Recently, we’ve been discussing our Fully Funded Lifestyle Change (FFLC) date and we’ve going back and forth about what is the earliest date this could start. See, it started when I bought a retirement countdown clock. I had to set it to a date in the future, then set today’s date, and voila! You have a countdown to retirement. I decided to settle on July 13, 2018, as my last day in the office. How did I pick that date and more importantly, how has it changed from 2010? Let me explain.
I’d heard Mrs. SSC talking for years that we can retire at 45. She had it all planned out in our “investment and retirement planning” excel sheet she would share with our friends when they would ask her advice on retirement planning. Then they would exclaim, “Wait, you’re retiring at 45?!” Well, that would be the year 2022, so clearly things have improved. How were we able to move up the date so dramatically? Well, since then, we’ve tracked budgets better, saved more, and refined our excel sheet to match reality. But, the single biggest thing we have done is assess and account for our risk tolerance. That’s right, risk tolerance alone has accounted for dropping almost 4 years off of our original FFLC date, and just this weekend, we potentially shaved another year off.
See, originally, we’d accounted for a 10% cushion so we could deal with any economic maelstrom that might occur. We also didn’t account for ANY side income, or Social Security, or our pensions (meager as they may be). We just looked at that as buffer money, in case it all goes pear shaped economically. We wanted to be able to take care of ourselves even if Social Security died, our companies failed and pensions didn’t exist (thanks for that lesson Enron), or any other myriad of calamities.
All these buffers and assumptions just added more money and time to our savings and FFLC date. Then I remembered a post by Mr. Maroon (they’re no longer active or I’d add a link, but they were a great source of inspiration for us) in which he described how he had shaved off 3-4 years from their planned FIRE (Financial Independence Retire Early) date, just by sitting down and doing a more detailed analysis of their budget and assumptions. The biggest thing they adjusted was their risk tolerance. This got Mrs. SSC and I to re-examine our own assumptions, and BAM! Overnight, we went from “retiring” at 45 to targeting 42! Woohoo! That got us to 2019 which is still 4 years away though and it’s still a fairly conservative estimate, because we don’t like to count our chickens before they hatch.
We use a mix of spreadsheets and online calculators to help us feel better about our FFLC situation. This isn’t saying we trust any of them blindly, but if we get agreement from multiple sources that our assumptions are fair, and our strategy could work most of the time, then it helps us feel more comfortable about all the assumptions we’re making when they are so far out in the future.
One of our fave’s is cFIREsim because you can put in your best assumptions and it runs your scenario against all historical data. For those that haven’t heard of it, cFIREsim is a crowdsourced FIRE simulator that works pretty well with letting you simulate and adjust your expected retirement lifestyle scenario. You can input as much detail or as little as you want and it gives you a sense of how your portfolio and withdrawal plan would fare. We targeted ~95% as our success rate, but it’s mainly because that is the number Mrs. SSC is comfortable with. This chart below shows a sample of one of their outputs run aainst various historical periods based on your inputs.
This past weekend, I was reading a link Mrs. SSC sent me that took me to the MMM forum with a good discussion about “choosing a success rate with cFiresim calculations”. It was pretty interesting reading, and eye opening in that most of the people on the site were targeting 80% chance of success. Some even as low as 50%, to which I say, No thank-you, I don’t like to gamble that much. They make some great points about what a 90% success rate means, and what an 80% success rate means, and how that relates to your comfort level. It’s a great discussion and I highly recommend bouncing over there and checking it out, because they explain it WAY better than I can. Don’t worry, I’ll wait. (twiddling thumbs, looking at ceiling, whistling…) Good, you’re back! For those who didn’t go there yet, I’ll try to sum it up below.
In essence, having a success rate of 90% is saying that you’re expecting the future to be as bad as the worst 10% of historical periods. Even through all of those bad times, you should have success for 90% of those occurrences.
After reading that, we re-ran our numbers looking for a 90% success rate, and adjusted it to account for some of our retirement benefits and social security, and holy cow, we’re looking at the end of 2017!! Yeah, that’s moved up our FI date another 2 whole years! Granted, the stars would have to align, and all of that for us to achieve FFLC in 2017, but it’s a new best case scenario. See the chart below for various assumptions made with the amount investment being the only change. We typically go for 4% withdrawal and set a max spend of $90k/yr and min spend of $50k/yr. for our scenario.
Another thing we took into account is if we have any side income. Most likely, we’ll be working in some manner, and it’s amazing how even a little money like $5k/yr can dramatically change your chances of success. These assumptions using the $1.1 million starting also assumes a paid off house, and the higher invested scenarios are dependent on how the market does. The $1.1 million is assuming the same savings as now and 4% growth in the market. I did say we like to be conservative in our assumptions….
The biggest change for us, is that our comfort level with our FFLC plan has dramatically increased, and our risk tolerance towards enacting this Lifestyle Change has dramatically decreased. By tracking our spending- our real spending with the lifestyle we want to maintain in our FFLC, and keeping the discussion about this plan in the forefront, it isn’t some oddball unconventional dream anymore. We’ve given a face to it and realized, it’s TOTALLY achievable. We have also realized that we’re both going to have a side income of some sort, and if it’s enough to cover expenses so that we don’t have to tap into our investments immediately, then we can watch those investments grow and grow. We’ve quit looking at this Lifestyle Change as “retirement”, because for us, that’s what it has become. Focusing on getting to FI so we can have the freedom to do what we want to do, liver where we want to live, and have more time to spend with family.
After all of these realizations, we accepted that 2018 is now our most likely scenario, and it could be as early as 2017 when we hit FI. I adjusted my clock to Aug. 3, 2017 which is just under 600 days from now, as our new target and the point at which if we wanted to we can start our FFLC. I just find it amazing how knowing your numbers, adjusting assumptions, and reassessing your tolerance for risk can dramatically impact your FI date. To which I say, “Go! Go! Quit reading, get your spreadsheet out and see if you can shave any time off. Why are you still reading this and not “spreadsheeting”? Go! Now! GO! For your own sake!”
What is the biggest factor affecting your FIRE date?
Have you had any big leaps forward in your date, just by adjusting assumptions or risk tolerance?