The Final Approach // 2017 Q3 Financial Update

Though the last few months have been an exercise in coming to terms with things, namely realizing that this little pipe dream of ours is actually coming off the page and turning into a real thing (our early retirement is Pinocchio, y’all), each event still comes with its own little moment of disbelief. As I know Mr. ONL felt last week when he gave notice at work (“Is this really happening?!”). As I know I’ll feel when it’s my turn next week. And as I sat down to write this very last quarterly financial update before we’re officially early retired.

Psst. If you live in or around Dallas, consider joining Mr. ONL and me, plus all of your favorite money bloggers, for one afternoon at FinCon17. The event organizers have created an event-within-the-event for non-bloggers called Your Money Live, taking place 1-5 PM on Friday, October 27, on site at #FinCon17. It includes a keynote with author David Bach, breakouts with other financial luminaries like Farnoosh Torabi, and — most importantly — time to hang out with a bunch of the very best kind of nerds! ;-) The FI blogger turnout is looking especially high this year, so come hang out with all of us! Advance tickets are $39, and you can sign up here. And please let us know to look out for you! 

Q3 has been another strong quarter financially, something that clearly has a lot to do with market forces, and with the huge tailwind that comes with getting your investments above a certain level. You can see that most clearly in our 401(k) balances, where the gains outpace gains on our taxable accounts, even though we are socking way more into taxable, just because the 401(k)s have more money working for us.

As you’ve already noticed, Q3 has also been a big time of reflection for us, laden with more than a little nostalgia about closing out this chapter of our lives and moving on to the next one. But I won’t dwell on that stuff today — more next week after I give my notice!

Let’s look at the charts!

We wouldn’t have expected to be this close to pulling the ripcord without having had any real market corrections come our way, but alas, here we are. We’re yet another blog touting the ease with which you can save quickly for early retirement, based in large part on market luck and recency bias. On the plus side, bigger numbers and prettier charts! On the negative side, sequence of returns risk and looming recession. No big.

Prior quarterly updates:

• Magic Numbers, Padding and Panic // 2017 Q2 Financial Update
• Countdowns and Disbelief // 2017 Q1 Financial Update
• Where We’re Landing // 2016 Financial Wrap-Up (with Charts!)
• The Magic Is Real // 2016 Q3 Update
• All the Sparkles // 2016 Q2 Financial Update
• What’s Got Us So Excited // Quarterly Financial Update (2016 Q1)
• Of Mice and Money // 2015 Wrap-Up and 2016 Rundown
• All the Charts // Our Progress Toward Early Retirement

(Note to self: Branch out from magic and airline metaphors in the update titles.)

Fortunately, if I was feeling any anxiety about the inevitable market dip (I wasn’t actually), this street art in the Wynwood neighborhood of Miami from a recent work trip put my mind at ease:

Thanks, graffiti artist. I feel better already. ;-)

Tax-Deferred Investments

Alright, enough chitchat. Let’s look at the charts, starting with our 401(k)s, the accounts we’ve been most on top of for the longest, as evidenced by their excessive size. These are the funds we’re planning to mostly leave alone until we’re traditional retirement age for a whole bunch of reasons I explained here.

Related post: Not Fostering Comparison // Are We the Joneses? (Why We Don’t Share Our Numbers)

We crossed over our “enough” number for traditional retirement almost three years ago, but we’re still maxing out because: 1.) we can afford to, 2.) while we’re not tax avoiders, we’re in a painfully high marginal bracket right now and will happily take a slight reduction in our tax bill, and 3.) you know we like to treat our future 60s, 70s and 80s selves, and won’t be sad if we can live larger in those decades of life and beyond. (Plus, health care unknowns and other unfun reasons why we might need to spend a lot more later on.)

Like the markets generally, our 401(k)s have continued their general march upward:

Taxable Investments for Early Retirement

Our taxable investments are the primary funder of “phase 1” of our two-phase retirement, before rental income kicks in in just over 11 years. And you may remember that we officially switched from our original magic number to our stretch magic number at the end of last year.

We’re feeling good about that switch, especially because we blew past the original magic number several months back, and we’re now closer to the stretch magic number than we are to the original. Given that we still expect to get bonuses (really deferred compensation, not true bonuses) before we leave our jobs, that stretch goal is looking completely achievable.

Zooming out and taking a yearly view, we see that the curve this year is steeper than we’d expect it to be only three quarters in, a reflection of our boosted savings progress after we paid off the mortgage on our home.

And this is how our progress stacks up against the goals we’ve set each year. In prior years, we hit or just barely passed our taxable savings goals (in addition to other goals like mortgage paydown).

We’re definitely on track to move the blue bar for 2017 up to the end of the orange bar, and if/when we do, any money above that total will go straight into our donor advised fund, so we can continue charitable giving in the future, regardless of our income and cash flow situation at the time. Stay tuned for more on our charitable giving plans before we leave our careers!

In short: all good news on the taxable savings front. Our cash buffer is good to go, we’re well into the “gravy” zone of saving, and we’ll be stoked no matter where we end up at this point.

Rental Property Mortgage

I’ll keep things quick on the least exciting part of each update: the mortgage on our rental property. We aren’t prepaying this mortgage like we did our house, so the paid-off section is going to continue growing at a glacial pace, though more quickly than it would if we had a loan longer than our 15-year mortgage.

Travel Points

This is the third quarter in which I’m including travel points in our rundown, and it’s also the line item that’s growing the fastest. Not through any fancy hacking, but just through normal, busy work travel. Butt-in-seat miles, head-in-bed points. I’m 62 hotel nights deep just at Marriott (and have stayed at several non-Marriott spots this year), and 80,000 air miles in just on United (not counting quite a few Alaska and Southwest miles flown this year). And of course I’m using the Chase Sapphire Reserve for normal purchases, piling up the Chase Ultimate Rewards points. For an account I only opened in January, it’s growing awfully quickly. (The 100K signup bonus helped, of course.)

Total Net Worth

Adding up a total net worth figure is mostly an exercise in vanity at this point, because it serves only to pat ourselves on the back, not to impact our day-to-day situation. We don’t plan to spend (or borrow against) our home equity or rental property equity. And we don’t plan to cash out our retirement accounts in advance. The only number that really matters to us at this point in time is our taxable balance, not total net worth. But this is a money blog, so imma do it anyway. ;-)

I love seeing the line get steeper, an effect that’s even more pronounced if I keep the scale on the left axis less condensed (I skew all the scales on the charts here so that it’s not easy to infer what our numbers are). And this is where you can see that virtually all our gains have come in the last six years. We bumped things up a little in 2010, but mostly the line doesn’t swing upward until 2011, showing how quickly you can potentially achieve early retirement, assuming you have more income than you require and aren’t digging out of major debt.

When we split that net worth up into components, the mortgage line keeps looking flat, as it will for a long time, now that the we paid off our home last winter. What’s most notable is that the green line, representing our tax-deferred funds, climbed more steeply than the orange taxable line all throughout the last two years, even though the orange taxable line is invested more aggressively, and even though we’re socking much more into those taxable investments than we are into our 401(k)s.

Once again, it’s a perfect example of the power of compounding and the power of time, and a reminder that you can always save more money later, but you can’t get back the time during which you need it to grow. Even if we kept working for years longer, it would be awfully hard to get our taxable savings to catch up to our tax-deferred savings. Fortunately, we don’t need them to. We just need that tax-deferred money to keep growing — slowly is fine — until we hit our 60s and can start boosting our spending.

How Was Your Q3? Any Recent Wins to Celebrate?

We’re totally happy with our third quarter, but tell us about yours! Hit any milestones? Any big wins we can help you celebrate? (I love giving virtual high fives!) Any setbacks this last quarter that you’re working through? This community gives great advice, so feel free to throw questions out there in the comments for the group to weigh in on. Anybody else recently convert to a two-phase approach and want to share the details of it? Let’s chat about all of this and any other money topics on your mind in the comments!