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Be Brave Enough to Ask!
Just recently we Skyped with a friend who wanted to talk about working with a Certified Financial Planner (CFP) to see if they are on track for retirement. Our friend is in the process we have also gone through ourselves of asking, how do we know how much money we’re going to need in retirement to support the life we envision for ourselves? “What’s our number?” It’s an exciting question! When our friend asked this the other day, I congratulated her for being ready to ask and for being open to finding the answer that works for her family. I do love this topic!
Why Did I Avoid It?
Personally, I have to admit that I avoided that question for years. Why? Frankly, I think I was afraid of the answer, and afraid to admit my ignorance about the topic itself. I remember the crash of the dot-com bubble in 2000, I watched the 2008 financial crisis impact our lives, and the 2011 correction made me want to stick my head in the sand. For sure there’s plenty of information available on the internet and in books about longterm investing and the art of getting it right. There’s also plenty of information out there about the normalcy of market corrections. But why was I still so nervous about investing? There are two main reasons.
First – I’m Dyslexic
That’s right, I am dyslexic. Reading is always a challenge for me. It can feel like falling into quicksand. I won’t get very far before my dyslexia kicks in and I become unable to read. It’s like asking someone who can’t swim to jump in the ocean and just relax and float. I can float like an otter, but reading is near impossible at times. As a dyslexic, continuing to find ways around this hurdle has been a challenge. Now I’m grateful every day for Audible books, Kindle with VoiceOver accessibility, and for the simplicity of letting my Macbook Air read documents and webpages to me.
Second – Investing Used to Intimidate Me
The second reason I was nervous about investing for so long, was simple fear of the unknown. I was intimidated by all of the experts out there who talk too fast, who drop terms and acronyms without explanation. And I had grown tired of all the mansplaining, whether it was a broker telling me how great their recommended 401k option was so no need to do my own research, or the loan broker who tried to steer me towards their plan for buying a new house or refinancing a loan, or a sales person at a timeshare presentation. You know these people and you’ve probably had the pleasure of spending an hour with at least one of them. I’ve been through all of those scenarios and they made me want to run! Then add to that the reality that I can’t easily read the materials they handed me and you have a perfect storm of insecurity!
But with all that being true, I could still see myself becoming more and more interested in investing with every passing year. The stock market has truly become more accessible to the average investor over time. I just had to find a way to absorb the information and demystify the process.
Put One Foot in Front of the Other
For me the process of becoming a confident investor began in 2005 when I joined an all woman investment club in Seattle through Better Investing. Our group learned a lot together. There was so much information about how to research value stocks and where we should look among all of the available materials online and in print to find the data we needed to make good investment decisions. We met once a month and took turns pitching stock ideas to the rest of the group. The club members were all very supportive of one another and really took the time to make sure everyone was understanding the key concepts. We each got to play student and teacher. I learned so much in that environment, and my investor confidence grew exponentially over the years we worked together. I wouldn’t say that group turned me into a miracle stock picker, but it definitely made me a more informed investor and taught me to enjoy the process. During my time in the club I also started picking up almost every investing-related book I could find, as long as it was available on Audible or from my library’s digital download section. I loved all of that learning and was finally having fun investing.
Technically I’m still a resident of Seattle, Washington. And since we have become full-time travelers I have continued to borrow books from the Seattle Public Library throughout our travels in Southeast Asia. I’m downloading both Kindle and audio books over wifi, and I find that very liberating!
Investing – It’s Just Sports and BBQs
In 2013, Ali signed me up for a class focused on candlestick trading patterns and swing trading. Again, I soaked up the information. I learned a few reliable candlestick patterns to trade with, and more of my fear melted away. To be clear, swing trading is not a perfect fit for me, but that class and the follow-on things I signed up for taught me a lot about how the market is driven by emotion and why so many investors are looking for short-term wins. It takes a certain personality to stomach the swing trade approach, which is why I have shelved those methods myself. But I do still follow the S&P daily and draw my predictions for the market’s direction using candlestick patterns. From my perspective tracking the market’s daily swings is a lot like a sports fan tracking basketball (or baseball, or tennis, or another sport). That fan might track the players, their statistics, their injuries, and whether or not they passed their latest drug tests. That sports fan can know all of the data well, but they don’t have to play the sport themselves, though they might like a pick-up game on the weekend or at a summer BBQ. People can have a great time watching football without having to face a 300-pound offensive lineman, or baseball without having to face 100 mph fastballs!
I had been following the market regularly as a spectator and burgeoning investor when we were on our first big trip to Europe in October 2014, and the market experienced a significant correction. The BBC news was all over it, and so was every other news show I could find. It’s funny to remember the London hotel room we were in when I heard the news that day. In that moment, I just wished I had my laptop with me so I could easily respond to the news by adding to our positions! That blip in the market recovered very quickly and since then has climbed another 1,000 points to reach the level it was at by the end of 2018. That day in London was the first time I experienced a large market correction without feeling scared of investing or afraid of what the correction would mean for our money. I understood that correction was a moment that would have offered me the opportunity to buy more on a dip. Noticing that shift in myself was exciting!
By the end of 2014, I was also really into the Motley Fool and binge listening to their podcasts. I was so eager for additional investing-related content. I was listening to Motley Fool podcasts at work, at home when I was doing the dishes or the laundry, on the bus, and during my bike rides. The Motley Fool does a great job offering content on all levels, from their fun Q&A shows to stock watching and market reporting. The Motley Fool became part of my daily routine just like checking the weather.
2014 is also the year that I first learned about the FIRE movement. I probably googled something like, “how much money do I need to retire?” There’s that question again! And part of the answer for me was just learning that the FIRE (financial independence retire early) movement exists. I realized that as soon as the money we had saved was making enough money to cover our living expenses, we could quit our jobs. As long as we could keep our expenses the same, or better yet, lower. In the first few posts we read there were lots of assumptions regarding rates of return, inflation, and safe withdrawal rates (SWR) that seemed generic and unrealistic. But finding the FIRE movement was a big help for us.
I became obsessed with the idea that we should save more and spend less. Ali and I really came together and buckled down, maxing out investments in our 401k’s and Roth IRAs, and we stopped spending as much of what we had left. We put our extra money away in our taxable investment account, and kept saving cash to cover 100% of our vacations every two years. We then sold a property we had inherited in 2007, which we had been hanging onto for emotional reasons. We used those proceeds to pay off our mortgage in Seattle. That may not have been the most efficient move for that money, but becoming 100% debt-free felt great! It also freed up additional monthly cash flow so we could save and invest even more.
As the bull market continued to march up and up, my Money Crush obsession really kicked in. We were starting to see compounding in action, by investing so consistently our portfolio was really taking off. Even though we still weren’t really able to accept that we were near to reaching FIRE.
Change Came Quickly in 2016!
By 2016, I was tracking every penny (expenses) we spent, but not really restricting our spending to any point that resembled deprivation or lack of fun. I was also on top of monitoring our net worth (assets less liabilities). We were still planning and taking amazing vacations and having a great life in Seattle. And by 2017 our annual expenses had come way down and our savings was way up. My favorite podcast at the time was the Mad Fientist’s Financial Independence Podcast. I really enjoyed his interviews of prominent FIRE community members. These were people I hadn’t found through my previous research, and those FIRE writers and bloggers were of great interest to me. They all seemed very approachable. The Mad Fientist seemed like such a humble and appreciative guy and I loved the tone of his podcasts. Listening to those interviews finally motivated me to run the math and answer that big question… What’s our number?
Annual Expenses x 25 = Retirement Number (net worth)
It was hard for me to ask the question, but it was really easy to answer. After all, it’s just a matter of multiplying your expenses by 25, and then you have your number. It’s that simple and straight forward. If your net worth is equal to the number at the end of this simple little equation, you’re there! When I ran the math that first time in 2017, to my complete shock, we were there!
The first time I ran the math I was at work. It was June of 2017. And my reaction was disbelief, maybe even shock. When I look back at that time in 2017 it’s like I’m remembering the year that Christmas came in June! When I finally had the nerve to face all of my fears and do the math, the result was like magic. I could barely stand to finish my workday so I could go home and ask Ali the question. Since it was only about 6:00 am when that happened I figured I should keep it together and finish work. At the end of the day I went home and asked Ali: “How would you feel if I said we could retire today?” It took Ali about a half second to say, “Lets do it!” Just as surprisingly, we actually decided at that point to keep working and saving for a few more years, just in case. Though we did not stick with that plan, and that’s something we can cover in more detail in another post.
What if I’m Wrong?!
I spent the next 6 months with a new project – making sure I wasn’t missing something. I made a list of everyone the Mad Fientist ever interviewed. Then I listened to and read through ALL of their content, in every book or blog post or podcast I could find. I built so many spreadsheets, and downloaded even more spreadsheets. Then tested the numbers using online retirement calculators. I was on a mission to discover the truth. I was obsessed!
Since we had not worked with a financial advisor in any capacity, we hired an independent certified financial planner (CFP) to check our work. We were lucky to find a CFP who was familiar with the concepts of early retirement so we didn’t have to do anything extra to explain what we were trying to achieve. The real reason we hired that CFP was to tell us if we were crazy, but instead she checked our numbers and told us all of her tests returned a 99% success rate for our plan for FIRE. She also said that since the calculators are not designed to return a 100% success rate, and it’s prudent to leave the door open for an unforeseen black swan failure, that’s about as close as we could hope to get to “a sure thing.”
Safe Withdrawal Rate
The safe withdrawal rate (SWR) refers to the amount of money you can withdraw every year from your portfolio without running out of money. There’s a ton of research out there that says withdrawing 4% annually on a portfolio that represents 25x your annual expenses “should be” safe. Forever. After doing more research and crunching our numbers repeatedly, we decided 4% was not a number that felt safe for us.
So What is OUR Number?
When it’s all said and done, we started our FIRE journey at a number that is…
33x our 2017 expenses, which is a 3% withdrawal rate.
If you were hoping to see an actual number, sorry! This blog post is just a snapshot of our personal story, because after all, finance is personal. But please feel free to add any questions or comments below!
Today it feels like we had our heads down working and saving while making the best choices we could at the time. And yet, it felt more like we had our heads in the sand avoiding our truth. I feel like we got to our number by accident. Maybe because we stopped repeatedly making poor financial decisions, and at the same time we also started making better financial choices to match our evolving values.
Save, invest, repeat.
I could add so much more to this post, but I’m going to leave my story here and instead just repeat that magic little formula…
Your annual expenses x 25 = your retirement number.
If you want to nerd-out a little more, enter your own estimates at FireCalc.com. This is one of the more straightforward retirement calculators out there, and it’s not associated with someone selling their services. It’s just one of many tools I used and found to be very helpful.
Lastly, if you are trying to get up the courage to run your numbers, here’s a link to something I always remember when I’m thinking about trying to learn something new. Enjoy!