Has Your Early Retirement Number Changed?

If you are still on your financial independence quest have you checked your target lately? Has Your Early Retirement Number Changed? As we approach the end of the year many of us in the FI space will be taking a look at our portfolios, budgets, and making plans for the coming New Year that is just around the corner.

It is a time when we look at our net-worth and gauge our progress. Assessment and adjustments are always necessary. That should include applicable changes based on your answer to the big question. Has Your Early Retirement Number Changed?

As we are on our Financial Independence journey we pay off debt. We cut all spending waste from our lifestyle and budget. We set an early retirement number as our target. A number based on what we know at the time. But nothing is static and our number will be changing.

Why Has Your Early Retirement Number Changed?

Allow me to show how and why my early retirement changed in the 10 years of my FI quest before I retired early the first time. I was 40 when I decided in 1998 that early retirement was my new quest. I fully committed to it. I set a budget, maximized my savings rate and investment strategy. Based on my vision of my early retirement lifestyle cost (which was a total reflection of my new frugal living lifestyle) I set my savings target. That was my basis for early retirement number one.

We Set Our Early Retirement Number Based on What We Know Today.
  • When I started my FI quest in 1998 the standard opinion was you could safely withdraw 8% to 10% of your portfolio in retirement.
  • I had around $100K in my 401K. My company pension had a projected lump sum value of $250K in 10 years (30 years of service/age 50). Which is when I wanted to retire.
  • My promotion to Lead Engineer put my Salary at $68K. My retirement lifestyle vision based on how we liked to live was generously estimated at $40K a year once we retired.
  • All I had to do to get that $40K a year early retirement income was to have a total of $500K.  Of which I could safely withdraw 8% a year from.
  • I already had $100K and a lump sum pension that would be worth $250K (if I could stay employed there another 10 years). I needed to save another $150K over the next 10 years to make my $500K total early retirement number.
  • Without even considering any gains all I had to do was save $15K a year from my $68K salary. Hopefully an increasing yearly salary. Sounds easy. But that $68K salary was before taxes. I had 3 teenagers at home with pending educational cost coming. We understood that in our plan things would get easier toward the end of the 10 year plan. With kids moving out and their tuition was paid off so that we could catch up any needed savings.
Random Acts of Life is why our early retirement number changes.

Without going into great detail as the story is well-known we had some economic changes that cycled through the 10 years of my FI quest. The Tech bust of 2000-2002, the great recession 2008-2010, and on top of that other things happened:

  • My company was bought out and nearly bankrupted. The pension fund was raided and depleted causing an eventual freeze but in the meantime more and more people were being removed from its roles through new maneuvers or due to lay-off before reaching pension eligibility.
  • Interest rates dropped to zero and now the opinion was you could only safely withdraw 4% of your portfolio in retirement.

All of these bad things happened and a version of them will cycle through again during most people’s FI quest. You should be able to see why your early retirement number will change so it is important to reassess and adjust your number based on what you know today.

Has Your Early Retirement Number Changed for the Better?

For those of us who stick to our plan and continue to invest during down market conditions our early retirement number can change for the better.

  • The lower interest rates allowed me to refinance my mortgage and lower the payment by nearly $400 a month.
  • The lower bond interest rates meant my now underfunded pension’s lump sum was higher than the earlier estimated $250K the plan I had initially counted on.
  • I paid off all my kid’s education and two weddings and was debt free other than the mortgage that was around $100K now.
  • My retirement lifestyle vision just happened to stay at $40K a year to fund it. Some things cost more but others cost less over the 10 year period. I didn’t have to fund a higher lifestyle cost than I initially planned for.
  • Doing the math my new number based on a $40k early retirement funding amount and a safe 4% withdrawal rate would make it $1M. That was double the target number of $500K that I had started my FI quest with.
  • With all that had happened in the markets even with my saving well more than the $15k a year my total available portfolio was far short of $1M.
Assess and adjust.

Smiley Face is a Leisure Freak. Has Your Early Retirement Number ChangedI stayed in my career another year and increased my savings in non-retirement accounts. I then came to the decision that enough is enough when I didn’t like the direction the company was going. I retired early at age 51 and still well short of $1M. I then set my new number and was going to make that work.

It is important to reassess and adjust your number yearly.

I retired early with a lower number than what the new conventional 4% wisdom’s math would dictate so after assessing my target numbers I made another adjustment to a lower retirement funding budget of $33k which was slightly higher than a 4% withdrawal rate because I knew a few things.

  • One thing I know is that early retirees don’t just sit the sidelines and never again engage in paid endeavors again. We have too much energy and ambition. I knew I was going to retire early and often pursing opportunities of passion and interest.
  • The $33k a year took care of everything but some travel and a few other wants in my retirement lifestyle. Surely even in a recession (2010) and scarce jobs I could make $7k a year doing something I would enjoy doing to make up the difference.
  • A new pension freeze was going into effect so the amount would never grow. Why not take what is left of my pension benefit out of their cookie jar and put it into mine so I can invest that money now and have the chance to grow it.
  • Life is short and it was time to enjoy myself doing what I wanted to do.
Changes and Advances in Retirement Planning

We have the brains to look at our early retirement funding and see there is more than one way to look at things. All of which can change our targeted early retirement number.

  • The 4% withdrawal rule allows for increasing the yearly rate by the inflation amount.
  • The 4% withdrawal rate was related to 30 years of withdrawals at that rate plus any yearly inflation. I happen to BELIEVE that I will collect my Social Security benefit in my older age (far less than 30 years into my retirement) thus reducing the 100% reliance on my portfolio and most likely lowering below a 4% withdrawal rate at that time. Running the numbers through the FIRECalc showed I was on track.
  • Interest rates have nowhere to go but up. This may change the whole dynamic of safe withdrawal rates and thus impacting your early retirement number.
  • Inflation impacts different things differently. Right now fuel and electronics are way down. Health care is way up. It all depends on what you include in your budget. I was able to pay off my mortgage during my encore career before retiring early for a second time. However my budget remains at $40k because my health insurance has taken its place amount-wise in my budget.
  • I retired early and increased my wealth or net-worth which impacts what my ultimate early retirement number and funding withdrawal rate is.
New Changes In Retirement Saving and Funding

New ideas, products and rules means our numbers can change from what we first decided. New alternative retirement funding options like the QLAC longevity annuity brought to us by the US Treasury in 2014 makes it logical to be able to withdraw more than 4% in your early retirement years. I am still researching the QLAC waiting to see where interest rates land and will decide on it once I turn 60 (3 years from now). The QLAC also helps with RMD withdrawals at age 70 ½ so it’s an interesting option.

In Closing

Has Your Early Retirement Number Changed? You won’t know until you include it in your yearly FI assessments. If you find it has changed then make necessary adjustments. If it has changed for the better because your early retirement lifestyle vision’s cost has lowered by now having lower cost projections then change your number and possibly move up your freedom date. It’s always nice to beat your early retirement number but it’s not worth staying in the rat race any longer than you need to if your goal is to get out while you are healthy and still young enough to enjoy it.

So tell me, Has Your Early Retirement Number Changed?

Do you reassess your target amount yearly?

4 thoughts on “Has Your Early Retirement Number Changed?

  1. Hi Tommy,

    I built my retirement amounts based on the 4% SWR rule. But as you know, some years do really great from an investment perspective and some years don’t. This last year has been really flat so I have been supplementing my SWR with some side-hustle income.

    I think that’s a good way to do it, work on some side-hustles when you need the extra cash.

    1. Thanks for the comment Steve. I decided to change my early retirement number by seeing where the budget could be moved closer to the 4% rule withdrawal amount. Soon after early retirement #1 with investment gains and encore career income it was a total number changer for the better. I think we all would adjust our early retirement budget downward in bad market years if we can and then just stay busy following our passions and interest and make a little more money if we want to.
      Tommy

  2. I’m glad to see that common consensus is 4% is extremely safe. It’s what I’m planning on (maybe even 3.5%) for the long term since retirement is going to be five times as long as my working time.

    Definitely planning on assisting the SWR with some side hustle or part time work. I think people forget about that when trying to pull the trigger. You don’t have to work that much to cover $7k a year. That’s definitely doable!

    1. Thanks for the comment Mr. Benny. I think some of us set a number and then just keep that one number in our mind when everything else is changing around us. There are many ways to skin the cat. 4% seems to work for most people but over the long haul it may fluctuate up or down depending on many things. Continued Asses and Adjust is the key.
      Tommy

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