I’ve already shared that I’m calling it quits on full-time work when my contract is over in June! But I tried to quit full-time work once and it didn’t last very long! Within a few months, I was back to work and I’m still there! I caught a serious case of OMY – one more year syndrome.
But I think I’m cured now! My husband and I spent a lot of time reflecting on our life goals this winter. With both of the kids off to college in the fall, we’ll have more flexibility than we’ve ever had. And we’re ready to take advantage of it!
We also did a really thorough review of our finances. Even though working full-time for another year could allow me to earn about $200,000 – I turned the job down. Some readers commented that working another year wasn’t worth the money, especially because more than half of it would be paid out in my pension over time.
Others thought working another year would be a pretty smart decision. And if we needed the money, I’d agree.
Now that’s not to say we couldn’t use the money! We could always use more money. Money is a tool that we could use to make even more money. And we might even spend a little more too.
But the trade-off is giving up our time and our freedom. And it’s just not worth it to us anymore.
One of the biggest reasons to quit working full-time now is that we’re both in good health. But we’re not going to take our health for granted either. We’re enjoying a very good quality of life, but we’re also realists. We recognize the indirect relationship that exists between quality of life and time for most people. Which line is yours?
So rather than trade more time for money, it’ll be time for retirement soon.
It’s time to explain more about the financial part of our retirement plan. I’ve shared a lot of qualitative pieces of our life in different posts, but I’ve never really shared much about our numbers. Because that hasn’t really been the focus of the blog.
But making smart decisions – including the decision for me to retire early, needs some quantitative explanation too. Hopefully what I can share will help others figure out what it took me so long to believe…
When you have a solid plan and determine you have enough, you can decide to do what you want – rather than what others expect you to do.
We can also learn from what others have to say about our plans. What about our biases and blindspots? Are there things we haven’t considered?
If we’ve made a big mistake, I’d rather realize it now and make changes to our plan! Asking for feedback and listening to the opinions of others is important if you want to continue to grow.
You might also be surprised that I had no idea what the 4% rule was until a few years ago. Our story differs from many others you’ve read because we are not relying on our investments to fund our retirement. If we had to live off 4% of our investments, minimalism would have a new definition!
I sketched out this chart that shows our projected income over the next 13 years. It shows a positive trend of income growing over time. It’s hard to give exact numbers because so many things can change. We have a good idea of what to expect and we are being conservative in our income projections.
Here is a break-down of possible* income streams. My husband is retired and collects a pension (P1). He could* start collecting Social Security in 2020 (SS1). I am eligible to start collecting a pension (P2) in 2022. I plan on continuing with on-line part-time work until I can collect my pension (it gets credited toward my pension.) I would be eligible* to start collecting Social Security in 2029 (SS2).
2018-2019 P1 + part-time online work
2020 P1 + (partial year) SS1* + part-time online work
2021 P1 + SS1* + part-time online work
2022 P1 + SS1* + (partial year) P2 + part-time online work
2023-2028 P1 + SS1* + P2 + part-time work?
2029 P1 + SS1* + P2 + (part year) SS2* + part-time work?
2030 P1 + SS1* + P2 + SS2* + part-time work?
- This chart does not include any withdrawals from our retirement accounts or rental property income.
- We are eligible to start collecting Social Security in 2022 and 2029. That doesn’t mean we will.
- My early retirement plan includes part-time or temporary work for at least a few years (and probably longer). But it’s my choice. I wouldn’t have to.
We reached FI (financial independence) without using a budget or tracking our expenses. And that’s because we have good financial habits. We are going to estimate our retirement expenses at this point to be $60-$70,000/year. But we think that estimate is pretty high for the lifestyle we desire. We will probably spend under $50,000 a year (or much less many years!)
We will do a lot more with future expenses when I leave full-time work and we downsize our home. There are just too many variables right now. Our health insurance costs are low for the next 6 years because of my husband’s retiree health insurance. We know that will change down the road.
College expenses aren’t included because we have accounts set up and funded. And both of our primary houses (we’ll be snowbirding in winter) will be mortgage free.
Funding the Gap
The chart above starts in 2018 because we will have “fully funded” 2017 by the time I leave work in June. If we use $70,000 as our income goal, we have gaps to fill for four years (until my pension starts in 2022). The gap is about $30K for both 2018 and 2019, $20K for 2020, and $10K for 2021. A total of about $90,000.
Our rental properties bring in about $8-10,000/year. Estimating a very conservative $5,000/year rental income over the four years closes the gap by $20,0000.
But where does the other $70,000 come from?
We can tap into retirement accounts if we need to. My husband’s 457 account has no penalties for withdrawals. I could also consult with an accountant and avoid penalties by starting a SEPP (Rule 72t) with my Vanguard retirement account to help close the gap. Or I could just take out money and pay the 10% penalty (and taxes). We have options.
We could also sell a paid off rental property and that would fund most of the gap in one move. (But it would decrease our rental income by about $3,000/year). More options.
And as I said above, it will be my choice to continue working in some capacity. Maybe I’ll earn more than I ever imagined. But I won’t count on it. Not working is an option too.
Are You Really Depending on Pensions and Social Security?
Yes. We certainly understand that we shouldn’t count on full pensions or full projected SS benefits. That would just be a bonus! But we also don’t believe that our pensions and social security will disappear (at least not in our lifetimes.) I’ve linked to the most recent annual report for my retirement system here. Since I don’t have a deep understanding of this kind of information, maybe you can share something that I don’t know!
We’ve have multiple streams of income in our plan. Even if our benefits are slashed in half, we should be able to supplement with rental income, retirement accounts, paid off rental properties, and part-time work (if necessary) in the future.
And if the absolute worst happened and both of our pensions and social security disappeared, we’d reduce our expenses and live in one paid off house (instead of two) or in an apartment in our multi-family rental property.
But we don’t lose sleep over that either. If that happens, there will be a lot of people much worse off than us.
This is all still a work in progress, but we feel good about our financial path to early retirement! When the regular paychecks go away this summer, we will focus on our plan and figure out how to fund the gap – when it appears.
If you have anything to share, please feel free to comment! Do you have any advice? Have we missed something? Do you think we are too dependent on our pensions and social security?