Last week we shared some of our overall 2017 Financial and Personal accomplishments. It’s time to dig a little deeper for a quick peek at how we are tracking on our Early Retirement goals.
I think with the crazy market returns this past year, it’s easy to think that we are reaching our goals at a quicker pace than ever. However, we remain conservative in our projected earnings over the next 5 years until we FIRE and beyond until we start withdrawing our Traditional Retirement funds in our 60’s. We know 20% returns are certainly not the norm and a negative period could be around the corner! It’s still valuable to us to see where we are with these quarterly reports.
For a quick recap, our 3 Primary Early Retirement Goals include:
- Paying off our Mortgage!
- Filling up our ‘Gap Years’ savings to live off of until we hit age 60
- Filling up our ‘Traditional Retirement Savings’ to live off of after we hit age 60
For Goals 2 (Gap Years) and 3 (Traditional Retirement), we like to track based on the number of years worth of living expenses we have saved for. Of course there are dollars behind those years, but time is the precious commodity we are saving for.
Goal 1: Paying off the Mortgage
As we shared last week, we knocked almost $65,000 off our Mortgage Principal in 2017! We still paid almost $6,500 in Interest – boo. Once upon a time, we paid over $20k a year in interest and as recent as 2013, we were paying over $11,000 in interest annually so we’ve come along way in taking away interest revenue from the bank!
After our January payment is processed, we’ll be under the $200k mark!
For fun, I graphed the interest we’ve paid since our most recent refinance in 2012 and the projected payments through our final payoff in late 2020.
Quick note about tax reform. During the period of this graph, our mortgage interest did not garner us a full tax reduction due to hitting the Pease Limits since 2014. However, now that our interest is so low and with the changes to the standard deductions for 2018 – we are unlikely to itemize going forward. I imagine many of you are in the same situation. Our interest payments (and our SALT taxes for that matter), have no additional value to us in reducing our income taxes. I have mixed emotions about it. Should this make home owners want to accelerate loan payoff quicker? The good news is that if we stay the course, we will reduce interest paid over this period by over $40,000.
Goal 2: Filling up our Gap Years
We are intentionally saving additional funds outside of our Traditional Retirement accounts (401k and IRAs) so we can live comfortably without tapping into those funds before we turn age 60 (the Gap Years). We will be using that time to convert some of our pre-tax retirement money into tax-free retirement income through Roth Conversions. We may occasionally also work for money which we hopefully will funnel right into Roth IRAs if we don’t need the earnings at the time. When we started 2017, we were the furthest behind in this goal specifically – but we made some great progress this year. We added approximately 2.5 years of living expenses between new contributions and growth/earnings on these accounts.
We still have the furthest to go on this goal, to fill up our accounts before FIRE. We should be able to save one year’s living expenses each of the next five years, plus a little more if our bonuses are bigger, so we are confident we will hit our goal. This will allow us to avoid withdrawing any of our Traditional Retirement savings before age 60 except those we do for tax mitigation purposes through Roth Conversions. That’s more of shifting of account balances rather than actual withdrawing to live on.
Goal 3: Fill up our Traditional Retirement Savings Accounts
When you compare the end of 2017 to the beginning of the year, we made tremendous progress towards filling up our Traditional Retirement savings. Since, we added about $36,000 of our own money (new 401k deposits) and our employers contributed another $13,000 or so, the rest of this progress is investment returns/increases in value. Wow!
Although there is a lot of debate regarding paying off your mortgage, the end is so close that we are pushing hard to payoff our last remaining debt. Our current house has certainly not turned out to be a great investment, but the proceeds from this house should easily completely cover our housing needs in the future.
We are making great progress towards our Gap Years and Traditional Retirement goals. We detail the FIRE numbers behind these goals in our Numbers Game Part One and Part Two posts. Just a few years ago we thought that ‘early retirement’ would happen when we turned 58. Even if we get modest (5% to 6%) market gains over the next few years, we should be able to exit the 9-to-5 world in about five years at age 50. It’s amazing what you can accomplish when you focus on a goal… and 20% market returns don’t hurt either!
Do you have ‘FIRE’ numbers?
If so, how is your progress going?
Once you reach Financial Independence (FI), do you plan on Retiring Early (RE)?