happy monday, guys! we’re in the middle of a borderline epic stretch of work travel, and trying to juggle having contractors coming to our house while we’re away, to get work done before the mountain snows begin. that means that saturday, our one day at home together in two weeks, we spent a good chunk of it taking down exterior light fixtures and otherwise readying the house for staining. staining which is costing us an eye-watering sum. yet another reason to retire so that we can take on that type of project ourselves, instead of being forced to outsource regular maintenance of our home. but if you sense any despondence in our posts or tweets this week, that’s why. ;-)
thanks to everyone who gave such great feedback on our last post, exploring whether we should change any of our thinking around sharing our numbers. several of you suggested — and we agree — that we should find a way to share progress in the form of percentages, even if we’re not sharing numbers. so stay tuned for that soon.
it’s no secret that the markets have dropped a bit lately, and then dropped some more, and then dropped some more. we aren’t in the business of trying to time the markets, so we won’t pretend to offer any analysis or predictions, or talk about what impact the fed’s action or inaction may have. all we know is: our numbers are smaller than they were before. not a ton smaller in terms of percentages, but now that we’re a few years into our early retirement savings mission, our numbers are a lot smaller in terms of actual dollars. we’re down multiple years of future living expenses, which is enough to make me want to curl up into a little ball and whimper. (i’m the more conservative investor, between the two of us, after all. i’m not good at this whole “your investments can lose value” thing, even if i know all the rational reasons why long-term market investing is the right way to go.) and, since our retirement countdown ticker just ticked down from 2.3 to 2.2 years, we’re feeling just a smidge more pressure, which is the opposite of fun when all our investment accounts are trending in the wrong direction.
of course, as eager beavers on the early retirement front, we’ve been tracking our numbers for years now, and have always set annual goals for ourselves in terms of savings and mortgage paydown. but crazy as it may sound for us to say this, we’ve never defined those goals in terms of strictly what we would contribute. we’ve only defined our goals in terms of total balance, which is certainly highly dependent on what we kick in, but also accounts for market gains. so we’ve definitely had the wind at our backs in our savings efforts, with market growth bolstering every dollar we socked away into investment accounts — at least until august of this year. then, suddenly, we were facing a headwind, or running uphill, or swimming upstream, or whatever sports analogy you want to use. probably the same situation you feel like you’re in. except, without goals about our contributions, only about total balances, we now feel like we’re failing, when the truth is that we’re saving more than ever. we’re saving a sum each month that my younger self would never have thought possible, and yet our total numbers have declined month-over-month since july, through no fault of our own.
rather than let it bum us out, and force us to dwell on the fact that 2015 will be the first year when we don’t hit our goal numbers, we decided to reframe our goals. instead of expecting the market to play along, we’ve now shifted and adjusted our goals to focus only on our contributions — the part we can control.
- achieve a certain amount in taxable and 401(k) accounts by end of year
- achieve a certain mortgage paydown, to make payoff by december 2017 achievable
- sock away 90% of second monthly paychecks in vanguard account (we already do this)
- max out 401(k)s (we already do this)
- use leftover cash at the end of the month to pay down mortgage (we already do this)
- reduce grocery spending to under $600 a month (on track since july!), under $500 in winter
- save 100% of year-end bonuses, and allocate then roughly 60/40 to taxable vanguard account and mortgage payoff
where we felt like we were failing in the old goal framework, we now feel like we’re succeeding. (“we’re saving a ton! we’re reducing our spending! we’re maxing out our accounts! high fives!”) in corporate jargon, which we hope to be hopelessly out of touch with in under a decade, we’d say we’re shifting from an outcomes-based model to a input-based model, and the difference from a motivation perspective is huge. early retirement is not a sport for the short-winded, meaning that motivation is critical. feeling like we’re doing a good job is key to our staying focused and committed to our goals, so reframing how we see those goals was necessary to keep our eyes on the ball. (and that’s the last of the sports analogies for a while!)
we’re committed to peacing out of our careers at the end of 2017, come hell or high water, so on a certain level, the totals don’t even matter much. we’ll make our retirement work, no matter the circumstances. once our house is paid off, we can live on next to nothing, though we’re not actually worried about having to do that. but boy, we’d be happy if the market would start a slow, steady march into rosy territory again, maybe around mid 2016. can you work on that for us, janet yellin?
have you adjusted any of your goals lately? or changed how you define your goals? do the markets have you adjusting any of your timelines? or are you a champ at riding the rollercoaster, and you just sit back and think “discount!” whenever the market has a bad week? ;-)
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Hahaha I absolutely love that you went with the corporate jargon on this! But I’m also super happy for you that you shifted to look at what you were putting into it and not just the outcomes, because holy moly you guys are *rocking* it on the input front. You should be really proud of that!
And someday the markets won’t be a perma-frowny face again. (I feel like I need to make myself a motivational poster of exactly that phrase sometimes… but it’s true!)
When you make that motivational poster, please send one to us! Despite the most recent market crash in 2008 being not all that long ago, most of our really serious early retirement planning has been since then. So, we’re really used to good market returns and a general upward trend. It makes the current correction a lot harder to stomach! So we can give this new way of thinking about our goals as really just a sanity saver. :-)
I love the input model (instead of the output model) you’re using. To me, it’s “enough” to be doing what you can control.
Have you written at all about health insurance–like how you’ll have it after you retire? Will you purchase insurance? Will your then former employer provide it? I want to continue to work–possibly have my own business– but my current employer is providing my family with health insurance. I’m unsure about what my family would do for health coverage if I left my current employer.
We haven’t yet written about health insurance, but are planning to. We expect to buy insurance off the exchange (healthcare.gov or our state version), and can share more about that.
That’d be awesome!
That’s an impressive dent you are making in your grocery bill! Can you please share general strategies?
Sure! We can do a follow up post about it. Thanks for the suggestion!
We started out this year setting yearly goals (savings), and monthly goals that focused on what we feel needs attention. I never make a goal of having $XXX in my accounts, but rather contributing $X amount – since we can control that number, but not the market. I applaud your grocery goal – that is our focus this month – get it back below $600…. which means I get to save all the receipts and itemize them so we can understand what is driving up our bill. Knowledge is power :)
You intuitively figured out the better way to structure your goals. :-) Good luck on the grocery front — our number is still higher than we would prefer since it’s only the two of us!
Loving the ‘eager beaver’ reference, especially since I graduated from Oregon State. :) I think your new adjusted goals are amazing! It just so happens that with the way the market is going right now, it may not seem as if your adjustments are making such progress. I’m still working on mastering champ status on the roller coaster – but it’s a much different story when I have at least more than 15 years to go before retirement. I’d be very interested to see what will happen when your house is paid off in retirement! I think that will add a different boost of retirement living that may be unexpected!
;-) It is definitely true that our perspective has changed as we’ve gotten closer to our FIRE date, and made the market fluctuations. And we definitely think paying off the house will have huge psychic benefits!
Focusing on the inputs seems like a great sanity saver, especially being so close to jumping. If this can turn around by the time you jump, this could be a great influx of dollars… just not today.
I use a combination of both. I max what I can and have a plan for bonuses. I view my current contribution as the bare minimum and each year’s increase defines that going forward. Saving for a home while trying to max out my 401k is really frustrating :( I have a ways to go.
I publicly track the output to try and match the progress I had against my loans. That’s not too traumatic since I have very little money invested (but hey hey! I just calculated! I’m over 30k invested! Yeee!)
Wohoo — yay on hitting the $30k milestone!!! What a huge accomplishment given how recently you still had debt. The good news on saving for multiple goals is that it gets easier. The 401k contributions start to become invisible, because they come out of your paycheck before you see them. So while it’s painful now, it will be second nature in no time. Keep going!
Woo! That’s a much better way to measure your goals – I’m glad you guys decided to switch :) I haven’t been setting a dollar amount goal for mortgage pay down lately – just making it the last goal and if I get to it, I get to it. I probably will next year though, which is quite exciting!
Thanks! This approach feels much better mentally. :-) Mortgage payoff is only important to us because we are retiring soon… no rush otherwise!
This is a great warning to someone just starting out. Our goals are somewhat total balance based. Focusing on the input is a better goal. (Though didn’t it feel great when you hit your “goal” with the help of the market so much faster?) And we are no where near where we need to be on savings levels, but I’ve come to realize it’s a process. We’re definitely ratcheting up our savings percentage drastically, but it’ll take time to get us there. So well done on all those goals. You guys are rockin’ it!
It felt SO great when we got those market gains, and made us feel like we were the best savers ever. :-) Of course we’ll also keep tracking our overall numbers, so hope to get that wind at our backs again! And you’re absolutely right — it IS a process. And one that builds on itself. Everyone talks about the debt snowball, but we’ve for sure seen the power of the savings snowball too. :-)
I love the savings snowball. I’m banking on rolling faster as we push forward!
It will for sure happen!
I’m so anxious to reach that point where we’re focused on investing instead of paying off debt. Fortunately for us, we can learn from the progress of other bloggers before we need to make those types of decisions. That being said, I agree that more specifics would be really helpful. Thanks!
That time will be here before you know it — keep the faith. :-) And we agree about learning from other bloggers, which is what gave us this idea of shifting our goals in the first place. We can all learn so much from each other!
These new goals will do you good in terms of tracking your work and dedication towards FI. I do believe that we all should have goals that are based on what we do (the input we give). This is the one part we actually control and have an impact on. This is what we should spend our time and effort.
FI comes when we hit a certain number or reach a certain mindset.
Reaching a number requires the cooperation of compounding rising markets, with some serious drawdown periods in between. Unless offcourse we go all cash, but that does not help a lot in reaching FI sooner.
Reaching a mindset is a process you need to go through. On this one, I think you have all straight A’s.
For me personally, I have input based goals (our savings rate) and I track the output it gives my amberindex). The input goals are working out nicely, the output goals need some more time to exceed the expectations.
That’s an understatement — I suspect all of our outputs need more time! But I love the distinction you drew, of being able to retire when we hit a number OR when we find the right mindset. That’s a powerful idea!
It’s great you track both your inputs and your outputs — that’s what we’ll do from now on.
This a great change for how you do your goals! This way, the market doesn’t determine if you make your goals or not. You are in control of your own destiny on if you accomplish them or not. The best way to discourage someone is to have goals that are dependent on an outside source!
That’s the hope! Of course, we still need the markets to play along to get to our goals. :-)
We are very much believers in the “we’ll make it work” philosophy, big time. Our goals are more time-based than pure wealth-based, and we will probably be taking the spend-less-so-we-can-retire-now approach if we find that we have a lower net worth next year than we anticipated. We just don’t need much to live on.
I think reframing how you’re approaching your retirement goals is very healthy – it’s true that nobody can control the stock market, and focusing on its numbers on a weekly or month basis will generally only bring either frustrating or “screw this, let’s retire now!” thoughts and feelings. The fact is we’ve been spoiled over the last several years, and a “correction” was bound to happen. I’m just thrilled that the correction came this year instead of next. If we were looking to retire by the end of 2015 instead of 2016, we’d probably be searching for how we’re gonna make it work.
Like you guys, we want to keep things simple. For us, our goal is to save 70% of our combined income every month. I definitely agree that it’s tough seeing our net worth number decrease even though we are throwing so much money into our retirement accounts, but we also like to think of it this way:
Every dollar that we send into our retirement accounts purchase a share of a pot of gold that almost ALWAYS, over time, goes up. The more we purchase when those shares are down means we’re getting MORE SHARES than our dollar would otherwise be able to purchase, and when the market does start to consistently climb once again, our increases will be proportionally higher because of those additional shares purchase.
And we definitely agree with your closing sentiment. If the market can go crazy wild towards the mid and end of 2016, we’d be most appreciative as well. :)
We’re happy that you guys are retiring ahead of us, and have a time goal more than a money goal, which is rare. We think we’ll learn a lot from what you guys figure out, in the “make it work” category. :-) So please keep sharing!
I love your “pot of gold” way of putting it. Of course, we’re happy to be buying MORE shares of that pot now in the current market with the same amount of money each month, but we’re sure grumpy about the shares of the pot that we bought earlier this year at the inflated price. Oh well, that’s the deal with market investing!
We’re years away from “retirement” and our investments are mostly in equities, so the last two months have been a challenge watching all the red appear. I just don’t think about it because things can recover just as quickly and the discount gives us more opportunities to accumulate. That said, it is still tough to swallow the losses even if they’re only on paper.
This does remind me that when that point does come, I want to be in less volatile investments because I wouldn’t want to be a month away from retirement today, having stomached two months of THAT. :)
It’s true that having retirement years makes the market fluctuations easier to stomach! We didn’t care much about the 2008 crash because that money didn’t yet feel real — though it does now!
There are lots of great resources online to talk about how to structure your investments in retirement. You don’t want to be all in low-risk instruments, because you need that growth to support your future income. We’ve mostly heard people recommend having two years of expenses in cash at any given time, and that’s more or less our plan. :-)
Very true, I just oversimplified it. The money I’m going to use 2 years into retirement will be invested much differently than the money I’ll use 20 years into it. :)
That seems like a great plan. :-)
Those are great new goals and very similar to the old. My main goals nowadays are keeping expenses down and where I feel comfortable, and throwing everything else at pre-tax and post-tax investments AS MUCH AS POSSIBLE. Since I’m in the early phases of wealth accumulation, I understand every extra bit now will help me a lot down the road. Hope you get a work travel break soon!
Haha — it’s true. It’s basically just a different way of looking at the exact same goals. :-) As for what you’re doing, it certainly seems like you’re doing a great job. And since you’ve already hit a big milestone, it’s clear that you’re making fast progress.
No work travel break yet, but thanks! Pretty excited to see each other in about a week! :-)
If in the next 5 years you will be a net saver (versus drawing down on your investments), then you want the markets to go flat or even down. This is counterintuitive since you want to achive X goals as fast as possible, but years of market growth are far more enjoyable once you are retired and not adding to your nest egg. I’m glad the market went down,the Schiller P\E was getting way ahead of its historical average (and it is still now). The 4% withdrawal rate is so much safer if you start after years of market underperformance.
The safe withdrawal rate rises/drops with market valuation.
Hi Guillaume. Of course you’re completely right. But we still needed to adjust our way of thinking about our goals, because tracking our balances alone was making it look like we were slacking, when in fact we’ve been saving and investing like crazy. We’re all for getting more shares at a discount!