Magic Numbers, Padding and Panic // 2017 Q2 Financial Update

We’re here with the second-to-last (!!) quarterly update on our progress toward early retirement, looking most closely at the taxable savings and investments that will support us in phase one of our two-phase retirement.

We’ve hit some pretty great financial milestones these last few years — becoming financially independent (FI) a year and a half ago, paying off our mortgage this past January, getting ahead on our savings and adjusting our goals higher at the end of last year — and there’s a mini milestone in this update that we can’t wait to share. (Keep reading!)

But first…

Getting within spitting distance of our honest-to-goodness exit date (five and a half months! three months until we give notice!) has us thinking a ton about what comes next, and we want Our Next Life to be a big part of that. (I mean, it’s named after the thing we’re about to be living and all.) But we want to be smart about it, and be sure that we’re expanding things here in ways that are relevant to you.

That’s harder to do than it seems because we actually know very little about so many of you. There’s the small slice of folks who comment, another slice who’ve emailed to say hi, and the vast majority who we know only as numbers on Google Analytics. And you’re so much more than a pageviews stat!

So to get to know you a little better, and to get your feedback on ONL in its current and future forms, we’d be grateful if you’d fill out the Our Next Life reader survey. Only a few easy questions are required, so you can skip anything you don’t want to answer, and it’s completely anonymous and won’t put you on any email lists. Though, full disclosure, it does provide the opportunity to share in-depth info if you’re into it, but it won’t tell you at the end what Disney princess you are. (Sorry.)

Survey now closed — full report coming soon!

Thank you lots and lots for sharing your info and feedback. We’re super grateful for it, and can’t wait to spill the beans on what’s next ’round here!

Magic Numbers

Our early retirement vision was never entirely numbers-based. As we said in one of our very first posts, we’re committed to leaving our full-time careers at the end of 2017 no matter what, even if we don’t hit our targets, and even if the markets crash the week we’re supposed to give notice.

Of course, if you know me at all, you know I wouldn’t have gone along with that plan if I thought there was a good chance we weren’t going to hit those numbers. Hi, I’m the one over here telling you to be as conservative as possible in your projections, and who talks about contingency plans so often that when I write a post that has nothing whatsoever to do with contingency plans (it’s about boredom!), everyone reads it as “What if you run out of money?” So yeah, I might have talked a big game back when we set our date, but I was never on Team Walk Away If the Numbers Don’t Work Out.

Fortunately, we’ve had all kinds of tailwinds making our journey go smoothly so far, most notably the gonzo markets of the last few years, and the confluence of circumstances that let us buy our “retirement home” in the mountains in 2011, darn near the bottom of the market, at a price we could pay off in just over five years. (Very best tip we can offer: Don’t let the banks set your housing budget!)

If you recall from year-end 2016 update, we got well ahead of schedule in our savings last year, and decided to raise the target in our taxable funds:

So here’s the news: As of the end of June, we’ve hit that original magic number! Our blue bar now goes past that original orange bar figure for 2017 that our plan was always aiming for.

Of course, we’ve now moved that orange bar out farther to represent our stretch goal, which makes the chart look less satisfying, but which we hope will allow plenty of padding for unknown health care costs, recessions and long-term sluggish markets.

To put our progress in perspective, in month-by-month scale, here’s where we are now:

So there’s still a ways to go this year before we hang up our work-provided laptops, but it feels both downright amazing and like a huge relief to know that we could retire now at a decent standard of living if we wanted to or had to.

Of course, there’s lots more to all of this, so let’s dive in to the full quarterly update! (And here’s why we never share actual numbers, in case you’re curious.)

Early Retirement Is a Waiting Game

We’ve now been at this early retirement savings game long enough to be able to pretend to be all Zen about it. “You see, young grasshopper, you are playing a long game…”

We may not have loved how long it was all taking at every stage of saving, but now that we’re close, we see that our role in all of this is pretty tiny, or at least it has been tiny since we passed the crossover point when the markets started having more of an impact on our numbers than our savings rate did. Which means that when we look at our total net worth, we know that increase isn’t all our doing. (But we’ll still take it, of course.)

Much of what we’ve gained in the last quarter has been market growth, combined with our smaller contributions. Of course, we’ve still been making regular payments on our rental property (the “mortgage” line) and contributing twice each month to our taxable accounts and tax-deferred 401(k) accounts:

And yes, I still kinda want to pet the screen where the mortgage line dives downward in December and January, when we paid off the house. Prettttttty.

On the tax-deferred front, things are still going swimmingly. We’ve long calculated a number we believe we need to have in our 401(k)s when we stop contributing to them, so that they’ll continue growing in the 19ish years between when we quit and we start living off those funds. We hit that number almost two years ago but have continued contributing, and the markets have kept on marketing, and now we’re a full third above what we need there. So the markets could dive 33 percent, never recover, return below-historical-average gains for the next 19 years, and we’ll still be able to up our monthly spending by almost double when we reach our 60s. (Seriously, I often wonder how that’s even possible, but I think that’s why everyone talks about how magical compound interest is.)

The Name of the Game Is Now Padding

So we’ve now technically checked all the boxes: house paid off, 401(k)s set, magic number reached on the taxable accounts that will fund the first 12 years of retirement fully, and the next seven partially, after the rental is paid off and returns positive cash flow.

But we have a few strong incentives to keep working until the end of the year:

1. Mr. ONL’s year-end bonus. (I’m 99% sure I won’t get much of one this year, regardless of whether they know I’m leaving.)
2. The utter uncertainty around health care costs, which matter a ton to healthy-sickos like us.

And, oh yeah, we still have that long to do list, and just don’t feel ready to split right this second. Worst case, if we end up with more than we need, we’ll dump more into our donor advised fund, or we’ll leave a huge charitable legacy behind when our time is up. Neither of those possibilities make us remotely sad, especially because we’re only talking about a few months’ difference, and we’re doing a better job this year of setting boundaries with work.

But we don’t think it’s a given that we hit that stretch number, and certainly not that we exceed it, so we’re not counting any chickens. We could coast to year end with minimal pre-bonus saving (which, honestly, feels dumb because we can’t totally assume we’ll get the bonus once our plans are known), but instead we’re still tossing what we can into our taxable savings and investments to pad that number and — we hope — get all the way to our stretch goal. I can report that it’s tons of fun — in a way only money nerds will understand — to throw money into Vanguard and savings twice a month instead of just mid-month, in lieu of a mortgage payment. Yeehaw!

The Rest of the Time Is Panic

Okay, panic is probably too strong a word, but we’re definitely feeling the gravity of what we’re about to do. Yes, that to do list is still long. But it’s less about the tasks that need completing and more about the reality that, around the time of our next quarterly update, we will walk into the offices of our long-time employers, whom we like and respect a great deal, and tell them to please keep their large amounts of money, thankyouverymuch. We will shut off years of earnings potential and many, many dollars, which everything in our culture tells us is the thing we want, the thing we aspire to. We know what our “enough” is, but it’s hard not to wonder, “But is there any chance that we’re actually crazy?”

I’m doing my best not to focus on the countdown, but it’s hard when there are so many:

• A little under five and a half months if we go by my target end date, December 15
• Three months-ish until we give notice (and six weeks or so until we have to book those trips)
• Under four months until we unmask ourselves here (earlier if you join the email newsletter list — a full bonus post each month, too!)
• Four months until open enrollment for exchange health care plans, and under six months left of employer-provided health insurance
• The seasonal reminder that every day we work will now be shorter (or at least have less daylight) than the one before it, and when the days start getting longer, we’ll be retired

So, yeah, panic.

And if the rest of the year is anything like the first half, a lot of that panic will be happening on planes and in hotel rooms. At the end of Q1, I was at 27 flights on the year, and I’m now at 70. Because I live in the sky, apparently. On the plus side, I’ll be contributing well over 2 million travel points to our retirement, so if Mr. ONL ever gets uppity about how he’s contributed more dollars, I can remind him that our discrepancy on travel points was much more pronounced. (Ahem, someone hasn’t been pulling his weight. Which isn’t actually true. But given the wage gap, it’s nice to have something to lord over him.)

Share Your Thoughts!

Your turn! Did you think we’d be farther along by now? Bummed we aren’t pulling the plug early? Think we should be working longer and building up more padding in light of the health care insanity? Jealous of those United miles? (Haha — they were earned the hard way, not the hacking way, so don’t get too jealous.) Want to share how your Q2 went? Any predictions for Qs 3 and 4? Let’s chat about it all in the comments!