Will I be able to retire? The Mice and Money Model

TPP Note: This is a Guest Post by Mouse. Mouse, who you can follow on twitter, is a self-described husband (to a doctor), father, engineer, and finance blogger.  He spends a lot of time building these awesome money models to predict the chances people have at successfully reaching their goals.  Today, we will see Mouse’s money model for my plan: The Physician Philosopher Plan.  Hopefully, we will be able to answer the pen-ultimate question: Will I be able to retire early?
For clarification, I make a few intermittent comments noted as [TPP].
Take it away, Mouse!

The Physician Philosopher Plan

If you’ve followed the Physician Philosopher’s progress for awhile, you’ll be aware that:

  1. His investment portfolio is a cocktail of the usual low cost index funds from Vanguard.
  2. He’s destroying his debt with a high income and an awesome savings rate.
  3. His updates are a trove of data and goals and progress; about the state of the blog and the state of his balance sheet.

However, I noticed a focus on the present, with an emphasis on delaying gratification while putting his financial muscle into getting out of debt fast.

But to what end? What is he building towards? What’s the plan after the debt is gone, and how will he know if he’s on track for his long term goals?

I was curious so I asked these questions, and he was patient enough to let me explore some of the answers. Maybe the analysis of his future will help you clarify your own plan.

Financial Goals

Big Goal

  • Reach Financial Independence by July 2032: $3.5 million Net Worth.

Smaller Goals

  • Debt Free by July 2019.
  • Have a net worth of $1 million by July 2025.
  • Save at least $100,000 for each of three children’s college education.

Make A Plan

“A problem well-stated is half-solved.” -Kettering

  1. Pay off Student Loans ($139,827) [TPP: We are actually < $135,000 at time of writing]
  2. Pay off Car Loans ($66,627) [TPP: Don’t hate on me too much!  10% Rule!]
  3. Do all of the above while maxing out tax advantaged accounts, and
  4. Reach college savings goals for three kids.

Assumptions

  1. $5500 contribution towards student loans and car loans until they are gone.
  2. A variable yearly bonus occurs each July that will go towards building net worth. Estimated (take home) bonus pay: $30,000
  3. $5167 towards investments each month UNTIL debts are zero.
  4. $1100 total towards children’s 529 accounts each month for college.
  5. $7417 towards investments each month AFTER debts are zero.

[TPP: The assumptions above are not likely 100% accurate.  But they are accurate for the most conservative picture for me.  Please, see my comments at the end of the article]

Results

Big Picture

The plan outlined above results in the following glide path for the Physician Philosopher:

Figure 1: The Big Picture Glide Path Towards a Goal of Financial Independence in 2032.

Figure 1 shows the plan has a 40% chance of reaching the long term goal of financial independence by 2032. While this exact plan is expected to fall a bit short of the target, it’s astonishing progress from his starting point of -$208,000 in July 2017!

If you’re familiar with A Tale of Four Physicians, the above graph looks strikingly similar to the projections for Dr A.

Furthermore, note that the worst case scenarios still look pretty comfortable. A couple years of part time work in his 40’s would make up for all but the most dismal market returns.

The plan is likely to reach the intermediate goal of $1 million by 2025. This indicates some flexibility to save a little less in the shorter term – though with a commensurate increase in savings for the longer term goal.

Zoom In on Debt

The Physician Philosopher has a nice mix of short term and long term goals. One that he revisits often, and with passion, is his goal to destroy all student loan debt by July of 2019.

Student Loan Debt Trajectory

Student loan debt is cold, hard math. There’s no uncertainty around stock market risk or the rising cost of real estate: It’s a simple proposition of how much you can pay towards the debt versus the principal and interest that accrues.

If he sticks to his plan, he’ll pay off the debt completely by the end of July 2019, depending on the timing of that yearly bonus. In any case, he’s on track for this goal.

[TPP: I plan to dump about $42,000 into this number next month, July 2018.  With monthly payments of $5,500 I only need to come up with $27,000 in bonuses next year, which should be easily accomplished.]

Saving for College

The final goal we’ll examine is a savings goal to offset the cost of education for three children of varying ages. It’s easy enough to break this goal into three buckets of $100,000 each, but let’s just combine them into one picture:

Is the Physician Philosopher’s $1100/month savings adequate to reach the total value of $300,000 by July 2032?

Figure 3: Expected College Savings

The results of Figure 3 show that the current contribution plan is likely to fully fund the goal by the target date. There is also substantial upside, both in the best case scenario displayed on the graph and in the realization that college scholarships may generate a big refund from this savings plan.

[TPP:  I also didn’t want to disclose the age of my three kids.  14 years was a good rough estimate for the three, but I have more time than that for some to keep growing.  This one looks good!]

Conclusions

Strengths

The future is unknowable and the three projections in Figures 1-3 won’t necessarily encapsulate it. However, by tracking his progress against each path, the Physician Philosopher will have a strong leading indicator if he is on track to reach his goals, or if he should make adjustments along the way.

His high savings rate (I don’t know it offhand, but I’d venture it’s 50% or more) [TPP: Spot on, mouse. Spot on.  It’s all about living like a resident.] leaves little doubt that he’ll enjoy increased freedom over the course of his working years and the benefits of being able to self insure.

The above analysis also ignores the net worth of his primary residence. Right now, that’s a fairly small number. However, it’s likely to be a significant asset over the course of the next decade and one that is not accounted for in this analysis.

Shortcomings

I typically plan in real dollars, but the above numbers are all nominal. Over the course of ten years, inflation will have a modest effect. Over the course of fifty years, it will be substantial. Being a millionaire isn’t the status symbol it used to be because a dollar bill doesn’t buy as much as it used to buy.

The projections displayed above are for an aggressive 100% stock allocation. He may wish to to give up some upside potential for the ballast that bonds provide in a stormy market. I simplified the discussion by assuming 100% stocks, but some adjustment should be made for a more conservative portfolio.

The effect of this change for most stock/bond ratios down to about 70/30 is to tighten the best and worst case scenarios (green and red lines on the graphs) without impacting the median expected value very much. You lose some upside, you protect against some downside.

I’d also suggest that if he’s serious about reaching his financial independence goal by 2032, he should continue to aggressively contribute money even after all debts are paid off. [TPP: That’s the plan!  I’ll bet you a cold hard six pack of beer I’ll get there by 2030!]

Final Thoughts

As with all financial advice, past performance is no guarantee of future returns. Thanks for reading and please comment or subscribe!

[TPP:  Strong work, mouse!  Your models are awesome and seem spot on!  This is just a ton of work, and is truly impressive.

I mentioned above that some of these assumptions will likely change in the next couple of years. I think with the addition of the following assumptions, I am on pace to reach all of our goals and much more!  

However, I did not want to include some assumptions in Mouse’s model because they have not happened yet and are not guaranteed.  So, Mouse’s assumptions are spot on for a conservative picture.  In other words, mouse’s predictions are a “worst case scenario” in my mind.  And they aren’t bad at all!

Some differences in reality will likely include the following:

  • My bonus is variable and can be much larger than $30,000 in a given year.
  • I plan to get promoted in the next four to five years, which will increase earnings and savings. 
  • There is an invention that I am actively trying to get licensed.  In fact, I am meeting with a medical company the day this post goes live!  If that provides any money at all, that will speed up paying off my loans and investing sooner!
  • Mrs. TPP plans to go full time in the next year or two, which will provide an additional $18,500 in retirement savings when that happens.  She is actually interviewing right now for jobs.
  • All of this assumes no money is made from my many passion projects.

Also, if my kids get full rides to college like their pops did, then I can take out all of their scholarship money from their 529 without getting hit with the penalty! 

Either way, I feel like I am on a good track to reach our goals!  Mouse’s models give me hope despite me being a realist with pessimistic leanings!

What do you think? Leave a comment below!]

If you’re interested in reading more posts from Mouse, check out his site at https://ofmiceandmoney.com or follow @ofmiceandmoney for the latest updates. Thank you!

†All data, assumptions, and projections in the plan are based on my model and my very best effort at understanding the Physician Philosopher’s current balance sheet and future contribution plans. Most of the data is based on TPP’s balances from 4/27/2018, and may not be perfectly accurate as of this posting date. Any mistakes are my own. -M

11 thoughts on “Will I be able to retire? The Mice and Money Model

  1. Very impressive analysis Mouse. Wow. I wish I had someone chart out things like that for me when I first started out.

    Great to get a big picture goal but also have smaller milestones so you can get pats on your back along the way (much like mile markers in a marathon (which by the way I’ve never even had the desire to run).

    TPP you definitely need to bookmark this post and revisit it and see how it compares with the actual achievement timeline

  2. Not to be critical in a negative way but merely to critique from another point of view. My thought is 2032 is arbitrary and I see it as a fallacy of the logic. The future projection has associated it’s own SORR. In 2000 the market lost almost half and it wasn’t till 2007 it got even, and then it promptly lost half again and wasn’t till 2013 it got even again so from 2000 to 2013 there was effectively zero growth.

    What saved anyone from zero growth was the continued purchase of shares year in and year out and re-balancing within those 13 years. After 2013 real growth occurred and that dry powder (think ammonium perchlorate mixed with powdered aluminum) of cheaply purchased shares caught fire. If you didn’t purchase cheaply in that 13 years you didn’t catch fire. If you purchased somewhere in the 2012 range you’ve only known growth. 2012 to 2032 is 20 years and we are 6 years into that sequence. What if 13 of the remaining 14 years of sequence looks like the no growth 2000 to 2013 sequence?

    This is also why I see the obsession with paying off debt as a fallacy. For sure debt sucks but in your case debt is not at all deadly, just an annoyance. Your portfolio and net worth explodes when you buy cheap shares year in and year out. If you are wasting your excess resources paying off debt you are starving your portfolio from the rocket fuel needed to explode. Owning shares in American companies is the compounding engine of the money machine. If you don’t own shares your machine ain’t got no motor

    • I hear ya, Gasem.

      My situation is a bit unique regarding my debt because I can’t get personal disability insurance. So I very much want that gone as soon as possible so that I can then move on from it. If I become disabled I have to live on what my group disability provides, which is 2/3 my current base pay prior to taxes. There is a monthly maximum benefit, too.

      For that reason, my necessary cost of living should never rise above that number. So, the sooner I rid myself of debt, the better.

      I have been investing a significant amount despite the debt burden and I dollar cost average everything, which is what you are describing.

      All in all, I think I’m doing well.

      2032 is not really arbitrary. It’s based on life goals and where I want to be by a certain time. I recognize that date may change depending on how the markets do. That’s definitely true.

      TPP

  3. I didn’t know the disability part. Makes more sense now. You’re doing great. Just offering the readers an alternative context

    • Yeah, got swindled into it as a med student when I have an essential tremor and was applying to gas. Got straight up denied and caused some major issues getting DI going forward.

      I appreciate your comments, as always! I love having conversation and differing point of views. Thanks for providing one. Seriously.

  4. Hi Gasem,

    I appreciate your comment and agree that the best thing to do is keep pouring as much money as you can into buying shares of all the businesses in the world. When there are down years (or decades), those shares are on sale!

    I will say that being six years into a bullish cycle doesn’t mean that we’re due for a bear cycle. It appears to me that performance from month to month or year to year is uncorrelated. So again, just another vote for continuing to get your dollars invested! The model I use does account for those downside scenarios, including the worst case of “the market started doing really badly and for a long time right when I retired.” I tend to think this should be dealt with using contingency plans like “I’ll work a few years longer” or “I’ll continue to work part time” or “that beach house and 2nd boat are going to have to wait another year.”

    In any case, as TPP mentioned, I ran the number out for a 2032 goal. If you want to see some other models that run towards different time horizons, check out my site 🙂

    Cheers,
    Mouse

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.