We all tread different paths through life that influence how we see the world. Knowing that context can help us understand each other. That means my first post here should probably be some recap of how I got to where I am today, right? So here it is, my origin story.
Table of Contents
Entering the workforce
After graduating from college I got my first job. It came with a 401k. While I don’t think I was opted in by default, I didn’t ever consider not contributing. I knew that saving for my future was important. But I had to decide how much to contribute. I knew enough to make sure I got the employer’s match, but was that enough? Googling something along the lines of “how much should you save in your 401k”, the consensus advice seemed to be that if you contributed 10% you were doing well.
I decided to contribute 12% – enough to get the match, follow the standard advice, plus a bit extra. In addition to my 401k I made sure to contribute the max to my IRA each year. I was proud of myself, thinking I was setting myself up for a better-than-average retirement.
And, to be honest, I was. I was a 20-something and my contribution rate to my 401k was almost double what is typical even by today’s standards. If I continued to contribute 12% for the next 40 years or so I’m sure my retirement would have been quite secure, particularly if I could avoid the typical lifestyle inflation.
I can remember my dad mentioning something to me early in my career about the idea of early retirement. I was intrigued by the idea, but I did the math. Let’s say I wanted to retire when I was 50. I still needed almost 10 years of living expenses to bridge the gap from 50 to when I could access my retirement accounts at 59 1/2. That would mean saving up a huge pile of money, hundreds of thousands of dollars, outside of retirement accounts so I could access it without penalties.
Retiring even earlier than that would just compound the problem. It didn’t seem like something like that was possible, certainly not at my entry-level salary. I filed the notion away and got to work, aspiring to someday attain a VP position where I imagined all my monetary needs would be taken care of.
Career disillusionment
It wasn’t until a decade later that I returned to the early retirement idea. I was 10 years into a job that I wasn’t sure I could imagine doing for 25+ more years. While doing my taxes I was investigating converting traditional IRA funds to a Roth IRA when I came across the concept of a Roth conversion ladder.
What was this black magic? A way to access retirement money early? And along with it, this concept of early retirement? It didn’t take me long from there to find and internalize the shockingly simple math of early retirement. Here were the puzzle pieces I was missing when I started my career! What I had failed to realize earlier were a few fundamental concepts:
First – that your expenses, not your income, are the driver of what you need to save for retirement. Most retirement calculators are based on income, but their implicit assumption is that you spend 90% or more of your income. If you spend less, you need to save far less for retirement.
Second – there are ways to access retirement accounts before retirement and without penalty. The Roth conversion ladder is one key approach, but another is being able to access your 401k at 55. These strategies reduce the amount of after-tax money you might need to save in order to make it to retirement.
Finally, the power of compounding. The earlier I could save and invest money, the more it would work for me in the future. I had already started my career relatively late, but the earlier you catch up to your Coast FI trajectory the better.
Finding a new community of resources gave me the tools to adjust my trajectory. I realized we weren’t taking full advantage of all of the tax advantaged accounts that my partner and I had available to us. While we’d made a point to check in with each other on our finances regularly, we weren’t tracking things to the detailed level necessary to make true changes. We started tracking our income and expenses more rigorously. Once we did that, we identified places where we could cut expenses without sacrificing what was important to us in our standard of living.
Coast FI
Thanks to (in hindsight) a pretty decent savings headstart, only three years later we’ve reached Coast FI (a term I first heard from The Fioneers on this episode of ChooseFI). Coast FI is the point at which we could never put another dollar into savings and, thanks to compounding, our money would still grow to a large enough size such that at retirement age we would have enough to last us for the rest of our lives.
If we were to keep working we’re certainly less than 10 years from financial independence (FI), and likely closer to 5. But now that we’ve reached Coast FI, increasingly I find myself wondering – should I just stick it out, or should I start using some of my financial freedom now to enjoy the ride? If I want to start flexing that freedom, how should I do it?
Many of the prominent people in the FI space are on record as saying that they wish they’d taken things slower (Example: Lesson #5 from the Mad Fientist). While it would have taken them longer to get to FI, in hindsight the increased happiness along the way would have been worth it. Do I really want to grind out 5 more years, or should I start slowing down?
Where do we go from here?
This blog is one way I intend to work through those questions. What are our options? How will we weigh them? Do they work out? Come along with me and see. My hope is to document not only the decisions and their outcomes, but also the thought process and the mental exercises we go through to determine how to make these decisions.
Cover Photo by Caleb Jones on Unsplash
