Our intention was to post quarterly updates on how we are doing with respect to our three financial goals for 2017. Oops! We sort of missed our first quarter update, but shared copious details in our Numbers Game Part 1 and Part 2 posts. Now that we are half way through the year, let’s see how 2017 has been so far for Need2Save family.
Here is a quick visual update on our three Early Retirement Goals.
I love seeing those red blocks turn into green! When there is no longer any red on our charts – we will be FIREd!
I know some details may be hard to read, so here are the most important parts! It looks like it’s been a very successful first six months of the year!
ER Goal 2 – The Gap Years // A Deeper Dive
Goal 2 is to fill up our “Gap Years” savings bucket. As we shared in our Numbers Game Part 2 post, we want to have sufficient funds to pay for all our living expenses from when we stop working around age 51 1/2 and when we turn age 60 and enter in the Decade of Big Decisions.
During our gap period, we will use our low to no earnings to perform a series of Roth IRA conversions which we detailed here. The reason this is so important for us is that the vast majority of our retirement savings is in pre-tax 401(k) and Traditional IRA plans which may subject us to rather large Required Minimum Distributions (RMDs) after we turn 70.5 and push us into much higher taxable income territory.
Our living expenses for our gap years are projected off a base of around $60,000 per year in today’s dollars, adjusted for inflation. This $60,000 annual living budget includes $12,000 for anticipated health insurance and out of pocket costs, and also a very healthy $15,000 for travel spending. We are planning on doing a fair amount of travel, both big trips abroad and all over the U.S. Our U.S. travel will involve at least one year or more slow traveling in an RV. Certainly, some years we will spend more and others we will spend less but we think this is a fair anticipated average spend for the two of us on travel.
We will have no mortgage since our mortgage will be paid off in less than 3 1/2 years (that’s goal #1, which we wrote more about here and here). We may eventually rent, buy, or build in another part of the U.S. but we are in no rush to decide about long-term housing. We are generally staying open to new ideas about where we will live during this period. We also choose do not include the value of our current home equity in our progress towards Goals 2 and 3 because we are pretty certain we will use the proceeds when we sell our current home to eventually buy or build a replacement home somewhere else. However, we have assumed we will need a certain amount for utilities, taxes, and insurance but will have no rent or mortgage payments in the long term.
By using this two-phase approach to retirement savings and spending, we will avoid withdrawing any money from our traditional retirement accounts (Goal/Savings Bucket #3) with the exception of converting a little pre-tax money into tax-free money in the aforementioned Roth conversions. Over 8 1/2 years or so, this is ample time for our traditional retirement accounts to reach our target value around age 60 and fund the following 25-30 years of our ‘traditional’ retirement.
If something crazy happens, we certainly could tap into those accounts and pay the taxes plus 10% penalty if needed because we do not like the idea of locking ourselves into the regular periodic payment method and we’ll be retiring from work well before the age 55 loophole as well.
What Will The Rest of 2017 Bring?
The second part of Mrs. Need2Save’s annual bonus will be coming in July. Whatever doesn’t get sucked out for taxes will be directed to our Goal #2 investment fund and we have been looking into opening a Donor-Advised Fund (DAF) for our future charitable giving. (more on that in the future). We will probably fund the DAF partially this year and plan to add to it each year while we are still working to get the greatest tax break possible while our taxable income is it’s highest.
Unfortunately, there will be no more ‘extra’ money coming in this year, with the exception of when both of us hit the Social Security Income cap for the year. Once this happens, we bump up our monthly investment transfers for the remainder of the year.
In way of non-financial projects, we are finally tackling our master bathroom remodel this summer. We will have a future post with before and after pictures with a cost breakdown as well. In addition, Mr. Need2Save is ramping up his training for marathon season this fall! We are also trying to salvage the growing season in the small garden we have. We failed to get the plants we started as seeds to take off and while we were out of town last month, Mrs. Need2Save’s mother planted a few more mature plants for us. We just need to keep them alive! I don’t think this is going to be a banner year as far as yield goes, unfortunately.
We’ve been participating in a gauntlet savings challenge on the Mr.Money Mustache Forums for the 2nd year to save over $100,000 as a couple. Our initial 2017 projection was to save at least $122,000 in 2017 with a stretch goal of $150,000. Through the end of June, we have saved $86,686 which is 71% of our goal. This puts us well over half-way to our stretch goal of $150,000 this year and that feels pretty awesome! If you are not familiar with this and you are interested in seeing how others are doing so far this year, use this link to the beginning of the thread:
How are your 2017 Financial Goals coming along? Have you had to abandon any plans this year? Have you crushed any of your goals and want to brag a little?