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Mrs. FIF

Nov 26 2022

So Come On and Let Me FIRE

Gift from a coworker

I did it. After so much consternation over the status of the market and my own preparedness for leaving an admittedly good job, I made the decision to join my husband in Early Retirement. Though sometimes I still tell myself that it could be a sabbatical if it needed to be.  I’m not sure if that is to massage my ego as a fallback position in case all these calculations and plans of mine are wrong and history is wrong and we end up in a Japanese-style 30-year market downturn. I’ll admit, my decision was more of an emotional one in the end. If I had kept working, I would have had better numbers. But I greatly dislike my career field. While I wouldn’t be opposed to making more money at some point, I have no desire to make it as a corporate minion that adds no value to the world, except for my own bottom line.

So how did the numbers look?

While I had been planning for a 3.5% withdrawal rate from my invested assets, at the time of my retirement, I am estimating that with inflation and the market downturn, I will be withdrawing at a rate of 4.5% annually. Retiring with higher than the 4% “rule” might seem crazy (again with those emotions), I have many reasons why I felt I could still retire right now. Many of my reasons align with the FI Tax Guy’s article, The Four Backstops to the Four Percent Rule.

Mortgage & Home Equity

Every payment to my mortgage builds more home equity I could use at a later time. I don’t currently count my home equity in my Financial Independents resources. At some point, we will downsize from the two-story, 5 bedroom we live in now to raise our four little tax write-offs, but I don’t know when or how beneficial it will be to my financial picture when it happens.  For that reason, I’ve left it out of my planning projections. But it is still there, and it will become more valuable as I chip away at that mortgage.

Spending Adjustments

My current Financial Independence Retire Early (FIRE) plan estimates a static annual spending for all time. Now. While I am responsible for the care and feeding of 6 human beings. I really do expect my expenses to go down as I launch my mini Mr & Mrs FIFs. Sometimes I daydream about only having to feed two people. Can you imagine bringing home groceries for only two people? If you don’t have to imagine it, it must be glorious. Beyond that, I also believe I’ll be able to manage my expenses as necessary. I may be starting at 4.5%, but I don’t expect to stay there.

Future Cash Flows

I expect future cash flows, which include Mr. FIF’s military pension and Social Security to cover ALL my spending needs in roughly 20 years. So while I might be planning to live forever, my portfolio only has to live for 20 years. Also, both of these future cash flows are inflation adjusted. While planning 20 years ahead for Social Security benefits is difficult, I use 70% of what current benefits would be as my planning number and I’m comfortable with that.

Life Expectancy

Did I mention I plan to live forever? I do. Mr. FIF exits the picture at 95 though, when I account for survivor benefits I would receive from his pension and Social Security. Though, a recent longevity calculator, www.livingto100.com, told me I would die around the same time as Mr. FIF, at the young age of 86. Mr. FIF could quite possibly outlive me, making it to the ripe old age of 91. After I got over my shock and ah, I started to accept, we might not live forever. We might not even live the 20 years that we need our portfolio to live. But of course, I won’t change my plan for immortality.

The Stock Market is Down

No seriously, it is. Which means? It will go up… with any luck, before I actually withdraw anything! I do not recommend your retirement plans be based on luck. But with lower valuations that come with a bear market, expected returns do go up. For a far more technical discussion of this topic, I turn to Big ERN and The 4% Rule Works Again! I intend to use cash, iBonds, and bond funds before tapping into my equities while I await a recovery.

Worst Case Scenario

Then there is the line I always tell myself, my worst-case scenario of going back to work is the same as every non-retiree’s everyday life. I’ll likely do some kind of fun part-time work before I worry too much about a full-time gig. Either way, I do have some amount of confidence in my ability to earn more money if it is required.

Written by Mrs. FIF · Categorized: FIRE

Jun 03 2022

If I Go There May be Trouble

Unicorn Puff in Trouble

It feels ironic that my last post began talking about how the bull market has rocketed me to my FI number faster than expected. Between that post and now, my investments are down around 10%. Beyond that, I had some unexpected expenses this year (dentist recommending ¾ kids get orthodontics), mother-in-law needing assisted living, and I’m flat out spending more with inflation. 

My original FI # from Living Life 4% at a Time with Financial Independence was $1,300,000. At the time, with an assumed 6% real return, I estimated I would get to that number by August of 2023. By the end of last year, my FI assets had made it to $1.2M and I thought that was “close enough” to my FI goals that I could maybe punch out in the summer of 2022. 

Retire Anyway, in a Down Market?! Inconceivable!

I read and reread Should I Stay or Should I Go Now from January and find that even with markets down more, I feel EXACTLY the same. Which really means I was even better off than I thought I was in January.  

Some of the changes in my estimates include the fact that even though I am spending more, roughly half of our income is inflation adjusted. Beyond that, our future estimates for Social Security are also inflation adjusted. Many people don’t include Social Security in their financial independence numbers at all, but I think that is crazy. I give my Social Security estimates a moderate haircut (70%), but I can’t imagine a world where the politicians let SS go up in smoke completely. 

I know some people hate this one, but some of my expenses are ALSO inflation protected. What do you mean by that Mrs. FIF? We have a large home mortgage at 2.875%. These payments aren’t going up no matter the inflation. 

Photo by Jacqueline Munguía on Unsplash

Oh, and now it’s time to confess. I finally convinced Mr. FIF to trade in his old gas guzzler for a shiny, new (to us) electric vehicle. I added an inflation protected payment of $675/mo for 6 years to the budget. BUT, I removed $300/mo in fuel spending from the budget as long as we drive the EV as our primary vehicle. 

Mrs. FIF, don’t you know about sequence of return risk? Spend less up front. Don’t retire at the top of a recession/crash. Yes, yes, I do. 

But What Do the Spreadsheets Say? 

My favorite financial independence spreadsheet of all time is the free Google Sheet DIY Withdrawal Rate Toolbox that Early Retirement Now puts out. I like cFIREsim 3.0 too, oh and a new one I’m still putting through it’s paces: FICalc, but my heart will always belong to a spreadsheet. The main place I spend my time in Big ERN’s Withdrawal Rate Toolbox is on the Cash Flow Assist tab. I don’t care so much about my Safe Withdrawal Rate (SWR). <gasp> I care about how much I can safely spend, which includes any passive income. The Cash Flow Assist tab lets me model our pension, Social Security, mortgage payments that don’t increase with inflation, and any other cash flow impacts on our financial independence plan. 

The other ingenious attribute that Big ERN works into his Withdrawal Rate Toolbox is CONTEXT. Every other calculator I’ve come across puts your numbers through a Monte Carlo simulation of ALL market returns. But Big ERN provides withdrawal amounts based on what the market is doing right now. He also has a great post explaining how the market wants to revert back to a mean. So your SWR should be lower if the market is at all time highs, but if it has pulled back, you can probably raise your SWR and be ok – and his toolbox provides the modeling. 

That is a long way of saying, based on what I am currently estimating spending (with my mortgage, car note, and 70% SS) I have a 1% failure rate. 

Written by Mrs. FIF · Categorized: FIRE

Jan 29 2022

Should I Stay or Should I Go Now?

Puff & Lil FIF demonstrating the cage of corporate employment

As the markets have continued to do well during the pre-coronavirus bull market and the incredible recovery from the “coronavirus crash,” it is no surprise that many stories are floating around the Internet about people hitting their FIRE number earlier than they thought they would. We are no different. As our investments continue to climb and with the promise of a big bonus payout this February, we realized that we were on track to hit our FIRE number this summer instead of next August 2023.

I’ve taken many steps to prepare myself mentally and emotionally to leap into being “retired” at 42. I went to my first CampFI, which is like a summer camp for adults who like money! Not only did I go, but Nana also watched the little FIFs and Mr. FIF came with me! We had a great time together, but I was surprised to see Mr. FIF really enjoy himself. He made new friends that gave him great ideas of things to do with his free time. He talked to a lot of people about starting a podcast (which he hasn’t started, but it’s on his explore in retirement list). I think the most important thing that came out of the CampFI for us was that I went through our financial numbers at great length with Mr. FIF and explained the financial independence concepts that I’ve applied to our situation to determine that we will have ENOUGH by this summer. He agreed and for the first time, was on board with my joining him in retirement this summer.

I thought that was what I wanted. It is 100% why I brought him to CampFI. So, the FI experts, people like Karsten from Early Retirement Now and Doug from The Military Guide could tell him I was right, and the numbers worked. But now, as I get closer to executing the RE part of FIRE, I have doubts. I have run the numbers using so many calculators. My favorite of which is Big ERN’s Early Retirement Now SWR Toolbox v2.0 which tells me historical failure rates of different spending levels based on the stock market’s current high valuation. I’ve also run my numbers through cFIREsim and FIRECalc with and without social security and am still higher than a 95% success rate. All the numbers say I’m good, but WHAT IF?

But What If?

That’s right, what if future returns are not like historical returns? Is there something worse than the great recession right around the corner? What if my meticulously considered “retirement” budget is wrong and I need more. What if I’m not happy spending that little? What if I can somehow spend more in old age than I do with 4 kids at home. I just spent $300 at Costco today on meat and toilet paper, so I can’t imagine that last one, but still. I have so many what-ifs in my head now.

I make GOOD money. If I wanted to keep climbing the corporate ladder I could and I could make even MORE money.

So now I am stuck in a WHAT IF tailspin. I tell myself things like, “one more year never hurt anyone.” I’ve read many FIRE stories of people that made it to their number and then worked one more year just to be sure. It’s a thing we call “One More Year Syndrome”.

Like many, I do not like my job. It isn’t terrible. I just don’t love it. I don’t help anyone. I’ve long since given up climbing the corporate ladder which somewhat depresses me when I see less qualified people climbing ahead. I’m in tech and I have never liked tech. I got a military scholarship for math. The military then taught me cybersecurity and gave me a job doing it. When I got out after 5 and a half years, companies offered to keep paying me well for my skill set. I got the necessary certifications to keep growing my career, but never really put my whole self into it. At that point, as a military spouse, the family came before my career. Mr. FIF and I always discussed life after the military as the time when I would focus on my career. However, the more time I spent in this career, the less I liked it.  

I’ve taken breaks throughout my career, usually because a new baby came along. I also don’t long to be a stay-at-home mom. Don’t get me wrong, I love the little FIFs and I consider raising good people to be one of my most important responsibilities. I just do not want it to be my identity. I do not want my only friends to come from mom groups that talk about potty training. Again, no disrespect, there was a time when that WAS all I talked about with other moms, but I was a mom that would rather be at work than changing diapers. I would rather win a work award than be on the Parent-Teacher Association (PTA). Mr. FIF was offered a job last year and considered it for a hot second. He said if he took the job, I could quit working now. I told him that would not make me retired early, that would make me a stay-at-home mom and that’s not what I want. I want to share the parenting responsibilities AND chase something more meaningful than my current career. I know that is something that Mr. FIF and I must work on regardless of our “retirement” or financial status.  

As I ponder these considerations and scenarios, I tell myself that at 42, the likelihood that I find something meaningful to do that ALSO generates money is high. The likelihood that I will spend less money when I get rid of four more mouths to feed is high. The likelihood that I could go back to my current career field even with a resume gap is high if I keep my certifications active. That is the only way to keep my what-ifs at bay. So, what do you think? Should I stay one more year or should I go this summer?

Written by Mrs. FIF · Categorized: FIRE

May 15 2021

The Best Way to Account for the Mortgage in Retirement

Brand new shiny mortgage!

To pay off the mortgage or not, the essential question all early retirees (except renters) must ask themselves. The folks that want to pay off their mortgage argue that no early retiree ever regretted NOT having a mortgage. I love the idea of not having a mortgage. And who wants to pay the extra hundreds of thousands on mortgage interest? 

Those that do not want to pay off their mortgage in early retirement base their decision purely on the math. If you are paying 3 or 4% interest, you could be making 6-10% with that money invested. Not to mention, you have a way better shot at itemizing your taxes with that interest deduction (I know rules have changed, but it is still more likely with the interest than without). 

Mr. FIF firmly believes we should not pay off the sub 3% mortgage. I want the lower monthly and annual expenses that come with not having a mortgage to pay for. 

The compromise? I account for the mortgage separately from our FI Spending, with a different “bucket” of money. I don’t have a separate fund specifically dedicated to the mortgage, I just earmark part of the portfolio to pay the mortgage payment and don’t count the mortgage payment as part of my annual spending. This is probably more complex than it needs to be, but it makes me sleep better at night.

Ever since Mr. FIF took a stand on paying off the mortgage, I’ve been researching what approach to use to account for our mortgage in retirement. I’ll show you the math behind multiple approaches, run them through firecalc.com (online retirement calculator that I run most of my scenarios through), and then I’ll share which approach I’m using for my planning purposes. 

We are about a year into a $463,518 mortgage. Holy cow you say, how does anyone pursuing FI have over a $400,000 mortgage? I thought we were supposed to be frugal? Well folks, there are six of us plus a dog and the one place in my budget that I haven’t been frugal is the house. We have never house hacked, nor do we ever plan to. I fully support house hacking if you are in a season of life that allows that. Housing is a huge expense, our biggest in fact. On the bright side, we got a damn good 2.875% interest rate on this mortgage. So our principal and interest payments are $1923/mo. Remember, real estate taxes and homeowner’s insurance aren’t going away even if the house is paid off, so we keep those expenses solidly in our annual expenses when calculating our FI number.

Other details we’ll need to compare our strategies are that we plan for a 3.5% safe withdrawal rate (SWR) and assume a portfolio return of 6.0%. For our $463,518 mortgage at 2.875%, we’ll pay a total of $692,316 in principal and interest over the life of the loan if we pay the mortgage as scheduled.  

Strategy 1: Include in FI #

Now, the first and most conservative strategy is to act like you’ll be paying the principal and interest of a 30-year loan forever and add it to the expenses side of your FI calculation.

$1,923 x 12 = $23,076

$23,076/.035 = $659,314

The problems with this strategy are that the loan won’t be around forever AND my mortgage payment is inflation-protected. If I include the $23,076 in my annual expenses, the safe withdrawal rate assumes that those expenses will inflate.

Strategy 2: Payoff Set Aside

Another simple strategy, though not as conservative is to just add the balance of the mortgage to your portfolio. So the payoff set aside here is $463,518, or whatever the balance of the mortgage is at the time you FIRE.

This money could be used to pay off our loan anytime, but this strategy doesn’t account for the interest we are still paying every month when we don’t pay it off. We just assume that the payoff set aside portfolio will make at least 2.875% (which is pretty safe considering our safe withdrawal rate is higher than that). So is this amount still too conservative for our FI planning? 

Strategy 3: Drawdown

The last strategy is to set aside a portfolio value large enough that you can draw down the portfolio to zero over the life of the mortgage. I came across this reddit/financial independence page, How to Calculate Your FIRE Number When You Have a Mortgage (with Spreadsheet!).

The drawdown strategy is planning an investment amount that you can draw down to zero over the life of the mortgage. 

To get a value for this strategy, use a “present value” formula in your favorite spreadsheet. This one works in either Excel or Sheets: PV(rate, number of periods, monthly payment, payment made at beginning or end of period). 

Just remember to make sure your periods are consistent. Since we will use monthly payments, the rate and number of periods should also be by month. Our interest rate is an annual rate, so we divide by 12 to get the monthly rate. Staying consistent, we multiply our 30-year mortgage by 12 for a 360 period. 

PV(2.875%/12, 360, -$1923, 0) = $320,757

That is less than half of the portfolio needed for strategy 1! When I first dug into the reddit post, I was ecstatic. It took years off of my FI projections. I wanted to believe it so badly. As I sat with it and turned it over in my head, it began to feel too good to be true. Enter FIRECalc, one of my favorite online retirement calculators.  

I used the $320,757 as my portfolio value with no spending. Any spending entered on the first tab will be adjusted for inflation based on what options you choose on the “Spending Models” tab. Instead, I enter the annual mortgage payments in the “Other Income/Spending” tab so I can remove the inflation adjustment to our spending. The Off Chart Spending is the annual expense of the mortgage, and the Pension Income is used to reduce the off chart spending when the mortgage is paid off. I also adjusted the “Your Portfolio” tab to match my stock weight (85%) and fees (0.13%).

FIRECalc looked at the 120 possible 30-year periods in the available data, starting with a portfolio of $320,757 and found a success rate of 67.8%! I don’t know about you, but I can’t sleep at night with a 67.8% chance that I’ll be able to afford to continue paying my mortgage. I don’t know how FIRECalc does it, but the output graph looks exactly like how I feel with a 67.8% success rate. 

Now that we’ve explored all of these strategies, thanks to FIRECalc, we have come around to the strategy I currently use to account for my mortgage in my FIRE calculations.

Strategy 4: Estimate Based on Historical Returns

Close to a 33% failure rate makes me pretty uncomfortable. I decided that maybe my 6% market return assumption (that got me to my original $320,757 drawdown amount) may have been too optimistic. So I ran the following numbers through the calculator to get a drawdown estimate I was comfortable with.

Assumed Market ReturnStarting Portfolio ValueFIRECalc Success Rate
6%$320,75767.8%
5%$358,23885.1%
4%$402,81596.7%
N/A$400,00095.9%

I’m shooting for a 95% success rate, but I also like big round numbers. So when I saw $402,815 overshot 95%, I rounded down to $400,000 and put it in FIRECalc to make sure I liked what I saw. 

$400,000 is the portfolio value I set aside to cover our mortgage for early retirement. 

What do you think, is my number too conservative, too risky or just right?

Written by Mrs. FIF · Categorized: FIRE

Apr 24 2021

Living Life 4% at a Time: Financial Independence

Visiting Universal Orlando without kids, a taste of early retirement

The golden rule in the financial independence/retire early (FIRE) space is to amass investable assets worth 25 times your annual expenses, that is, you live off 4% of your investments, adjusted for inflation. So, during the first year of retirement, you withdraw 4%, during the second year, 3% plus the amount needed to cover inflation, and so on.  

The original financial planner that introduced this idea was William P. Bengen. If you want to dig into his article, Determining Withdrawal Rates Using Historical Data. His work in 1964 was followed up in 1998, by three professors of finance in the Department of Business Administration, Trinity University, San Antonio, Texas, affectionately nicknamed the Trinity Study.

The Trinity Study analyzed withdrawal periods up to 30 years. While it did not account for taxes and transaction fees, the study did account for inflation. The Study concluded that stock-dominated portfolios (75% stock/25% bonds) would last 30 years 98% of the time based on all historical data.  

Plus, the math is easy with the 4% rule. Examples are often represented by showing someone that can live on $40,000/year (though in most places, I would consider that EXTREMELY frugal). They just need to make it to the 2 comma club for a nest egg of $1,000,000 to FIRE.  

$40,000 / 4% = $1,000,000

Or as it is more commonly stated

 $40,000 x 25 = $1,000,000

In the second year of FIRE, adjust for 3% inflation and you would withdraw:

$40,000 x 1.03 = $41,200

Should I trust the 4% rule?

When you are starting from a negative net worth (more debt than assets), or you’re socking away your first $100,000, your FIRE number is just a concept to move you to action. It doesn’t really need to be that accurate. But the closer you get, the more comfortable you need to be with that number.

The key finding from the Trinity study that keeps me from blindly following the 4% rule is the very first conclusion they draw,

“Early retirees who anticipate long payout periods should plan on lower withdrawal rates.”

I’m looking at 45-50 years here and FIRE is no longer an abstract concept. I don’t feel like abstract generalizations are good enough anymore, so my FIRE number has become more complicated. I use a more conservative 3.5% withdrawal rate for my planning purposes. 

Our income in retirement will come from a pension for Mr. FIF and assets invested primarily in low cost index funds. We will also keep our mortgage with a rate of 2.875%. It is unusual for early retirees to keep the mortgage, but it is our only debt and that rate is amazing! 

In order for us to feel confident in our financial independence, I have broken out our FIRE plan into these four components:

FIRE ComponentThe ExplanationFIRE #
Kid’s College (529s)We have saved for 2 years per child at an in-state school, plus each child has another year of school paid for as benefit from Mr FIF’s educational benefits from his military service.8 x In-State Tuition
MortgageI consider the mortgage separately from my annual spending. Since our mortgage payments will not change with inflation like the rest of our spending will, to estimate it with inflationary spending would be an over estimate. You can add the payoff amount to your FI number, but I also see that as a little conservative. So I actually used a present value calculation for an annuity with a 3.5% ratePV(3.5%/12, remaining mortgage payments, -monthly principle and interest payment, 0)
Spending over Pension (not including mortgage)This is where the standard FIRE number calculation comes in. I have settled on a safe withdrawal rate of 3.5% of our annual estimated spending above Mr. FIF’s pension (which is adjusted for inflation every year).(Annual retirement spending – pension – mortgage payments) / 3.5%
Components of our FIRE #

Expenses, the real key to FIRE

I’ve tracked our net worth since 2010 because I’m a money nerd. I used Microsoft Money originally, but Microsoft quit supporting it, so then I used Quicken for many years, but then I got very annoyed with their insistence on forcing me to update (read: PAY) for a new version every 2 years, or they would no longer support importing my account balances. Enter Mint, Personal Capital, and so many spreadsheets. I’ve settled on a mix of my own tracking Google Sheet, Personal Capital, and Tiller, which is probably still overkill, but did I mention, I’m a nerd.

FI# Includes 529 Requirements

Mint is ok for tracking expenses, but Personal Capital does that too and so much more. I love the dashboard. It offers a snapshot of my net worth (to the extent I’ve loaded all my accounts into it). It also shows a budget widget that compares how much I’ve spent to last month. I only have two complaints for Personal Capital. One is that two-factor authentication (the additional annoying step of needing to get a code texted to you) for my bank and investment accounts often break the import. Sometimes it fixes itself and sometimes I have to spend too much time figuring out why it doesn’t work. The second annoyance is that once you have $100,000, they offer a “free” call with one of their advisors. Remember, as the saying goes, if the product is free; you’re the product. Have no doubt, with Personal Capital; you are the product. I still look at it almost every day though for a quick and easy estimate.  

I ended up building a Google Sheet that tracks my annual net worth as in the above picture. It also tracks monthly net worth for the current year, monthly income and spending, and all of my quirky FI calculations. I still need to clean it up and put some dummy numbers and instructions in it, and then I’ll offer it to the masses or the three of you reading one of my first posts.

Where are we on our FIRE journey?

*Updated as of November 26, 2022

We sold a rental property in 2021, the proceeds of which allowed us to “fully fund” the 529s for our kids. As discussed above, fully funded for us was approximately 8 years of In-State Tuition. I consider the 529s checked off, so I don’t consider their balances as part of my FI # anymore since I won’t be able to draw on them for retirement expenses. I track it as part of our net worth, but not as part of the FI # and FI assets (assets we’ll be drawing down in early retirement) going forward. I also don’t include our real estate as part of our FI # for the same reason. So our real FI journey looks more like this.

FI # w/o 529 Requirements, FI Assets do not include 529s and Property

As you can see, we just barely hit our FI # at the end of 2021, but I kept working. As the market retreated, so did my FI assets. I finally retired in October of 2022, when my FI assets had dropped to about 84% of the my originally calculated FI#. Check out So Come On and Let Me FIRE to read more about how I made the decision.

Written by Mrs. FIF · Categorized: FIRE

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