At the beginning of this site (November 2017), I wrote my first Physician Philosopher Manifesto. In it, I detailed our financial goals, including when our student loan debt would be paid off, when we would buy our next house, and the age by which I’d have met certain investment goals. How old will I be when I get to financial independence? Keep reading to find out.
Part of the purpose of this blog is to track my family’s journey to financial independence. This usually occurs through net worth updates, which are tracked from “time out” since training (6 months out, 9 months out, 12 months out, and 15 months out).
Today, I want to provide a quick update on the goals from my original manifesto, and outline exactly how I anticipate getting to our financial independence number over the next ten to twelve years.
Defining Financial Independence for Us
For those of you new to this financial independence game, your FI number is the number at which you no longer require earning a paycheck. This can be accomplished through saving a “nest egg” from which you draw down money each year. Or, it can be from passive income.
Personally, I intend to take a hybrid model for financial independence.
What this means is that I plan to save and invest enough money to cover a substantial portion of our desired annual salary while we also have some passive income coming in to help provide any remaining money we need above which we have not saved.
The FI number by which we could stop working would provide $100,000 annually assuming that all of our other debts are paid off by this point (i.e. no mortgage, car loans, student loans, college for the kids, etc). If we were simply saving to get to this number, we would need $2.5 million based on the 4% safe withdrawal rule.
I’d like to get closer to $3 to $4 million just to allow for some built in safety, and this was my originally stated “FI goal” anyway. However, based on our current lifestyle, we would be FI at $2.5 million.
Side hustles, which can serve as one of the best asset protectors, will hopefully provide passive income from books, inventions, real estate, and (hopefully) this blog. Any money from these endeavors will decrease that $100,000 annual salary we would be trying to achieve through our nest egg.
So, if we come up with a steady $50,000 in passive income annually, then our FI savings number would have declined to only $1.25 million. We will be able to get to that number pretty fast as I’ll outline below.
In my first manifesto, I outlined several goals. All of these were based on “time out” from training. Here are the ones worth mentioning right now:
- $100,000 in assets by one year out (actually completed this in less than 12 months)
- Positive Net Worth by two years out. We started at negative $208,000 and met this goal in less than 15 months. Our next net worth update comes out at the end of January.
- Student Loans paid off by two years out (July 1st, 2019). We are on track to have our $200,000 in loans paid off by March 2019. We have averaged $10,000 per month in payments.
- Not buy a house until the loans are paid off. Oops! First payment will be due by January 1st, 2019. However, we will likely pay them off at the end of the same month.
- Millionaire by 8 years out from training. Not quite to this one yet!
As you can see, we are meeting all of our goals and more. We have made some changes along the way – like buying the house earlier than anticipated – but we have not sacrificed any of our progress.
Our Current Situation
To recap, we want to get to $2.5 million to reach our FI number and to $3.5 or so for comfort well above that (where we can draw down 3% and still have at least $100,000).
How do we plan to do that?
Well, here’s how it is going to shakeout. Currently, we have well over $150,000 in assets in our investment accounts.
For the past 18 months our planned monthly student loan payment has been $5,500 per month – which does not include our additional bonus pay that we put towards our loans.
Therefore, once our loans are paid off we will be able to cash-flow that number. Where will it all be going? Well, our new mortgage costs $2,000 more than our old one. So, $2,000 will be going to that.
After that, we are left with $3,500 to use every month towards our goals. $2,000 of this will go towards a taxable account each month, and $1,000 will go towards filling up our backdoor Roth IRA for the year.
The other $500 will be for enjoyment, per the 10% rule – which has been the key to our success.
(For the record, we only put $4,000 into our backdoor Roth IRA this year and used additional money to pay off loans, instead. Blasphemy, you say! It’s all about defining your goals – and our major goal was to be out from under our student loans ASAP.)
How old will I be when I get to financial independence?
Given our additional intended savings outlined above, this is what our annual savings will look like going into the separate vehicles:
- $45,000 into my 403B, which includes employer contributions/matching.
- $19,000 into my wife’s 401K
- $15,000 into my wife’s governmental 457 plan.
- $12,000 into the Backdoor Roth IRA
- $24,000 into a taxable investing account
This gives us an annual savings of $115,000, or a savings rate of 32% of our base salary.
So, taking our starting $150,000 in assets and combining that with our intended annual $115,000 baseline savings – how quickly will we get to $2.5 million and $3.5 million?
Assuming 6% annual earnings, this is how it shakes out:
How old will I be when I get to financial independence? By the graph above, we should get to $2.5 million by age 46 and to $3.5 million by age 49. And this doesn’t include any 529 contributions.
If we received an annual return of 8%, we would get to each of these milestones about two years sooner (44 and 47, respectively).
We can do better!
The scary thing is that this is only our baseline savings rate from our base salaries. If we decided to, could we speed up this timeline? Absolutely.
The above chart doesn’t take into consideration any of my quarterly or annual bonuses. It doesn’t take into account the two car loans we have, which we will cash-flow once they are gone. It doesn’t take into account the $1,800 in childcare costs that we pay each month that will also vanish soon.
So, taking the above into consideration, let’s look at the accelerated plan. Here are the assumptions:
- We save an additional $750 per month next year when our little boy starts kindergarten.
- An additional $750 is saved when our youngest starts kindergarten.
- When the cars are paid off, we will save an additional $1,000 per month.
Still assuming a 6% annual earnings average each year, here is how it would shake out.
So, we would accelerate our timeline to achieve FI by age 44, and to reach an overabundance FI ($3.5 million) by age 47. If we actually receive 8% (instead of the 6% assumed above) we will shave a year and get there by age 43 and 46, respectively.
Still, none of that assumes a promotion, annual and quarterly bonuses, or any money made from side ventures like books, blogs, or inventions – all of which I anticipate will produce more income. (Note: 25% of this blog’s profit goes to charitable causes).
If we saved $10,000 more each year from my bonuses, we would be financially independent by age 42 and have $3.5 million by age 45. Again, this still doesn’t account for any side income.
Isn’t it awesome what you can accomplish when you set your mind to something!
The above information is shared for two reasons.
The first is that I want to outline how we intend to get to our goals. I hope this serves as an example for those coming behind me. You can do all of this is you don’t inflate your lifestyle too quickly!
The second reason is that I’ll use this post to check back on our progress. This will hold my family and me accountable for what our stated goals were when we started.
The great thing about all of this is that these are OUR goals. Yours might look very different. Our goals, as stated above, also still allow us some flexibility to give money to those in need and to allow our family to take trips and vacations.
What do you think about the stated goals outlined above? How does this look different from your own goals? Leave some comment love below.