Also, your contribution to any Employer Sponsored Savings plan (401k, 403b, SIMPLE, SEP), taxable investment accounts, and all different kinds of savings and retirement accounts (IRA, 457, HSA)

It was not that much, but I had savings. I set for a few dollars to automatically transfer to my savings accounts, Wealthfront IRA and taxable accounts every pay period. I was also contributing 15% of my paycheck on my 401K. I placed barriers around my savings, so it is harder for me to spend them at will. So, it was not all that bad.

  • ROTH IRA           $500
  • Taxable               $1000
  • 401K                   $1000
  • Savings               $2000
  • Monthly             $4500
  • Annual               $54,000

We ran all the numbers hoping that we could at least get a number less than 20 years. We enjoy doing our jobs, but we cannot see ourselves doing it with the amount of intensity that we have now. We want to be happy and effective physical therapists to give our patients the treatment they deserve.

The Big Reveal

(Financial Independence number – Net Worth)/ Annual Savings

($2,085,000 – $46,104.55)/ $54,000 = 37 years

We looked at each other mortified. This formula was saying that if we lived the same lifestyle we had, I would have to work until I am 69 years old and my wife 64 years old. Yes, it is about the average age of retirement in the U.S. So why were we shocked?

Imagine, we would be the same age as the patients we are seeing, probably complaining of the same aches and pains. If we want to even have a shot at retiring early, something had to change.

Changes

Unless we rob a bank or win the lottery, we cannot do anything about our net worth. It is what it is. But there are two more variables that we can modify in this formula.

  1. FI number
  2. Annual Savings

Can we live on less?

The FI number is not fixed, it changes with the lifestyle you choose. It can be modified by asking challenging yet very simple questions

What do I want for my life to be?

It requires you to look within, to check if your values align with the way you spend your money and your time. It forces you to ask another question.

Is it worth it?

The thing that you are getting should be worth the money that you are exchanging your time with. You must be awake enough to see that having everything is not the same as being fulfilled. That sometimes happiness does not come with a price tag.

In the beginning of 2020, we did ask ourselves these questions. I opened my spreadsheet, and we analyzed our spending patterns. We found out that we were not putting our money on our happiness. Putting our heads together, we came up with a plan.

The Plan

To only spend our money on the following:

  • The basic living expenses (home, utilities, groceries)
  • Healthy plant-based meals cooked at home
  • Once weekly visit to vegan cafes
  • Work related expenses (gas, tolls, insurance)
  • Art supplies – Mrs. Therafire
  • Vegetable garden supplies – Mr. Therafire
  • Gifts for our family
  • Charity

Basic Living Expenses

We have the mortgage, utilities, and occasional repairs. Aside from the obvious ways to decrease our bills such as, turning the lights off when leaving a room or using a cup when brushing your teeth, we wanted to be more creative and save more money.

We have 2 spare bedrooms and 1 bathroom for family and guest to stay over when they visit. Then the pandemic blew up early 2020. We figured that the room would stay empty for a while due to travel bans. On the introduction of one of our friends, we came across biggerpockets.com that eventually lead us to House Hacking. This really is a game changer, because it turned our house from a money pit to a good passive income source. For more information on how we began house hacking, watch this video.

2019 expenses: $21,240

2020 goal: $0

Savings: $21,240

Food

We changed our diet to be intentional in what we put in our bodies, nothing more. What we did not know is that it would have amazing side effects on our finances as well.

We decided to follow a Whole Food Plant Based lifestyle for at least a month. For the next 30 days we would only buy fruits and vegetables from a local produce and get toiletries and other pantry items only at Aldi (luckily, they are close to each other where we are). This is to avoid the temptation of getting the usual stuff when we go to the big box stores.

Our new lifestyle had cut down our choices of restaurants and cafes dramatically. This meant that if we had a craving for something we had to make a plant-based version of it at home, and it saved us a lot.

When you eat out you are not only paying for the food, but the brand, the convenience, and the experience that it brings. You are paying about 300% mark-up on every meal. We still budgeted a little bit on eating-out and take-out once a week to try out new vegan cafes that pop-out occasionally.

2019 expenses: $12,000

2020 goal: $7,200

Savings:           $4,800

Shopping

Reflect on what you want to have, after fulfilling your basic needs. Is golf, vintage cars or photography your thing? Go ahead and put this in your new budget. Do you want to travel, take guitar lessons, or party every weekend? Include them if they feel like you.

During this time, my wife wanted to try her hand at acrylic painting. She took inventory of the things we already had and those that we had to buy. We combed hobby stores for the supplies that she needed (canvases, various acrylic paint, different kinds of brushes etc.), and she was a happy camper… or painter.

On the other hand, I wanted to try gardening. I researched the specifics of growing each kind of vegetable and how I want my backyard garden to look like. Some of the supplies that I needed were growing soil, mulch, fertilizer, seeds, and starts. It could get pricey, but I wanted to learn how to grow our own food. So, I allotted this in the budget as if it were expenses for gardening school

2019 expenses: $7,560

2020 expenses: $3,600

Savings:               $3,960

Travel

Although it was challenging to travel in 2020 (and it still is at the writing of this post), we did not want to give up on travelling in the future. It is something that is on the top of our list. Most of our retired clients advise us to do so while we are still young, and we still have the energy to do it. You just never know what is waiting for you at retirement if you hold it for too long.

To prevent accumulating credit card debts for our travel expenses, we aim to plan for it ahead of time. We research heavily on likely destinations, the costs of living and the length of time we will travel. We started traveling in 2021 and we detailed some information from our most recent travel in our earlier posts listed below.

The Why and How of our Trial Retirement in Oaxaca Mexico

Quick Guide: Travel Oaxaca Mexico on a Budget

Planning our Unexpected Trial Retirement in Beautiful Costa Rica

Instead of paying for travel debt months after, in this strategy we will be paying for it before. Being intentional does not only saves us money but gives us freedom to spend freely on our vacations.

2019 Expenses: $12,000

2020 Goal: $7,680

Savings:           $4320

Gas and Insurance

Due to the nature of our work, we are always at the mercy of fluctuating gas prices. We cannot do anything about it, so in this line item the budget would not change.

However, we can always shop around for auto insurance. A few weeks before our insurance expires, I would scour the internet for auto insurance quotes for the same type of coverage as before. We go with the best price and pay for 6 months. This way we get better rates.

We never stay with the same insurance company for more than 6 months. Sometimes we just bounce back and forth two or three companies and so it is easier because they have our information. It is funny how this companies work they give the better deals to new customers than loyal ones.

2019 Expenses: $6600

2020 Expenses: $6180

Savings:               $420

Monthly Expenses Breakdown

Expenses2019 Expenses2020 Goal
 Rent$1,250.00$0.00
 Power$250.00$0.00
 Water $75.00$0.00
 Streaming$50.00$0.00
 Internet$70.00$0.00
 Phone$75.00$0.00
 Total$1,770.00$0.00
  
 Groceries$400.00$400.00
 Dining$600.00$200.00
 Total$1,000.00$600.00
  
 Shopping$630.00$300.00
  
 Travel$1,000.00$640.00
  
 Gas$400.00$400.00
 Auto Insurance$150.00$115.00
 Total $550.00$515.00
  
 Insurance, Family &$2,000.00$2,000.00
 Charity   
  
Total Monthly $     6,950.00$4,055.00
Total Year $     83,400.00$48,660.00
*Therafire.com

New and Improved FI number

Annual Expenses x 25

$48,660 x 25 = $1,216,500

If we were to follow our 2020 plan, our expenses would be about $30,000 less. By doing so we would significantly reduce our FI number. Just by deciding to examine our spending patterns and asking what fulfills us, we would stop wasting money, and our precious time, on purchases that does not make us happy.

The Side Effect

The awesome side effect of lowering our monthly expenses is that we increased our savings. This opened more doors for us to increase our wealth, such as acquiring real estate, equity investments etc. We talk about our goals monthly to find more efficient allocation for our savings. But this would have not been possible if we had not saved, so saving is the first thing.

2019 Savings + Additional Savings = 2020 Savings Goal

$54,000 + $34,740 = $88,740

New Retirement Timeline

FI Number – Net Worth / Annual Savings

($1,216,500 – $46,104.55) / $88,740 = 13 years

At this rate we are going to be able to retire in our 40s, instead of way past our 60s. It was a relief to see this and to know that there is a much closer end in sight. Surely, we may continue to work once we achieve financial independence, but it would not be for the paycheck.

We hope, that when this time comes, to find ourselves occupied in endeavors that gives us a great sense of fulfillment. It is not about who retires the earliest, but the hours we earn to do the things we want to do, with the people we love the most.

What does make you happy? What are you willing to give up to earn back your time? When are you going to start your journey? How far along are you?

Please let us know in the comments below. Thank you!

4 thoughts on “When Can I Retire?

  1. Excellent breakdown and goal setting! Another factor I consider is that my investments will grow as I save, so that may help you reach your goal sooner depending on how the markets perform over that 13 year period. Good luck working towards your goals, the work will be well worth the freedom!

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  2. You did a good job on your goal plan for retirement but there are some variables not accounted for such as children in the future with expected and unforeseen expenses related to that. Not to worry though, with your budget and percentage going to your retirement savings, you’ll do just fine because overtime the amount could multiply with dividends and interests as long as you invest them wisely,

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    1. I agree and our number has changed multiple times since because of other expenses. When our family grows and we face the unexpected we will update the number to suit our needs.

      Thank you for the feedback and kind words!

      Like

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