While all my personal finance blogging friends are gearing up to go to Fincon2017, I figured I’d distract myself from getting too sad by writing. One day I’ll get there. And when I do, I’m positive I’ll be starstruck by all the fabulous people I’ve come to know through their outstanding content. Have a toast for me, peeps!
Now then, let’s vamos on early retirement acceleration, mis amigos!
Ever since late 2014, when I started to formulate a plan to retire early, I pegged February 2020 as my exit stage-left. Until today, the little countdown widget on the blog’s right nav-bar showed “28 months to go.” That felt too long. What a whiner, right?!?
But I think it’s time to challenge myself. If I’m serious about all the stuff I’ve written about how much value you can add after leaving a cube job, I should walk the walk and trim off some months. Maybe even half a year or more?
The Simple Math Behind My Early Retirement
Some basic things I need to prepare on the magic spreadsheet for this analysis:
- Expenses: Are there recurring payments that will increase over time, like student loans, or grocery bills (as the kids’ appetites grow?)
- Cash flow situation: Where is the money going to come from to support and sustain us?
- Insurance: Can I predict the monthly premiums we’ll have to pay for healthcare? And do I need to consider term life insurance policies?
There’s a bit of risk involved in accelerating your early retirement goal. But that risk is mitigated if you carefully look over your assumptions and leave a healthy enough safety margin. Let’s take a look at what I’ve forecast for monthly expenses, as of early retirement in 2020:
|Annual and Discretionary||$ 2,025|
|Grocery, Sundries (Target), Beer/Wine||$ 974|
|Dining Out Allowance||$ 433|
|Cell Phones – Ting||$ 42|
|Fuel, Car Wash||$ 60|
|Family Clothes/Hair||$ 75|
|City Water / Recycling / Trash||$ 72|
|Natural Gas Bill||$ 52|
|Electric Bill (Damn HRV I love)||$ 50|
|Medical / Dental Insurance||$ 500|
|Student Loans at 2%||$ 214|
|Total – Annual||$ 55,117|
|Weekly Dining-out Allowance||$ 100|
For a little more detail, let’s see what goes into the “Annual and Discretionary” monthly bucket:
|Annual and Discretionary Expenses|
|Home and Landscape||$ 2,000|
|Property Taxes (May/Oct)||$ 4,200|
|Discretionary, inc. Kids’ Programs||$ 2,000|
|All Gifts||$ 1,910|
|Charitable Donations||(see *comment)|
|Car Maintenance/Tabs||$ 500|
|Medical/Dental Out of Pocket||$ 3,000|
|Credit Card and HELOC Fees||$ 300|
|Auto Insurance||$ 380|
|Umbrella Insurance||$ 184|
|Homeowners Insurance||$ 828|
|Rental Maintenance and Business Cost||$ 5,000|
Let’s start with the first two bold, red expenses in the first table.
Grocery, Sundries (Target), Beer/Wine: $974 per month. That’s a LOT of food! What the hell! But in fact, this line item does include the Target-like stuff, as well as our booze expense, and we don’t imbibe that much. Honestly. We are very disciplined about eating-in and how could you not be, with a wife who can cook as well as Mrs. Cubert?
As a result, the trade-off is higher grocery bills vs. dining-out expense. Throw in your monthly Kleenex, toothpaste, pull-up diapers, and boxed pinot noir, and shit starts to get expensive. To try to contain this, we get as much of our sundries as possible from Costco.
I want to say we get like $400 back throughout the year with their rewards system. That’s not factored in here. Neither is the Amex Blue card we use to get 6% back at all other grocery stores. That returns $25 every three months. Better than a stick in your eye, I always say…
Could we knock this down at all, to help accelerate our early retirement goal? My verdict is “mebbe?” We might try to plant a better garden, but we don’t live in the woods with acreage like some of my heroes out east. Nope. Our backyard is big enough for one little sandbox, a big ol’ deck for entertaining, and a few trees I’ve planted.
Dining Out Allowance: $433 per month. Here’s the category I’ll get flack on. “Obscene! How can he possibly be serious about saving money when he dines out that much?” Here’s the thing. We live in Minneapolis. The restaurant scene is AMAZING. We enjoy the occasional break from kitchen duties. All things in moderation.
We try our best to use deals and coupons, and limit ourselves to one drink each when we go out on date nights. This helps a lot, because when the kids come with us, the bill is a lot more these days. They grow up so fast.
The other big variables: Dreaded healthcare premiums and student loans.
Medical / Dental Insurance??? $500. Insane. I’m probably low-balling this big time. As much as I try to figure out what our healthcare costs will be, it’s a hard one. With all the craziness happening in D.C. these days, we might as well move to Canada (just kidding, Mom!) We might still have access to affordable health coverage that’s meaningful, or, we may have to settle for a “take a few aspirin and good luck to you if you get REALLY sick” plan.
I do expect we’ll choose a plan with as high a deductible as possible, yet still eligible for some subsidies (assuming those subsidies still exist in a year and a half.) Now to be fair, I did forecast out-of-pocket costs of $3,000 per year in the subsequent “Annual and Discretionary Expenses” table. It’s a bit on the high side, but I hear braces are still expensive these days.
A couple of things we have going for us: We’re very healthy and take good care of ourselves. It’s a conscious effort too. Also, there’s favorable tax treatment by getting our coverage through one of our businesses. We can claim a deduction on the premiums.
Student Loans at 2%: $214. The good thing here is that 2% interest part. No way you want to pay a cent more than the minimum monthly payment, unless you’re swimming in buckets of cash. We aren’t cash flush now, and don’t expect to be later on. However, the way these loans are structured, the monthly payments will increase 10% every two years.
By the time the loan matures (24 years from now), the monthly payment will be $526. That seems like a lot now, but discounted for inflation, it’s not terrible by year 24. After a few years of getting established in our early retirement rhythm, we may just try to chip away at that $65,000 rock.
Bottom-line on the expense side of the equation
There’s a healthy amount of outflows we need to cover each year in early retirement: $55,117 to be precise. And this is after we’ve killed off the mortgage too. This figure is not anywhere near the highly efficient, spartan existence some are able to pull off. Mr. Money Mustache’s family gets by on less than half of our forecast needs.
We could cut back a bit on our travel allowance, maybe even cut it in half if I keep on credit card hacking. Rental maintenance costs can be reduced, since I’ll be able to work on the properties more myself, not having to hire out as many jobs. For now though, let’s assume $55K is what we’ll need, year over year.
As for college savings, the strategy here is to front-load the twins’ 529 accounts before I retire. Our plan is to load up about $15K per kiddo by age six. This should get them to about $35,000 each by the time they’re ready for college. We expect some good eggs in the house; scholarships plus work to pay the rest of their way.
One thing that throws a wrench in the plan is the Airbnb experiment. I have to take out about $30,000 from our HELOC for the down payment and upfront repairs and furnishing. That puts a big dent in the mortgage pay off strategy, setting it back by about four months.
Paying off the HELOC, plus the strategy of front-loading the 529s, AND committing to paying off the mortgage means I’ll have to stay cube-bound at least into 2019.
Oh yeah, I mentioned bacon, didn’t I? Cash flow to cover the $55,117 every year with at least a $10,000 cushion requires us to churn $65,000 from our businesses and side gigs. I didn’t say we wouldn’t be busy, just cube-free.
This income model assumes some fairly aggressive things. One, that we’ll continue to have the good fortune of renting our properties with no vacancies. This is offset by an assumption that there’s no further growth in Mrs. Cubert’s business. When in fact, her practice has grown leaps over the past few years. Also, yours truly might just fire up a property management business to keep busy. Or flips? More rentals? Sometimes, a blog just isn’t enough.
We’ve covered off on health insurance and to be fair, this topic alone will have us revisiting the acceleration plan often. Then there’s Life insurance. Today I get coverage for Mrs. Cubert and myself through the corporate gig. After early retirement, this little safety net goes “poof!”
Now in the event that I go “poof!”, Mrs. Cubert would need to hire a property manager and some part-time child care. It’s a bit grim to think about this stuff, but naive not to consider the unsavory variables of life. Since Mrs. C will be the primary bread-winner after I leave my cubicle job, I’d be in worse shape if she got hit by the beer truck. The plan will likely be to get term life policies for both of us.
In my case, I’m looking at about $33 a month for a $250,000 20-year policy. Mrs. Cubert’s would be about $15 a month. Age before beauty? At any rate, I’ll have to add ~$50 per month in the retirement plan now, as I hadn’t considered this expense before starting this post.
I’m hoping you’ll catch other misses for me so we don’t end up in a van down by the river. But don’t worry – I look at this stuff every day, practically.
Let the Hunger for Early Retirement Games Begin!!!
Running all these numbers gives me a headache, but it’s sooooo much fun when you can smell the finish line. The result of the analysis is an acceleration of seven months. It could be that my new target of July 2019 morphs into an “F-You money” target date, and I keep at it for a few months more, until the next time the lights go out on me during a war room call after everyone else has gone home for the day.
OR, I keep maximizing opportunities, working hard, learning, and find myself well-positioned to walk away finally, on July 31, 2019. I like that idea best.
*We expect to continue to give to a select few charities in early retirement. But there may be better ways to maximize our contributions. I plan to read up on donor advised funds, having recently been made aware of them by my fellow Minnesotan, the Physician on Fire.