Welcome back (or just “welcome” if this is your first read). I’m the Professor here at FIcology 101 and I want to share with you probably the hardest decision of my life – the decision to retire (or to “FIRE” if we’re using community lingo).
Introduction
While my life goal has been to retire at age 59 (which I did, congratulations to me), my “can I really do this” path felt like 62 was more realistic. And honestly, I really wanted to wait it out and hit that more realistic target, giving me a more financially-abundant retirement. But that wasn’t in the cards, and this story illustrates why being on the FI path is so powerful.
From Happy to Unhappy Employment
After starting life over with my family in the semi-rural midwest, I was fortunate enough to land a software development position with a small and up-and-coming SaaS company. As the company grew over the next 14 years, so did my role, position, responsibilities, and salary. The owners legitimately cared about the employees, encouraged and grew us, and maintained a very family-like atmosphere. After years in the large and impersonal corporate world, I finally found my home. Or so I thought…
In my 15th year with them, the company was acquired by a private equity firm. And while the new company treated me fairly and didn’t do anything “wrong”, I was unwillingly back in the corporate world again. This wasn’t the job I was hired for and it wasn’t the family-like environment that I loved. I found myself: constantly stressed, dreading every day, and frequently in tears over how unhappy I was.
Looking back, it’s shocking how fast your life and plans can get uprooted. If I hadn’t already been on the path to FI, things could have been much worse for me.
The Fire Fueling My FIRE
The next few years with the new company lit a fire under my FIRE plans. At first I was hopeful this new company would work out despite the enormous changes, culture shifts, and chaos. Unfortunately it became clear after about a year that it was never going to be. So, I decided to step up my FIRE plans and timeline. I’d already been on the path to FI for years, but how close was I to FIRE and could I pull it off sooner?
Step 1 – Fast Track My FI Education
The first thing I did was start consuming every podcast and book I could get my hands on. I devoured books on “early retirement”, “financial freedom”, “tax planning”, and more. Here are some books that helped me:
- The Simple Path to Wealth – JL Collins
- Find Your Freedom – Jamie Hopkins and Ron Carson
- How Much Money Do I Need to Retire – Todd Tresidder
- The Success Principles – Jack Canfield
- The 5 Years Before You Retire – Emily Guy Birken
- The Psychology of Money – Morgan Housel
I also had FI/FIRE and related podcasts playing in my earbuds and in the car constantly. There are a lot of podcasts to choose from. Here are some of my favorites:
- ChooseFI
- Mile High FI
- The Financial Independence Show
- Your Money Guide on the Side
- Forget About Money
Podcasts and books not only increased my knowledge, they also inspired me to do independent research. The more I learned, the more the pieces began to fall together, and the more of a reality the possibility of FIRE-ing became.
Step 2 – Gather Expenses & Cost of Living
There’s no way to determine if you can retire without knowing your actual annual living expenses. I spent a significant amount of time reviewing our checkbook, utility bills, credit card statements, tax receipts, and so on. I captured all of this data into broad categories at the annual level. Expenses aren’t all smooth and predictable; they appear in spikes and at random. I had to estimate allowances for unpredictable items like: auto repairs, HVAC repairs, and so on. Your categories will likely be different from mine. For example, we’re fortunate to not have a car payment at this time. These are the categories I used:
- Health Insurance
- Personal Property Taxes
- Auto Insurance
- Groceries
- Utilities – Electric, Propane, Trash, Internet
- Church / Charity
- Cell Phone
- Automobile (maintenance, depreciation)
- Dental
- Medical – Out of Pocket
- Home Property Tax
- Home Insurance
- Home Maintenance
- Miscellaneous – group for all other routine spending (gas, dining out, entertainment, etc…)
- Safety Buffer – a configurable percentage (I used 10%) of the sum of all the above expenses. For example, if the above expenses totaled $50,000 per year, then this would add $5,000 to my total expenses.
Important: I can’t stress enough the importance of being thorough here. Missing expenses in this step could lead you to make a disastrously wrong decision. Be sure to account for non-monthly and non-recurring expenses.
Step 3 – Gather Assets
For us, this is simply a list of our retirement accounts broken down by bucket type (Tax-Deferred, Roth, Taxable, and HSA). Knowing the bucket type allows you to factor in tax consequences. Withdrawals from tax-deferred will be taxed as normal income (and penalized if you’re under age 59.5), for example.
Note: While it’s important to know the equity in your home and autos, I did NOT include these as part of our retirement assets for this exercise. We plan to live in our home and drive our cars. If we were selling our home (downsizing, for example), then I might include some of that equity here.
Step 4 – Homegrown Excel Forecast Spreadsheet
For years I’ve had a very simple online financial calculator that I’d used. While that was great for tracking our FI progress, it was not sufficient to make a decision this important. So, I built my own version of a forecast / drawdown spreadsheet. I factored in things like Social Security, interest rates, tax rates, inflation rates, Mrs FIcology’s pension, and so on. It allowed me to play with all the numbers and see how long our money lasts under different scenarios. I spent hours upon hours in this spreadsheet adding new features and comparing different withdrawal strategies. If you’ve been around the FI community much, you know many of us have our own spreadsheet like this. This was the foundation of my decision on when I could pull the trigger and retire.
Step 5 – Financial Advisor
To make sure I wasn’t missing anything, I enlisted the help of a financial advisor. I provided him with all of our info (which was easy because I’d already gathered it above), and he reviewed and ran it through his firm’s software package that runs your numbers through a Monte Carlo simulator to determine the odds of your assets lasting through retirement. The result: he confirmed what my Excel sheet had already told me. I could retire.
Note: I suggest finding a flat-fee/fee-only advisor as opposed to an AUM (assets under management) advisor. The latter manages your portfolio in return for a percentage of it as an annual fee.
Step 6 – Monte Carlo Simulator
As one last sanity check, I used an online Monte Carlo simulator to enter in all of our numbers and run a number of scenarios and tests. If you haven’t played with one of these, it’s worth doing. Once you’ve input your assets, you can simulate all kinds of scenarios, periods of history, worst case, best case, and so much more. The one I used is projectionlab.com. At the time, you could sign up for a free trial which was plenty for me to confirm one more time that I could retire. At some point, I may go back and purchase a membership so that I can continue monitoring our chances of survival.
Step 7 – Deep Breath and Take the Plunge
For a few months I continued to work at the job I didn’t like. It continued to NOT be what I wanted and the morale there continued to decline. I won’t go into details, but suffice it to say that one day came where I finally had enough. The hit to my happiness was no longer worth the paycheck. So, I reconfirmed plans with Mrs FIcology and put in notice. Work took the news well and I actually gave 6 weeks notice and trained my replacement. I left on amicable terms and I’m thankful for that.
Conclusion
That’s how my decision to FIRE went down. It has been a huge relief and I am enjoying life again. But, here’s what I can tell you six months later: retiring didn’t solve everything, and it surfaced a few things I wasn’t prepared for. The next post is the honest version of what life after FIRE actually looks like. See you there.